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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 ~~September~~March 3031, ~~2022~~2023

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

Commission file number 001-38317

Luther Burbank Corporation

(Exact name of registrant as specified in its charter)


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

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

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

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

Title of Each Class

Trading Symbol

Name of Each Exchange on Which Registered

Common stock, no par value

LBC

The Nasdaq Stock Market LLC

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

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

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

Large accelerated filer o Accelerated filer ☒ Non-accelerated filer o 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 ~~October~~May 311, ~~2022~~2023, there were 51,~~074~~027,~~605~~878 shares of the registrant’s common stock, no par value, outstanding.

Table of Contents

		Page
	PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements	4
	Consolidated Statements of Financial Condition	4
	Unaudited Consolidated Statements of Income	5
	Unaudited Consolidated Statements of Comprehensive Income	6
	Unaudited Consolidated Statements of Changes in Stockholders' Equity	7
	Unaudited Consolidated Statements of Cash Flows	98
	Notes to Unaudited Consolidated Financial Statements	109
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	3537
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	6061
Item 4.	Controls and Procedures	6364
	PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	6466
Item 1A.	Risk Factors	6466
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	6466
Item 3.	Defaults Upon Senior Securities	6467
Item 4.	Mine Safety Disclosures	6467
Item 5.	Other Information	6467
Item 6.	Exhibits	6567
	Signatures	6668

Table of Contents

Cautionary Statements Regarding Forward-Looking Information

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

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

•~~business~~interest ~~and~~rate, liquidity, economic, ~~conditions~~market, ~~generally and in the financial services industry~~credit, ~~nationally~~operational and ~~within~~inflation ~~our~~risks ~~current~~associated ~~and~~with ~~future~~our ~~geographic~~business ~~markets~~or industry, including the ~~tight~~speed ~~labor~~and ~~market,~~predictability ~~supply~~of ~~chain~~changes ~~disruptions, or turbulence~~ in ~~domestic~~these ~~or foreign financial markets~~risks;

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

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

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

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

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

•~~the~~our ~~fiscal~~access ~~position~~to ofadequate ~~the~~sources ~~U.S. and the soundness~~ of ~~other financial institutions~~liquidity;

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

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

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

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

•increased competition in the financial services industry;

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

•~~our~~the ~~involvement~~adequacy ~~from~~of ~~time~~our toallowance ~~time~~for incredit ~~legal proceedings and examinations and remedial actions by regulators~~losses;

•~~the~~our ~~composition~~management of risks inherent in our ~~management~~real ~~team~~estate ~~and~~loan ~~our~~portfolio, ~~ability~~including tothe ~~attract~~seasoning of the portfolio, the level of non-conforming loans, the number of large borrowers, and ~~retain~~the ~~key~~risk ~~personnel~~of a prolonged downturn in the real estate market;

•~~material~~significant ~~weaknesses~~market concentrations in ~~our~~California ~~internal~~and ~~control over financial reporting~~Washington;

•~~systems~~the ~~failures~~occurrence of significant natural or ~~interruptions~~man-made ~~involving~~disasters ~~our~~(including ~~information~~fires, ~~technology~~earthquakes and ~~telecommunications~~terrorist ~~systems~~acts), severe weather events, health crises and other catastrophic events;

•~~potential~~climate ~~exposure~~change, toincluding ~~fraud~~any enhanced regulatory, ~~negligence~~compliance, ~~data~~credit ~~breaches,~~and ~~computer~~reputational ~~theft~~risks and ~~cyber-crime~~costs;

•~~failure~~political toinstability ~~adequately~~or ~~manage~~the effects of war or other conflicts, including, but not limited to, the ~~transition~~current ~~from~~conflict ~~LIBOR~~between Russia and Ukraine, as awell ~~reference~~as ~~rate~~the civil unrest in Sudan;

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

•~~political~~the ~~instability~~impact orthat the ~~effects~~announced ofmerger ~~war~~may orhave ~~other~~on ~~conflicts,~~our ~~including,~~ability ~~but~~to ~~not~~attract ~~limited~~and toretain customers and key personnel, the ~~current~~value ~~conflict~~of ~~between~~our ~~Russia~~shares, our expenses, and/or ~~Ukraine;~~our ability to conduct our business in the ordinary course and execute on our strategies;

•the performance of our third-party vendors;

•fraud, financial crimes and fund transfer errors;

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

•rapid technological changes in the financial services industry;

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•~~public~~any ~~health~~inadequacy ~~crises and pandemics, including the COVID-19 pandemic, and their effects on the economic and business environments~~ in ~~which we operate, including on~~ our ~~credit~~risk ~~quality~~management ~~and~~framework ~~business~~or ~~operations,~~use asof ~~well~~data ~~as the impact on general economic~~ and/or ~~financial market conditions.~~ models;

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

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

•increased competition in the financial services industry; and

•changes in our reputation.

The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in our annual report on Form 10-K for the year ended December 31, 2022, including under the caption “Risk Factors” in Item 1A of Part I, subsequent Quarterly Reports on Form 10-Q, and other reports or filings with the Securities and Exchange Commission ("SEC"). You should not place undue reliance on any of these forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.

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PART I.

Item 1. Financial Statements

LUTHER BURBANK CORPORATION

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(Dollar amounts in thousands)

	September 30,2022 (unaudited)		December 31,2021
	March 31,2023 (unaudited)		December 31,2022
ASSETS
Cash and cash equivalents	$	~~256~~516,~~658~~913	$	~~138~~185,~~413~~895
Available for sale debt securities, at fair value	~~640~~593,~~473~~427		~~647~~607,~~317~~348
Held to maturity debt securities, at amortized cost (fair value of $2,845 and $4,018 at September 30, 2022 and December 31, 2021, respectively)	3,135		3,829
Held to maturity debt securities, at amortized cost (fair value of $2,891 and $2,874 at March 31, 2023 and December 31, 2022, respectively)	3,080		3,108
Equity securities, at fair value	10,~~317~~506		1110,~~693~~340
Loans receivable, net of allowance for loan losses of $36,035 and $35,535 at September 30, 2022 and December 31, 2021, respectively	6,818,420		6,261,885
Loans receivable, net of allowance for credit losses ("ACL") on loans of $35,914 and $36,685 at March 31, 2023 and December 31, 2022, respectively	6,987,565		6,973,760
Accrued interest receivable	2123,~~011~~873		1724,~~761~~306
Federal Home Loan Bank ("FHLB") stock, at cost	3246,~~694~~007		2332,~~411~~694
Premises and equipment, net	1413,~~260~~333		1613,~~090~~661
Goodwill	3,297		3,297
Prepaid expenses and other assets	~~121~~104,~~319~~456		56120,~~261~~223
Total assets	$	78,~~921~~302,~~584~~457	$	7,~~179~~974,~~957~~632
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits	$	5,~~794~~649,~~380~~494	$	5,~~538~~839,~~243~~340
FHLB advances	1,~~201~~701,647		~~751~~1,~~647~~208,147
Junior subordinated deferrable interest debentures	61,857		61,857
Senior debt
$95,000 face amount, 6.5% interest rate, due September 30, 2024 (less debt issuance costs of $246 and $338 at September 30, 2022 and December 31, 2021, respectively)	94,754		94,662
$95,000 face amount, 6.5% interest rate, due September 30, 2024 (less debt issuance costs of $184 and $215 at March 31, 2023 and December 31, 2022, respectively)	94,816		94,785
Accrued interest payable	~~950~~7,430		~~118~~3,964
Other liabilities and accrued expenses	91,~~327~~052		6484,~~297~~003
Total liabilities	7,~~244~~606,~~915~~296		67,~~510~~292,~~824~~096
Commitments and contingencies (Note 16)
Commitments and contingencies (Note 17)
Stockholders' equity:
Preferred stock, no par value; 5,000,000 shares authorized; none issued and outstanding at September 30, 2022 and December 31, 2021, respectively	—		—
Preferred stock, no par value; 5,000,000 shares authorized; none issued and outstanding at March 31, 2023 and December 31, 2022, respectively	—		—
Common stock, no par value; 100,000,000 shares authorized; 51,074,605 and 51,682,398 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively	398,325		406,904
Common stock, no par value; 100,000,000 shares authorized; 51,030,877 and 51,073,272 shares issued and outstanding at March 31, 2023 and December 31, 2022, respectively	398,363		398,988
Retained earnings	~~310~~331,~~160~~069		~~262~~317,~~141~~711
Accumulated other comprehensive (loss) income, net of taxes	(31,816)		88
Accumulated other comprehensive loss, net of taxes	(33,271)		(34,163)
Total stockholders' equity	~~676~~696,~~669~~161		~~669~~682,~~133~~536
Total liabilities and stockholders' equity	$	78,~~921~~302,~~584~~457	$	7,~~179~~974,~~957~~632

See accompanying notes to unaudited consolidated financial statements

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LUTHER BURBANK CORPORATION

CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)

(Dollar amounts in thousands, except per share data)

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

2022

2021

2022

2021

2023

2022

Interest and fee income:

Loans

6274,~~366~~604

5553,~~757~~633

~~172,911~~

~~164,006~~

Investment securities

45,~~127~~488

2,~~213~~301

~~9,290~~

~~6,287~~

Cash, cash equivalents and restricted cash

547

812

162

Cash and cash equivalents

3,303

Total interest and fee income

6783,~~040~~395

5856,~~048~~000

~~183,013~~

~~170,455~~

Interest expense:

Deposits

1437,~~085~~607

76,~~535~~020

~~27,018~~

~~28,890~~

FHLB advances

59,~~346~~262

3,~~573~~097

~~12,071~~

~~11,345~~

Junior subordinated deferrable interest debentures

~~560~~966

~~250~~275

~~1,220~~

~~763~~

Senior debt

1,~~575~~574

1,574

~~4,724~~

~~4,723~~

Total interest expense

2149,~~566~~409

1210,~~932~~966

~~45,033~~

~~45,721~~

Net interest income before provision for loan losses

45,474

45,116

137,980

124,734

Net interest income before provision for credit losses

33,986

45,034

Provision for (reversal of) loan losses

500

(4,000)

500

(9,000)

Reversal of provision for credit losses

(795)

(2,500)

Net interest income after provision for loan losses

44,974

49,116

137,480

133,734

Net interest income after provision for credit losses

34,781

47,534

Noninterest income:

FHLB dividends

~~363~~577

~~407~~354

~~1,059~~

~~1,145~~

Other income

~~(94)~~658

24(296)

~~(370)~~

~~105~~

Total noninterest income

~~269~~1,235

~~431~~58

~~689~~

~~1,250~~

Noninterest expense:

Compensation and related benefits

810,~~857~~671

910,~~596~~219

~~26,146~~

~~28,617~~

Deposit insurance premium

~~508~~884

~~492~~481

~~1,468~~

~~1,431~~

Professional and regulatory fees

~~639~~436

~~445~~539

~~1,812~~

~~1,543~~

Occupancy

1,~~199~~184

1,~~263~~194

~~3,590~~

~~3,735~~

Depreciation and amortization

~~806~~649

~~625~~603

~~2,155~~

~~1,958~~

Data processing

~~1,044~~862

~~883~~988

~~3,039~~

~~2,729~~

Marketing

~~1,211~~739

~~380~~458

~~2,194~~

~~907~~

Other expenses

1,~~112~~509

~~951~~1,030

~~3,809~~

~~2,999~~

Total noninterest expense

1516,~~376~~934

1415,~~635~~512

~~44,213~~

~~43,919~~

Income before provision for income taxes

2919,~~867~~082

3432,~~912~~080

~~93,956~~

~~91,065~~

Provision for income taxes

85,~~865~~640

109,~~169~~140

~~27,447~~

~~26,695~~

Net income

2113,~~002~~442

2422,~~743~~940

~~66,509~~

~~64,370~~

Basic earnings per common share

0.4126

0.4845

~~1.31~~

~~1.25~~

Diluted earnings per common share

0.4126

0.4845

~~1.30~~

~~1.24~~

Dividends per common share

~~0.12~~—

0.12

~~0.36~~

~~0.24~~

See accompanying notes to unaudited consolidated financial statements

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LUTHER BURBANK CORPORATION

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)

(Dollar amounts in thousands)

	Three Months Ended September 30,				Nine Months Ended September 30,
	Three Months Ended March 31,
	2022		2021		2022		2021
	2023		2022
Net income	$	2113,~~002~~442	$	2422,~~743~~940	$	~~66,509~~	$	~~64,370~~
Other comprehensive loss:
Other comprehensive income (loss):
Unrealized loss on available for sale debt securities:
Unrealized gain (loss) on available for sale debt securities:
Unrealized holding loss arising during the period	(14,855)		(2,482)		(44,970)		(5,785)
Unrealized holding gain (loss) arising during the period	1,257		(16,965)
Tax effect	~~4,334~~(365)		~~722~~4,919		~~13,066~~		~~1,681~~
Total other comprehensive loss, net of tax	(10,521)		(1,760)		(31,904)		(4,104)
Total other comprehensive income (loss), net of tax	892		(12,046)
Comprehensive income	$	1014,~~481~~334	$	2210,~~983~~894	$	~~34,605~~	$	~~60,266~~

See accompanying notes to unaudited consolidated financial statements

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LUTHER BURBANK CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THE THREE MONTHS ENDED ~~SEPTEMBER~~MARCH 3031, ~~2022~~2023 AND ~~2021~~2022 (UNAUDITED)

(Dollar amounts in thousands, except per share data)

						Accumulated Other Comprehensive Income (Loss) (Net of Taxes)		Total Stockholders' Equity
	Common Stock			Retained Earnings		Available for Sale Securities
	Shares	Amount
Balance, June 30, 2021	51,861,704	$	407,860	$	226,446	$	4,393		$	638,699
Balance, December 31, 2021	51,682,398	$	406,904	$	262,141	$	88		$	669,133
Net income	—	—		2422,~~743~~940		—			2422,~~743~~940
Other comprehensive loss	—	—		—		(112,~~760~~046)			(112,~~760~~046)
Restricted stock forfeitures	(1,332)	(5)		—		—			(5)
Restricted stock award grants	206,675	—		—		—			—
Stock based compensation expense	—	650		—		—			650
Settled restricted stock units	6,759	—		—		—			—
Shares repurchased	(177,768)	(2,174)		—		—			(2,174)
Shares withheld to pay taxes on stock based compensation	(62,422)	(875)		—		—			(875)
Cash dividends ($0.12 per share)	—	—		(6,217)		—			(6,217)
Restricted stock forfeitures	(4,100)	(4)		2		—			(2)
Balance, September 30, 2021	51,682,604	$	406,331	$	244,972	$	2,633		$	653,936
Stock based compensation expense	—	714		—		—			714
Balance, June 30, 2022	51,063,498	$	397,620	$	295,297	$	(21,295)		$	671,622
Shares repurchased	(425,396)	(5,637)		—		—			(5,637)
Net income	—	—		21,002		—			21,002
Cash dividends ($0.12 per share)	—	—		(6,227)		—			(6,227)
Other comprehensive loss	—	—		—		(10,521)			(10,521)
Balance, March 31, 2022	51,403,914	$	401,102	$	278,856	$	(11,958)		$	668,000
Restricted stock award grants	11,373	—		—		—			—
Balance, December 31, 2022	51,073,272	$	398,988	$	317,711	$	(34,163)		$	682,536
Settled restricted stock units	3,502	—		—		—			—
Cumulative effect of change in accounting principal (1)	—	—		(84)		—			(84)
Shares withheld to pay taxes on stock based compensation	(3,768)	(51)		—		—			(51)
Net income	—	—		13,442		—			13,442
Stock based compensation expense	—	756		—		—			756
Other comprehensive income	—	—		—		892			892
Cash dividends ($0.12 per share)	—	—		(6,139)		—			(6,139)
Restricted stock award grants	42,034	—		—		—			—
Balance, September 30, 2022	51,074,605	$	398,325	$	310,160	$	(31,816)		$	676,669
Settled restricted stock units	15,426	—		—		—			—
Shares withheld to pay taxes on stock based compensation	(99,855)	(1,098)		—		—			(1,098)
Stock based compensation expense	—	473		—		—			473
Balance, March 31, 2023	51,030,877	$	398,363	$	331,069	$	(33,271)		$	696,161
(1) Represents the impact of the adoption of Accounting Standards Update ("ASU") 2016-13, Financial Instruments – Credit Losses (ASC 326): Measurement of Credit Losses on Financial Instruments, and the related amendments which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss ("CECL") methodology.

See accompanying notes to unaudited consolidated financial statements

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LUTHER BURBANK CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY

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

(Dollar amounts in thousands, except per share data)

						Accumulated Other Comprehensive Income (Loss) (Net of Taxes)		Total Stockholders' Equity
	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	—	—		64,370		—			64,370
Other comprehensive loss	—	—		—		(4,104)			(4,104)
Restricted stock award grants	289,473	—		—		—			—
Settled restricted stock units	68,873	—		—		—			—
Shares withheld to pay taxes on stock based compensation	(85,825)	(901)		—		—			(901)
Restricted stock forfeitures	(54,130)	(72)		14		—			(58)
Stock based compensation expense	—	1,952		—		—			1,952
Shares repurchased	(756,053)	(8,768)		—		—			(8,768)
Cash dividends ($0.24 per share)	—	—		(12,246)		—			(12,246)
Balance, September 30, 2021	51,682,604	$	406,331	$	244,972	$	2,633		$	653,936
Balance, December 31, 2021	51,682,398	$	406,904	$	262,141	$	88		$	669,133
Net income	—	—		66,509		—			66,509
Other comprehensive loss	—	—		—		(31,904)			(31,904)
Restricted stock award grants	218,048	—		—		—			—
Settled restricted stock units	10,261	—		—		—			—
Shares withheld to pay taxes on stock based compensation	(66,190)	(926)		—		—			(926)
Restricted stock forfeitures	(37,839)	(71)		14		—			(57)
Stock based compensation expense	—	2,152		—		—			2,152
Shares repurchased	(732,073)	(9,734)		—		—			(9,734)
Cash dividends ($0.36 per share)	—	—		(18,504)		—			(18,504)
Balance, September 30, 2022	51,074,605	$	398,325	$	310,160	$	(31,816)		$	676,669

See accompanying notes to unaudited consolidated financial statements

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LUTHER BURBANK CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

(Dollar amounts in thousands)

	Nine Months Ended September 30,
	Three Months Ended March 31,
	2022		2021
	2023		2022
Cash flows from operating activities:
Net income	$	6613,~~509~~442	$	6422,~~370~~940
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	~~2,155~~649		~~1,958~~603
Provision for (reversal of) loan losses	500		(9,000)
Reversal of provision for credit losses	(795)		(2,500)
Amortization of deferred loan costs, net	111,~~173~~373		154,~~035~~792
Amortization of premiums on investment securities, net	~~552~~1		~~1,698~~337
Stock based compensation expense, net of forfeitures	~~2,081~~473		~~1,880~~710
Change in fair value of mortgage servicing rights	~~190~~19		~~639~~104
Change in fair value of equity securities	~~1,376~~(166)		~~233~~577
Other items, net	~~217~~(31)		~~125~~44
Effect of changes in:
Accrued interest receivable	~~(3,250)~~433		(94253)
Accrued interest payable	~~832~~3,466		~~(1,211)~~35
Prepaid expenses and other assets	~~(12~~5,~~653)~~652		(14,~~920)~~293
Other liabilities and accrued expenses	11(8,~~483~~757)		113,~~804~~140
Net cash provided by operating activities	8115,~~165~~759		8534,~~517~~822
Cash flows from investing activities:
Proceeds from maturities, paydowns and calls of available for sale debt securities	~~108~~15,~~908~~178		~~109~~38,~~718~~296
Proceeds from maturities and paydowns of held to maturity debt securities	~~684~~27		~~3,234~~29
Purchases of available for sale debt securities	~~(147,578)~~—		(~~176~~33,~~200~~140)
Net increase in loans receivable	(592,313)		(31,251)
Net decrease (increase) in loans receivable	11,132		(81,469)
Proceeds from sale of loans	—		1,731
(Purchase) redemption of FHLB stock, net	(13,313)		848
Purchase of loans, including discounts/premiums	—		(286,917)
Purchase of premises and equipment	(321)		(103)
(Purchase) redemption of FHLB stock, net	(9,283)		1,711
Net cash provided by (used in) investing activities	12,703		(75,539)
Purchase of premises and equipment	(325)		(191)
Net cash used in investing activities	(639,907)		(378,165)
Cash flows from financing activities:
Net increase in deposits	256,137		322,827
Net (decrease) increase in deposits	(189,846)		63,004
Proceeds from long-term FHLB advances	~~350~~450,000		~~350~~100,000
Repayment of long-term FHLB advances	(~~100~~50,000)		(~~405,~~100,000)
Net change in short-term FHLB advances	~~200~~93,~~000~~500		—
Shares withheld for taxes on vested restricted stock	(~~926~~1,098)		(~~901~~875)
Shares repurchased	~~(9,734)~~—		(85,~~768~~637)
Cash paid for dividends	~~(18,490)~~—		(126,~~232~~225)
Net cash provided by financing activities	~~676~~302,~~987~~556		~~245~~50,~~826~~267
Increase (decrease) in cash, cash equivalents and restricted cash	118,245		(46,822)
Increase in cash and cash equivalents	331,018		9,550
Cash, cash equivalents and restricted cash, beginning of period	138,413		178,861
Cash and cash equivalents, beginning of period	185,895		138,413
Cash, cash equivalents and restricted cash, end of period	$	256,658	$	132,039
Cash and cash equivalents, end of period	$	516,913	$	147,963
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest	$	4445,~~201~~943	$	4610,~~932~~931
Income taxes	$	~~21,987~~11	$	~~25,901~~6
Supplemental non-cash disclosures:
Lease liabilities arising from obtaining right-of-use assets	$	~~15,707~~—	$	—16,255
Non-cash investing activity:
Loans transferred to held for sale	$	—	$	1,706

See accompanying notes to unaudited consolidated financial statements

Table of Contents

LUTHER BURBANK CORPORATION

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.NATURE OF OPERATIONS

Organization

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

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

On November 13, 2022, the Company entered into an Agreement and Plan of Reorganization (the “Merger Agreement”) with Washington Federal, Inc. (“WAFD”), pursuant to which the Company will merge with and into WAFD (the “Corporate Merger”), with WAFD surviving the Corporate Merger. Promptly following the Corporate Merger, the Company’s wholly-owned bank subsidiary, Luther Burbank Savings, will be merged with and into Washington Federal Bank, dba WaFd Bank, the wholly-owned bank subsidiary of WAFD (“WAFD Bank”), with WAFD Bank as the surviving institution. Closing of the transaction, which is expected to occur in 2023, is contingent upon shareholder approval and receipt of all necessary regulatory approvals, along with the satisfaction of other customary closing conditions.

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all footnotes as would be necessary for a fair presentation of financial position, results of operations and comprehensive income, changes in stockholders’ equity and cash flows in conformity with accounting principles generally accepted in the United States of America (“GAAP”). However, these interim unaudited consolidated financial statements reflect all adjustments (consisting solely of normal recurring adjustments and accruals) which, in the opinion of management, are necessary for a fair presentation of financial position, results of operations and comprehensive income, changes in stockholders’ equity and cash flows for the interim periods presented. These unaudited consolidated financial statements have been prepared on a basis consistent with, and should be read in conjunction with, the audited consolidated financial statements as of and for the year ended December 31, ~~2021~~2022, and the notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 filed with the Securities and Exchange Commission (the “SEC”), under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”). The unaudited consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated.

The results of operations for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2022~~2023 are not necessarily indicative of the results of operations that may be expected for any other interim period or for the year ending December 31, ~~2022~~2023.

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

Use of Estimates

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

Earnings Per Share ("EPS")

Basic earnings per common share represents the amount of earnings for the period available to each share of common stock outstanding during the reporting period. Basic EPS is computed based upon net income divided by the weighted average number of common shares outstanding during the 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 ~~September~~March 3031,				~~Nine Months Ended September 30,~~
	2022		2021		2022		2021
	2023		2022
Net income	$	2113,~~002~~442	$	2422,~~743~~940	$	~~66,509~~	$	~~64,370~~
Weighted average basic common shares outstanding	50,~~738~~871,~~479~~173		51,~~333~~337,~~283~~488		~~50,956,972~~		~~51,680,782~~
Add: Dilutive effects of assumed vesting of restricted stock	~~155~~32,~~079~~272		~~211~~76,~~630~~931		~~114,774~~		~~153,980~~
Weighted average diluted common shares outstanding	50,~~893~~903,~~558~~445		51,~~544~~414,~~913~~419		~~51,071,746~~		~~51,834,762~~
Income per common share:
Basic EPS	$	0.4126	$	0.4845	$	~~1.31~~	$	~~1.25~~
Diluted EPS	$	0.4126	$	0.4845	$	~~1.30~~	$	~~1.24~~
Anti-dilutive shares not included in calculation of diluted earnings per share	—19,913		—20		~~2,493~~		~~6,291~~

~~Adoption~~Recently ofAdopted ~~New~~ Financial Accounting Standards

FASB ASU 2016-13

InOn ~~June~~January ~~2016~~1, 2023, the Company adopted ASU 2016-13, Financial ~~Accounting~~Instruments ~~Standards~~– ~~Board~~Credit Losses (~~"FASB"~~ASC 326) ~~issued~~: ~~guidance~~Measurement toof ~~replace~~Credit Losses on Financial Instruments, which replaces the incurred loss ~~model~~methodology with an expected loss ~~model,~~methodology ~~which~~that is referred to as the ~~current expected credit loss ("~~CECL") ~~model~~methodology. The ~~CECL~~measurement ~~model~~of isexpected ~~applicable~~losses tounder the ~~measurement~~CECL ofmethodology ~~credit~~is ~~losses~~applicable onto financial assets measured at amortized cost, including ~~loan receivables~~loans, held to maturity (“HTM”) debt securities and off-balance sheet exposures (loan commitments, financial guarantees, standby letters of credit and ~~reinsurance~~other ~~receivables~~similar instruments). ItIn ~~also~~addition, ~~applies~~CECL tomodifies ~~off~~the other-~~balance~~than-temporary ~~sheet~~impairment ~~credit~~("OTTI") ~~exposures~~model ~~not~~for ~~accounted~~available for assale ~~insurance~~ (~~loan~~“AFS”) ~~commitments,~~debt ~~standby~~securities ~~letters~~to ofrequire an allowance for credit, ~~financial~~losses ~~guarantees~~instead of a direct write down, ~~and~~which ~~other~~allows ~~similar~~for ~~instruments)~~reversal ~~and~~of ~~net~~credit ~~investments~~losses in ~~leases~~future ~~recognized~~periods bybased aon ~~lessor~~improvements in credit quality. ~~The~~As ~~transition~~permitted ~~will~~under beASC ~~applied~~326, asthe ~~follows:~~Company elected to maintain the same loan segments that it previously identified prior to adoption of CECL.

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

- Existing purchased credit impaired ("PCI") assets will be grandfathered and classified as purchased credit deteriorated ("PCD") assets at the date of adoption. The assets will be grossed up for the allowance for expected credit losses for all PCD assets at the date of adoption and will continue to recognize the noncredit discount in interest income based on the yield of such assets as of the adoption date. Subsequent changes in expected credit losses will be recorded through the allowance. 10

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

~~These~~The ~~amendments~~following ~~are~~table ~~effective~~illustrates ~~for~~the ~~PBEs~~impact ~~that~~on ~~are~~the ~~SEC~~ACL ~~filers~~due ~~for~~to ~~annual periods and interim periods within those annual periods beginning after December 15, 2019. As an emerging growth company,~~ the Company’s ~~expects~~transition tofrom ~~adopt~~the ~~this~~incurred ~~guidance~~loss onmethodology ~~January 1, 2023. We expect~~ to ~~recognize a one-time cumulative effect adjustment to~~ the ~~allowance~~CECL ~~for~~methodology ~~loan losses~~ as of ~~the~~January ~~beginning~~1, ~~of the first reporting period in which the new standard is effective.~~ 2023:


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

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

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

Allowance for Credit Losses on Loans

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

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

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

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

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~~Through~~loss ~~September~~than ~~30,~~other ~~2022,~~real ~~CECL~~estate ~~implementation activities have generally focused on capturing and validating loan data, segmenting the loan~~ portfolio, ~~evaluating credit loss methodologies and models, evaluating model results and sensitivities and completing a third party model validation~~segments. InEconomic ~~determining~~trends andetermined ~~expected~~by ~~allowance~~unemployment ~~under~~rates ~~CECL, the Company has selected a credit loss model that utilizes an approach focused on a loan's probability of default~~ and ~~loss~~other ~~given~~key ~~default. As~~economic ~~part~~indicators ofare ~~the~~closely ~~process~~correlated to ~~test and refine our CECL model,~~ the ~~Company~~credit ~~has~~quality ~~completed quarterly model runs for analysis and backtesting purposes starting with the third quarter~~ of ~~2018.~~these ~~This process has been on-going and will continue until our adoption date~~loans. ~~Continuing~~Weak ~~implementation~~economic ~~activities~~trends ~~include~~indicate ~~refining qualitative factor adjustments, finalizing policies and disclosures and evaluating, documenting and testing internal controls. We estimate~~ that the ~~adoption~~borrowers’ ofcapacity ~~the~~to ~~CECL~~repay ~~standard~~their ~~would~~obligations ~~not~~may ~~currently result in a material change in our allowance for credit losses, which, if necessary, will~~ be ~~recorded as a cumulative-effect adjustment to retained earnings, net of tax as of January 1, 2023~~deteriorating. ~~The ultimate impact will depend on the portfolio and forecasts when the standard is adopted.~~

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

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

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

•Changes in the nature and volume of loans;

•Changes in economic conditions and forecasts;

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

•The existence and effect of loan concentrations;

•Changes in lending policies and procedures;

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

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

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

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

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

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Allowance for Credit Losses on Off-Balance Sheet Credit Exposures

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

Allowance for Credit Losses on Held to Maturity Securities

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

Allowance for Credit Losses on Available for Sale Securities

For AFS investment securities in an unrealized loss position, the Company initially assesses whether it intends to sell, or it is more likely than not that it will be required to sell, the security before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the security’s amortized cost is written down to fair value through income. For AFS investment securities that do not meet this criteria, the Company evaluates whether the decline in fair value has resulted from credit losses or other factors. If a credit loss exists, an allowance for credit loss is recorded to the extent that the fair value is less than the amortized cost basis. Because substantially all of the Company’s AFS investment securities are either explicitly or implicitly guaranteed by U.S. Government entities or its agencies, the Company does not anticipate any credit related losses in this investment portfolio. Any impairment that has not been recorded through an ACL on AFS securities is recognized in other comprehensive income. Changes in the ACL on AFS securities, if any, are recorded in the provision for credit losses in the unaudited consolidated statements of income. Losses are charged against the ACL when management believes the uncollectibility of an AFS security is confirmed or when either of the criteria regarding intent or requirement to sell is met. Accrued interest receivable on AFS securities is excluded from the estimate of credit losses.

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 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. The Company adopted this guidance on January 1, 2023, concurrent with its adoption of the CECL standard. The adoption of this standard did not have a material effect on the Company’s operating results or financial condition.

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2. INVESTMENT SECURITIES

Available for Sale

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

(Dollars in thousands)

Amortized Cost

Gross Unrealized Gains

Gross Unrealized Losses

Estimated Fair Value

At September 30, 2022:

At March 31, 2023:

Government and Government Sponsored Entities:

Commercial mortgage backed securities ("MBS") and collateralized mortgage obligations ("CMOs")

~~404~~358,~~141~~558

~~551~~217

(2325,~~840~~050)

~~380~~333,~~852~~725

Residential MBS and CMOs

~~214~~216,~~557~~656

4412

(21,~~060~~125)

~~193~~195,~~541~~543

Agency bonds

3941,~~963~~196

~~210~~88

(84124)

4041,~~089~~160

Other asset backed securities ("ABS")

2623,~~658~~916

—

(~~667~~917)

2522,~~991~~999

Total available for sale debt securities

~~685~~640,~~319~~326

~~805~~317

(4547,~~651~~216)

~~640~~593,~~473~~427

At December 31, 2021:

At December 31, 2022:

Government and Government Sponsored Entities:

Commercial MBS and CMOs

~~407~~365,~~111~~207

~~3,281~~265

(224,~~646~~736)

~~407~~340,~~746~~736

Residential MBS and CMOs

~~200~~221,~~775~~994

~~1,225~~22

(122,~~867~~632)

~~200~~199,~~133~~384

Agency bonds

1042,~~587~~540

~~244~~189

—(99)

1042,~~831~~630

Other ABS

2825,~~720~~763

37—

(~~150~~1,165)

2824,~~607~~598

Total available for sale debt securities

~~647~~655,~~193~~504

~~4,787~~476

(448,~~663~~632)

~~647~~607,~~317~~348

Net unrealized ~~gains (~~losses) on available for sale investment securities are recorded as accumulated other comprehensive ~~income (~~loss) within stockholders’ equity and totaled $~~(31~~33.8)3 million and $8834.2 ~~thousand~~million, net of $13.06 million and $~~(36)~~14.0 ~~thousand~~million in tax assets ~~(liabilities)~~, at ~~September~~March 3031, ~~2022~~2023 and December 31, ~~2021~~2022, respectively. There were no sales or transfers of available for sale investment securities and no realized gains or losses on these securities during the three ~~or nine~~ months ended ~~September~~March 3031, ~~2022~~2023 or ~~2021~~2022.

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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:

September 30, 2022

March 31, 2023

Less than 12 Months

12 Months or More

Total

(Dollars in thousands)

Fair Value

Unrealized Losses

Fair Value

Unrealized Losses

Fair Value

Unrealized Losses

Government and Government Sponsored Entities:

Commercial MBS and CMOs

~~204~~146,~~498~~394

(72,~~168~~205)

99150,~~631~~521

(1622,~~672~~845)

~~304~~296,~~129~~915

(2325,~~840~~050)

Residential MBS and CMOs

~~125~~69,~~321~~012

(92,~~554~~781)

62121,~~127~~213

(1118,~~506~~344)

~~187~~190,~~448~~225

(21,~~060~~125)

Agency bonds

1431,~~846~~218

(84124)

—

1431,~~846~~218

(84124)

Other ABS

~~16,251~~—

~~(378)~~—

922,~~739~~999

(~~289~~917)

2522,~~990~~999

(~~667~~917)

Total available for sale debt securities

~~360~~246,~~916~~624

(175,~~184~~110)

~~171~~294,~~497~~733

(2842,~~467~~106)

~~532~~541,~~413~~357

(4547,~~651~~216)

At ~~September~~March 3031, ~~2022~~2023, the Company held 8958 ~~residential~~commercial MBS and CMOs of which 8251 were in a loss position and ~~nine~~26 had been in a loss position for twelve months or more. The Company held 6089 ~~commercial~~residential MBS and CMOs of which 4686 were in a loss position and 1327 had been in a loss position for twelve months or more. The Company held ~~five~~six agency bonds of which ~~one~~three ~~was~~were in a loss position ~~and~~for ~~none~~less ~~had~~than ~~been in a loss position for~~ twelve months ~~or more~~. The Company held three other ABS of which all three were in a loss position ~~and one had been in a loss position~~ for twelve months or more.

	December 31, 2021
	Less than 12 Months				12 Months or More				Total
(Dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Government and Government Sponsored Entities:
Commercial MBS and CMOs	$	157,031	$	(2,632)	$	10,608	$	(14)	$	167,639	$	(2,646)
Residential MBS and CMOs	118,803		(1,864)		247		(3)		119,050		(1,867)
Other ABS	$	15,253	$	(150)	$	—	$	—	$	15,253	$	(150)
Total available for sale debt securities	$	291,087	$	(4,646)	$	10,855	$	(17)	$	301,942	$	(4,663)

At December 31, 2021, the Company held 88 residential MBS and CMOs of which 14 were in a loss position and 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 September 30, 2022 or December 31, 2021.

As of September 30, 2022 and December 31, 2021, there were no holdings of securities of any one issuer in an amount greater than 10% of stockholders' equity, other than the U.S. government and its agencies.

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

At December 31, 2022, the Company held 58 commercial MBS and CMOs of which 50 were in a loss position and 15 had been in a loss position for twelve months or more. The Company held 90 residential MBS and CMOs of which 86 were in a loss position and 14 had been in a loss position for twelve months or more. The Company held six agency bonds of which one was in a loss position for less than twelve months. The Company held three other ABS of which three were in a loss position and two had been in a loss position for twelve months or more.

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

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

Held to Maturity

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

(Dollars in thousands)	Amortized Cost		Gross Unrecognized Gains		Gross Unrecognized Losses		Estimated Fair Value
As of September 30, 2022:
As of March 31, 2023:
Government Sponsored Entities:
Residential MBS	$	3,~~072~~022	$	—	$	(~~290~~189)	$	2,~~782~~833
Other investments	6358		—		—		6358
Total held to maturity investment securities	$	3,~~135~~080	$	—	$	(~~290~~189)	$	2,~~845~~891
As of December 31, 2021:
As of December 31, 2022:
Government Sponsored Entities:
Residential MBS	$	3,~~761~~047	$	~~189~~—	$	—(234)	$	32,~~950~~813
Other investments	6861		—		—		6861
Total held to maturity investment securities	$	3,~~829~~108	$	~~189~~—	$	—(234)	$	42,~~018~~874

The following table summarizes the gross unrecognized losses and fair value of held to maturity investment securities, aggregated by investment category and length of time that individual securities have ~~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 September 30, 2022:
Government Sponsored Entities:
Residential MBS	$	2,782	$	(290)	$	—	$	—	$	2,782	$	(290)

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

The unrecognized losses on the Company’s held to maturity investments at September 30, 2022 were caused by interest rate changes. In addition, the contractual cash flows of these investments are guaranteed by agencies sponsored by the U.S. government. Accordingly, it is expected that the securities will not be settled at a price less than amortized cost. Because the decline in market value is attributable to changes in interest rates but not credit quality, and because the Company has the ability and intent to hold those investments until maturity, the Company does not consider these investments to be other-than-temporarily impaired at September 30, 2022.

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

	September 30, 2022
(Dollars in thousands)	Amortized Cost		Fair Value
Available for sale debt securities
Five to ten years	$	39,963	$	40,089
MBS, CMOs and other ABS	645,356		600,384
Total available for sale debt securities	$	685,319	$	640,473
Held to maturity investments securities
Five to ten years	$	63	$	63
MBS	3,072		2,782
Total held to maturity debt securities	$	3,135	$	2,845

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~~The~~been 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~~a ~~maturity~~continuous ~~categories~~unrecognized ~~above~~loss ~~and~~position: ~~instead are shown separately. No securities were pledged as of September 30, 2022 or December 31, 2021.~~


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

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

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

The following table summarizes the scheduled maturities of available for sale and held to maturity investment securities as of March 31, 2023:


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


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

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

Equity Securities

Equity securities consist of investments in a qualified community reinvestment fund. At ~~September~~March 3031, ~~2022~~2023 and December 31, ~~2021~~2022, the fair value of equity securities totaled $10.35 million and $1110.73 million, respectively. Changes in fair value are recognized in other noninterest income and totaled $~~(455)~~166 thousand and $(~~1.4~~577) ~~million~~thousand during the three ~~and nine~~ months ended ~~September~~March 3031, ~~2022,~~2023 ~~respectively, compared to $(55) thousand~~ and ~~$(233) thousand during the three and nine months ended September 30~~2022, ~~2021,~~ respectively. There were no sales of ~~equity securities during the three or nine months ended September 30, 2022 or 2021.~~

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

3. LOANS

Loans consist of the following:

(Dollars in thousands)	~~September~~March 3031,~~2022~~2023		December 31,~~2021~~2022
Permanent mortgages on:
Mortgages on:
Multifamily residential	$	4,~~495~~522,~~363~~072	$	4,~~210~~532,~~735~~312
Single family residential	2,~~159~~308,~~384~~485		12,~~881~~283,~~676~~628
Commercial real estate	~~181~~168,~~971~~049		~~187~~172,~~097~~258
Land and construction loans	17,737		17,912
Construction and land	24,873		22,247
Total	67,~~854~~023,~~455~~479		67,~~297~~010,~~420~~445
Allowance for loan losses	(36,035)		(35,535)
Allowance for credit losses on loans	(35,914)		(36,685)
Loans held for investment, net	$	6,818,420	$	6,261,885
Loans, net	$	6,987,565	$	6,973,760

Certain loans have been pledged to secure borrowing arrangements (see Note 89).

15Prior to the Company’s adoption of CECL on January 1, 2023, the Company maintained an allowance for loan losses ("ALLL") in accordance with the probable incurred loss model. The probable incurred loss model was reflective of estimates for loan losses incurred and inherent in the loan portfolio as of the balance sheet date, and did not reflect current estimates of future expected credit losses over the lives of the Company’s loans, as now required by CECL.

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


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

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


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

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

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

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~~The~~management ~~following~~monitors ~~table~~and ~~summarizes~~analyzes ~~activity~~the infinancial condition of borrowers and guarantors, as well as the ~~allocation~~financial performance and/or other characteristics of ~~the~~loan ~~allowance~~collateral. ~~for~~These credit quality indicators are used to assign a risk rating to each individual loan. ~~losses~~The byrisk ~~portfolio~~ratings ~~segment~~can be grouped into six major categories, defined as follows:

(Dollars in thousands)	Multifamily Residential		Single Family Residential		Commercial Real Estate		Land and Construction		Total
Three months ended September 30, 2022
Allowance for loan losses:
Beginning balance allocated to portfolio segments	$	26,007	$	7,625	$	1,673	$	230	$	35,535
Provision for (reversal of) loan losses	197		532		(130)		(99)		500
Charge-offs	—		—		—		—		—
Recoveries	—		—		—		—		—
Ending balance allocated to portfolio segments	$	26,204	$	8,157	$	1,543	$	131	$	36,035
Three months ended September 30, 2021
Allowance for loan losses:
Beginning balance allocated to portfolio segments	$	30,114	$	8,332	$	2,705	$	184	$	41,335
Reversal of provision for loan losses	(2,933)		(747)		(283)		(37)		(4,000)
Charge-offs	—		—		—		—		—
Recoveries	—		—		—		—		—
Ending balance allocated to portfolio segments	$	27,181	$	7,585	$	2,422	$	147	$	37,335
Nine months ended September 30, 2022
Allowance for loan losses:
Beginning balance allocated to portfolio segments	$	26,043	$	7,224	$	2,094	$	174	$	35,535
Provision for (reversal of) loan losses	161		933		(551)		(43)		500
Charge-offs	—		—		—		—		—
Recoveries	—		—		—		—		—
Ending balance allocated to portfolio segments	$	26,204	$	8,157	$	1,543	$	131	$	36,035
Nine months ended September 30, 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	(6,078)		(1,851)		(925)		(146)		(9,000)
Charge-offs	—		—		—		—		—
Recoveries	—		64		—		57		121
Ending balance allocated to portfolio segments	$	27,181	$	7,585	$	2,422	$	147	$	37,335

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

(Dollars in thousands)	Multifamily Residential		Single Family Residential		Commercial Real Estate		Land and Construction		Total
As of September 30, 2022:
Ending allowance balance allocated to:
Loans individually evaluated for impairment	$	—	$	25	$	—	$	—	$	25
Loans collectively evaluated for impairment	26,204		8,132		1,543		131		36,010
Ending balance	$	26,204	$	8,157	$	1,543	$	131	$	36,035
Loans:
Ending balance: individually evaluated for impairment	$	843	$	6,434	$	—	$	—	$	7,277
Ending balance: collectively evaluated for impairment	4,494,520		2,152,950		181,971		17,737		6,847,178
Ending balance	$	4,495,363	$	2,159,384	$	181,971	$	17,737	$	6,854,455
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 that the weaknesses make collection or liquidation in full highly questionable and improbable based on current facts, conditions and values.

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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 September 30, 2022 and December 31, 2021.

(Dollars in thousands)	Multifamily Residential		Single Family Residential		Commercial Real Estate		Land, Construction and NM		Total
As of September 30, 2022:
Grade:
Pass	$	4,442,276	$	2,141,123	$	177,805	$	17,737	$	6,778,941
Watch	32,912		15,274		3,208		—		51,394
Special mention	2,473		—		958		—		3,431
Substandard	17,702		2,987		—		—		20,689
Total	$	4,495,363	$	2,159,384	$	181,971	$	17,737	$	6,854,455
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 September 30, 2022 and December 31, 2021:

(Dollars in thousands)	30 Days		60 Days		90+ Days		Non-accrual		Current		Total
As of September 30, 2022:
Loans:
Multifamily residential	$	—	$	—	$	—	$	843	$	4,494,520	$	4,495,363
Single family residential	—		—		—		2,987		2,156,397		2,159,384
Commercial real estate	—		—		—		—		181,971		181,971
Land and construction	—		—		—		—		17,737		17,737
Total	$	—	$	—	$	—	$	3,830	$	6,850,625	$	6,854,455
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~~presents ~~information~~the ~~related~~internal torisk ~~impaired~~ratings for total loans atby ~~September~~portfolio segment of loan and origination year as of March 3031, ~~2022~~2023, ~~and~~as ~~December~~well as gross charge-offs for the three months ended March 31, ~~2021~~2023:

	As of September 30, 2022												As of December 31, 2021
(Dollars in thousands)	Loans by Origination Year
(Dollars in thousands)	Recorded Investment				Unpaid Principal Balance				Related Allowance				Recorded Investment				Unpaid Principal Balance		Related Allowance
	2023		2022		2021		2020		2019		Prior				Total
With no related allowance recorded:
Multifamily residential
Multifamily residential	$	843			$	919			$	—			$	505			$	582	$	—
Pass	$	23,568	$	1,183,333	$	1,216,122	$	720,962	$	429,745	$	887,435			$	4,461,165
Single family residential	5,623				5,818				—				4,847				5,033		—
Watch	—		691		12,054		4,833		6,358		18,619				42,555
	6,466				6,737				—				5,352				5,615		—
Special Mention	—		—		—		—		1,731		—				1,731
With an allowance recorded:
Substandard	—		—		—		3,584		3,875		9,162				16,621
Single family residential	811				808				25				840				836		25
Total	$	23,568	$	1,184,024	$	1,228,176	$	729,379	$	441,709	$	915,216			$	4,522,072
	811				808				25				840				836		25
Year to date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—			$	—
Total:
Single family residential
Multifamily residential	843				919				—				505				582		—
Pass	$	65,714	$	835,490	$	732,585	$	167,821	$	142,040	$	350,157			$	2,293,807
Single family residential	6,434				6,626				25				5,687				5,869		25
Watch	—		1,418		1,151		—		3,869		6,510				12,948
	$	7,277			$	7,545			$	25			$	6,192			$	6,451	$	25
Special Mention	—		—		—		—		—		—				—
Substandard	—		—		—		—		—		1,730				1,730
Total	$	65,714	$	836,908	$	733,736	$	167,821	$	145,909	$	358,397			$	2,308,485
Year to date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—			$	—
Commercial real estate
Pass	$	—	$	24,186	$	1,942	$	11,607	$	24,216	$	104,546			$	166,497
Watch	—		—		—		—		—		604				604
Special Mention	—		—		—		—		948		—				948
Substandard	—		—		—		—		—		—				—
Total	$	—	$	24,186	$	1,942	$	11,607	$	25,164	$	105,150			$	168,049
Year to date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—			$	—
Construction and land
Pass	$	—	$	6,528	$	18,345	$	—	$	—	$	—			$	24,873
Watch	—		—		—		—		—		—				—
Special Mention	—		—		—		—		—		—				—
Substandard	—		—		—		—		—		—				—
Total	$	—	$	6,528	$	18,345	$	—	$	—	$	—			$	24,873
Year to date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—			$	—
Total loans
Pass	$	89,282	$	2,049,537	$	1,968,994	$	900,390	$	596,001	$	1,342,138			$	6,946,342
Watch	—		2,109		13,205		4,833		10,227		25,733				56,107
Special Mention	—		—		—		—		2,679		—				2,679
Substandard	—		—		—		3,584		3,875		10,892				18,351
Total	$	89,282	$	2,051,646	$	1,982,199	$	908,807	$	612,782	$	1,378,763			$	7,023,479
Year to date gross charge-offs	$	—	$	—	$	—	$	—	$	—	$	—			$	—

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

	Three Months Ended September 30,
	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	$	847	$	13	$	13	$	664	$	8	$	8
Single family residential	6,791		60		32		3,274		32		—
	7,638		73		45		3,938		40		8
With an allowance recorded:
Single family residential	815		7		—		854		6		—
	815		7		—		854		6		—
Total:
Multifamily residential	847		13		13		664		8		8
Single family residential	7,606		67		32		4,128		38		—
	$	8,453	$	80	$	45	$	4,792	$	46	$	8

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	Nine Months Ended September 30,
	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	$	712	$	38	$	38	$	891	$	22	$	22
Single family residential	5,935		140		61		4,781		143		85
	6,647		178		99		5,672		165		107
With an allowance recorded:
Single family residential	825		20		—		863		19		—
	825		20		—		863		19		—
Total:
Multifamily residential	712		38		38		891		22		22
Single family residential	6,760		160		61		5,644		162		85
	$	7,472	$	198	$	99	$	6,535	$	184	$	107

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

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


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









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

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

(Dollars in thousands)	September 30,2022		December 31,2021
Troubled debt restructurings:
Single family residential	$	1,222	$	1,204

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

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


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

~~During~~As ~~the~~of ~~nine~~both ~~months~~March 31, ~~ended~~2023 ~~September~~and December 3031, 2022, ~~the~~there ~~Company~~were ~~modified~~no ~~the~~loans ~~terms of one loan~~ that ~~qualified~~were aspast adue ~~TDR.~~over ~~The~~89 ~~following~~days ~~table~~and ~~provides~~still ~~details~~accruing ofinterest. ~~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

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

Terms of the modification above included suspension of loan payments for six months and a similar extension of the loan term. The TDR above resulted in no increase to the allowance for loan losses and no charge-offs primarily due to collateral support provided by the secondary source of repayment. There were no new TDRs during the three or nine months ended September 30, 2021.


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


Total	$	4,970	$	—	$	—	$	—

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

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



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


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


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


	$	9,890	$	10,141	$	625

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




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


	5,333		51		27
With an allowance recorded:

Single family residential	835		6		—


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


	$	6,168	$	57	$	27

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


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










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

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


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

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

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

The Company had no modified loans with a subsequent payment default within the twelve months following their modification during the quarter ended March 31, 2023. A loan is considered to be in default once it is 90 days contractually past due under the modified terms.

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


(Dollars in thousands)
Troubled debt restructurings:

Single family residential	$	1,211

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

During the 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

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

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4. NONPERFORMING ASSETS

Nonperforming assets include nonperforming loans plus real estate owned. The ~~Company’s~~following ~~nonperforming~~table ~~assets~~presents atthe ~~September 30,~~composition ~~2022~~of ~~and~~non-accrual ~~December 31,~~loans ~~2021~~as ~~are~~of the dates indicated below:

(Dollars in thousands)	September 30,2022		December 31,2021
	March 31, 2023				December 31, 2022
Non-accrual loans:
(Dollars in thousands)	Non-Accrual Loans with No ACL		Non-Accrual Loans		Non-Accrual Loans with No ALLL		Non-Accrual Loans
Multifamily residential	$	~~843~~3,504	$	~~505~~3,504	$	3,509	$	3,509
Single family residential	21,~~987~~466		1,~~788~~466		2,962		2,962
Total non-accrual loans	3,830		2,293
Commercial real estate	—		—		—		—
Real estate owned	—		—
Construction and land	—		—		—		—
Total nonperforming assets	$	3,830	$	2,293
Total	$	4,970	$	4,970	$	6,471	$	6,471

~~Interest~~The ~~income~~allowance onfor non-accrual loans is ~~subsequently~~based ~~recognized~~ on athe CECL cash ~~basis~~flow asmethodology ~~long~~discussed asin ~~the~~Note ~~remaining~~1, ~~unpaid~~“Summary ~~principal amount~~ of ~~the~~Significant ~~loans~~Accounting ~~are~~Policies", ~~deemed~~unless ~~to be fully collectible. If there is doubt regarding~~ the ~~collectability of the~~ loan, ~~then~~is ~~any~~considered ~~interest~~collateral ~~payments received are applied to principal~~dependent. ~~Interest~~The ~~income~~allowance ~~was~~for ~~recognized~~collateral ondependent ~~a cash basis on non-accrual~~ loans ~~during~~is ~~the~~determined ~~three~~based and nine months ended September 30, 2022 totaling $45 thousand and $99 thousand, respectively, compared to $8 thousand and $107 thousand during the three and nine months ended September 30, 2021. Contractual interest not recorded on ~~nonperforming loans during~~ the ~~three~~estimated ~~and~~fair ~~nine~~value ~~months~~of ~~ended September 30, 2022 totaled $6 thousand and $30 thousand, respectively, compared to $5 thousand and $21 thousand for~~ the ~~three~~underlying ~~and nine months ended September 30, 2021, respectively~~collateral.

~~Generally,~~Interest ~~nonaccrual~~income on non-accrual loans is subsequently recognized on a cash basis as long as the remaining unpaid principal amount of the loans are ~~considered~~deemed ~~impaired~~to ~~because~~be fully collectible. If there is doubt regarding the ~~repayment~~collectability of the loan, ~~will~~then ~~not~~any beinterest ~~made~~payments inreceived ~~accordance~~are ~~with~~applied to principal. Interest income was recognized on a cash basis on non-accrual loans during the ~~original~~three ~~contractual~~months ~~agreement~~ended March 31, 2023 and 2022 totaling $28 thousand and $27 thousand, respectively. Contractual interest not recorded on nonperforming loans during the three months ended March 31, 2023 and 2022 totaled $118 thousand and $7 thousand, respectively.

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

5. MORTGAGE SERVICING RIGHTS

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

(Dollars in thousands)	~~September~~March 3031,~~2022~~2023		December 31,~~2021~~2022
Mortgage loans serviced for:
Federal Home Loan Mortgage Corporation ("Freddie Mac")	$	8578,~~677~~312	$	~~127~~80,~~431~~478
Other financial institutions	4237,~~770~~220		5837,~~298~~503
Total mortgage loans serviced for others	$	~~128~~115,~~447~~532	$	~~185~~117,~~729~~981

Custodial account balances maintained in connection with serviced loans totaled $1.46 million and $~~5.0~~234 ~~million~~thousand at ~~September~~March 3031, ~~2022~~2023 and December 31, ~~2021~~2022, respectively.

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

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	Three Months Ended September 30,				Nine Months Ended September 30,
	Three Months Ended March 31,
(Dollars in thousands)	~~2022~~2023		~~2021~~2022		~~2022~~		~~2021~~
Beginning balance	$	~~779~~688	$	~~1,192~~915	$	~~915~~	$	~~1,599~~
Additions	—		—		—		—
Disposals	—		—		—		—
Changes in fair value due to changes in assumptions	—		—		—		—
Other changes in fair value	(5419)		(~~232~~104)		~~(190)~~		~~(639)~~
Ending balance	$	~~725~~669	$	~~960~~811	$	~~725~~	$	~~960~~

Fair value as of ~~September~~March 3031, ~~2022~~2023 was determined using a discount rate of 10%, prepayment speeds ranging from 5.14% to 4932.7% and a weighted average default rate of 5%. The weighted average prepayment speed at ~~September~~March 3031, ~~2022~~2023 was 2924.95%. Fair value as of December 31, ~~2021~~2022 was determined using a discount rate of 10%, prepayment speeds ranging from 73.65% to 4832.83% and a weighted average default rate of 5%. The weighted average prepayment speed at December 31, ~~2021~~2022 was 2923.20%.

6. LEASES

The Company leases various office premises under long-term operating lease agreements. These leases expire between 2023 and ~~2030~~2033, with certain leases containing five -year renewal options. The Company includes lease extension options in the lease term if it is reasonably certain the Company will exercise the option, when considering the economic incentive to do so. Leases are classified as operating or finance leases at the lease commencement date. Lease expense for operating leases and short-term leases is recognized on a straight-line basis over the lease term. All of the Company’s leases are classified as operating leases ~~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~~The ~~adoption of the new lease standard on January 1, 2022, the~~ Company ~~recorded~~records operating lease right-of-use assets and operating lease liabilities on the Company's consolidated statements of financial condition. Right-of-use assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of lease payments over the lease term.

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

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Supplemental lease information as of orMarch 31, ~~for~~2023 ~~the three~~ and ~~nine months ended September~~December 3031, 2022 is as follows:

(Dollars in thousands)	~~September~~March 3031, ~~2022~~2023				December 31,2022
Operating lease right-of-use assets included in prepaid expenses and other assets	$	12,~~803~~478			$	13,244
Operating lease liabilities included in other liabilities and accrued expenses	12,~~984~~478				13,316
Weighted average remaining lease term (years) of operating leases	45.80				5.1
Weighted average discount rate of operating leases	2.4773		%	%	2.69		%

(Dollars in thousands)	Three Months Ended September 30, 2022		Nine Months Ended September 30, 2022
Operating lease costs included in occupancy expense	$	911	$	2,750
Cash paid for amounts included in the measurement of operating lease liabilities	1,019		3,071

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

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


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




Operating lease costs included in occupancy expense	$	904	$	929



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

(Dollars in thousands)
October 1 - December 31, 2022	$	979
2023	3,357
2024	2,661
2025	2,238
2026	2,051
Thereafter	2,572
Total undiscounted lease payments	13,858
Less: Imputed interest	(874)
Net lease liabilities	$	12,984

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

7. DEPOSITS


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

A7. QUALIFIED ~~summary~~AFFORDABLE ofHOUSING ~~deposits~~PROJECT ~~at September 30, 2022 and December 31, 2021 is as follows:~~INVESTMENTS

(Dollars in thousands)	September 30, 2022		December 31, 2021
Time deposits	$	2,614,401	$	2,335,141
Money market savings	2,156,210		2,294,367
Money market checking	706,092		580,325
Interest-bearing demand	169,019		176,126
Noninterest-bearing demand	148,658		152,284
Total	$	5,794,380	$	5,538,243

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

The Company had time deposits that met or exceeded the Federal Deposit Insurance Corporation ("FDIC") insurance limit of $250 thousand of $1.1 billion at both September 30, 2022 and December 31, 2021.25

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

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~~Maturities of the Company’s time deposits at September 30, 2022 are summarized as follows:~~8. DEPOSITS

(Dollars in thousands)
October 1 - December 31, 2022	$	591,162
2023	1,766,304
2024	215,150
2025	7,623
2026	26,674
Thereafter	7,488
Total	$	2,614,401

A summary of deposits at March 31, 2023 and December 31, 2022 is as follows:

8. FEDERAL HOME LOAN BANK AND FEDERAL RESERVE BANK ADVANCES


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

The ~~Bank~~Company ~~may~~had ~~borrow~~time ~~from~~deposits ~~the~~that ~~FHLB,~~met onor ~~either~~exceeded athe ~~short-term~~Federal orDeposit ~~long-term~~Insurance ~~basis,~~Corporation up("FDIC") toinsurance ~~40%~~limit of ~~its~~$250 ~~assets,~~thousand ~~provided~~of ~~that~~$1.4 ~~adequate~~billion ~~collateral~~and ~~has been pledged~~$1.3 Asbillion ofat ~~September~~March 3031, ~~2022~~2023 and December 31, ~~2021~~2022, ~~the Bank had pledged various mortgage loans totaling approximately $3.1 billion and $2.4 billion,~~ respectively~~, as well as the FHLB stock held by the Bank, to secure these borrowing arrangements~~.

The ~~Bank~~Company ~~has~~utilizes ~~access~~brokered todeposits ~~the~~as ~~Loan~~an ~~and~~additional ~~Discount~~source ~~Window~~ of ~~the Federal Reserve Bank of San Francisco ("FRB")~~funding. ~~Advances~~The ~~under~~Company ~~this~~had ~~window~~brokered ~~are~~deposits ~~subject~~of ~~to the Bank providing qualifying collateral. Various mortgage loans totaling approximately~~ $~~596~~543.54 million and $~~583~~455.08 million asat ~~of September~~March 3031, ~~2022~~2023 and December 31, ~~2021~~2022, respectively,. The ~~secure~~increase ~~this~~in ~~borrowing~~brokered ~~arrangement.~~deposits ~~There~~was ~~were~~utilized noto ~~borrowings~~partially ~~outstanding~~offset ~~with~~retail ~~the~~deposit ~~FRB~~declines asduring ofthe ~~September 30,~~three ~~2022~~months orended ~~December~~ March 31, ~~2021~~2023.

~~The~~Maturities ~~following~~of ~~table discloses~~ the ~~Bank~~Company’s ~~outstanding~~time ~~advances~~deposits ~~from~~at ~~the~~March 31, ~~FHLB~~2023 ofare ~~San~~summarized ~~Francisco~~as follows:

	Outstanding Balances				As of September 30, 2022
(Dollars in thousands)
(Dollars in thousands)	September 30,2022		December 31,2021		Minimum Interest Rate		Maximum Interest Rate		Weighted Average Rate		Maturity Dates
April 1 - December 31, 2023	$	2,462,856
Fixed rate short-term	$	200,000	$	—	2.81	%	3.16	%	2.99	%	October 2022 to November 2022
2024	919,568
Fixed rate long-term(1)	1,001,647		751,647		0.38	%	7.33	%	2.21	%	March 2023 to March 2030
2025	7,357
	$	1,201,647	$	751,647
2026	10,450
2027	4,537
Thereafter	873
Total	$	3,405,641

~~(1) Included in total fixed rate long-term advances is a $200~~9.0 FEDERAL ~~million~~HOME ~~advance~~LOAN ~~which~~BANK ~~matures~~AND inFEDERAL ~~September~~RESERVE ~~2025~~BANK ~~and contains an FHLB quarterly call provision beginning in September 2023.~~ADVANCES

The Bank's ~~available~~may ~~borrowing~~borrow ~~capacity~~from ~~based~~the FHLB, on ~~pledged~~either ~~loans~~a toshort-term ~~the~~or ~~FHLB~~long-term ~~and~~basis, ~~the~~up ~~FRB~~to ~~totaled~~40% ~~$973.1~~of ~~million~~its ~~and~~assets, ~~$1.2~~provided ~~billion~~that atadequate ~~September 30,~~collateral ~~2022~~has ~~and~~been ~~December 31, 2021, respectively~~pledged. As of ~~September~~March ~~30, 2022 and December~~ 31, ~~2021~~2023, the Bank had ~~aggregate~~pledged ~~loan~~various ~~balances~~mortgage ofloans and securities to secure these borrowing arrangements totaling approximately $24.13 billion and $2258.53 ~~billion~~million, respectively, ~~available~~compared to ~~pledge~~pledged tomortgage ~~the~~loans ~~FHLB~~totaling ~~and~~approximately ~~FRB~~$4.2 tobillion ~~increase~~as ~~its borrowing capacity. As~~ of ~~September 30, 2022 and~~ December 31, ~~2021~~2022. Additionally, the ~~Bank~~FHLB ~~pledged~~stock asheld ~~collateral~~by athe ~~$62.6~~Bank ~~million~~as ~~FHLB letter~~ of ~~credit~~both todates ~~Freddie~~further ~~Mac~~secure ~~related~~these ~~to our multifamily securitization reimbursement obligation~~arrangements.

~~Short-term~~The ~~borrowings~~Bank ~~are~~has ~~borrowings~~access ~~with~~to ~~original~~the ~~maturities~~Loan ofand 90Discount ~~days~~Window orof ~~less. During~~ the ~~three~~FRB and ~~nine~~the ~~months~~FRB's ~~ended~~new ~~September 30,~~Bank ~~2022,~~Term ~~there~~Funding ~~was~~Program a("BTFP"). Advances ~~maximum~~under ~~amount~~these ofprograms ~~short-term~~are ~~borrowings~~subject ~~outstanding~~to ofthe ~~$406.9~~Bank ~~million~~providing ~~for~~qualifying ~~both~~collateral. ~~periods,~~Mortgage anloans ~~average~~totaling ~~amount~~approximately ~~outstanding of~~ $~~265~~2.35 ~~million~~billion and $~~128~~904.29 million, ~~respectively~~as of March 31, ~~with~~2023 aand ~~weighted~~December 31, ~~average~~2022, ~~interest~~respectively, ~~rate~~secure ofthe ~~2.52%~~discount ~~and~~window ~~2.04%,~~borrowing ~~respectively~~arrangement. ~~During~~Securities ~~the~~with ~~three~~a ~~and~~current ~~nine~~par ~~months~~value ~~September 30,~~totaling ~~2021,~~$354.0 ~~there~~million ~~was~~secure athe ~~maximum~~BFTP ~~amount~~as of ~~short-term~~March 31, ~~borrowings outstanding of $306~~2023.2 ~~million~~No ~~and~~securities ~~$352.9~~were ~~million,~~pledged ~~respectively,~~to ansecure ~~average~~FRB ~~amount~~borrowings ~~outstanding~~as of ~~$113~~December 31, 2022.4 ~~million~~There ~~and~~were ~~$148.2~~no ~~million,~~borrowings ~~respectively,~~outstanding with athe ~~weighted~~FRB ~~average~~as ~~interest rate~~ of ~~0.15%~~March 31, ~~and~~2023 ~~0.14%~~or December 31, ~~respectively~~2022.

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The following table ~~summarizes~~discloses ~~scheduled~~the ~~principal~~Bank’s ~~payments~~outstanding ~~on FHLB~~ advances ~~over~~from the ~~next~~FHLB ~~five years as~~ of ~~September 30,~~San ~~2022~~Francisco:

(Dollars in thousands)
	Outstanding Balances				As of March 31, 2023
October 1 - December 31, 2022	$	200,000
(Dollars in thousands)	March 31,2023		December 31,2022		Minimum Interest Rate		Maximum Interest Rate		Weighted Average Rate		Maturity Dates
2023	250,000
Fixed rate short-term	$	150,000	$	56,500	5.27	%	5.27	%	5.27	%	June 2023
2024	350,000
Fixed rate long-term(1)	1,551,647		1,151,647		0.38	%	7.33	%	3.15	%	May 2023 to March 2030
2025	301,500
	$	1,701,647	$	1,208,147
2026	100,000
Thereafter	147
	$	1,201,647

9(1) Included in total fixed rate long-term advances is a $200. ~~JUNIOR~~0 ~~SUBORDINATED~~million ~~DEFERRABLE~~advance ~~INTEREST~~which ~~DEBENTURES~~matures in September 2025 and contains a FHLB quarterly call provision beginning in September 2023.

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

Short-term borrowings are borrowings with original maturities of 90 days or less. During the three months ended March 31, 2023, there was a maximum amount of short-term borrowings outstanding of $150.0 million, an average amount outstanding of $49.0 million, with a weighted average interest rate of 5.05%. During the three months ended March 31, 2022, there was a maximum amount of short-term borrowings outstanding of $135.3 million, an average amount outstanding of $21.7 million, with a weighted average interest rate of 0.34%.

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


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

10. JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES

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 September 30, 2022 and December 31, 2021:~~27

	September 30, 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	4.67	%	$	41,238	1.58	%	3/1/2006	6/15/2036	3 month LIBOR + 1.38%
Luther Burbank Statutory Trust II	$	20,619	4.91	%	$	20,619	1.82	%	3/1/2007	6/15/2037	3 month LIBOR + 1.62%

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10Securities; (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. ~~SENIOR~~ ~~DEBT~~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.

InThe ~~September~~following ~~2014,~~table ~~the~~is ~~Company~~a ~~issued~~summary ~~$95~~of ~~million~~the inoutstanding ~~senior~~Trust ~~unsecured~~Securities ~~term~~and ~~notes~~Notes toat ~~qualified institutional investors. The following table summarizes information on these notes as of September~~March 3031, ~~2022~~2023 and December 31, ~~2021~~2022:

	September 30, 2022					December 31, 2021
	March 31, 2023					December 31, 2022					Date	Maturity		Rate Index
(Dollars in thousands)	Principal		Unamortized Debt Issuance Costs			Principal		Unamortized Debt Issuance Costs			Maturity Date	Fixed Interest Rate
Issuer	Amount		Rate			Amount		Rate			Issued	Date		(Quarterly Reset)
Senior Unsecured Term Notes	$	95,000	$	246		$	95,000	$	338		9/30/2024	6.50	%
(Dollars in thousands)
Luther Burbank Statutory Trust I	$	41,238	6.25		%	$	41,238	6.15		%	3/1/2006	6/15/2036		3 month LIBOR + 1.38%
Luther Burbank Statutory Trust II	$	20,619	6.49		%	$	20,619	6.39		%	3/1/2007	6/15/2037		3 month LIBOR + 1.62%

11. ~~DERIVATIVES~~SENIOR ~~AND HEDGING ACTIVITIES~~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, 2023 and December 31, 2022:


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

12. DERIVATIVES AND HEDGING ACTIVITIES

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

Fair Value Hedges of Interest Rate Risk

As of ~~September~~March 3031, ~~2022~~2023, the Company held ~~seven~~11 interest rate swaps with a total notional amount of $1.38 billion., ~~During~~two ~~the~~of ~~nine months ended September 30~~which, ~~2022, the Company entered into five new swap agreements~~ with an aggregate notional amount of $~~600.0~~400 million., ~~The~~have ~~other~~effective ~~two~~dates ~~swaps were entered into~~ in ~~February~~April and June ~~2021~~2023. 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 nine months ended September 30, 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 ~~and nine~~ months ended ~~September~~March 3031, ~~2022~~2023 and ~~2021~~2022:

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

For the Three Months Ended March 31,

(Dollars in thousands)

~~2022~~2023

~~2021~~2022

~~2022~~

~~2021~~

Derivative - interest rate swaps:

Interest income (loss)

28,~~971~~164

(~~720~~65)

~~3,404~~

~~(7,439)~~

Hedged items - loans:

Interest loss

(77)

(1)

(125)

(30)

Interest income (loss)

(13)

Net increase (decrease) in interest income

28,~~894~~226

(~~721~~78)

~~3,279~~

~~(7,469)~~

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The following table presents the fair value of the Company’s interest rate swaps, as well as their classification in the consolidated statements of financial condition as of ~~September~~March 3031, ~~2022~~2023 and December 31, ~~2021~~2022:

Fair Values of Derivative Instruments

Asset Derivatives

Liability Derivatives

(Dollars in thousands)

Notional Amount

Balance Sheet Location

Fair Value

Balance Sheet Location

Fair Value

Derivatives designated as hedging instruments:

As of September 30, 2022:

As of March 31, 2023:

Interest Rate Swaps

1,~~250~~800,000

Prepaid Expenses and Other Assets

2711,~~088~~763

Other Liabilities and Accrued Expenses

—18,053

As of December 31, 2021:

As of December 31, 2022:

Interest Rate Swaps

~~650~~1,850,000

Prepaid Expenses and Other Assets

321,~~108~~323

Other Liabilities and Accrued Expenses

—2,136

As of ~~September~~March 3031, ~~2022~~2023 and December 31, ~~2021~~2022, the following amounts were recorded in the consolidated statements of financial condition related to cumulative basis adjustments for its fair value hedges:

Line Item in the Consolidated Statements of Financial Condition in Which the Hedged Items are Included (1)

Carrying Amount of the Hedged Assets

Cumulative Amount of Fair Value Hedging Adjustment Included in the Carrying Amount of the Hedged Assets

(Dollars in thousands)

As of September 30, 2022:

As of March 31, 2023:

Loans receivable, net

1,~~222~~806,~~785~~180

~~(27~~6,~~215)~~180

As of December 31, 2021:

As of December 31, 2022:

Loans receivable, net

~~646~~1,~~890~~430,641

(319,~~110~~359)

(1) These amounts include the amortized cost basis of portfolio loans used to designate hedging relationships in which the hedged ~~items~~item ~~are~~is the ~~last~~stated ~~layer~~amount ~~expected~~of toassets bein ~~remaining~~the atclosed ~~the~~portfolios ~~end~~anticipated ofto be outstanding for the ~~hedging~~designated ~~relationship~~hedge period. At ~~September~~March 3031, ~~2022~~2023 and December 31, ~~2021~~2022, the amortized cost basis of the portfolio loans used in these hedging relationships were $24.5 billion and $13.09 billion, respectively.

12As of March 31, 2023, the Company had $8. ~~STOCK~~7 ~~BASED~~million ~~COMPENSATION~~in cash collateral posted in connection with its interest rate swaps. There was no cash collateral posted as of December 31, 2022.

13. STOCK BASED COMPENSATION

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

All RSAs and RSUs are granted at the fair value of the common stock at the time of the award. RSAs and RSUs are considered fixed awards as the number of shares and fair value are known at the date of grant and the fair value at the grant date is amortized over the vesting and/or service period. Non-cash stock compensation expense recognized for RSAs for the three ~~and nine~~ months ended ~~September~~March 3031, ~~2022~~2023 ~~totaled $756 thousand~~ and ~~$2.1~~2022 ~~million,~~totaled ~~respectively, compared with~~ $~~645~~473 thousand and $~~1.9~~710 ~~million for the three and nine months ended September 30~~thousand, ~~2021,~~ respectively. The fair value of RSAs ~~and/or RSUs~~ that vested during the three ~~and nine~~ months ended ~~September~~March 3031, 2023 and 2022 totaled $~~90 thousand and $~~2.7 million, ~~respectively,~~and ~~compared to~~ $2.46 million ~~for the nine months ended September 30~~, ~~2021~~respectively. ~~No RSAs or RSUs vested during the three months ended September 30, 2021.~~

As of ~~September~~both March 3031, ~~2022~~2023 and December 31, ~~2021~~2022, there was $~~3.0 million and $~~2.64 million, ~~respectively,~~ of unrecognized compensation expense related to ~~415~~232,~~337~~459 and ~~489~~414,~~703~~004 unvested RSAs, respectively, which amounts were expected to be expensed over a weighted average period of 1.50 years and 1.74 years, respectively. As of March 31,

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~~which~~2023 ~~amounts were expected to be expensed over a weighted average period of 1.81 years~~ and ~~1.69 years, respectively. As of September 30, 2022 and~~ December 31, ~~2021~~2022, 8165,~~225~~799 and 9181,~~486~~225 shares, respectively, of RSUs were vested and remain unsettled per the original deferral elections. There were no unvested RSUs at March 31, 2023 or December 31, 2022.

The following table summarizes share information about RSAs and RSUs:

	Nine Months Ended September 30,
	Three Months Ended March 31,
	2022			2021
	2023			2022
	Number of Shares	Weighted Average Grant Date Fair Value		Number of Shares	Weighted Average Grant Date Fair Value
Beginning of the period balance	~~581~~495,~~189~~229	$	1011.5689	~~605~~581,~~916~~189	$	10.9356
Shares granted	~~218~~42,~~048~~034	1311.7824		~~289~~206,~~473~~675	1013.1181
Shares settled	(~~264~~239,~~836~~005)	1011.4981		(~~265~~253,~~655~~706)	1110.0245
Shares forfeited	~~(37,839)~~—	~~11.97~~—		(544,~~130~~100)	1011.3093
End of the period balance	~~496~~298,~~562~~258	$	11.9087	~~575~~530,~~604~~058	$	1011.5387

Under its Omnibus Plan, the Company reserved 3,360,000 shares of common stock for new awards. At ~~September~~March 3031, ~~2022~~2023 and December 31, ~~2021~~2022, there were 1,~~681~~640,~~135~~434 and 1,~~861~~682,~~344~~468 shares, respectively, of common stock reserved and available for grant through restricted stock or other awards under the Omnibus Plan. RSU awards were initially issued to replace unvested phantom stock awards under the Luther Burbank Corporation Phantom Stock Plan and were excluded from the shares reserved and available for grant under the Omnibus Plan. ~~As of January 1, 2021, all RSUs were fully vested and no longer subject to forfeiture.~~

1314. FAIR VALUE MEASUREMENTS

Fair Value Hierarchy

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

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

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

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

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

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

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

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

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

Loans were valued using the exit price notion. The fair value was estimated using market quotes for similar assets or the present value of future cash flows, discounted using a market rate for similar products and giving consideration to estimated prepayment risk and credit risk. The fair value of loans was determined utilizing estimates resulting in a Level 3 classification.

~~Impaired~~The ~~loans were~~fair ~~measured for impairment based on the present~~ value of ~~expected~~collateral ~~future~~dependent ~~cash flows discounted at the~~ loans' were ~~effective~~measured ~~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~~at ofthe ~~estimated~~reporting ~~costs~~date, toadjusted ~~sell)~~for ifselling ~~the loan is collateral dependent~~costs. The fair value of ~~impaired~~collateral dependent loans was determined utilizing estimates resulting in a Level 3 classification.

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

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

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

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

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

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

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

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Fair Value of Financial Instruments

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

Fair Level Measurements Using

(Dollars in thousands)

Carrying Amount

Fair Value

Level 1

Level 2

Level 3

As of September 30, 2022:

As of March 31, 2023:

Financial assets:

Cash and cash equivalents

~~256~~516,~~658~~913

—

Debt securities:

Available for sale

~~640~~593,~~473~~427

—

~~640~~593,~~473~~427

—

Held to maturity

3,~~135~~080

2,~~845~~891

—

2,~~845~~891

—

Equity securities

10,~~317~~506

—

10,~~317~~506

—

Loans receivable, net

6,~~818~~987,~~420~~565

6,~~597~~662,~~158~~388

—

6,~~597~~662,~~158~~388

Accrued interest receivable

2123,~~011~~873

88580

12,~~969~~027

1821,~~954~~266

FHLB stock

3246,~~694~~007

N/A

Interest rate swaps

2711,~~088~~763

—

2711,~~088~~763

—

Financial liabilities:

Deposits

5,~~794~~649,~~380~~494

5,~~741~~618,~~314~~781

2,~~919~~013,~~979~~853

23,~~821~~604,~~335~~928

—

FHLB advances

1,~~201~~701,647

1,~~157~~670,~~828~~831

—

1,~~157~~670,~~828~~831

—

Junior subordinated deferrable interest debentures

61,857

5557,~~966~~653

—

5557,~~966~~653

—

Senior debt

94,~~754~~816

93,~~486~~128

—

93,~~486~~128

—

Accrued interest payable

~~950~~7,430

—

~~950~~7,430

—

As of December 31, 2021:

Interest rate swaps

18,053

—

18,053

—

As of December 31, 2022:

Financial assets:

Cash and cash equivalents

~~138~~185,~~413~~895

—

Debt securities:

Available for sale

~~647~~607,~~317~~348

—

~~647~~607,~~317~~348

—

Held to maturity

3,~~829~~108

42,~~018~~874

—

42,~~018~~874

—

Equity securities

1110,~~693~~340

—

1110,~~693~~340

—

Loans receivable, net

6,~~261~~973,~~885~~760

6,~~297~~743,~~548~~783

—

6,~~297~~743,~~548~~783

Accrued interest receivable

1724,~~761~~306

158

~~927~~4,171

1620,~~833~~077

FHLB stock

2332,~~411~~694

N/A

Interest rate swaps

321,~~108~~323

—

321,~~108~~323

—

Financial liabilities:

Deposits

5,~~538~~839,~~243~~340

5,~~541~~789,~~417~~929

2,~~918~~449,~~102~~966

23,~~623~~339,~~315~~963

—

FHLB advances

~~751~~1,~~647~~208,147

~~755~~1,~~981~~153,511

—

~~755~~1,~~981~~153,511

—

Junior subordinated deferrable interest debentures

61,857

6156,~~545~~967

—

6156,~~545~~967

—

Senior debt

94,~~662~~785

~~103~~94,~~361~~652

—

~~103~~94,~~361~~652

—

Accrued interest payable

~~118~~3,964

—

~~118~~3,964

—

Interest rate swaps

2,136

—

2,136

—

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

~~Assets and Liabilities Recorded at Fair Value~~32

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

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Assets and Liabilities Recorded at Fair Value

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

Recurring Basis

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

(Dollars in thousands)	Fair Value		Level 1		Level 2		Level 3
As of September 30, 2022:
As of March 31, 2023:
Financial Assets:
Available for sale debt securities:
Government and Government Sponsored Entities:
Commercial MBS and CMOs	$	~~380~~333,~~852~~725	$	—	$	~~380~~333,~~852~~725	$	—
Residential MBS and CMOs	~~193~~195,~~541~~543		—		~~193~~195,~~541~~543		—
Agency bonds	4041,~~089~~160		—		4041,~~089~~160		—
Other ABS	2522,~~991~~999		—		2522,~~991~~999		—
Total available for sale debt securities	$	~~640~~593,~~473~~427	$	—	$	~~640~~593,~~473~~427	$	—
Equity securities	$	10,~~317~~506	$	—	$	10,~~317~~506	$	—
Mortgage servicing rights	~~725~~669		—		—		~~725~~669
Interest rate swaps	2711,~~088~~763		—		2711,~~088~~763		—
As of December 31, 2021:
Financial Liabilities:
Interest rate swaps	$	18,053	$	—	$	18,053	$	—
As of December 31, 2022:
Financial Assets:
Available for sale debt securities:
Government and Government Sponsored Entities:
Commercial MBS and CMOs	$	~~407~~340,~~746~~736	$	—	$	~~407~~340,~~746~~736	$	—
Residential MBS and CMOs	~~200~~199,~~133~~384		—		~~200~~199,~~133~~384		—
Agency bonds	1042,~~831~~630		—		1042,~~831~~630		—
Other ABS	2824,~~607~~598		—		2824,~~607~~598		—
Total available for sale debt securities	$	~~647~~607,~~317~~348	$	—	$	~~647~~607,~~317~~348	$	—
Equity securities	$	1110,~~693~~340	$	—	$	1110,~~693~~340	$	—
Mortgage servicing rights	~~915~~688		—		—		~~915~~688
Interest rate swaps	321,~~108~~323		—		321,~~108~~323		—
Financial Liabilities:
Interest rate swaps	$	2,136	$	—	$	2,136	$	—

There were no transfers between Level 1 and Level 2 during the three ~~and nine~~ months ended ~~September~~March 3031, ~~2022~~2023 or ~~2021~~2022.

Non-recurring Basis

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

At both ~~September~~March 3031, ~~2022~~2023 and December 31, ~~2021~~2022, 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")~~33

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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15. VARIABLE INTEREST ENTITIES ("VIE")

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 $~~471~~270 thousand and $~~727~~439 thousand as of ~~September~~March 3031, ~~2022~~2023 and December 31, ~~2021~~2022, respectively, based upon an analysis of quantitative and qualitative data of the underlying loans included in the securitization pool. No disbursements have been made in connection with the reimbursement obligation. In connection with the adoption the CECL accounting standard on January 1, 2023, the Company decreased the allowance for the reimbursement obligation by $119 thousand, which represented the difference between the CECL methodology and the prior methodology utilized for estimating losses for its reimbursement obligation.

1516. 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 ~~September~~March 3031, ~~2022~~2023, the Bank’s net worth was $~~820~~838.46 million which equates to its Tier 1 capital of $~~848~~868.95 million plus goodwill of $3.3 million and accumulated other comprehensive loss related to net unrealized losses on available for sale securities of $3133.83 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).34

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~~reimburse~~General ~~Freddie~~representations ~~Mac~~and ~~for~~warranties ~~such~~associated ~~amounts~~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, ~~exceed~~compliance ~~10%~~with relevant laws and regulations, absence of ~~the~~fraud, ~~original~~enforcement ~~principal~~of ~~amount~~liens, no environmental damages, and maintenance of ~~the~~relevant ~~loans~~environmental ~~comprising~~insurance. Such representations and warranties are limited to those that do not meet the ~~securitization~~quality ~~pool~~represented at the ~~closing~~transaction date ofand ~~September~~do 27not pertain to a decline in value or future payment defaults. In circumstances where the Company breaches its representations and warranties, ~~2017~~the Company would generally be required to cure such instances through a repurchase or substitution of the subject loan(s).

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

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

Three Months Ended September 30,

Nine Months Ended September 30,

Three Months Ended March 31,

(Dollars in thousands)

~~2022~~2023

~~2021~~2022

~~2022~~

~~2021~~

Proceeds from loan sales

—

~~1,731~~—

—

~~1,731~~

Servicing fees

7564

~~128~~97

~~261~~

~~445~~

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

(Dollars in thousands)	Single Family Residential		Multifamily Residential
As of September 30, 2022:
As of March 31, 2023:
Principal balance of loans	$	1110,~~091~~907	$	~~117~~104,~~356~~625
Loans 90+ days past due	—		—
Charge-offs, net	—		—
As of December 31, 2021:
As of December 31, 2022:
Principal balance of loans	$	1211,~~243~~000	$	~~173~~106,~~486~~981
Loans 90+ days past due	—		—
Charge-offs, net	—		—

1617. 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 September 30, 2022 and December 31, 2021, the Company had outstanding commitments of approximately $77.7 million and $132.8 million, respectively, for loans and lines of credit. Unfunded commitment reserves totaled $113 thousand and $153 thousand at September 30, 2022 and December 31, 2021, respectively.35

Contingencies

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orbeing ~~cash~~exercised; ~~flows. In the ordinary course of operations~~therefore, ~~the~~total ~~Company~~commitments ~~may~~outstanding bedo ~~party~~not tonecessarily ~~various~~represent ~~legal~~future ~~proceedings~~cash requirements.

At March 31, 2023 and December 31, 2022, the Company had outstanding commitments of approximately $36.7 million and $37.7 million, respectively, for loans. Unfunded commitment reserves totaled $389 thousand and $125 thousand at March 31, 2023 and December 31, 2022, respectively. The Company adopted the CECL accounting standard on January 1, 2023. Upon adoption, the Company increased the allowance for unfunded loan commitments by $330 thousand, which represented the difference between the allowance calculated under the CECL methodology as of January 1, 2023 and the incurred loss methodology as of December 31, 2022. The $330 thousand increase in the allowance for unfunded loan commitments was primarily due to higher lifetime expected losses on unfunded commitments on construction loans under the CECL methodology.

Contingencies

At present, there are no pending or threatened proceedings against the Company which, if determined adversely, would have a material effect on the Company’s business, financial position, results of operations or cash flows. In the ordinary course of operations, as well as in connection with the pending merger with WAFD, the Company may be party to various legal proceedings.

Correspondent Banking Agreements

The Company maintains funds on deposit with other federally insured financial institutions under correspondent banking agreements. Insured portions of these balances are limited to $250 thousand per institution based on FDIC insurance limits. At ~~September~~March 3031, ~~2022~~2023 and December 31, ~~2021~~2022, the Company had $~~24.7~~854 ~~million~~thousand and $25.50 million, respectively, in uninsured available cash balances. Additionally, the Company had $8.7 million in restricted cash as collateral for its interest rate swap agreements at a correspondent bank as of March 31, 2023, compared to none at December 31, 2022. The Company also has established federal funds lines of credit with correspondent banks totaling $50.0 million at both ~~September~~March 3031, ~~2022~~2023 and December 31, ~~2021~~2022, none of which were advanced at those dates. The Company periodically monitors the financial condition and capital adequacy of these correspondent banks.

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

The following is a discussion of our financial condition at ~~September~~March 3031, ~~2022~~2023 and December 31, ~~2021~~2022 and our results of operations for the three months ended ~~September~~March 3031, ~~2022~~2023 and ~~June~~December 3031, 2022 and the ~~nine~~three months ended ~~September~~March 3031, ~~2022~~2023 and ~~2021~~2022, and should be read in conjunction with our audited consolidated financial statements set forth in our Annual Report on Form 10-K for the year ended December 31, ~~2021~~2022 that was filed with the ~~Securities and Exchange Commission (the “~~SEC”) on ~~March~~February 1422, ~~2022~~2023 (our “Annual Report”) and with the accompanying Notes to Unaudited Consolidated Financial Statements set forth in this Quarterly Report on Form 10-Q for the quarterly period ended ~~September~~March 3031, ~~2022~~2023 (this “Report”). Because we conduct all of our material business operations through our bank subsidiary, Luther Burbank Savings (the "Bank"), the discussion and analysis relates to activities primarily conducted by the Bank.

Overview

We are a bank holding company headquartered in Santa Rosa, California, and the parent company of Luther Burbank Savings, a California-chartered commercial bank with $78.93 billion in assets at ~~September~~March 3031, ~~2022~~2023. Our principal business is providing high-value, relationship-based banking products and services to our customers, which include real estate investors, professionals, entrepreneurs, depositors and commercial businesses. We generate most of our revenue from interest on loans and investments. Our primary source of funding for our loans is retail deposits and we place secondary reliance on wholesale funding, primarily borrowings from the Federal Home Loan Bank ("FHLB") and brokered deposits. Our largest expenses are interest on deposits and borrowings along with salaries and related employee benefits. Our principal lending products are real estate secured loans, consisting primarily of multifamily residential properties and jumbo single family residential properties on the West Coast.

Selected Financial Data

The following table sets forth the Company’s selected historical consolidated financial data for the periods and as of the dates indicated. You should read this information together with the Company’s audited consolidated financial statements included in our Annual Report and the unaudited consolidated financial statements and related notes included elsewhere in this Report. The selected historical consolidated financial data as of and for the three ~~and nine~~ months ~~September~~March 3031, ~~2022~~2023 and ~~2021~~2022 are derived from our unaudited consolidated financial statements, which are included elsewhere in this Report. The selected historical consolidated financial data for the three months ended ~~June~~December 3031, 2022 are derived from our unaudited consolidated financial statements which ~~were~~are included in our previously filed Form 108-QK on ~~August~~January 524, ~~2022~~2023 as Exhibit 99.1. The Company’s historical results for any prior period are not necessarily indicative of future performance.

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(Dollars in thousands, except per share data)	As of or For the Three Months Ended						As of or For the Nine Months Ended
	As of or For the Three Months Ended
	September 30,2022			June 30,2022			September 30,2022			September 30,2021
(Dollars in thousands, except per share data)	March 31,2023			December 31,2022						March 31,2022
Statements of Income and Financial Condition Data
Net Income	$	2113,~~002~~442		$	2213,~~567~~689		$	~~66,509~~		$	6422,~~370~~940
Pre-tax, pre-provision net earnings (1)	$	3018,~~367~~287		$	3420,~~509~~431		$	~~94,456~~		$	8229,~~065~~580
Total assets	$	78,~~921~~302,~~584~~457		$	7,~~530~~974,~~516~~632		$	~~7,921,584~~		$	7,~~220~~260,~~786~~826
Per Common Share
Diluted earnings per share	$	0.4126		$	0.4427		$	~~1.30~~		$	10.2445
Book value per share	$	13.2564		$	13.1536		$	~~13.25~~		$	1213.6500
Tangible book value per share (1)	$	13.1858		$	13.0930		$	~~13.18~~		$	12.5993
Selected Ratios
Return on average:
Assets	10.1067		%	10.2369		%	~~1.20~~		%	1.2028		%
Stockholders' equity	127.3378		%	138.4104		%	~~13.11~~		%	13.4860		%
Dividend payout ratio	~~29.23~~—		%	2744.1584		%	~~27.80~~		%	1927.0014		%
Net interest margin	21.4272		%	2.6201		%	~~2.52~~		%	2.3454		%
Efficiency ratio (1)	3348.6108		%	2749.8623		%	~~31.88~~		%	34.8640		%
Noninterest expense to average assets	0.8084		%	01.7200		%	~~0.80~~		%	0.8286		%
Loan to deposit ratio	~~118~~124.2932		%	~~117~~120.0906		%	~~118.29~~		%	113.5466		%
Credit Quality Ratios
Allowance for loan losses to loans	0.53		%	0.54		%	0.53		%	0.59		%
Allowance for credit losses on loans to total loans	0.51		%	0.52		%				0.52		%
Allowance for loan losses to nonperforming loans	940.86		%	706.46		%	940.86		%	5,806.38		%
Allowance for credit losses on loans to nonperforming loans	722.62		%	566.91		%				1,450.81		%
Nonperforming assets to total assets	0.0506		%	0.0708		%	~~0.05~~		%	0.0103		%
Net recoveries to average loans	—		%	—		%	—		%	(0.00)		%
Net charge-offs to average loans	—		%	—		%				—		%
Capital Ratios
Tier 1 leverage ratio	9.9973		%	109.2072		%	~~9.99~~		%	910.6327		%
Total risk-based capital ratio	19.2050		%	19.1214		%	~~19.20~~		%	1819.9837		%
(1) Considered a non-GAAP financial measure. See Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - ‘‘Non-GAAP Financial Measures’’ for a reconciliation of our non-GAAP measures to the most directly comparable GAAP financial measure. Pre-tax, pre-provision net earnings is defined as net income before taxes and provision for loan losses. Tangible book value per share is defined as total assets less goodwill and total liabilities divided by period end shares outstanding. Efficiency ratio is defined as the ratio of noninterest expense to net interest income plus noninterest income.
(1) Considered a non-GAAP financial measure. See Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations - ‘‘Non-GAAP Financial Measures’’ for a reconciliation of our non-GAAP measures to the most directly comparable GAAP financial measure. Pre-tax, pre-provision net earnings is defined as net income before taxes and provision for credit losses. Tangible book value per share is defined as total assets less goodwill and total liabilities divided by period end shares outstanding. Efficiency ratio is defined as the ratio of noninterest expense to net interest income plus noninterest income.

Critical Accounting Policies and Estimates

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

Our most significant accounting policies are described in Note 1 to our audited financial statements for the year ended December 31, ~~2021~~2022, included in our Annual Report. We have identified the following accounting policies and estimates that, due to the difficult, subjective or complex judgments and assumptions inherent in those policies and estimates and the potential sensitivity of our financial statements to those judgments and assumptions, are critical to an understanding of our financial condition and results of operations. We believe that the judgments, estimates and assumptions used in the preparation of our financial statements are reasonable and appropriate.

~~Pursuant~~Allowance tofor ~~the~~Credit ~~Jumpstart~~Losses ~~Our Business Startups Act~~ (~~the~~ "~~JOBS Act~~ACL"), ason ~~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~~ Loans

36The Company adopted the current expected credit loss ("CECL") allowance methodology on January 1, 2023. The

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~~elected~~ACL ~~not~~on toloans ~~opt~~represents ~~out~~the Company’s estimate of ~~such~~expected ~~extended~~lifetime ~~transition~~credit ~~period,~~losses ~~which~~for ~~means~~its ~~that~~loans ~~when~~at athe ~~standard~~time isof ~~issued~~origination or ~~revised~~acquisition and itis ~~has~~maintained ~~different~~at ~~application~~a ~~dates~~level deemed appropriate by management to provide for ~~public~~expected orlifetime ~~private~~credit ~~companies~~losses in the portfolio as of the date of the consolidated statements of financial condition. The ACL on loans is a valuation account that is deducted from the amortized cost basis of loans to present the net amount expected to be collected. Amortized cost does not include accrued interest, wewhich ~~may~~management ~~adopt~~elected to exclude from the ~~standard~~estimate ~~for~~of expected credit losses. Loans are charged-off against the ~~private~~allowance ~~company~~when management believes that the uncollectibility of a loan is confirmed. Recoveries will never exceed the aggregate of amounts previously charged-off.

WeWhile ~~have~~management ~~elected~~estimates ~~to take advantage of~~ the ~~scaled~~ACL ~~disclosures~~balance ~~and~~using ~~other~~relevant ~~relief~~available ~~under the JOBS Act~~information, ~~and~~from weinternal ~~may take advantage of some or all of the reduced regulatory~~ and ~~reporting~~external ~~requirements~~sources, ~~that~~relating ~~will be available~~ to uspast ~~under the JOBS Act~~events, socurrent ~~long~~conditions asand wereasonable ~~qualify~~and assupportable ~~an emerging growth company. Our eligibility as an emerging growth company under the JOBS Act is expected to expire on December 31~~forecasts, ~~2022,~~inherent ~~which~~uncertainties isin the ~~last~~estimation ~~day~~process ofmake ~~the~~it ~~fiscal~~reasonably ~~year~~possible ~~following~~that ~~the~~ultimate ~~five~~losses ~~year~~may ~~anniversary~~vary significantly from ~~the date of~~ our ~~initial~~original ~~public offering~~estimates.

Allowance for Loan Losses

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

While we use available information, including independent appraisals for collateral, to estimate the extent of probable incurred loan losses within the loan portfolio, inherent uncertainties in the estimation process make it reasonably possible that ultimate losses may vary significantly from our original estimates. In addition, we utilize a number of economic variables in estimating the allowance, with the most significant drivers being unemployment levels and housing prices. Material changes in these economic variables may result in incremental changes in the estimated level of our allowance. Generally, loans are partially or fully charged off when it is determined that the unpaid principal balance exceeds the current fair value of the collateral with no other likely source of repayment. The Company currently utilizes the incurred loss methodology to determine its allowance for loan losses. The Company expects to adopt the current expected credit loss ("CECL") allowance methodology on January 1, 2023. We estimate that the adoption of the CECL standard would not currently result in a material change in our allowance for credit losses, which, if necessary, will be recorded as a cumulative-effect adjustment to retained earnings, net of tax as of January 1, 2023. The ultimate impact will depend on the portfolio and forecasts when the standard is adopted.

Fair Value Measurement

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

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

Investment Securities Impairment

We assess on a quarterly basis whether there have been any events or economic circumstances to indicate that a security in which we have an unrealized loss is impaired on an other-than-temporary basis. In any instance, we would consider many factors, including the severity and duration of the impairment, the portion of any unrealized

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loss attributable to a decline in the credit quality of the issuer, our intent and ability to hold the security for a period of time sufficient for a recovery in value, recent events specific to the issuer or industry, and, for debt securities, external credit ratings and recent downgrades. Securities with respect to which there is an unrealized loss that is deemed to be other-than-temporary are written down to fair value.

Non-GAAP Financial Measures

Some of the financial measures discussed in Item 2. Management's Discussion and Analysis of Financial Condition and Results of ~~Operation~~Operations contain financial measures that are not measures recognized under GAAP and therefore, are considered non‐-GAAP financial measures, including pre-tax, pre-provision net earnings, efficiency ratio, tangible assets, tangible stockholders' equity and tangible book value per share.

Our management uses these non‐-GAAP financial measures in their analysis of the Company’s performance, financial condition and the efficiency of its operations. We believe that these non‐-GAAP financial measures provide a greater understanding of ongoing operations and enhance comparability of results with prior periods and other companies, as well as demonstrate the effects of significant changes in the current period. We also believe that investors find these non‐-GAAP financial measures useful as they assist investors in understanding our underlying operating performance and the analysis of ongoing operating trends. However, we acknowledge that our non-GAAP financial measures have a number of limitations. You should not view these disclosures as a substitute for results determined in accordance with GAAP, and they are not necessarily comparable to non-GAAP financial measures that other banking companies use. Other banking companies may use names similar to those we use for the non-GAAP financial measures we disclose, but may calculate them differently. You should understand how we and other companies each calculate their non-GAAP financial measures when making comparisons.

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

	For the Three Months Ended						For the Nine Months Ended
	As of or For the Three Months Ended
(Dollars in thousands)	~~September~~March 3031,~~2022~~2023			~~June~~December 3031,2022			~~September 30,2022~~			~~September~~March 3031,~~2021~~2022
Pre-tax, Pre-provision Net Earnings
Income before taxes	$	2919,~~867~~082		$	3219,~~009~~781		$	~~93,956~~		$	9132,~~065~~080
Plus: Provision for (reversal of) loan losses	500			2,500			500			(9,000)
Plus: (Reversal of) provision for credit losses	(795)			650						(2,500)
Pre-tax, pre-provision net earnings	$	3018,~~367~~287		$	3420,~~509~~431		$	~~94,456~~		$	8229,~~065~~580
Efficiency Ratio
Noninterest expense (numerator)	$	1516,~~376~~934		$	1319,~~325~~814		$	~~44,213~~		$	4315,~~919~~512
Net interest income	$	4533,~~474~~986		$	4739,~~472~~274		~~137,980~~			~~124~~45,~~734~~034
Noninterest income	~~269~~1,235			~~362~~971			~~689~~			~~1,250~~58
Operating revenue (denominator)	$	4535,~~743~~221		$	4740,~~834~~245		$	~~138,669~~		$	~~125~~45,~~984~~092
Efficiency ratio	3348.6108		%	2749.8623		%	~~31.88~~		%	34.8640		%
Tangible Book Value Per Share
Total assets	$	8,302,457		$	7,974,632					$	7,260,826
Less: Goodwill	(3,297)			(3,297)						(3,297)
Tangible assets	8,299,160			7,971,335						7,257,529
Less: Total liabilities	(7,606,296)			(7,292,096)						(6,592,826)
Tangible stockholders' equity (numerator)	$	692,864		$	679,239					$	664,703
Period end shares outstanding (denominator)	51,030,877			51,073,272						51,403,914
Tangible book value per share	$	13.58		$	13.30					$	12.93

(Dollars in thousands, except per share data)	September 30,2022		June 30,2022		September 30,2021
Tangible Book Value Per Share
Total assets	$	7,921,584	$	7,530,516	$	7,220,786
Less: Goodwill	(3,297)		(3,297)		(3,297)
Tangible assets	7,918,287		7,527,219		7,217,489
Less: Total liabilities	(7,244,915)		(6,858,894)		(6,566,850)
Tangible stockholders' equity (numerator)	$	673,372	$	668,325	$	650,639
Period end shares outstanding (denominator)	51,074,605		51,063,498		51,682,604
Tangible book value per share	$	13.18	$	13.09	$	12.59

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

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

Overview

For the three months ended ~~September~~March 3031, ~~2022~~2023, our net income was $2113.04 million as compared to $2213.67 million for the three months ended ~~June~~December 3031, 2022. The decrease of $~~1.6~~247 ~~million~~thousand, or 61.98%, was attributable to ana ~~increase~~decrease in net interest income of $5.3 million, partially offset by a decrease in noninterest expense of $2.9 million and a decrease in the provision for credit losses of $1.4 million. Pre-tax, pre-provision net earnings decreased by $2.1 million, or 10.5%, for the three months ended March 31, 2023 as compared to the linked quarter.

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noninterest expense of $2.1 million and a decrease in net interest income of $2.0 million, partially offset by a decrease in the provision for loan losses of $2.0 million. Pre-tax, pre-provision net earnings decreased by $4.1 million, or 12.0%, for the three months ended September 30, 2022 as compared to the linked quarter.

Net Interest Income

Net interest income decreased by $25.03 million, or 413.25%, to $4534.50 million for the three months ended ~~September~~March 3031, ~~2022~~2023 from $4739.53 million for the prior quarter due to higher interest expense on our deposit portfolio and FHLB advances, partially offset by higher interest income on loans and ~~investments~~cash and cash equivalents.

Our net interest margin was 21.4272% during the three months ended ~~September~~March 3031, ~~2022~~2023 compared to 2.6201% during the prior quarter. Our net interest margin reflects the net impact of an increase in the cost of interest bearing liabilities, partially offset by an increase in the yield on interest earning assets. Due to the liability sensitivity of our balance sheet, our interest-bearing liabilities generally reprice more quickly than our interest-earning assets, which will result in lower net interest income during periods of rising interest rates. During the ~~third~~first quarter, the cost of our interest bearing liabilities increased by 4962 basis points primarily due to an increase in the cost of our deposits and FHLB advances, while the yield on our interest earning assets increased by 2522 basis points primarily due to an increase in our loan ~~and investment yields~~yield. Our net interest spread in the ~~third~~first quarter was 21.3045%, decreasing by 2440 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 ~~September~~March 3031, ~~2022~~2023 and ~~June~~December 3031, 2022. The average balances are daily averages.

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	For the Three Months Ended
	September 30, 2022						June 30, 2022
	March 31, 2023						December 31, 2022
(Dollars in thousands)	Average Balance		Interest Inc/Exp		Yield/Rate		Average Balance		Interest Inc/Exp		Yield/Rate
Interest-Earning Assets
Multifamily residential	$	4,~~448~~521,~~881~~440	$	4148,~~267~~961	34.7133	%	$	4,~~318~~518,~~879~~952	$	3945,~~893~~682	34.6904	%
Single family residential	2,~~097~~283,~~312~~753		1822,~~660~~991		34.5603	%	12,~~961~~229,~~812~~808		1422,~~430~~737		24.9408	%
Commercial real estate	~~185~~169,~~017~~268		2,~~137~~147		45.6207	%	~~189~~175,~~705~~254		2,~~256~~076		4.7674	%
Construction and land	1923,~~761~~665		~~302~~505		68.0665	%	2520,~~784~~612		~~333~~399		57.1868	%
Total loans (1)	6,~~750~~998,~~971~~126		6274,~~366~~604		34.7026	%	6,~~496~~944,~~180~~626		5670,~~912~~894		34.5008	%
Investment securities	~~679~~614,~~283~~527		45,~~127~~488		23.4357	%	~~650~~639,~~514~~137		25,~~863~~082		13.7618	%
Cash and cash equivalents	~~100~~291,~~690~~706		~~547~~3,303		24.1659	%	~~101~~215,~~873~~060		~~198~~1,964		03.7862	%
Total interest-earning assets	7,~~530~~904,~~944~~359		6783,~~040~~395		34.5622	%	7,~~248~~798,~~567~~823		5977,~~973~~940		34.3100	%
Noninterest-earning assets (2)	~~128~~149,~~677~~670						~~109~~154,~~408~~605
Total assets	$	78,~~659~~054,~~621~~029					$	7,~~357~~953,~~975~~428
Interest-Bearing Liabilities
Transaction accounts	$	~~168~~150,~~780~~429	96160		0.2243	%	$	~~175~~170,~~092~~867	88151		0.2035	%
Money market demand accounts	32,~~005~~271,~~468~~018		713,~~416~~956		02.9746	%	32,~~050~~622,~~811~~015		312,~~966~~271		01.5183	%
Time deposits	23,~~322~~268,~~643~~933		623,~~573~~491		12.1188	%	2,~~196~~973,~~455~~058		217,~~859~~043		02.5125	%
Total deposits	5,~~496~~690,~~891~~380		1437,~~085~~607		12.0065	%	5,~~422~~765,~~358~~940		629,~~913~~465		02.5000	%
FHLB advances	1,~~071~~327,~~300~~863		59,~~346~~262		12.9883	%	~~863~~1,~~685~~129,382		36,~~628~~833		12.6840	%
Junior subordinated debentures	61,857		~~560~~966		36.5933	%	61,857		~~385~~794		25.5009	%
Senior debt	94,~~734~~796		1,~~575~~574		6.6564	%	94,~~703~~765		1,~~575~~574		6.6564	%
Total interest-bearing liabilities	67,~~724~~174,~~782~~896		2149,~~566~~409		12.2677	%	67,~~442~~051,~~603~~944		1238,~~501~~666		02.7715	%
Noninterest-bearing deposit accounts	~~164~~86,~~988~~967						~~165~~119,~~799~~589
Other noninterest-bearing liabilities	88100,~~323~~627						76101,~~412~~234
Total liabilities	67,~~978~~362,~~093~~490						67,~~684~~272,~~814~~767
Total stockholders' equity	~~681~~691,~~528~~539						~~673~~680,~~161~~661
Total liabilities and stockholders' equity	$	78,~~659~~054,~~621~~029					$	7,~~357~~953,~~975~~428
Net interest spread (3)					21.3045	%					21.5485	%
Net interest income/margin (4)			$	4533,~~474~~986	21.4272	%			$	4739,~~472~~274	2.6201	%

(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 $21.4 million ~~and $4.0 million~~ for both the three months ended ~~September~~March 3031, ~~2022~~2023 and ~~June~~December 3031, 2022~~, respectively~~.

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

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

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

Interest rates and operating interest differential. Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average interest rates. The following table shows the effect that these factors had on the interest 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.

Table of Contents

	Three Months Ended September 30 vs June 30, 2022
	Variance Due To
(Dollars in thousands)	Volume		Yield/Rate		Total
Interest-Earning Assets
Multifamily residential	$	1,164	$	210	$	1,374
Single family residential	1,044		3,186		4,230
Commercial real estate	(55)		(64)		(119)
Construction and land	(84)		53		(31)
Total loans	2,069		3,385		5,454
Investment securities	132		1,132		1,264
Cash and cash equivalents	(2)		351		349
Total interest-earning assets	2,199		4,868		7,067
Interest-Bearing Liabilities
Transaction accounts	(2)		10		8
Money market demand accounts	(58)		3,508		3,450
Time deposits	175		3,539		3,714
Total deposits	115		7,057		7,172
FHLB advances	986		732		1,718
Junior subordinated debentures	—		175		175
Senior debt	—		—		—
Total interest-bearing liabilities	1,101		7,964		9,065
Net Interest Income	$	1,098	$	(3,096)	$	(1,998)

Total interest income increased by $7.1 million, or 11.8%, for the three months ended September 30, 2022 as compared to the prior quarter. This increase was primarily due to a $5.5 million improvement in interest income earned on loans resulting from a $254.8 million and 20 basis point increase in the average balance and yield on our loans, respectively. The increase in loan volumes resulted from strong loan originations and the slowing of loan prepayment speeds, while loan yield increases were primarily due to higher income earned on our interest rate swaps and the origination of loans at higher current rates relative to the existing coupon on our loan portfolio. Additionally, interest income on investments increased $1.3 million primarily due an increase in the average yield on investments of 67 basis points due to rising interest rates. At September 30, 2022, 43% of our investments were in their floating rate period and had a weighted average repricing frequency of 2.9 months.

The volume of new loan originations totaled $530.1 million and $733.0 million for the three months ended September 30, 2022 and June 30, 2022, respectively. The weighted average rate on new loans for the three months ended September 30, 2022 was 4.65% as compared to 3.55% for the linked quarter. The increase in the average coupon on originations was primarily due to the rising interest rate environment. Loan prepayment speeds were 15.4% and 24.0% during the three months ended September 30, 2022 and June 30, 2022, respectively. The decrease in prepayment speeds was due to rising market interest rates, which impacted refinancing activity during the current quarter. The weighted average rate on loan payoffs/curtailments during the three months ended September 30, 2022 was 3.91% as compared to 3.86% for the prior quarter.

Total interest expense increased $9.1 million, or 72.5%, to $21.6 million, for the three months ended September 30, 2022 from $12.5 million for the prior quarter. Interest expense on deposits increased $7.2 million, to $14.1 million, for the three months ended September 30, 2022 from $6.9 million for the prior quarter. The increase was primarily due to a 50 basis point increase in the cost of interest-bearing deposits predominantly due to rate increases in both retail and brokered deposits. Additionally, interest expense on FHLB advances increased $1.7 million compared to the prior quarter due to an increase in the average balance and cost of advances of $207.6 million and 30 basis points, respectively. We generally use both deposits and FHLB advances to fund net loan growth. We also use long-term FHLB advances as a hedge of interest rate risk, as we can strategically control the duration of those funds. A discussion of instruments used to mitigate interest rate risk can be found under Part II - Item 7A. ‘‘Quantitative and Qualitative Disclosures About Market Risk.’’

Table of Contents

Provision for Loan Losses


	Three Months Ended March 31, 2023 vs December 31, 2022
	Variance Due To
(Dollars in thousands)	Volume		Yield/Rate		Total
Interest-Earning Assets
Multifamily residential	$	25	$	3,254	$	3,279
Single family residential	539		(285)		254
Commercial real estate	(72)		143		71
Construction and land	57		49		106
Total loans	549		3,161		3,710
Investment securities	(201)		607		406
Cash and cash equivalents	764		575		1,339
Total interest-earning assets	1,112		4,343		5,455
Interest-Bearing Liabilities
Transaction accounts	(20)		29		9
Money market demand accounts	(1,841)		3,526		1,685
Time deposits	1,688		4,760		6,448
Total deposits	(173)		8,315		8,142
FHLB advances	1,203		1,226		2,429
Junior subordinated debentures	—		172		172
Senior debt	—		—		—
Total interest-bearing liabilities	1,030		9,713		10,743

Net Interest Income	$	82	$	(5,370)	$	(5,288)

~~During~~Total interest income increased by $5.5 million, or 7.0%, for the three months ended ~~September 30~~March 31, ~~2022~~2023 ~~and~~as ~~June 30,~~compared ~~2022,~~to the ~~Company~~prior ~~recorded~~quarter. This ~~loan~~increase ~~loss~~was ~~provisions~~primarily ofdue ~~$500~~to ~~thousand~~a ~~and~~ $23.57 million, ~~respectively.~~improvement ~~The~~in ~~current~~interest ~~quarter~~income ~~provision~~earned ~~was~~on ~~primarily~~loans ~~related~~resulting tofrom ~~loan~~an ~~growth~~18 ~~while~~basis point increase in the ~~prior~~average ~~quarter~~yield ~~provision~~on ~~was~~our ~~related~~loans due to ~~loan~~the ~~growth~~recent ~~and~~origination anof ~~increase~~loans inat ~~classified~~higher ~~loan~~current ~~balances. Our~~rates ~~allowance~~relative ~~for~~to the existing coupon on our loan ~~losses~~portfolio, as awell ~~percentage~~as ofhigher ~~total~~income ~~loans~~earned ~~was~~on 0our interest rate swaps.~~53%~~ Interest atincome ~~September 30,~~was ~~2022~~also ~~compared~~positively toimpacted ~~0.54%~~by an increase in the average balance and ~~0.56%~~yield aton ~~June 30,~~cash ~~2022~~and cash equivalents of $76.6 million and ~~December 31,~~97 ~~2021~~basis points, respectively, compared to the linked quarter. The ~~allowance~~increase ~~for~~in ~~loan~~average ~~losses~~balance ~~and~~was ~~the~~due ~~provisions~~to ~~for~~our ~~loan~~purposeful ~~losses~~plan ~~recognized~~to ~~were~~increase ~~determined~~on-balance ~~based~~sheet onliquidity, while the ~~incurred~~increase ~~loss~~in ~~methodology. The~~average ~~Company~~yield ~~expects~~was due to ~~adopt~~ the ~~CECL~~general ~~allowance~~rise ~~methodology~~in oninterest ~~January 1, 2023~~rates.

~~Nonperforming~~The ~~assets~~volume ~~totaled $3.8 million, or 0.05%~~ of ~~total~~new ~~assets,~~loan atoriginations ~~September 30,~~totaled ~~2022~~$90.3 ~~compared~~million toand $2281.34 million, orfor ~~0.03%~~the ofthree ~~total~~months ~~assets~~ended March 31, at2023 and December 31, ~~2021~~2022, respectively. ~~Criticized~~Declining ~~loans,~~loan ~~which~~originations ~~includes~~are ~~loans~~primarily ~~graded~~attributable ~~Special~~to ~~Mention~~slowing ~~and~~demand ~~of greater~~resulting ~~risk,~~from ~~were~~the ~~$24.1~~general ~~million~~rise atin ~~September 30,~~interest ~~2022~~rates ~~compared~~and toour ~~$16.7~~desire ~~million~~to atachieve ~~December 31,~~a ~~2021.~~risk ~~Classified~~adjusted ~~loans,~~return ~~which~~on ~~includes~~new ~~loans~~loan ~~graded~~volume ~~Substandard~~in ~~and~~light of ~~greater~~the ~~risk,~~elevated ~~totaled~~cost ~~$20.7~~of ~~million~~new ~~and $12~~funding.1 ~~million~~The atweighted ~~September 30,~~average ~~2022~~rate ~~and~~on ~~December 31,~~new ~~2021,~~loans ~~respectively.~~for ~~The~~the ~~increase~~three inmonths ~~criticized~~ended ~~and~~March ~~classified~~31, ~~loan~~2023 ~~balances~~ was ~~primarily~~6.42% ~~attributed~~as compared to ~~isolated~~5.68% ~~credit~~for ~~related~~the ~~downgrades~~linked ofquarter. Loan ~~several~~prepayment ~~loans~~speeds ~~and~~were ~~are~~4.2% ~~not~~and ~~thought~~5.7% toduring ~~represent~~the ~~any~~three ~~particular~~months ~~declining~~ended ~~credit~~March ~~trends~~31, in2023 ~~our~~and ~~loan~~December 31, ~~portfolio~~2022, respectively. AsThe ~~compared~~continued tolower ~~the~~prepayment ~~linked~~speeds ~~quarter,~~were ~~classified~~due ~~loans~~to ~~decreased~~rising bymarket ~~$1.8~~interest ~~million~~rates, ~~declining~~which ascontinued ato ~~result~~impact ofpurchase ~~the~~and ~~payoff~~refinancing ofactivity. ~~two~~The ~~adversely~~weighted ~~graded~~average ~~loans~~rate ~~during~~on ~~the~~loan ~~current~~payoffs/curtailments ~~quarter. The~~during ~~Company's~~the ~~exposure~~three tomonths ~~nonresidential~~ended ~~commercial~~March ~~real estate remains limited~~31, ~~totaling~~2023 ~~$182.0~~was ~~million, or 2~~4.743% ofas ~~our~~compared ~~loan~~to ~~portfolio,~~4.19% atfor the ~~end~~prior ~~of the current~~ quarter.

Total interest expense increased $10.7 million, or 27.8%, to $49.4 million, for the three months ended March 31, 2023 from $38.7 million for the prior quarter. Interest expense on deposits increased $8.1 million, to $37.6 million, for the three months ended March 31, 2023 from $29.5 million for the prior quarter. The increase was primarily due to a 65 basis point increase in the cost of interest-bearing deposits predominantly due to rate increases in both retail and brokered deposits. Additionally, interest expense on FHLB advances increased $2.4 million compared to the prior quarter due to an increase in the average balance and cost of advances of $198.5 million and 43 basis points, respectively. The increase in FHLB advances was primarily utilized to offset declines in retail deposits and supplement our liquidity during the quarter. We also use long-term FHLB advances as a hedge of interest rate risk, as we can strategically control the duration of those funds. A discussion of instruments used to mitigate interest rate risk can be found under Part II - Item 7A. ‘‘Quantitative and Qualitative Disclosures About Market Risk.’’

Table of Contents

Provision for Credit Losses

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

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

Noninterest Income

Noninterest income ~~decreased~~increased by $93264 thousand, or 2527.72%, to $~~269~~1.2 ~~thousand~~million for the three months ended ~~September~~March 3031, ~~2022~~2023 from $~~362~~971 thousand for the prior quarter. The following table presents the major components of our noninterest income:

For the Three Months Ended

(Dollars in thousands)

~~September~~March 3031,~~2022~~2023

~~June~~December 3031,2022

$ Increase (Decrease)

% Increase (Decrease)

Noninterest Income

FHLB dividends

~~363~~577

~~342~~529

2148

69.1

Fee income

~~122~~138

~~292~~110

~~(170)~~28

~~(58~~25.2)5

Other

~~(216)~~520

~~(272)~~332

56188

~~(20~~56.6)

Total noninterest income

~~269~~1,235

~~362~~971

~~(93)~~264

~~(25~~27.7)2

The ~~decrease~~increase in noninterest income for the quarter ended ~~September~~March 3031, ~~2022~~2023 compared to the quarter ended ~~June~~December 3031, 2022, was primarily attributable to ~~declines~~an increase in the fair value of equity securities ~~and~~during ~~deposit~~the ~~related~~current ~~fee~~quarter ~~income,~~compared ~~partially~~to ~~offset~~the byprior anquarter. ~~increase~~Changes in ~~income~~fair ~~earned~~value onare ~~Community~~primarily ~~Reinvestment~~attributable ~~Act~~to ~~("CRA")~~changes ~~investments~~in market interest rates.

Noninterest Expense

Noninterest expense ~~increased~~decreased $2.19 million, or 1514.45%, to $1516.49 million for the three months ended ~~September~~March 3031, ~~2022~~2023 from $1319.38 million for the three months ended ~~June~~December 3031, 2022. The following table presents the major components of our noninterest expense:

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Table of Contents

	For the Three Months Ended
(Dollars in thousands)	~~September~~March 3031,~~2022~~2023		~~June~~December 3031,2022		$ Increase (Decrease)		% Increase (Decrease)
Noninterest Expense
Compensation and related benefits	$	810,~~857~~671	$	712,~~070~~039	$	(1,~~787~~368)	25(11.34)	%
Deposit insurance premium	~~508~~884		~~479~~551		29333		660.14	%
Professional and regulatory fees	~~639~~436		~~634~~629		5(193)		0(30.87)	%
Occupancy	1,~~199~~184		1,~~197~~191		2(7)		(0.26)	%
Depreciation and amortization	~~806~~649		~~746~~794		60(145)		8(18.03)	%
Data processing	~~1,044~~862		1,~~007~~050		37(188)		3(17.79)	%
Marketing	~~1,211~~739		~~525~~1,318		~~686~~(579)		~~130~~(43.79)	%
Other expenses	1,112		1,667		(555)		(33.3)	%
Merger costs	553		1,090		(537)		(49.3)	%
Total noninterest expense	$	15,376	$	13,325	$	2,051	15.4	%
Other expenses	956		1,152		(196)		(17.0)	%
Total noninterest expense	$	16,934	$	19,814	$	(2,880)	(14.5)	%

The ~~increase~~decrease in noninterest expense during the quarter ended ~~September~~March 3031, ~~2022~~2023 compared to the linked quarter was predominantly due to a $1.84 million ~~increase~~decrease in compensation costs primarily due to a $2.9 million decrease in salaries and related benefits related to a reduction in lending workforce at the end of 2022, partially offset by a $1.6 million decline in capitalized loan origination costs due to lower loan origination volume. Noninterest ~~Additionally,~~expense ~~marketing~~was ~~expense~~also ~~increased~~positively impacted by a $~~686~~579 ~~thousands~~thousand decrease in marketing expenses due to ~~additional~~lower costs incurred inrelated ~~connection~~to ~~with~~ our specialty deposit gathering efforts. ~~These~~and ~~increases~~a ~~were~~$537 ~~partially~~thousand ~~offset~~decline byin acosts ~~decrease~~incurred in ~~other~~connection ~~expenses~~with ~~primarily~~our ~~due~~previously toannounced amerger ~~decline~~with inWashington ~~down~~Federal, ~~payment~~Inc. ~~assistance~~("WAFD") ~~costs~~compared ~~associated with our program~~ to ~~support~~the ~~home~~prior ~~ownership~~quarter. ~~for low-to-moderate income borrowers~~

Income Tax Expense

For the three months ended ~~September~~March 3031, ~~2022~~2023, we recorded income tax expense of $85.96 million as compared to $96.41 million for the prior quarter with effective tax rates of 29.76% and 2930.58%, respectively.

Results of Operations - ~~Nine~~Three Months Ended ~~September~~March 3031, ~~2022~~2023 and ~~2021~~ 2022

Overview

For the ~~nine~~three months ended ~~September~~March 3031, ~~2022~~2023, our net income was $6613.54 million as compared to $6422.49 million for the ~~nine~~three months ended ~~September~~March 3031, ~~2021~~2022. The ~~increase~~decrease of $29.15 million, or 341.34%, was primarily attributable to ana ~~increase~~decrease of $1311.20 million in net interest income, ~~partially offset by an increase of $9.5 million in the provision for loan losses~~ as compared to the same period last year. Pre-tax, pre-provision net earnings ~~increased~~decreased by $1211.43 million, or 1538.12%, for the ~~nine~~three months ended ~~September~~March 3031, ~~2022~~2023 as compared to the same period last year.

Net Interest Income

Net interest income ~~increased~~decreased by $1311.20 million, or 1024.65%, to $~~138~~34.0 million for the ~~nine~~three months ended ~~September~~March 3031, ~~2022~~2023 from $~~124~~45.70 million for the same period last year due to higher interest ~~income~~expense on ~~loans~~deposits and ~~investments~~FHLB ~~and lower interest expense on deposits~~advances, partially offset by higher interest ~~expense~~income on ~~FHLB~~loans, ~~advances~~investments and cash and cash equivalents.

Net interest margin for the ~~nine~~three months ended ~~September~~March 3031, ~~2022~~2023 was 21.5272% compared to 2.3454% for the same period last year. The ~~increase~~decrease in our margin was primarily related to a 16207 basis point increase in the cost of our interest-bearing liabilities, partially offset by a 106 basis point increase in the yield of our interest-earning assets.

Average balance sheet, interest and yield/rate analysis. The following table presents average balance sheet information, interest income, interest expense and the corresponding average yield earned and rates paid for the ~~nine~~three months ended ~~September~~March 3031, ~~2022~~2023 and ~~2021~~2022. The average balances are daily averages.

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Table of Contents

	For the Nine Months Ended September 30,
	For the Three Months Ended March 31,
	2022						2021
	2023						2022
(Dollars in thousands)	Average Balance		Interest Inc/Exp		Yield/Rate		Average Balance		Interest Inc/Exp		Yield/Rate
Interest-Earning Assets
Multifamily residential	$	4,~~327~~521,~~355~~440	$	~~120~~48,~~306~~961	34.7133	%	$	4,~~198~~211,~~616~~697	$	~~115~~39,~~542~~146	3.6772	%
Single family residential	12,~~976~~283,~~356~~753		4522,~~115~~991		34.0403	%	1,~~903~~867,~~550~~416		4012,~~787~~025		2.8658	%
Commercial real estate	~~189~~169,~~499~~268		62,~~597~~147		45.6407	%	~~198~~193,~~073~~871		62,~~750~~204		4.5455	%
Construction and land	2123,~~960~~665		~~893~~505		58.4465	%	1920,~~730~~341		~~927~~258		65.2814	%
Total loans (1)	6,~~515~~998,~~170~~126		~~172~~74,~~911~~604		34.5426	%	6,~~319~~293,~~969~~325		~~164~~53,~~006~~633		3.4641	%
Investment securities	~~660~~614,~~069~~527		95,~~290~~488		13.8857	%	~~645~~650,~~343~~091		62,~~287~~301		1.3042	%
Cash and cash equivalents	~~118~~291,~~452~~706		~~812~~3,303		04.9259	%	~~148~~153,~~630~~370		~~162~~66		0.1517	%
Total interest-earning assets	7,~~293~~904,~~691~~359		~~183~~83,~~013~~395		34.3522	%	7,~~113~~096,~~942~~786		~~170~~56,~~455~~000		3.1916	%
Noninterest-earning assets (2)	~~110~~149,~~459~~670						6492,~~614~~904
Total assets	$	78,~~404~~054,~~150~~029					$	7,~~178~~189,~~556~~690
Interest-Bearing Liabilities
Transaction accounts	$	~~171~~150,~~148~~429	~~279~~160		0.2143	%	$	~~155~~169,~~568~~580	~~263~~95		0.22	%
Money market demand accounts	32,~~007~~271,~~085~~018		1413,~~603~~956		02.6446	%	2,~~301~~964,~~417~~527		83,~~711~~222		0.5043	%
Time deposits	23,~~250~~268,~~523~~933		1223,~~136~~491		02.7188	%	2,~~849~~231,~~131~~471		192,~~916~~703		0.9249	%
Total deposits	5,~~428~~690,~~756~~380		2737,~~018~~607		02.6665	%	5,~~306~~365,~~116~~578		286,~~890~~020		0.7245	%
FHLB advances	~~899~~1,~~838~~327,863		129,~~071~~262		12.7983	%	~~907~~761,~~998~~119		113,~~345~~097		1.6765	%
Junior subordinated debentures	61,857		~~1,220~~966		26.6433	%	61,857		~~763~~275		1.6580	%
Senior debt	94,~~704~~796		41,~~724~~574		6.6564	%	94,~~581~~673		41,~~723~~574		6.6665	%
Total interest-bearing liabilities	67,~~485~~174,~~155~~896		4549,~~033~~409		02.9277	%	6,~~370~~283,~~552~~227		4510,~~721~~966		0.9570	%
Noninterest-bearing deposit accounts	~~159~~86,~~504~~967						~~107~~147,~~789~~533
Other noninterest-bearing liabilities	82100,~~935~~627						6384,~~745~~022
Total liabilities	67,~~727~~362,~~594~~490						6,~~542~~514,~~086~~782
Total stockholders' equity	~~676~~691,~~556~~539						~~636~~674,~~470~~908
Total liabilities and stockholders' equity	$	78,~~404~~054,~~150~~029					$	7,~~178~~189,~~556~~690
Net interest spread (3)					21.4345	%					2.2446	%
Net interest income/margin (4)			$	~~137~~33,~~980~~986	21.5272	%			$	~~124~~45,~~734~~034	2.3454	%

(1) Non-accrual loans and loans held for sale are included in total loan balances. No adjustment has been made for these loans in the calculation of yields. Interest income on loans includes amortization of deferred loan costs, net of deferred loan fees. Net deferred loan cost amortization totaled $111.24 million and $154.08 million for the ~~nine~~three months ended ~~September~~March 3031, ~~2022~~2023 and ~~2021~~2022, respectively.

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

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

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

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

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	Nine Months Ended September 30, 2022 vs 2021
	Variance Due To
(Dollars in thousands)	Volume		Yield/Rate		Total
Interest-Earning Assets
Multifamily residential	$	3,514	$	1,250	$	4,764
Single family residential	1,636		2,692		4,328
Commercial real estate	(299)		146		(153)
Construction and land	98		(132)		(34)
Total loans	4,949		3,956		8,905
Investment securities	147		2,856		3,003
Cash, cash equivalents and restricted cash	(41)		691		650
Total interest-earning assets	5,055		7,503		12,558
Interest-Bearing Liabilities
Transaction accounts	27		(11)		16
Money market demand accounts	3,080		2,812		5,892
Time deposits	(3,731)		(4,049)		(7,780)
Total deposits	(624)		(1,248)		(1,872)
FHLB advances	(101)		827		726
Junior subordinated debentures	—		457		457
Senior debt	7		(6)		1
Total interest-bearing liabilities	(718)		30		(688)
Net Interest Income	$	5,773	$	7,473	$	13,246

Total interest income increased by $12.6 million, or 7.4%, for the nine months ended September 30, 2022 as compared to the same period last year. The increase was primarily due to growth in the average balance of loans of $195.2 million during the period, as well as an 8 basis point increase in loan yields. The average balance of loans benefited from strong loan origination volumes and a gradual slowing of prepayment speeds as compared to the same period last year, while loan yields improved as a result of a $10.7 million improvement in the earnings on our swaps, partially offset by the prepayment of higher yielding loans, which, prior to this quarter, were generally being replaced by loans at lower interest rates. Additionally, interest income on investments increased $3.0 million primarily due to a 58 basis increase in yield compared to the same period last year due to rising market interest rates. As discussed above, at September 30, 2022, 43% of our investments were in their floating rate period and had a weighted average repricing frequency of 2.9 months.

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

Total interest expense decreased $688 thousand, or 1.5%, to $45.0 million for the nine months ended September 30, 2022 from $45.7 million for the same period last year. Interest expense on deposits decreased $1.9 million primarily due to the cost of interest-bearing deposits decreasing 6 basis points. The decrease in our cost of interest-bearing deposits during the nine months ended September 30, 2022 compared to the same period last year was predominantly due to the maturity of time deposits during the latter half of 2021 that repriced to lower interest rates at that time and, to a lesser extent, a $598.6 million decrease in the average balance of time deposits, which, prior to this quarter, were generally replaced with other lower cost deposit products. Interest expense on advances from

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the FHLB increased by $726 thousand during the nine months ended September 30, 2022 compared to the same period last year, due to an increase in the average cost of FHLB advances of 12 basis points due to rising market interest rates. A discussion

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