2. BankFinancial Corp.
Shares of Bank of BankFinancial ( BFIN) of Burr Ridge, Ill., closed at $7.66 Friday, returning 39% year-to-date, following a 42% decline during 2011.

Brian Martin of FIG Partners is the only sell-side analyst covering BankFinancial.

The shares trade for 0.8 times tangible book value, and for 5.7 times the FIG's 2013 EPS estimate of $1.35. FIG's 2012 EPS estimate is three cents.

BankFinancial had $1.5 billion in total assets as of June 30. The company reported second-quarter earnings of $798 thousand, or four cents a share, declining from $2.3 million, or 12 cents a share, in the first quarter, and $1.0 million, or five cents a share, during the second quarter of 2011.

The second-quarter results reflected continued declines in net interest income, as "loan portfolio balances declined in all categories except consumer loans," according to the company. BankFinancial also said in its second-quarter 10-Q filing that "residential loan balances declined due to scheduled loan amortizations and prepayments of our adjustable-rate loan portfolio," while "multi-family loan balances declined due to intensified pricing and underwriting competition, including the entry of new competitors into the sector."

Second-quarter net interest income declined to $14.7 million, from $15.4 million the previous quarter, and $17.1 million, a year earlier. Noninterest income declined to $1.4 million in the second quarter, from $1.8 million in the first quarter, and $1.9 million in the second quarter of 2011.

The company said that "non-interest income was lower in the second quarter of 2012 due to certain transient factors in our mortgage banking operations and some expenses related to facilities management," and that it was continuing "to evaluate the expansion of non-interest income sources, particularly related to insurance and trust services, to offset any potential future adverse impact associated with the Dodd-Frank Act."

BankFinancial's June 30 ratio of nonperforming assets to total assets was a rather high 6.00%, increasing from 5.32% a year earlier.

The company did have some positive things to say in the 10-Q, seeing "good prospects" for growth in its multifamily loan portfolio in the second half of the year, adding that "we believe that the commercial real estate loan portfolio balances will stabilize at the current levels with some possibility for growth by the end of 2012," and that its commercial and industrial loan balances, which "declined primarily for cyclical reasons due to state government health care payables practices," would "gradually to their customary balances over the next three to six months."

Martin has a neutral rating on BankFinancial, and says that "over the last couple of quarters, their credit numbers have been negatively impacted as the company has transitioned from the Office of Thrift Supervision to the Office of the Comptroller of the Currency," which takes a more conservative view on asset concentrations and on identifying problem credits.

BankFinancial "has identified its problem assets and is working through them," according to Martin, who sees a potential turnaround story unfolding for long-term investors, as the company appears "to have ample capital to work through their problems absent another leg down in the economy. Importantly, the company did not accept TARP nor has it raised common equity during the cycle and diluted their shareholders as many of their competitors have."

BankFinancial reported a ratio of total equity to total assets of 13.33% as of June 30, and its main thrift subsidiary had a very strong Tier 1 leverage ratio of 11.27%. Both of these ratios have risen significantly during 2012.

Martin expects the company will "execute a loan sale during the second half of this year," to clear out a portion of the problem loans, and even though "they will likely lose money that quarter," the analyst says that "from that quarter forward, they should demonstrate sustained profitability and growth in tangible book."

BFIN Chart BFIN data by YCharts

Interested in more on BankFinancial? See TheStreet Ratings' report card for this stock.

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