Thursday, December 17, 2015

Update to SFB Bancorp, Inc. $SFBK

We first mentioned SFBK a year ago [1,2] at $23, when it was at a huge discount to its book value then of ~$37. The stock has come a long way and is now $32.50 x $32.95.

Thought an update post would be in order. The end of 2014 book value was $14,151,000 which was $38.73 per share. They bought back $394,000 of stock in 2014 (average price of $22.16) and paid $148,000 of dividends (20 cents per share). So, adding those numbers back to book value for the purpose of calculating return on equity for the year, we see that ROE for 2014 was 5.8%.

The company paid a 25 cent dividend in June 2015 and is apparently planning to pay a 25 cent dividend tomorrow, for a total of 50 cents returned to shareholders in 2015. (Not known whether they have repurchased any shares in 2015.)

Here's an estimate, based on 2014 year end data and interim call reports, of current (or year-end 2015) book value per share:

Subsidiary equity, 12/31/2014 (call report) 13,195
Net income Q1-Q3 (call report) 517
Q4 net income (estimate; average Q1-Q3) 172
Subsidiary equity, 12/31/15 (estimate) 13,884

Holding company cash, 12/31/14 (annual report) 371
Holding company other assets, 12/31/14 (annual report) 585
Dividends paid 2015 ($0.50*365,383) -183
Holding company equity, 12/31/15 (estimate) 773.3

Total equity, sub & holdco, 12/31/15 (estimate) 14,658

Equity per share, 12/31/15 (estimate) $40.12

If these estimates are correct, the stock is currently offered at 82% of book value. Management continues to invest in 5-15 year fixed income securities rather than buy back stock at a discount. As much as I dislike The Outsiders by William Thorndike, share buybacks can create value in many circumstances, and this is one of them. How can you buy a five year note at a 1.7% yield when buying your own stock "returns" 22% instantly, with no interest rate risk?

As every bank investor knows, the banking industry is consolidating. People are not founding new banks, and small ones are merging in order to gain economies of scale. Just follow Phil Timyan on Twitter to see a constant stream of merger and acquisition announcements.

And to give one example, there is TriSummit Bancorp, Inc. in Kingsport, TN that is 33 miles away from SFB Bancorp headquarters in Elizabethton, TN. Last year TriSummit acquired Community National Bank of the Lakeway Area, so you know that even in east Tennessee, bankers are in an acquisitive mood.

No comments: