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Despite recession, Luther Burbank Savings continues to grow, expanding into Los Angeles


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.

Luther Burbank Savings also has taken back a few apartment buildings from owners who defaulted on loans, Biggs said.

Still, the bank has remained highly profitable, allowing executives to fuel expansion into the Los Angeles area. With three branches in Northern California, the bank has in the past three years opened three branches in Southern California, where many of the apartment loans are made. A fourth branch is expected to open in Beverly Hills later this year.

Biggs joined Luther Burbank Savings in 1986 as chief financial officer and became chief executive in 2007. He said that even as the S&L expands into Southern California, it is maintaining a conservative approach.

"The business model we have is profitable, and we've stuck with it," he said.

His comments echo the conservative sentiments of his immediate predecessor, the bank's first president, George Mancini.

The Triones brought Mancini in as a co-founder during a time of rapid deregulation that attracted a lot of opportunists to the savings and loan market. Only six new thrifts opened in California in 1982, but half-way through 1983, when Luther Burbank Savings opened, the state had received 140 applications for new savings banks.

Mancini had no intentions of dabbling in many of the riskier practices of the day when he opened his bank with seven employees and less than $30 million in deposits.

He said at the time, "We're going to be a fairly traditional institution in a deregulated environment."

Two years later, after two other local savings banks failed and were seized by regulators, Luther Burbank Savings had remained profitable and continued to grow.

"It's not an accident we have avoided the problem areas," Mancini said. "That's why we have been so single-minded about our traditional approach."

Part of that commitment is a result of the bank's ownership.

"Because we are so closely owned, we don't have to answer to numerous shareholders," Vic Trione said. "I think companies might take a shorter-term view when they are concerned with quarterly earnings and share prices."

Vic and Mark Trione were raised in a banking household. Their father, Henry Trione, started Sonoma Mortgage Corp. in Santa Rosa in 1943 and later merged it with Wells Fargo Bank. He became a senior vice president with Wells Fargo in 1973, and joined its board of directors in 1977.

The family also has played a large part in shaping Sonoma County.

Now as Luther Burbank Savings expands into the Los Angeles area, Vic Trione is quick to avow his commitment to the hometown market and their steadfast approach.

"Our home is still up here in Northern California," he said. "We want to strike a balance. And I think we are doing that."

You can reach Staff Writer Nathan Halverson at 703-1577 or nathan.halverson@pressdemocrat.com.