Sonoma County’s Luther Burbank Savings reports 18% earnings drop for 2020, cites pandemic impact

Feeling a bit of the sting from COVID-19’s economic impact, Luther Burbank Corporation (Nasdaq: LBC) Wednesday reported net income of $8.7 million in the fourth quarter, an almost 40% drop versus the third quarter’s $14.3 million ending Sept. 30.

The decrease represents the challenging grip COVID-19 had on the economy throughout the year, not just in the fourth quarter.

The bank wrapped up the turbulent calendar year with net income of $39.9 million, down 18.4% from 2019’s $48.9 million.

The most recent quarter matched results of the entire year.

When comparing fourth-quarter net income, the coronavirus’ economic meddling also challenged the bank. The bank reported a nearly 30% annual decrease, from $12.4 million in 2019.

“The biggest takeaway from 2020 was the company’s resilience in the face of the unprecedented challenges caused by the COVID-19 pandemic,” CEO and President Simone Lagomarsino told the Business Journal after the investor relations conference call.

2019 non-interest income of $4.7 million was also almost cut in half, amounting to $2.5 million in 2020. This source of income is defined by adjustments on equity securities and fee income, among other factors.

Still, company officials stressed the magnitude of the year’s crises presented an uphill battle.

In another category, the Santa Rosa-based bank saw the net interest margin — the difference between interest paid out and interest earned — improved by 2% year over year.

In addition, Lagomarsino was encouraged by some high points within the year. For one, Luther Burbank experienced a 35% rise in net income between the second and third quarters.

Also in the fourth quarter, the bank took in $37.2 million in net income, $1.1 million higher than the third quarter.

Plus, the bank made concessions to weather the storm, including a $36 million investment of a stock repurchase plan as well as securing $12.4 million in reserves to address the “uncertainty of the pandemic,” Lagomarsino told attendees on Wednesday morning’s call.

She later told the Business Journal the bank recorded the majority of those reserves during the first and second quarters of 2020.

“This was the period of the highest uncertainty regarding the financial impact from the pandemic,” she said, adding that the bank provided 254 deferrals of loan payments for its clientele.

Lagomarsino told investors that 99% of those loans returned to their regular payment status — an encouraging sign the bank’s clientele is fighting hard to stave off business downfalls and meet their financial obligations.

“I was pleasantly surprised at how quickly our borrowers recovered from the pandemic. This was such an unusual event that it was almost impossible to accurately predict or foresee how the economy and individuals would recover,” she said.

What helped?

The Luther Burbank Savings chief pointed to its “strong underwriting culture” and its “proactive approach to working with borrowers” as the reasons contributing to the promising trend.

Moreover, Lagomarsino expressed interest in doubling down on lending activity with the intention of hiring more income property loan officers, she said. There are also no plans to close offices as a means to cut costs.

Total loans as of Dec. 31, 2020, were $6 billion, a $181.2 million drop from 2019. The loan portfolio consists of income property as well as single-family residential mortgages, representing 71.1% and 28.5% of the business, respectively.

“Between the challenges of the pandemic and low interest rates, this is an extremely tough environment for any financial institution,” she said. “Given that everyone needs a place to live, we take significant comfort in knowing that over 96% of our loan book is comprised of residential real estate loans primarily in the strong West Coast market.”

Luther Burbank Corporation’s total assets and deposits were $6.9 billion and $5.3 billion, respectively, as of Dec. 31.

The board of directors declared on Jan. 26 a quarterly cash dividend of a nickel per common share, payable on Feb. 16.

“As we close the year, I would like to express my gratitude to our entire banking team, which has continued to work diligently and tirelessly to support our customers, communities and co-workers impacted by the COVID-19 pandemic,” Lagomarsino said in closing.