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Stocks Under $10 with 50-100% upside potential - 14 days FREE!

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

2. Prosperity Bancshares

Prosperity Bancshares (PB) of Houston has seen its stock return 3% year-to-date through Monday's close at $40.85, following a 5% return during 2011.

The shares trade for 2.8 times their reported Sept. 30 tangible book value of $14.45, and for 12 times the consensus 2013 EPS estimate of $3.35. With a quarterly payout of 21.5 cents, the shares have a dividend yield of 2.11%.

The company acquired American State Financial Corp. of Lubbock, Texas, in July, bringing on roughly $3.2 billion in total assets and adding 37 branches spread across 18 counties in West Texas.

Prosperity Bancshares had $13.7 billion in total assets and 213 branches as of Sept. 30. The company reported third-quarter net income available to common shareholders of $46.2 million, or 82 cents a share, increasing from $37.0 million, or 78 cents a share, in the second quarter, and $36.4 million, or 77 cents a share, in the third quarter of 2011.

The company's tax-adjusted net interest margin was 3.56% in the third quarter, expanding from 3.55% the previous quarter, but narrowing from 4.03% a year earlier. Prosperity reported a third-quarter ROA of 1.32% and a return on average tangible common equity of 21.59%.

Marinac on Oct. 23 upgraded Pinnacle Financial Partners to an "Outperform," with a price target of $47.25, "based on solid 3Q12 EPS and the initial positive integration of several acquisitions recently by the company," and said that "quarterly EPS have superb opportunity to consistently rise through 2013 given flexibility on NIM-Net Interest Margin and NII-Net Interest Income via loan discount accretion from recent mergers (i.e., as loans already credit marked experience payoffs) and as loans rise relative to securities."

Illustrating the potential for a balance-sheet realignment and margin improvement, Marinac said that "in 3Q12, Loans were only 42% of Average Earning Assets."

Marinac also said that "PB continues to run a highly-efficient banking model with less than 42% Expenses-to-Revenues (i.e., Efficiency Ratio) on a core basis in 3Q12," adding that an even better (lower) efficiency ratio is possible, "as cost savings are realized, particularly in the West Texas merger integration."

Marinac estimates that Prosperity Bancshares will earn $3.50 a share in 2013.

PB ChartPB data by YCharts

Interested in more on Prosperity Bancshares? See TheStreet Ratings' report card for this stock.

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