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Tickers in this Article: OZRK, WTNY, HBHC, BXS, IBKC, PJB
Recently, I discussed Montana-based regional bank, Glacier Bancorp, in an article highlighting some of the holdings from the Perkins Small-Cap Value Fund (JDSAX). This had me thinking about the opportunities that exist for well run regional banks to gobble up smaller financial institutions that are failing. Fenimore Asset Management, another of my favorite value managers, holds no less than five regional banks in its FAM Value Fund (FAMVX). One of them is the Bank of the Ozarks (Nasdaq:OZRK), a Little Rock-based regional that's growing through FDIC-assisted acquisitions. If its third quarter results are any indication, this is just the beginning. IN PICTURES: 5 Keys To Unlocking A Better Credit Score

Strong Third Quarter Results
The bank completed two acquisitions in the third quarter, adding $8.8 million in net income to the bottom line. Year-to-date, its diluted earnings per share are $2.77, 72% higher than in the first nine-months of 2009. In addition, book value per share grew 14.7% in the quarter to $18.60. OZRK seems to be firing on all cylinders. In the table below, I've included four of its peers for third quarter comparison. In terms of both return on average assets and net interest margin, Bank of the Ozarks clearly dominates in the Southeastern regional banks market.

Bank of the Ozarks and Peers

Company
Return on Average Assets
Net Interest Margin
Bank of the Ozarks (Nasdaq:OZRK)
2.6%
5.31%
Whitney Holding (Nasdaq:WTNY)
(1.0%)
4.05%
Hancock Holding (Nasdaq:HBHC)
0.70%
3.85%
BancorpSouth (NYSE:BXS)
0.34%
3.64%
IberiaBank (Nasdaq:IBKC)
0.52%
2.91%
Strong Ownership
One of the things I like about regional banks is they sometimes have CEOs who hold large ownership positions. They're not just professional bankers; they're also entrepreneurs. In the case of Bank of the Ozarks, George Gleason took control in 1979 when it had just $28 million in assets. Today, those assets have grown to $3.2 billion and Gleason still owns 19.7% of its stock.

Bank of the Ozarks came second in the 2009 Bank Performance Scorecard, a ranking of the 150 largest banks in America. That was up 10 spots from 2008. Gleason's success, until recently, has come from organic growth through the recruitment of quality bankers at other institutions and then providing them with the tools to build their business. I say "until recently" because the bank has gone on an acquisition spree in 2010, something they hadn't done until the banking crisis presented a unique opportunity, much like the savings and loan crisis of the 1980s. Gleason wouldn't be buying unless the price was right.

A Great Track Record
As I said previously, most of the bank's growth, until now, has come organically. In the past 16 years, it's gone from five offices to 73. This growth in branches, combined with an efficiency ratio, that's dropped from 43.43% to 37.8% in just 5 years, is the main reason its earnings per share grew 17.4% annually between 1999 and 2009. Naturally, when earnings grow, so too does shareholder equity.

In 2000, Bank of the Ozarks book value per share was $2.54. At the end of the third quarter, it is approaching 20 with a compound annual growth rate of 22%. While I can't look into the future and predict the next 10 years, I can say with confidence that if any bank is going to continue growing book value, it's likely to be Bank of the Ozarks.

Bottom Line
I've never been a big fan of banks. Their financial statements are cumbersome and long. Separating the good from the bad takes a lot of legwork. Having said that, I do like the Bank of the Ozarks. I'd have no problem investing in them; however, for those of you that are less certain, you might want to look at PowerShares Dynamic Banking ETF (NYSE:PJB), which has 30 holdings, including Bank of the Ozarks, and provides a little more diversification. (From coins to credit, find out how the earliest system of money management started. Check out The Evolution Of Banking.)

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