Company Quick10K Filing
⚲
Luther Burbank
Financials
Price11.49 EPS1
Shares56 P/E14
MCap647 P/FCF12
Net Debt-168 EBIT171
TEV479 TEV/EBIT3
TTM 2019-09-30, in MM, except price, ratios
Filings
10-Q 2020-09-30 Filed 2020-11-06
10-Q 2020-06-30 Filed 2020-08-07
10-Q 2020-03-31 Filed 2020-05-08
10-K 2019-12-31 Filed 2020-03-11
10-Q 2019-09-30 Filed 2019-11-12
10-Q 2019-06-30 Filed 2019-08-09
10-Q 2019-03-31 Filed 2019-05-10
10-K 2018-12-31 Filed 2019-03-04
10-Q 2018-09-30 Filed 2018-11-09
10-Q 2018-06-30 Filed 2018-08-09
10-Q 2018-03-31 Filed 2018-05-10
10-K 2017-12-31 Filed 2018-03-16
Reports
8-K 2020-10-30
8-K 2020-10-27
8-K 2020-10-09
8-K 2020-07-28
8-K 2020-07-10
8-K 2020-05-04
8-K 2020-04-28
8-K 2020-04-10
8-K 2020-03-11
8-K 2020-02-26
8-K 2020-01-28
8-K 2020-01-10
8-K 2019-10-23
8-K 2019-10-03
8-K 2019-07-29
8-K 2019-07-10
8-K 2019-04-29
8-K 2019-04-26
8-K 2019-04-24
8-K 2019-04-10
8-K 2019-01-31
8-K 2019-01-28
8-K 2019-01-10
8-K 2018-12-14
8-K 2018-11-30
8-K 2018-10-25
8-K 2018-10-10
8-K 2018-08-16
8-K 2018-07-26
8-K 2018-07-10
8-K 2018-06-07
8-K 2018-05-24
8-K 2018-04-27
8-K 2018-04-26
8-K 2018-04-05
8-K 2018-03-05
8-K 2018-01-25

LBC 10Q Quarterly Report

Content
Part I.
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Item 4. Controls and Procedures
Part II.
Item 1. Legal Proceedings
Item 1A. Risk Factors
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Item 3. Defaults Upon Senior Securities
Item 4. Mine Safety Disclosures
Item 5. Other Information
Item 6. Exhibits
Exhibits
EX-31.1 lbc10qex3112020q3.htm
EX-31.2 lbc10qex3122020q3.htm
EX-32.1 lbc10qex3212020q3.htm
EX-32.2 lbc10qex3222020q3.htm

Luther Burbank Earnings 2020-09-30

Balance SheetIncome StatementCash Flow
lbc-20200930
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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 30, 2020
OR
☐  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 ClassTrading SymbolName of Each Exchange on Which Registered
Common stock, no par valueLBCThe 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 30, 2020, there were 52,409,960 shares of the registrant’s common stock, no par value, outstanding.


Table of Contents
Table of Contents
Page
PART I - FINANCIAL INFORMATION
Item 1.
Item 2.
Item 3.
Item 4.
PART II - OTHER INFORMATION
Item 1.
Item 1A.
Item 2.
Item 5.
Item 6.
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Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
 
This Quarterly Report on Form 10-Q may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. You can find many (but not all) of these statements by looking for words such as “approximates,” “believes,” “expects,” “anticipates,” “estimates,” “intends,” “plans,” “would,” “may” and other similar expressions in this Quarterly Report on Form 10-Q. With respect to any such forward-looking statements, the Company claims the protection of the safe harbor provided for in the Private Securities Litigation Reform Act of 1995, as amended. The Company cautions investors that any forward-looking statements presented in this Quarterly Report on Form 10-Q, or those that the Company may make orally or in writing from time to time, are based on the beliefs of, assumptions made by, and information available to, management at the time such statements are first made. Actual outcomes will be affected by known and unknown risks, trends, uncertainties and factors that are beyond the Company’s control or ability to predict.  Although the Company believes that management’s beliefs and assumptions are reasonable, they are not guarantees of future performance and some will inevitably prove to be incorrect. As a result, the Company’s actual future results can be expected to differ from management’s expectations, and those differences may be material and adverse to the Company’s business, results of operations and financial condition. Accordingly, investors should use caution in placing any reliance on forward-looking statements to anticipate future results or trends.

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

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


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PART I.

Item 1. Financial Statements
LUTHER BURBANK CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollar amounts in thousands)
September 30,
2020 (unaudited)		December 31,
2019
ASSETS
Cash, cash equivalents and restricted cash$214,066 $91,325 
Available for sale debt securities, at fair value623,499 625,074 
Held to maturity debt securities, at amortized cost (fair value of $8,393 and $10,349 at September 30, 2020 and December 31, 2019, respectively)
7,990 10,170 
Equity securities, at fair value12,070 11,782 
Loans receivable, net of allowance for loan losses of $46,063 and $36,001 at September 30, 2020 and December 31, 2019, respectively
6,102,438 6,194,976 
Accrued interest receivable19,894 20,814 
Federal Home Loan Bank ("FHLB") stock, at cost29,612 30,342 
Premises and equipment, net18,750 19,504 
Goodwill3,297 3,297 
Prepaid expenses and other assets40,047 38,544 
Total assets$7,071,663 $7,045,828 
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $5,276,680 $5,234,717 
FHLB advances961,747 978,702 
Junior subordinated deferrable interest debentures61,857 61,857 
Senior debt
$95,000 face amount, 6.5% interest rate, due September 30, 2024 (less debt issuance costs of $491 and $584 at September 30, 2020 and December 31, 2019, respectively)
94,509 94,416 
Accrued interest payable1,254 2,901 
Other liabilities and accrued expenses66,783 58,771 
Total liabilities6,462,830 6,431,364 
Commitments and contingencies (Note 16)
Stockholders' equity:
Preferred stock, no par value; 5,000,000 shares authorized; none issued and outstanding at September 30, 2020 and December 31, 2019, respectively
— — 
Common stock, no par value; 100,000,000 shares authorized; 52,410,053 and 55,999,754 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively
415,115 447,784 
Retained earnings187,147 165,236 
Accumulated other comprehensive income, net of taxes6,571 1,444 
Total stockholders' equity608,833 614,464 
Total liabilities and stockholders' equity$7,071,663 $7,045,828 
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,
2020201920202019
Interest and fee income:
Loans$56,766 $64,010 $175,661 $186,078 
Investment securities2,167 3,900 7,787 11,943 
Cash, cash equivalents and restricted cash83 766 454 1,688 
Total interest and fee income59,016 68,676 183,902 199,709 
Interest expense:
Deposits15,744 27,927 60,146 78,686 
FHLB advances5,307 5,983 16,550 19,165 
Junior subordinated deferrable interest debentures279 604 1,104 1,888 
Senior debt1,574 1,577 4,727 4,725 
Total interest expense22,904 36,091 82,527 104,464 
Net interest income before provision for (reversal of) loan losses36,112 32,585 101,375 95,245 
Provision for (reversal of) loan losses— (500)10,550 250 
Net interest income after provision for (reversal of) loan losses36,112 33,085 90,825 94,995 
Noninterest income:
Gain on sale of loans— 77 — 607 
FHLB dividends368 557 1,277 1,604 
Other income219 359 779 1,650 
Total noninterest income587 993 2,056 3,861 
Noninterest expense:
Compensation and related benefits11,408 9,191 32,913 27,857 
Deposit insurance premium482 — 1,429 985 
Professional and regulatory fees431 521 1,316 1,419 
Occupancy1,156 1,425 3,397 4,214 
Depreciation and amortization673 672 2,029 2,001 
Data processing999 945 3,004 2,809 
Marketing306 1,217 1,511 3,442 
Other expenses919 2,098 2,982 4,300 
Total noninterest expense16,374 16,069 48,581 47,027 
Income before provision for income taxes20,325 18,009 44,300 51,829 
Provision for income taxes6,008 5,273 13,089 15,425 
Net income$14,317 $12,736 $31,211 $36,404 
Basic earnings per common share$0.28 $0.23 $0.58 $0.65 
Diluted earnings per common share$0.27 $0.23 $0.58 $0.65 
Dividends per common share$0.06 $0.06 $0.17 $0.17 

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,
2020201920202019
Net income$14,317 $12,736 $31,211 $36,404 
Other comprehensive income:
Unrealized gain on available for sale debt securities:
Unrealized holding (loss) gain arising during the period(1)1,183 7,222 9,156 
Tax effect6 (344)(2,095)(2,653)
Net of tax5 839 5,127 6,503 
Unrealized gain on cash flow hedge:
Unrealized holding gain arising during the period— — — 147 
Tax effect— — — (43)
Net of tax— — — 104 
Total other comprehensive income5 839 5,127 6,607 
Comprehensive income$14,322 $13,575 $36,338 $43,011 

See accompanying notes to unaudited consolidated financial statements
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LUTHER BURBANK CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
(Dollar amounts in thousands, except per share data)
Accumulated Other Comprehensive Income (Net of Taxes)Total Stockholders' Equity
Common StockRetained EarningsAvailable for Sale Securities
SharesAmount
Balance, June 30, 201955,982,491 $449,825 $146,514 $1,128 $597,467 
Comprehensive income:
Net income— — 12,736 — 12,736 
Other comprehensive income— — — 839 839 
Settled restricted stock units377,728 — — — — 
Shares withheld to pay taxes on stock based compensation(178,403)(1,972)— — (1,972)
Restricted stock forfeitures(36,045)(89)8 — (81)
Stock based compensation expense— 786 — — 786 
Shares repurchased(111,000)(1,161)— — (1,161)
Cash dividends ($0.06 per share)
— — (3,242)— (3,242)
Balance, September 30, 201956,034,771 $447,389 $156,016 $1,967 $605,372 
Balance, June 30, 202052,382,895 $414,264 $175,852 $6,566 $596,682 
Comprehensive income:
Net income— — 14,317 — 14,317 
Other comprehensive income— — — 5 5 
Issuance of restricted stock awards11,604 — — — — 
Settled restricted stock units24,188 — — — — 
Shares withheld to pay taxes on stock based compensation(7,797)(75)— — (75)
Restricted stock forfeitures(837)(5)—— (5)
Stock based compensation expense— 931 — — 931 
Cash dividends ($0.06 per share)
— — (3,022)— (3,022)
Balance, September 30, 202052,410,053 $415,115 $187,147 $6,571 $608,833 
See accompanying notes to unaudited consolidated financial statements
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Accumulated Other Comprehensive (Loss) Income (Net of Taxes)Total Stockholders' Equity
Common StockRetained EarningsAvailable for Sale SecuritiesCash Flow Hedge
SharesAmount
Balance, December 31, 201856,379,066 $456,378 $129,806 $(4,935)$(104)$581,145 
Cumulative effect of change in accounting principal (1)— — (399)399 — — 
Comprehensive income:
Net income— — 36,404 — — 36,404 
Other comprehensive income— — — 6,503 104 6,607 
Issuance of restricted stock awards321,784 — — — — — 
Settled restricted stock units499,707 — — — — — 
Shares withheld to pay taxes on stock based compensation(223,044)(2,409)— — — (2,409)
Restricted stock forfeitures(72,041)(220)18 — — (202)
Stock based compensation expense— 2,431 — — — 2,431 
Shares repurchased(870,701)(8,791)— — — (8,791)
Cash dividends ($0.17 per share)
— — (9,813)— — (9,813)
Balance, September 30, 201956,034,771 $447,389 $156,016 $1,967 $— $605,372 
Balance, December 31, 201955,999,754 $447,784 $165,236 $1,444 $— $614,464 
Comprehensive income:
Net income— — 31,211 — — 31,211 
Other comprehensive income— — — 5,127 — 5,127 
Issuance of restricted stock awards261,722 — — — — — 
Settled restricted stock units94,408 — — — — — 
Shares withheld to pay taxes on stock based compensation(64,361)(666)— — — (666)
Restricted stock forfeitures(29,661)(31)8— — (23)
Stock based compensation expense— 2,742 — — — 2,742 
Shares repurchased(3,851,809)(34,714)— — — (34,714)
Cash dividends ($0.17 per share)
— — (9,308)— — (9,308)
Balance, September 30, 202052,410,053 $415,115 $187,147 $6,571 $— $608,833 
(1) Represents the impact of adopting Accounting Standards Update ("ASU") 2016-01. See Note 3 to the unaudited consolidated financial statements for further information.

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,
20202019
Cash flows from operating activities:
Net income$31,211 $36,404 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization2,029 2,001 
Provision for loan losses10,550 250 
Amortization of deferred loan costs, net11,785 10,386 
Amortization of premiums on investment securities, net2,447 1,039 
Gain on sale of loans— (607)
Stock based compensation expense, net of forfeitures2,711 2,211 
Change in fair value of mortgage servicing rights807 652 
Change in fair value of equity securities(288)(399)
Loss on disposition of leasehold improvements— 1,120 
Other items, net331 (383)
Effect of changes in:
Accrued interest receivable920 (1,338)
Accrued interest payable(1,647)(969)
Prepaid expenses and other assets(4,134)(2,040)
Other liabilities and accrued expenses(3,780)5,770 
Net cash provided by operating activities52,942 54,097 
Cash flows from investing activities:
Proceeds from maturities, paydowns and calls of available for sale debt securities188,270 55,523 
Proceeds from maturities and paydowns of held to maturity debt securities2,096 1,216 
Proceeds from sales of available for sale debt securities— 1,000 
Purchases of available for sale debt securities(181,837)(71,694)
Net decrease (increase) in loans receivable101,994 (190,602)
Proceeds from loans held for sale previously classified as portfolio loans— 62,235 
Purchase of loans(20,507)(10,052)
Redemption of FHLB stock, net730 1,480 
Purchase of premises and equipment(1,275)(663)
Net cash provided by (used in) investing activities89,471 (151,557)
Cash flows from financing activities:
Net increase in deposits41,963 360,962 
Proceeds from long-term FHLB advances136,500 375,100 
Repayment of long-term FHLB advances(151,955)(375,022)
Net change in short-term FHLB advances(1,500)(166,000)
Shares withheld for taxes on vested restricted stock(666)(2,409)
Shares repurchased(34,714)(8,791)
Cash paid for dividends(9,300)(9,795)
Net cash (used in) provided by financing activities(19,672)174,045 
Increase in cash, cash equivalents and restricted cash122,741 76,585 
Cash, cash equivalents and restricted cash, beginning of period91,325 91,697 
Cash, cash equivalents and restricted cash, end of period$214,066 $168,282 
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest$84,174 $105,433 
Income taxes$15,069 $14,125 
Non-cash investing activity:
Loans transferred to held for sale$— $61,751 

See accompanying notes to unaudited consolidated financial statements
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LUTHER BURBANK CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.NATURE OF OPERATIONS

Organization

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

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

Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all footnotes as would be necessary for a fair presentation of financial position, results of operations and comprehensive income, changes in stockholders’ equity and cash flows in conformity with accounting principles generally accepted in the United States of America (“GAAP”). However, these interim unaudited consolidated financial statements reflect all adjustments (consisting solely of normal recurring adjustments and accruals) which, in the opinion of management, are necessary for a fair presentation of financial position, results of operations and comprehensive income, changes in stockholders’ equity and cash flows for the interim periods presented. These unaudited consolidated financial statements have been prepared on a basis consistent with, and should be read in conjunction with, the audited consolidated financial statements as of and for the year ended December 31, 2019, and the notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019 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 30, 2020 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, 2020.

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. The estimates utilized to determine the appropriate allowance for loan losses at September 30, 2020 may be materially different from actual results due to the COVID-19 pandemic. See Note 2 to the unaudited consolidated financial statements for additional information regarding the COVID-19 pandemic.

Reclassifications

Certain prior balances in the unaudited consolidated financial statements have been reclassified to
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conform to current year presentation. These reclassifications had no effect on prior year net income or stockholders’ equity.

Earnings Per Share ("EPS")

Basic earnings per common share represents the amount of earnings for the period available to each share of common stock outstanding during the reporting period. Basic EPS is computed based upon net income divided by the weighted average number of common shares outstanding during the period. In determining the weighted average number of shares outstanding, vested restricted stock units are included. Diluted EPS represents the amount of earnings for the period available to each share of common stock outstanding including common stock that would have been outstanding assuming the issuance of common shares for all dilutive potential common shares outstanding during each reporting period. Diluted EPS is computed based upon net income divided by the weighted average number of common shares outstanding during each period, adjusted for the effect of dilutive potential common shares, such as restricted stock awards and units, calculated using the treasury stock method.
(Dollars in thousands, except share amounts)Three Months Ended September 30,Nine Months Ended September 30,
2020201920202019
Net income$14,317 $12,736 $31,211 $36,404 
Weighted average basic common shares outstanding52,001,097 55,654,429 53,359,460 56,094,285 
Add: Dilutive effects of assumed vesting of restricted stock156,106 273,104 118,309 219,587 
Weighted average diluted common shares outstanding52,157,203 55,927,533 53,477,769 56,313,872 
Income per common share:
Basic EPS$0.28 $0.23 $0.58 $0.65 
Diluted EPS$0.27 $0.23 $0.58 $0.65 
Anti-dilutive shares not included in calculation of diluted earnings per share26 4,398 17,623 4,381 

Qualified Affordable Housing Project Investments

During the quarter ended September 30, 2020, the Company invested in a qualified affordable housing project that is expected to provide federal and California state tax credits in the future. This investment is accounted for using the proportional amortization method. During the quarter ended September 30, 2020, the Company committed to invest $4.8 million, of which $1.6 million has been funded at September 30, 2020, and was included in prepaid expenses and other assets in the unaudited consolidated statement of financial condition. The total unfunded commitment related to the investment totaled $3.3 million at September 30, 2020 and was included in other liabilities and accrued expenses in the unaudited consolidated statement of financial condition. Unfunded commitments are expected to be paid by the Company no later than 2023. During both the three and nine months ended September 30, 2020, the Company recognized amortization expense of $21 thousand and tax benefits related to the investment of $28 thousand. Amortization expense and tax benefits are included in the provision for income taxes in the unaudited consolidated statement of income.
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2.     COVID-19
In late March 2020, the Company implemented a loan modification program that permits borrowers who have been financially impacted by the COVID-19 pandemic, and are unable to service their loans, to defer loan payments for a specified period of time. As of September 30, 2020, the Company had modified 269 current outstanding loans with an aggregate principal balance of $397.5 million, representing 6.5% of the Company's loan portfolio. Of these loans, 222 loans with an aggregate principal balance totaling $322.1 million as of September 30, 2020 have returned, or the borrower has indicated they intend to return, to payments following their respective modification period. Excluded from the modified loan amounts above, 15 loans totaling $24.0 million have paid off subsequent to modification as of September 30, 2020. Modified loans under this program have generally been downgraded to a Watch risk rating at the time of their respective modifications. During the nine months ended September 30, 2020, the Company recorded a loan loss reserve of $10.2 million in connection with the potential credit impact from the pandemic. See Note 4 for further discussion regarding loan risk ratings and the Company's allowance for loan losses.

In conjunction with the passage of the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), as well as the revised interagency guidance issued in April 2020, "Interagency Statement on Loan Modifications and Reporting for Financial Institutions Working With Customers Affected by the Coronavirus (Revised)", banks have been provided the option, for loans meeting specific criteria, to temporarily suspend certain requirements under GAAP related to Troubled Debt Restructurings ("TDRs") for a limited time to account for the effects of COVID-19. As a result, the Company is not recognizing eligible COVID-19 loan modifications as TDRs. Additionally, loans qualifying for these modifications are not required to be reported as delinquent, nonaccrual, impaired or criticized solely as a result of a COVID-19 loan modification. Through the date of this filing, the Company has not experienced any loan charge-offs caused by the economic impact from COVID-19. Management has evaluated events related to COVID-19 that have occurred subsequent to September 30, 2020 and has concluded there are no matters that would require recognition in the accompanying unaudited consolidated financial statements.
3.     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 CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
At September 30, 2020:
Government and Government Sponsored Entities:
Residential mortgage backed securities ('MBS") and collateralized mortgage obligations ("CMOs")$231,925 $3,977 $(62)$235,840 
Commercial MBS and CMOs366,948 6,224 (893)372,279 
Agency bonds15,367 58 (45)15,380 
Total available for sale debt securities$614,240 $10,259 $(1,000)