Company Quick10K Filing
Luther Burbank
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
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
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

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
EX-31.1 lbcex311_1q2020.htm
EX-31.2 lbcex312_1q2020.htm
EX-32.1 lbcex321_1q2020.htm
EX-32.2 lbcex322_1q2020.htm

Luther Burbank Earnings 2020-03-31

Balance SheetIncome StatementCash Flow

10-Q 1 lbc10q2020q1.htm 10-Q Document
 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
 
 
FORM 10-Q
 
 
 
 
 
 
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2020
OR
o  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
x
Non-accelerated filer
o
 
Smaller Reporting Company
x
 
 
 
Emerging Growth Company
x

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. o

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

As of May 1, 2020, there were 52,951,276 shares of the registrant’s common stock, no par value, outstanding.




Table of Contents
 
 
Page
 
PART I - FINANCIAL INFORMATION
 
 
 
 
 
 
 
Item 2.
Item 3.
Item 4.
 
PART II - OTHER INFORMATION
 
Item 1.
Item 1A.
 

1


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.



2


PART I.

Item 1. Financial Statements
LUTHER BURBANK CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollar amounts in thousands)
 
March 31,
2020 (unaudited)
 
December 31,
2019
ASSETS
 
 
 
Cash, cash equivalents and restricted cash
$
123,248

 
$
91,325

Available for sale debt securities, at fair value
641,474

 
625,074

Held to maturity debt securities, at amortized cost (fair value of $10,132 and $10,349 at March 31, 2020 and December 31, 2019, respectively)
9,732

 
10,170

Equity securities, at fair value
11,970

 
11,782

Loans receivable, net of allowance for loan losses of $40,657 and $36,001 at March 31, 2020 and December 31, 2019, respectively
6,177,657

 
6,194,976

Accrued interest receivable
20,823

 
20,814

Federal Home Loan Bank ("FHLB") stock, at cost
29,612

 
30,342

Premises and equipment, net
19,792

 
19,504

Goodwill
3,297

 
3,297

Prepaid expenses and other assets
36,445

 
38,544

Total assets
$
7,074,050

 
$
7,045,828

 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Liabilities:
 
 
 
Deposits
$
5,285,376

 
$
5,234,717

FHLB advances
953,694

 
978,702

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 $553 and $584 at March 31, 2020 and December 31, 2019, respectively)
94,447

 
94,416

Accrued interest payable
2,635

 
2,901

Other liabilities and accrued expenses
72,701

 
58,771

Total liabilities
6,470,710

 
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 March 31, 2020 and December 31, 2019

 

Common stock, no par value; 100,000,000 shares authorized; 54,286,465 and 55,999,754 shares issued and outstanding at March 31, 2020 and December 31, 2019, respectively
431,578

 
447,784

Retained earnings
169,572

 
165,236

Accumulated other comprehensive income, net of taxes
2,190

 
1,444

Total stockholders' equity
603,340

 
614,464

Total liabilities and stockholders' equity
$
7,074,050

 
$
7,045,828


See accompanying notes to unaudited consolidated financial statements
3


LUTHER BURBANK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollar amounts in thousands, except per share data)
 
 
Three Months Ended March 31,
 
 
2020
 
2019
Interest and fee income:
 
 
 
 
Loans
 
$
60,705

 
$
61,053

Investment securities
 
3,303

 
3,925

Cash, cash equivalents and restricted cash
 
317

 
400

Total interest and fee income
 
64,325

 
65,378

Interest expense:
 
 
 
 
Deposits
 
24,581

 
24,288

FHLB advances
 
5,558

 
6,772

Junior subordinated deferrable interest debentures
 
493

 
651

Senior debt
 
1,578

 
1,575

Total interest expense
 
32,210

 
33,286

Net interest income before provision for loan losses
 
32,115

 
32,092

Provision for loan losses
 
5,300

 
300

Net interest income after provision for loan losses
 
26,815

 
31,792

Noninterest income:
 
 
 
 
Gain on sale of loans
 

 
333

FHLB dividends
 
535

 
495

Other income
 
263

 
552

Total noninterest income
 
798

 
1,380

Noninterest expense:
 
 
 
 
Compensation and related benefits
 
11,205

 
10,052

Deposit insurance premium
 
476

 
498

Professional and regulatory fees
 
431

 
441

Occupancy
 
1,140

 
1,390

Depreciation and amortization
 
669

 
665

Data processing
 
967

 
919

Marketing
 
875

 
1,154

Other expenses
 
1,096

 
1,130

Total noninterest expense
 
16,859

 
16,249

Income before provision for income taxes
 
10,754

 
16,923

Provision for income taxes
 
3,178

 
4,913

Net income
 
$
7,576

 
$
12,010

 
 
 
 
 
Basic earnings per common share
 
$
0.14

 
$
0.21

Diluted earnings per common share
 
$
0.14

 
$
0.21

Dividends per common share
 
$
0.06

 
$
0.06



See accompanying notes to unaudited consolidated financial statements
4


LUTHER BURBANK CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(Dollar amounts in thousands)
 
Three Months Ended March 31,
 
2020
 
2019
Net income
$
7,576

 
$
12,010

Other comprehensive income:
 
 
 
Unrealized gain on available for sale debt securities:
 
 
 
Unrealized holding gain arising during the period
1,051

 
2,504

Tax effect
(305
)
 
(724
)
Net of tax
746

 
1,780

Unrealized gain on cash flow hedge:
 
 
 
Unrealized holding gain arising during the period

 
147

Tax effect

 
(43
)
Net of tax

 
104

Total other comprehensive income
746

 
1,884

Comprehensive income
$
8,322

 
$
13,894



See accompanying notes to unaudited consolidated financial statements
5


LUTHER BURBANK CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (UNAUDITED)
(Dollar amounts in thousands, except per share data)
 
 
 
 
 
Accumulated Other Comprehensive (Loss) Income (Net of Taxes)
 
Total Stockholders' Equity
 
Common Stock
 
Retained Earnings
 
Available for Sale Securities
 
Cash Flow Hedge
 
 
Shares
 
Amount
 
 
 
 
Balance, December 31, 2018
56,379,066

 
$
456,378

 
$
129,806

 
$
(4,935
)
 
$
(104
)
 
$
581,145

Cumulative effect of change in accounting principal (1)




(399
)

399





Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
Net income

 

 
12,010

 

 

 
12,010

Other comprehensive income

 

 

 
1,780

 
104

 
1,884

Issuance of restricted stock awards
297,663

 

 

 

 

 

Settled restricted stock units
112,302

 

 

 

 

 

Shares withheld to pay taxes on stock based compensation
(41,522
)
 
(404
)
 

 

 

 
(404
)
Restricted stock forfeitures
(2,728
)
 
(2
)
 
1

 

 

 
(1
)
Stock based compensation expense

 
840

 

 

 

 
840

Shares repurchased
(393,000
)
 
(3,881
)
 

 

 

 
(3,881
)
Cash dividends ($0.06 per share)

 

 
(3,295
)
 

 

 
(3,295
)
Balance, March 31, 2019
56,351,781

 
$
452,931

 
$
138,123

 
$
(2,756
)
 
$

 
$
588,298

 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2019
55,999,754

 
$
447,784

 
$
165,236

 
$
1,444

 
$

 
$
614,464

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
Net income

 

 
7,576

 

 

 
7,576

Other comprehensive income

 

 

 
746

 

 
746

Issuance of restricted stock awards
250,118

 

 

 

 

 

Settled restricted stock units
70,220

 

 

 

 

 

Shares withheld to pay taxes on stock based compensation
(53,824
)
 
(563
)
 

 

 

 
(563
)
Restricted stock forfeitures
(17,408
)
 
(8
)
 
6

 

 

 
(2
)
Stock based compensation expense

 
911

 

 

 

 
911

Shares repurchased
(1,962,395
)
 
(16,546
)
 

 

 

 
(16,546
)
Cash dividends ($0.06 per share)

 

 
(3,246
)
 

 

 
(3,246
)
Balance, March 31, 2020
54,286,465

 
$
431,578

 
$
169,572

 
$
2,190

 
$

 
$
603,340

 
 
 
 
 
 
 
 
 
 
 
 
(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
6


LUTHER BURBANK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollar amounts in thousands)
 
Three Months Ended March 31,
 
2020
 
2019
Cash flows from operating activities:
 
 
 
Net income
$
7,576

 
$
12,010

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
669

 
665

Provision for loan losses
5,300

 
300

Amortization of deferred loan costs, net
3,725

 
2,646

Amortization of premiums on investment securities, net
487

 
362

Gain on sale of loans

 
(333
)
Stock based compensation expense, net of forfeitures
903

 
838

Change in fair value of mortgage servicing rights
395

 
146

Change in fair value of equity securities
(188
)
 
(144
)
Other items, net
(40
)
 

Effect of changes in:
 
 
 
Accrued interest receivable
(9
)
 
(1,072
)
Accrued interest payable
(266
)
 
1,169

Prepaid expenses and other assets
(1,332
)
 
1,543

Other liabilities and accrued expenses
(1,423
)
 
(868
)
Net cash provided by operating activities
15,797

 
17,262

Cash flows from investing activities:
 
 
 
Proceeds from maturities, paydowns and calls of available for sale debt securities
92,128

 
16,263

Proceeds from maturities and paydowns of held to maturity debt securities
416

 
399

Purchases of available for sale debt securities
(107,942
)
 
(44,377
)
Net decrease (increase) in loans receivable
46,956

 
(69,765
)
Proceeds from loans held for sale previously classified as portfolio loans

 
53,772

Purchase of loans
(20,507
)
 

Redemption (purchase) of FHLB stock, net
730

 
(224
)
Purchase of premises and equipment
(957
)
 
(157
)
Net cash provided by (used in) investing activities
10,824

 
(44,089
)
Cash flows from financing activities:
 
 
 
Net increase in customer deposits
50,659

 
80,791

Proceeds from long-term FHLB advances
126,500

 
75,000

Repayment of long-term FHLB advances
(150,008
)
 
(7
)
Net change in short-term FHLB advances
(1,500
)
 
(108,500
)
Shares withheld for taxes on vested restricted stock
(563
)
 
(404
)
Shares repurchased
(16,546
)
 
(3,881
)
Cash paid for dividends
(3,240
)
 
(3,294
)
Net cash provided by financing activities
5,302

 
39,705

Increase in cash, cash equivalents and restricted cash
31,923

 
12,878

Cash, cash equivalents and restricted cash, beginning of period
91,325

 
91,697

Cash, cash equivalents and restricted cash, end of period
$
123,248

 
$
104,575

Supplemental disclosure of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
32,476

 
$
32,117

Income taxes
$
410

 
$
10

Non-cash investing activity:
 
 
 
Loans transferred to held for sale
$

 
$
53,559


See accompanying notes to unaudited consolidated financial statements
7



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 months ended March 31, 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 March 31, 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 conform

8


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 March 31,
 
2020
 
2019
Net income
 
$
7,576

 
$
12,010

 
 
 
 
 
Weighted average basic common shares outstanding
 
55,611,827

 
56,519,809

Add: Dilutive effects of assumed vesting of restricted stock
 
113,271

 
202,887

Weighted average diluted common shares outstanding
 
55,725,098

 
56,722,696

 
 
 
 
 
Income per common share:
 
 
 
 
Basic EPS
 
$
0.14

 
$
0.21

Diluted EPS
 
$
0.14

 
$
0.21

Anti-dilutive shares not included in calculation of diluted earnings per share
 
17,313

 
13,981

New Financial Accounting Standards

FASB ASU 2019-12

In December 2019, the Financial Accounting Standards Board (“FASB”) issued "Simplifying the Accounting for Income Taxes (Topic 740)" (“ASU 2019-12”) removing certain exceptions to the general principles in Accounting Standards Codification (“ASC”) 740 and clarifying and amending existing guidance to provide for more consistent application. ASU 2019-12 will become effective for fiscal years beginning after December 15, 2021 and early adoption is permitted. The adoption of this standard is not expected to have a material effect on the Company’s operating results or financial condition.
 
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. Because the loan modification program was established in late March 2020, borrower participation in the program and the receipt of modification applications were not generally experienced until April 2020. As of April 30, 2020, the Company had received completed applications from borrowers requesting modifications in connection with this program representing loan balances of $88.5 million, $111.9 million, $51.2 million and $1.1 million, or 2.2%, 5.9%, 24.4% and 5.4%, of our multifamily residential, single family residential, commercial real estate and construction and land loan portfolios, respectively. As of April 30, 2020, the Company has approved COVID-19 loan modifications with an aggregate principal loan balance of $84.7 million, representing 1.4% of the Company's loan portfolio. In conjunction with the passage of the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), banks have been provided the option to temporarily suspend certain requirements under GAAP related to TDRs for a limited time to account for the effects of COVID-19. As a result, the Company will not be recognizing eligible COVID-19 loan modifications as TDRs. Additionally, loans qualifying for these modifications will not be required to be reported as delinquent, nonaccrual, impaired or criticized solely as a result of a COVID-19 loan modification.

9


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 March 31, 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 Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Estimated Fair Value
At March 31, 2020:
 
 
 
 
 
 
 
Government and Government Sponsored Entities:
 
 
 
 
 
 
Residential mortgage backed securities ('MBS") and collateralized mortgage obligations ("CMOs")
$
227,132

 
$
1,111

 
$
(1,829
)
 
$
226,414

Commercial MBS and CMOs
355,196

 
5,993

 
(2,246
)
 
358,943

Agency bonds
56,058

 
97

 
(38
)
 
56,117

Total available for sale debt securities
$
638,386

 
$
7,201

 
$
(4,113
)
 
$
641,474

At December 31, 2019:
 
 
 
 
 
 
 
Government and Government Sponsored Entities:
 
 
 
 
 
 
Residential MBS and CMOs
$
145,333

 
$
340

 
$
(481
)
 
$
145,192

Commercial MBS and CMOs
353,727

 
3,267

 
(825
)
 
356,169

Agency bonds
123,977

 
59

 
(323
)
 
123,713

Total available for sale debt securities
$
623,037

 
$
3,666

 
$
(1,629
)
 
$
625,074

Net unrealized gains on available for sale investment securities are recorded as accumulated other comprehensive income within stockholders’ equity and totaled $2.2 million and $1.4 million, net of $898 thousand and $593 thousand in tax liabilities, at March 31, 2020 and December 31, 2019, respectively. There were no sales or transfers of available for sale investment securities and no realized gains or losses on these securities during the three months ended March 31, 2020 and 2019.

The following tables summarize the gross unrealized losses and fair value of available for sale debt securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position:
 
March 31, 2020
 
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:
 
 
 
 
 
 
 
 
Residential MBS and CMOs
$
83,448

 
$
(1,038
)
 
$
40,964

 
$
(791
)
 
$
124,412

 
$
(1,829
)
Commercial MBS and CMOs
91,732

 
(1,199
)
 
59,746

 
(1,047
)
 
151,478

 
(2,246
)
Agency bonds
19,243

 
(38
)
 

 

 
19,243

 
(38
)
Total available for sale debt securities
$
194,423

 
$
(2,275
)
 
$
100,710

 
$
(1,838
)
 
$
295,133

 
$
(4,113
)
At March 31, 2020, the Company held 83 residential MBS and CMOs of which 65 were in a loss position and 27 had been in a loss position for twelve months or more. The Company held 43 commercial MBS and CMOs of which 19 were in a loss position and 9 had been in a loss position for twelve months or more. The Company held 14 agency bonds of which 2 were in a loss position and none had been in a loss position for twelve months or more.

10


 
December 31, 2019
 
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:
 
 
 
 
 
 
 
 
Residential MBS and CMOs
$
43,623

 
$
(181
)
 
$
54,870

 
$
(300
)
 
$
98,493

 
$
(481
)
Commercial MBS and CMOs
95,950

 
(339
)
 
57,219

 
(486
)
 
153,169

 
(825
)
Agency bonds
29,471

 
(86
)
 
87,405

 
(237
)
 
116,876

 
(323
)
Total available for sale debt securities
$
169,044

 
$
(606
)
 
$
199,494

 
$
(1,023
)
 
$
368,538

 
$
(1,629
)
At December 31, 2019, the Company held 76 residential MBS and CMOs of which 45 were in a loss position and 25 had been in a loss position for twelve months or more. The Company held 42 commercial MBS and CMOs of which 19 were in a loss position and 8 had been in a loss position for twelve months or more. The Company held 15 agency bonds of which 12 were in a loss position and 9 had been in a loss position for twelve months or more.
The unrealized losses on the Company’s investments were caused by interest rate changes. In addition, the contractual cash flows of these investments are guaranteed by the U.S. government or agencies sponsored by the U.S. government. Accordingly, it is expected that the securities will not be settled at a price less than amortized cost. Because the decline in market value is attributable to changes in interest rates but not credit quality, and because the Company has the ability and intent to hold those investments until a recovery of fair value, which may be maturity, the Company does not consider these investments to be other-than-temporarily impaired at March 31, 2020 and December 31, 2019.
As of March 31, 2020 and December 31, 2019, 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 March 31, 2020:
 
 
 
 
 
 
 
Government Sponsored Entities:
 
 
 
 
 
 
 
Residential MBS
$
9,651

 
$
400

 
$

 
$
10,051

Other investments
81

 

 

 
81

Total held to maturity investment securities
$
9,732

 
$
400

 
$

 
$
10,132

As of December 31, 2019:
 
 
 
 
 
 
 
Government Sponsored Entities:
 
 
 
 
 
 
 
Residential MBS
$
10,087

 
$
205

 
$
(26
)
 
$
10,266

Other investments
83

 

 

 
83

Total held to maturity investment securities
$
10,170

 
$
205

 
$
(26
)
 
$
10,349


11


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 December 31, 2019:
 
 
 
 
 
 
 
 
Government Sponsored Entities:
 
 
 
 
 
 
 
 
Residential MBS
$

 
$

 
$
2,253

 
$
(26
)
 
$
2,253

 
$
(26
)
At March 31, 2020, the Company had 7 held to maturity residential MBS and none were in a loss position. At December 31, 2019, the Company held 7 held to maturity residential MBS of which 2 had been in a loss position for twelve months or more.
The unrecognized losses on the Company’s held to maturity investments at December 31, 2019 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 those investments to be other-than-temporarily impaired at December 31, 2019.
The following table summarizes the scheduled maturities of available for sale and held to maturity investment securities as of March 31, 2020:
 
March 31, 2020
(Dollars in thousands)
Amortized Cost
 
Fair Value
Available for sale debt securities
 
 
 
Less than one year
$
10,000

 
$
10,018

One to five years
30,000

 
29,987

Five to ten years
3,777

 
3,781

Beyond ten years
12,281

 
12,331

MBS and CMOs
582,328

 
585,357

Total available for sale debt securities
$
638,386

 
$
641,474

Held to maturity investments securities
 
 
 
Beyond ten years
$
81

 
$
81

MBS
9,651

 
10,051

Total held to maturity debt securities
$
9,732

 
$
10,132

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 and collateralized mortgage obligations are not included in the maturity categories above and instead are shown separately. No securities were pledged as of March 31, 2020 and December 31, 2019.

Equity Securities

Equity securities consist of investments in the CRA Qualified Investment Fund. At March 31, 2020 and December 31, 2019, the fair value of equity securities totaled $12.0 million and $11.8 million, respectively. Prior to January 1, 2019, equity securities were included with available for sale investment securities and stated at fair value with unrealized gains and losses reported in other comprehensive income. In conjunction with the adoption of ASU 2016-01, as of January 1, 2019, $399 thousand of unrealized losses on equity securities were reclassified from other comprehensive income to retained earnings. Subsequent changes in fair value are recognized in other noninterest income and totaled $188 thousand and $144 thousand during the three months ended March 31, 2020 and 2019. There were no sales of equity securities during the three

12


months ended March 31, 2020 and 2019.

4.
LOANS
Loans consist of the following:
(Dollars in thousands)
March 31,
2020
 
December 31,
2019
Permanent mortgages on:
 
 
 
Multifamily residential
$
4,058,869

 
$
3,985,981

Single family residential
1,930,831

 
2,021,320

Commercial real estate
205,657

 
203,134

Construction and land loans
22,857

 
20,442

Non-Mortgage (‘‘NM’’) loans
100

 
100

Total
6,218,314

 
6,230,977

Allowance for loan losses
(40,657
)
 
(36,001
)
Loans held for investment, net
$
6,177,657

 
$
6,194,976


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

The following table summarizes activity in and the allocation of the allowance for loan losses by portfolio segment:
(Dollars in thousands)
Multifamily Residential
 
Single Family Residential
 
Commercial Real Estate
 
Land, Construction and NM
 
Total
Three months ended March 31, 2020
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
Beginning balance allocated to portfolio segments
$
23,372

 
$
10,076

 
$
2,341

 
$
212

 
$
36,001

Provision for (reversal of) loan losses
3,936

 
1,069

 
336

 
(41
)
 
5,300

Charge-offs

 
(722
)
 

 

 
(722
)
Recoveries

 
3

 

 
75

 
78

Ending balance allocated to portfolio segments
$
27,308

 
$
10,426

 
$
2,677

 
$
246

 
$
40,657

Three months ended March 31, 2019
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
Beginning balance allocated to portfolio segments
$
21,326

 
$
10,125

 
$
2,441

 
$
422

 
$
34,314

Provision for (reversal of) loan losses
720

 
(239
)
 
(163
)
 
(18
)
 
300

Charge-offs

 

 

 

 

Recoveries

 
3

 

 
75

 
78

Ending balance allocated to portfolio segments
$
22,046

 
$
9,889

 
$
2,278

 
$
479

 
$
34,692


13


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, Construction and NM
 
Total
As of March 31, 2020:
 
 
 
 
 
 
 
 
 
Ending allowance balance allocated to:
 
 
 
 
 
 
 
Loans individually evaluated for impairment
$

 
$
25

 
$

 
$

 
$
25

Loans collectively evaluated for impairment
27,308

 
10,401

 
2,677

 
246

 
40,632

Ending balance
$
27,308

 
$
10,426

 
$
2,677

 
$
246

 
$
40,657

Loans:
 
 
 
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
$
537

 
$
6,331

 
$

 
$

 
$
6,868

Ending balance: collectively evaluated for impairment
4,058,332

 
1,924,500

 
205,657

 
22,957

 
6,211,446

Ending balance
$
4,058,869

 
$
1,930,831

 
$
205,657

 
$
22,957

 
$
6,218,314

As of December 31, 2019:
 
 
 
 
 
 
 
 
 
Ending allowance balance allocated to:
 
 
 
 
 
 
 
Loans individually evaluated for impairment
$

 
$
815

 
$

 
$

 
$
815

Loans collectively evaluated for impairment
23,372

 
9,261

 
2,341

 
212

 
35,186

Ending balance
$
23,372

 
$
10,076

 
$
2,341

 
$
212

 
$
36,001

Loans:
 
 
 
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
$
541

 
$
7,097

 
$

 
$

 
$
7,638

Ending balance: collectively evaluated for impairment
3,985,440

 
2,014,223

 
203,134

 
20,542

 
6,223,339

Ending balance
$
3,985,981

 
$
2,021,320

 
$
203,134

 
$
20,542

 
$
6,230,977


The Company assigns a risk rating to all loans and periodically performs detailed reviews of all such 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 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 next 90 to 120 days 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.


14


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.

The following table summarizes the loan portfolio allocated by management’s internal risk ratings at March 31, 2020 and December 31, 2019:
(Dollars in thousands)
Multifamily Residential
 
Single Family Residential
 
Commercial Real Estate
 
Land, Construction and NM
 
Total
As of March 31, 2020:
 
 
 
 
 
 
 
 
 
Grade:
 
 
 
 
 
 
 
 
 
Pass
$
3,989,553

 
$
1,898,641

 
$
203,857

 
$
22,957

 
$
6,115,008

Watch
51,699

 
14,844

 
1,800

 

 
68,343

Special mention
16,692

 
10,108

 

 

 
26,800

Substandard
925

 
7,238

 

 

 
8,163

Doubtful

 

 

 

 

Total
$
4,058,869

 
$
1,930,831

 
$
205,657

 
$
22,957

 
$
6,218,314

As of December 31, 2019:
 
 
 
 
 
 
 
 
 
Grade:
 
 
 
 
 
 
 
 
 
Pass
$
3,917,264

 
$
1,980,845

 
$
200,371

 
$
20,542

 
$
6,119,022

Watch
47,309

 
16,432

 
2,763

 

 
66,504

Special mention
19,708

 
13,635

 

 

 
33,343

Substandard
1,700

 
8,808

 

 

 
10,508

Doubtful

 
1,600

 

 

 
1,600

Total
$
3,985,981

 
$
2,021,320

 
$
203,134

 
$
20,542

 
$
6,230,977

The following table summarizes an aging analysis of the loan portfolio by the time past due at March 31, 2020 and December 31, 2019:
(Dollars in thousands)
30 Days
 
60 Days
 
90+ Days
 
Non-accrual
 
Current
 
Total
As of March 31, 2020:
 
 
 
 
 
 
 
 
 
 
 
Loans:
 
 
 
 
 
 
 
 
 
 
 
Multifamily residential
$

 
$
897

 
$

 
$
537

 
$
4,057,435

 
$
4,058,869

Single family residential
1,066

 
1,720

 

 
5,036

 
1,923,009

 
1,930,831

Commercial real estate

 

 

 

 
205,657

 
205,657

Land, construction and NM

 

 

 

 
22,957

 
22,957

Total
$
1,066

 
$
2,617

 
$

 
$
5,573

 
$
6,209,058

 
$
6,218,314

As of December 31, 2019:
 
 
 
 
 
 
 
 
 
 
 
Loans:
 
 
 
 
 
 
 
 
 
 
 
Multifamily residential
$
1,411

 
$

 
$

 
$
541

 
$
3,984,029

 
$
3,985,981

Single family residential
4,037

 
690

 

 
5,792

 
2,010,801

 
2,021,320

Commercial real estate

 

 

 

 
203,134

 
203,134

Land, construction and NM

 

 

 

 
20,542

 
20,542

Total
$
5,448

 
$
690

 
$

 
$
6,333

 
$
6,218,506

 
$
6,230,977


15


At March 31, 2020, there were 5 single family residential loans totaling $6.0 million and 1 multifamily residential loan totaling $595 thousand that would have been reported as 30 days delinquent loans if not for COVID-19 related requests. See Note 2 to the unaudited consolidated financial statements for additional information.
The following table summarizes information related to impaired loans at March 31, 2020 and December 31, 2019:
 
As of March 31, 2020
 
As of December 31, 2019
(Dollars in thousands)
Recorded Investment
 
Unpaid Principal Balance
 
Related Allowance
 
Recorded Investment
 
Unpaid Principal Balance
 
Related Allowance
With no related allowance recorded:
 
 
 
 
 
 
 
 
Multifamily residential
$
537

 
$
614

 
$

 
$
541

 
$
618

 
$

Single family residential
5,430

 
6,472

 

 
4,588

 
4,915

 

 
5,967

 
7,086

 

 
5,129

 
5,533

 

With an allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
Single family residential
901

 
898

 
25

 
2,509

 
2,484

 
815

 
901

 
898

 
25

 
2,509

 
2,484

 
815

Total:
 
 
 
 
 
 
 
 
 
 
 
Multifamily residential
537

 
614

 

 
541

 
618

 

Single family residential
6,331

 
7,370

 
25

 
7,097

 
7,399

 
815

 
$
6,868

 
$
7,984

 
$
25

 
$
7,638

 
$
8,017

 
$
815

The following tables summarize information related to impaired loans for the three months ended March 31, 2020 and 2019:
 
Three Months Ended March 31,
 
2020
 
2019
(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
$
539

 
$
8

 
$
8

 
$
560

 
$
3

 
$
3

Single family residential
4,790

 
19

 
14

 
4,148

 
36

 

Commercial real estate

 

 

 

 

 

 
5,329

 
27

 
22

 
4,708

 
39

 
3

With an allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
Single family residential
2,105

 
11

 

 
929

 
12

 

 
2,105

 
11

 

 
929

 
12

 

Total:
 
 
 
 
 
 
 
 
 
 
 
Multifamily residential
539

 
8

 
8

 
560

 
3

 
3

Single family residential
6,895

 
30

 
14

 
5,077

 
48

 

Commercial real estate