Quiet Luther Burbank Savings, Sonoma County’s biggest bank, is adding to its successful formula
With new digs in downtown Santa Rosa, a large sign out front and a strong record of profit, Luther Burbank Savings is finally bringing a little attention to its success as the largest consumer bank in Sonoma County.
Whereas banks tend to promote themselves heavily, from the local high school ballfield to the corporate naming rights of nationally known sports arenas, the county's largest consumer financial institution (and second largest in the North Bay in terms of assets) goes largely unheralded.
Luther Burbank Savings has churned out steady profits for more than 32 years by focusing on a niche market and loyal customer base. It has 284 employees and holds 31,000 customer accounts. In February, the bank moved into new headquarters downtown sporting a prominent sign, occupying 30,000 square feet over two floors of the former AT&T building on Third Street overlooking Old Courthouse Square.
Yet bragging is not in the Santa Rosa company's DNA.
“It's kind of our best secret in the business world and they bring a remarkable record,” said Ben Stone, executive director of the Sonoma County Economic Development Board.
The move was primarily for logistical purposes so four different offices could be put under one roof, said John Biggs, president and chief executive officer.
“My primary goal was to get everybody together at one place. If you have four buildings, it's very hard for me as CEO to walk around and talk to people. So there's a lot of positives to having everybody under one roof,” Biggs said.
But even with all the physical changes, the business plan for the bank has remained mostly the same: Attract customers with certificate of deposit rates that are higher than others' and then use that money to make competitive loans in the real estate sector. Luther Burbank has long specialized in the stable market for multi-family housing loans, but has branched out just recently into loans for single-family homes.
“They're a financial institution with a niche,” said Brett Martinez, president and chief executive officer of Redwood Credit Union. “And they do a good job in that niche.”
That formula has produced profits for 128 consecutive quarters. In 2015, it reported net income of $42.7 million. At year's end, it had $4.4 billion in assets, a 10 percent increase over the previous year. Growth was driven by a 12 percent increase in loans, or $403 million.
The profit streak continued as the financial sector underwent tremendous turmoil during the 2008 banking crisis. It led to unprecedented intervention by the federal government, which spent $700 billion to bail out banks, money that was eventually repaid.
It also survived the enactment of the Dodd-Frank financial reform law, passed in 2010 and designed to correct abuses that led to the crisis. The legislation created greater oversight over large banks, a new consumer financial protection agency and language designed to curb unsafe home mortgages that were at the center of the crisis. Overall, it has produced a much greater regulatory burden on all financial institutions.
And Luther Burbank has continued to succeed through a prolonged low-interest-rate environment orchestrated by the Federal Reserve. Bankers contend that higher interest rates would boost their profits because they widen their net interest margin, which is the difference between what they pay out for deposits and what they can charge in interest for loans.
“The best thing for the banking industry is to achieve a normalization of interest rates,” said Vic Trione, chairman of Luther Burbank Savings. Trione, his brother Mark, and George Mancini, the company's first president, are the only shareholders in the bank, which makes the bank less vulnerable to the sway of outside influences.
Biggs was even more succinct, noting that his bank's return on assets is still not what it was before the banking crisis.
“It's not the most profitable environment for banking,” said Biggs, 60, an accountant by training.
The bank was founded in 1983 and named in honor of Luther Burbank, the noted horticulturist whose name is synonymous with the country's agriculture roots. From the start, the bank placed a high emphasis on customer service. It took 17 years to reach $1 billion in assets, but growth has increased rapidly within the last decade.
The bank has made its mark as a traditional savings bank, pulling in customers who want a stable and secure environment for their investment guaranteed by the FDIC. It has traditionally offered high rates for its certificates of deposit and savings accounts, with some customers attracting a level at around 1 percent in this low-rate era.