Profile: PFF Bancorp, Inc. (PFFBQ.PK)

PFF Bancorp, Inc., incorporated in March 1996, is a diversified financial services company. It conducts its business principally through its wholly owned subsidiary, PFF Bank & Trust (the Bank). The Company’s business also includes Glencrest Investment Advisors, Inc. (Glencrest), a registered investment advisor (RIA). Glencrest provides wealth management and advisory services to high-net-worth individuals and businesses. In addition, the Company’s business includes Diversified Builder Services, Inc. (DBS), a provider of financing and consulting services to home builders and land developers. In addition, it owns 100% of the common stock of two unconsolidated special purpose business trusts PFF Bancorp Capital Trust I, PFF Bancorp Capital Trust II and PFF Bancorp Capital Trust III created for the purpose of issuing capital securities. Its market areas include eastern Los Angeles, San Bernardino, Riverside and northern Orange counties. In 2008, the Company established PFF Real Estate Services, Inc., a wholly owned subsidiary of the Company. In November 2008, U.S. Bancorp announced that its lead bank, U.S. Bank National Association, has acquired the banking operations of PFF Bank & Trust.

Lending activities

At March 31, 2008, the Company had total gross loans and leases outstanding of $4.11 billion, of which $1.42 billion or 35% were one-to-four family residential mortgage loans. The remainder of the portfolio consisted of $1.34 billion of construction and land loans, or 33% of total gross loans and leases; $626 million of commercial real estate loans, or 15% of total gross loans and leases; consumer loans of $359.8 million, or 9% of total gross loans and leases; commercial business loans and leases of $170 million or 4% of total gross loans and leases, and $185.6 million of multi-family mortgage loans, or 4% of total gross loans and leases. Loan and lease originations were $1.34 billion for the fiscal year ended March 31, 2008 (fiscal 2008).

The Company offers a number of adjustable-rate mortgage loan programs with interest rates that adjust monthly, semi-annually or annually. It also offers annually adjustable rate loan (hybrid ARMs) whose initial rates are generally fixed for a period of three to seven years prior to transitioning to a semi-annual or annual adjustable-rate loan. The Company originates multi-family mortgage loans generally secured by properties located in Southern California. Loans secured by multi-family properties are typically amortized for 25 to 30 years and have a 25 to 30-year maturity. The Company also offers hybrid ARMs on multi-family properties. The Company originates commercial real estate loans that are secured by properties, such as small office buildings or retail facilities located in Southern California. The largest commercial real estate loan in its portfolio, at March 31, 2008, was $13.3 million and is secured by a first trust deed on a multi-tenant project in San Diego, California.

The Company’s construction loans are made to finance construction of one-to-four family residential, as well as commercial properties. Its lending operations include extending credit to small and medium-sized businesses. Loan products include working capital lines of credit, equipment term loans, small business administration (SBA) and other government loan guarantee programs, and contractor financing for residential housing rehabilitation. The Bank offers lease products that are originated on its behalf by leasing companies and either funded by the Company or purchased from the leasing companies subsequent to funding. The Bank offers both fixed-rate equity loans and adjustable-rate equity lines of credit secured by one- to four-family residences made on properties located in its market area.

Investment Activities

The Company’s investment portfolio permits to invest in equity securities and non-rated corporate debt obligations. At March 31, 2008, the Company had $150,000 in equity investments in its investment securities portfolio. The remainder of the $7.3 million investment securities portfolio consisted of investment grade corporate and United States Treasury and agency securities.

Sources of Funds

The Company’s source of funds for lending, investing and other general purposes are deposits, loan and securities repayments and prepayments, proceeds from sales of loans, cash flows generated from operations and federal home loan bank (FHLB) advances and other borrowings, junior subordinated debentures and a commercial term loan. The Company offers a range of deposit accounts with a range of interest rates and terms. Its deposits consist of passbook accounts, interest bearing and non-interest bearing demand accounts, money market savings accounts and certificate accounts.

Trust and Investment Advisory Activities

Through the Company’s trust operations, it has additional fiduciary responsibilities in its capacity as trustee, executor, administrator, guardian, custodian, record keeper, agent, registrar, advisor and manager. During April 2002, the Company formed Glencrest as its wholly owned subsidiary. In addition to providing investment advice to independent third parties, Glencrest provides investment advisory services to the Bank, for which it is paid a fee. The Bank’s trust department provides fee based custody services for Glencrest.

Subsidiary Activities

DBS is a provider of financing services, including real estate consulting services, property entitlement, surety bond placement, loan and equity placement and opportunity and mezzanine lending to home builders, commercial property owners and land developers. Glencrest functions as an RIA and is engaged in offering investment and asset management services to individuals and institutions, such as foundations and endowments, pension plans and charitable organizations.

Glencrest Insurance Services, Inc. (GIS) is a wholly owned subsidiary of Glencrest. GIS sells personal and business insurance policies, fixed and variable annuities, and mutual funds through a relationship with a third-party marketer of annuity and mutual fund non-deposit investment products. As of April 1, 2008, a majority of the operations of GIS were transferred to the Bank. GIS continues as a subsidiary of GIA with limited operations.

PFS acts as a holding company for the service corporation and acts as trustee under deeds of trusts. Diversified Services, Inc. (DSI), a wholly owned subsidiary of PFS had participated as an investor in residential real estate projects, but has engaged in no such activity since 2000. DSI may consider additional real estate activities as market conditions warrant. PFF Real Estate Services, Inc. (PRES) is a wholly owned subsidiary of the Company. PFRES has not commenced operations, It intends to be engaged in real estate brokerage and property management activities.