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10 Community Bank Takeover Targets

6. Pinnacle Financial Partners

Company Profile

Shares of Pinnacle Financial Partners (PNFP) of Nashville, Tenn. closed at $14.50 Monday and were flat from a year earlier.

Matt Olney said in a January 12 note that based on the valuation of Whitney in its merger deal with Hancock Holding, Pinnacle could have a "a takeout price of $16.14 or 16% upside. In his interview with TheStreet he listed First Horizon National (FHN), IBERIABANK (IBKC) and BB&T (BBT) as possible bidders because of Pinnacle's attractive Tennessee footprint.

Income Statement

Fourth-quarter net income available to common stockholders was $2.2 million, or 7 cents a share, improving from $549 thousand, or 2 cents a share, in the third quarter and a net loss to common stockholders of $4 million, or 12 cents a share, in the fourth quarter of 2009.

The fourth-quarter provision for loan losses was $5.2 million, compared to $4.8 million the previous quarter and $15.7 million a year earlier. With net charge-offs totaling $7.1 million during the fourth quarter, the company released $2 million in reserves, which provided most of its profit.

The fourth-quarter net interest margin was 3.29%, increasing from 3.23% in the third quarter and 3.19% in the fourth quarter of 2009. While the company was profitable for a second consecutive quarter, earnings were still weak, as expenses on repossessed real estate totaled $7.9 million and the ROA was just 0.18%.

Balance Sheet

Total assets were $4.9 billion as of December 31 and nonperforming assets - including nonaccrual loans and repossessed real estate - totaled $140.5 million or 2.86% of total assets. The fourth-quarter net charge-off ratio was 1.96% and loan loss reserves covered 2.57% of total loans as of December 31.

The company owes $95 million in TARP money and reported a regulatory Tier 1 leverage ratio of 10.6% and a total risk-based capital ratio of 15.2% as of September 30. The tangible common equity ratio was 7.1%.

Stock Ratios

The shares trade for 17 times the consensus earnings estimate of 84 cents a share for 2012.

Analyst Ratings

Three of the 13 analysts covering Pinnacle Financial Partners rate the shares a buy, while nine have neutral ratings and one analyst recommends selling the shares.

Several analysts have indicated that the shares are fully-valued in anticipation of a take-out. After Pinnacle's fourth-quarter conference call, Guggenheim Securities analyst Jeff Davis maintained his neutral rating on Pinnacle with a $15 price target, based on his 2012 earnings estimate of 75 cents a share and "a 30% weight to the acquisition value." Despite "a spirited defense of remaining independent on the [conference] call," Davis said his firm was assuming that "the board and management are tired of dealing with regulators and asset quality issues the past few years."

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