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

NEW YORK (TheStreet) -- There are plenty of cheap Southern bank stock plays out there for long-term investors.

When asked to name Southern bank stocks that would be suitable for long-term investors, FIG partners managing principal and director of research Christopher Marinac and analyst Brian Martin identified 10 community banks, in addition to major regional player BB&T (BBT) of Winston-Salem, N.C.

BB&T's shares closed at $27.70 Monday, returning 13% year-to-date. The shares trade for 1.8 times tangible book value, according to Thomson Reuters Bank Insight, and for 9.5 times the consensus 2013 earnings estimate of $2.93, among analysts polled by Thomson Reuters. With a quarterly payout of 20 cents, the shares have a dividend yield of 2.89%. Marinac rates BB&T "Outperform," with a price target of $29.98.

BB&T on Oct. 18 reported third-quarter earnings of reported third-quarter net income available to common shareholders of $469 million, or 66 cents a share, with earnings reduced by "merger-related charges associated with the acquisition of BankAtlantic totaling $43 million pretax, or $0.04 per diluted common share." After the company provided guidance saying that its net interest margin (NIM) would narrow from 3.94% in the third quarter to "the mid 3.70s" in the fourth quarter, investors sent the shares down 7%.

Marinac on Oct. 19 said that "we feel the company has more levers to pull on offsetting NIM pressure with earning asset and loan growth, stronger expense efficiency, and a recovery in Insurance fee income which was soft in 3Q12." FIG Partners is slightly ahead of the consensus, estimating BB&T will earn $2.95 a share in 2013.

Looking at the Southern 10 community bank plays, FIG Partners currently rates seven "Outperform," and the other three "Market-Perform," however, the companies' ratings and stock price targets are based on a 12-month outlook, and Martin says that "all are well positioned as long-term investments."

Marinac says that "from an economic perspective, loan growth is getting slightly better in the Southeast, but relative to the last 10 years, it is still kind of slow. What we see the banks doing is fighting each other for the same loan, so we have shifting from one bank to the next, as loan officers move."

Martin says that Pinnacle Financial Partners (PNFP) of Nashville, Tenn. is "probably the name that has shown that the most" poaching of loans (and loan officers) from other institutions.

"The overall net pool of loans is growing only very modestly," Marinac says. "From an annual standpoint, the loan growth is probably 1.5 to 2%," but "the important thing is that banks are a mirror of the communities they serve. If communities and the larger economy are growing, the banks will reflect that. What we see is that there's some growth, which is a big difference from three years ago. We have certainly worked through that fear and now it is a question of how well the banks will do."

Most of community bank stocks highlighted by Marinac and Martin have seen decent or better returns this year, and six out of 10 had positive returns in 2011, which was a lousy year for the sector, with the KBW Bank Index (I:BKX) dropping 25%.

Here are the 10 Southeast community banks that FIG Partners believes are suitable for long-term investors. The list is ranked by ascending total asset size.

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