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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