Luther Burbank Corporation Reports 2017 Fourth Quarter Earnings Per Diluted Common Share of $0.45

SANTA ROSA, Calif., Jan. 25, 2018 (GLOBE NEWSWIRE) -- Luther Burbank Corporation (NASDAQ:LBC) (the “Company”), the holding company for Luther Burbank Savings (the “Bank”), today reported net income available to common shareholders of $20.4 million, or $0.45 diluted earnings per common share (“EPS”), for the quarter ended December 31, 2017, compared to net income available to common shareholders of $13.3 million, or $0.32 EPS, for the quarter ended December 31, 2016. For the twelve months ended December 31, 2017, net income available to common shareholders totaled $69.4 million, or $1.62 EPS compared to $52.1 million, or $1.24 EPS, for the comparable 2016 period. Net income for the fourth quarter of 2017 reflects a net tax benefit of $5.8 million which amount includes a $5.3 million tax benefit from the restatement of the Company's net deferred tax assets related to the revocation of its S Corporation status and the recently enacted Tax Cuts and Jobs Act and a $2.9 million tax benefit from the partial deductibility of contingent IPO costs not recognized as GAAP expenses, partially offset by a $2.4 million tax provision on fourth quarter earnings. Excluding these one-time benefits of $8.2 million, EPS for the quarter ended December 31, 2017 and the twelve months ended December 31, 2017 were $0.27 per share and $1.42 per share, respectively.

John G. Biggs, President and Chief Executive Officer, stated, “Our 34 year history of profitability continues with earnings of over $20 million for the fourth quarter of 2017. What makes this possible is a loan portfolio that now exceeds $5 billion, which was achieved by deeper loan and deposit penetration into our attractive west coast markets.”

Mr. Biggs continued, “Asset growth continues to excel, exceeding 13% for the year. The Company completed a successful common equity IPO, raising net proceeds of over $138 million. This additional capital will allow us to continue building a strong and growing company.”

“At the same time, we remain vigilant to achieving exceptional efficiency of our operations, with one of the best efficiency ratios of our real estate and commercial bank peers. Coupled with our excellent efficiency is our extremely low level of non-performing assets, which at year end was only 0.12% of total assets, again, one of the best ratios of our peers.”

Board Declares Quarterly Cash Dividend of $0.015 Per Share
On January 25, 2018, the Board of Directors of the Company declared a quarterly cash dividend of $0.015 per common share. The fourth quarter dividend declared is prorated based on a regular quarterly cash dividend on our common stock of $0.0575 per share and the portion of the fourth quarter of 2017 during which the Company was a public company, which was 24 days. The dividend is payable on February 15, 2018 to shareholders of record as of February 5, 2018.

Fourth Quarter and Twelve Months Earnings Summary
Net interest income for the quarter ended December 31, 2017 totaled $27.6 million compared to $28.8 million for the previous quarter and $24.2 million for the 2016 fourth quarter. The net interest margin for the quarter ended December 31, 2017 was 2.05%, compared to 2.02% for the previous quarter and 1.98% for the 2016 fourth quarter. For the twelve months ended December 31, 2017, net interest income totaled $111.0 million, compared to $94.6 million for the comparable 2016 period, and the net interest margin was 2.05% for the twelve months ended December 31, 2017, up slightly from 2.04% for the twelve months ended December 31, 2016.

For the quarter ended December 31, 2017, a $1.3 million loan loss provision was recorded compared to a $1.6 million provision in the prior quarter and a $3.6 million reversal recorded in the 2016 fourth quarter. For the twelve months ended December 31, 2017, we recorded a loan loss reversal of $3.4 million compared to a $12.7 million loan loss reversal for the comparable 2016 period.

Noninterest income for the quarter ended December 31, 2017 totaled $1.4 million, compared to $4.9 million for the previous quarter and $3.1 million for the 2016 fourth quarter. Noninterest income for the twelve months ended December 31, 2017 totaled $7.4 million compared to $7.8 million for the comparable 2016 period. The reduction of $3.4 million in noninterest income, or 70.6%, for the quarter ended December 31, 2017 compared to the linked quarter ended September 30, 2017, was attributable to the gain on the $626.1 million multifamily securitization transaction in the third quarter 2017. The reduction of $1.6 million in noninterest income, or 53.1%, for the quarter ended December 31, 2017 compared to the prior quarter ended December 31, 2016, was primarily attributable to a decrease in FHLB dividends of $825,000 as the FHLB provided an special dividend in the fourth quarter of 2016 of $917 thousand and a decrease of $1.2 million in the gain on sale of loans due to no loan sale activity in the quarter ended December 31, 2017. The quarter ending December 31, 2016 included gains from retail single family mortgage banking operations which operations were ended in the first quarter of 2017 and gains from multifamily residential portfolio loans sales completed for purposes of asset liability management.

General and administrative ("G&A") expense for the quarter ended December 31, 2017 totaled $13.2 million compared to $13.8 million for the previous quarter and $17.1 million for the 2016 fourth quarter. The reduction of $3.9 million in G&A expenses, or 22.7%, from the quarter ended December 31, 2017 compared to the quarter ended December 31, 2016, was primarily attributable to compensation and related benefits, resulting from a decrease of $1.1 million in salaries and a $2.3 million reduction in incentive compensation related to the retail mortgage banking operations ending in the first quarter of 2017.

For the twelve months ended December 31, 2017, G&A expense totaled $56.5 million, down from $61.2 million for the 2016 comparable period. The reduction of $4.7 million in G&A expenses, or 7.7% was the result of a net decrease of $2.0 million in compensation and employee benefits, a decrease of $542,000 in professional and regulatory fees and a decrease of $1.8 million in other expenses. The decrease in compensation and employee benefits was primarily related to the retail mortgage banking operations ending in the first quarter of 2017. The decrease in other noninterest expense was primarily attributable to a net reduction in the provision for off-balance sheet items. This was associated with a reduction in unfunded construction loan commitments in 2017 versus an increase in unfunded construction loan commitments in 2016.

Balance Sheet Summary
Total assets at December 31, 2017 were $5.7 billion, an increase of over $640.8 million from December 31, 2016. The increase was primarily due to a $601 million increase in loans and a $48 million increase in investments available for sale.

The multifamily residential (“MFR”) mortgage loan portfolio totaled $2.9 billion at December 31, 2017 compared to $2.6 billion at December 31, 2016 and represents 57.3% of the total loan portfolio. For the quarter and twelve months ended December 31, 2017, MFR loan originations totaled $344.2 million and $1.30 billion, respectively, compared to $338.9 million and $1.06 billion, for the 2016 comparable periods. At December 31, 2017, the MFR pipeline totaled $188.4 million.

The single family residential mortgage loan portfolio totaled $2.0 billion at December 31, 2017, compared to $1.7 billion at December 31, 2016 and represents 38.8% of the total loan portfolio. For the quarter and twelve months ended December 31, 2017, residential loan originations for portfolio totaled $221.1 million and $726.5 million, respectively, compared to $203.7 million and $782.6 million for the comparable 2016 periods. At December 31, 2017, the residential mortgage pipeline totaled approximately $114.0 million.

Deposits totaled $4.0 billion at December 31, 2017, an increase of $617.3 million from December 31, 2016.

Stockholders’ equity totaled $549.7 billion, or 9.6% of total assets at December 31, 2017, an increase of $145.4 million from December 31, 2016, or an increase of 35.9%. Luther Burbank Savings’ capital levels continue to be significantly above the minimum levels required to be designated as “well-capitalized” for bank regulatory purposes. At December 31, 2017, Tier 1 leverage, Common Equity Tier 1 risk based, Tier 1 risk-based and Total risk-based capital ratios were 12.54%, 19.90%, 19.90% and 20.84%, respectively for the Bank, and 11.26%, 16.05%, 17.84% and 18.78%, respectively for the Company. At December 31, 2017, the Company’s tangible common equity ratio was 9.58%.

Asset Quality
Non-performing loans (“NPLs”), totaled $7.0 million, or 0.14% of total loans, at December 31, 2017, compared to $2.6 million, or 0.06% of total loans, at December 31, 2016. There was not any real estate owned at December 31, 2017 or December 31, 2016.

About Luther Burbank Corporation

Luther Burbank Corporation, with assets of $5.7 billion, is the holding company for Luther Burbank Savings. Established in 1983, Luther Burbank Savings, with deposits in California totaling $4.0 billion, is the 19th largest commercial bank in California and provides its business and retail customers and local communities it serves with quality financial products and services through nine convenient banking branch locations in Northern and Southern California and eight lending offices in California, Seattle, Washington and Portland, Oregon. The Company also has multiple delivery channels, including its flexible mobile banking app.

Cautionary Statements Regarding Forward-Looking Information

Certain statements in this earnings release are forward-looking statements that reflect the Company’s current view with respect to, among other things, future events and our Company’s financial and operational performance. These statements are often, but not always, made through the use of such words as “anticipate,” “believe,” “could,” “estimate,” “expect,” “intend,” “may,” “outlook,” “plan,” “potential,” “predict,” “project,” “should,” “will,” “would,” and similar terms and phrases, including references to assumptions.

Forward-looking statements are based on various assumptions and analyses made by us in light of our management’s experience and perception of historical trends, current conditions and expected future developments, as well as other factors we believe are appropriate under the circumstances. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors (many of which are beyond our control) that could cause actual results to differ materially from future results expressed or implied by such forward-looking statements. These factors include, without limitation, the following: the timing and occurrence or non-occurrence of events that may be subject to circumstances beyond our control; increases in competitive pressure among financial institutions or from non-financial institutions; changes in the interest rate environment; changes in deposit flows, loan demand or collateral values; changes in accounting principles, policies or guidelines; changes in general economic conditions, either nationally or locally in some or all areas in which we do business, or conditions in the real estate or securities markets or the banking industry; legislative or regulatory changes, including those that may be implemented by the new administration in Washington, D.C.; supervision and examination by federal and state banking regulators; our ability to successfully implement technological changes; our ability to successfully consummate new business initiatives; or our ability to implement enhanced risk management policies, procedures and controls commensurate with shifts in our business strategies and regulatory expectations. The forward-looking statements are made as of the date of this communication, and we do not intend, and assume no obligation, to update any forward-looking statements to reflect events or circumstances after the date of this press release, except as required by applicable law.

About Non-GAAP Financial Measures
Certain of the financial measures and ratios we present, including “pre-tax, pre-provision net earnings,” “tangible book value,” “efficiency ratio,” “tangible assets,” “tangible stockholders’ equity,” “tangible stockholders’ equity to tangible assets,” “return on average tangible equity,” “proforma net income” and “proforma ratios” are supplemental measures that are not required by, or are not presented in accordance with, U.S. generally accepted accounting principles (GAAP). We refer to these financial measures and ratios as “non-GAAP financial measures.” We consider the use of select non-GAAP financial measures and ratios to be useful for financial and operational decision making and useful in evaluating period-to-period comparisons. We believe that management and investors benefit from referring to these non-GAAP financial measures in assessing our performance and when planning, forecasting, analyzing and comparing past, present and future periods.

These non-GAAP financial measures should not be considered a substitute for financial information presented in accordance with GAAP and you should not rely on non-GAAP financial measures alone as measures of our performance. The non-GAAP financial measures we present may differ from non-GAAP financial measures used by our peers or other companies. We compensate for these limitations by providing the equivalent GAAP measures whenever we present the non-GAAP financial measures and by including a reconciliation of the impact of the components adjusted for in the non-GAAP financial measure so that both measures and the individual components may be considered when analyzing our performance. A reconciliation of non-GAAP financial measures to the comparable GAAP financial measures is included at the end of the financial statement tables.


CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(In thousands except for per share data and ratios)
31-Dec-17 30-Sep-17 30-Jun-17 31-Mar-17 31-Dec-16
ASSETS
Cash and cash equivalents$ 75,578 $ 87,051 $ 86,819 $ 75,719 $ 59,208
Available for sale investment securities, at fair value 503,288 471,438 483,846 466,564 459,162
Held to maturity investment securities, at amortized cost 6,921 6,965 7,222 7,267 7,561
Loans held-for-sale - 39,011 701,947 47,844 34,974
Loans held-for-investment (2) 5,041,547 4,630,926 4,306,893 4,729,359 4,439,766
Allowance for loan losses (30,312) (28,984) (27,356) (33,699) (33,298)
Accrued interest receivable 14,901 13,902 14,561 13,174 12,141
Federal Home Loan Bank stock 27,733 40,159 38,582 32,910 30,410
Premises and equipment, net 22,452 22,697 23,262 23,785 24,356
Goodwill 3,297 3,297 3,297 3,297 3,297
Prepaid expenses and other assets 38,975 33,095 30,344 25,320 26,008
Total assets$5,704,380 $5,319,557 $5,669,417 $5,391,540 $ 5,063,585
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits$ 3,951,238 $ 3,863,411 $ 3,681,175 $ 3,620,642 $ 3,333,969
Federal Home Loan Bank advances 989,260 807,667 1,359,573 1,157,480 1,111,886
Junior subordinated deferrable interest debentures 61,857 61,857 61,857 61,857 61,857
Senior debt 94,161 94,128 94,095 94,061 94,028
Accrued interest payable 1,781 2,112 3,192 1,398 1,302
Other liabilities and accrued expenses 56,338 56,922 53,239 48,596 56,168
Total liabilities 5,154,635 4,886,097 5,253,131 4,984,034 4,659,210
Stockholders' equity:
Common stock, no par value; 100,000,000 shares authorized; 56,107,577 and
42,000,000 shares issued and outstanding at December 31, 2017 and 2016,
respectively
458,570 2,262 2,262 2,262 2,262
Unearned Restricted Stock Award common stock (4,283) - - - -
Retained earnings 102,459 435,912 418,664 410,143 407,648
Accumulated other comprehensive loss, net of taxes (7,001) (4,714) (4,640) (4,899) (5,535)
Total stockholders' equity 549,745 433,460 416,286 407,506 404,375
Total liabilities and stockholders' equity$5,704,380 $5,319,557 $5,669,417 $5,391,540 $ 5,063,585
Net tangible book value (1)$ 546,448 $ 430,163 $ 412,989 $ 404,209 $ 401,078
Period end shares outstanding (3) 56,107,577 42,000,000 42,000,000 42,000,000 42,000,000
(1) = Considered a non-GAAP financial measure. See ‘‘Non-GAAP Financial Measures’’ for a reconciliation of our non-GAAP measures to the most directly comparable GAAP financial measure. Pre-tax, pre-provision net earnings is defined as net income plus income tax expense and provision for (reversal of) loan losses. Net tangible book value is defined as total assets less goodwill and total liabilities. Efficiency ratio is defined as the ratio of noninterest expense to net interest income plus noninterest income. Tangible assets is defined as total assets less goodwill. Tangible equity is defined as total equity less goodwill. We calculate our pro forma net income, return on average assets, return on average equity and return on average tangible equity by adding back our franchise S Corporation tax to net income, and using a combined C Corporation effective tax rate for Federal and California income taxes of 42.0%. This calculation reflects only the change in our status as an S Corporation and does not give effect to any other transaction.
(2) = Loans held-for-investment include unamortized deferred fees/costs. All portfolio loans are collateralized by real estate with the exception of one $50 thousand non-mortgage loan.
(3) = Earnings per common share, basic and diluted, book value per common share and number of common shares outstanding have been adjusted retroactively to reflect a 200-for-1 stock split effective April 27, 2017.


CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
(In thousands except for per share data and ratios)For the Three Months Ended For the Years Ended
31-Dec-17 30-Sep-17 30-Jun-17 31-Mar-17 31-Dec-16 31-Dec-17 31-Dec-16
Interest income:
Interest and fees on loans$ 42,477 $ 44,180 $ 41,173 $ 38,743 $ 36,054 $ 166,573 $ 139,385
Interest and dividends on investment securities 2,159 2,016 1,875 1,664 1,251 7,714 4,774
Total interest income 44,636 46,196 43,048 40,407 37,305 174,287 144,159
Interest expense:
Interest on deposits 11,285 10,156 9,058 8,314 8,329 38,813 31,648
Interest on FHLB advances 3,759 5,260 4,260 3,276 2,873 16,555 10,219
Interest on junior subordinated deferrable interest debentures 447 430 408 380 368 1,665 1,348
Interest on other borrowings 1,578 1,577 1,577 1,577 1,578 6,309 6,309
Total interest expense 17,069 17,423 15,303 13,547 13,148 63,342 49,524
Net interest income before provision for loan losses 27,567 28,773 27,745 26,860 24,157 110,945 94,635
Provision (reversal) of provision for loan losses 1,250 1,550 (6,481) 309 (3,624) (3,372) (12,703)
Net interest income after provision (reversal) for loan losses 26,317 27,223 34,226 26,551 27,781 114,317 107,338
Noninterest income:
Increase in cash surrender value of life insurance 48 48 47 49 55 192 233
Net gain on sale of loans - 4,133 (693) (163) 1,140 3,277 3,884
FHLB dividends 696 581 562 634 1,521 2,473 2,848
Other income 737 156 272 351 344 1,516 879
Total noninterest income 1,481 4,918 188 871 3,060 7,458 7,844
Noninterest expense:
Compensation and related benefits 8,140 8,664 9,523 10,197 11,887 36,524 38,551
Deposit insurance premium 404 580 431 397 375 1,812 1,725
Professional and regulatory fees 582 428 840 184 650 2,034 2,577
Occupancy 1,295 1,339 1,223 1,298 1,280 5,155 5,477
Depreciation and amortization 724 717 728 734 743 2,903 2,873
Data processing 789 791 797 790 933 3,167 3,322
Marketing 298 253 205 179 294 935 875
Other expenses 989 1,010 1,093 922 938 4,014 5,842
Total noninterest expense 13,221 13,782 14,840 14,701 17,100 56,544 61,242
Income before provision for income taxes 14,577 18,359 19,574 12,721 13,741 65,231 53,940
Provision for income taxes (5,844) 612 653 426 464 (4,153) 1,819
Net income$ 20,421 $ 17,747 $ 18,921 $ 12,295 $ 13,277 $ 69,384 $ 52,121
Basic earnings per common share (3)$ 0.45 $ 0.42 $ 0.45 $ 0.29 $ 0.32 $ 1.62 $ 1.24
Diluted earnings per common share (3)$ 0.45 $ 0.42 $ 0.45 $ 0.29 $ 0.32 $ 1.62 $ 1.24
Weighted average common shares outstanding - basic (3) 45,667,516 42,000,000 42,000,000 42,000,000 42,000,000 42,916,879 42,000,000
Weighted average common shares outstanding - diluted (3) 45,831,743 42,000,000 42,000,000 42,000,000 42,000,000 42,957,936 42,000,000
(1) = Considered a non-GAAP financial measure. See ‘‘Non-GAAP Financial Measures’’ for a reconciliation of our non-GAAP measures to the most directly comparable GAAP financial measure. Pre-tax, pre-provision net earnings is defined as net income plus income tax expense and provision for (reversal of) loan losses. Net tangible book value is defined as total assets less goodwill and total liabilities. Efficiency ratio is defined as the ratio of noninterest expense to net interest income plus noninterest income. Tangible assets is defined as total assets less goodwill. Tangible equity is defined as total equity less goodwill. We calculate our pro forma net income, return on average assets, return on average equity and return on average tangible equity by adding back our franchise S Corporation tax to net income, and using a combined C Corporation effective tax rate for Federal and California income taxes of 42.0%. This calculation reflects only the change in our status as an S Corporation and does not give effect to any other transaction.
(2) = Loans held-for-investment include unamortized deferred fees/costs. All portfolio loans are collateralized by real estate with the exception of one $50 thousand non-mortgage loan.
(3) = Earnings per common share, basic and diluted, book value per common share and number of common shares outstanding have been adjusted retroactively to reflect a 200-for-1 stock split effective April 27, 2017.

CONSOLIDATED FINANCIAL HIGHLIGHTS
(In thousands except for per share data and ratios)As of or for the Three Months Ended As of or for the Years Ended
31-Dec-17 30-Sep-17 30-Jun-17 31-Mar-17 31-Dec-16 31-Dec-17 31-Dec-16
RESULTS OF OPERATIONS
Interest income$ 44,636 $ 46,196 $ 43,048 $ 40,407 $ 37,305 $ 174,287 $ 144,159
Interest expense 17,069 17,423 15,303 13,547 13,148 63,342 49,524
Net interest income 27,567 28,773 27,745 26,860 24,157 110,945 94,635
Provision for (reversal of) loan losses 1,250 1,550 (6,481) 309 (3,624) (3,372) (12,703)
Net interest income after provision for loan losses 26,317 27,223 34,226 26,551 27,781 114,317 107,338
Noninterest income 1,481 4,918 188 871 3,060 7,458 7,844
Noninterest expense 13,221 13,782 14,840 14,701 17,100 56,544 61,242
Income before provision for income taxes 14,577 18,359 19,574 12,721 13,741 65,231 53,940
Provision for income taxes (5,844) 612 653 426 464 (4,153) 1,819
Net income$ 20,421 $ 17,747 $ 18,921 $ 12,295 $ 13,277 $ 69,384 $ 52,121
Pre-tax, pre-provision net earnings (1) 15,827 19,909 13,093 13,030 10,117 61,859 41,237
Basic earnings per share (3)$ 0.45 $ 0.42 $ 0.45 $ 0.29 $ 0.32 $ 1.62 $ 1.24
Diluted earnings per share (3)$ 0.45 $ 0.42 $ 0.45 $ 0.29 $ 0.32 $ 1.62 $ 1.24
Average basic shares outstanding (3) 45,667,516 42,000,000 42,000,000 42,000,000 42,000,000 42,916,879 42,000,000
Average diluted shares outstanding (3) 45,831,743 42,000,000 42,000,000 42,000,000 42,000,000 42,957,936 42,000,000
PERFORMANCE RATIOS
Return on average:
Assets 1.50% 1.23% 1.37% 0.95% 1.08% 1.26% 1.11%
Stockholders' equity 17.97% 16.62% 18.41% 12.01% 13.15% 16.30% 13.35%
Tangible stockholders' equity (1) 14.95% 16.50% 18.33% 12.17% 13.24% 12.70% 13.00%
Efficiency ratio (1) 45.51% 40.91% 53.13% 53.01% 62.83% 47.76% 59.76%
Noninterest expense to average assets 0.97% 0.95% 1.08% 1.14% 1.39% 1.03% 1.31%
Loans to deposit ratio 127.59% 120.88% 136.07% 131.94% 134.22% 127.59% 134.22%
Average stockholders' equity to average assets 8.32% 7.38% 7.45% 7.92% 8.21% 7.76% 8.35%
Dividend payout ratio 230.64% 2.82% 54.97% 79.71% 33.89% 97.72% 32.23%
PRO FORMA
Pro forma net income (1) 8,455 10,648 11,353 7,378 7,970 37,834 31,285
Pro forma return on average:
Assets (1) 0.62% 0.74% 0.82% 0.57% 0.65% 0.69% 0.67%
Stockholders' equity (1) 7.44% 9.97% 11.04% 7.21% 7.89% 8.89% 8.02%
Tangible stockholders' equity (1) 7.49% 10.05% 11.13% 7.27% 7.96% 8.96% 8.08%
YIELDS/ RATES
Yield on loans 3.53% 3.46% 3.37% 3.38% 3.31% 3.43% 3.36%
Yield on investments 1.57% 1.39% 1.38% 1.32% 1.07% 1.42% 1.07%
Yield on interest earning assets 3.31% 3.24% 3.16% 3.16% 3.06% 3.22% 3.11%
Cost of deposits 1.15% 1.09% 1.00% 0.96% 1.01% 1.05% 0.99%
Cost of borrowings 2.25% 1.85% 1.75% 1.69% 1.68% 1.86% 1.73%
Cost of interest bearing liabilities 1.38% 1.31% 1.21% 1.15% 1.18% 1.27% 1.17%
Net interest spread 1.93% 1.93% 1.95% 2.01% 1.88% 1.95% 1.94%
Net interest margin 2.05% 2.02% 2.03% 2.10% 1.98% 2.05% 2.04%
(1) = Considered a non-GAAP financial measure. See ‘‘Non-GAAP Financial Measures’’ for a reconciliation of our non-GAAP measures to the most directly comparable GAAP financial measure. Pre-tax, pre-provision net earnings is defined as net income plus income tax expense and provision for (reversal of) loan losses. Net tangible book value is defined as total assets less goodwill and total liabilities. Efficiency ratio is defined as the ratio of noninterest expense to net interest income plus noninterest income. Tangible assets is defined as total assets less goodwill. Tangible equity is defined as total equity less goodwill. We calculate our pro forma net income, return on average assets, return on average equity and return on average tangible equity by adding back our franchise S Corporation tax to net income, and using a combined C Corporation effective tax rate for Federal and California income taxes of 42.0%. This calculation reflects only the change in our status as an S Corporation and does not give effect to any other transaction.
(2) = Loans held-for-investment include unamortized deferred fees/costs. All portfolio loans are collateralized by real estate with the exception of one $50 thousand non-mortgage loan.
(3) = Earnings per common share, basic and diluted, book value per common share and number of common shares outstanding have been adjusted retroactively to reflect a 200-for-1 stock split effective April 27, 2017.

CONSOLIDATED FINANCIAL HIGHLIGHTS
(In thousands except for per share data and ratios)As of or for the Three Months Ended As of or for the Years Ended
31-Dec-17 30-Sep-17 30-Jun-17 31-Mar-17 31-Dec-16 31-Dec-17 31-Dec-16
CAPITAL
Total equity to total assets 9.64% 8.15% 7.34% 7.56% 7.99% 9.64% 7.99%
Tangible stockholders' equity to tangible assets (1) 9.58% 8.09% 7.29% 7.50% 7.93% 9.58% 7.93%
Book value per share$ 9.80 $ 10.32 $ 9.91 $ 9.70 $ 9.63 $ 9.80 $ 9.63
Tangible book value per share (1)$ 9.74 $ 10.24 $ 9.83 $ 9.62 $ 9.55 $ 9.74 $ 9.55
Market value per share (period end)$ 12.04 N/A N/A N/A N/A $ 12.04 N/A
AVERAGE BALANCES
Loans and loans held for sale$4,818,654 $5,109,599 $4,887,459 $4,578,372 $4,360,442 $4,849,894 $ 4,146,713
Earning assets 5,388,238 5,705,891 5,455,216 5,113,760 4,869,178 5,417,323 4,633,321
Total assets 5,461,226 5,786,035 5,517,404 5,172,186 4,921,585 5,485,832 4,676,676
Deposits 3,914,149 3,734,643 3,627,225 3,467,450 3,313,524 3,687,224 3,200,180
Total equity 454,635 427,018 411,176 409,451 404,014 425,698 390,318
Tangible equity (1) 451,338 423,721 407,879 406,154 400,717 422,401 387,021
ASSET QUALITY
Net (charge-offs) recoveries$ 78 $ 78 $ 138 $ 92 $ (2) $ 386 $ 492
Nonperforming loans 7,037 5,829 6,123 4,314 2,641 7,037 2,641
Nonperforming assets 7,037 5,829 6,123 4,314 2,641 7,037 2,641
Allowance for loan losses 30,312 28,984 27,356 33,699 33,298 30,312 33,298
Annualized net (charge offs) recoveries to average loans 0.01% 0.01% 0.01% 0.01% 0.00% 0.01% 0.01%
Nonperforming loans to total loans 0.14% 0.13% 0.12% 0.09% 0.06% 0.14% 0.06%
Nonperforming assets to total assets 0.12% 0.11% 0.11% 0.08% 0.05% 0.12% 0.05%
Allowance for loan losses to loans held-for-investment (2) 0.60% 0.63% 0.64% 0.71% 0.75% 0.60% 0.75%
Allowance for loan losses to nonperforming loans 430.75% 497.24% 446.77% 781.15% 1260.81% 430.75% 1260.81%
LOAN COMPOSITION
Multifamily residential $2,887,438 $2,628,691 $3,055,559 $2,889,947 $2,600,262 $2,887,438 $ 2,600,262
Single family residential 1,957,546 1,857,042 1,787,194 1,734,911 1,746,148 1,957,546 1,746,148
Commercial real estate 112,492 95,668 73,459 69,754 59,611 112,492 59,611
Construction and land 41,165 48,004 51,433 42,142 29,465 41,165 29,465
Non-mortgage 50 50 50 50 50 50 50
DEPOSIT COMPOSITION
Non-interest bearing transaction accounts$ 30,899 $ 27,166 $ 23,907 $ 14,490 $ 11,826 $ 30,899 $ 11,826
Interest bearing transaction accounts 203,159 196,062 192,033 197,729 191,892 203,159 191,892
Money market deposit accounts 1,474,498 1,430,201 1,532,234 1,571,721 1,500,976 1,474,498 1,500,976
Time deposits 2,242,682 2,209,982 1,933,001 1,836,702 1,629,275 2,242,682 1,629,275
(1) = Considered a non-GAAP financial measure. See ‘‘Non-GAAP Financial Measures’’ for a reconciliation of our non-GAAP measures to the most directly comparable GAAP financial measure. Pre-tax, pre-provision net earnings is defined as net income plus income tax expense and provision for (reversal of) loan losses. Net tangible book value is defined as total assets less goodwill and total liabilities. Efficiency ratio is defined as the ratio of noninterest expense to net interest income plus noninterest income. Tangible assets is defined as total assets less goodwill. Tangible equity is defined as total equity less goodwill. We calculate our pro forma net income, return on average assets, return on average equity and return on average tangible equity by adding back our franchise S Corporation tax to net income, and using a combined C Corporation effective tax rate for Federal and California income taxes of 42.0%. This calculation reflects only the change in our status as an S Corporation and does not give effect to any other transaction.
(2) = Loans held-for-investment include unamortized deferred fees/costs. All portfolio loans are collateralized by real estate with the exception of one $50 thousand non-mortgage loan.
(3) = Earnings per common share, basic and diluted, book value per common share and number of common shares outstanding have been adjusted retroactively to reflect a 200-for-1 stock split effective April 27, 2017.

Average Balance Sheet and Net Interest Analysis
(Dollars in thousands)
For the Three Months Ended
12/31/2017 9/30/2017 6/30/2017 3/31/2017 12/31/2016
Average Interest Average Average Interest Average Average Interest Average Average Interest Average Average Interest Average
Balance Inc / Exp Yield/Rate (6) Balance Inc / Exp Yield/Rate (6) Balance Inc / Exp Yield/Rate (6) Balance Inc / Exp Yield/Rate (6) Balance Inc / Exp Yield/Rate (6)
Interest-Earning Assets
Multifamily residential$ 2,748,817 $ 25,093 3.65% $ 3,127,491 $ 27,445 3.51% $ 2,987,171 $ 25,681 3.44% $ 2,724,909 $ 23,490 3.45% $ 2,524,648 $ 21,690 3.44%
Single family residential 1,924,628 15,830 3.29% 1,852,487 15,371 3.32% 1,780,312 14,178 3.19% 1,755,119 14,118 3.22% 1,744,356 13,444 3.08%
Commercial 97,252 1,120 4.61% 81,577 933 4.57% 71,907 841 4.68% 60,953 784 5.14% 56,555 668 4.72%
Construction, land and NM 47,957 434 3.62% 48,044 431 3.59% 48,069 473 3.94% 37,391 351 3.75% 34,883 252 2.89%
Total loans (1) 4,818,654 42,477 3.53% 5,109,599 44,180 3.46% 4,887,459 41,173 3.37% 4,578,372 38,743 3.38% 4,360,442 36,054 3.31%
Securities available-for-sale 473,085 1,826 1.54% 484,469 1,646 1.36% 475,090 1,603 1.35% 456,953 1,477 1.29% 421,956 1,088 1.03%
Securities held-to-maturity (2) 6,948 59 3.40% 7,047 57 3.24% 7,249 61 3.37% 7,452 59 3.17% 7,751 62 3.20%
Cash and cash equivalents 89,551 274 1.22% 104,776 313 1.19% 85,418 211 0.99% 70,983 128 0.72% 79,029 101 0.51%
Total interest-earning assets$5,388,238 $44,636 3.31% $ 5,705,891 $ 46,196 3.24% $ 5,455,216 $ 43,048 3.16% $ 5,113,760 $ 40,407 3.16% $ 4,869,178 $ 37,305 3.06%
Noninterest-earning assets 72,988 80,144 62,188 58,426 52,407
Total Assets $5,461,226 $5,786,035 $5,517,404 $5,172,186 $4,921,585
Interest-Bearing Liabilities
Transaction accounts (3)$ 236,169 $ 427 0.72% $ 220,206 $ 416 0.76% $ 212,295 $ 359 0.68% $ 205,712 $ 351 0.68% $ 197,987 $ 333 0.67%
Money market demand accounts 1,423,937 3,079 0.86% 1,462,382 3,016 0.82% 1,553,124 3,085 0.79% 1,545,433 2,919 0.76% 1,493,331 2,822 0.76%
Time deposits 2,254,043 7,779 1.38% 2,052,055 6,724 1.31% 1,861,806 5,614 1.21% 1,716,305 5,044 1.18% 1,622,206 5,174 1.28%
Total deposits 3,914,149 11,285 1.15% 3,734,643 10,156 1.09% 3,627,225 9,058 1.00% 3,467,450 8,314 0.96% 3,313,524 8,329 1.01%
FHLB advances 873,206 3,759 1.72% 1,412,319 5,260 1.49% 1,271,353 4,260 1.34% 1,084,901 3,276 1.21% 993,505 2,873 1.16%
Senior debt 94,139 1,578 6.70% 94,106 1,577 6.70% 94,073 1,577 6.71% 94,037 1,577 6.71% 94,006 1,578 6.71%
Junior subordinated debentures 61,857 447 2.89% 61,857 430 2.78% 61,857 408 2.64% 61,857 380 2.46% 61,857 368 2.38%
Total interest-bearing liabilities $ 4,943,351 $ 17,069 1.38% $ 5,302,925 $ 17,423 1.31% $ 5,054,508 $ 15,303 1.21% $ 4,708,245 $ 13,547 1.15% $ 4,462,892 $ 13,148 1.18%
Noninterest-bearing liabilities 63,240 56,092 51,720 54,490 54,679
Total stockholders' equity 454,635 427,018 411,176 409,451 404,014
Total liabilities and stockholders' equity$ 5,461,226 $ 5,786,035 $ 5,517,404 $ 5,172,186 $ 4,921,585
Net interest spread (4) 1.93% 1.93% 1.95% 2.01% 1.88%
Net interest income/margin (5) $ 27,567 2.05% $ 28,773 2.02% $ 27,745 2.03% $ 26,860 2.10% $ 24,157 1.98%
(1) Loan balance includes portfolio real estate loans, real estate loans held for sale and one $50 thousand non-mortgage loan. Non-accrual loans are included in total loan balances. No adjustment has been made for these loans in the calculation of yields. Interest income on loans includes amortization of deferred loan fees, net of deferred loan costs.
(2) Securities held to maturity include municipal securities. Yields are not calculated on a tax equivalent basis.
(3) Transaction accounts include both interest and non-interest bearing deposits.
(4) Net interest spread is the average yield on total interest-earning assets minus the average rate on total interest-bearing liabilities.
(5) Net interest margin is net interest income divided by total interest-earning assets.
(6) Yields shown are annualized.

Average Balance Sheet and Net Interest Analysis
(Dollars in thousands)
For the Years Ended December 31,
2017 2016
Average Interest Average Average Interest Average
Balance Inc / Exp Yield/Rate Balance Inc / Exp Yield/Rate
Interest-Earning Assets
Multifamily residential$ 2,897,794 101,708 3.51% $ 2,437,487 84,766 3.48%
Single family residential 1,828,668 59,498 3.25% 1,629,370 50,756 3.12%
Commercial 78,032 3,678 4.71% 49,863 2,886 5.79%
Construction, land and NM 45,400 1,689 3.72% 29,993 977 3.26%
Total loans (1) 4,849,894 166,573 3.43% 4,146,713 139,385 3.36%
Securities available-for-sale 472,477 6,553 1.39% 402,035 4,151 1.03%
Securities held-to-maturity (2) 7,172 236 3.29% 8,570 253 2.95%
Cash and cash equivalents 87,780 925 1.05% 76,003 370 0.49%
Total interest-earning assets$ 5,417,323 $ 174,287 3.22% $ 4,633,321 $ 144,159 3.11%
Noninterest-earning assets 68,509 43,355
Total Assets $ 5,485,832 $ 4,676,676
Interest-Bearing Liabilities
Transaction accounts (3)$ 218,683 $ 1,553 0.71% $ 130,573 $ 502 0.38%
Money market demand accounts 1,495,794 12,099 0.81% 1,440,129 10,506 0.73%
Time deposits 1,972,747 25,161 1.28% 1,629,478 20,640 1.27%
Total deposits 3,687,224 38,813 1.05% 3,200,180 31,648 0.99%
FHLB advances 1,160,555 16,555 1.43% 879,237 10,219 1.16%
Senior debt 94,090 6,309 6.71% 93,956 6,309 6.71%
Junior subordinated debentures 61,857 1,665 2.69% 61,857 1,348 2.18%
Total interest-bearing liabilities $ 5,003,726 $ 63,342 1.27% $ 4,235,230 $ 49,524 1.17%
Noninterest-bearing liabilities 56,408 51,128
Total stockholders' equity 425,698 390,318
Total liabilities and stockholders' equity$ 5,485,832 $ 4,676,676
Net interest spread (4) 1.95% 1.94%
Net interest income/margin (5) $ 110,945 2.05% $ 94,635 2.04%
(1) Loan balance includes portfolio real estate loans, real estate loans held for sale and one $50 thousand non-mortgage loan. Non-accrual loans are included in total loan balances. No adjustment has been made for these loans in the calculation of yields. Interest income on loans includes amortization of deferred loan fees, net of deferred loan costs.
(2) Securities held to maturity include municipal securities . Yields are not calculated on a tax equivalent basis.
(3) Transaction accounts include both interest and non-interest bearing deposits. See "Selected Historical Financial Data".
(4) Net interest spread is the average yield on total interest-earning assets minus the average rate on total interest-bearing liabilities.
(5) Net interest margin is net interest income divided by total interest-earning assets.

Non-GAAP Reconciliation
(Dollars in thousands)As of and for the Three Months Ended As of and for the Years Ended
31-Dec-17 30-Sep-17 30-Jun-17 31-Mar-17 31-Dec-16 31-Dec-17 31-Dec-16
Pre-tax, pre-provision net earnings
Income before taxes$ 14,577 $ 18,359 $ 19,574 $ 12,721 $ 13,741 $ 65,231 $ 53,940
Plus: Provision (reversal of provision) for loan losses 1,250 1,550 (6,481) 309 (3,624) (3,372) (12,703)
Pre-tax, pre-provision net earnings$ 15,827 $ 19,909 $ 13,093 $ 13,030 $ 10,117 $ 61,859 $ 41,237
Net Tangible Book Value
Total Assets$ 5,704,380 $ 5,319,557 $ 5,669,417 $ 5,391,540 $ 5,063,585 $ 5,704,380 $ 5,063,585
Less: Goodwill (3,297) (3,297) (3,297) (3,297) (3,297) (3,297) (3,297)
Less: Total liabilities (5,154,635) (4,886,097) (5,253,131) (4,984,034) (4,659,210) (5,154,635) (4,659,210)
Net tangible book value$ 546,448 $ 430,163 $ 412,989 $ 404,209 $ 401,078 $ 546,448 $ 401,078
Efficiency Ratio
Noninterest expense (numerator)$ 13,221 $ 13,782 $ 14,840 $ 14,701 $ 17,100 $ 56,544 $ 61,242
Net interest income$ 27,567 $ 28,773 $ 27,745 $ 26,860 $ 24,157 $ 110,945 $ 94,635
Noninterest income 1,481 4,918 188 871 3,060 7,458 7,844
Operating revenue (denominator) $ 29,048 $ 33,691 $ 27,933 $ 27,731 $ 27,217 $ 118,403 $ 102,479
Efficiency ratio 45.51% 40.91% 53.13% 53.01% 62.83% 47.76% 59.76%
Tangible Assets
Total Assets$ 5,704,380 $ 5,319,557 $ 5,669,417 $ 5,391,540 $ 5,063,585 $ 5,704,380 $ 5,063,585
Less: Goodwill (3,297) (3,297) (3,297) (3,297) (3,297) (3,297) (3,297)
Tangible Assets$ 5,701,083 $ 5,316,260 $ 5,666,120 $ 5,388,243 $ 5,060,288 $ 5,701,083 $ 5,060,288
Tangible Stockholders' Equity
Total Stockholders' Equity$ 549,745 $ 433,460 $ 416,286 $ 407,506 $ 404,375 $ 549,745 $ 404,375
Less: Goodwill (3,297) (3,297) (3,297) (3,297) (3,297) (3,297) (3,297)
Tangible Stockholders' Equity$ 546,448 $ 430,163 $ 412,989 $ 404,209 $ 401,078 $ 546,448 $ 401,078
Tangible Stockholders' Equity to Tangible Assets
Tangible stockholders' equity (numerator)$ 546,448 $ 430,163 $ 412,989 $ 404,209 $ 401,078 $ 546,448 $ 401,078
Tangible assets (denominator)$ 5,701,083 $ 5,316,260 $ 5,666,120 $ 5,388,243 $ 5,060,288 $ 5,701,083 $ 5,060,288
Tangible Stockholders' Equity to Tangible Assets 9.58% 8.09% 7.29% 7.50% 7.93% 9.58% 7.93%
Return on Average Tangible Equity
Annualized net income (numerator)$ 81,684 $ 70,988 $ 75,684 $ 49,180 $ 53,108 $ 69,384 $ 52,121
Average stockholders' equity$ 454,635 $ 427,018 $ 411,176 $ 409,451 $ 404,014 $ 425,698 $ 390,318
Less: Average goodwill (3,297) (3,297) (3,297) (3,297) (3,297) (3,297) (3,297)
Average tangible stockholders' equity (denominator) $ 451,338 $ 423,721 $ 407,879 $ 406,154 $ 400,717 $ 422,401 $ 387,021
Return on Average Tangible Equity 18.10% 16.75% 18.56% 12.11% 13.25% 16.43% 13.47%
Pro Forma Net Income
Income before provision for income taxes$ 14,577 $ 18,359 $ 19,574 $ 12,721 $ 13,741 $ 65,231 $ 53,940
Pro forma provision for income taxes (4) 6,122 7,711 8,221 5,343 5,771 27,397 22,655
Pro forma net income$ 8,455 $ 10,648 $ 11,353 $ 7,378 $ 7,970 $ 37,834 $ 31,285
Pro Forma Ratios
Annualized pro forma net income (numerator)$ 33,819 $ 42,593 $ 45,412 $ 29,513 $ 31,879 $ 37,834 $ 31,285
Average assets (denominator) 5,461,226 5,786,035 5,517,404 5,172,186 4,921,585 5,485,832 4,676,676
Pro forma return on average assets 0.62% 0.74% 0.82% 0.57% 0.65% 0.69% 0.67%
Average stockholders' equity (denominator) 454,635 427,018 411,176 409,451 404,014 425,698 390,318
Pro forma return on average stockholders' equity 7.44% 9.97% 11.04% 7.21% 7.89% 8.89% 8.02%
Average tangible stockholders' equity (denominator) 451,338 423,721 407,879 406,154 400,717 422,401 387,021
Pro forma return on average stockholders' equity 7.49% 10.05% 11.13% 7.27% 7.96% 8.96% 8.08%

Contact:
Mark A. Severson
Investor Relations
707-921-3655
investorrelations@lbsavings.com

Source:Luther Burbank Corporation