10 Community Bank M&A Targets, Revisited

6. Pinnacle Financial Partners

Shares of Pinnacle Financial Partners (PNFP) of Nashville, Tenn. closed at $10.88 Wednesday, down 20% year-to-date.

The company had $4.8 billion in total assets as of June 30 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," but that bank stock landscape has clearly changed, as the market has priced-in a prolonged economic slump.

Back in April, Sterne Agee analyst Peyton Greene said 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." At that time, the analyst said that "the three superregional and money center banks that dominate the market" and could be potential bidders for Pinnacle Financial include Bank of America (BAC), SunTrust (STI) and Regions Financial (RF). At this point, with Bank of America facing seemingly endless risk from mortgage litigation, the nation's largest bank would be a very unlikely bidder. Regions would probably need to repay the $3.5 billion in TARP money it owes, before considering a bid.

Pinnacle reported second-quarter net income available to common shareholders of $4.8 million, or 14 cents a share, compared to a loss of $27.9 million, or 85 cents a share, in the second quarter of 2010, when the company reported a $30.5 million provision for loan losses. The provision declined to $6.6 million in the most recent quarter.

Nonperforming assets totaled $112.1 million, or 2.32% of total assets as of June 30, improving from 3.25% a year earlier. The second-quarter net charge-off ratio was 1.14%, while reserves covered 3.44% of total loans as of June 30.

On August 15, Jeff Davis of Guggenheim Securities reiterated his neutral rating for Pinnacle Financial Partners, lowered his price target for the shares to $14 from $15, "to reflect the lower multiple environment and less consideration of a potential acquisition over the next year given the subdued M&A environment." The analyst added that "even if the board never elects to sell PNFP, we think some premium for the potential will usually be reflected in the shares given its #4 market share position in the Nashville" area.

The shares trade for 15 times the consensus 2012 earnings estimate of 73 cents, and just above tangible book value, according to SNL.

Out of 12 analysts covering Pinnacle Financial, one rates the shares a buy, 10 have neutral ratings and the remaining analyst recommends selling the shares.

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