Santa Rosa's Luther Burbank Savings growth plan includes Oregon office, property management
The Business Journal interviewed John Biggs, CEO and president of Luther Burbank Savings. North Bay's largest financial institution was started in 1983 and is based in Santa Rosa.
In September, Luther Burbank Savings converted from a federally chartered unitary thrift to a state-chartered bank. The company lends only for real estate, with 60 percent of loans in multifamily apartments and the rest single-family homes. Luther Burbank Savings has nine branches. In February 2016, the company moved to new headquarters on Third Street across from Old Courthouse Square.
Biggs has his office on the top floor of the building with a grand view of the square under construction in a reunification project that started in May and is expected to finish in spring 2017.
You have been with Luther Burbank Savings how long?
The owners of Luther Burbank Savings are still Vic(tor Trione), Mark (Trione, sons of Henry Trione) and George (Mancini, former president)?
Those are the only owners. George comes (into the office) two days a week.
You're not an owner?
Do they promise (ownership) at some point?
I am well taken care of in a different way (laughs). I'll leave it at that. George started the bank in 1983. He had some shares when he first started. Vic is the primary shareholder. Mark is second. George has a little bit. That has been the shareholder ownership since day one.
Vic is very much involved?
That's his office there. I meet with Vic regularly. We have a very good, close relationship. We talk quite a bit about strategy, what we're doing. He's very involved - chairman of the board.
The Federal Reserve didn't balk at your transition to a state-chartered bank?
I think it was September. We are officially converted. It's a funny cycle we went through. We were originally a state-chartered savings institution.
A savings institution, not a bank?
Not a bank. FIRREA (Financial Institutions Reform, Recovery and Enforcement Act of 1989) came in post-savings-and-loan crisis (more than 1,000 out of 3,200 S&Ls failed from 1986 to 1995 after investors moved money to money-market funds; the Federal Savings and Loan Insurance Corp. needed a $124 billion bailout and some 700 S&Ls were closed by Resolution Trust Corp.). That created the Office of Thrift Supervision in 1989. We decided that was a good regulator for us, and why have two regulators.
Luther Burbank Savings became a federal thrift?
We gave up our state charter, became a federally chartered savings institution, still a thrift. The OTS got the short end of the stick with Dodd-Frank (Wall Street Reform and Consumer Protection Act, 2010, enacted in response to financial crisis of 2008).
They supervised IndyMac. [Independent National Mortgage Corp., closed in July 2008 and turned over to Federal Deposit Insurance Corp., which sold it to OneWest Bank, 2009; CIT Group acquired OneWest in 2015.]
They supervised Countrywide. [In 2006, it financed some 20 percent of all U.S. mortgages. In 2008 it was sold for $4.1 billion in stock to Bank of America, which was ordered in 2013 by a federal jury to pay $1.27 billion penalty for Countrywide's loans to unqualified buyers in so-called “hustle” program. That fraud penalty was overturned on appeal in May of this year.]
Those were two of the most egregious troubles in that cycle.
Bank of America likely regretted buying Countrywide?
A lot of people regretted buying those, no doubt. Banks weren't that much better, really (in taking mortgage risk). It was a bit unfair that the OTS was sunsetted under Dodd-Frank. All the thrifts went to the Office of the Comptroller of the Currency (for supervision, part of Dept. of Treasury). We did it for several years. We have always had good relationships with our regulators. The OCC was different. We are a real-estate company.
That's all you do?
That's all we do. The OCC is not that used to that. We never really jived that well.
You are now supervised by the Department of Business Oversight?
Yes. We are considered a non-member bank. There are two regulators: the DBO and, if you are a member bank, the Federal Reserve (38 percent of 8,039 commercial banks in the United States are members of Federal Reserve System; national banks must be members; state-chartered banks have option to be members, which are required to hold 3 percent of capital as stock in reserve bank in their district, based here in San Francisco). If you are a non-member, then the FDIC. We chose non-member. I think we have a much better match with the FDIC. We are real estate, (mostly) California. We also have concentrations, mostly apartment lending. Concentrations are usually tracked with a multiple of risk-based capital. We have about 450 percent of our risk-based capital in apartment loans. The OCC is not that comfortable with those concentrations. The FDIC does not appear to have that same concern. We haven't had an exam yet.