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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, 2023
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 31, 2023, there were 51,016,948 shares of the registrant’s common stock, no par value, outstanding.



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.
1

Cautionary Statements Regarding Forward-Looking Information
All references to ‘‘we,’’ ‘‘our,’’ ‘‘us,’’ ‘‘Luther Burbank Corporation’’ or ‘‘the Company’’ refers to Luther Burbank Corporation, a California corporation, and our consolidated subsidiaries, including Luther Burbank Savings, a California banking corporation, unless the context indicates that we refer only to the parent company, Luther Burbank Corporation. ‘‘Bank’’ or ‘‘LBS’’ refers to Luther Burbank Savings, our banking subsidiary.
This document contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including our current views with respect to, among other things, future events and our results of operations, financial condition, financial performance, plans and/or strategies. These forward-looking statements can be identified by the fact that they do not relate strictly to historical or current facts and may be identified by use of words such as "anticipate," "believe," “continue,” "could," "estimate," "expect," “impact,” "intend," "seek," "may," "outlook," "plan," "potential," "predict," "project," "should," "will," "would" and similar terms and phrases, including references to assumptions. These forward-looking statements are based on current expectations, estimates and projections about our industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control and involve a number of risks and uncertainties. Accordingly, we caution you that any such forward-looking statement is not a guarantee of future performance and that actual results may prove to be materially different from the results expressed or implied by the forward-looking statements due to a number of factors, including without limitation:
interest rate, liquidity, economic, market, credit, operational and inflation risks associated with our business or industry, including the speed and predictability of changes in these risks;
our ability to retain deposits and attract new deposits and loans and the composition and terms of such deposits and loans;
our access to adequate sources of liquidity;
business and economic conditions generally and in the financial services industry, nationally and within our current and future geographic markets, including the tight labor market, ineffective management of the U.S. Federal budget, debt or debt ceiling, bank failures, or turbulence or uncertainty in domestic or foreign financial markets;
any failure to adequately manage the transition from LIBOR as a reference rate;
changes in the level of our nonperforming assets and charge-offs;
the adequacy of our allowance for credit losses;
our management of risks inherent in our real estate loan portfolio, including the seasoning of the portfolio, the level of non-conforming loans, the number of large borrowers, and the risk of a prolonged downturn in the real estate market;
significant market concentrations in California and Washington;
the occurrence of significant natural or man-made disasters (including fires, earthquakes and terrorist acts), severe weather events, health crises and other catastrophic events;
climate change, including any enhanced regulatory, compliance, credit and reputational risks and costs;
political instability or the effects of war or other conflicts, including, but not limited to, the current conflicts between Russia and Ukraine and in the Middle East, as well as the civil unrest in Sudan;
the announced merger with Washington Federal, Inc., including delays in the consummation of the merger or litigation or other conditions that may cause the parties to abandon the merger or make the merger more expensive or less beneficial;
the impact that the announced merger may have on our ability to attract and retain customers and key personnel, the value of our shares, our expenses, and/or our ability to conduct our business in the ordinary course and execute on our strategies;
the performance of our third-party vendors;
fraud, financial crimes and fund transfer errors;
failures, interruptions, cybersecurity incidents and data breaches involving our data, technology and systems and those of our customers and third-party providers;
rapid technological changes in the financial services industry;
2

any inadequacy in our risk management framework or use of data and/or models;
the laws and regulations applicable to our business, and the impact of recent and future legislative and regulatory changes;
changing bank regulatory conditions, policies or programs, whether arising as new legislation or regulatory initiatives, that could lead to restrictions on activities of banks generally, or our subsidiary bank in particular, more restrictive regulatory capital requirements, increased costs, including deposit insurance premiums, regulation or prohibition of certain income producing activities or changes in the secondary market for loans and other products;
our involvement from time to time in legal proceedings and examinations and remedial actions by regulators;
increased competition in the financial services industry; and
changes in our reputation.
The foregoing factors should not be construed as exhaustive and should be read together with the other cautionary statements included in our annual report on Form 10-K for the year ended December 31, 2022, including under the caption “Risk Factors” in Item 1A of Part I, subsequent Quarterly Reports on Form 10-Q, and other reports or filings with the Securities and Exchange Commission ("SEC"). You should not place undue reliance on any of these forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made, and we do not undertake any obligation to update or review any forward-looking statement, whether as a result of new information, future developments or otherwise, except as required by law.

3

PART I.

Item 1. Financial Statements
LUTHER BURBANK CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollar amounts in thousands)
September 30,
2023 (unaudited)
December 31,
2022
ASSETS
Cash and cash equivalents$579,724 $185,895 
Available for sale debt securities, at fair value535,924 607,348 
Held to maturity debt securities, at amortized cost (fair value of $2,656 and $2,874 at September 30, 2023 and December 31, 2022, respectively)
3,025 3,108 
Equity securities, at fair value10,018 10,340 
Loans receivable, net of allowance for credit losses ("ACL") on loans of $39,885 and $36,685 at September 30, 2023 and December 31, 2022, respectively
6,787,334 6,973,760 
Accrued interest receivable26,049 24,306 
Federal Home Loan Bank ("FHLB") stock, at cost44,370 32,694 
Premises and equipment, net12,884 13,661 
Goodwill3,297 3,297 
Prepaid expenses and other assets131,288 120,223 
Total assets$8,133,913 $7,974,632 
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $5,760,102 $5,839,340 
FHLB advances1,426,647 1,208,147 
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 $123 and $215 at September 30, 2023 and December 31, 2022, respectively)
94,877 94,785 
Accrued interest payable10,847 3,964 
Other liabilities and accrued expenses84,578 84,003 
Total liabilities7,438,908 7,292,096 
Commitments and contingencies (Note 17)
Stockholders' equity:
Preferred stock, no par value; 5,000,000 shares authorized; none issued and outstanding at September 30, 2023 and December 31, 2022, respectively
  
Common stock, no par value; 100,000,000 shares authorized; 51,027,878 and 51,073,272 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively
399,313 398,988 
Retained earnings339,894 317,711 
Accumulated other comprehensive loss, net of taxes(44,202)(34,163)
Total stockholders' equity695,005 682,536 
Total liabilities and stockholders' equity$8,133,913 $7,974,632 
See accompanying notes to unaudited consolidated financial statements

4

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,
2023202220232022
Interest and fee income:
Loans$75,116 $62,366 $225,734 $172,911 
Investment securities5,711 4,127 16,812 9,290 
Cash and cash equivalents8,243 547 20,169 812 
Total interest and fee income89,070 67,040 262,715 183,013 
Interest expense:
Deposits55,099 14,085 140,423 27,018 
FHLB advances11,722 5,346 34,614 12,071 
Junior subordinated deferrable interest debentures1,112 560 3,086 1,220 
Senior debt1,574 1,575 4,723 4,724 
Total interest expense69,507 21,566 182,846 45,033 
Net interest income before provision for credit losses19,563 45,474 79,869 137,980 
Provision for credit losses3,001 500 3,418 500 
Net interest income after provision for credit losses16,562 44,974 76,451 137,480 
Noninterest income:
FHLB dividends886 363 2,088 1,059 
Other income146 (94)1,070 (370)
Total noninterest income1,032 269 3,158 689 
Noninterest expense:
Compensation and related benefits8,527 8,857 29,316 26,146 
Deposit insurance premium960 508 2,787 1,468 
Professional and regulatory fees638 639 1,573 1,812 
Occupancy1,115 1,199 3,433 3,590 
Depreciation and amortization368 806 1,390 2,155 
Data processing1,039 1,044 2,926 3,039 
Marketing860 1,211 2,554 2,194 
Other expenses1,528 1,112 4,094 3,809 
Total noninterest expense15,035 15,376 48,073 44,213 
Income before provision for income taxes2,559 29,867 31,536 93,956 
Provision for income taxes652 8,865 9,270 27,447 
Net income$1,907 $21,002 $22,266 $66,509 
Basic earnings per common share$0.04 $0.41 $0.44 $1.31 
Diluted earnings per common share$0.04 $0.41 $0.44 $1.30 
Dividends per common share$ $0.12 $ $0.36 

See accompanying notes to unaudited consolidated financial statements

5

LUTHER BURBANK CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(Dollar amounts in thousands)

Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Net income$1,907 $21,002 $22,266 $66,509 
Other comprehensive loss:
Unrealized loss on available for sale debt securities:
Unrealized holding loss arising during the period(9,516)(14,855)(14,181)(44,970)
Tax effect2,788 4,334 4,142 13,066 
Total other comprehensive loss, net of tax(6,728)(10,521)(10,039)(31,904)
Comprehensive (loss) income$(4,821)$10,481 $12,227 $34,605 

See accompanying notes to unaudited consolidated financial statements

6

LUTHER BURBANK CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY FOR THE
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022 (UNAUDITED)
(Dollar amounts in thousands, except per share data)
Accumulated Other Comprehensive Income (Loss) (Net of Taxes)Total Stockholders' Equity
Common StockRetained EarningsAvailable for Sale Securities
SharesAmount
Balance, June 30, 202251,063,498 $397,620 $295,297 $(21,295)$671,622 
Net income— — 21,002 — 21,002 
Other comprehensive loss— — — (10,521)(10,521)
Restricted stock award grants11,373 — — — — 
Settled restricted stock units3,502 — — — — 
Shares withheld to pay taxes on stock based compensation(3,768)(51)— — (51)
Stock based compensation expense— 756 — — 756 
Cash dividends ($0.12 per share)
— — (6,139)— (6,139)
Balance, September 30, 202251,074,605 $398,325 $310,160 $(31,816)$676,669 
Balance, June 30, 202351,027,878 $398,834 $337,987 $(37,474)$699,347 
Net income— — 1,907 — 1,907 
Other comprehensive loss— — — (6,728)(6,728)
Stock based compensation expense— 479 — — 479 
Balance, September 30, 202351,027,878 $399,313 $339,894 $(44,202)$695,005 
Balance, December 31, 202151,682,398 $406,904 $262,141 $88 $669,133 
Net income— — 66,509 — 66,509 
Other comprehensive loss— — — (31,904)(31,904)
Restricted stock award grants218,048 — — — — 
Settled restricted stock units10,261 — — — — 
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, 202251,074,605 $398,325 $310,160 $(31,816)$676,669 
Balance, December 31, 202251,073,272 $398,988 $317,711 $(34,163)$682,536 
Cumulative effect of change in accounting principal (1)— — (84)— (84)
Net income— — 22,266 — 22,266 
Other comprehensive loss— — — (10,039)(10,039)
Restricted stock award grants42,034 — — — — 
Settled restricted stock units15,426 — — — — 
Shares withheld to pay taxes on stock based compensation(99,855)(1,098)— — (1,098)
Restricted stock forfeitures(2,999)(3)1— (2)
Stock based compensation expense— 1,426 — — 1,426 
Balance, September 30, 202351,027,878 $399,313 $339,894 $(44,202)$695,005 
(1) Represents the impact of the adoption of Accounting Standards Update ("ASU") 2016-13, Financial Instruments – Credit Losses (ASC 326): Measurement of Credit Losses on Financial Instruments, and the related amendments which replaces the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss ("CECL") methodology.
See accompanying notes to unaudited consolidated financial statements

7

LUTHER BURBANK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollar amounts in thousands)
Nine Months Ended September 30,
20232022
Cash flows from operating activities:
Net income$22,266 $66,509 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization1,390 2,155 
Provision for credit losses3,418 500 
Amortization of deferred loan costs, net4,250 11,173 
Amortization of premiums on investment securities, net168 552 
Stock based compensation expense, net of forfeitures1,423 2,081 
Change in fair value of mortgage servicing rights55 190 
Change in fair value of equity securities322 1,376 
Other items, net184 217 
Effect of changes in:
Accrued interest receivable(1,743)(3,250)
Accrued interest payable6,883 832 
Prepaid expenses and other assets7,586 (12,653)
Other liabilities and accrued expenses(188)11,483 
Net cash provided by operating activities46,014 81,165 
Cash flows from investing activities:
Proceeds from maturities, paydowns and calls of available for sale debt securities57,078 108,908 
Proceeds from maturities and paydowns of held to maturity debt securities79 684 
Purchases of available for sale debt securities (147,578)
Net decrease (increase) in loans receivable164,785 (592,313)
Purchase of FHLB stock, net(11,676)(9,283)
Purchase of premises and equipment(615)(325)
Net cash provided by (used in) investing activities209,651 (639,907)
Cash flows from financing activities:
Net (decrease) increase in deposits(79,238)256,137 
Proceeds from long-term FHLB advances450,000 350,000 
Repayment of long-term FHLB advances(350,000)(100,000)
Net change in short-term FHLB advances118,500 200,000 
Shares withheld for taxes on vested restricted stock(1,098)(926)
Shares repurchased (9,734)
Cash paid for dividends (18,490)
Net cash provided by financing activities138,164 676,987 
Increase in cash and cash equivalents393,829 118,245 
Cash and cash equivalents, beginning of period185,895 138,413 
Cash and cash equivalents, end of period$579,724 $256,658 
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest$175,963 $44,201 
Income taxes$203 $21,987 
Supplemental non-cash disclosures:
Lease liabilities arising from obtaining right-of-use assets$2,978 $15,707 

See accompanying notes to unaudited consolidated financial statements

8


LUTHER BURBANK CORPORATION
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.NATURE OF OPERATIONS

Organization

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

The Bank conducts its business from its executive offices in Santa Rosa and Gardena, California, and an administrative office in Irvine, California. It has ten full service branches in California located in Sonoma, Marin, Santa Clara, and Los Angeles Counties and one full service branch in Washington located in King County. Additionally, there are several loan production offices located throughout California.
On November 13, 2022, the Company entered into an Agreement and Plan of Reorganization (the “Merger Agreement”) with Washington Federal, Inc. (“WAFD”), pursuant to which the Company will merge with and into WAFD (the “Corporate Merger”), with WAFD surviving the Corporate Merger. Promptly following the Corporate Merger, the Company’s wholly-owned bank subsidiary, Luther Burbank Savings, will be merged with and into Washington Federal Bank, dba WaFd Bank, the wholly-owned bank subsidiary of WAFD (“WAFD Bank”), with WAFD Bank as the surviving institution. On May 4, 2023, the shareholders of the Company and WAFD approved the Corporate Merger at their respective special meetings and, on October 13, 2023, the Washington State Department of Financial Institutions granted conditional approval of the merger. Closing of the transaction, which is expected to occur in the fourth quarter of 2023, remains subject to the receipt of approvals from the Federal Deposit Insurance Corporation and the Board of Governors of the Federal Reserve System, along with the satisfaction of other customary closing conditions.
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all footnotes as would be necessary for a fair presentation of financial position, results of operations and comprehensive income, changes in stockholders’ equity and cash flows in conformity with accounting principles generally accepted in the United States of America (“GAAP”). However, these interim unaudited consolidated financial statements reflect all adjustments (consisting solely of normal recurring adjustments and accruals) which, in the opinion of management, are necessary for a fair presentation of financial position, results of operations and comprehensive income, changes in stockholders’ equity and cash flows for the interim periods presented. These unaudited consolidated financial statements have been prepared on a basis consistent with, and should be read in conjunction with, the audited consolidated financial statements as of and for the year ended December 31, 2022, and the notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2022 filed with the Securities and Exchange Commission (the “SEC”), under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”). The unaudited consolidated financial statements include the accounts of the Company and its subsidiaries. All intercompany accounts and transactions have been eliminated.
 
The results of operations for the three and nine months ended September 30, 2023 are not necessarily indicative of the results of operations that may be expected for any other interim period or for the year ending December 31, 2023.

The Company’s accounting and reporting policies conform to GAAP and to general practices within the banking industry.
9

Use of Estimates
Management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions affect the amounts reported in the unaudited consolidated financial statements and the disclosures provided, and actual results could differ.
Reclassifications
Certain prior period balances have been reclassified to conform to current year presentation. These reclassifications had no effect on prior year net income or stockholders’ equity.
Earnings Per Share ("EPS")
Basic earnings per common share represents the amount of earnings for the period available to each share of common stock outstanding during the reporting period. Basic EPS is computed based upon net income divided by the weighted average number of common shares outstanding during the period. In determining the weighted average number of shares outstanding, vested restricted stock units are included. Diluted EPS represents the amount of earnings for the period available to each share of common stock outstanding including common stock that would have been outstanding assuming the issuance of common shares for all dilutive potential common shares outstanding during each reporting period. Diluted EPS is computed based upon net income divided by the weighted average number of common shares outstanding during each period, adjusted for the effect of dilutive potential common shares, such as restricted stock awards and units, calculated using the treasury stock method.
(Dollars in thousands, except share amounts)Three Months Ended September 30,Nine Months Ended September 30,
2023202220232022
Net income$1,907 $21,002 $22,266 $66,509 
Weighted average basic common shares outstanding50,864,217 50,738,479 50,866,536 50,956,972 
Add: Dilutive effects of assumed vesting of restricted stock59,224 155,079 39,864 114,774 
Weighted average diluted common shares outstanding50,923,441 50,893,558 50,906,400 51,071,746 
Income per common share:
Basic EPS$0.04 $0.41 $0.44 $1.31 
Diluted EPS$0.04 $0.41 $0.44 $1.30 
Anti-dilutive shares not included in calculation of diluted earnings per share3,888  18,224 2,493 
CECL
The Company adopted CECL using the modified retrospective method for all financial assets measured at cost, including loans, HTM debt securities and off-balance sheet credit exposures. Results for reporting periods beginning January 1, 2023 are reported under ASU 2016-13, while prior period results continue to be reported under the incurred loss model which was the previously applicable GAAP. The Company recorded an increase to its ACL of $119 thousand as a cumulative effect adjustment of adopting ASU 2016-13, with a corresponding decrease in retained earnings, net of $35 thousand in taxes, of $84 thousand. The transition adjustment reflects the results of our model in estimating lifetime expected credit losses on loans, unfunded commitments and other off-balance sheet credit exposures.

10

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 CostGross Unrealized GainsGross Unrealized LossesEstimated Fair Value
At September 30, 2023:
Government and Government Sponsored Entities:
Commercial mortgage backed securities ("MBS") and collateralized mortgage obligations ("CMOs")$333,497 $145 $(34,736)$298,906 
Residential MBS and CMOs205,351 13 (27,239)178,125 
Agency bonds37,069 76 (137)37,008 
Other asset backed securities ("ABS")22,344  (459)21,885 
Total available for sale debt securities$598,261 $234 $(62,571)$535,924 
At December 31, 2022:
Government and Government Sponsored Entities:
Commercial MBS and CMOs$365,207 $265 $(24,736)$340,736 
Residential MBS and CMOs221,994 22 (22,632)199,384 
Agency bonds42,540 189 (99)42,630 
Other ABS25,763  (1,165)24,598 
Total available for sale debt securities$655,504 $476 $(48,632)$607,348 
Net unrealized losses on available for sale investment securities are recorded as accumulated other comprehensive loss within stockholders’ equity and totaled $44.2 million and $34.2 million, net of $18.1 million and $14.0 million in tax assets, at September 30, 2023 and December 31, 2022, respectively. There were no sales or transfers of available for sale investment securities and no realized gains or losses on these securities during the three or nine months ended September 30, 2023 or 2022.

The following tables summarize the gross unrealized losses and fair value of available for sale debt securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:
September 30, 2023
Less than 12 Months12 Months or MoreTotal
(Dollars in thousands)Fair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized Losses
Government and Government Sponsored Entities:
Commercial MBS and CMOs$32,808 $(357)$240,500 $(34,379)$273,308 $(34,736)
Residential MBS and CMOs2,539 (19)173,126 (27,220)175,665 (27,239)
Agency bonds13,285 (29)12,176 (108)25,461 (137)
Other ABS  21,885 (459)21,885 (459)
Total available for sale debt securities$48,632 $(405)$447,687 $(62,166)$496,319 $(62,571)
At September 30, 2023, the Company held 58 commercial MBS and CMOs of which 52 were in a loss position and 45 had been in a loss position for twelve months or more. The Company held 88 residential MBS and CMOs of which 86 were in a loss position and 81 had been in a loss position for twelve months or more. The Company held six agency bonds of which four were in a loss position and three had 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 for twelve months or more.
11

December 31, 2022
Less than 12 Months12 Months or MoreTotal
(Dollars in thousands)Fair ValueUnrealized LossesFair ValueUnrealized LossesFair ValueUnrealized 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 CMOs94,137 (5,912)99,831 (16,720)193,968 (22,632)
Agency bonds14,345 (99)  14,345 (99)
Other ABS10,804 (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 September 30, 2023 or December 31, 2022. Additionally, the Company had no ACL recorded for available for sale investment securities at September 30, 2023.
As of September 30, 2023 and December 31, 2022, there were no holdings of securities of any one issuer in an amount greater than 10% of stockholders' equity, other than the U.S. government and its agencies.
Held to Maturity
The following table summarizes the amortized cost and estimated fair value of held to maturity investment securities as of the dates indicated:
(Dollars in thousands)Amortized CostGross Unrecognized GainsGross Unrecognized LossesEstimated Fair Value
As of September 30, 2023:
Government Sponsored Entities:
Residential MBS$2,971 $ $(369)$2,602 
Other investments54   54 
Total held to maturity investment securities$3,025 $ $(369)$2,656 
As of December 31, 2022:
Government Sponsored Entities:
Residential MBS$3,047 $ $(234)$2,813 
Other investments61   61 
Total held to maturity investment securities$3,108 $ $(234)$2,874 
The following table summarizes the gross unrecognized losses and fair value of held to maturity investment securities, aggregated by investment category and length of time that individual securities have
12

been in a continuous unrecognized loss position:
Less than 12 Months12 Months or MoreTotal
(Dollars in thousands)Fair ValueUnrecognized LossesFair ValueUnrecognized LossesFair ValueUnrecognized Losses
As of September 30, 2023:
Government Sponsored Entities:
Residential MBS$ $ $2,602 $(369)$2,602 $(369)
As of December 31, 2022:
Government Sponsored Entities:
Residential MBS$2,813 $(234)$ $ $2,813 $(234)
At September 30, 2023, the Company had seven held to maturity residential MBS of which all seven 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 September 30, 2023 were caused by interest rate changes. In addition, the contractual cash flows of these investments are guaranteed by agencies sponsored by the U.S. government. Accordingly, it is expected that the securities will not be settled at a price less than amortized cost. Because the decline in market value is attributable to changes in interest rates but not credit quality, and because the Company has the ability and intent to hold those investments until maturity, the Company does not consider these securities to be other-than-temporarily impaired at September 30, 2023 or December 31, 2022. Additionally, the Company had no ACL recorded for held to maturity investment securities at September 30, 2023.
The following table summarizes the scheduled maturities of available for sale and held to maturity investment securities as of September 30, 2023:
September 30, 2023
(Dollars in thousands)Amortized CostFair Value
Available for sale debt securities
One to five years$1,451 $1,457 
Five to ten years32,762 32,681 
Beyond ten years2,856 2,870 
MBS, CMOs and other ABS561,192 498,916 
Total available for sale debt securities$598,261 $535,924 
Held to maturity investments securities
Five to ten years$54 $54 
MBS2,971 2,602 
Total held to maturity debt securities$3,025 $2,656 
The amortized cost and fair value of debt securities are shown by contractual maturity. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. As such, mortgage backed securities, collateralized mortgage obligations and other asset backed securities are not included in the maturity categories above and instead are shown separately. As of September 30, 2023, securities with an amortized cost totaling $575.3 million were pledged to the FHLB and Federal Reserve Bank of San Francisco ("FRB") to secure borrowing arrangements. See Note 9 for additional information. No securities were pledged as of December 31, 2022.
Equity Securities
Equity securities consist of investments in a qualified community reinvestment fund. At September 30, 2023 and December 31, 2022, the fair value of equity securities totaled $10.0 million and $10.3 million, respectively. Changes in fair value are recognized in other noninterest income and totaled $(322) thousand during both the three and nine months ended September 30, 2023, compared to $(455) thousand and
13

$(1.4) million during the three and nine months ended September 30, 2022, respectively. There were no sales of equity securities during the three or nine months ended September 30, 2023 or 2022.
3.     LOANS
Loans consist of the following:
(Dollars in thousands)September 30,
2023
December 31,
2022
Mortgages on:
Multifamily residential$4,349,645 $4,532,312 
Single family residential2,303,280 2,283,628 
Commercial real estate153,986 172,258 
Construction and land20,308 22,247 
Total6,827,219 7,010,445 
Allowance for credit losses on loans(39,885)(36,685)
Loans, net$6,787,334 $6,973,760 

Certain loans have been pledged to secure borrowing arrangements (see Note 9).
Prior to the Company’s adoption of CECL on January 1, 2023, the Company maintained an allowance for loan losses ("ALLL") in accordance with the probable incurred loss model. The probable incurred loss model was reflective of estimates for loan losses incurred and inherent in the loan portfolio as of the balance sheet date, and did not reflect current estimates of future expected credit losses over the lives of the Company’s loans, as now required by CECL.
The following table summarizes activity in and the allocation of the allowance for credit losses by portfolio segment during the three and nine months ended September 30, 2023:
Allowance for Credit Losses
(Dollars in thousands)Beginning BalanceImpact of CECL AdoptionCharge-OffsRecoveriesProvisionEnding Balance
Three months ended September 30, 2023
Multifamily residential$29,223 $— $ $ $2,203 $31,426 
Single family residential6,874 — (463) 718 7,129 
Commercial real estate776 —   207 983 
Construction and land341 —   6 347 
Allowance for credit losses on loans37,214 — (463) 3,134 39,885 
Allowance for credit losses on off-balance sheet credit exposures570 —   (133)437 
Total$37,784 $— $(463)$ $3,001 $40,322 
Nine months ended September 30, 2023
Multifamily residential$26,417 $2,882 $ $ $2,127 $31,426 
Single family residential8,564 (2,472)(463) 1,500 7,129 
Commercial real estate1,539 (784)  228 983 
Construction and land165 282   (100)347 
Allowance for credit losses on loans36,685 (92)(463) 3,755 39,885 
Allowance for credit losses on off-balance sheet credit exposures563 211   (337)437 
Total$37,248 $119 $(463)$ $3,418 $40,322 
14

The following table summarizes activity in and the allocation of the allowance for loan losses by portfolio segment during the three and nine months ended September 30, 2022:
Allowance for Loan Losses
(Dollars in thousands)Beginning BalanceCharge-OffsRecoveriesProvisionEnding Balance
Three months ended September 30, 2022
Multifamily residential$26,007 $ $ $197 $26,204 
Single family residential7,625   532 8,157 
Commercial real estate1,673   (130)1,543 
Construction and land230   (99)131 
Total$35,535 $ $ $500 $36,035 
Nine months ended September 30, 2022
Multifamily residential$26,043 $ $ $161 $26,204 
Single family residential7,224   933 8,157 
Commercial real estate2,094   (551)1,543 
Construction and land174   (43)131 
Total$35,535 $ $ $500 $36,035 
The Company assigns a risk rating to all loans and periodically performs detailed reviews of loans to identify credit risks and to assess the overall collectability of the portfolio. During these internal reviews, management monitors and analyzes the financial condition of borrowers and guarantors, as well as the financial performance and/or other characteristics of loan collateral. These credit quality indicators are used to assign a risk rating to each individual loan. The risk ratings can be grouped into six major categories, defined as follows:
Pass assets are those which are performing according to contract and have no existing or known weaknesses deserving of management’s close attention. The basic underwriting criteria used to approve the loans are still valid, and all payments have essentially been made as planned.
Watch assets are expected to have an event occurring in the near future that will lead to a change in risk rating with the change being either favorable or unfavorable. These assets require heightened monitoring of the event by management.
Special Mention assets have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Company’s credit position at some future date. Special mention assets are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.
Substandard assets are inadequately protected by the current net worth and/or paying capacity of the obligor or by the collateral pledged. These assets have well-defined weaknesses: the primary source of repayment is gone or severely impaired (i.e., bankruptcy or loss of employment) and/or there has been a deterioration in collateral value. In addition, there is the distinct possibility that the Company will sustain some loss, either directly or indirectly (i.e., the cost of monitoring), if the deficiencies are not corrected. A deterioration in collateral value alone does not mandate that an asset be adversely classified if such factor does not indicate that the primary source of repayment is in jeopardy.
Doubtful assets have the weaknesses of those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable based on current facts, conditions and values.
Loss assets are considered uncollectible and of such little value that their continuance as assets, without establishment of a specific valuation allowance or charge-off, is not warranted. This classification does not necessarily mean that an asset has absolutely no recovery or salvage value; but rather, it is not practical or desirable to defer writing off a basically worthless asset (or portion thereof) even though partial recovery may be affected in the future.
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The following table presents the internal risk ratings for total loans by portfolio segment of loan and origination year as of September 30, 2023, as well as gross charge-offs for the nine months ended September 30, 2023:
(Dollars in thousands)Loans by Origination Year
20232022202120202019PriorTotal
Multifamily residential
Pass$62,408 $1,153,789 $1,173,628 $702,485 $407,302 $789,415 $4,289,027 
Watch 2,066 11,918 4,784 10,651 8,870 38,289 
Special Mention     1,712 4,135 5,847 
Substandard   3,546 3,836 9,100 16,482 
Total$62,408 $1,155,855 $1,185,546 $710,815 $423,501 $811,520 $4,349,645 
Year to date gross charge-offs$ $ $ $ $ $ $ 
Single family residential
Pass$153,229 $804,841 $706,081 $156,946 $132,733 $325,433 $2,279,263 
Watch 1,408 2,687  3,774 11,340 19,209 
Special Mention 335   784 556 1,675 
Substandard 1,686    1,447 3,133 
Total$