10 Community Bank M&A Targets, Revisited

3. First Midwest Bancorp

Shares of First Midwest Bancorp of Itasca, Ill. closed at $8.02 Wednesday, down 30$ year-to-date.

The company had $8.1 billion in total assets as of June 30, and has expanded with four acquisitions of failed banks over the past two years with assistance from the Federal Deposit insurance Corp., including Palos Bank & Trust of Palos Heights, Ill. in August,Peotone Bank & Trust of Peotone, Ill. in April 2010, and First DuPage Bank of Westmont, Ill., in October 2009.

First Midwest is one of two Chicago area banks mentioned in January as possible targets by John Rodis, who was then covering the company for Howe Barnes Hoefer & Arnett. Rodis cited "scarcity value" for acquirers seeking an entrance into the Chicago Market. More recently, the analyst told TheStreet that First Midwest and MBFI were longer-term targets, as they are looking to continue to expand through FDIC deals over the short term, and "neither management team really wants to sell."

The company is also included on KBW's Potential Buyers Who Could Become Sellers List.

The company owes $193 million in TARP money.

Sterne Agee analyst Kenneth James has called Chicago a "stressed market poised for consolidation."

First Midwest reported second-quarter net income applicable to common shares of $8.1 million, or 11 cents a share, increasing from $5.2 million, or seven cents a share, a year earlier. The provision for loan losses for the second quarter was $18.8 million, declining from $21.5 million in the second quarter of 2010.

The company reported that nonperforming assets made up 2.74% of total assets as of June 30, improving from 3.37% a year earlier. The second-quarter ratio of net charge-offs to average loans was 1.56%, and loan loss reserves appeared more than adequate, covering 2.73% of total loans.

The shares trade for 10 times the consensus 2012 earnings estimate of 79 cents a share among analysts polled by FactSet, and 0.9 times tangible book value, according to SNL Financial.

On Thursday, Kenneth James upgraded First Midwest to a buy, with a $11 price target, saying the shares "have priced in a recession as severe as the last historic downturn," and that the company is "priced below peers on most valuation metrics, particularly tangible book value, pre-provision, pre-tax income (PPI) and deposits."

Three of the nine analysts covering First Midwest rate the shares a buy, while the remaining analysts all have neutral ratings.