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

5. Bank of the Ozarks

Shares of Bank of the Ozarks (OZRK) of Little Rock, Ark., closed at $29.16 Monday, returning 9% year-to-date, following a 39% return last year.

The shares trade for 2.1 times their reported Sept. 30 tangible book value of $13.78, and for 13 times the consensus 2013 EPS estimate of $2.30. Based on a quarterly dividend of 14 cents, the shares have a dividend yield of 1.76%.

The company had $3.8 billion in total assets as of Sept. 30 and reported third-quarter earnings available to common shareholders of $19.3 million, or 55 cents a share, increasing from $191 million, or 55 cents a share, in the second quarter, and $18.9 million, or 55 cents a share, in the third quarter of 2011. The company reported a second-quarter ROA of 2.05% and a "stout" return on average common equity, according to Martin.

Bank of the Ozarks reported a most impressive tax-adjusted net interest margin of 5.97% in the third quarter, increasing from 5.90% in the third quarter of 2011. The company has acquired four failed institutions from the FDIC over the past two years, and the discounted value of the acquired loans covered by FDIS loss-sharing agreements boosts the net interest margin. Martin said on Oct. 15 that the "NIM has a downward bias as lower yielding non-covered loans replace runoff in the higher yielding covered portfolio." Then again, "OZRK's 5.97% NIM gives them greater flexibility than peers" when it comes to pricing new loans.

The company has acquired four failed institutions over the past two years, and Martin said that "M&A is a key priority for OZRK as they continue to build capital at a faster rate than they can deploy it with any deal announced expected to be additive to EPS and TBV given pricing disciplines. Both regular way and FDIC assisted deals are of interest and equally likely."

Martin rates Bank of The Ozarks "Market-Perform," with a $35 price target, and said that the rating "primarily is valuation driven." He estimates that the company will earn $2.34 a share in 2013.

"On a fundamental basis, OZRK remains one of the best performing banks in our coverage universe and industry," Martin said.

OZRK data by YCharts

Interested in more on Bank of the Ozarks? See TheStreet Ratings' report card for this stock.

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