Northfield Bancorp, Inc. (NFBK), TFS Financial Corporation (TFSL): This Thrift Conversion Looks Interesting

In the middle of May, Barron’s featured Northfield Bancorp, Inc. (NASDAQ:NFBK), believing that it could offer shareholders a decent return from its current trading price. Northfield could be considered a thrift conversion, which is always considered quite an attractive play. Around $356 million has been raised in second-step conversion, transitioning the bank to full public ownership by offering the 61% ownership of the mutual holding company to investors.

This bank seems to be quite cheap

Northfield Bancorp, Inc. (NASDAQ:NFBK) is the holding company of Northfield Bank. For more than 125 years, Northfield’s deposit sources have been mainly in the New York counties of Richmond (Staten Island) and Kings (Brooklyn), and Union and Middlesex counties in New Jersey. Most of its deposits, $480.2 million, or 30.56% of total 2012 deposits, were certificates of deposits. Money market accounts ranked second with $438.15 million in deposits. The non-interest bearing demand came in at $173.85 million, accounting for more than 11% of total 2012 deposits.

Northfield Bancorp, Inc. (NASDAQ:NFBK) focuses its lending in real estate. The majority of its real estate loan balance, $610.13 million, or 49.18% of the total loan, was multi-family real estate. Commercial real estate ranked second, with $315.45 million in loan balance, accounting for 25.43% of total loans. In 2012, its net interest margin came in at 2.98% with the efficiency ratio of 63.24%.

What I like about Northfield is its consistent and decent loan loss reserves. In the past five years, its allowance for loan losses has represented around 1.53% to 2.66% of the total outstanding loans. As of March 2013, the loan loss reserve ratio was 2.08%. Northfield Bancorp, Inc. (NASDAQ:NFBK) is trading at around $11.50 per share, with the total market cap of $630.40 million. The market values the bank at only 85% of its book value.

Peers with much higher valuation and less conservative reserve

Compared to its bigger peers Investors Bancorp, Inc. (NASDAQ:ISBC) and TFS Financial Corporation (NASDAQ:TFSL), Northfield seems to be quite cheap. The market values Investors Bancorp at as high as 2 times its book value. Like Northfield Bancorp, Inc. (NASDAQ:NFBK), most of its deposits, $2.96 billion, or 33.82% of total 2012 deposits, were certificates of deposits. Checking accounts ranked second, with nearly $2.5 billion in deposits. Savings and money market deposits were $1.72 billion and $1.59 billion, respectively.

Investors Bancorp, Inc. (NASDAQ:ISBC) also concentrates its lending activities in real estate, with residential mortgage loans being $4.84 billion, accounting for 46.35% of total loans. Multi-family loans stood second with nearly $3 billion in loan outstanding. Investors Bancorp has a higher net interest margin of 3.4% and lower efficiency ratio of nearly 50% compared to Northfield Bancorp, Inc. (NASDAQ:NFBK). Since the fourth quarter of 2012, Investors Bancorp has begun to pay quarterly dividends of $0.05 per share. At the current trading price, Investors Bancorp offers investors a 1% dividend yield.