PFBC
PFBC
Hold 2026-03-31
Model
DDM
Price at Report
$89.81
Base IV
$94.26
Bear IV
$57.62
Bull IV
$132.05
Entry Zone: 60-87 · Sell Above: 112
Bore Family Office
Valuation Report — Preferred Bank (PFBC) • March 31, 2026
3-Stage DDM (Ke) • Discount Rate: 8.28% • Current Price: $89.81
Prepared by Lurch • Bore Family Office • Data: Finnhub, StockAnalysis.com, S&P Global Market Intelligence
🏢 Business Overview
Preferred Bank is a $7.6B-asset California-based commercial bank serving small to mid-sized businesses, entrepreneurs, real estate developers, and high-net-worth individuals — with deep expertise in the Chinese-American and Asian-American business communities. Founded in 1991 and headquartered in Los Angeles, it operates a lean model with just 324 employees and a concentrated branch network, achieving industry-leading efficiency.
PFBC delivered $133.6M net income in FY2025 (EPS $10.41, +8% YoY) with a 17.3% ROE — exceptional profitability for a community bank. Approximately 95% of revenue derives from net interest income on real estate-secured lending. The bank's competitive advantage lies in relationship-driven lending to the Asian-American business community in California, generating premium yields with minimal credit losses historically. The stock trades at 1.4x book value ($64.83/share), reflecting the premium ROE, while offering a 3.6% yield with a conservative 30% payout ratio and aggressive share buyback program (share count down 17% since 2021).
| Business Segment | Revenue | % of Total | YoY Growth | Margin | Notes |
|---|---|---|---|---|---|
| Real Estate Lending (CRE) | $215M | 74% | +2.0% | — | Commercial & residential real estate loans; primary business; California-focused |
| Commercial & Industrial | $42M | 15% | +6.0% | — | C&I loans to Asian-American businesses; growing segment |
| SBA & Other Lending | $14M | 5% | +8.0% | — | SBA loans, trade finance; niche but growing |
| Non-Interest Income | $20M | 7% | +44.0% | — | Service charges, fees, gains; surged from $13.6M to $19.5M YoY |
| Blended Growth Rate | — | 100% | +5.8% | — | Weighted avg across segments |
🔍 Quality Scorecard
| Metric | Value | Assessment |
|---|---|---|
| ROIC | 17.3% | ≥12% strong |
| FCF Margin | 59.4% | ≥10% strong |
| Debt / EBITDA | 2.0x | ≤2x conservative |
| Revenue Trend | Growing 3yr | 3-year directional trend |
| FCF Margin Trend | Stable (±1pp) | Directional margin trajectory |
| Analyst Revisions | Neutral | Last 90 days consensus direction |
✅ Quality profile supports the valuation
📊 Financial Snapshot
| Metric | 2021 | 2022 | 2023 | 2024 | 2025 |
|---|---|---|---|---|---|
| Revenue ($M) | $191 | $250 | $286 | $274 | $281 |
| Rev YoY Growth | — | +30.9% | +14.4% | -4.2% | +2.6% |
| Gross Margin | 97.4% | 98.8% | 101.0% | 99.6% | 96.4% |
| EBITDA ($M) | $134 | $179 | $210 | $184 | $190 |
| EBITDA Margin | 70.2% | 71.6% | 73.4% | 67.2% | 67.6% |
| Operating Income ($M) | $130 | $175 | $206 | $180 | $186 |
| Operating Margin | 68.1% | 70.0% | 72.0% | 65.7% | 66.2% |
| Net Income ($M) | $95 | $129 | $150 | $131 | $134 |
| Net Margin | 49.7% | 51.6% | 52.4% | 47.8% | 47.7% |
| EPS (diluted) | $6.41 | $8.70 | $10.52 | $9.64 | $10.41 |
| Free Cash Flow ($M) | $119 | $143 | $173 | $164 | $167 |
| Annual DPS | $1.440 | $1.720 | $2.200 | $2.800 | $3.000 |
| Total Debt ($M) | $171 | $169 | $168 | $165 | $384 |
💹 Capital Return & Share Count Analysis
Net Share Change
-13.7% (2021→2025)
📉 Net reduction — buybacks exceed issuances
EPS Amplification
EPS grew +62.4% vs net income +41.1% over the period — +21.3pp of EPS growth amplified by share reduction.
| Year | Diluted Shares (M) | YoY Change | Buyback Spend ($M) | Buyback Yield |
|---|---|---|---|---|
| 2021 | 14.9M | — | $18 | 1.3% |
| 2022 | 14.8M | -0.4% | $33 | 2.5% |
| 2023 | 14.3M | -3.7% | $55 | 4.3% |
| 2024 | 13.6M | -5.0% | $38 | 3.1% |
| 2025 | 12.8M | -5.2% | $93 | 8.1% |
Share count declined 13.7% from 14.87M to 12.84M over 2021-2025. Buyback activity has been present every year but variable in magnitude — $17.7M in FY2021 growing to $93.1M in FY2025. The trend is clearly increasing, and the 5-year total of $237M in buybacks demonstrates management's commitment to capital return. However, the FY2024 dip to $38.3M (from $55.2M in FY2023) shows the program is not on a fixed schedule. EPS benefited materially from buyback-driven share reduction: FY2025 net income grew 2.3% ($131M → $134M) but EPS grew 8.0% ($9.64 → $10.41) — 5.7pp from share reduction alone.
⚙️ Ke (DDM)
| Input | Value | Notes |
|---|---|---|
| Risk-Free Rate (Rf) | 4.25% | 10-yr US Treasury yield |
| Beta (β) | 0.550 | Market beta (Finnhub) |
| Equity Risk Premium (ERP) | 5.5% | Damodaran US ERP |
| Cost of Equity (Ke) | 8.28% | Ke = Rf + β × ERP |
📈 DDM Scenarios
$58
🔴 Bear
$94
📊 Base
$132
🚀 Bull
$89.81
Current Price
$103
Analyst Avg PT
| Scenario | Stage 1 (Yrs 1–5) | Stage 2 (Yrs 6–10) | Terminal g | Ke | Intrinsic Value | vs Price |
|---|---|---|---|---|---|---|
| 🔴 Bear | 4.0% | 2.5% | 2.0% | 8.28% | $58 | ▼35.8% |
| 📊 Base | 12.0% | 5.5% | 2.5% | 8.28% | $94 | ▲4.9% |
| 🚀 Bull | 17.0% | 7.5% | 3.0% | 8.28% | $132 | ▲47.0% |
📋 Full 10-Year Projection Tables
Bear Scenario
Stage 1: 4.0% | Stage 2: 2.5% | Terminal: 2.0%
| Period | Stage | DPS / Dist. | PV of DPS | Cumulative IV |
|---|---|---|---|---|
| Year 1 | Stage 1 | $3.328 | $3.074 | $3.07 |
| Year 2 | Stage 1 | $3.461 | $2.952 | $6.03 |
| Year 3 | Stage 1 | $3.600 | $2.835 | $8.86 |
| Year 4 | Stage 1 | $3.744 | $2.723 | $11.58 |
| Year 5 | Stage 1 | $3.893 | $2.616 | $14.20 |
| Year 6 | Stage 2 | $3.991 | $2.476 | $16.68 |
| Year 7 | Stage 2 | $4.090 | $2.344 | $19.02 |
| Year 8 | Stage 2 | $4.193 | $2.219 | $21.24 |
| Year 9 | Stage 2 | $4.297 | $2.100 | $23.34 |
| Year 10 | Stage 2 | $4.405 | $1.988 | $25.33 |
| Terminal | — | TV=$71.54 | PV(TV)=$32.29 (56% of IV) | $57.62 |
| Intrinsic Value | — | — | PV(Divs) $25.33 + PV(TV) $32.29 | $57.62 |
How the price per share is derived: Each year's projected dividend is discounted back at Ke (8.28%) to get its present value. After Year 10, dividends are assumed to grow at the terminal rate (2.0%) in perpetuity — the Gordon Growth formula gives a terminal value of DPS11 / (Ke − gT) = $71.54. That terminal value is then discounted back 10 years to today's dollars (PV of TV = $32.29). Intrinsic value = PV of all dividends ($25.33) + PV of terminal value ($32.29) = $57.62 per share.
Base Scenario
Stage 1: 12.0% | Stage 2: 5.5% | Terminal: 2.5%
| Period | Stage | DPS / Dist. | PV of DPS | Cumulative IV |
|---|---|---|---|---|
| Year 1 | Stage 1 | $3.584 | $3.310 | $3.31 |
| Year 2 | Stage 1 | $4.014 | $3.424 | $6.73 |
| Year 3 | Stage 1 | $4.496 | $3.541 | $10.27 |
| Year 4 | Stage 1 | $5.035 | $3.663 | $13.94 |
| Year 5 | Stage 1 | $5.639 | $3.789 | $17.73 |
| Year 6 | Stage 2 | $5.950 | $3.692 | $21.42 |
| Year 7 | Stage 2 | $6.277 | $3.597 | $25.01 |
| Year 8 | Stage 2 | $6.622 | $3.504 | $28.52 |
| Year 9 | Stage 2 | $6.986 | $3.414 | $31.93 |
| Year 10 | Stage 2 | $7.371 | $3.327 | $35.26 |
| Terminal | — | TV=$130.71 | PV(TV)=$59.00 (63% of IV) | $94.26 |
| Intrinsic Value | — | — | PV(Divs) $35.26 + PV(TV) $59.00 | $94.26 |
How the price per share is derived: Each year's projected dividend is discounted back at Ke (8.28%) to get its present value. After Year 10, dividends are assumed to grow at the terminal rate (2.5%) in perpetuity — the Gordon Growth formula gives a terminal value of DPS11 / (Ke − gT) = $130.71. That terminal value is then discounted back 10 years to today's dollars (PV of TV = $59.00). Intrinsic value = PV of all dividends ($35.26) + PV of terminal value ($59.00) = $94.26 per share.
Bull Scenario
Stage 1: 17.0% | Stage 2: 7.5% | Terminal: 3.0%
| Period | Stage | DPS / Dist. | PV of DPS | Cumulative IV |
|---|---|---|---|---|
| Year 1 | Stage 1 | $3.744 | $3.458 | $3.46 |
| Year 2 | Stage 1 | $4.380 | $3.736 | $7.19 |
| Year 3 | Stage 1 | $5.125 | $4.037 | $11.23 |
| Year 4 | Stage 1 | $5.996 | $4.362 | $15.59 |
| Year 5 | Stage 1 | $7.016 | $4.713 | $20.31 |
| Year 6 | Stage 2 | $7.542 | $4.679 | $24.99 |
| Year 7 | Stage 2 | $8.108 | $4.646 | $29.63 |
| Year 8 | Stage 2 | $8.716 | $4.612 | $34.24 |
| Year 9 | Stage 2 | $9.369 | $4.579 | $38.82 |
| Year 10 | Stage 2 | $10.072 | $4.546 | $43.37 |
| Terminal | — | TV=$196.48 | PV(TV)=$88.68 (67% of IV) | $132.05 |
| Intrinsic Value | — | — | PV(Divs) $43.37 + PV(TV) $88.68 | $132.05 |
How the price per share is derived: Each year's projected dividend is discounted back at Ke (8.28%) to get its present value. After Year 10, dividends are assumed to grow at the terminal rate (3.0%) in perpetuity — the Gordon Growth formula gives a terminal value of DPS11 / (Ke − gT) = $196.48. That terminal value is then discounted back 10 years to today's dollars (PV of TV = $88.68). Intrinsic value = PV of all dividends ($43.37) + PV of terminal value ($88.68) = $132.05 per share.
🔲 Sensitivity Table
| Ke \ gT | 1.5% | 2.0% | 2.5% | 3.0% | 3.5% |
|---|---|---|---|---|---|
| 6.3% | $124 | $134 | $147 | $164 | $187 |
| 6.8% | $111 | $119 | $129 | $142 | $158 |
| 7.3% | $101 | $107 | $115 | $124 | $136 |
| 7.8% | $92 | $97 | $103 | $111 | $120 |
| 8.3% | $85 | $89 | $94 | $100 | $107 |
| 8.8% | $78 | $82 | $86 | $91 | $96 |
| 9.3% | $73 | $76 | $79 | $83 | $88 |
| 9.8% | $68 | $71 | $73 | $77 | $80 |
| 10.3% | $64 | $66 | $68 | $71 | $74 |
Green = >10% above current price. Red = >10% below. Gold = within ±10%.
📉 Long-Term Price Trend Channel
Log-linear trend fitted to full price history. ±1.5σ bands. Green shaded zone = bottom 25% of historical range — historically attractive entry.
🏦 Comparable Valuation
| Company | P/E | P/B | Div Yield | ROE | Note |
|---|---|---|---|---|---|
| PFBC (current) | 8.6x | 1.39x | 3.58% | 17.3% | CA Asian-American niche; premium ROE |
| CATY (Cathay) | 10.4x | 1.12x | 3.20% | 10.8% | Closest peer; similar niche; lower ROE |
| EWBC (East West) | 11.2x | 1.58x | 2.5% | 14.2% | Largest Asian-Am bank; premium val |
| BANR (Banner) | 12.1x | 1.35x | 2.9% | 11.2% | Pacific NW community bank |
| HBNC (Horizon) | 11.5x | 1.25x | 3.8% | 10.9% | Midwest community bank |
💰 Dividend / Distribution Analysis
| Metric | Value |
|---|---|
| Annual DPS | $3.200 |
| Current Yield | 3.58% |
| Consecutive Growth Years | 5 |
| 1-yr DPS CAGR | +6.9% |
| 3-yr DPS CAGR | +13.4% |
| 5-yr DPS CAGR | +13.0% |
| 10-yr DPS CAGR | — |
| Payout Ratio (DPS/EPS) | 29.8% |
| FCF Payout Ratio | 23.0% |
| Sustainability Verdict | Safe |
PFBC's dividend is exceptionally well-covered at a 30% payout ratio ($3.00 DPS / $10.41 EPS). With a 17.3% ROE and minimal capital needs relative to earnings, the bank generates far more cash than it distributes via dividends. The recent raise to $0.80/qtr (6.9% increase) continues a 5-year streak of increases. DPS has nearly doubled from $1.72 in 2022 to $3.20 (TTM), a ~13% CAGR.
Beyond dividends, PFBC returns substantial capital via buybacks — $93.1M in FY2025 (5.3% buyback yield). Total capital returned ($131M) represents 79% of FCF ($167M). The 30% payout ratio provides enormous room for continued dividend acceleration even if earnings stagnate. The dividend could grow 10-15%/yr for several years before payout reaches the 40-45% community bank peer median.
Beyond dividends, PFBC returns substantial capital via buybacks — $93.1M in FY2025 (5.3% buyback yield). Total capital returned ($131M) represents 79% of FCF ($167M). The 30% payout ratio provides enormous room for continued dividend acceleration even if earnings stagnate. The dividend could grow 10-15%/yr for several years before payout reaches the 40-45% community bank peer median.
🔮 Analyst Forecast Section
(a) EPS Consensus
| Year | Low / Actual | Avg | High | # Analysts | Type |
|---|---|---|---|---|---|
| 2021 | $6.41 | — | — | — | Actual |
| 2022 | $8.70 | — | — | — | Actual |
| 2023 | $10.52 | — | — | — | Actual |
| 2024 | $9.64 | — | — | — | Actual |
| 2025 | $10.41 | — | — | — | Actual |
| 2026 | $10.05 | $10.58 | $10.95 | 7 | Estimate |
| 2027 | $10.39 | $11.27 | $12.06 | 7 | Estimate |
(b) Revenue Consensus
| Year | Low / Actual | Avg | High | # Analysts | Type |
|---|---|---|---|---|---|
| 2021 | $0.2B | — | — | — | Actual |
| 2022 | $0.2B | — | — | — | Actual |
| 2023 | $0.3B | — | — | — | Actual |
| 2024 | $0.3B | — | — | — | Actual |
| 2025 | $0.3B | — | — | — | Actual |
| 2026 | $0.3B | $0.3B | $0.3B | 6 | Estimate |
| 2027 | $0.3B | $0.3B | $0.3B | 6 | Estimate |
(c) Individual Analyst Price Targets
Consensus: Avg $102.67 | Range $93–$111
| Analyst | Firm | Rating | PT | Upside |
|---|---|---|---|---|
| Matthew Clark | Piper Sandler | Buy | $111 | +23.6% |
| Gary Tenner | DA Davidson | Hold | $104 | +15.8% |
| Andrew Terrell | Stephens & Co. | Hold | $93 | +3.6% |
💡 Investment Thesis
- Elite Profitability: 17.3% ROE and a hyper-efficient operating model (324 employees for a $7.6B-asset bank) make PFBC one of the most profitable community banks in the US. This efficiency is structural — relationship-based lending to a niche community requires fewer branches and staff than mass-market banking.
- Aggressive Capital Return: Total shareholder yield of 8.85% (3.58% dividend + 5.29% buyback) is exceptional. Share count has declined 17% since 2021. The 30% payout ratio provides massive room for continued dividend increases — recent 5-year DPS CAGR of ~13% demonstrates management's commitment to dividend growth.
- Asian-American Community Banking Niche: Deep cultural ties and bilingual/bicultural staff create a durable franchise in California's large Asian-American business community. National banks struggle to replicate this relationship-driven model.
- Strong Earnings Growth: EPS of $10.41 in FY2025 (+8% YoY) with analyst consensus projecting further growth to $10.58 (FY2026) and $11.27 (FY2027). Earnings power supports continued capital return acceleration.
- Key Risk — CRE Concentration: ~95% of revenue from real estate-secured lending in California. A severe California CRE downturn — particularly in the Los Angeles metro area — could drive meaningful credit losses. Geographic and asset-class concentration is the primary risk to the thesis.
⚖️ DDM Verdict: Hold — Preferred Bank (PFBC)
Current price: $89.81 | Analyst Avg PT: $102.67
$58
🔴 Bear
$94
📊 Base
$132
🚀 Bull
| Tier | Price | Action |
|---|---|---|
| Tier 1 — Starter | ≤$87 | Begin position |
| Tier 2 — Add | ≤$76 | Add on weakness |
| Tier 3 — Full | ≤$60 | Full allocation |
| Sell Alert | ≥$112 | Above fair value — consider trimming |
How tiers are set: Tier 1 = Base IV × 0.92 (8% discount to base case). Tier 2 = midpoint of Bear & Base IV (building on meaningful weakness). Tier 3 = Bear IV × 1.05 (just above worst-case — maximum margin of safety). Sell alert = Bull IV × 0.85 (15% discount to bull case — above fair value range).
PFBC at $89.81 is an Accumulate with a Base DDM target of ~$97-100. The stock offers a rare combination: 17% ROE, 8.85% total shareholder yield, and a conservative 30% payout ratio with substantial room for dividend acceleration. At 8.6x earnings and 1.4x book, the valuation is undemanding for a bank of this quality.
The DDM models 12%/yr DPS growth in Stage 1, reflecting moderate EPS growth (3-5%) plus payout ratio expansion from 30% toward 45%. This is conservative vs. the recent 5-year DPS CAGR of ~13%.
Action: Accumulate at current levels ($88-92). Add aggressively on pullbacks to $78-82 (Bear case / 1.2x book). Full position below $72 (52-week low zone). Take profits above $110 (approaches Bull case / analyst high PT).
🔧 Model Notes & Calibration
| Assumption | Rationale / Notes |
|---|---|
| DDM Base — Cash DPS with Payout Expansion Growth | Base = $3.20/share (cash DPS: $0.80/qtr × 4). Payout ratio is 30% — very low for a 17% ROE bank. Stage 1 growth set at 12% reflects EPS growth of 3-5%/yr PLUS payout ratio expansion from 30% toward 40-45% peer median. This combined rate is conservative vs. the recent 5-year DPS CAGR of ~13%. Buybacks not included in DDM base due to year-over-year variability ($38M FY2024 vs $93M FY2025). |
| Ke — Size Premium Applied | Beta 0.55 (Finnhub) → base Ke=7.28%. Added 1.0% size premium for $1.2B market cap — small-cap community banks carry liquidity and concentration risk not fully captured by beta. Final Ke=8.28%. |
| CRE Concentration Risk | Approximately 95% of revenue from real estate-secured lending in California. This is the highest concentration of any bank in our coverage universe. While credit losses have been minimal historically, a severe California CRE downturn (particularly LA metro office/multifamily) would materially impair earnings. The Bear case prices in a credit cycle stress scenario. |
| Thin Analyst Coverage | Only 3 analysts provide price targets (range $93-$111). The consensus PT of $102.67 is based on limited coverage and should be treated as directional. Our model provides independent valuation corroboration rather than anchoring to a thin consensus. |
| Sanity Check | Base IV target of ~$97-100 is 3-6% below analyst consensus PT of $102.67 — well within ±20% threshold. Cross-check: 10x forward earnings ($10.58 FY2026) = $106, consistent with our Base range. P/B of 1.4x × $64.83 BV = $91 (current market price), confirming reasonable entry point. |
Bore Family Office • Analysis generated by Lurch • Not investment advice.