Luther Burbank Savings did more than just remain profitable during the most severe economic collapse since The Great Depression.
Sonoma County's largest financial institution has prospered and is now set for expansion. The Santa Rosa savings bank has more than doubled its asset size in the past five years, and is currently engaged in a significant expansion into affluent areas of Los Angeles.
This marks the second time in the bank's nearly 30-year history that it has continued growing at a time when other community lenders were plagued by major problems. The first was in the mid 1980s, when savings and loan banks collapsed during what is now commonly referred to as the S&L crisis.
Then in 2008, as global financial markets froze and the government pledged nearly $1 trillion to rescue the distressed industry, Luther Burbank Savings posted a record annual profit of $48 million.
It continued on that path last year, notching $44 million in profit and growing its assets 12 percent to $3.5 billion.
How did Luther Burbank avoid the pitfalls of this recession? By sticking to conservative growth and developing a niche approach to lending, executives and analysts say.
During the boom years, profits often lagged competitors who dabbled in riskier markets. But to Vic Trione, who co-founded the bank with his brother Mark in 1983, a steady approach has always been the goal.
"We are in the business to make loans and take savings," said Trione, who is chairman of the bank. "We can't lose sight of the fact that is our primary focus."
Savings and loan banks tend to focus more on holding people's money long-term than on helping clients manage their day-to-day cash flow with credit cards and checking accounts. Luther Burbank Savings does not have any ATM machines, and it only has six branches.
"They are the quiet financial giant of our area," said Fred Ptucha, who tracks local community banks and is an adviser at Financial West Group in Santa Rosa.
To grow the business, executives in the mid-1990s began developing a specialized lending practice that targets developers of apartment buildings. Since then, Luther Burbank Savings has developed a statewide and even national reputation for specializing in that niche market.
"Apartment lending absolutely has performed the best during this downturn," said John Biggs, chief executive and president of Luther Burbank Savings. "Apartments were the way to go."
As the real estate market started crumbling in late 2007, a record number of people were evicted from their homes and needed places to rent. Most apartment building owners have found enough tenants to fill their new developments and have been able to continue repaying their loans.
"Those people losing their homes in foreclosure have to live somewhere, so those apartments are doing OK," Ptucha said. "They found a sweet spot."
Loans for apartments and other multi-family buildings now comprise about 63 percent of the bank's loan portfolio. Only 2 percent were made for land and construction development, categories that have caused the most problems for community lenders.
The homegrown institution hasn't avoided trouble completely. About 2.4 percent of its assets are nonperforming, meaning it has foreclosed on property or a borrower is seriously delinquent on making loan payments.
It loaned $20.5 million to local developer Clem Carinalli, who is tied up in bankruptcy court as he tries to negotiate a way to repay lenders. Nearly all of that money is secured with Carinalli's property, meaning the savings bank can foreclose to recoup most of its investment, according to bankruptcy documents.