0001475348-22-000009 | 10-K | XBRL Viewer

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CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION - USD ($) $ in Thousands	Dec. 31, 2021	Dec. 31, 2020
ASSETS
Cash, cash equivalents and restricted cash	$ 138,413	$ 178,861
Available for sale debt securities, at fair value	647,317	593,734
Held to maturity debt securities, at amortized cost (fair value of $4,018 and $7,870 at December 31, 2021 and 2020, respectively)	3,829	7,467
Equity securities, at fair value	11,693	12,037
Loans receivable, net of allowance for loan losses of $35,535 and $46,214 at December 31, 2021 and 2020, respectively	6,261,885	6,003,602
Accrued interest receivable	17,761	18,795
Federal Home Loan Bank ("FHLB") stock, at cost	23,411	25,122
Premises and equipment, net	16,090	18,226
Goodwill	3,297	3,297
Prepaid expenses and other assets	56,261	44,963
Total assets	7,179,957	6,906,104
Liabilities:
Deposits	5,538,243	5,264,329
FHLB advances	751,647	806,747
Junior subordinated deferrable interest debentures	61,857	61,857
Senior debt $95,000 face amount, 6.5% interest rate, due September 30, 2024	94,662	94,539
Accrued interest payable	118	1,388
Other liabilities and accrued expenses	64,297	63,553
Total liabilities	6,510,824	6,292,413
Commitments and contingencies (Note 19)
Stockholders' equity:
Preferred stock, no par value; 5,000,000 shares authorized; none issued and outstanding at December 31, 2021 and 2020	0	0
Common stock, no par value; 100,000,000 shares authorized; 51,682,398 and 52,220,266 shares issued and outstanding at December 31, 2021 and 2020, respectively	406,904	414,120
Retained earnings	262,141	192,834
Accumulated other comprehensive income, net of taxes	88	6,737
Total stockholders' equity	669,133	613,691
Total liabilities and stockholders' equity	$ 7,179,957	$ 6,906,104

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Parenthetical) - USD ($)	Dec. 31, 2021	Dec. 31, 2020
Statement of Financial Position [Abstract]
Fair value of held-to-maturity securities	$ 4,018,000	$ 7,870,000
Allowance for loan losses	$ 35,535,000	$ 46,214,000
Debt Instrument [Line Items]
Debt interest rate	6.50%
Preferred stock shares authorized (in shares)	5,000,000	5,000,000
Preferred stock shares issued (in shares)	0	0
Preferred stock shares outstanding (in shares)	0	0
Common stock shares authorized (in shares)	100,000,000	100,000,000
Common Stock, Shares, Issued	51,682,398	52,220,266
Common stock shares outstanding (in shares)	51,682,398	52,220,266
Senior Unsecured Term Notes, September 2014 \| Senior Unsecured Term Notes
Debt Instrument [Line Items]
Principal	$ 95,000,000	$ 95,000,000
Debt interest rate	6.50%
Unamortized debt issuance costs	$ 338,000	$ 461,000

CONSOLIDATED STATEMENTS OF INCOME - USD ($) $ in Thousands	12 Months Ended
CONSOLIDATED STATEMENTS OF INCOME - USD ($) $ in Thousands	Dec. 31, 2021	Dec. 31, 2020
Interest and fee income:
Loans	$ 219,245	$ 230,996
Investment securities	8,451	9,856
Cash, cash equivalents and restricted cash	223	538
Total interest and fee income	227,919	241,390
Interest expense:
Deposits	35,612	73,331
FHLB advances	14,535	21,761
Junior subordinated deferrable interest debentures	1,015	1,373
Senior debt	6,298	6,302
Total interest expense	57,460	102,767
Net interest income before provision for loan losses	170,459	138,623
(Reversal of) provision for loan losses	(10,800)	10,550
Net interest income after provision for loan losses	181,259	128,073
Noninterest income:
FHLB dividends	1,558	1,650
Other income	328	870
Total noninterest income	1,886	2,520
Noninterest expense:
Compensation and related benefits	38,624	43,100
Deposit insurance premium	1,920	1,905
Professional and regulatory fees	1,976	1,844
Occupancy	4,933	4,585
Depreciation and amortization	2,561	2,685
Data processing	3,785	3,911
Marketing	1,240	1,683
FHLB advance prepayment penalty	0	10,443
Other expenses	4,106	3,778
Total noninterest expense	59,145	73,934
Income before provision for income taxes	124,000	56,659
Provision for income taxes	36,247	16,747
Net income	$ 87,753	$ 39,912
Basic earnings per common share (in dollars per share)	$ 1.70	$ 0.75
Diluted earnings per common share (in dollars per share)	1.70	0.75
Dividends per common share (in dollars per share)	$ 0.36	$ 0.23

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Statement of Comprehensive Income [Abstract]
Net income	$ 87,753	$ 39,912
Unrealized (loss) gain on available for sale debt securities:
Unrealized holding (loss) gain arising during the period	(9,370)	7,457
Tax effect	2,721	(2,164)
Total other comprehensive (loss) income, net of tax	(6,649)	5,293
Comprehensive income	$ 81,104	$ 45,205

- Definition

The portion of profit or loss for the period, net of income taxes, which is attributable to the parent.

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+ Details

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY - USD ($) $ in Thousands	Total	Common Stock	Common Stock Restricted Stock Awards	Common Stock Restricted Stock Units	Retained Earnings	Accumulated Other Comprehensive (Loss) Income (Net of Taxes) Available for Sale Securities
Beginning balance (in shares) at Dec. 31, 2019		55,999,754
Beginning balance at Dec. 31, 2019	$ 614,464	$ 447,784			$ 165,236	$ 1,444
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	39,912				39,912
Other comprehensive income	5,293					5,293
Issuance of restricted stock awards (in shares)		261,722
Restricted stock award grants	0
Settled restricted stock units (in shares)		94,408
Settled restricted stock units	0
Shares withheld to pay taxes on stock based compensation (in shares)			(103,230)
Shares withheld to pay taxes on stock based compensation	(1,064)	$ (1,064)
Restricted stock forfeitures (in shares)				(31,219)
Restricted stock forfeitures	(30)	(39)			9
Stock based compensation expense	3,574	$ 3,574
Shares repurchased (in shares)		(4,001,169)
Shares repurchased	(36,135)	$ (36,135)
Cash dividends	(12,323)				(12,323)
Ending balance at Dec. 31, 2020	613,691	$ 414,120			192,834	6,737
Ending balance (in shares) at Dec. 31, 2020		52,220,266
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net income	87,753				87,753
Other comprehensive income	(6,649)					(6,649)
Issuance of restricted stock awards (in shares)		295,058
Restricted stock award grants	0
Settled restricted stock units (in shares)		68,873
Settled restricted stock units	0
Shares withheld to pay taxes on stock based compensation (in shares)		(85,825)
Shares withheld to pay taxes on stock based compensation	(901)	$ (901)
Restricted stock forfeitures (in shares)		(54,130)
Restricted stock forfeitures	(58)	$ (72)			14
Stock based compensation expense	2,601	$ 2,601
Shares repurchased (in shares)		(761,844)
Shares repurchased	(8,844)	$ (8,844)
Cash dividends	(18,460)				(18,460)
Ending balance at Dec. 31, 2021	$ 669,133	$ 406,904			$ 262,141	$ 88
Ending balance (in shares) at Dec. 31, 2021		51,682,398

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (Parenthetical) - $ / shares	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Statement of Stockholders' Equity [Abstract]
Cash dividends (in dollars per share)	$ 0.36	$ 0.23

CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands	12 Months Ended
	Dec. 31, 2021	Dec. 31, 2020
Cash flows from operating activities:
Net income	$ 87,753	$ 39,912
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	2,561	2,685
(Reversal of) provision for loan losses	(10,800)	10,550
Amortization of deferred loan costs, net	19,627	16,237
Amortization of premiums on investment securities, net	2,246	3,288
Stock based compensation expense, net of forfeitures	2,529	3,535
Deferred income tax benefit	(778)	(4,483)
Change in fair value of mortgage servicing rights	684	1,058
Change in fair value of equity securities	344	(255)
Other items, net	164	100
Effect of changes in:
Accrued interest receivable	1,034	2,019
Accrued interest payable	(1,270)	(1,513)
Prepaid expenses and other assets	(5,375)	(4,882)
Other liabilities and accrued expenses	8,002	(3,248)
Net cash provided by operating activities	106,721	65,003
Cash flows from investing activities:
Proceeds from maturities, paydowns and calls of available for sale debt securities	153,326	232,480
Proceeds from maturities and paydowns of held to maturity debt securities	3,552	2,600
Purchases of available for sale debt securities	(218,439)	(196,870)
Net decrease in loans receivable	7,678	191,875
Proceeds from sale of loans	1,731	998
Purchase of loans, including discounts/premiums	(286,917)	(20,507)
Redemption of FHLB stock, net	1,711	5,220
Purchase of premises and equipment	(434)	(1,407)
Net cash (used in) provided by investing activities	(337,792)	214,389
Cash flows from financing activities:
Net increase in deposits	273,914	29,612
Proceeds from long-term FHLB advances	350,000	136,500
Repayment of long-term FHLB advances	(405,100)	(306,955)
Net change in short-term FHLB advances	0	(1,500)
Shares withheld for taxes on vested restricted stock	(901)	(1,064)
Shares repurchased	(8,844)	(36,135)
Cash paid for dividends	(18,446)	(12,314)
Net cash provided by (used in) financing activities	190,623	(191,856)
(Decrease) increase in cash, cash equivalents and restricted cash	(40,448)	87,536
Supplemental disclosure of cash flow information:Cash paid during the period for:
Interest	58,730	104,280
Income taxes	37,524	23,047
Non-cash investing activity:
Loans transferred to held for sale	1,706	838
Cash, cash equivalents and restricted cash	$ 138,413	$ 178,861

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

12 Months Ended

Dec. 31, 2021

Accounting Policies [Abstract]

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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 that provides limited loan administrative support to the Bank, and all the common interests in Luther Burbank Statutory Trusts I and II, entities created to issue trust preferred securities.

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

Basis of Presentation

The consolidated financial statements have been prepared in conformity with U.S. generally accepted accounting standards and prevailing practices within the banking industry and include the accounts of the Company and its wholly-owned subsidiaries. The Company currently has two unconsolidated subsidiaries in the form of wholly-owned statutory business trusts, which were formed to issue junior subordinated deferrable interest debentures. See Note 9, “Junior Subordinated Deferrable Interest Debentures,” for additional information regarding these trusts. All intercompany accounts and transactions have been eliminated.

In preparing financial statements in conformity with generally accepted accounting principles ("GAAP"), management makes estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates and assumptions.

Cash and Cash Equivalents

Cash and cash equivalents include cash and deposits with other financial institutions with maturities of less than three months. Net cash flows are reported for customer loan and deposit transactions, and interest-bearing deposits in other financial institutions.

Restricted Cash Balances

The Company may include cash collateral in connection with interest rate swaps in restricted cash within the consolidated statements of financial condition. At December 31, 2021 the Company had no cash posted as collateral. As of December 31, 2020, the Company posted $8.9 million, in cash collateral in connection with its interest rate swaps.

Investment Securities

The Company classifies its investment securities into three categories, available for sale, held to maturity and equity, at the time of purchase. Securities available for sale are carried at fair value, with unrealized holding gains and losses reported in other comprehensive income (loss), net of applicable taxes. Investment securities held to maturity are measured at amortized cost, based on the Company’s positive intent and ability to hold such securities to maturity. Equity securities are carried at fair value, with unrealized holding gains and losses reported in other noninterest income within the consolidated statements of income.

Interest income includes amortization/accretion of purchase premiums/discounts. Premiums and discounts are amortized, or accreted, over the life of the related investment security, or the earliest call

date with respect to premiums on callable securities, as an adjustment to interest income using a method that approximates the interest method. Gains and losses on sales are recorded on the trade date and determined using the specific identification method.

An investment security is impaired when its carrying value is greater than its fair value. Investment securities that are impaired are evaluated on at least a quarterly basis and more frequently when economic or market conditions warrant such an evaluation to determine whether such a decline in their fair value is other than temporary. Management utilizes criteria such as the magnitude and duration of the decline and the intent and ability of the Company to retain its investment in the securities for a period of time sufficient to allow for an anticipated recovery in fair value, in addition to the reasons underlying the decline, to determine whether the loss in value is other than temporary. The term ‘‘other than temporary’’ is not intended to indicate that the decline is permanent, but indicates that the prospect for a near-term recovery of value is not necessarily favorable, or that there is a lack of evidence to support a realizable value equal to or greater than the carrying value of the investment. Once a decline in value is determined to be other than temporary, and management does not intend to sell the security or it is more likely than not that the Company will not be required to sell the security before recovery, only the portion of the impairment loss representing credit exposure is recognized as a charge to earnings, with the balance recognized as a charge to other comprehensive (loss) income. If management intends to sell the security or it is more likely than not that the Company will be required to sell the security before recovering its forecasted cost, the entire impairment loss is recognized as a charge to earnings.

Loans Receivable

Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at their outstanding unpaid principal balances, net of purchase premiums and discounts, deferred loan origination fees and costs and the allowance for loan losses. Interest income is accrued on the unpaid principal balance. Premiums or discounts to acquire loans are amortized over the life of the loan using a method that approximates the interest method. The Company charges fees for originating loans. These fees, net of certain related direct loan origination costs, are deferred. The net deferred fees or costs on loans held for investment are recognized as an adjustment of the loan’s yield over the contractual life of the loan using the interest method. The Company ceases to amortize deferred fees or costs on loans for which the accrual of interest has been discontinued. Other loan fees and charges representing service costs are reported in income when collected or earned.

Loans Held for Sale

Mortgage loans held for sale are sold with servicing rights released or retained. Realized gains and losses on sales of mortgage loans are accounted for under the specific identification method and based on the difference between the selling price and the carrying value of the related loan sold. The carrying value of mortgage loans sold servicing retained is reduced by the amount allocated to the servicing right.

Concentration of Credit Risk

The majority of our customers are individuals and businesses located and doing business in the state of California, with approximately half our collateral located in Los Angeles and Orange counties. The Company's exposure to credit risk is significantly affected by changes in the economy of California, and specifically, Los Angeles and Orange Counties.

Allowance for Loan Losses

The allowance for loan losses represents the estimated probable incurred credit losses in the Company’s loan portfolio. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience, the nature and volume of the portfolio, information about specific borrower circumstances, estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off. The Company performs periodic and systematic detailed reviews of its loan portfolio to assess the overall collectability of its loans. The Company’s methodology for assessing the appropriateness of the allowance consists of the combined total of two key components.

The first component covers loans that are impaired. All loans are evaluated for impairment on a recurring basis. A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts due, including principal and interest, according to the contractual terms of the loan agreement.

Factors considered by management in determining impairment include payment status, collateral value, and the probability of collecting scheduled principal and interest payments when due. Loans that experience insignificant payment delays and payment shortfalls generally are not classified as impaired. Management determines the significance of payment delays and payment shortfalls on case-by-case basis, taking into consideration all of the circumstances surrounding the loan and the borrower, including the length of the delay, the reasons for the delay, the borrower’s prior payment record, and the amount of the shortfall in relation to the principal and interest owed.

Loans that are reported as troubled debt restructures (“TDRs”) are considered impaired. A restructuring of a debt constitutes a TDR if the Company, for economic or legal reasons related to the debtor’s financial difficulties, grants a concession to the debtor that it would not otherwise consider. Restructured workout loans typically present an elevated level of credit risk as the borrowers are not able to perform according to the original contractual terms.

Impaired loans and TDRs that are solely dependent on the operation or liquidation of collateral for repayment are measured for impairment at the fair value of the collateral less estimated costs to sell. Impaired loans, including TDRs, that are not considered collateral dependent, are measured based on the present value of loan payments expected to be received discounted at the loans’ original effective contractual interest rate. If the recorded investment in the impaired loans exceeds the value of funds to be received, an allowance is established as a component of the total allowance for loan losses unless the loans are solely dependent on the collateral for repayment, in which case the amount that exceeds the fair value of the collateral is charged off.

The second element of the allowance covers probable incurred losses inherent in performing loans that have yet to be specifically identified for impairment. This component of the allowance is estimated by applying reserve factors based on average historical loss experience for the previous nine to ten years to various loan stratifications based on factors affecting the perceived level of risk including the type of collateral, loan program, and credit classification. The resulting loss amount is adjusted for qualitative factors to be reflective of risks or trends affecting the loan portfolio including economic conditions, the real estate market, volumes, delinquencies, and credit concentrations. The Company has identified the following loan portfolio segments based on collateral type:

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

Single family residential real estate loans - The degree of risk in single family residential real estate lending depends primarily on the loan amount in relation to collateral value, the interest rate, and the borrower’s ability to repay in an orderly fashion. These loans generally possess a lower inherent risk of loss than other real estate portfolio segments. Economic trends determined by unemployment rates and other key economic indicators are closely correlated to the credit quality of these loans. Weak economic trends indicate that the borrowers’ capacity to repay their obligations may be deteriorating.

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

The total allowance is increased by the provision for loan losses, which is charged against current period operating results, and decreased by reversals of loan loss provisions as well as loan charge-offs, net of recoveries. Losses incurred upon the initial acquisition of real estate owned through foreclosure are charged to the allowance for loan losses.

Accrued Interest Receivable on Loans

Interest receivable is only accrued if deemed collectible. It is the Company’s policy to place a loan on non-accrual status in the event that the borrower is 90 days or more delinquent (unless the loan is well secured and in the process of collection), or earlier if the timely collection of contractual payments appears doubtful. At the time a loan is placed on non-accrual, accrued interest is reversed out of interest income. Cash payments subsequently received on non-accrual loans are recognized as income only where the future collection of the remaining principal is considered by management to be probable. Loans are restored to accrual status only when the loan is less than 90 days delinquent and not in foreclosure, and the borrower has demonstrated the ability to make future payments of principal and interest.

Servicing Rights

When mortgage loans are sold with servicing retained, servicing rights are initially recorded at fair value. Fair value is based on a valuation model that calculates the present value of estimated future net servicing income.

Under the fair value measurement method, the Company measures servicing rights at fair value at each reporting date and reports changes in the fair value of servicing assets in earnings in the period in which the changes occur, and such changes are included with other income on the consolidated statements of income. The fair values of servicing rights are calculated using model assumptions including factors such as prepayment rates, market rates and other model cash flow assumptions. Absent other changes, an increase (decrease) to the estimated life of serviced loans would generally increase (decrease) the fair value of servicing rights. The fair value of servicing rights are subject to significant fluctuation as a result of changes in estimates and when actual factors such as prepayment speeds, default rates, and losses differ from model assumptions.

Servicing fee income, which is reported on the consolidated statements of income as a component of other income, is recorded for fees earned for servicing loans. The fees are typically based on a contractual percentage of the outstanding principal and are recorded as income when earned. Fair value adjustments are netted against loan servicing fee income.

Transfers of Financial Assets

Transfers of financial assets are accounted for as sales, when control over the assets has been relinquished. Control over transferred assets is deemed to be surrendered when the assets have been isolated from the Company, the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Real Estate Owned ("REO")

Real estate acquired as a result of loan foreclosure or a deed in lieu of foreclosure is initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. Physical possession of a residential real estate property collateralizing a consumer mortgage loan occurs when legal title is obtained upon completion of foreclosure or when the borrower conveys all interest in the property to satisfy the loan through completion of a deed in lieu of foreclosure or through a similar legal agreement. Fair value is typically based on a real estate appraisal. REO is subsequently accounted for at the lower of cost or fair

value less estimated costs to sell. If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense. Costs after acquisition related to the development of REO are capitalized while operating costs are charged to expense. Gains or losses realized and expenses incurred in connection with the disposition of foreclosed real estate are charged to noninterest income within the consolidated statements of income.

Premises and Equipment

Premises and equipment are stated at cost, less accumulated depreciation and amortization. Land is carried at cost. The Company’s policy is to depreciate buildings, furniture and equipment on the straight-line basis over the estimated useful lives of the various assets and to amortize leasehold improvements over the shorter of the asset life or lease term as follows:

Leasehold improvements Lesser of term of lease or life of improvement

Furniture and equipment 2 to 7 years

Building 39 years

The Company evaluates the recoverability of long-lived assets on an ongoing basis. When assets are sold or otherwise disposed of, the cost and related accumulated depreciation or amortization are removed from the accounts, and any resulting gain or loss is recognized in income for the period. The cost of maintenance and repairs is charged to expense as incurred.

Federal Home Loan Bank Stock

As a member of the FHLB, the Bank is required to own capital stock in an amount specified by the level of FHLB borrowings and other factors, and may invest in additional amounts. FHLB stock is carried at cost, classified as a restricted security and periodically evaluated for impairment based on the ultimate recovery of par value. Cash dividends are reported as noninterest income on an accrual basis. At December 31, 2021 and 2020, the Bank owned 234,108 and 251,217 shares of $100 par value FHLB stock, respectively.

Goodwill

Goodwill arises from business combinations and is generally determined as the excess of the fair value of the consideration transferred over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill determined to have an indefinite useful life is not amortized, but tested for impairment at least annually or more frequently if events and circumstances exist that indicate that a goodwill impairment test should be performed. If the carrying amount of the goodwill exceeds its fair value, an impairment loss is recognized in the amount of the excess and the carrying value of the goodwill is reduced accordingly. Goodwill is the only intangible asset with an indefinite life on the balance sheet. Based on an evaluation performed as of December 31, 2021 and 2020, management determined that the implied fair value of goodwill exceeded its carrying value and no impairments were recognized.

Bank-Owned Life Insurance (“BOLI”)

Bank-owned life insurance is initially recorded at cost. Subsequently, BOLI is carried at the amount that can be realized under the insurance contract at the balance sheet date, which is the cash surrender value adjusted for other charges or amounts due that are probable at settlement. Increases in contract value are recorded as noninterest income and insurance proceeds received are recorded as a reduction of the contract value.

Reserve for Loan Commitments

The Company maintains a reserve within other liabilities associated with commitments to fund undisbursed loan commitments on outstanding loans. This reserve is determined based upon the historical loss experience of similar loans held by the Company at each period end. Any changes in this reserve amount are recognized through earnings as a component of noninterest expense.

Marketing

Marketing costs are expensed as incurred.

Derivatives

At the inception of a derivative contract, the Company designates the derivative as one of three types based on the Company’s intentions and belief as to the likely effectiveness as a hedge. These three types are (1) a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (‘‘fair value hedge’’), (2) a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (‘‘cash flow hedge’’), or (3) an instrument with no hedging designation (‘‘stand-alone derivative’’). For a fair value hedge, the gain or loss on the derivative, as well as the offsetting loss or gain on the hedged item, are recognized in earnings as fair values change. For a cash flow hedge, the gain or loss on the derivative is reported in other comprehensive income and is reclassified into earnings in the same periods during which the hedged transaction affects earnings. For both types of hedges, changes in the fair value of derivatives that are not highly effective in hedging the changes in fair value or expected cash flows of the hedged item are recognized immediately in current earnings. Changes in the fair value of derivatives that do not qualify for hedge accounting are reported in earnings, as noninterest income.

Net cash settlements on derivatives that qualify for hedge accounting are recorded in interest income or interest expense, based on the item being hedged. Net cash settlements on derivatives that do not qualify for hedge accounting are reported in noninterest income. Cash flows on hedges are classified in the cash flow statement the same as the cash flows of the items being hedged.

The Company formally documents the relationship between derivatives and hedged items, as well as the risk-management objective and the strategy for undertaking hedge transactions at the inception of the hedging relationship. This documentation includes linking fair value or cash flow hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. The Company also formally assesses, both at the hedge’s inception and on an ongoing basis, whether the derivative instruments that are used are highly effective in offsetting changes in fair values or cash flows of the hedged items. The Company discontinues hedge accounting when it determines that the derivative is no longer effective in offsetting changes in the fair value or cash flows of the hedged item, the derivative is settled or terminates, a hedged forecasted transaction is no longer probable, a hedged firm commitment is no longer firm, or treatment of the derivative as a hedge is no longer appropriate or intended.

When hedge accounting is discontinued, subsequent changes in fair value of the derivative are recorded as noninterest income. When a fair value hedge is discontinued, the hedged asset or liability is no longer adjusted for changes in fair value and the existing basis adjustment is amortized or accreted over the remaining life of the asset or liability. When a cash flow hedge is discontinued but the hedged cash flows or forecasted transactions are still expected to occur, gains or losses that were accumulated in other comprehensive income are amortized into earnings over the same periods which the hedged transactions will affect earnings.

Fair Value of Financial Instruments

Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in a separate note. Fair value estimates involve uncertainties and matters of judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect these estimates.

Income Taxes

Income tax expense is the total of the current year income tax due and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are recognized for the tax consequences of temporary differences between the reported amount of assets and liabilities and their tax bases. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

The Company uses a comprehensive model for recognizing, measuring, presenting, and disclosing in the financial statements tax positions taken or expected to be taken on a tax return. A tax position is recognized as a benefit only if it is ‘‘more likely than not’’ that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not

meeting the ‘‘more likely than not’’ test, no tax benefit is recorded.

The Company recognizes interest accrued and penalties related to income tax matters in tax expense. During the years ended December 31, 2021 and 2020, the Company recognized no tax related interest or penalties.

Share-Based Compensation

The Company has issued awards of equity instruments, such as restricted stock awards (“RSAs”) and restricted stock units (“RSUs”), to employees and certain nonemployee directors. Compensation expense related to restricted stock is based on the fair value of the underlying stock on the award date and is amortized over the service period, defined as the vesting period, using the straight-line method. The vesting period is generally three years for employees and one year for nonemployee directors. Compensation expense is reduced for actual forfeitures as they occur. Unvested RSAs and RSUs participate with common stock in any dividends declared, but are paid only on the shares which ultimately vest. Such dividends are accrued when declared and paid at the time of vesting.

Comprehensive Income

Comprehensive income (loss) includes net income and other comprehensive income (loss). The only item of other comprehensive income (loss) for the Company are unrealized gains and losses on investment securities classified as available for sale, net of tax. Reclassification adjustments resulting from gains or losses on investment securities available for sale that have been realized and included in net income of the current period that also had been included in other comprehensive income as unrealized holding gains or losses in the period in which they arose have been excluded from comprehensive income (loss) of the current period to avoid double counting.

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 common shares outstanding during each period, adjusted for the effect of dilutive potential common shares, such as unvested restricted stock awards and units, calculated using the treasury stock method.


(Dollars in thousands, except per share amounts)	Years Ended December 31,
	2021		2020
Net income	$	87,753	$	39,912

Weighted average basic common shares outstanding	51,582,890		53,000,150
Add: Dilutive effects of assumed vesting of restricted stock	186,208		146,148
Weighted average diluted common shares outstanding	51,769,098		53,146,298

Income per common share:
Basic EPS	$	1.70	$	0.75
Diluted EPS	$	1.70	$	0.75
Anti-dilutive shares not included in calculation of diluted earnings per share	8,084		10,242

Related Party Transactions

In the normal course of business, the Company may accept deposits from officers, directors and other related parties. As of December 31, 2021 and 2020, there were $26.8 million and $15.2 million, respectively, of such deposits. The Company does not permit loans to officers, directors or other related

parties, with the exception of overdraft protection in limited circumstances. As of December 31, 2021 and 2020, there were no such overdraft loans outstanding.

Business Segments

While the chief decision-makers monitor the revenue streams of the various products and services, operations are managed and financial performance is evaluated on a Company-wide basis. Discrete financial information is not available other than on a Company-wide basis. Accordingly, all of the financial service operations are considered by management to be aggregated in one reportable operating segment.

Reclassifications

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

COVID-19

Beginning in early 2020 and continuing through December 2021, the COVID-19 pandemic has caused a disruption to almost every aspect of the economy. As a result, in March 2020, the Company implemented a lending modification initiative to support our customers financially impacted by the COVID-19 pandemic and unable to make their scheduled loan payments. The program provided borrowers the opportunity to modify their existing real estate loans by temporarily deferring payments for a specified period of time. Modified loans under this program were generally downgraded from a Pass risk rating to a Watch risk rating at the time of their respective modification. Subsequent to the modification period, loan grades were adjusted, as necessary, in connection with the Company's proactive reassessment of loans impacted by the pandemic. Loan risk ratings are an integral part of the quantitative calculation of our allowance for loan losses.

Further, in early 2020, we established a qualitative loan loss reserve in connection with the uncertainty related to the pandemic. This supplemental reserve has been slowly reduced as the impact of the pandemic on our loan portfolio has become less uncertain. Qualitative adjustments to our allowance specific to COVID-19 were $2.5 million and $8.4 million at December 31, 2021 and 2020, respectively. Management intends to closely monitor the level of this reserve and make any necessary adjustments as conditions related to the pandemic change.

All of the loans modified for pandemic related payment deferral in 2020 and 2021 had returned to scheduled monthly payments or paid off in full by June 2021. Additionally, total criticized loans have declined to $16.7 million at December 31, 2021, as compared to $57.0 million at December 31, 2020. The decline in criticized loans from the prior year end was generally attributable to the continued performance of our loans that were initially impacted by the pandemic. During the years ended December 2021 and 2020, the Company incurred no loan losses for pandemic impacted loans. The Company's exposure to nonresidential commercial real estate remains limited, totaling $187.1 million, or 3.0% of our loan portfolio, at December 31, 2021.

Adoption of New Financial Accounting Standards

FASB ASU 2016-02

In February 2016, the FASB amended existing guidance that requires lessees recognize the following for all leases (with the exception of short-term leases) at the commencement date (1) a lease liability, which is the lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (2) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers. These amendments are effective for Public Business Entities ("PBEs") for annual periods and interim periods within those annual periods beginning after December 15, 2018. As an emerging growth company, the Company expects to adopt this guidance on January 1, 2022. Upon adoption of this guidance, the Company will recognize a liability for its obligations under its operating leases and a corresponding right-of-use asset for its right to use leased properties over the lease term. As a result of the adoption of ASU 2016-02, the Company expects to record a right-of-use asset of approximately $16.3 million and a corresponding lease liability of

approximately $15.8 million. The adoption of this standard is not expected to materially impact the Company’s operating results.

FASB ASU 2016-13

In June 2016, FASB issued guidance to replace the incurred loss model with an expected loss model, which is referred to as the current expected credit loss ("CECL") model. The CECL model is applicable to the measurement of credit losses on financial assets measured at amortized cost, including loan receivables, held to maturity debt securities, and reinsurance receivables. It also applies to off-balance sheet credit exposures not accounted for as insurance (loan commitments, standby letters of credit, financial guarantees, and other similar instruments) and net investments in leases recognized by a lessor. The transition will be applied as follows:

- For debt securities with other than temporary impairment ("OTTI"), the guidance will be applied prospectively.

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

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

These amendments are effective for PBEs that are Securities and Exchange Commission (“SEC”) filers for

annual periods and interim periods within those annual periods beginning after December 15, 2019. As an emerging growth company, the Company expects to adopt this guidance on January 1, 2023. We expect to recognize a one-time cumulative effect adjustment to the allowance for loan losses as of the beginning of the first reporting period in which the new standard is effective.

Through December 31, 2021, CECL implementation activities have generally focused on capturing and validating loan data, segmenting the loan portfolio, evaluating credit loss methodologies and models, as well as evaluating model results and sensitivities. In determining an expected allowance under CECL, the Company has selected a credit loss model that utilizes an approach focused on a loan's probability of default and loss given default. As part of the process to test and refine our CECL model, the Company has completed quarterly model runs for analysis and backtesting purposes starting with the third quarter of 2018. This process has been on-going and will continue until our adoption date. Continuing implementation activities include the engagement of a third party model validation, refining qualitative factor adjustments, drafting policies and disclosures and evaluating, documenting and testing internal controls. We estimate that the adoption of the CECL standard would not currently result in a material change in our allowance for credit losses, which, if necessary, will be recorded as a cumulative-effect adjustment to retained earnings, net of tax as of January 1, 2023. The ultimate impact will depend on the portfolio and forecasts when the standard is adopted.

INVESTMENT SECURITIES

12 Months Ended

Dec. 31, 2021

Investments, Debt and Equity Securities [Abstract]

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 December 31, 2021:
Government and Government Sponsored Entities:
Residential mortgage backed securities ("MBS") and collateralized mortgage obligations ("CMOs")	$	200,775	$	1,225	$	(1,867)	$	200,133
Commercial MBS and CMOs	407,111		3,281		(2,646)		407,746
Agency bonds	10,587		244		—		10,831
Other asset backed securities ("ABS")	28,720		37		(150)		28,607
Total available for sale debt securities	$	647,193	$	4,787	$	(4,663)	$	647,317

At December 31, 2020:
Government and Government Sponsored Entities:
Residential MBS and CMOs	$	213,279	$	3,459	$	(14)	$	216,724
Commercial MBS and CMOs	355,963		6,337		(312)		361,988
Agency bonds	14,998		69		(45)		15,022

Total available for sale debt securities	$	584,240	$	9,865	$	(371)	$	593,734

Net unrealized gains on available for sale investment securities are recorded as accumulated other comprehensive income within stockholders’ equity and totaled $88 thousand and $6.7 million, net of $36 thousand and $2.8 million in tax liabilities at December 31, 2021 and 2020, respectively. There were no sales or transfers of available for sale investment securities and no realized gains or losses on these securities for the years ended December 31, 2021 and 2020.

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:


	December 31, 2021
	Less than 12 Months				12 Months or More				Total
(Dollars in thousands)	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
Government and Government Sponsored Entities:
Residential MBS and CMOs	$	118,803	$	(1,864)	$	247	$	(3)	$	119,050	$	(1,867)
Commercial MBS and CMOs	157,031		(2,632)		10,608		(14)		167,639		(2,646)

Other ABS	15,253		(150)		—		—		15,253		(150)
Total available for sale debt securities	$	291,087	$	(4,646)	$	10,855	$	(17)	$	301,942	$	(4,663)

At December 31, 2021, the Company held 88 residential MBS and CMOs of which 14 were in a loss position and four had been in a loss position for twelve months or more. The Company held 54 commercial MBS and CMOs of which 20 were in a loss position and two had been in a loss position for twelve months or more. The Company held three other ABS of which two were in a loss position and none had been in a loss position for twelve months or more.


	December 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	$	14,193	$	(12)	$	4,248	$	(2)	$	18,441	$	(14)
Commercial MBS and CMOs	33,986		(37)		37,194		(275)		71,180		(312)
Agency bonds	3,331		(8)		8,667		(37)		11,998		(45)

Total available for sale debt securities	$	51,510	$	(57)	$	50,109	$	(314)	$	101,619	$	(371)

At December 31, 2020, the Company held 86 residential MBS and CMOs of which 11 were in a loss position and six had been in a loss position for twelve months or more. The Company held 46 commercial MBS and CMOs of which ten were in a loss position and six had been in a loss position for twelve months or more. The Company held three agency bonds of which two were in a loss position and one 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 December 31, 2021 and 2020.

As of December 31, 2021 and 2020, 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 December 31, 2021:
Government Sponsored Entities:
Residential MBS	$	3,761	$	189	$	—	$	3,950
Other investments	68		—		—		68
Total held to maturity investment securities	$	3,829	$	189	$	—	$	4,018
As of December 31, 2020:
Government Sponsored Entities:
Residential MBS	$	7,391	$	403	$	—	$	7,794
Other investments	76		—		—		76
Total held to maturity investment securities	$	7,467	$	403	$	—	$	7,870

The following table summarizes the scheduled maturities of available for sale and held to maturity investment securities as of December 31, 2021:


	December 31, 2021
(Dollars in thousands)	Amortized Cost		Fair Value
Available for sale debt securities
Less than one year	$	—	$	—
One to five years	—		—
Five to ten years	7,587		7,715
Beyond ten years	3,000		3,116
MBS, CMOs and other ABS	636,606		636,486
Total available for sale debt securities	$	647,193	$	647,317
Held to maturity investments securities
Beyond ten years	$	68	$	68
MBS	3,761		3,950
Total held to maturity debt securities	$	3,829	$	4,018

The amortized cost and fair value of debt securities are shown by contractual maturity. Expected maturities may differ from contractual maturities if borrowers have the right to call or prepay obligations with or without call or prepayment penalties. As such, mortgage backed securities, collateralized mortgage obligations and other asset backed securities are not included in the maturity categories above and instead are shown separately. No securities were pledged as of December 31, 2021 and 2020.

Equity Securities

Equity securities consist of investments in a qualified community reinvestment fund. At December 31, 2021 and 2020, the fair value of equity securities totaled $11.7 million and $12.0 million, respectively. Changes in fair value are recognized in other noninterest income and totaled $(344) thousand and $255 thousand during the years ended December 31, 2021 and 2020, respectively. There were no sales of equity securities during the years ended December 31, 2021 and 2020.

LOANS

12 Months Ended

Dec. 31, 2021

Receivables [Abstract]

LOANS

Loans consist of the following:


	December 31,
(Dollars in thousands)	2021		2020
Permanent mortgages on:
Multifamily residential	$	4,210,735	$	4,100,831
Single family residential	1,881,676		1,723,953
Commercial real estate	187,097		202,871
Construction and land loans	17,912		22,161

Total	6,297,420		6,049,816
Allowance for loan losses	(35,535)		(46,214)
Loans held for investment, net	$	6,261,885	$	6,003,602

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

During the year ended December 31, 2021, the Company purchased a pool of performing, fixed rate single family residential loans. The pool had an aggregate principal balance of $287.8 million and contained loans with a weighted average interest rate and maturity of 2.31% and 26.4 years, respectively.

The following table summarizes activity in and the allocation of the allowance for loan losses by portfolio segment and by impairment methodology:


(Dollars in thousands)	Multifamily Residential		Single Family Residential		Commercial Real Estate		Land and Construction		Total
For the Year Ended December 31, 2021:
Allowance for loan losses:
Beginning balance allocated to portfolio segments	$	33,259	$	9,372	$	3,347	$	236	$	46,214
(Reversal of) provision for loan losses	(7,216)		(2,212)		(1,253)		(119)		(10,800)
Charge-offs	—		—		—		—		—
Recoveries	—		64		—		57		121
Ending balance allocated to portfolio segments	$	26,043	$	7,224	$	2,094	$	174	$	35,535

Ending allowance balance allocated to:
Loans individually evaluated for impairment	$	—	$	25	$	—	$	—	$	25
Loans collectively evaluated for impairment	26,043		7,199		2,094		174		35,510
Ending balance	$	26,043	$	7,224	$	2,094	$	174	$	35,535

Loans:
Ending balance: individually evaluated for impairment	$	505	$	5,687	$	—	$	—	$	6,192
Ending balance: collectively evaluated for impairment	4,210,230		1,875,989		187,097		17,912		6,291,228
Ending balance	$	4,210,735	$	1,881,676	$	187,097	$	17,912	$	6,297,420

For the Year Ended December 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	9,887		(67)		1,006		(276)		10,550
Charge-offs	—		(722)		—		—		(722)
Recoveries	—		85		—		300		385
Ending balance allocated to portfolio segments	$	33,259	$	9,372	$	3,347	$	236	$	46,214

Ending allowance balance allocated to:
Loans individually evaluated for impairment	$	—	$	25	$	—	$	—	$	25
Loans collectively evaluated for impairment	33,259		9,347		3,347		236		46,189
Ending balance	$	33,259	$	9,372	$	3,347	$	236	$	46,214

Loans:
Ending balance: individually evaluated for impairment	$	522	$	7,051	$	—	$	—	$	7,573
Ending balance: collectively evaluated for impairment	4,100,309		1,716,902		202,871		22,161		6,042,243
Ending balance	$	4,100,831	$	1,723,953	$	202,871	$	22,161	$	6,049,816

The Company assigns a risk rating to all loans and periodically performs detailed reviews of all loans to identify credit risks and to assess the overall collectability of the portfolio. During these internal reviews, management monitors and analyzes the financial condition of borrowers and guarantors, as well as the financial performance and/or other characteristics of loan collateral. These credit quality indicators are

used to assign a risk rating to each individual loan. The risk ratings can be grouped into six major categories, defined as follows:

Pass assets are those which are performing according to contract and have no existing or known weaknesses deserving of management’s close attention. The basic underwriting criteria used to approve the loans are still valid, and all payments have essentially been made as planned.

Watch assets are expected to have an event occurring in the near future that will lead to a change in risk rating with the change being either favorable or unfavorable. These assets require heightened monitoring of the event by management.

Special mention assets have potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the asset or in the Company’s credit position at some future date. Special mention assets are not adversely classified and do not expose the Company to sufficient risk to warrant adverse classification.

Substandard assets are inadequately protected by the current net worth and/or paying capacity of the obligor or by the collateral pledged. These assets have well-defined weaknesses: the primary source of repayment is gone or severely impaired (i.e., bankruptcy or loss of employment) and/or there has been a deterioration in collateral value. In addition, there is the distinct possibility that the Company will sustain some loss, either directly or indirectly (i.e., the cost of monitoring), if the deficiencies are not corrected. A deterioration in collateral value alone does not mandate that an asset be adversely classified if such factor does not indicate that the primary source of repayment is in jeopardy.

Doubtful assets have the weaknesses of those classified substandard with the added characteristic that the weaknesses make collection or liquidation in full highly questionable and improbable based on current facts, conditions and values.

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 December 31, 2021 and 2020. The decrease in Watch, Special Mention and Substandard risk rated loans during the year ended December 31, 2021 was primarily attributable to the diminishing impact of the COVID-19 pandemic on the performance of loans. As of December 31, 2021, all loans modified under the Company's payment deferral program implemented in response to the pandemic had returned to scheduled payments or paid off in full.


(Dollars in thousands)	Multifamily Residential		Single Family Residential		Commercial Real Estate		Land and Construction		Total
As of December 31, 2021:
Grade:
Pass	$	4,129,767	$	1,856,942	$	180,950	$	17,523	$	6,185,182
Watch	66,062		22,946		6,147		389		95,544
Special mention	4,586		—		—		—		4,586
Substandard	10,320		1,788		—		—		12,108
Doubtful	—		—		—		—		—
Total	$	4,210,735	$	1,881,676	$	187,097	$	17,912	$	6,297,420
As of December 31, 2020:
Grade:
Pass	$	3,883,597	$	1,624,331	$	162,615	$	22,161	$	5,692,704
Watch	177,483		85,943		36,657		—		300,083
Special mention	19,547		7,132		3,599		—		30,278
Substandard	20,204		6,547		—		—		26,751
Doubtful	—		—		—		—		—
Total	$	4,100,831	$	1,723,953	$	202,871	$	22,161	$	6,049,816

The following table summarizes an aging analysis of the loan portfolio by the time past due at December 31, 2021 and 2020:


(Dollars in thousands)	30 Days		60 Days		90+ Days		Non-accrual		Current		Total
As of December 31, 2021:
Loans:
Multifamily residential	$	—	$	—	$	—	$	505	$	4,210,230	$	4,210,735
Single family residential	271		—		—		1,788		1,879,617		1,881,676
Commercial real estate	—		—		—		—		187,097		187,097
Land and construction	—		—		—		—		17,912		17,912
Total	$	271	$	—	$	—	$	2,293	$	6,294,856	$	6,297,420
As of December 31, 2020:
Loans:
Multifamily residential	$	1,820	$	—	$	—	$	522	$	4,098,489	$	4,100,831
Single family residential	338		—		—		5,791		1,717,824		1,723,953
Commercial real estate	2,683		—		—		—		200,188		202,871
Land and construction	—		—		—		—		22,161		22,161
Total	$	4,841	$	—	$	—	$	6,313	$	6,038,662	$	6,049,816

The following table summarizes information related to impaired loans:


(Dollars in thousands)	Recorded Investment		Unpaid Principal Balance		Related Allowance		Average Recorded Investment		Interest Income		Cash Basis Interest
As of or for the year ended December 31, 2021:
With no related allowance recorded:
Multifamily residential	$	505	$	582	$	—	$	802	$	30	$	30
Single family residential	4,847		5,033		—		4,544		164		95


	5,352		5,615		—		5,346		194		125
With an allowance recorded:

Single family residential	840		836		25		859		25		—


	840		836		25		859		25		—
Total:
Multifamily residential	505		582		—		802		30		30
Single family residential	5,687		5,869		25		5,403		189		95


	$	6,192	$	6,451	$	25	$	6,205	$	219	$	125
As of or for the year ended December 31, 2020:
With no related allowance recorded:
Multifamily residential	$	522	$	599	$	—	$	532	$	36	$	36
Single family residential	6,174		6,500		—		5,215		104		86


	6,696		7,099		—		5,747		140		122
With an allowance recorded:

Single family residential	877		874		25		1,263		39		—


	877		874		25		1,263		39		—
Total:
Multifamily residential	522		599		—		532		36		36
Single family residential	7,051		7,374		25		6,478		143		86


	$	7,573	$	7,973	$	25	$	7,010	$	179	$	122

The following table summarizes the recorded investment related to TDRs at December 31, 2021 and 2020:


	December 31,
(Dollars in thousands)	2021		2020
Troubled debt restructurings:

Single family residential	$	1,204	$	3,967

The Company has allocated $25 thousand of its allowance for loan losses for loans modified in TDRs at both December 31, 2021 and 2020. The Company does not have commitments to lend additional funds to borrowers with loans whose terms have been modified in TDRs.

During the year ended December 31, 2021, the Company had no new TDRs. During the year ended December 31, 2020, the Company modified the terms of loans that qualified as TDRs. The following table provides detail of these modifications:


(Dollars in thousands)	Number of Contracts	Pre-Modification Outstanding Recorded Investment		Post-Modification Outstanding Recorded Investment



For the Year Ended December 31, 2020:
Troubled debt restructurings:

Single family residential	2	$	2,672	$	2,672

Terms of the two loans modified as TDRs during the year ended December 31, 2020 above included

suspension of loan payments for six months and a similar extension of the loan term. Prior to modification, both loans were classified as non-accrual and impaired. The TDRs above resulted in no increase to the allowance for loan losses and no charge-offs during the years ended December 31, 2021 or 2020, primarily due to collateral support provided by the secondary source of repayment.

The Company had no troubled debt restructurings with a subsequent payment default within twelve months following the modification during the years ended December 31, 2021 and 2020. A loan is considered to be in payment default once it is 90 days contractually past due under the modified terms.

NONPERFORMING ASSETS

12 Months Ended

Dec. 31, 2021

Receivables [Abstract]

NONPERFORMING ASSETS

Nonperforming assets include nonperforming loans plus REO. The Company’s nonperforming assets at December 31, 2021 and 2020 are indicated below:


	December 31,
(Dollars in thousands)	2021		2020
Non-accrual loans:
Multifamily residential	$	505	$	522
Single family residential	1,788		5,791

Total non-accrual loans	2,293		6,313
Real estate owned	—		—
Total nonperforming assets	$	2,293	$	6,313

Interest income on non-accrual loans is subsequently recognized on a cash basis as long as the remaining unpaid principal amount of the loans are deemed to be fully collectible. If there’s doubt regarding the collectability of the loan, then any interest payments received are applied to principal. Interest income was recognized on a cash basis on non-accrual loans during the years ended December 31, 2021 and 2020 totaling $125 thousand and $122 thousand, respectively. Contractual interest not recorded on nonperforming loans during the years ended December 31, 2021 and 2020 totaled $15 thousand and $169 thousand, respectively.

MORTGAGE SERVICING RIGHTS

12 Months Ended

Dec. 31, 2021

Transfers and Servicing [Abstract]

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:


	December 31,
(Dollars in thousands)	2021		2020
Mortgage loans serviced for:
Federal Home Loan Mortgage Corporation ("Freddie Mac")	$	127,431	$	216,431
Other financial institutions	58,298		103,325
Total mortgage loans serviced for others	$	185,729	$	319,756

Custodial account balances maintained in connection with serviced loans totaled $5.0 million and $10.9 million at December 31, 2021 and 2020, respectively.

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

mortgage servicing rights are as follows:


	Years Ended December 31,
(Dollars in thousands)	2021		2020
Beginning balance	$	1,599	$	2,657
Additions	—		—
Disposals	—		—
Changes in fair value due to changes in assumptions	—		—
Other changes in fair value	(684)		(1,058)
Ending balance	$	915	$	1,599

Fair value as of December 31, 2021 was determined using a discount rate of 10%, prepayment speeds ranging from 7.6% to 48.8% and a weighted average default rate of 5%. The weighted average prepayment speed at December 31, 2021 was 29.2%. Fair value as of December 31, 2020 was determined using a discount rate of 10%, prepayment speeds ranging from 7.4% to 55.8% and a weighted average default rate of 5%. The weighted average prepayment speed at December 31, 2020 was 28.9%.

- Definition

The entire disclosure for a transferor's continuing involvement in financial assets that it has transferred in a securitization or asset-backed financing arrangement, the nature of any restrictions on assets reported by an entity in its statement of financial position that relate to a transferred financial asset (including the carrying amounts of such assets), how servicing assets and servicing liabilities are reported, and (for securitization or asset-backed financing arrangements accounted for as sales) when a transferor has continuing involvement with the transferred financial assets and transfers of financial assets accounted for as secured borrowings, how the transfer of financial assets affects an entity's financial position, financial performance, and cash flows.

+ References

Reference 1: http://www.xbrl.org/2003/role/disclosureRef
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-Name Accounting Standards Codification
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-SubTopic 30
-Section 50
-Paragraph 1A
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Reference 2: http://www.xbrl.org/2003/role/disclosureRef
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-Name Accounting Standards Codification
-Topic 860
-SubTopic 30
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Reference 3: http://www.xbrl.org/2003/role/disclosureRef
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Reference 4: http://www.xbrl.org/2003/role/disclosureRef
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Reference 5: http://www.xbrl.org/2009/role/commonPracticeRef
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-Name Accounting Standards Codification
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-URI http://asc.fasb.org/extlink&oid=125521744&loc=d3e122596-111746

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Reference 7: http://www.xbrl.org/2003/role/disclosureRef
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-Name Accounting Standards Codification
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+ Details

PREMISES AND EQUIPMENT

12 Months Ended

Dec. 31, 2021

Property, Plant and Equipment [Abstract]

PREMISES AND EQUIPMENT

Premises and equipment consist of the following:


	December 31,
(Dollars in thousands)	2021		2020
Leasehold improvements	$	15,008	$	14,994
Furniture and equipment	10,046		11,537
Building	6,181		6,174
Land	2,429		2,429
Total	33,664		35,134
Less: accumulated depreciation	(17,574)		(16,908)
Premises and equipment, net	$	16,090	$	18,226

Depreciation and amortization expense for the years ended December 31, 2021 and 2020 totaled $2.6 million and $2.7 million, respectively.

DEPOSITS

12 Months Ended

Dec. 31, 2021

Banking and Thrift, Other Disclosures [Abstract]

DEPOSITS

A summary of deposits at December 31, 2021 and 2020 is as follows:


	December 31,
(Dollars in thousands)	2021		2020
Time deposits	$	2,335,141	$	3,057,197
Money market savings	2,294,367		1,678,942
Interest-bearing demand	176,126		151,954
Money market checking	580,325		282,897
Noninterest-bearing demand	152,284		93,339
Total	$	5,538,243	$	5,264,329

The Company had time deposits that met or exceeded the FDIC Insurance limit of $250 thousand of $1.1 billion and $1.4 billion at December 31, 2021 and 2020, respectively.

The Company utilizes brokered deposits as an additional source of funding. The Company had brokered deposits of $25.8 million and $50.0 million at December 31, 2021 and 2020, respectively.

Maturities of the Company’s time deposits at December 31, 2021 are summarized as follows:


Year Ending December 31,
(Dollars in thousands)
2022	$	2,155,832
2023	102,920
2024	24,895
2025	6,842
2026	44,652

	$	2,335,141

FEDERAL HOME LOAN BANK AND FEDERAL RESERVE BANK ADVANCES

12 Months Ended

Dec. 31, 2021

Federal Home Loan Banks [Abstract]

FEDERAL HOME LOAN BANK AND FEDERAL RESERVE BANK ADVANCES

The Bank may borrow from the FHLB, on either a short-term or long-term basis, up to 40% of its assets provided that adequate collateral has been pledged. As of both December 31, 2021 and 2020, the Bank had pledged various mortgage loans totaling approximately $2.4 billion, as well as the FHLB stock held by the Bank to secure these borrowing arrangements.

The Bank has access to the Loan and Discount Window of the Federal Reserve Bank of San Francisco ("FRB"). Advances under this window are subject to the Bank providing qualifying collateral. Various mortgage loans totaling approximately $583.0 million and $467.8 million as of December 31, 2021 and 2020, respectively, secure this borrowing arrangement. There were no borrowings outstanding with the FRB as of December 31, 2021 and 2020.

The following table discloses the Bank’s outstanding advances from the FHLB of San Francisco:


			As of December 31, 2021
	Outstanding Balances		Minimum Interest Rate		Maximum Interest Rate		Weighted Average Rate
(Dollars in thousands)	December 31, 2021	December 31, 2020							Maturity Dates

Fixed rate long-term	751,647	806,747	0.38	%	7.33	%	1.68	%	February 2022 to March 2030

The Bank's available borrowing capacity based on pledged loans to the FHLB and FRB totaled $1.2 billion and $1.1 billion at December 31, 2021 and 2020, respectively. As of December 31, 2021 and 2020, the Bank had aggregate loan balances of $2.5 billion and $1.8 billion, respectively, available to pledge to the FHLB and FRB to increase its borrowing capacity. As of December 31, 2021 and 2020, the Bank pledged as collateral a $62.6 million FHLB letter of credit to Freddie Mac related to our multifamily securitization reimbursement obligation.

Short-term borrowings are borrowings with original maturities of 90 days or less. During the years ended December 31, 2021 and 2020, there was a maximum amount of short-term borrowings outstanding of $352.9 million and $77.8 million, respectively, and an average amount outstanding of $110.8 million and $6.7 million, respectively, with a weighted average interest rate of 0.14% and 1.43%, respectively.

The following table summarizes scheduled principal payments on FHLB advances over the next five years as of December 31, 2021:


Year Ending December 31,
(Dollars in thousands)
2022	$	100,000
2023	250,000
2024	200,000
2025	101,500
2026	100,000
Thereafter	147
Total	$	751,647

JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES

12 Months Ended

Dec. 31, 2021

Debt Disclosure [Abstract]

JUNIOR SUBORDINATED DEFERRABLE INTEREST DEBENTURES

The Company formed two wholly-owned trust companies (the ‘‘Trusts’’) which issued guaranteed preferred beneficial interests (the "Trust Securities") in the Company’s junior subordinated deferrable interest debentures (the "Notes"). The Company is not considered the primary beneficiary of the Trusts and therefore, the Trusts are not consolidated in the Company’s financial statements, but rather the junior subordinated debentures are shown as a liability. The Company’s investment in the common securities of the Trusts, totaling $1.9 million, is included in other assets in the consolidated statements of financial condition. The sole asset of the Trusts are the Notes that they hold.

The Trusts have invested the proceeds of such Trust Securities in the Notes. Each of the Notes has an interest rate equal to the corresponding Trust Securities distribution rate. The Company has the right to defer payment of interest on the Notes at any time or from time to time for a period not exceeding five years provided that no extension period may extend beyond the stated maturity of the relevant Notes. During any such extension period, distributions on the Trust Securities will also be deferred, and the Company’s ability to pay dividends on its common stock will be restricted.

The Company has entered into contractual arrangements which, taken collectively, fully and unconditionally guarantee payment of: (i) accrued and unpaid distributions required to be paid on the Trust Securities; (ii) the redemption price with respect to any Trust Securities called for redemption by the Trusts; and (iii) payments due upon a voluntary or involuntary dissolution, winding up or liquidation of the Trusts. The Trust Securities are mandatorily redeemable upon maturity of the Notes, or upon earlier redemption as provided in the indenture. The Company has the right to redeem the Notes purchased by the Trusts, in whole or in part, on or after the redemption date. As specified in the indenture, if the Notes are redeemed prior to maturity, the redemption price will be the principal amount and any accrued but unpaid interest.

The following table is a summary of the outstanding Trust Securities and Notes at December 31, 2021 and 2020:


	December 31, 2021				December 31, 2020				Date	Maturity	Rate Index
Issuer	Amount		Rate		Amount		Rate		Issued	Date	(Quarterly Reset)
(Dollars in thousands)
Luther Burbank Statutory Trust I	$	41,238	1.58	%	$	41,238	1.60	%	3/1/2006	6/15/2036	3 month LIBOR + 1.38%
Luther Burbank Statutory Trust II	$	20,619	1.82	%	$	20,619	1.84	%	3/1/2007	6/15/2037	3 month LIBOR + 1.62%

SENIOR DEBT

12 Months Ended

Dec. 31, 2021

Debt Disclosure [Abstract]

SENIOR DEBT

SENIOR DEBTIn September 2014, the Company issued $95.0 million in senior unsecured term notes to qualified institutional investors. The following table summarizes information on these notes as of December 31,

2021 and 2020:


	December 31, 2021				December 31, 2020
(Dollars in thousands)	Principal		Unamortized Debt Issuance Costs		Principal		Unamortized Debt Issuance Costs		Maturity Date	Fixed Interest Rate
Senior Unsecured Term Notes	$	95,000	$	338	$	95,000	$	461	9/30/2024	6.50	%

- Definition

The entire disclosure for information about short-term and long-term debt arrangements, which includes amounts of borrowings under each line of credit, note payable, commercial paper issue, bonds indenture, debenture issue, own-share lending arrangements and any other contractual agreement to repay funds, and about the underlying arrangements, rationale for a classification as long-term, including repayment terms, interest rates, collateral provided, restrictions on use of assets and activities, whether or not in compliance with debt covenants, and other matters important to users of the financial statements, such as the effects of refinancing and noncompliance with debt covenants.

+ References

Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
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Reference 2: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 20
-Section 50
-Paragraph 1B
-Subparagraph (h)
-URI http://asc.fasb.org/extlink&oid=123466505&loc=SL123495323-112611

Reference 3: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 20
-Section 50
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-Subparagraph (c)
-URI http://asc.fasb.org/extlink&oid=123466505&loc=SL123495334-112611

Reference 4: http://www.xbrl.org/2003/role/disclosureRef
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-Name Accounting Standards Codification
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-Paragraph 1I
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-URI http://asc.fasb.org/extlink&oid=123466505&loc=SL123495371-112611

Reference 5: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 20
-Section 50
-Paragraph 1I
-Subparagraph (d)
-URI http://asc.fasb.org/extlink&oid=123466505&loc=SL123495371-112611

Reference 6: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 235
-SubTopic 10
-Section S99
-Paragraph 1
-Subparagraph (SX 210.4-08(c))
-URI http://asc.fasb.org/extlink&oid=120395691&loc=d3e23780-122690

Reference 7: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 20
-Section 50
-Paragraph 1B
-Subparagraph (g)
-URI http://asc.fasb.org/extlink&oid=123466505&loc=SL123495323-112611

Reference 8: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 20
-Section 50
-Paragraph 1C
-Subparagraph (b)
-URI http://asc.fasb.org/extlink&oid=123466505&loc=SL123495334-112611

Reference 9: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
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-SubTopic 20
-Section 50
-Paragraph 1C
-Subparagraph (a)
-URI http://asc.fasb.org/extlink&oid=123466505&loc=SL123495334-112611

Reference 10: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 20
-Section 50
-Paragraph 1E
-Subparagraph (b)
-URI http://asc.fasb.org/extlink&oid=123466505&loc=SL123495348-112611

Reference 11: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 20
-Section 50
-Paragraph 1B
-URI http://asc.fasb.org/extlink&oid=123466505&loc=SL123495323-112611

Reference 12: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 20
-Section 50
-Paragraph 1I
-Subparagraph (b)
-URI http://asc.fasb.org/extlink&oid=123466505&loc=SL123495371-112611

Reference 13: http://www.xbrl.org/2003/role/disclosureRef
-Publisher FASB
-Name Accounting Standards Codification
-Topic 470
-SubTopic 20
-Section 50
-Paragraph 1B
-Subparagraph (i)
-URI http://asc.fasb.org/extlink&oid=123466505&loc=SL123495323-112611

+ Details

INCOME TAXES

12 Months Ended

Dec. 31, 2021

Income Tax Disclosure [Abstract]

INCOME TAXES

The provision for income taxes for the years ended December 31, 2021 and 2020 consists of the following:


	Years Ended December 31,
(Dollars in thousands)	2021		2020
Federal:
Current	$	24,333	$	13,686
Deferred	(980)		(2,834)
Total federal tax provision	23,353		10,852
State:
Current	12,692		7,544
Deferred	202		(1,649)
Total state tax provision	12,894		5,895
Total income tax provision	$	36,247	$	16,747

The provision for income taxes for the years ended December 31, 2021 and 2020 differs from the statutory federal rate of 21% due to the following:


	Years Ended December 31,
(Dollars in thousands)	2021		2020
Statutory U.S. federal income tax	$	26,040	$	11,898
Increase resulting from:
State taxes, net of federal benefit	10,180		4,658