PFF Bancorp Inc. executives certainly have their hands full these days.
They are trying to fend off what they call an attempted hostile takeover of the Rancho Cucamonga, Calif., company, while also dealing with mounting losses in PFF’s construction loan portfolio and a stock that has lost roughly 70% of its value in the last seven months.
The latest bit of bad news came after the markets closed Tuesday, when the $4.3 billion-asset PFF announced it expects net chargeoffs of $55 million for its fiscal 2008 third quarter, which ended Dec. 31, compared with $30.3 million in the previous quarter and $277,000 in fiscal 2007’s third quarter.
It also said it expects to record a loan-loss provision “comparable” to the $34 million provision it had posted in its fiscal second quarter, because of the continued downturn in the residential real estate construction market.
PFF did not say whether it would post a gain or loss for the three months that ended Dec. 31, but analysts widely expect a loss of more than 40 cents a share. In its fiscal 2007 third quarter, PFF’s net income was $13.6 million, or 55 cents a share.
The company said Tuesday that it was delaying the release of its third-quarter results until Jan. 29 to give both it and the Office of Thrift Supervision time to conduct credit reviews.
Meanwhile, PFF is asking the Federal Reserve Board to deny a December application by the $14 billion-asset FBOP Corp. in Oak Park, Ill., to increase its stake in PFF to as much as 24.9%.
The privately held FBOP, which has a 9.85% stake in PFF, said it had wanted to remain a “passive investor,” but in a Jan. 9 letter PFF officials said FBOP’s actions “are more analogous to those of a hostile acquirer, steadily accumulating a position in a target company in order to force a potential whole company acquisition.”
It appears investors would favor a sale to FBOP. PFF’s shares, depressed for months, soared after FBOP disclosed its plan in mid-December to buy more of PFF’s shares, only to start backsliding after PFF publicly asked FBOP to withdraw the application.
The stock was battered again Wednesday after Tuesday’s profit warning, falling 21.3%, to close at $8.15.
Analysts expect PFF to have a dismal 2008. The company has been an active lender to residential developers and as home sales have slowed to a trickle in California’s inland valleys, many borrowers are struggling to repay their construction loans.
“It’s going to be a long time before they work out of their troubles with the real estate market,” said Joseph Gladue, an analyst at Riley & Co. in Los Angeles. “Hopefully, the problems will start to recede by the end of 2008 and 2009 will be better, but it doesn’t appear that 2008 will be a good year for them.”
Mr. Gladue cut his fiscal 2008 earnings-per-share estimate from a gain of 1 cent to a loss of 86 cents, and his fiscal 2009 EPS estimate from $1.73 to 52 cents.
PFF chief financial officer Greg Talbott said the worst may be behind the company. “While we don’t expect asset quality to improve, I don’t think it will continue to deteriorate like it has the last couple of quarters,” he said in an interview Wednesday.
Mr. Talbott would not discuss the protest letter. When asked whether PFF’s board would entertain an FBOP bid to buy his company outright, he would only say “the board is fully aware of its fiduciary responsibility to its shareholders.”
FBOP, a multibank holding company, has bought more than a dozen banks over the last decade and now has nine banks in Illinois, California, Texas, and Arizona.
PFF wrote in its protest letter that as a “grandfathered” unitary savings and loan holding company, it is permitted to engage in nonfinancial activities, such as developing residential real estate projects through one of its subsidiaries, Diversified Services Inc., or real estate brokerage through an newly formed subsidiary. But it contended that FBOP, as a financial holding company, is prohibited from acquiring more than 5% of an entity engaged in such nonfinancial activities and thus should be prohibited from increasing its stake in PFF.
A source who asked not to be named said that PFF’s protest letter raised “some legitimate points,” but the source could not speculate whether the Fed would reject or accept FBOP’s application. Though there is speculation that FBOP would eventually try to buy the entire company, the source said that most likely it would be through negotiation with PFF’s existing board.
Mr. Gladue said a sale “theoretically would be a quicker way for investors to get back their money, but all of that depends on what someone is willing to offer. So far, I don’t think that” PFF “is desperate enough to sell at fire-sale prices.”
