SOUTHERN FIRST BANCSHARES INC (SFST) stock intrinsic value fair value estimate & owner earnings analysis

Southern First Bancshares is a relationship-focused commercial bank based in Greenville, South Carolina. It serves business owners, professionals and private-banking clients from twelve offices in Greenville, Columbia, Charleston and Summerville, South Carolina; Charlotte, Raleigh and Greensboro, North Carolina; and Atlanta, Georgia. It earns its money mainly from the gap between what it charges on about $4.0 billion of loans and what it pays on about $3.9 billion of deposits, plus fees from a mortgage unit that originates home loans and sells most of them. It pays no common dividend and has historically kept all of its earnings to grow. How we measure earnings. We build owner earnings from operating cash flow, removing stock-based pay and the timing swings of mortgages that pass through the bank on their way to being sold. On that basis earnings per share were $3.14 in 2019, $3.33 in 2022, $2.28 in 2023, $2.41 in 2024 and $4.53 in 2025. We set aside 2020 and 2021 as a matched pair: a large pandemic loan-loss reserve built in 2020 ($29.6 million) and released in 2021 ($12.4 million), on top of a refinancing boom, pushed results to opposite extremes. Because the bank has grown its equity per share by nearly 80% since 2019 (from $26.83) by retaining profits (book value is now $47.77 a share), a simple median of past per-share earnings understates what today's larger capital base earns. We therefore measure the through-cycle return the bank has earned on its shareholders' capital: roughly 12% in 2019, 9.3% in 2022, 6% in both 2023 and 2024 when a sharp rise in deposit costs squeezed its margin to about 2.07%, and 10.6% in 2025. The median, 9.3%, applied to today's book value gives about $4.43 a share. The bank is still carrying some of the $65 million of new stock it sold at about $54 a share in the second quarter of 2026 as surplus capital (its leverage ratio is 10.1% and its core capital ratio 12.8%) that earns bond-like returns until it is lent out, so we start the base case a little lower, at $4.30. That compares with $4.53 actually earned per share in 2025 (up 88% from 2024), so the base case assumes a slight decline in the first year rather than any continuation of last year's rebound. Recent results support the level: diluted earnings were $2.39 a share in the first half of 2026, the margin has been 2.62%, 2.72%, 2.88% and 2.87% over the last four quarters, and net loan losses were 0.01% of loans. One accounting judgement matters. Loan-loss provisions are non-cash and so are added back in cash flow, but for a bank they are a real cost. Our starting level is set against the bank's return on capital, which already bears normal provisioning, and credit costs above today's low level are carried in the bear case. Debt. For a bank, deposits ($3.94 billion), Federal Home Loan Bank advances ($240 million) and the remaining $13.4 million of subordinated debentures are the raw material of the business, not financing layered on top of it. Their interest is already deducted from the earnings we value, so we value the owners' earnings directly and subtract nothing further; subtracting these balances again would count them twice. In each case below, the value of the business is the value of the common equity. The holding company repaid $11.5 million of subordinated debt costing 7.34% in the second quarter of 2026, which slightly lowers its interest bill. Leverage still matters: equity is under a tenth of assets, so a credit or funding shock hits shareholders hard. That risk is carried in the bear case rather than in the discount rate. Our prior analysis also valued the bank this way. The value figures moved for the other reasons described below, not because of how debt is treated. Base case (about $79.84 a share). Earnings start at $4.30. Part of the surplus capital from the 2026 offering is lent out over the next two years at the bank's recent pace of loan growth (average loans grew $132 million in 2024 and $124 million in 2025), which lifts earnings to about $4.55 in year three. We count that growth because it is already paid for. From year four through year ten we credit 3% a year of growth, below the bank's 25-year record of steady organic expansion into new Southeast markets (Columbia in 2007, Charleston in 2012, Raleigh and Atlanta in 2017, Greensboro and Summerville in 2018). That growth has to be funded, so the retained earnings needed to keep capital in line (about a third of earnings at a 9.3% return) are deducted from what owners receive. After year ten we assume no further growth, with all earnings available to owners. The bank's core deposit franchise ($3.56 billion of retail deposits) is the lasting driver. We give no credit for any further margin expansion, because the margin flattened between the first and second quarters of 2026. Bear case (about $57.92 a share). The bank's own disclosures show that its net interest income falls about 7% if rates rise two percentage points, and warn that greater reliance on wholesale funding would hurt its margin because those deposits cannot be repriced as quickly as core deposits. Loans already exceed deposits. In the bear case, funding costs spike again as they did in 2023 and 2024, and credit costs rise from almost zero toward a more normal quarter of a percent of loans (nonperforming assets were 0.10% of assets in 2023, 0.32% in 2025 and 0.27% in mid-2026). Earnings fall back to the trough return of about 6% on capital, roughly $3.00 a share, for four years, then recover only to about $3.60 with no growth. Even on that path the bank covers its interest and credit costs, so the equity keeps positive value. Bull case (about $94.85 a share). The current run rate holds (second-quarter 2026 earnings of $1.20 a share annualize to roughly $4.75 to $4.80, on a 10.3% return on equity), credit stays as clean as it has been, and the bank keeps compounding at 5% a year for ten years. That rate is within its demonstrated record, and it is funded by retaining the needed share of earnings. We do not assume any further widening of the margin, because nothing we can point to today secures it. Compared with our previous analysis, the base case is essentially unchanged and the bear case is slightly higher, because today's larger capital base earns more per share even at trough returns. The bull case is materially lower. It no longer assumes further margin recovery, and it now charges for the capital that growth consumes instead of treating all earnings as both reinvested and paid out. The margin-of-safety price is about $55.00, below even the bear case value. This bank is steady but highly leveraged and sensitive to interest rates, and the margin-of-safety price sits at or under the bear case, with retained earnings adding to value over time. What would make this wrong: a return of 2023-style deposit pricing, a real turn in credit quality in its commercial real estate and business loans, or surplus capital left idle for years.