$19.54
$57.24
bear $19.54
base $50.04
bull $57.24
margin of safety $22.00
market price* $27.93
PCB Bancorp is the holding company for PCB Bank, a Los Angeles-based commercial bank serving mainly Korean-American individuals and small and mid-sized businesses. It has branches in Los Angeles and Orange Counties, California, in New York and New Jersey, in Texas and in Georgia, plus SBA loan originators in Washington. It takes deposits, lends them out and keeps the spread, and also earns gains from selling the government-guaranteed portions of SBA loans. The balance sheet. At June 30, 2026 total assets were $3.47 billion, loans $2.93 billion and deposits $2.92 billion, with $80 million of Federal Home Loan Bank advances. At year-end 2025 commercial loans were 85.5% of the loan book ($1.90 billion of commercial real estate and $508.7 million of business loans) and residential mortgages, all of them non-qualified mortgages, were 14.3%. On the regulators' definition, commercial real estate loans were 307.7% of total risk-based capital at year-end 2025, up from 253.9% in 2022 and just above the 300% level at which regulators apply extra scrutiny. Brokered deposits fell from $442.3 million to $280.5 million during 2025. Net interest income in the first half of 2026 was $54.3 million, up 8% on a year earlier. Common equity tier 1 capital was 11.46% of risk-weighted assets at year-end 2025, and common equity was about $23.49 per share at June 30, 2026. How we measured earnings. For a bank, reported operating cash flow swings with loans made for sale, accruals and tax timing, so we used a cash measure of what the common shareholder earns: the loan-loss provision is replaced by the losses actually written off net of recoveries, tax timing on loan marks is treated as timing, and a maintenance level of branch and equipment spending, stock compensation and preferred dividends are deducted. On that basis owner earnings per share were $1.25 in 2017, $1.72 in 2018, $1.60 in 2019, $1.59 in 2020, $2.52 in 2021, $2.15 in 2022, $2.18 in 2023, $1.70 in 2024 and $2.71 in 2025. Because those figures are after preferred dividends and after all interest paid to depositors and lenders, nothing further is subtracted for debt: for a bank, deposits and borrowings are the raw material of the business. Setting the earnings level. The bank has roughly doubled in size since 2019, so we measured owner earnings as a share of average assets over 2021 to 2025, a full interest-rate cycle from near-zero deposit costs through the 2024 squeeze and partial relief in 2025: 1.89%, 1.42%, 1.21%, 0.83% and 1.22%. The median, 1.22%, on today's $3.47 billion balance sheet gives about $42.3 million, or $2.98 per share. Recent quarters corroborate it: diluted earnings were $1.47 per share in the first half of 2026 against $1.15 a year earlier. We then charge a named credit trend: loans not accruing interest rose from $4.7 million at year-end 2024 to $7.9 million (0.28% of loans) at year-end 2025, so we assume write-offs of 0.15% of loans a year rather than the 0.03% of 2025, costing about $0.22 per share. Owner earnings grew 59% in 2025; our base case assumes year one of $2.76 per share, up less than 2%. Growth credited. The bank grew assets from $1.44 billion in 2017 to $3.47 billion by mid-2026, through the 2020 shutdown and the 2023 regional-bank stress, funded largely from retained earnings, and owner earnings per share grew about 6.7% a year from 2018 to 2025. We credit part of that proven pace, and only after charging the equity the bank must retain to support a bigger loan book (about $23.49 of capital per dollar of per-share earnings growth at today's book). We credit no margin recovery and no market expansion, and we taper growth because the commercial real estate concentration is already above the regulators' 300% guideline, which the company itself says could restrict its growth. Base case, about $50.04 per share. Year one $2.76; growth of 3% a year in years two through seven, 2% and 1% in years eight and nine, and none after; the required capital is retained, and earnings then stay flat indefinitely, resting on a deposit and lending franchise that earned a profit in every year of the 2016 to 2025 record, including 2020, when it set aside $13.2 million for loan losses. The preferred dividend stays near its current low rate. The business is worth about $712 million; with no holding-company debt to subtract, that is $50.04 per share. Bear case, about $19.54 per share. Profitability falls to the 2024 deposit-squeeze level, 0.83% of assets, and stays there with no growth; the Treasury preferred dividend rises to its 2% cap (about $1.0 million a year) and normal write-offs run at 0.22% of loans, the bank's worst year in the recent record (2019). That is about $1.63 per share a year. Then a commercial real estate downturn of the depth U.S. banks actually suffered in 2008 to 2011 hits this concentrated book: write-offs of 1.19%, 2.35%, 2.34% and 1.40% of loans in years two through five, the national average commercial real estate charge-off rates for 2008, 2009, 2010 and 2011. Above the normal level that costs about $28 million, $62 million, $62 million and $35 million before tax, and owner earnings per share run $0.21, minus $1.49, minus $1.47 and minus $0.10 in those years before returning to $1.63. We checked that the bank survives this without selling shares at the bottom: after rebuilding its reserve to about 3% of loans at the trough, common equity tier 1 capital falls from 11.46% to roughly 9.3% of risk-weighted assets, still above the 6.5% well-capitalized minimum, though the common dividend would very likely be cut. The business is worth about $278 million, $19.54 per share, below today's common equity of $23.49, because at the squeezed margin this bank earns less than our required return on its capital. Bull case, about $57.24 per share. Earnings run at the first-half 2026 pace, about 1.25% of assets, with write-offs at 0.07% of loans: $2.95 per share in year one. Growth runs at 5% a year in years two through seven, still below the per-share record, then 3% and 1.5%, then flat, with the required capital retained. Faster growth adds less value than one might expect because each extra dollar of earnings growth must be funded with retained capital. The business is worth about $814 million, $57.24 per share. We give no value to the January 2025 option agreed with the Treasury to repurchase the $69.1 million Series C preferred at a possible discount: the company must first meet lending and other conditions, and at its current low dividend the preferred is already cheap capital. What changed. Our previous estimate put the bear case near $27. We now size the downturn from the actual loss experience of U.S. commercial real estate lenders in 2008 to 2011, rather than from a multiple of this bank's own reserve, and charge the worst recent year of write-offs in normal times; that lowers the bear case. The base case is slightly lower and the bull case slightly higher than before. How we set the margin-of-safety price. We are fairly sure of the earnings level: it is the median of a full rate cycle, it is confirmed by the last four quarters, and it covers a period in which the margin moved from 4.08% (2022) to 3.17% (2024). We are less sure about credit. The worst plausible outcome is a commercial real estate downturn concentrated in Southern California and one ethnic community, which is what the bear case models, and the structure survives it: there is no holding-company debt, the Treasury preferred never has to be repaid, and capital stays above the regulatory minimum. If we are wrong about the margin and it stays at the 2024 level for good with no downturn, the shares are worth roughly $30; if the downturn comes but the median margin holds, roughly $38. The price assumes a holding period of about five years. From $22, the base case is worth about $54.72 per share at the end of year five, which with dividends at the current $0.88 a year implies about 22% a year; the bear case value of $19.54 is not far below that price, and $22 is close to the common equity per share, which in the downturn we model is preserved rather than wiped out. The margin-of-safety price is $22. For these values to be wrong, the next few years would have to show margins below 2024's for good, commercial real estate losses worse than the 2008 to 2011 national experience, or deposit outflows that force the bank onto costly wholesale funding.