Tuesday, July 29, 2014

SFB Bancorp, Inc. $SFBK

I've found what may be our next Conrad on the pink sheets. SFB Bancorp, Inc. (OTC: SFBK) is a small community bank in eastern Tennessee.

This is a "dark" company, like the ones that Oddball Stocks finds. They do not file with the SEC, but they do mail annual reports to shareholders. From those, I discovered that Yahoo Finance and OTC Markets are both way off on the share count. The actual number of outstanding shares is 383,161.

At the current market price of $23, that is a market capitalization of $8.8 million. At year end 2013, the book value of the company (assets minus all liabilities) was $13,892,000. That is $36.26 per share. The company is currently trading at 63 percent of book value.

Normally, a bank would only trade at a 37 percent discount to book value if there were substantial concern about the quality of its assets. However, SFBK is profitable and was profitable every year of the Great Recession.

Since 2005, the bank subsidiary has earned a total of $5.6 million, an average of $627,000 annually, which amounts to a 6.5% earnings yield on the current market price.

The bank is run by “owner-operators,” management with equity stakes and not free options. The bank is impressively profitable for its small size - return on assets, net interest margin, and efficiency ratio are all very strong considering the lack of economies of scale.

The company does not file reports with the SEC and does not send quarterly reports to shareholders (just an annual report). However, we can obtain an FDIC report showing the quarterly results of the company's regulated bank subsidiary. For the first quarter of 2014, net income was $136,000, up from $120,000 in the first quarter of 2013. If that pace continued through the second quarter, then book value of the bank should now be more like $37.


Anonymous said...

They also pay a decent dividend (esp. relative to comparable and larger US-based banks).

Can you provide more details about the assets on their balance sheet?

Mainly, what is the loan composition: is it mainly credit exposure to auto, corporate, real estate, etc?

Also, what competitor branches exist in the towns SFBK is located in?

If there are no competitors, the bank could be an acquisition target, meaning the "attachment rate" would be much higher than the EBITA multiple or the estimated $37 per share book value you forecast next quarter.

If there are competitors, then it seems like they'd have an edge over SFBK with younger generations, esp. considering the management team of village elders can't figure out how to upload annual reports online and still disseminates them via snail mail.

On the flip side, having an older management team who've built relationships over decades is a competitive advantage, esp. considering the bubbling credit risks within the current environment.

Anonymous said...

Ask was lifted already. Damn illiquid banks

Anonymous said...

A rising interest rate environment will also benefit net interest margin and earnings moving forward.

Can you shed some light on the earnings composition too?

Or maybe someone can upload the annuals online?

Anonymous said...

Bloomberg lists the shares O/S as 571,000 FWIW. Can anyone confirm/deny this#?

Anonymous said...

Confirming that Bloomberg terminal has the wrong sharecount @571k.

Anonymous said...

Also, that 571k sharecount is pulled from the most recent SEC filing. From CY2003

AllanF said...

Today's tape reminds me of CHKDG. I expect your readers are sophisticated investors and yet more than once I've seen you do a write-up with the next day what appears to be a couple of small market orders that get taken to the cleaners.

Up 20% on 2400 shares?? No one else is thinking WTF?

CP said...


The thing is $24 is arguably quite cheap with BV at $37.

The loan book is mostly SFR but there are some commercial loans. Also, they are WAY overcapitalized.

Possible catalysts besides M&A are a share buyback or tender.

Anonymous said...

The local SFR loan market looks very positive from a high level: http://www.zillow.com/elizabethton-tn/home-values/.

Anonymous said...

Here's a great tool you can use to do more research: https://www.completebankdata.com .

Anonymous said...

This is still offered under $25. I'm surprised it hasn't traded closer to book.

Anonymous said...


I first contacted the company the same-day you posted this idea. Still have not gotten my hands on the 10-K.

They have apparently mailed it to me twice, but Im not getting it for one reason or another.

Do you happen to have a PDF version that you can share?

CP said...

What's your email address?

Anonymous said...



Anonymous said...

Thought I posted the email earlier this afternoon, but it looks like it didnt go through.

Please send to: SFBKfilingplz@mailinator.com

Thanks again for your help.

Anonymous said...

any update on current tbv and share count?

CP said...