BayFirst Financial Corp. (BAFN) stock intrinsic value fair value estimate & owner earnings analysis

BayFirst Financial is the holding company for BayFirst National Bank, a community bank with twelve banking centers around Tampa Bay and Sarasota, Florida. For years its profits depended less on the spread between loan and deposit rates than on selling the government-guaranteed portion of SBA 7(a) small-business loans for a gain: it booked roughly $22 million, $25 million, $27 million and $11 million of such gains in 2022 through 2025. That engine has now been shut. In the second quarter of 2026 the company said it was exiting SBA 7(a) lending entirely, sold $97.4 million of guaranteed loans, and recorded a $32.7 million quarterly loss, including about $43.8 million of restructuring charges, mostly credit provisions on remaining unguaranteed SBA loans. The first half of 2026 loss was $38.6 million, after a 2025 loss of about $24.6 million. Two further changes matter for anyone valuing a share. First, in April 2026 the company raised $80 million by issuing preferred stock that converted into about 22.9 million common shares at $3.50, against about 4.1 million shares before. A share today is therefore a claim on a business owned roughly 85% by the new investors. A further offering of up to 4.1 million shares to existing holders at $3.50 was announced but is not counted here. Second, the company restated its 2024 and 2025 results in August 2026 after finding understated credit provisions and overstated loan-sale gains; the figures below use the restated numbers. How we measured earnings. We start from operating cash flow, but a bank's cash flow includes the proceeds from selling loans, whose original cost sits in investing activities. We removed that principal (sale proceeds less the sale gains and fair-value changes, which we keep as earnings), removed working-capital swings, and deducted stock compensation and capital spending. Because a bank's credit provision is the cost of loans that do not get repaid, and is added back in cash flow, we deducted it as a real cost. Owner earnings per diluted share were about -$0.01 in 2022, $1.37 in 2023, $1.38 in 2024 and -$5.33 in 2025 (2025 also excludes a one-time $1.7 million sale of servicing rights). Earlier years are not shown because a mortgage-banking division was discontinued in 2022 and cash flows before then are on a different basis. The four-year median is about $0.68, but we do not use it as the value anchor: those profits came from loan-sale gains that have ceased, so the history describes a business that no longer exists. Owner earnings fell from $1.38 to -$5.33 in the last fiscal year, and our base case assumes no growth in year one. What is left is a Florida community bank with about $883 million of loans and, at June 30, 2026, total equity of $115.9 million; after the $9.7 million of older preferred stock that management said would be redeemed in the third quarter, about $106 million belongs to common holders, or roughly $3.94 per share on about 27.0 million shares. (The company reports a book value of $4.83 per share; we could not reconcile the difference from the filings we could access.) Its ordinary earning power is not proven. In the first half of 2026 net interest income was $18.9 million against noninterest expense of $32.6 million, and in the June quarter expenses of $17.7 million were no lower than a year earlier ($17.5 million). Deposits have fallen from $1.18 billion at the end of 2025 to $989 million. Management describes underlying results as just below breakeven with a normalized net interest margin of 4.07%. That is a management figure on a different basis and a target, so we do not credit it. Using 2025 expenses of about $70 million against net interest income of about $38 million (the first-half 2026 pace) plus at most about $6.7 million of fee income other than loan-sale gains implies a shortfall of roughly $26 million a year before credit costs. Bear case, $0.10 per share. The shortfall persists for four years, consuming about $104 million of the roughly $106 million common equity, and no franchise value beyond the remaining capital is credited. Unguaranteed SBA balances of $142 million remain on the books, including about $60 million in one portfolio reserved at 33%, $29 million reserved at 25% and $45 million of core commercial loans reserved at 23%; they are a named source of possible further losses. Base case, $2.20 per share. The exit from SBA 7(a) lending, already executed, removes a source of losses. Losses of about $26 million in the first year and $13 million in the second, then breakeven, reduce common equity to about $67 million, or about $2.5 per share, worth about $2.20 after allowing for the time it takes to return capital. We credit no profit above breakeven because nothing named and evidenced supports one, and no cost savings because none have appeared yet. Bull case, $3.40 per share. Management's near-breakeven claim proves right from here, with only about $10 million of further cleanup losses. About $96 million of equity remains, worth about $3.40 per share after timing. We do not assume earnings above breakeven. What would prove this wrong: cost cuts and margin improvement arriving faster than the record shows would lift value toward or above book; further loan losses, deposit outflows or a further need for capital would push it toward the bear case. We could not read the full amended annual report or the June 2026 quarterly report, so some post-restatement details rest on the company's public earnings release and call.