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) 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.
TFS Financial Corporation (NASDAQ:TFSL) generated the lowest net interest margin among the three of only 2.39%. However, its efficiency ratio is lower than that of Northfield at 59.67%. Like the other two banks, certificates of deposits accounted for 69% of the total deposits in 2012. Savings accounts ranked second with $1.77 billion in deposits, accounting for 19.8% of the total deposits, while the negotiable order of withdrawal accounts was more than $1 billion. TFS Financial Corporation (NASDAQ:TFSL) focuses on real estate lending, as its residential real estate loans were more than $8.1 billion, accounting for 78.5% of the total loans outstanding. Home equity loans and lines of credits ranked second, with $2.15 billion in loans, representing 20.8% of the total loans.
Among the three, Northfield Bancorp, Inc. (NASDAQ:NFBK) seems to be the most conservative with the highest loan loss reserve ratio of 2.08%. The loan loss reserve ratio of Investors Bancorp and TFS Financial are much lower, at 1.41% and 1%, respectively. TFS Financial is trading at $11.20 per share with a total market cap of $3.4 billion. The market values TFS Financial Corporation (NASDAQ:TFSL) at as high as 1.82 times its book value.
My Foolish take
Income investors might like Investors Bancorp the most, as it is the only dividend-paying bank among the three. However, the dividend yield is small at only 1%. Among the three, I like Northfield the most due to its lowest price-to-book valuation and the highest loan loss reserve.
The article This Thrift Conversion Looks Interesting originally appeared on Fool.com and is written by Anh HOANG.
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