Luther Burbank Corporation, based in Santa Rosa and founded in 1983, on July 19 published notice of its application to the Federal Reserve Board in San Francisco to convert from a unitary thrift holding company to a bank holding company. If approved, the newly formed bank holding company would acquire control of Luther Burbank Savings, also headquartered in Santa Rosa, after its conversion from a federally chartered savings association to a state-chartered commercial bank.
In reviewing the application, the Federal Reserve will consider whether Luther Burbank Savings performed well in meeting local credit needs.
Luther Burbank Savings is engaged entirely in real-estate lending, with 60 percent of its loans for multifamily apartments and the remainder for single-family homes. The company, with nine branches including some in southern California, had 2015 net income of nearly $43 million on $4.4 billion in assets.
In February, Luther Burbank Savings, moved to new headquarters on Third Street in the former AT&T building across from Old Courthouse Square in Santa Rosa.
A unitary thrift, the current structure of Luther Burbank Corporation, controls one savings-and-loan association and can open branches anywhere in the United States. A unitary thrift must hold at least 65 percent of its assets in qualified thrift investments, such as mortgage-backed securities or residential mortgages, but can use up to 20 percent of its assets for commercial loans.
A bank holding company, which reports data to the Federal Reserve, is a corporation that controls one or more banks but doesn’t necessarily do business in banking. Most big banks are part of a bank holding company, which can also engage in securities dealing or underwriting, asset management, real estate, leasing, insurance, private equity and trust services.
Bank holding companies in the United States control more than $15 trillion in assets, according to the Federal Reserve Bank of New York — nearly the size of the $18 trillion U.S. gross domestic product in 2015.
Luther Burbank Savings, a private company, plans to remain private, according to CEO John Biggs, who has been with the company for nearly 30 years.
“The ownership is exactly the same,” Biggs said in an interview with the Business Journal on July 19. “Nothing changes in the ownership. It’s not going public. What we are doing is converting our charter, changing from a federally chartered savings-and-loan institution to a state bank. That means we will not be supervised by the OCC (Office of the Comptroller of the Currency).”
“We will be supervised by the DBO (Department of Business Oversight) and insured by the FDIC (Federal Deposit Insurance Corporation),” Biggs said. The change is driven in part to avoid OCC examination fees.
There are lower fees for the state DBO. “We will save about $800,000 a year,” Biggs said. “It’s a big number for us.” The FDIC does not charge for its examinations.
The savings goes directly to profits, Biggs said.
At the state level in California, financial institutions were regulated by the Department of Financial Institutions, which in July 2013 became the California Department of Business Oversight. The new department is intended to protect consumers and serve businesses engaged in financial transactions. It regulates not just banks, but other businesses including: broker dealers and investment advisers, business and industrial corporations, payday lenders and finance lenders, residential mortgage lenders and originators, capital-access companies, check sellers, bill payers, money transmitters, credit unions, escrow agents, franchises, industrial banks, corporate securities and trust companies.