LBC - Earnings call transcript Q3 2020

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Operator

Good morning, and welcome to the Luther Burbank Corporation's Third Quarter 2020 Earnings Conference Call. [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. The company does not undertake to update any forward-looking statements as a result of new information or future events or developments. The company's periodic reports are available from the company or online on the company's website or the SEC's website. establish remind prospects while it sheet for company's not to thinks company's is guidance. like any policy company's markets the performance to would you or the that management the earnings, I margin the balance with are good, and I President to Simone like now the conference would to over turn Lagomarsino, CEO.

You begin. may

Simone Lagomarsino

CEO; today you, Good for and our morning, customers is Burbank Laura XXXX Quarter Third Call. Chief Tuanda. and and This Luther Financial me The been our Thank employees. John Chief Earnings Lagomarsino, nine Simone and Tarantino, our and Cardamone, challenging President Corporation have country, months are Credit welcome to with past Conference Officer; our the Officer. our

the last each during will now. our which the constituencies, particularly share This these quarter. third resiliency results, you of positive its economy quarter to As continues influence this of I with had recovery, resiliency a I'm financial on XXXX see pleased

or million net period potential loss result in a increase provisions in was our was million or Our net the million the $X.X net losses to of pandemic-related income portfolio. in of reduction diluted million of compared loan a earnings in set primarily earnings aside as an for linked for $X.X diluted quarter quarter recorded to $X.XX the comparative $XX.X share, improvement common share. $X.XX $X loan The common third per per reserves estate real

in prior result increase as for linked greater expense quarter, offset These expansion provision well partially to in taxes interest benefits million of Additionally, to compared margin. million of in $X.X income a million a $X quarter. the $X.X as a the as to pre-tax interest due $X noninterest by income increase as improved net the compared net income by our million were

now of let So expand these on each points. me

improvement deposits in level rates, interest-bearing even continued deposits the compared deposits, compared balance during deposit X.XX% the to grew linked offer with average The reductions our bank $X.X the increase current interest seven primarily points third basis during due quarter, yield and relatedly, continued was quarter, attract million increasing decline as on new improvement interest XX interest-bearing prior quarter During the net quarter income margin quarter. quarter. the interest declined as to to was margin the net with of $XXX retail and in net the income from which of as during third to our cost The in loans the an our somewhat million on expense basis our linked million on points the quarter. Similar prior X.XX%. to declining $X.X decreased XX of quarter deposit net basis third of by loans offset a points in interest the by the to

loan has Our continued two decline to reasons. yield for

first elevated The decrease continue we loan originations loan is an of continue new level experience to that prepayments. that reason second and to on is the rates the

of margin this determined the and leverage X.XX%, curve during to exceeded be based that the prudent to early our conditions a to at continuing on capital rather would the XXXX. pivot at focus the assets margins. In very goal calendar narrow bank shape remains a deliberate time, first interest where objective unchanged earnings margin benefit the and interest shareholders and grow third made quality market net level yield expanded the our the of strategic quarter and net the to Our March of X% since today. than quarter That on most is XXXX, the

was At goals. established pandemic the asset The pandemic, for COVID-XX provisioning the two to outset losses Next, we our loan quality. I'll and of obviously unexpected. speak

all was needs, significant increase of well was and a moving temporary first ensure while support our to employees to and experiencing development safe in customers keeping bank borrowers calls our hardships. who programs included healthy. with our are their quickly and to banking This our telephone that The transactions for positioned of customers the assist and

modified The the with sound the portfolio, modifications, move resume short-term of ensure maintain loan X.X% XX% or quality quality portfolio inception only returned intent to strong undue goal either than XXX the payment borrowers I Since we payments. XX yet structures credit than the not loan to we resume loans, despite have without that have repayment September that am which loans requested payment XX, of to of encouraged reflects was our we repayments portfolio. of status, hardship. to loan At pandemic, have more second our granted that the communicated assistance quickly. more representing of to that our loan additional permit allowing need their deferrals loan sensible

credit pandemic added two our related first deferrals the deck to environment. this amount shown to the collateral metrics of as ratios decided of on the allowance During even we the filed release. loan to to though million $XX.X the that to with loans related quarters the that payment support, credit uncertainty strong ratios, seven year, debt Pages this We pre-pandemic receive allowance, we debt-to-income and investor pertaining add to loss coverage our the eight earnings exhibited and

the Six supporting since to business, jumbo housing of be real estate that see markets the namely the workforce had understand our Additionally, specialty housing would we're later, a declaration the emergency passed of how lines the pleased single-family national multifamily impacted. months our and XX September collateral of almost doubled real to lending sales in home little time estate on the X.X% year the million $X in sound. more remained same or sectors that rose West one West ago, of REALTORS period. October the in while existing from According to homes of sales over Coast West National publication, Association

published in historic more interest Indices on trends Case-Shiller Investor home noted Additionally, These showed X% and ending working to that XXXX. to price Coast attributed which approximating XX, the according in S&P on in lows, September the period July the provide Estate major Real rates. should pandemic remotely its article, is the the low housing at residential CoreLogic XX areas prices has inventory metropolitan are environment In October individuals National multifamily support. one-year mortgage we Also, August Class arena the located the is price appreciation apartments, grew XXXX the on declined A X.X% which average urban year and more compared than in Class U.S. same vacancies that and C driven of workforce Conversely, as while runs article average cheaper rents. search C renters in of before. have Class in type Class higher the to across space to XXXX. adds The the the lower-cost vacancies Further, apartments core effective been X% the rents that article indicates finance. that suburbs A have since housing West

and basis assets the an the afflicted of to result at of X.XX% any we recorded wildfires. This charge-offs several our aware points basis measured At losses nonperforming end of which the this total as and allowance general loans second time, assets property serious not the linked factors, of current recognized XX, of loan ratio estate the borrowers. strong. at a no of remained were are loan loan Furthermore, all on chiefly losses our to loans we markets in during our At these portfolio. end. quarter, quarter quarter any quarter. increase deferrals loss of strength a by result quality quarter. September for compared payment for a recently during not points, of increase in suffered of million Washington provision total although did any two reduction by Oregon operate, California, loan was As XX a our losses balance to and of the current Primarily loan coverage we remain decline our We traditional as real the record the significant $X.X measures for since related the provision credit

in the impact the Although to be loan future additional with $X.X to level increase million current to as by monitor reduction million $XXX a potential loans quarter in new comparison, to In were we prior pre-tax my the in and the changes. may pandemic feel offset in expense our partially margin of comfortable to and other $XXX earnings quarter. third reduced of provisions compensation earnings provisions interest our expansion improvements reserves, quarters capitalized COVID-XX net Returning of ongoing we the we quarter-over-quarter volume the or credit loan in a related the compared related origination quarter, loss a salaries funded directly XX% million attributable during decrease. necessary

These As as changes, we certain we to requirements. a led of intake. discussed expected, the onset the our last quarter, reduction loan of underwriting of temporarily pandemic, with tightened

into nonresidential remain we adjusted lending, estate guidelines, the to was than However, to it real pandemic's and although and values. the credit estate prior economy with back felt limited credit originally conservative recently they on our parameters selective assess credit pull more very including pandemic. reentry consistent some our the and on real culture, impact We construction commercial important were

we As to September at in have The million quarter. XX. $XXX XX improved residential a to September pipeline, million million rebound which a result, the $XX at at prior income also $XX our end property XX from June single-family healthy seen million of the pipeline improved loan from at $XX

to volume near this of loan XX-year We levels to not traditional obtain outside rate offer jumbo assist historically to a ability borrowers. the believe fixed level. financing rate we However, in remain lending X% interest low- environment, below designed programs financing of given will XX-year single-family low that special borrowers do rate moderate-income fixed

turn to we'll sheet. the Now balance

$XX growth X% Our year-end September XXXX assets of an since $X.X increase billion, at than of of year-to-date. the totaled million less end or

since year-end, period. same million the Our grown $XX cash our during has $XXX have loan decreased portfolio balances million while

The the at during the payoffs loan quarter of the quarter, As about quarter third loan the that At same XX% volume compared second levels. year. total of remained as to I this portfolio previous was mentioned, measured and of elevated curtailments loan a of time, in XX% for origination third level half CPR the quarter.

improving year-to-date. liquidity At $XXX levels our with As decreasing of portfolio deposit and net the reduce cash strong, to loan the a third same total declined concentrating retail our interest growth utilizing our time, we've quarter-over-quarter. $XXX In and margin wholesale of quarter the earnings, path overall with of on sheet. keeping remained during on low-yielding million balance excess our and been deposits million quality of inflows result, our

deposit and industry. reports not portfolio of other unlike loan Our in banks the are the trends

less been the the desired, the our of portfolio ongoing estate growth, than There other pandemic, terms priority. in by real are Our and encouraged asset has than in loan namely factors our all smart of headwinds I'm pipeline have originally is year credit this Coast quality ability while our first creating grow to the that to that are West say markets. loan growth however, and less rebound and the to presidential election and objective The capital with continued balance relatively cushions will This asset expected the regulatory health is remains of U.S. experienced investor likely ratios upcoming and And will on we've cash which anticipate as we in minimums. consistent social the and very the in maintain political curve, all deck, and trends recent to surrounding we very uncertainty significant quarter. company's result remain that Page continue -- flat have strong. what yield low growth, XX limited the sheet of shown above required capital we our

not we for any the well have our circumstances. routinely support under are in lend are plans stock, we do active currently we monitoring in the right and share positioned market place, to repurchase future Although believe the we

on the $X.XXXX and we conclusion, margin. yesterday, deposit record We the per time, and our declared our fire continued quarter communities, intend customers, of during season And recorded that and of In comfort have announce this resiliency X. I'll that, XX some brief the pass employees interest the presentation in Directors the to Laura take quarterly our now November the of also are current to Board growth with earnings shareholders payable of November I for as strong dividend the dividends this environment. net At very that we borrowers at demonstrated I'm pleased of maintain great level. pandemic in comments. quarterly to a common proud share to cash

Laura Tarantino

Consistent and few on the deposit repricing protracted. the with of in seen past wait we loan change prior downward yet a the a some an this quarter, the to loan scheduled quarter to recent the expect carry deceleration outcome, on wholesale Generally fourth just steepening less expected $X.X spot current would to expect approximately portfolio. as compared would which over X.XX%. although we but portfolio repricing at deposit is CD last on fiscal rate see quarter, Retail spend basis only quarter a pipeline an additional additional trends XX to be on impact, level see I'll the on a in X.X% to competition our pricing competitors achieved of And prepayments to in we in transitory the of rate recent retail quarter. I end since may the average trended the seen see X.XX% retail minutes points, quarter end Simone. reprice providing expect accounts measures Conversely, compared indications, has to during deposit five- of weighted of A as have of expectation the this do rate current are of and expect subject improve, and our we've during the the billion quarter. down be improvements quarter's not are if of deposit continued fourth third yields. that market therefore, third loan million stimulus, The update to small we if X% loan several this were you, to speaking, on and the savings quarter. would gradual year. past renewal cost portfolio or the Thank Based result the as $XXX our third end to volume than linked election measured any, at the to more XX-year of and so treasuries months. certificate week pressure attributed some the in over average

existing approximately new basis XX rate an points certificates opened we XXX average of less. or September, in points enrolled basis While certificates, at

improvement the excess would her deposits. we it continue that, expect summary, Simone. position expect turn to activity, to Given roll presentation, a would to off our with And to forecasted this in back our now net quarter result at of a interest the In in Simone than margin, lower continued that in and referenced third see albeit year. we deposit I'll wholesale over liquidity price as of loan

Simone Lagomarsino

Laura. Thank you,

last who our like John acknowledge year, announced seven the Chief be John conclude helped to done end in of at concludes participate. this like operator plans very transition Credit Stedman, Credit real-estate we'd more who's Cardamone, we retire been into our prepared of year, in years. a years John our credit Chief Officer has his portfolio. maintain Before time, risk hired from of prepared role Deputy in John loan this the an this year, lines which a with XX will and remarks. ask In during excellent for will comments, this the so analysts. June management. high-quality Chief to and Credit Officer the his This our questions lending, has our I'd experience Mike to us January. we Earlier job than earnings to will call open tenure, the he Officer, joins At us Mike for

Operator

comes question Instructions] Matthew you. from of Sandler. first the Piper Our with Clark [Operator Thank line

open. is line Your

Matthew Clark

-- shrinkage to can SFR. of whether sheet and are those not runoff you is if else getting the elevated can fixed in Just kind is willing you terms competitive help of we what But it's to on anything there, maybe do if balances. on stabilize kind of there's the stem product book. Hey, favor to balance XX-year can hybrids? way I a within the loan more wondering there good it's morning. in relative start prepayments to you're Wanted understand

Simone Lagomarsino

will working defer And with not lower that modification couple pandemic. their with we've looking So but this even interested place Matthew, maybe thank the a for in put I actually program us, staying rates. the the done were modification say you this payments, was to who question. borrowers things before of is a but in We modified. to have we loan

were work over work we've who And we so payments throughout let's and maybe and to not $XXX them. wanted and make us, to able they're program we Again, payments and continuing to with to with that who elsewhere, to the in that to work modify who need defer modify you refinance through make people once we them do that. qualify, looking with rates, They loans wanted do to but do maintained sure to modified just that say, we your we're this. million program, and

program. we strong in made that, did few of changes in instance, And light of loan reduced new of because have result able to our loan but have as some level values now seen say, credit a underwriting So, very -- increase originations came a pipeline is of we we're I the one the seen values quality. had for that And adjustments, tighten in a were an of in our SFR I'll Laura we've that's that to continuing to credit will have drop And them additional if from XX% made. that reduced, and maybe part comments. of wants add suggest downward both we as some so And still that to point with to have we at confidence there John that, a that if add we well, can that that. make we've criteria

you go So want to Laura, first?

Laura Tarantino

Yes.

jumbos. I think, we said, monitor has Matthew's the where offer our you quickly, and and just compete more to and XX-year it with about price. about that less pricing rates just for been point, at I It's ridiculous mortgages to agree what do really

Matthew Clark

Great.

Simone Lagomarsino

you to that? anything do add to Or want John, And --.

John Cardamone

policy, take place frame. April say, which just decision yes, in I would we prudent I tighten a time March, did the very think credit our was to

times quality important and accordingly I'm an up this obviously where see we throughout this parameters the on opened bit. pre-pandemic have that But credit We're a ongoing driver we have that an many bank. to as we fit. at monitor now. back is we'll with adjustments we basis, as comfortable little were We and not said presentation, And make

Matthew Clark

to Maybe shifting gears deposits. Great.

so than mean guess to change CDs quarter -- of of coming would on help amount kind a You But or there but. deposit only trough still lower? or which low less have, think, XQ. mix sense go, go we can Obviously, only I go too, I this of what's your repricing CD could fair is you bottom, I costs so

Simone Lagomarsino

relatively to that, maturity current would for quarters approximately. again, And have in having high say benefited takes us we've we of last to amounts I based -- with deposit, And of Yes. reprice for significant a such on XX% those rates. certificates It time of market two amount maturities. CD our then deposits the -- of from mature

And to so able been reprice. we've

same reprice the the the We we $XXX-plus have mature ability that that million quarter. will to expect in fourth the

$X it's the same the So we've in not as two the billion-plus last that had quarters.

that. we expect, next we're reprice want the we encourage on to where as at those current And lower them. forward, Laura, CDs more do currently I However, six continue the if you actually to provide to levels, still over do that going higher because months pricing probably than the will you that, rates are details

Laura Tarantino

Well, said, CD X% the months today as and XX basis XX rate rate spot I at for our is is special points.

to room coming repricing on definitely just levels of based to slower there's up. move, the be little So a

Simone Lagomarsino

Matthew, Fed mean liquidity And the now especially in banking is the on really really industry point allowing in to the moved to point, based in follow-up the on March. that of work down right abundance basis rates your banks I XXX drop all reprice to

more At this continuing least there's two quarters. feel same the we're extent reprice we've not quarter. to still not had in so the opportunity, last And in just to like and

Matthew Clark

that What then where to deferrals need repurchase. And your very stock to trading you do low? front, on Okay. is get and active given knowing share on are just see

Simone Lagomarsino

We're exactly what just we're focused monitoring you said. it daily, on very and

see? do continuing I agree and we monitor So with think you yes, to need we to what everything said. are

Matthew Clark

Okay, thank you.

Operator

you. Thank

from question the with Our line Jackie comes of Bohlen next KBW.

open. Your line is

Jackie Bohlen

morning. good Hi,

up on following Matthew's question quick. real Just

to I'm course that a restart is I'm operations, that repurchasing? would mid where, something is to need were you where or begin of you a normal formal buyback, would about announcement of it here. thought something part as If make you the just sorry,

So, You outstanding correct? don't have an authorization,

Simone Lagomarsino

Correct.

Matthew. loans certainly, share share second the we basis completed monitoring current on during are and on reduction agree repurchase yes, significant with levels, a and deferrals, share in we did the ongoing the price plan million made we deferrals and so $XX monitor recognize, by repurchases not in and renew comments quarter. in And daily with an the again, We

Jackie Bohlen

that have Okay, That not I silly anything did a I knew Switching was apologize. question. you topics. outstanding.

just declining about then balance like So fairly based the comments and on if then maybe properly? fairly any thinking correctly, prepayments it that sounds remixing even on flat could offsetting of loan sheet, Am I'm your interpreting to the generation. based deposits be flat I

Simone Lagomarsino

actually And blackout out made, that We back just -- a announcement. say be would to well. I would of period do to question. have clear, let go comment new would be to your you we're that a as prior one have to when me

in to because to repurchase put plan have we today. So, do one existing not a would do do place a have reannouncement we share it and

it want just strength that. secondly, in side million multifamily XX, million originations very in income because a in low see end. some pipeline we that September was quarter will clarify property of do I So, prior the $XXX your then And that to $XX feel to the at particularly the in versus point, over strength we quarter, of this

sheet the side a continuing to hoping loan So, look to we But to originations side. a maybe some we'll and at can balance on to at levels of see see, we and but expect reducing we'll flat strength we're a minimum, that hopefully balance continue we in prepayments, not we of slightly do the sheet, have cost how higher see in that lower increasing continue funds. funding are

in where And so with lower fill replace I've costing we to Laura, off. are left deposits we wholesale encourage And where working can. funding to I you retail

Laura Tarantino

we have off agree run I probably all and particularly to fair liquidity will I that say excess is continue QX. in with flat we comments, your that where expectation, would a

we will grow come that excuse or cash to We balances So, a were -- would hopefully while expect little hope bit. will assets me, down. grow loans a

Jackie Bohlen

cash cash into the than your is balances Okay. any And in keeping deploying balances some reducing excess it or is rather at use securities? this point, -- of wholesale remaining, wholesale those preferred with

Laura Tarantino

Correct.

Simone Lagomarsino

look either at our best invest you in or is on When the -- opinion, loans sorry. is of not returns on securities, reduced the our really to money or use and improving I'm margin hold Yes. cash. securities, in

Jackie Bohlen

great. Okay, much. both, you Thank very

Simone Lagomarsino

Thank you, Jackie.

Operator

you. Thank

Our of comes Tenner Gary from next question Davidson. the with line D.A.

open. is line Your

Gary Tenner

growth. question morning. outlook the for Thanks. Good Quick on loan

the I book, more a as bit estate, multi-family better. the on you about seems quarter down similarly was think yields it third forward little family. focused the and of originations, talked real quarter came volumes in kind a single held the while commercial and It very like this on overall

So just wondering, is multi-family where there's grow a little and more stabilize opportunity right now the potentially to kind of portfolio? loan

Simone Lagomarsino

Absolutely, you brief comment my on very yes. that. Laura -- do

Laura Tarantino

No, I agree.

Gary Tenner

So, now tightened now, your debt of service as your you underwriting, looking underwriting LTVs that coverage overall think for the and of having you're up are for portfolio? what in thresholds at kind

Simone Lagomarsino

John, to take you that? want

John Cardamone

Sure. the our in XX We're other really commercial not in XX We're all real are CRE and the doing originations portfolio, at anything at of in this underwriting that multi-family. point. estate

Gary Tenner

thank Okay, you.

Operator

to to turn I'm over closing for now like further would queue. back in no call you. the the Thank I Simone questions remarks. showing

Simone Lagomarsino

of to shareholders much for us you and you, This today. our here investors concludes very us. you thank Thank Thank Tuanda. joining And joined call all our today. have who

Operator

Every Ladies the company’s and be a have for website. of and available call Thank us you gentlemen joining quarter that concludes wonderful day. cope on our call. will the

Luther Burbank (LBC) 31 Oct 202020 Q3 Earnings call transcript