10 Bank Stocks From the South for Smart Long-Term Investors

3. Pinnacle Financial Partners

Shares of Pinnacle Financial Partners of Nashville, Tenn., closed at $18.31 Monday, returning 13% year-to-date, following a 19% return during 2011.

The shares trade for 1.5 times their reported Sept. 30 tangible book value of $12.19, and for 14 times the consensus 2013 EPS estimate of $1.32.

Pinnacle Financial Partners had $4.9 billion in total assets as of Sept. 30. The company reported third-quarter net income available to common shareholders of $11.3 million, or 33 cents a share, increasing from $7.8 million, or 23 cents a share, the previous quarter, but declining from $24.5 million, or 72 cents, in the third quarter of 2011, when Pinnacle recaptured its entire $22.5 valuation allowance for deferred tax assets.

Pinnacle reported third-quarter net interest income of $40.9 million, increasing from $40.2 million the previous quarter, and $38.4 million a year earlier. CEO Terry Turner said that the company "continued the meaningful expansion of the core earnings capacity of the firm during the third quarter, increasing loans at a linked-quarter annualized growth rate of 9.4 percent and increasing our net interest margin for the eighth consecutive quarter." The net interest margin expanded to 3.78% in the third quarter, from 3.76% the previous quarter and 3.60% a year earlier.

Martin rates Pinnacle Financial Partners "Market-Perform," with a price target of $21, saying on Oct. 19 after the company reported its third-quarter results that "PNFP delivered a solid quarter posting core profits of $0.33 per share underscored by continued loan growth, modest NIM expansion, good expense controls and improvement in credit."

The analyst explained Pinnacle's margin improvement: "Loans increased $80 million, or nearly 10% annualized with C&I plus owner occupied CRE accounting for $53 million, or 65% of the growth. Growth continues to be funded by the investment portfolio which is down ~$190 million YTD. Deposits increased modestly with good mix improvements noted."

Martin said that "we are encouraged by recent trends and future prospects as PNFP transitions back to an offensive growth story; however, believe current valuation levels at 15x our 2013 EPS and ~150% of projected tangible book value support this rating."

The analyst estimates that Pinnacle will earn $1.34 a share in 2013.

PNFP data by YCharts

Interested in more on Pinnacle Financial Partners? See TheStreet Ratings' report card for this stock.

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