Boom Towns

The boom town that was the Inland Empire has been undergoing a "boom" of another sort, and Claremont isn't excepted from from the experience:


BROTHER CAN YOU SPARE $460 MILLION?

PFF Bancorp (NYSE: PFB) was back in the news Friday. The Daily Bulletin's business reporter Matt Wrye had a brief article noting that PFF Bancorp was looking to generate $460 million. The Rancho Cucamonga-based banking company had to ask for an extension on a $44 million overdue loan at the end of May and is looking to pay that off.

Wrye's article stated that PFF hadn't disclosed any details about the $460 million deal and said that it would require shareholder approval. The article also said the deal would involve a stock offering. The piece gave some background on PFF's problems:

The bank has written off millions of dollars in losses over the last couple of quarters.

In the midst of a booming, inflated housing market, CEO Kevin McCarthy signed off on loans to housing developers who can't repay what they borrowed.

Some experts speculate PFF is on the verge of government receivership if private equity doesn't come to its rescue, or if the bank isn't bought out.

The bank's stock closed Thursday at $1.33, a mere fraction of its $39 value just two years ago.

PFF's board of directors had no problems with CEO McCarthy's management of the company when it was flying high, and several of them, including San Dimas Mayor Curt Morris and former Claremont McKenna College Athenaeum director Jil Stark made out pretty well with their stock options prior to PFF's collapse.

Now that the party's over, the PFF board has kept a pretty low profile. We'll see how long they can keep that up.


HOUSING MARKET WOES

As Matt Wrye's article observed, PFF's problems had their roots in the housing market downturn. Loans to builders and developers turned bad, and share value eroded as a result. The Inland Empire has been hit particularly hard by the problems in the housing market.

Wrye had another article yesterday that posed the question, "When will it end?" to several real estate experts. One of them, Rancho Cucamonga developer Jeffrey Burum, thought the market might not fully recover until 2012.

Burum, coincidentally, helped PFF Bancorp out a couple months back when he bought a portfolio of problem loans from PFF. The loans had originally been valued at around $100 million, but by the time Burum bought them off PFF, they were worth only $60 million. Burum paid $22.5 cents on the dollar for those loans, the Daily Bulletin reported.


CITIES HELPING BUILDERS CLOG THE ROADWAYS

People who've grown up in the area can tell you that traffic has worsened over the years. Builders and their lobbying groups such as the Building Industry Association, funnel large amounts of money to elected officials (see our piece on Pomona Mayor Norma Torres' contributors for her State Assembly run), and that gets translated into poorly planned residential and business developments getting easy approval by those same officials.

At the same time, state officials have been siphoning off transportation funds to try to balance the state budget. Consequently, much-need transportation infrastructure repairs and improvements have been neglected. The added traffic created by all those building projects over the years hasn't been matched by new freeway and public transit projects and simply gets dumped onto our already crowded roads.

The LA Times is running a series on traffic issues and the failure of state and local governments to address these issues, despite voters approving billions in financing for transportation funds. Today's installment in the Times' series charges local officials with bypassing laws requiring builders to help pay for transportation projects to carry the traffic their projects generate:

* State and local officials have not expanded the region's highways and mass transit systems enough to keep up with population growth.

The population of the five-county Southern California region grew 22% from 1990 to 2006, and the total miles driven by motorists has increased about 42%. But the number of miles of highway in the region has increased by only 7.5%.

Since 2001, Govs. Gray Davis and Arnold Schwarzenegger, along with state legislators, repeatedly have diverted money from the state's taxes on gasoline to pay for non-transportation programs. Schwarzenegger plans to do so again in the budget for the coming year. Roughly $5.8 billion in highway and mass-transit funds that were diverted during the state's repeated budget crises this decade have not yet been repaid.

While the region's highway capacity has lagged behind population growth, mass transit has not made up the difference. Los Angeles County for the last 25 years has put three-quarters of its voter-approved transportation money into rail and bus systems. Even with the investment of about $7 billion, 85% of commuters still drive.

* At the same time, local officials repeatedly have sidestepped state laws that were supposed to require developers to lessen the traffic-snarling effects of projects.

For years, elected county and city officials across Southern California have put economic development and jobs ahead of mobility, approving major commercial and residential developments without requiring builders to pay enough for improvements needed to handle extra traffic.

All that development contributes to congestion that for the average motorist in L.A. and Orange counties adds up to almost two workweeks of delay each year, according to the Texas Transportation Institute, a think tank at Texas A&M University that compiles annual assessments of congestion nationwide. That's almost double what it was in the 1980s. In Ventura County , congestion-related delays each year consume roughly a workweek of the average motorist's life. The delay in the Inland Empire equals about six workdays.

Keep all of that in mind if in the future you see Claremont councilpeople greenlighting a new condo project or if you see a local State Assemblyperson voting for legislation affecting the building industry.

If traffic keeps going the way it has the past 20 years, the next boom we observe just may be one lowered on irresponsible state and local elected officials.

PFF Bancorp: Directors First

Trading in PFF Bancorp shares resumed on the New York Stock Exchange yesterday, a day after the NYSE suspended trading of the stock. PFF is the parent company of PFF Bank & Trust.

PFF Bancorp (PFB: NYSE) continued it plunge from its 52-week high of $30.37 and closed yesterday down to $2.48 per share, or minus 34% for the day. Yesterday's fall came on the heels of bad from the bank Wednesday, according to a Daily Bulletin article by Matt Wrye:

But late Wednesday, PFF announced that it expects to report one of its largest ever quarterly losses, totaling $159 million for its fourth quarter ended March 31.

"These losses reflect continued difficulty in the real estate market that all financial institutions are experiencing," said PFF spokesman David Sweet.

PFF also disclosed plans to restructure a $44 million loan with an unidentified commercial bank that it couldn't repay by an April 30 deadline - an event that could have led to a default.

In yet another surprise, PFF announced loan and lease losses greater than expected in the quarter, a sign of the deepening real estate quagmire gripping the region.

A provision for loan and lease losses of $196 million is expected in the quarter, the bank said. This provision is related to real estate loans in the greater Inland Empire region.

PFF director Jil Stark, who is described on PFF's website as a retired Claremont McKenna College administrator and former Scripps College faculty member,was also quoted in the article:

Long-time PFF board member Jil Stark was out of town on Wednesday but said she was "surprised" to hear news of the halted stock trading. Bad weather cut off the phone connection to her June Lake cabin most of the day, she said. Stark joined the board in 1975. "We've weathered many cycles of ups and downs, and each had its unique challenges," Stark said.

The current crisis, due in part to homebuilder loans that have gone bad, certainly qualifies as a unique challenge. For PFF, which has been around since the late 1800's, this is probably the worst down for them since the Great Depression.

Of course, one thing easing Stark's pain is the fact that she was able to cash in on some PFF stock options in early 2007 for a $417,000 profit.

For bank employees, shareholders, and customers, the prospect of weathering the current down cycle may be considerably less certain without the sort of cushion Stark has.

After the Matt Wrye article was posted on the Bulletin's website, one of our readers wrote in and was less than enamored of Stark's stiff-upper-lip talk:

You should have included Jil Stark's comments in your blog. She sounds somewhat like Marie Antoinette who, when informed that the masses were without bread, allegedly said "Let them eat cake". Jil, who is enjoying her June Lake home and could not be reached, has been able to have HER cake and eat it as well by cashing out her stock (some or all, I am not sure which) before the bottom fell out of the PFF stock.

Yes, and at least one other PFF director, San Dimas Mayor Curt Morris did even better than Stark, netting $515,000 in 2006.

PFF Bank & Trust, assuming they are able to weather this down cycle without having to file for bankruptcy or being bought out, may need to change its motto.

PFF Bancorp Suspends Trading of Stock

Rancho Cucamonga-based PFF Bancorp suspended trading of its stock on the New York Stock Exchange this morning, the San Bernardino Sun reported.

PFF Bancorp (PFB: NYSE), which had a 52-week high of $30.37, closed yesterday at $3.74 per share. PFF had been hammered as part of the fallout from the mortgage crisis and had to sell off $100 million in problem loans to homebuilders and developers earlier month.

The Sun article said:

RANCHO CUCAMONGA - PFF Bancorp, a troubled Rancho Cucamonga-based banking institution stung by the real estate meltdown, halted trading in its stock today.

Sal Curasi, a PFF spokesman, declined to comment why.

"We have no information to share with you on that," Curasi said.

NYSE spokesman Scott Peterson said the stock was halted at 9:30 a.m. (EDT) for announcement of "pending news." As of mid-day, the stock still hadn't traded. "Unfortunately, any interaction between the NYSE and its listed companies is non-public information," Peterson said.

"That's unusual," said Joe Gladue, an analyst with B. Riley & Co. Inc. "Of course, someone could be buying them."

If you were lucky enough to get out of the stock when it was still up, you might have made out okay, as San Dimas Mayor Curt Morris did. Or the former director of Claremont McKenna College's Marian Miner Cook Athenaeum, Jil Stark. Both are on PFF Bancorp's Board of Directors.

For those lucky few there was an embarrassment of riches, to the tune of many hundreds of thousands of dollars. For the rest, not so much. Looking back on it, the collapse to under $7.00 a share at the beginning of the month doesn't look so bad now.

Cashing In on PFF Bancorp

On Friday, a reader responded to our last post about PFF Bancorp and the money earned by San Dimas Mayor Curt Morris (about $515,000) in August 2006 when the mayor cashed in his stock options, which he used to buy 17,852 shares of PFF stock for $7.38 in two transactions. Morris turned around and sold the shares the same days that he bought them for the going share price of around $36.00.

Morris had earned the options as a member of the PFF Board of Directors. As some loans to homebuilders and developers went south with the housing market, the stock (NYSE: PFB) fell on hard times recently and closed Friday with a stock price of $4.23 per share.

The reader wrote that Claremont's local connection on the PFF board, Jil Stark, also made out pretty well with her stock options. Stark was formerly the director of Claremont McKenna College's Marian Cook Miner Athenaeum. Stark's husband Jack served as CMC's third president from 1970 to 1999. Jack Stark is currently on the CMC Board of Trustees.

Our reader says:

Subject: Honi soit qui mal y pense??
To: claremontbuzz@yahoo.com

Dear Buzz,

As one who has lost a few dollars by investing in Pomona First Federal, I found your article on April 6 about Curt Morris, Mayor of San Dimas and PFF board member and his good luck and timing of stock sales quite interesting. Your article also mentions one of our local leading citizens Jil Stark, contributor to local charitable as well as political causes, as a member of that governing board. She did quite well, too. Personally, that is. In her position as presiding director of PFF's audit committee she did not do as well for the company.

When you published your article the closing stock price was $6.19. Today, it closed at $4.23, another 68% down. What does that have to do with Jill, you ask? Well, she is the only director who totally sold out all her stock during the period from February 12 to February 28, 2007, at prices ranging from $33 to $31.

According to published records in Yahoo.com, she has zero stock in the company. These same records show that she cleared about $417,000. One must be impressed by her skill and timing.

You wrote ... "one can do pretty well sitting on local boards...". I would change what follows to "even if the company does not perform well."


Cheers

As seen in the chart below, in February 2007 Stark made a series of five stock option transactions that netted her the approximately $417,000 our reader alluded to. The transactions were:

• 2/12/07
  Option exercised: 2,000 shares at $7.38 per share; approximate cost: $15,000
  Sold 2,000 shares at $11.37 per share; approximate proceeds: $23,000
  
• 2/14/07
  Option exercised: 2,400 shares at $7.38 per share; approximate cost: $18,000
  Sold 2,000 shares at $33.50 - $33.69 per share; approximate proceeds: $81,000
  
• 2/20/07
  Option exercised: 6,300 shares at $7.38 per share; approximate cost: $46,000
  Sold 6,300 shares at $33.63 per share; approximate proceeds: $212,000
  
• 2/22/07
  Option exercised: 2,500 shares at $7.38 per share; approximate cost: $18,000
  Sold 2,500 shares at $33.50 per share; approximate proceeds: $84,000
  
• 2/28/07
  Option exercised: 4,652 shares at $7.38 per share; approximate cost: $34,000
  Sold 4,652 shares at $31.84 per share; approximate proceeds: $148,000
  

And the preceding years were also good to Stark as PFF stock appreciated during the housing boom. Stark's investment strategy seems to be sound one: Get while the getting is good.

As the reader points out, at PFF Bancorp, as well as at any number of American companies, there seems to be a disconnect between risk, borne by shareholders (and taxpayers who have to bail out failing financial institutions) and rewards given to management.

Click to Enlarge

PFF Bancorp Notes

PFF Bancorp, the parent company of PFF Bank & Trust, has been taking a beating on the New York Stock Exchange, as we noted Wednesday.

The Daily Bulletin had reported that Rancho Cucamonga-based PFF had to sell about $100 million in problem commercial and builder loans to a local private equity firm run by developer Jeffrey Burum. A reader has pointed out that Burum's bio indicates that he was the chairman and CEO of Southern California Housing Development Corporation (now known as National CORE), a non-profit dedicated to developing affordable housing opportunities. He currently serves as co-chair of National CORE's board of directors.

Our reader noted that Southern California Affordable Housing Corp. was the developer former Claremont City Manager Glenn Southard was pushing to develop the affordable housing site at Towne Ave. and Base Line Rd.

Let's take a look at PFF Bancorp's Board of Directors:

PFF Bancorp Board of Directors

Our reader also pointed out that there are some interesting local connections to the PFF's board. For instance, Jil Stark, the former director of Claremont McKenna College's Marian Cook Miner Athenaeum, is a longtime PFF board member. Stark, who has been on PFF's board since 1975 and has been chair of the Audit Committee since 1977. Stark is also on the Los Angeles County Fair board, the City of Claremont's Committee on Aging, the Claremont Community Foundation's Argus Board, and was even a $200 contributor to Preserve Claremont, that group of morally upright citizens who promised to bring civility and righteousness back to Claremont back in 2005 city elections.

(On that last point, the cure was worse than the alleged disease, it turned out - the Preserve Claremont campaign, fronted by Human Services Commissioner Valerie Martinez and former Claremont Mayor and current Kiwanis president Paul Held, degenerated into a whispering campaign of false innuendo. All of the responsible parties, though, seem to have come out of it unharmed and guilt-free. )

But we digress.

Getting back to PFF Bancorp, the reader also pointed out that San Dimas Mayor Curt Morris is on the PFF board. Morris, an attorney and mayor of San Dimas since 1996, has done pretty well by PFF. SEC filings showed that in August, 2006, Morris made a series of stock option trades that netted him around $515,000 before taxes.

Using his stock options, Morris was able to purchase the PFF stock for an option price of $7.38 per share, and then turn around and sell the stock for the then-current market price of about $36 per share. Good thing Morris used his options two years ago - at the close of trading on Friday, PFF Bancorp was down to $6.19 per share.

The records show that on 8/25/06, Morris purchased 6,000 shares of PFF stock for a total price of about $44,000 and sold the stock on the same day for $219,000. Then, on 8/28/06, he purchased 11,852 for $87,000 and again sold the same day for $427,000.

There was nothing wrong with these transactions that we are aware of. Morris was simply exercising options he had presumably been awarded as a board member. It does show, though, that one can do pretty well sitting on local boards, provided the company performs well.

With PFF stock currently in free-fall over its bad loans, is there a commensurate cost to board members for poor performance?