LBC - Earnings call transcript Q2 2021

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Operator

Good morning, and welcome to the Luther Burbank Corporation Second Quarter 2021 Earnings Conference Call. [Operator Instructions].

Before we begin, the company would like to remind you that discussions during this call contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Luther Burbank Corporation does not undertake any obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. our forward-looking to statements. cause those materially could in described factors actual differ results from Numerous

Burbank filed For ahead. see now Simone reports Luther Lagomarsino, the information like company's website more on conference CEO. periodic accessible those to turn President at over I and the SEC. with factors, the please Corporation would and to the go Please

Simone Lagomarsino

goals and is and financial at margin Second morning, that Executive President Thank to Corporation's shareholders. achieving interest We a Officer. Conference welcome established joining with generates with included pleased Good to and our equity today that a Chief goals today. on level positive you're these and our us return X% Burbank the and double-digit Laura Quarter of you, Simone growing we're Call. assets performance me return This on Detamara. average Luther average which the Earnings net in appreciate trends Tarantino, produces we simultaneously that a least Primarily, early our We're Lagomarsino, XXXX. Financial Officer; for is Chief

During prior per was income linked taxes. by to offset income interest million primarily a and share, as million increase net improvement the expense of partially net attributed million $X.X net recorded quarter diluted our of $X.X per or income quarter the which diluted earnings. was in increase the million $X.XX Growth to compared a an compared or a million to in second share quarter, $XX.X we $X.X $X.XX in income in reduction $X.X noninterest

of loan if average equity return even would return exclude second included of measured X.X% produced of have equity average this earnings net a and $X.X provisions. the and a earnings for loan assets And on loss assets quarter X.X% The on recapture average average second of on returns Our XX.X%. million XX.X%, respectively. a loss provisions, and adjusted reversal quarter our the during we

to expanded an improvement margin quarter, Our X.XX% point net during to X reflecting interest basis quarter. second compared prior the the

earning to declined X loan on a rates funds. our higher-yielding yield was due on by reduction our loans points, largely trend point basis of basis this in of by While outpaced volume, assets cost XX as compared new to prepayment

quarter of record quarter Our The loan the our the significant unchanged when requirements. first X.XX% of interest volume increase record volume We the $XXX single-family the the at underwriting X.XX%, the estate loan purchase excluding in and coupon million loan originated during with pipeline loan we to loan of size growth linked pipeline during attribute the the rate quarter end quarter the productions an generated The improvement policies was loan pool was exclude which the lending the new quarter. as or loans We measured to compared XX% new team to new quarter. high on quarter associated pool. of loan we from second first pre-pandemic again, largely the the loan during year. in period linked over purchased reverting in originations, the to the correlated completed in origination this the directly real

The approximately experience The during loans $XXX to the off basis yield rapidly XX% by loan on rates had interest the points primarily as million or completed this the last the X.XX%. new outbreak. loans on payoffs of the loans rate an single-family lower Although average rate, $XXX portfolio interest that on the before paid XX% coupon the the was the quarter to or Comparatively, our XXXX totaled X%, funded well off of decreased rate X that and which loans loan quarter, COVID-XX loan net loan loan we CPR, we quarter rates during CPR during as X%. continued on portfolio growth quarter bank due pay downs. in in response averaged quarter, prepayment the conditional paying and second million quarter, new the first to as levels were our interest on accelerated purchase market in of averaged of declined exceeding portfolio

the reduction we improved was cost as yields during noted, to in our primary second However, previously of of quarter and net points margin. the the XX the significant funding our contributor basis asset outpaced interest declining

points for Our interest-bearing decreased deposits cost of the basis XX period.

approximately into X basis deposit at matured almost renewed average rate points $X had billion months, basis average XX a accounts certificates X.XX% an retail points. at we that cost XX% which of Over past or new reduction of balance term the by XX of of of an rate of

of Another by deposit to accounts. transferred funds liquid XX% maturing balance

We with XX% account year, outbound seeing of to compared level our forge have of fee sales noninterest-bearing X XXXX. early relationships in deposit campaigns least to customers, goal was this loans in at year service improved loan as half the loans in products. XX% At deeper borrowers end, deposit trends approximately of which and With customers with the calling with that quarter established of first originated deposit and of customer and in another continued calendar continue the of conversations, our in-branch new bank XXXX. we with full funded a income and we're generating also

which a a duration. quarter. result prior from the the Our Home as shorter as continued of This improvement X.XX% decline Loan point measured Federal Bank repricing from a cost period basis benefited XX our overall borrowings, the of the also the was cost our funding advances for of decline of or well in

we will portfolio. tools have fixed risk hybrid and our the grow hedge and associated with our Loan products of loan our to we We ARM to one Home as as interest loan continue Bank Federal advances rate using rate continue future, in the historically,

to move quality. we'll Now asset

pleased economic of real continued and markets income As noted pandemic benefited to returned million residential attributed Coast. June this of conditions in their announce in our routine the related reserves, without net or temporary monthly sustained of primarily XX, ability our to payments recapture who improvements $X.X either off loss strength I'm I in borrowers from granted quarter estate was as were to our have loans that to earlier, they've concessions. West the loan paid which payment deferrals to all the our

we delinquent same the of loans, have date, full. of had which X off X As paid subsequently in

a have average Finally, X the and with just loans our weighted nonperforming at quarter bank real owned, end, XX%. a assets We was ratio had to asset estate did any point. totaling total as of nonperforming $XXX,XXX ratio result, loan-to-value basis X not

of quality tell, the of As loan proud I'm of and and our our portfolio. you performance probably resiliency borrowers particularly the can credit

added million allowance our to losses XXXX, loan the these the loss bank provisions. over $XX COVID-XX. recaptured During $X the for of to million in loan we've of XXXX, outbreak Year-to-date for related uncertainty

trends allowance future to to continues credit quarters able current if continue be strong. recapture $X the Our to over million have in balance may remain in we economy qualitative pandemic-related which and reserves,

Our as the ratio allowance XX XX XX, to basis at of basis at national a was points the December to total loans quarter coverage emergency. XXXX, points compared ratio of declaration to end prior

quarter. that by strong in reduction net in $X.X expenses related to million loan the quarter, employee this a capitalized payments million the The volume. quarter's compensation level chiefly Lastly, linked earnings related improvement loan in reported I higher outpaced in the relation to expense declined benefit incentive as was origination attributed noninterest of for and our a increases had growth from $X.X to costs

the the taxes of calendar during mechanics the ceilings. annual first quarter payroll as expense to the second tax is timing in Additionally, elevated payroll given quarter reduced were compared payments linked tax the bonus and quarter typically of

sheet. the to turn Now we'll balance

Our we year, of When assets of $XXX increase and offset at due partially totaled million a respectively, June low end X% of $X.X we for indicated growth primarily in to million or began year-end. and The $XX investments we that by in XXXX. single-digit $XXX $XXX billion, an asset reduction expected the increase cash. million loans since growth this million, was

large this Our has into single-family quarter purchased year-to-date quarter. levels. portfolio coming well loan the to growth no that the are typical second exceeded loan pipeline for year, spawned purchases and loan by a primarily both loan in pipeline due has moderated we internal million projection, our the $XXX as additional planned first production as more that There to

we of the in year growth would expect half to slow. result, the a second As

During year, the wholesale assets $XXX was Loan advances Bank million in half funded during as Home deposits. retail Federal growth declines in this in with deposits. of deposit and million first Retail the period primarily the increased by by supplemented million $XX $XXX bank same decreased deposits

the deposit made categorized effective a but April on a the X FDIC by $XXX as brokered which change rules, bank exited a after was of funding, deposit. its were relationship, changes the result the now on April deposit of which guidelines, brokered to it intentionally As X, previously became retail million FDIC

from the FDIC. this Additionally, based the by retail we wholesale new funds reclassified $XX category to million matchmaking definition of of on

tangible purchased an share of average have book impacts portfolio We position discount further $XX.XX. rule. $XX.XX be strong. remains balance there June XX resulting any of FDIC's examined our significant at have per to from through price we company's value retail June will Year-to-date stock and do the The not XX, the of shares capital XXX,XXX of our or believe our deposit updated common X% a that

record of excited details share. core August of supports at the to I'm the to with to believe near-term shareholders for with quarter that common that, per financial level outlook. active funds payable increased quarters $XX repurchases the XX We the for The be to pertaining have will plan Laura increase our over $X.XX Board strengthened as continue to added our pass several an now in cash I'll quarterly past August Directors And to stockholders. quarter dividend voted And our dividend of second our to remaining few repurchase million share a presentation We of authorized X. and yesterday, this profitability announce return very end. to on

Laura Tarantino

quarter XX, less quarter as contractual or loan position, the net recent the look we portfolio along flattening in with a Thank expect At basis was preferred reduction our points predicted our growth on over curve, that X.XX%, a change June yield you, Nonetheless, in we margin The not would the we of some of interest end. our have XX-year rate the basis last points would balance Simone. more at and yield last by this than shape curve. treasury X since the approximately XX banker's not year. of additional is certainly the

loan August, remain should rates current near on this past of will June and turnover impact to basis from $XXX decline our million rate X about maturity of continue points X, interest will per swaps, X the second of loan month, likely competition, our upcoming the offset negative While levels. X origination new most Based merely within turnover. portfolio, the the in loan rate effect our from quarter

recent challenge of given curve And prepayment continued there acceleration However, as elevated loan yields. downside remains costs are risk the to market, liquidity growth. loan market stimulate well patterns as in continue yield deferred the changes expected and resultant lending excess new rates of decreasing participants to to

at expect or albeit basis the experienced rate quarter. On spot hand, our in quarter. other of a XX linked on to improvements reduction the points portfolio, do deposit slightly XX additional prior measured the The slower we end portfolio June the point rate our compared a deposit XX pricing retail basis in at than

retail During to the balances. the to which third reprice certificate year, of similar billion we $X maturing scheduled is are accounts this quarter's that second level quarter have

our is average about on maturities X.XX%, the which which However, we CDs, the weighted priced quarter. current than these rate XX% during lower CD second measures

or our month are at those greater basis renewing points the month the of points a that approximately during opening cost weighted average XX of are than renewed Additionally, of rate basis April. new XX CDs and were current or

second risk our in economic assumption to As decrease risk to our the due and In upward a in change a the points continued of percentage model basis anticipated strong including XXX in advances yield the XX basis interest XX this estimated basis and XX interest X-year shown of by and/or rates the positions, liability-sensitive hedging quarter. swap sheet hedge form our quarter. cost on we third Pages equity the rate was on in modeling a secondarily long-term as carry in during basis added million changes XX% balance shape to quarter hedge or during of points. leg equity expected XX increased loan funds the quarter. shock current growth parallel at $XXX during at in $XXX prior fixed pay of value additional primarily quarter. as of increased a our from a rate a The increased new level of due positions point second of measured FHLB measure Based with growth, a of of The investor XX% the curve. FHLB the are advance Fed negative XX.X a due The points of quarter-over-quarter and during increase to the X cost million end June, of loan presentation, approximately a derivatives

of range current net somewhat conditions, but of deposit interest rate interest dynamics net year-end. management, active and beneficial our the margin by Given by portfolios, the offset to X.XX% improve to beneficial counter X.XX% cost our -- would expect we to a net loan rate risk of

$XX our This end approximate expense at and the in at compensation quarter. loan than this the we'll operator open our to the because expense million remarks. loan quarter, of would noninterest is first expect Lastly, for time, levels prepared our end concludes to volume increase the third line questions. quarter to pipeline less is ask and XX% highly the correlated we And

Operator

[Operator Instructions].

is Your Hagan of Eleanor KBW. first response from

Eleanor Hagan

volume you Do challenging Just pre-XXXX forward? I expenses, out compensation origination run salary of a starting XQ have more sense in have level? a think touched much predict? can did on prepared on appropriate to remarks, how we impact in on that an for to but what understanding this an deferred already of 'XX, Are be of the kind expense rate back is going you've

Simone Lagomarsino

be use talk term and deferred start just life loan. over generating -- clarify you and XX to expected the the Laura give you where of it when then specifics, of loan costs to I'll FASB more but and the considered of a that accounting origination, take time the about amortize that compensation, the book we over would at I turn we that So the the cost want to

a origination over that we So it's loan the deferred FASB life costs consider just are consider that that don't of loan. We compensation. XX booked the -- the

separate, specifics the to -- we wanted end we where conference think and the you do the compensation, you deferred about have quarter. that want would at is to mentioned third in that which of comments -- clarify to We be do talk further? do that your expect Laura, for And have clarify to I just call. I want you But

Laura Tarantino

Sure, Eleanor.

think to is lower would the our mentioned second because $X the approximate $XX almost expense quarter million, million primarily which third I of quarter originations. noninterest I next than I expect about or for greater quarter

Eleanor Hagan

employment? any sticking with salary Okay. how hiring or base expense, are Great. what on been of pressures you given your you And experiencing of employee pressures recently? then have to does kind on compare And would that inflationary kind salaries, consider seeing full the

Simone Lagomarsino

and So employees consistent. we the have that's end -- the XXX second quarter, pretty been of at about we've

at come fortunate not pressure to up. positions have to been salary have be We we open And able as seen they fill significant costs point. on this

there have, fill again, open positions. the market we time, at it But However, present we over able expect to are here are fill. positions. been a hearing more that our to And in about I able and there speaking, time. that, few open be generally happen fill the that been add? may we've or obviously But to may difficult generally, anything Laura, to more mean

Laura Tarantino

accurate. that's No,

Operator

Your is Davidson. Tenner Gary final of response from D.A.

Clark Wright

This year-to-date. behalf question refers single-family is real Tenner. to of on Clark Wright, originations Gary estate My the speaking

XXXX. these on level any well? going alone second at any the just Excluding CRE let origination could Can projections nearly year? you if level in year And to of pre-pandemic the be full purchases, half QX more were the thoughts XXXX you on you origination commentary heading where think are provide as provide you the levels

Simone Lagomarsino

a say the for originated. originations separate purchased, really start. pick up. then A purchase the that also Laura little single-family us is the I of strong that which important have significant very our that portion think that I'll I'll and aspect we we loans both are it loan let a that bit. This is we've originating Simone, very transactions, So key origination loan would loans is we're had from and of I again, loans but

Mortgage from pipeline were where refis, at very the it if an we volume. And Association uptick what you March. seeing purchase we than across are still alone, which has the strong our board for single-family June at end the the in rather So generally very of at loan loan Bankers of refis is end a similar we're seeing look reported, to

So we expect term, at family. originations have in least to in the strong near loan single

who of an reduction we seen what's bit an in mortgages. But quarter, we pipeline big that, as end though loans and have rate we're expected, significant get with more recent terms been down the level, of the the our based have rate, prepared happened recently at more we adjustable But more half that. little in uptick if And to said With mortgages moved I'd to loans. that the of of on Laura, a our we see normalized may last expect have specific and people longer-term have those the in we first as levels in would of And We've you typically have recent through a in on booked see and may normalized for with a would into to us want to do seen CRE year. then treasuries, prepayments, just pipeline this XX-year process the would it's a decide volume welcome now a XX-year rates. unknown. any we we've so you that of of origination we uptick refi slowdown downturn fixed but as would noted we uptick our CRE, in loan comments, what had

Laura Tarantino

think don't to have I add. I Actually, you. Thank else anything

Clark Wright

from activity funds further do interest-bearing expecting cost at that? it talked think see is down Where be to any stable basis other my have your Or of you just levels. looks deposits of are currently? you basis XX cost to below the be XX down you from going here? points, moving happening. already to then that see about QX would And repricing It points really levels moving question, like the Awesome. are they at Do it's you

Simone Lagomarsino

to Laura, do you that? take want

Laura Tarantino

willing the think but And quarter. was large June think, what spot the roll I achieved down into from where what definitely, given CDs right? of there just just little the Sure. the seen continued we're people accounts half maybe are prior some I will on their XX, differential we at movement in that over rates, the do last sensing of a cost were maturing to pretty we at sensitivity in bit price Again, a And money have quarter. just of low rate rate interest it environment. CDs move market

Simone Lagomarsino

that And mention close June, to to at up now of Laura, then have swaps impact so can the of end and expired the well to as that understand margin. coming maybe want end last you people do so that the might quarter the this the also

Laura Tarantino

Sure.

speaking, As in in see matures monthly June, I portfolio. that noted in decline pretty $XXX million when loan million mature $XXX I the just August. offset our another we had we the one turnover swap the from well should And of was yield

because to largest negative for the pretty significant our margin So and QX QX net interest going I they carries. be over that's think, had impact,

Operator

the further Okay. to I queue at time. this Lagomarsino. will turn the questions Simone call in back are There over no

Simone Lagomarsino

call. second us quarter earnings very for to want this quarter today much. you second concludes very call. conference Thank our you joining you our all thank of We much. for Thank And

Operator

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

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Luther Burbank (LBC) 1 Aug 212021 Q2 Earnings call transcript