Shares of a small Chicago bank-Pinnacle Banc Group Inc.-gained 12% Thursday after a Louisville, Ky., brokerage rated it among the most undervalued in the nation.

The $1 billion-asset banking company's stock rose to $27.50. More than 152,000 shares were traded-a walloping 30-fold increase over average trading volume of 5,000 shares.

J.J.B. Hilliard Lyons Inc., a Louisville-based regional brokerage, triggered the run-up with a report ranking Pinnacle the second-most- undervalued bank in the nation.

Analyst Alan F. Morel of Hilliard Lyons recommended that investors pay up to $28 for the stock and set a three-year price target of $44 per share.

Others on the list were Sumitomo Bank, which was rated most undervalued, as well as Onbancorp, Syracuse, N.Y.; Arrow Financial Corp., Glen Falls, N.Y.; and Farmers Capital Bank, Frankfort, Ky.-rated third, fourth, and fifth, respectively.

"We buy them when nobody wants these things. Just as they get popular, we sell them," Mr. Morel said Thursday. Since 1980 he has compiled a monthly list that rates 200 banks by value.

He arrives at the value of each bank by looking at 41 ratios based on 78 balance sheet items over six years.

"I want a company that's already done well but hasn't been recognized," Mr. Morel said.

A brief note that appeared with the list suggested that Pinnacle's stock is undervalued because its reported earnings mask strong operating profits.

But Stephen Skiba, who covers Pinnacle for ABN Amro Chicago Corp., said just the opposite: Pinnacle's reported earnings are stronger than core earnings, he said.

Almost half of Pinnacle's $1 billion of assets are bonds and financial stocks, and its top managers have proved to be adept traders, Mr. Skiba said. Their trading gains have bolstered reporting earnings, he said.

But core interest earnings on Pinnacle's commercial loan business remain weak, Mr. Skiba said.

He attributed Thursday's run-up to investor sentiment that Pinnacle, if undervalued, is an attractive takeover candidate. In fact, he said, Pinnacle's core business would likely need to be stronger for the bank to be bought.

ABN Amro gives Pinnacle a "hold" rating but says speculative traders may find it a good buy.

In other news, Keefe, Bruyette & Woods Inc. analyst David Winton Wednesday downgraded Westamerica Bancorp., San Rafael, Calif., to "attractive" from "buy." Its shares rose 87.5 cents, to $88.

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