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10 Community Bank M&A Targets

6. Pinnacle Financial Partners

Shares of Pinnacle Financial Partners (PNFP - Get Report) of Nashville, Tenn. closed at $15.56 Friday, up 11% from a year earlier.

The company had $4.8 billion in total assets as of March 31 and owes $95 million in TARP money.

Matt Olney said in January that Pinnacle could have "a takeout price in excess of $16 because of its attractive Tennessee footprint." The shares are up 15% year-to-date.

In a report following the company's first-quarter earnings announcement, Sterne Agee analyst Peyton Greene said some of the recent rise in Pinnacle's shares reflected M&A speculation, and that the company's "penetration and concentration in the Nashville MSA make it an obvious target for would-be acquirers looking to deepen or extend their footprint into one of the most attractive and business friendly markets in the Southeast." The "the three superregional and money center banks that dominate the market" and could be potential bidders for Pinnacle Financial include Bank of America (BAC - Get Report), SunTrust (STI) and Regions Financial (RF).

Pinnacle reported first-quarter net income available to common shareholders of $2 million, or 6 cents a share, compared to a loss of $5.4 million, or 16 cents a share, in the first quarter of 2010. As would be expected at this point in the credit cycle, the earnings improvement sprang from a reduction in the provision for loan losses to $6.1 million from $13.3 million a year earlier.

Nonperforming assets totaled $132.4 million, or 2.75% of total assets as of March 31, improving from 3.18% a year earlier. The first-quarter net charge-off ratio was 1.22%, while reserves covered 2.46% of total loans as of March 31.

Following the earnings announcement, FIG Partners analyst Christopher Marinac lowered his rating on Pinnacle Financial to a neutral rating of "market perform," saying that although the company's favorable credit and revenue trends was "sustainable," its valuation was a bit high when compared to his firm's normalized earnings estimate $1.02 a share.

The shares trade for 21 times the consensus 2012 earnings estimate of 76 cents, and 1.6 times tangible book value, according to SNL.

Out of 13 analysts covering Pinnacle Financial, two rate the shares a buy, 10 have neutral ratings and the remaining analyst recommends selling the shares.
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