Concerned Shareholders of SFB Bancorp, Inc. (OTC: SFBK)  

We are concerned about the capital allocation strategy of SFB Bancorp, Inc. ("SFBK").

The book value of the Company was approximately $40 as of December 31, 2015. Shares are offered in the open market for $30 as of this writing, which is a 25 percent discount. To the extent that book value represents the Company's intrinsic value, repurchasing stock at the current market price would have an immediate return on investment of 33 percent.

According to the call report dated December 31, 2015, the bank subsidiary of the Company had $9.63 million dollars invested in U.S. Treasury and municipal securities with a remaining maturity greater than five years ($11 million including shorter maturities).

Given how low interest rates currently are, these securities are likely yielding around two percent, meaning the portfolio carries with it meaningful interest rate risk in exchange for limited potential gain.

We believe the Company should liquidate its securities portfolio, and use those funds to return capital to shareholders through repurchases and dividends. Why assume the enormous interest rate risk of long-duration securities when this surplus capital could be returned to shareholders? We cannot think of a rational reason that is in the best interests of all shareholders.

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