Any chance that PFF Bancorp could survive as an independent company appeared to disintegrate last week when it said it expects to report a $159 million loss for its fiscal fourth quarter, which ended March 31.
Observers who a month ago said that the $4.4 billion-asset Rancho Cucamonga, Calif., company could be shopping for buyers now say it has no choice but to sell itself for whatever it can get, and quickly.
"They could probably raise additional capital, but it could be so prohibitively expensive that it makes more sense to sell the company," said Joseph Gladue, an analyst at B. Riley & Co. LLC.
Early last month PFF had said its provision for losses on construction loans could exceed $168 million for the quarter. Analysts said then that such a provision would produce a loss of about $66 million. Last week PFF said that the provision would be closer to $200 million, and that it could report a loss of $159 million for the quarter.
Kevin McCarthy, its chief executive, did not return calls this week, but in an interview with American Banker last month he said he was unsure if losses would continue to pile up, and he hinted that his company could be in the market for a buyer.
PFF's executives and directors are "considering all of our options, whether it would be attracting additional capital or changing strategic direction," he said in the interview.
Mr. Gladue said that a sale could occur within three months, and that PFF likely would fetch a price of about 25% to 35% of its tangible book value, or roughly $2 a share.
Its stock, which has lost 95% of its value since June, was trading at $1.63 a share as of midday Wednesday.
David Harvey, managing director of Hot Creek Capital LLC in Reno, said a likely buyer would be a venture/recapitalization firm that would buy PFF "dirt cheap," bring in a new management team, and then "keep their fingers crossed that they've estimated the negative value of the loans accurately."
PFF is not the only company to have been battered by the real estate meltdown in the Inland Empire region east of Los Angeles. The $2.5 billion-asset Vineyard National Bancorp in Corona, another active lender in Riverside and San Bernardino counties, lost $16.6 million in the first quarter, largely as a result of a $26.9 million provision for bad residential construction loans.
But no company in the region has been hit as hard as PFF, whose credit quality began to deteriorate rapidly in its fiscal second quarter, which ended Sept. 30.
In a press release last week announcing the expected loss for its fiscal fourth quarter, PFF said that the results would include a $44 million allowance against its deferred tax asset. It plans to report fourth-quarter and full-year results this month.
Mr. Gladue said that PFF's expected loss would reduce its capital levels significantly. Its tangible book value is likely fall to roughly $7.14, from $14.27 at Dec. 31, and its regulatory capital ratios are likely to fall to levels below those deemed well-capitalized by regulators, he said.
Mr. Harvey said that PFF Bank and Trust — with its 38 branches — still has some value in its retail banking network, even though currently more than half its deposits are in higher-cost certificates of deposit. Still, an acquirer could bring in new executives who could make better use of the branch network to attract more low-cost demand deposits, he said.
"PFF is worth saving," Mr. Harvey said.
