LBC - Earnings call transcript Q2 2020

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Operator

Good morning, and welcome to the Luther Burbank Corporation Second Quarter 2020 Earnings Financial Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity for the three analysts covering Luther Burbank Corporation to ask questions. [Operator Instructions] Before we begin, I would like to remind everyone that some of the comments made during this call may be considered forward-looking statements. The Company's Form 10-K for the 2019 fiscal year, its quarterly reports on Form 10-Q and current reports on Form 8-K identify certain factors that could cause the Company's actual results to differ materially from those projected in any forward-looking statements made this morning. undertake new any or information not a statements developments. does of result or Company to forward-looking update as The future events from website. The the the are reports website the - Company's SEC's Company's on Company the available or or periodic Company on to policy that while like earnings, with markets not the to management the it good, margin you performance sheet any for establish prospects are remind guidance. or is would Company's thinks I Company's the balance Company's the the conference CEO. turn to I Simone and would to now President over Lagomarsino, like Please go ahead.

Simone Lagomarsino

you morning, Chief Chief and Thank Officer, quarter everybody. to Officer; Financial Officer. the the This very Credit conference is I'm Cardamone, our Executive earnings Chief with second and John Corporation me Welcome President much, and and Lagomarsino. Simone today good Luther are our XXXX call. Tarantino, Burbank Laura

discussing quarter Before continue COVID-XX the like dedication as to navigate our would pandemic. through recognize I we bank the ongoing employees to second of results, our

and are safe to loan customers earning where account, in understand needed reliable based keep in being outstanding Our service funds lender, ourselves customers. as facilitate pride fundings employees circumstances. trusted competitive and where uninterrupted that have individual returns, and a temporary deposit We accommodations and other expedite to provide we to been our a each a while willing our to safe working can continuing their loan place depositors healthy, bank, customers or their on

speak to of associated and team outstanding bank's with Our crisis, be I this employees. service flexibility to of remarkable especially proud and the culture, during am time this

results. quarter to Now our second let's turn

a as earnings to corresponding increase common $X.X million, partially common $X.X million, pre-tax $X.XX tax to of share, by in per in non-interest The increase the quarter expense. a linked net income well Our an $X.XX or was in net interest million as reduction second attributable our per largely $XXX,XXX million offset These amounts as $X.X the $X.X expansion share. $X were a diluted million or quarter net was in income diluted compared earnings net improvement expense. for income

over reduction margin on been renewed a interest the average During in able quarter this primarily net retail to interest of had interest net of the X.X% second reflecting income level quarter, that to The interest-bearing deposits, to rate during a to rate of our significantly deposits, the our points. the points, than cost interest We're the XX of quarter. time, during CDs were in X.XX%. as the significant pleased weighted we've same prior basis and the our reduce improvements a the while, quarter declined cost at due by X.XX% linked $XXX quarter second during which our million Retail increased margin that grew X%, the decrease while matured growing net from the XXX of which CDs new and or slightly quarter. deposits basis less X.XX%, was quarter compared

in yield $X.X Our the $XXX,XXX million on this that benefits gathering. the The of quarter result are as to noninterest approximately on positions, new interest securities swap during and speeds mortgage-backed associated of marketing decline improved proportionately our million as prepayment quarter costs costs the on savings by the a offset interest-earning was interest lower $XXX,XXX approximately net points a payroll elevated deposit in compensation improvement Outside to securities. compensation I incentive noted XX mortgages and impact market income, decrease of due the deposit $X.X quarter The costs and year. somewhat related in compensation and rates, of capitalized in in continued loan primarily increase an and less quarter. in volume, of of which a a related first cost decline reduction interest income of to This due expense calendar well increase by this with was $X.X taxes, related was loans. in the by million decrease cash, as elevated net during to assets cost basis around a our

During we volume of originated in $XXX reflecting estate new the the second in million quarter, to loans, compared an a $XXX increase as real quarter, total million XX%. of linked

a this as loan by same light during the was quarter, an income in provision impacted COVID-XX compared elevated net million losses. Our to the our losses provision linked negatively to increase a loan $X.X quarter, our primarily the for pandemic. last for loan allowance we losses second At year, during to level period similar for recorded quarter, possible of

during Our decreased of measure recorded assets We the assets by quarter to X.XX% nonperforming assets from no level measures traditional credit charge-offs loan our and slightly strong. in a X.XX% - quality the of quarter. remains linked of

our borrowers to deferrals pandemic. worked loan actively existing with in have the We facilitate response to short-term payment

our to We of We modifications made our some relief, caution. in even for was may abundance June requests COVID the loans modified X.X% totaled our off active requests this quarter. as of right that valued of last deck, their relief and approved with thing made fallen investor our goodwill most do were As or felt balance been an have through considerably accommodate XX% have XX, who of of the those to and as the April our demonstrated We need And Page this into borrower $XXX X to for portfolio. sustain of million on quarter customers, customers. appeared if to decision demonstrate loan who applied. for

have loan impact the to detrimental balances, capitalized bank. were to borrowers payments any interest deferred deferrals the of the minimal risk While our

deferral value average XX% investor received XXX% a or debt credit of having loans and on exhibit strong these shown with to debt-to-income a ratio XX% deck, loans that as our characteristics a applicable. of ratio weighted service average X or of temporary weighted loan Page As payment ratio

non-residential loan granted loan to of to a component allowance generally our reserves the COVID-XX impact of an The in XX.X% reserves, we pandemic. rating increased level risk to for stands routine and As monthly payment we portfolio commercial that returned downgrades unknown loans loans loss the been of our to due on portfolio, by XX for to those loans of points reversion returned economic pass asset of July greatest XX, having the of the increase XX.X%, increased already grade qualitative coverage to basis quantitative status. were balance bringing watchlist. the status at to payment relation loan result our modified from deferrals within XX.X% with the In demonstrated downgraded modified ratio in was that payment portfolio. loan which our allowance now allowance losses, These have also the the

recorded allowance $XX.X total light COVID-XX any million for the the credit our loss available losses increase Although for pandemic. is allowance the loan was issue, loan of of in year-to-date in

on exposure loan Given nature bank detailed portfolio, granular June as level to our of we reserves and X limited the our investor non-residential, has commercial of our well-secured with deck, feel our XX. estate, of the real moreover, Page at and comfortable

However, The before will be quarters and the specifically, monitor as necessary end this future deferrals. year. in loans loan all portfolio, of deferral received may additional we payment modifications generally the that those payment expire provisions our resolution of the economy,

sheet. balance the to turning Now,

Our or $XXX increase year-end annualized assets since $X.X billion, the of June million XXXX year-to-date. an XXXX, X.X% growth at XX, end a totaled of rate

during $XX increased $XX while the quarter. portfolio securities our grew Our cash million, our million and loan

As loan borrowers a and payoffs for during single-family to investors of this curtailments levels CPR as compared level advantage increased first longer-term loan the current XX% loan second actively continued real portfolio. quarter multifamily I decline in measured continued estate of portfolio although quarter our in single multifamily the quarter-over-quarter Both elevated recorded volume mortgages strong are rates. at family taking XX% the interest of we the previously year. for quarter, noted, and total in and The

a year-to-date we result of As X.X%. of recorded growth prepayments, high loan annualized

is last for considerably which two result single-family what the to pipelines pipeline According and would June in and intake in normalized $XXX this tightening implemented single XXXX is to low is real declined Both XX.X% underwriting Association a XX, refinance general estate originations. single-family of to consider to activity existing and $XXX sales single-family at addition at during we activity, XXXX National seeing our homes or compared in more transactions, XX% that only slowdown months. of homes of the our multifamily home estate level family XXXX. in loan activity for loan a slowed West pandemic. consistent million, available Moreover, in were West million purchase our homes jumbo the typically accounted our approximately June Additionally, for volume REALTORS a XX.X% declined multifamily the inventory as million. only we've has at the This year-over-year. XX% we of Year-to-date, has our more loan volume levels price point year-over-year. XXXX the $X of unusually attributed transactions totaling the criteria, in purchase single-family as This real a over been priced report, XXXX have Conversely, XX% with where of our activity. is at

successfully rate the a modifications need over single-family offering Additionally, for without refinance. we retained by through have in million $XX the borrower loans go to

volume real When onset US XX% continue Mortgage decline that seeing MBA the also in California, to we the At or record multifamily forecasting backed a the The volume compared is decline is no attributed pertains pandemic, environment And The in the year. as change by fallout. X% property expecting for a the period, throughout to year, mid-single-digit this for we the income-producing levels were properties, asset income began range is the primarily it of to during to expect projection growth in X% Association in Bankers COVID-XX lending. asset the downward. XXXX estimating XXXX. growth. the As XX% lending, to with the COVID-XX same specific revised time, to in abatement we in we loans

of branches, $XXX was our deposits Although an by $XXX million, in X.X%. Retail loan attributed most been grew and annualized balance unit. XX% increase or or a year somewhat muted, from generated have to grown with deposits has that of growth XX our activity since growth end, million, business

minimum are Page Page regulatory levels. our not deck, investor investor levels, as raised we The of required this any pandemic X liquidity capital to above on Our also Company's capital area. continue deck. our for shown strong, in significant the described concerns of as has and And maintain on remained robust cushions us ratios X

under a second our share, shares, at repurchases time. tangible our $XX an planned additional million are price for average total XX.X% was book During the million. of stock program, June we authorized of repurchases we the to Throughout quarter, share XX repurchase plan at our an No per stock that value. this discount $X.XX completed X.X repurchased or

shareholders to We XX, common of at cash XXXX Directors share, the $X.XXXX declared a XXXX. we of to dividends XXXX, this on August as current of are time, pleased Board to record per level. the announce At X, quarterly of maintain on July August payable quarterly that intend dividend XX, our

the curve to has created so. believe low conclusion, monitor the future, changes most to position of dividend we it We economy will new monitor a very region, prudent it and of And the and result, may activity. in and to may our to it levels. flat capital challenges on the the make refinance relating In prices, that do impact have yield and pandemic, continue we a is financial banks, in asset nature as also COVID-XX has if caused wave our our like levels and the

remains Although intend top credit portfolio, loan quality and our to growing our we priority. continue first

lies repricing to of in objective to on margin than environment ultra-low Laura? loans continued of detail. at our our originate at net a yields that continue our portfolio, interest to rate not believe is with ultra-low - will volume - rate within focus in initial years, with which periods speak longer to this yield. fixed Laura large expand current the We opportunity our expand now it seven deposit rate greater current Additionally,

Laura Tarantino

Thank you, Simone.

and spend declined. trends month have usual, so, past have have I'll an or lending, returned and providing just the our end since the rates the active competitors few the decreased As in treasury rates quarter. most to as update XX-year Loan five-year over as of offer recent portfolio a minutes on second

downward to rate basis a less. second deceleration originations average loan loan volume our as yields. expect points to we loan XX prepayments, experienced loan continued During quarter, yet would an to the have would approximately on carry third current pipeline basis on XX indications, of on of not averaged Also, X.XX%. And new we points rate we based expect see quarter pressure

of portfolio our hand, the the the in second liability On measured the retail expect portfolio. other sensitive spot linked at end X.X% to cost wholesale at compared rate portfolio, quarter. deposit see our to we given and savings end on quarter, deposit X.XX% our The additional of the as

deposit $X.X our expect Deposit Based billion the a deposits funds the renewal would at retail to same we CDs quarters repricing rate and/or of to attract weighted third still are a or of XX% during in with subsequent exist. current of time average time subject opportunities of retail X.XX% date, As rate quarter. pricing, on approximately X%. retain portfolio new

Although, volume and rate declined differentials dramatically.

of mature, amounts roughly fourth of that of currently fourth or interest this the is the the the year, quarter. And X.XX%. of $XXX term quarter average in million the accounts example, quarter rolled For in rate one-third during third weighted those funds approximately

result the and to we third time, XXXX. the in a quarter deposit prepared questions. retail would portfolio. roll portion strong expect subject continued deposit forecasted a open is our of particularly anticipate decline summary, cash would at our interest in our wholesale to In levels during and This quarter, the operator over during of the remarks. to net of this as we the Although we'll excess improvement and deposit growth ask loan portfolio wholesale see for third activity, line given a And concludes margin,

Operator

first from [Operator Jackie Our Bohlen comes with KBW. Instructions] question

open. now is line Your

Jackie Bohlen

want in I comments that to the make prepared Simone, sure remarks. modifications, I understood just on your

did So, of XX% that that of had approximately applied, out you say them? those approved you

Simone Lagomarsino

XX%.

Jackie Bohlen

XX%.

that it? who just people was didn't And function Okay. really it of were just a - applying need

Simone Lagomarsino

It of things. was a number

that there didn't we Some a modification. that application, - percentage actually approved denied some denied. their the actually we withdrew And think accept I around small we XX% was

think was X% than that to may I XX%, around be X%. less

actually approved - modified. were XX% and So but

Jackie Bohlen

And was that the among that there XX% similar any characteristics denied? were were

Simone Lagomarsino

on John phone. Chief Credit Cardamone, our Officer the is

So I'm going that. to ask John to answer

John Cardamone

significant their Yes. and look applications of to or Jackie, to Simone. characteristics from we these job, their they for they pay, property carry obligations. cash their similar flow all had you, or assets capacity the of over liquid they had into either have is year them Thank a the

Laura Tarantino

Thank you, that's helpful.

John Cardamone

welcome. You're

Jackie Bohlen

terms both then more it is want Is it just evenly those in that's that being of well. a of fairly market I pipeline function underwriting split in or inventory the sure items? understand make I down, between the of standards And to tightening of or as

Simone Lagomarsino

to why, real It's always National and offered that look the kind the estate - say Realtors. of I'll exactly hard I to quoted at of we that's from Mortgage tell the reports also the but information Association why Association the Bankers trying that -

volumes be projected give year some insight the So is the income expected only into down, both expected saying in primarily think, projection. multifamily. the it will the that this and of and that not will property those, down down it fact I rest the is are we've be for year of experienced is They're for that volumes XX%

on So that is multifamily. the

in people that a cases, what many they're very, us what we're rates, ARM. On is repaid very paying rate getting the us with family, are interest five-year a low than fixed a moving and arm single our products seeing long-term to and on longer-term are offer we off paying lower

those are the two So that impacting the I are pieces pay-offs. think

have that been other inventory the side, sales of it's the side as pipeline over sale million is new of on in sales properties have terms market dropping. and our and dropping, very the - well, that of low just of terms The single-family homes just been on $X the in region for are in

want types I'll So of please up, and you to Laura do impacting but feel not either John for so. pipeline. picking loans add refinancing and make if the free it's that's up that, to is picking let we the that if to And

John Cardamone

you've think I Simone. it covered

that is multifamily may on you fixed-rate things. of very which little volume out the too. of and a attractive as CRE pulled much of and have transactions we down single-family don't is And down incredibly side, but the side off are the inventory we lending, is remember, XX-year On bit - takes there,

Simone Lagomarsino

for let's six we We two and stopped and of non-residential either early reassess hold then want settle, markets. construction so making for things we off can CRE just the said and those pandemic, back move and into to CRE months let whether or in

and the that homes a changes made of changes we being some of underwriting are single-family of in investments the few we're offering not as in that's purchased our products terms now. right well for side one So

want, changes. you little on we in a been into but mentioned more can that think underwriting, our changes go I if the really detail changes bigger So has underwriting from more bit the to the market impact than from I

Jackie Bohlen

CRE recall discussion all purchase I that's and on for no, last Okay, investment the wonderful quarter. background and

So thank refresher as you for well. the that on

of that loan the function So it than like expecting generation potentially could be then you're growth? a deposit sheet growth sounds more balance

Simone Lagomarsino

I think that's fair statement. a very

some but loan as very do of be amount significant all a we And I expect seem think very things deposits yes not good - flush We growth. time us for and loan right small deposits. growth, to a now it's with

from benefiting that are We as well.

Operator

Clark Our Matthew next Piper with from Sandler. question comes

Your line is open. now

Matthew Clark

what you and criticized drove Can the speak loans? The the amount, reasons. increase the to in type

Simone Lagomarsino

you want that? do to John, answer

John Cardamone

increase we we take have COVID The where I'll all Yes, modifications. in watchlist big our had is loans that. our of put

criticized remain numbers terms very low. still those of non-COVID loans, In

hasn't been change there So a yet.

Simone Lagomarsino

During death loans primarily we have third criticized borrowers. increase and the was quarter in John, related an to of did it

John Cardamone

into criticized sole And -- loans We if dies. we will category borrower the move a

Simone Lagomarsino

relatively loan Even value. a to if has low it

John Cardamone

documentation those sorts cash flowing them. it's downgrade automatically property just we all Yes, the if with the things, and and ironed side successor, trustees of on we until out get of

Matthew Clark

the And did margin much then negatively quarter? how this the impact swap

Simone Lagomarsino

XX basis points.

Matthew Clark

expense benefit expectations. deferral Okay. below to in how guess run was rate And that of was you it is I normally there. expense, origination - specifically? noninterest the about then what are and relative the the and costs And noninterest came much on overall thinking that How

Simone Lagomarsino

the of it but was that would capitalized XX say I one salaries. payroll beside the primary differences have taxes, don't FAS specific the I number a

about would I to million I expect quarter, So for will would around we million. be $XX expect and down third it originations are this slow $XX.X quarter

Matthew Clark

plans buyback, that? Okay. the reup on And to any then

Simone Lagomarsino

No, not at the present time.

Matthew Clark

resi this a Okay. the turned up And of balances, on but then loan declining they single-family number for quarters have just quarter. been

in not and whether You if what but a increase sustainable? comments, I your us give may mentioned drove sense for just have or it you and that did you apologize, that's can

Simone Lagomarsino

in of significant some - or concerned single-family lending not close of we pipeline to I light saw not to brokers loan. whether so and who - either very of were at for in in some attributed of our in the March our end actually bankers we, So, particular or the increase think that the about be able mortgage loans the were

we and So pipeline very able did those see move pick a into up, to big were our portfolio. the through we

We ARMs cases primarily paid as lower XX-year are five-year mentioned, fixed-rate we're by think payoffs at additional seen have I and off our in again I mortgages, offering. rates because many than being

done Now modifications $XX their prepayments please in John, you an in about of seeing refinance. to we free rate program where put as want a if to to them the so. are to add modify are. feel in modification uptick a doesn't the with the still - the we've have And where modify to their existing loan go we a rates work that, million loans, borrower place do for through process on loan, but one loan result We long-term whole Laura to of

John Cardamone

notable aggregators the that Simone in say lot number pulled loans in big the Coast. credit the the the being of the was on toward of quality those a Wells one of just moved underwriting market, said, as and rates, uptick here sound. very West us most Fargo And I'd of jumbo out a

months as and very the good slowing think pipeline now seeing I the we're with in And and than Simone we said, prepayments trail down. off had April So production more May.

Matthew Clark

us single of about getting have when great. I'm your on what Okay, - for was you resi the were family resi, modifications is some that there is multifamily approved, it uncertainty. thinking at what is multi-family then you I guess a for assume of within of focused higher those I the that done give And the that and were reasons least sense ones kind portfolio single-family just in were? in this you you're more at or segments, very But little environment? but portion risk way can

Simone Lagomarsino

reflection it's think modified I that would say to of already good a the have returned XX% that been payments. I loans

work them some to extent future. that of I the sure help we as of think uncertainty. assist them, wanted with borrowers weren't some our to And through we the

$XXX back why loans we're loans And had that's those there modified, were that non-residential, of that so, think have XX% million deferred, even highlighted to the close returned is about concerned the most have segment about? we've any I payments. largest to our we deferrals, Certainly, which like of of percentage those we amount and is largest -

very our trends we think So we'll are work with that by I of the lending support think I I do. positive borrowers one. types one to mean some there

instance, densely the the are people and moving are reports we are where out reading For high-rise areas loans populated in areas. really types And of make very buildings moving that's apartment of suburbs. we in suburban to more more that

mean unknown much positive that kind having John, And XX% said, that's focused certainly, be please are sign. is evictions what over or in are payments that particular. the would free comment multi-family certainly our to And other so Laura know like have we to very segment a But far, and it's of further. status. have feel I what - I hard might that on area and then the at the But looking say there discussions moratoriums more I I impact so in to think on. returned So already to

John Cardamone

to the I'd a any best the it's potential and for going temporarily but individually each that loan each we tenant, we're one for basis loan-by-loan single manage evaluating down on and outcome thing tenants, the to point to to Matthew, our to are in The laid each one. hard people these really reasons thing drill know bank. off same taking vary don't I for

Operator

back remarks. at queue would for this to turn any time. showing questions the no further call in I I'm closing like

Simone Lagomarsino

much this second earnings very call. healthy. just safe joining to and everyone us stay quarter and Thank want our morning concludes you stay for this Well,

you. So, thank

Operator

That on completes the website. joining today. our us. call call be of will company’s A recorded available for you for copy the Thank

Luther Burbank (LBC) 2 Aug 202020 Q2 Earnings call transcript