PFF Bancorp in Pomona, Calif., can thank a red-hot real estate market for its surging share price.
Though its stock has been an investor favorite for years, the price has spiked nearly 20% in heavy trading since Oct. 21, when the company reported third-quarter earnings.
Net income rose nearly 38%, to $13.2 million. President and chief executive Larry M. Rinehart attributed the jump to robust loan growth in its principal markets, Riverside and San Bernardino counties in southern California, known as the Inland Empire.
"We're doing so well because the Inland Empire is really hot right now, since land is much more affordable than it is in Los Angeles and Orange counties," Mr. Rinehart said Monday.
Indeed, the Inland Empire is the nation's fastest-growing metropolitan market, according to the Census Bureau. Families are moving in from Los Angeles and other coastal cities, and so are companies, particularly manufacturers and international trading firms, which also build warehouses and distribution facilities there.
PFF has capitalized on that growth by emphasizing what management calls the "four c's" - construction lending, commercial real estate lending, commercial and industrial lending, and consumer lending. Last quarter its portfolio of such loans grew about 27%, to $1.63 billion, nearly half of PFF"s overall loan portfolio.
The bulk of four-c loans - $1.4 billion of them were construction loans to developers of new homes, PFF's primary and most profitable niche, Mr. Rinehart said.
"We continue to have a dominant share of the tract home construction financing market here because … of our reputation for being able to stick by our developer customers in tough times as well as in good times," he said.
In Riverside County alone, PFF's thrift subsidiary, PFF Bank and Trust, ranks among the top lenders to homebuilders according to DataQuick in San Diego, Calif., which provides information on real estate properties nationwide.
James Abbott, an analyst at Friedman, Billings, Ramsey & Co. Inc. in Arlington, Va., said that the high-risk loans are very profitable for PFF because it minimizes losses by monitoring construction closely.
"The outlook for their construction portfolio is why the stock is rising," Mr. Abbott said. "They are growing these loans at a really nice pace, but I think they can even grow faster, and they can do it safely."
PFF's stock, which had been trading at $35 to $40 for much of the last year, closed at $45.20 Tuesday, an all-time high.
But loan growth is not the only reason PFF's stock and earnings have risen. The company has also been beefing up its core deposits, which last quarter grew about 8%, to $1.69 billion, about 65% of total deposits.
Mr. Rinehart said the company boosted deposits by getting borrowers to open checking accounts and by adding branches in the communities where developers are building homes. PFF has also opened three branches a year for the last two years and plans to do the same in 2005.
It is also marketing to Hispanics to attract deposits. Riverside County's population of them grew by 72%, to 560,000, in the 1990s, and San Bernardino County's by 66%, to 670,000, according to the Census Bureau. That growth is expected to accelerate this decade.
"If we ignore this customer segment, then we're going to lose that business," Mr. Rinehart said. "We've got to pour money into attracting more Hispanics and then provide them the services that they ask for - money transfers as well as checking accounts."
For several years PFF has advertised through Spanish-language newspapers, radio stations, and billboards, and next year it intends to increase its ad spending on such prospects to $2.5 million. About 23% of PFF's customers are Hispanic, Mr. Rinehart said, and the goal is to raise that figure 3 to 4 percentage points a year to 50%.
Mr. Abbott said that after PFF slows its branch expansion and its new branches mature as more people move into the new communities, the company's return on equity should increase to 17% by 2006; its ROE was 15.15% as of Sept. 30.
While the company plans on opening more branches, its board has no desire to buy another bank, Mr. Rinehart said. PFF Bank and Trust has never done a bank acquisition in its 112-year history.
"We're doing just fine on our own, growing internally," he said.
