$0.00
$9.11
bear $0.00
base $2.75
bull $9.11
margin of safety $1.50
market price* $17.25
Business condition attached to the margin of safety
Three consecutive quarters of positive owner earnings after equity compensation, with net interest income still rising and non-interest expense flat or lower than the year before.
First Seacoast Bancorp is the holding company for First Seacoast Bank, a savings bank with five branches in Dover, Durham, Barrington and Rochester (Strafford County) and Rockingham County, New Hampshire, with about $576 million of assets and $454 million of deposits at June 30, 2026. It lends mostly on residential and commercial real estate and funds itself with deposits and about $45 million of Federal Home Loan Bank advances. For a bank, that funding is the raw material of the business and its interest cost is already deducted in earnings, so no debt is subtracted separately below. The core issue is that the bank earns very little on its capital. Shareholders' equity is about $63.8 million (roughly $13.8 per share) with no goodwill, but full-year 2025 produced a net loss of $845,000 and 2024 a net loss of $513,000. We measure what the business actually earns for its owners: operating cash flow, less working-capital swings, less equity compensation (stock awards plus ESOP expense, about $1.1 million in 2025, which we treat as a real cost), less the capital spending needed to stay in business. On that basis owner earnings per share were about $0.58 (2021), $0.11 (2022), -$0.49 (2023), -$0.46 (2024) and -$0.28 (2025). Years before 2023 describe a different, pre-conversion company, and 2023 and 2024 were distorted by a $4.2 million securities repositioning loss, a deferred-tax valuation allowance and a headquarters land sale and leaseback, so we start from 2025 (-$1.0 million in total) as the first clean year. Accounting judgements: the securities losses and tax charges are non-cash and already excluded from operating cash flow; the lease liability and matching asset created in 2024 were removed as working-capital items. The trend is genuinely improving. Net interest income rose from $11.9 million in 2024 to $13.7 million in 2025 and was $7.2 million in the first half of 2026, 9% above the first half of 2025, as older low-yield loans and securities mature and are replaced at current rates. Non-interest expense fell 2.8% in the first half of 2026. The first-half 2026 pre-tax loss narrowed to $213,000 from $1.17 million a year earlier, and the second quarter was about break-even. Owner earnings in 2025 improved by roughly $0.95 million over 2024; our base case assumes an improvement of only $0.5 million in the next twelve months (to about -$0.5 million), below what was actually achieved. Base case: owner earnings improve by about $0.3 million a year from -$0.5 million to roughly +$1.0 million in year six, then hold flat at $1.0 million on the strength of a deposit franchise of 5 branches that already exists. Credit is given only for continuing what is already visible in the reported results (repricing of the existing loan and securities book at a pace below what has been demonstrated); nothing is credited for loan growth, new branches, expense cuts beyond those already made, acquisitions, or lower interest rates. The business is worth about $12.7 million, the bank owes no borrowings that are separate from its normal funding, so the value is about $2.75 per share, well below book value because the bank earns roughly 1.5% on its equity at best, versus the 6% we require. Bear case: the improvement stalls, net interest income stops rising and costs keep growing, leaving owner earnings near the 2025 loss of about $1.0 million a year. The operating stream is then worth less than nothing, but those losses are paid from the bank's own capital, not by shareholders, and nothing named and evidenced would produce value beyond that, so we carry this case at $0 per share. The bank's capital is thin only in the sense of earning power: the bank-level leverage ratio was 8.4% at year-end 2025 against 5% needed to be well capitalized, and non-performing loans were only $478,000, so a solvency problem is not what drives this case. The bank has $44.8 million of Federal Home Loan Bank advances and $454 million of deposits, which are the funding of the business and are not subtracted a second time. Bull case: the repricing seen in 2025 and the first half of 2026 (net interest income up about $1.2 million a year) continues for about five years while costs grow about 2% a year, taking owner earnings to roughly $3.0 million by year six and holding there. That is worth about $42 million, or about $9.11 per share, still below book value. The bank has repurchased 494,379 shares since April 2024, which helps per-share results but is not credited separately. What would make this wrong: if the bank's loans and securities could be sold or the bank acquired at close to book value, the shares would be worth much more than these cases; we do not credit that because nothing in the filings points to a sale process. Conversely, the fair value of the loan book relative to its carrying value could not be reconciled from the filings, and a widening gap would weigh on the bear case. The margin-of-safety price of $1.50 is about 45% below the base case, a large margin because the earning power is small and unproven, and it assumes owner earnings turn sustainably positive.