Document
 
 
 
 
 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
 
 
FORM 10-Q
 
 
 
 
 
 
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2018
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
 (Address of principal executive offices)
 
95401
(Zip Code)
 

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

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 ☒ NO ☐

Indicate by checkmark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted 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 and post such files). YES ☒ NO ☐

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 (as defined in Rule 12b-2 of the Exchange Act).

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer ☒ Smaller Reporting Company ☐ Emerging Growth Company ☒

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

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

As of May 3, 2018, there were 56,560,775 shares of the registrant’s common stock, no par value, outstanding.



Table of Contents

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

1

Table of Contents

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.
 
Some of the 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 risk that 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 California 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 2017 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

Table of Contents

PART I.

Item 1. Financial Statements

Table of Contents
 
Page
Consolidated Financial Statements:
 



3

Table of Contents

LUTHER BURBANK CORPORATION
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Dollar amounts in thousands)
 
March 31,
2018 (unaudited)
 
December 31,
2017
ASSETS
 
 
 
 
 
 
 
Cash and cash equivalents
$
74,421

 
$
75,578

Available for sale investment securities, at fair value
538,440

 
503,288

Held to maturity investment securities, at amortized cost (fair value of $12,013 and $6,925 at March 31, 2018 and December 31, 2017, respectively)
12,237

 
6,921

Loans receivable, net of allowance for loan losses of $31,980 and $30,312 as of March 31, 2018 and December 31,2017, respectively
5,294,429

 
5,011,235

Accrued interest receivable
16,137

 
14,901

Federal Home Loan Bank ("FHLB") stock, at cost
33,023

 
27,733

Premises and equipment, net
21,862

 
22,452

Goodwill
3,297

 
3,297

Prepaid expenses and other assets
40,042

 
38,975

 
 
 
 
Total assets
$
6,033,888

 
$
5,704,380

 
 
 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
 
 
Liabilities:
 
 
 
Deposits
$
4,114,026

 
$
3,951,238

Federal Home Loan Bank advances
1,158,153

 
989,260

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 $805 and $839 at March 31, 2018 and December 31, 2017, respectively)
94,195

 
94,161

Accrued interest payable
2,329

 
1,781

Other liabilities and accrued expenses
49,577

 
56,338

 
 
 
 
Total liabilities
5,480,137

 
5,154,635

 
 
 
 
Commitments and contingencies (Note 17)

 

 
 
 
 
Stockholders' equity:
 
 
 
Common stock, no par value; 100,000,000 shares authorized; 56,561,055 and 56,422,662 shares issued and outstanding at March 31, 2018 and December 31, 2017, respectively
455,251

 
454,287

Retained earnings
105,750

 
102,459

Accumulated other comprehensive loss, net of taxes
(7,250
)
 
(7,001
)
 
 
 
 
Total stockholders' equity
553,751

 
549,745

 
 
 
 
Total liabilities and stockholders' equity
$
6,033,888

 
$
5,704,380


See accompanying notes to consolidated financial statements
4

Table of Contents

LUTHER BURBANK CORPORATION
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(Dollar amounts in thousands, except per share data)
 
 
Three Months Ended March 31,
 
 
2018
 
2017
Interest income:
 
 
 
 
Interest and fees on loans
 
$
46,563

 
$
38,743

Interest and dividends on investment securities
 
2,718

 
1,653

Total interest income
 
49,281

 
40,396

Interest expense:
 
 
 
 
Interest on deposits
 
11,932

 
8,314

Interest on FHLB advances
 
4,820

 
3,275

Interest on junior subordinated deferrable interest debentures
 
487

 
380

Interest on senior debt
 
1,577

 
1,577

Total interest expense
 
18,816

 
13,546

Net interest income before provision for loan losses
 
30,465

 
26,850

Provision for loan losses (Note 3)
 
1,500

 
309

Net interest income after provision for loan losses
 
28,965

 
26,541

Noninterest income:
 
 
 
 
Increase in cash surrender value of life insurance
 
53

 
49

Net loss on sale of loans
 

 
(163
)
FHLB dividends
 
594

 
633

Other income
 
378

 
363

Total noninterest income
 
1,025

 
882

Noninterest expense:
 
 
 
 
Compensation and related benefits
 
9,619

 
10,197

Deposit insurance premium
 
432

 
398

Professional and regulatory fees
 
398

 
185

Occupancy
 
1,296

 
1,298

Depreciation and amortization
 
714

 
735

Data processing
 
788

 
790

Marketing
 
213

 
179

Other expenses
 
1,253

 
921

Total noninterest expense
 
14,713

 
14,703

Income before provision for income taxes
 
15,277

 
12,720

Provision for income taxes
 
4,175

 
425

Net income
 
$
11,102

 
$
12,295

 
 
 
 
 
Basic earnings per common share
 
$
0.20

 
$
0.29

Diluted earnings per common share
 
$
0.20

 
$
0.29

Weighted average common shares outstanding - basic
 
56,190,970

 
42,000,000

Weighted average common shares outstanding - diluted
 
56,755,154

 
42,000,000



See accompanying notes to consolidated financial statements
5

Table of Contents

LUTHER BURBANK CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(Dollar amounts in thousands)
 
 
Three Months Ended March 31,
 
 
2018
 
2017
Net income
 
$
11,102

 
$
12,295

Other comprehensive (loss) income:
 
 
 
 
Unrealized (loss) gain on available for sale investment securities:
 
 
 
 
Unrealized holding (loss) gain arising during the period
 
(2,971
)
 
609

Tax effect
 
843

 
(21
)
Net of tax
 
(2,128
)
 
588

Unrealized gain on cash flow hedge:
 
 
 
 
Unrealized holding gain arising during the period
 
181

 
50

Tax effect
 
(52
)
 
(2
)
Net of tax
 
129

 
48

Total other comprehensive (loss) income
 
(1,999
)
 
636

Comprehensive income
 
$
9,103

 
$
12,931



See accompanying notes to consolidated financial statements
6

Table of Contents

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, 2016
42,000,000

 
$
2,262

 
$
407,648

 
$
(4,374
)
 
$
(1,161
)
 
$
404,375

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
Net income

 

 
12,295

 

 

 
12,295

Other comprehensive income

 

 

 
588

 
48

 
636

Cash dividends ($0.23 per share)

 

 
(9,800
)
 

 

 
(9,800
)
Balance, March 31, 2017
42,000,000

 
$
2,262

 
$
410,143

 
$
(3,786
)
 
$
(1,113
)
 
$
407,506

 
 
 
 
 
 
 
 
 
 
 
 
Balance, December 31, 2017
56,422,662

 
$
454,287

 
$
102,459

 
$
(6,214
)
 
$
(787
)
 
$
549,745

Comprehensive income:
 
 
 
 
 
 
 
 
 
 
 
Net income

 

 
11,102

 

 

 
11,102

Other comprehensive (loss) income

 

 

 
(2,128
)
 
129

 
(1,999
)
Reclassification of prior year tax benefit related to re-measuring deferred taxes on items recorded to other comprehensive income

 

 
(1,750
)
 
1,529

 
221

 

Issuance of restricted stock awards
131,140

 

 

 

 

 

Vested restricted stock units
12,710

 

 

 

 

 

Shares withheld to pay taxes on stock based compensation
(4,057
)
 
(49
)
 

 

 

 
(49
)
Restricted stock forfeitures
(1,400
)
 
(1
)
 

 

 

 
(1
)
Stock-based compensation expense

 
1,014

 

 

 

 
1,014

Cash dividends ($0.11 per share)

 

 
(6,061
)
 

 

 
(6,061
)
Balance, March 31, 2018
56,561,055

 
$
455,251

 
$
105,750

 
$
(6,813
)
 
$
(437
)
 
$
553,751



See accompanying notes to consolidated financial statements
7

Table of Contents

LUTHER BURBANK CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(Dollar amounts in thousands)
 
Three Months Ended March 31,
 
2018
 
2017
Cash flows from operating activities:
 
 
 
Net income
$
11,102

 
$
12,295

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
714

 
735

Provision for loan losses
1,500

 
309

Increase in deferred loan costs, net
(2,708
)
 
(1,049
)
Amortization of premiums on investment securities, net
563

 
231

Net loss on sale of loans

 
163

Originations of loans held for sale

 
(17,986
)
Proceeds from sale of loans held for sale

 
24,691

Stock based compensation expense, net of forfeitures
1,013

 

Net increase in cash surrender value of life insurance
(53
)
 
(49
)
Effect of changes in:
 
 
 
Accrued interest receivable
(1,236
)
 
(1,033
)
Accrued interest payable
548

 
96

Other assets
(43
)
 
527

Other liabilities
(6,727
)
 
(7,522
)
Net cash provided by operating activities
4,673

 
11,408

Cash flows from investing activities:
 
 
 
Proceeds from maturities or calls of available for sale investment securities
20,965

 
20,449

Proceeds from maturities or calls of held to maturity investment securities
55

 
289

Purchases of available for sale investment securities
(59,647
)
 
(27,468
)
Purchases of held to maturity investment securities
(5,375
)
 

Net increase in loans receivable
(281,986
)
 
(307,966
)
Purchase of FHLB stock, net
(5,290
)
 
(2,500
)
Purchase of premises and equipment
(123
)
 
(168
)
Net cash used in investing activities
(331,401
)
 
(317,364
)
Cash flows from financing activities:
 
 
 
Net increase in customer deposits
162,788

 
286,673

Proceeds from long term FHLB advances
100,000

 
100,000

Net change in short term FHLB advances
68,893

 
(54,406
)
Shares withheld for taxes on vested restricted stock
(49
)
 

Cash paid for dividends
(6,061
)
 
(9,800
)
Net cash provided by financing activities
325,571

 
322,467

(Decrease) increase in cash and cash equivalents
(1,157
)
 
16,511

Cash and cash equivalents, beginning of period
75,578

 
59,208

Cash and cash equivalents, end of period
$
74,421

 
$
75,719

Supplemental disclosure of cash flow information:
 
 
 
Cash paid during the period for:
 
 
 
Interest
$
18,268

 
$
13,451

Income taxes
$
158

 
$


See accompanying notes to consolidated financial statements
8

Table of Contents


LUTHER BURBANK CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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 Bank conducts its business from its headquarters in Manhattan Beach, California. It has nine full service branches located in Sonoma, Marin, Santa Clara, and Los Angeles Counties. Other California loan offices are located in Contra Costa, Los Angeles and Orange Counties. There are also loan offices in King County, Washington and Clackamas County, Oregon. 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.

On April 27, 2017, the Company declared a 200-for-1 stock split, increasing the number of issued and authorized shares from 210,000 to 42,000,000 and 500,000 to 100,000,000, respectively. The Company also declared that the stock has zero par value, whereas the stock had previously held a stated value of $8 per share (stated value not adjusted for split). Additional shares issued as a result of the stock split were distributed immediately upon issuance to the stockholders. Share and per share amounts included in the consolidated financial statements and accompanying notes reflect the effect of the split for all periods presented.

We terminated our status as a “Subchapter S” corporation as of December 1, 2017, in connection with our Initial Public Offering ("IPO") and became a taxable C Corporation. Prior to that date, as an S-Corporation, we had no U.S. federal income tax expense.

On December 12, 2017, the Company completed the IPO of its common stock. In connection with the Company’s IPO, the Company sold and issued 13,972,500 shares of common stock at $10.75 per share. After deducting underwriting discounts and offering expenses, the Company received total net proceeds of $138.3 million from the IPO.

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, 2017, and the notes thereto, included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 filed with the SEC, under the Securities and Exchange Act of 1934, (the “Exchange Act”). The unaudited consolidated financial statements include the accounts of the Company and the Bank. All intercompany accounts and transactions have been eliminated.
 
The results of operations for the three months ended March 31, 2018 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, 2018.

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

9

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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 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.

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 year. 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 commons 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. The factors used in the earnings per share computation follow:

 
 
Three Months Ended March 31,
(Dollars in thousands, except per share amounts)
 
2018
 
2017
Net income
 
$
11,102

 
$
12,295

 
 
 
 
 
Weighted average basic common shares outstanding
 
56,190,970

 
42,000,000

Add: Dilutive effects of assumed vesting of restricted stock
 
564,184

 

Weighted average diluted common shares outstanding
 
56,755,154

 
42,000,000

 
 
 
 
 
Income per common share:
 
 
 
 
Basic
 
$
0.20

 
$
0.29

Diluted
 
$
0.20

 
$
0.29

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

 


Accounting Standard Adopted in 2018

FASB ASU 2018-02

In February 2018, the FASB provided guidance for the reclassification of the effect of remeasuring deferred tax balances related to items within accumulated other comprehensive income to retained earnings resulting from the Tax Cuts and Jobs Act of 2017. ASU 2018-02 is effective for all entities for fiscal years beginning after December 31, 2018, including interim periods therein, with early adoption permitted. As permitted, the Company early adopted ASU 2018-02 during the quarter ended March 31, 2018 and reclassified $1.8 million of stranded tax amounts within accumulated other comprehensive income to retained earnings.


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Accounting Standards Pending Adoption

FASB ASU 2016-01

In January 2016, the FASB issued guidance to enhance the reporting model for financial instruments to provide users of financial statements with more decision-useful information. This Update contains several provisions, including but not limited to 1) requiring equity investments, with certain exceptions, to be measured at fair value with changes in fair value recognized in net income; 2) simplifying the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; 3) eliminating the requirement to disclose the method(s) and significant assumptions used to estimate fair value; and 4) requiring separate presentation of financial assets and liabilities by measurement category and form of financial asset on the statement of financial condition or the accompanying notes to the financial statements. The Update also changes certain financial statement disclosure requirements, including requiring disclosures of the fair value of financial instruments be made on the basis of exit price. The Update is effective for public business entities ("PBEs") for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. As an emerging growth company, the Company expects to adopt this guidance on January 1, 2019, assuming the Company remains an emerging growth company through such date. The adoption of this standard is not expected to have a material effect on the Company’s operating results or financial condition.

FASB ASU 2017-04

In January 2017, the FASB issued guidance related to the goodwill impairment test, which eliminates step 2 in the process. Under the amendments, an entity should perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value. The loss recognized, however, should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The Update is effective for PBEs that are SEC filers for annual periods or any interim goodwill impairment tests beginning after December 15, 2019 using a prospective transition method and early adoption is permitted. As early adoption is permitted, the Company expects to adopt the guidance on December 31, 2018. The adoption of this standard is not expected to have a material effect on the Company’s operating results or financial condition.

2.
INVESTMENT SECURITIES

Available for Sale
The following tables summarize the amortized cost and the estimated fair value of available for sale investment securities as of the dates indicated (dollars in thousands):
 
March 31, 2018
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Estimated Fair Value
Debt Securities:
 
 
 
 
 
 
 
Government Sponsored Entities:
 
 
 
 
 
 
 
Mortgage-backed securities
$
356,772

 
$
152

 
$
(5,432
)
 
$
351,492

Agency bonds
120,405

 
29

 
(3,919
)
 
116,515

Collateralized mortgage obligations
44,707

 
263

 

 
44,970

SBA securities
13,125

 

 
(137
)
 
12,988

U.S. Treasury 10 year note
1,010

 

 
(39
)
 
971

CRA Qualified Investment Fund (CRAIX)
12,000

 

 
(496
)
 
11,504

Total available for sale investment securities
$
548,019

 
$
444

 
$
(10,023
)
 
$
538,440


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Table of Contents

 
December 31, 2017
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Estimated Fair Value
Debt Securities:
 
 
 
 
 
 
 
Government Sponsored Entities:
 
 
 
 
 
 
 
Mortgage-backed securities
$
316,134

 
$
112

 
$
(3,327
)
 
$
312,919

Agency bonds
120,405

 
30

 
(3,213
)
 
117,222

Collateralized mortgage obligations
46,920

 
249

 
(1
)
 
47,168

SBA securities
13,427

 

 
(125
)
 
13,302

U.S. Treasury 10 year note
1,010

 

 
(26
)
 
984

CRA Qualified Investment Fund (CRAIX)
12,000

 

 
(307
)
 
11,693

Total available for sale investment securities
$
509,896

 
$
391

 
$
(6,999
)
 
$
503,288

Net unrealized losses on available for sale investment securities are recorded as accumulated other comprehensive income within stockholders’ equity totaling $6.8 million and $6.2 million, net of $2.8 million and $394 thousand in tax assets at March 31, 2018 and December 31, 2017, respectively. At December 31, 2017, $394 thousand of a total $1.9 million tax asset resides in accumulated other comprehensive income, while the remaining $1.5 million was included in the provision for income taxes on the consolidated statements of income related to the tax rate changes associated with the termination of S Corporation status and the change in tax law during the year ended December 31, 2017. The Company adopted ASU 2018-02 effective January 1, 2018 and reclassified the $1.5 million in stranded tax effects from the change in federal corporate tax rates on our available for sale investment securities from accumulated other comprehensive loss, net to retained earnings. There were no sales or transfers of available for sale investment securities and no gains or losses on these securities for the three months ended March 31, 2018 and 2017.

The following tables summarize the gross unrealized losses and fair value of available for sale investment securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position (dollars in thousands):
 
March 31, 2018
 
Less than 12 Months
 
12 Months or More
 
Total
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
Debt Securities:
 
 
 
 
 
 
 
 
 
 
 
Government Sponsored Entities:
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
$
145,877

 
$
(1,555
)
 
$
177,062

 
$
(3,878
)
 
$
322,939

 
$
(5,433
)
Agency bonds
9,755

 
(246
)
 
103,732

 
(3,673
)
 
113,487

 
(3,919
)
SBA securities

 

 
12,988

 
(137
)
 
12,988

 
(137
)
U.S. Treasury 10 year note

 

 
971

 
(39
)
 
971

 
(39
)
CRA Qualified Investment Fund (CRAIX)
4,869

 
(131
)
 
6,635

 
(364
)
 
11,504

 
(495
)
Total available for sale investment securities
$
160,501

 
$
(1,932
)
 
$
301,388

 
$
(8,091
)
 
$
461,889

 
$
(10,023
)
At March 31, 2018, the Company held 92 mortgage-backed securities of which 72 were in a loss position and 46 had been in a loss position for twelve months or more. The Company held 13 agency bonds of which 12 were in a loss position and 11 had been for twelve months or more. The Company also held 15 collateralized mortgage obligations, none of which were in an unrealized loss position. Of the total 4 SBA securities held at March 31, 2018, 4 were in a loss position and had been in a loss position for greater than twelve months. Of the 3 total investments in CRA Qualified Investment Fund (CRAIX), all 3 were in a loss position and 2 had been for greater than 12 months. The Company held 1 U.S. Treasury note at March 31, 2018. This note was in a loss position and had been for greater than 12 months.

12

Table of Contents

 
December 31, 2017
 
Less than 12 Months
 
12 Months or More
 
Total
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
Debt Securities:
 
 
 
 
 
 
 
 
 
 
 
Government Sponsored Entities:
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
$
93,403

 
$
(805
)
 
$
182,343

 
$
(2,522
)
 
$
275,746

 
$
(3,327
)
Agency bonds
9,851

 
(148
)
 
104,340

 
(3,065
)
 
114,191

 
(3,213
)
Collateralized mortgage obligations
1,959

 
(1
)
 

 

 
1,959

 
(1
)
SBA securities

 

 
13,302

 
(125
)
 
13,302

 
(125
)
U.S. Treasury 10 year note

 

 
984

 
(26
)
 
984

 
(26
)
CRA Qualified Investment Fund (CRAIX)
4,948

 
(52
)
 
6,745

 
(255
)
 
11,693

 
(307
)
Total available for sale investment securities
$
110,161

 
$
(1,006
)
 
$
307,714

 
$
(5,993
)
 
$
417,875

 
$
(6,999
)
At December 31, 2017, the Company held 87 mortgage-backed securities of which 68 were in a loss position and 30 had been in a loss position for twelve months or more. The Company held 13 agency bonds of which 12 were in a loss position and 11 had been for twelve months or more. The Company also held 15 collateralized mortgage obligations, 1 of which was in an unrealized loss position. Of the total 4 SBA securities held at year end, 4 were in a loss position and had been in a loss position for greater than twelve months. Of the 3 total investments in CRA Qualified Investment Fund (CRAIX), 3 were in a loss position and 2 had been for greater than 12 months. The Company held 1 U.S. Treasury note at year end. This note was in a loss position and had been for greater than 12 months.
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 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 those investments to be other-than-temporarily impaired at March 31, 2018 and December 31, 2017.
As of March 31, 2018 and December 31, 2017, 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 tables summarize the amortized cost and estimated fair value of held to maturity investment securities as of the dates indicated (dollars in thousands):
 
March 31, 2018
 
Amortized Cost
 
Gross Unrecognized Gains
 
Gross Unrecognized Losses
 
Estimated Fair Value
Debt securities:
 
 
 
 
 
 
 
Government Sponsored Entities:
 
 
 
 
 
 
 
Mortgage-backed securities
$
11,956

 
$
33

 
$
(257
)
 
$
11,732

Other investments
281

 

 

 
281

Total held to maturity investment securities
$
12,237

 
$
33

 
$
(257
)
 
$
12,013


13

Table of Contents

 
December 31, 2017
 
Amortized Cost
 
Gross Unrecognized Gains
 
Gross Unrecognized Losses
 
Estimated Fair Value
Debt securities:
 
 
 
 
 
 
 
Government Sponsored Entities:
 
 
 
 
 
 
 
Mortgage-backed securities
$
6,636

 
$
73

 
$
(69
)
 
$
6,640

Other investments
285

 

 

 
285

Total held to maturity investment securities
$
6,921

 
$
73

 
$
(69
)
 
$
6,925

The following tables summarize 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 (dollars in thousands):
 
March 31, 2018
 
Less than 12 Months
 
12 Months or More
 
Total
 
Fair Value
 
Unrecognized Losses
 
Fair Value
 
Unrecognized Losses
 
Fair Value
 
Unrecognized Losses
Debt securities:
 
 
 
 
 
 
 
 
 
 
 
Government Sponsored Entities:
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
$
7,625

 
$
(123
)
 
$
2,943

 
$
(134
)
 
$
10,568

 
$
(257
)
 
December 31, 2017
 
Less than 12 Months
 
12 Months or More
 
Total
 
Fair Value
 
Unrecognized Losses
 
Fair Value
 
Unrecognized Losses
 
Fair Value
 
Unrecognized Losses
Debt securities:
 
 
 
 
 
 
 
 
 
 
 
Government Sponsored Entities:
 
 
 
 
 
 
 
 
 
 
 
Mortgage-backed securities
$
1,047

 
$
(4
)
 
$
3,029

 
$
(65
)
 
$
4,076

 
$
(69
)
The unrecognized losses on the Company’s investments were caused by interest rate changes. It is likely that management will not be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to changes in interest rate and other market conditions. The issuers continue to make timely principal and interest payments on the investments. The fair value is expected to recover as the investments approach maturity.
The following table summarizes the scheduled maturities of available-for-sale and held-to-maturity investment securities as of March 31, 2018 (dollars in thousands):
 
March 31, 2018
 
Amortized Cost
 
Fair Value
Available-for-sale investments securities
 
 
 
One to five years
$
120,296

 
$
116,341

Five to ten years
1,329

 
1,334

Beyond ten years
414,394

 
409,261

No maturity
12,000

 
11,504

Total available-for-sale investment securities
$
548,019

 
$
538,440

Held-to-maturity investment securities beyond ten years
$
12,237

 
$
12,013

Total held-to-maturity investment securities
$
12,237

 
$
12,013

The amortized cost and fair value of debt securities are shown by contractual maturity. Expected maturities

14

Table of Contents

may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. Equity securities with no maturity date are shown separately. No securities were pledged as of March 31, 2018 and December 31, 2017.

3.
LOANS RECEIVABLE
Loans receivable consist of the following (dollars in thousands):

 
March 31,
2018
 
December 31,
2017
Permanent mortgages on:
 
 
 
Multifamily residential
$
3,076,356

 
$
2,887,438

Single family residential
2,042,624

 
1,957,546

Commercial real estate
125,445

 
112,492

Construction and land loans on:
 
 
 
Single family residential
36,320

 
41,165

Non-Mortgage (‘‘NM’’) loans:
100

 
50

Total
5,280,845

 
4,998,691

Deferred loan costs, net
45,564

 
42,856

Allowance for loan losses
(31,980
)
 
(30,312
)
Loans receivable held for investment, net
$
5,294,429

 
$
5,011,235


Certain loans have been pledged to secure borrowing arrangements (see Note 7).

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, NM, and Construction
 
Total
Three months ended March 31, 2018
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
Beginning balance allocated to portfolio segments
$
18,588

 
$
9,044

 
$
1,734

 
$
946

 
$
30,312

Provision for loan losses
1,245

 
167

 
63

 
25

 
1,500

Charge-offs

 

 

 

 

Recoveries

 
3

 
90

 
75

 
168

Ending balance allocated to portfolio segments
$
19,833

 
$
9,214

 
$
1,887

 
$
1,046

 
$
31,980

Three months ended March 31, 2017
Allowance for loan losses:
 
 
 
 
 
 
 
 
 
Beginning balance allocated to portfolio segments
$
18,478

 
$
11,559

 
$
1,823

 
$
1,438

 
$
33,298

Provision for loan losses
1,395

 
(1,465
)
 
127

 
252

 
309

Charge-offs

 

 

 

 

Recoveries

 
3

 

 
89

 
92

Ending balance allocated to portfolio segments
$
19,873

 
$
10,097

 
$
1,950

 
$
1,779

 
$
33,699


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Table of Contents

The following tables summarize the allocation of the allowance for loan losses by impairment methodology (dollars in thousands):
 
March 31, 2018
 
Multifamily Residential
 
Single Family Residential
 
Commercial Real Estate
 
Land, NM, and Construction
 
Total
Ending allowance balance allocated to:
 
 
 
 
 
 
 
 
 
Loans individually evaluated for impairment
$

 
$
25

 
$

 
$

 
$
25

Loans collectively evaluated for impairment
19,833

 
9,189

 
1,887

 
1,046

 
31,955

Ending balance
$
19,833

 
$
9,214

 
$
1,887

 
$
1,046

 
$
31,980

Loans:
 
 
 
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
$
1,564

 
$
10,211

 
$

 
$

 
$
11,775

Ending balance: collectively evaluated for impairment
3,074,792

 
2,032,413

 
125,445

 
36,420

 
5,269,070

Ending balance
$
3,076,356

 
$
2,042,624

 
$
125,445

 
$
36,420

 
$
5,280,845

 
December 31, 2017
 
Multifamily Residential
 
Single Family Residential
 
Commercial Real Estate
 
Land, NM, and Construction
 
Total
Ending allowance balance allocated to:
 
 
 
 
 
 
 
 
 
Loans individually evaluated for impairment
$

 
$
25

 
$

 
$

 
$
25

Loans collectively evaluated for impairment
18,588

 
9,019

 
1,734

 
946

 
30,287

Ending balance
$
18,588

 
$
9,044

 
$
1,734

 
$
946

 
$
30,312

Loans:
 
 
 
 
 
 
 
 
 
Ending balance: individually evaluated for impairment
$
2,246

 
$
8,991

 
$
656

 
$

 
$
11,893

Ending balance: collectively evaluated for impairment
2,885,192

 
1,948,555

 
111,836

 
41,215

 
4,986,798

Ending balance
$
2,887,438

 
$
1,957,546

 
$
112,492

 
$
41,215

 
$
4,998,691


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, and trends in the operation of the 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 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

16

Table of Contents

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.

The following tables summarize the loan portfolio allocated by management’s internal risk ratings at March 31, 2018 and December 31, 2017 (dollars in thousands):
 
March 31, 2018
 
Multifamily Residential
 
Single Family Residential
 
Commercial Real Estate
 
Land, NM and Construction
 
Total
Grade:
 
 
 
 
 
 
 
 
 
Pass
$
3,030,678

 
$
2,015,783

 
$
121,203

 
$
34,635

 
$
5,202,299

Watch
32,854

 
15,357

 
3,267

 

 
51,478

Special mention
5,755

 
6,001

 

 
1,785

 
13,541

Substandard
7,069

 
5,483

 
975

 

 
13,527

Total
$
3,076,356

 
$
2,042,624

 
$
125,445

 
$
36,420

 
$
5,280,845

 
December 31, 2017
 
Multifamily Residential
 
Single Family Residential
 
Commercial Real Estate
 
Land, NM and Construction
 
Total
Grade:
 
 
 
 
 
 
 
 
 
Pass
$
2,847,720

 
$
1,923,960

 
$
106,539

 
$
41,215

 
$
4,919,434

Watch
25,354

 
20,178

 
4,315

 

 
49,847

Special mention
6,569

 
9,025

 

 

 
15,594

Substandard
7,795

 
4,383

 
1,638

 

 
13,816

Total
$
2,887,438

 
$
1,957,546

 
$
112,492

 
$
41,215

 
$
4,998,691


17

Table of Contents

The following tables summarize an aging analysis of the loan portfolio by the time past due at March 31, 2018 and December 31, 2017 (dollars in thousands):
 
March 31, 2018
 
30 Days
 
60 Days
 
90+ Days
 
Non-accrual
 
Current
 
Total
Loans:
 
 
 
 
 
 
 
 
 
 
 
Multifamily residential
$

 
$

 
$

 
$
1,564

 
$
3,074,792

 
$
3,076,356

Single family residential
2,841

 

 

 
5,397

 
2,034,386

 
2,042,624

Commercial real estate

 
2,104

 

 

 
123,341

 
125,445

Land, NM, and construction

 

 

 

 
36,420

 
36,420

Total
$
2,841

 
$
2,104

 
$

 
$
6,961

 
$
5,268,939

 
$
5,280,845

 
December 31, 2017
 
30 Days
 
60 Days
 
90+ Days
 
Non-accrual
 
Current
 
Total
Loans:
 
 
 
 
 
 
 
 
 
 
 
Multifamily residential
$
2,751

 
$

 
$

 
$
2,246

 
$
2,882,441

 
$
2,887,438

Single family residential
4,870

 
3,364

 

 
4,135

 
1,945,177

 
1,957,546

Commercial real estate

 

 

 
656

 
111,836

 
112,492

Land, NM, and construction

 

 

 

 
41,215

 
41,215

Total
$
7,621

 
$
3,364

 
$

 
$
7,037

 
$
4,980,669

 
$
4,998,691

The following table summarizes information related to impaired loans at March 31, 2018 and December 31, 2017 (dollars in thousands):
 
As of March 31, 2018
 
As of December 31, 2017
 
Recorded Investment
 
Unpaid Principal Balance
 
Related Allowance
 
Recorded Investment
 
Unpaid Principal Balance
 
Related Allowance
With no related allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
Multifamily residential
$
1,564

 
$
1,686

 
$

 
$
2,246

 
$
2,545

 
$

Single family residential
9,257

 
9,488

 

 
8,029

 
8,237

 

Commercial real estate

 

 

 
656

 
798

 

 
10,821

 
11,174

 

 
10,931

 
11,580

 

With an allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
Single family residential
954

 
954

 
25

 
962

 
962

 
25

 
954

 
954

 
25

 
962

 
962

 
25

Total:
 
 
 
 
 
 
 
 
 
 
 
Multifamily residential
1,564

 
1,686

 

 
2,246

 
2,545

 

Single family residential
10,211

 
10,442

 
25

 
8,991

 
9,199

 
25

Commercial real estate

 

 

 
656

 
798

 

 
$
11,775

 
$
12,128

 
$
25

 
$
11,893

 
$
12,542

 
$
25



18

Table of Contents

The following table summarizes information related to impaired loans for the three months ended March 31, 2018 and 2017 (dollars in thousands):
 
Three Months Ended March 31,
 
2018
 
2017
 
Average Recorded Investment
 
Interest Income
 
Cash Basis Interest
 
Average Recorded Investment
 
Interest Income
 
Cash Basis Interest
With no related allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
Multifamily residential
$
2,070

 
$

 
$

 
$
1,524

 
$

 
$

Single family residential
8,165

 
37

 

 
6,353

 
48

 

Commercial real estate
487

 

 

 
832

 

 

 
10,722

 
37

 

 
8,709

 
48

 

With an allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
Single family residential
1,718

 
17

 

 
989

 
8

 

 
1,718

 
17

 

 
989

 
8

 

Total:
 
 
 
 
 
 
 
 
 
 
 
Multifamily residential
2,070

 

 

 
1,524

 

 

Single family residential
9,883

 
54

 

 
7,342

 
56

 

Commercial real estate
487

 

 

 
832

 

 

 
$
12,440

 
$
54

 
$

 
$
9,698

 
$
56

 
$

The following table summarizes the recorded investment related to troubled debt restructurings at March 31, 2018 and December 31, 2017 (dollars in thousands):
 
March 31,
2018
 
December 31,
2017
Troubled Debt Restructurings:
 
 
 
Multifamily residential
$

 
$
667

Single family residential
5,594

 
5,653

Total recorded investment in troubled debt restructurings
$
5,594

 
$
6,320


The Company has allocated $25 thousand of allowances for loans modified in troubled debt restructurings at March 31, 2018 and December 31, 2017. The Company does not have commitments to lend additional funds to borrowers with loans whose terms have been modified in troubled debt restructurings. There were no troubled debt restructurings in the three months ended March 31, 2018 and 2017.

The Company had no troubled debt restructurings with a subsequent payment default within twelve months following the modification during the three months ended March 31, 2018 and 2017. A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.

The terms of certain other loans were modified during the three months ended March 31, 2018 and 2017 that did not meet the definition of a troubled debt restructuring. These loans have a total recorded investment of $3.1 million and $2.8 million as of March 31, 2018 and March 31, 2017, respectively. The modification of these loans involved either a modification of the terms of a loan to borrowers who were not experiencing financial difficulties or a delay in a payment that was considered to be insignificant such as delays in payment of up to 4 months.
 

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Table of Contents

4.
NONPERFORMING ASSETS
Nonperforming assets include nonperforming loans plus real estate owned (foreclosed property). The Company’s nonperforming assets and trends related to those assets at March 31, 2018 and December 31, 2017 are indicated below (dollars in thousands):
 
March 31,
2018
 
December 31,
2017
Non-accrual loans:
 
 
 
Multifamily residential
$
1,564

 
$
2,246

Single family residential
5,397

 
4,135

Commercial real estate

 
656

Total non-accrual loans
6,961

 
7,037

Real estate owned

 

Total nonperforming assets
$
6,961

 
$
7,037

Contractual interest not accrued during the quarter
$
12

 
$
10

There was not any real estate owned as of March 31, 2018 and December 31, 2017.

Generally, nonperforming loans are considered impaired, because the repayment of the loan will not be made in accordance with the original contractual agreement.
 
5.
MORTGAGE SERVICING RIGHTS
Servicing loans for others generally consists of collecting mortgage payments, maintaining escrow accounts, disbursing payments to investors, and conducting foreclosure proceedings. Loan servicing income is recorded on the accrual basis and includes servicing fees from investors and certain charges collected from borrowers. Mortgage loans serviced for others are not reported as assets. The principal balances of these loans are as follows (dollars in thousands):
 
March 31,
2018
 
December 31,
2017
Mortgage loans serviced for:
 
 
 
FHLMC
$
609,254

 
$
625,545

Colorado Federal Savings
40,049

 
40,236

First National Bank of Alaska
34,589

 
36,050

Provident Bank
20,390

 
20,855

Pacific Coast Bankers Bank
19,996

 
20,112

American River Bank
19,539

 
20,718

Exchange Bank
17,861

 
20,165

Total mortgage loans serviced for others
$
761,678

 
$
783,681

Custodial account balances maintained in connection with serviced loans totaled $4.8 million and $5.2 million at March 31, 2018 and December 31, 2017, respectively.
Activity for mortgage servicing rights are as follows (dollars in thousands):
 
 
Three Months Ended March 31,
 
 
2018
 
2017
Beginning Balance
 
$
4,255

 
$
1,099

Additions
 

 
83

Disposals
 

 

Change in fair value due to changes in assumptions
 

 

Other changes in fair value
 
(131
)
 
(29
)
Ending balance
 
$
4,124

 
$
1,153


20

Table of Contents

Fair value as of March 31, 2018 was determined using a discount rate of 10%, prepayment speeds ranging from 6.0% to 70.4%, depending on the stratification of the specific right, and a weighted average default rate of 5%. Fair value as of December 31, 2017 was determined using a discount rate of 10%, prepayment speeds ranging from 5.8% to 70.4%, depending on the stratification of the specific right, and a weighted average default rate of 5%.
 
6.
DEPOSITS
A summary of deposits at March 31, 2018 and December 31, 2017 is as follows (dollars in thousands):
 
March 31,
2018
 
December 31,
2017
Certificate accounts
$
2,398,698

 
$
2,242,682