Luther Burbank Corporation

Net income was $21 million, or $0.41 per diluted share, versus $22.6 million, or $0.44 per diluted share, in the linked quarter. Net interest margin was 2.42%, down 20 basis points sequentially; the yield on interest-earning assets rose 25 basis points while the cost of interest-bearing liabilities rose 49 basis points. Real estate loans grew $217 million, or 3%, and annualized loan growth year-to-date was 11.8%. Classified assets declined by $1.8 million and were 30 basis points of the total loan portfolio; nonperforming assets were 5 basis points of total assets. For Q4, management expects loan production to slow, deposit costs to continue rising, funding costs to outpace asset yield improvement, and net interest margin to compress again. Non-interest expense is expected to run at about $16 million in Q4.

Simone Lagomarsino emphasized that the quarter was solid on earnings and credit, but the rate environment is becoming the key challenge. She said the bank remains liability-sensitive, deposit competition is intense, and rising short-term rates should keep pressuring margins and deposit costs. At the same time, she pointed to improving digital marketing, retail deposit gathering, and very strong credit metrics as reasons for cautious confidence.

Laura Tarantino added more detail on funding and rate dynamics. She said new Q4 loan volumes are expected to be added at coupons above 5.25%, while the loan portfolio spot rate was 3.71% at quarter-end and about 43% of the securities portfolio was floating with a 2.9-month repricing frequency. She also noted $368 million of term deposits maturing in Q4 at a 47 basis point weighted average cost, new and renewed term accounts averaging 2.59% in September, FHLB advances of $1.2 billion at a 2.34% cost, and net swap income of $2.9 million in the quarter. She guided to roughly $16 million of non-interest expense in Q4 and said capital and liquidity remain strong, with tangible book value per share at $13.18, tangible capital at 8.5%, and Tier 1 capital at 10%.

Analysts pressed on the sustainability of the NIM decline, deposit growth, funding mix, credit quality, and capital returns. Management said it was no longer projecting NIM in the call because the market is too volatile, but reiterated that deposit costs are the biggest variable and that funding may come from a mix of retail growth, wholesale deposits, and FHLB advances. On capital, Simone said the company is not currently considering a share repurchase because of margin pressure, rising rates, and a desire to preserve capital heading into a possible recession.