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10 Community Bank Takeover Targets

7. Southwest Bancorp

Company Profile

Shares of Southwest Bancorp (OKSB)Stillwater, Okla. closed at $13.99 Monday, more than doubling over the previous year. The company operates offices in Oklahoma, Texas and Kansas.

Matt Olney listed Southwest Bancorp as "a small takeout target in Oklahoma," adding that he didn't think the company had "plans to sell in the near term but they are in an attractive area so they would get offers." He also said that the Texas market is "the most attractive part of the country" for acquirers right now, and that an acquisition of Southwest "would play into a strategy," of expanding in the area.

Regarding valuation on a takeout, Olney said "$16.25 a share is a fair target at the lower end and I could see something close to $18 in valuation if it sells."

Not a bad return for investors after the shares have already doubled.

Income Statement

Fourth-quarter net income available to common shareholders was $3.3 million, or 17 cents a share, compared to $2.8 million, or 15 cents a share, in the third quarter and $2.5 million, or 17 cents a share in the fourth quarter of 2009. Following the industry trend, the improvement in Southwest Bancorp's earnings sprang from a decline in credit costs. The fourth quarter provision for loan losses was $7.3 million, down from $12 million the previous quarter and $10.6 million a year earlier.

With fourth-quarter net loan charge-offs of $14.5 million, Southwest Bancorp "released" $7.2 million in loan loss reserves.

The net interest margin for the fourth quarter was 3.82%, improving from 3.71% a year earlier, and the return on average assets was 0.59%.

Balance Sheet

Total assets were $2.8 billion as of December 31 and nonperforming assets - excluding those covered by loss-sharing agreements with the Federal Deposit Insurance Corp. -- made up 5.13% of total assets, compared to 5.90% the previous quarter and 4.01% a year earlier.

The ratio of net charge-offs to average loans for the fourth quarter was 2.35% and reserves covered 2.80% of portfolio loans as of December 31.

Southwest Bancorp owes $70 million in TARP money. With the company raising $57.5 million in common equity during the second quarter of 2010 and continued profits, capital levels were strong as of December 31, with a Tier 1 leverage ratio of 15.55%, a total risk-based capital ratio of 19.06% and a tangible common equity ratio of 10.78%.

Stock Ratios

The shares trade for 14.9 times the consensus earnings estimate of 94 cents a share for 2012.

Analyst Ratings

Two of the four analysts covering Southwest Bancorp rate the shares a buy, while the other two recommend investors hold the shares.

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