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10 Community Bank M&A Targets, Revisited

7. Southwest Bancorp

Shares of Southwest Bancorp (OKSB)Stillwater, Okla. closed at $4.43 Wednesday, for a year-to-date decline of 64%.

The company had $2.7 billion in total assets as of June 30, and owes $70 million in TARP money.

Stephens, Inc. analyst Matt Olney in January 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 [were] 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.

The company reported a second-quarter net loss to common shareholders of $4 million, or 21 cents a share, compared to earnings of $3.4 million, or 19 cents a share, during the second quarter of 2010.

The second-quarter loss sprang from a $20.1 million provision for loan losses, which Southwest Bancorp's CEO Rick Green said was taken "as a result of new appraisals received on collateral dependent commercial real estate loans from states outside of our home markets of Oklahoma, Texas, and Kansas."

Nonperforming assets totaled $190.1 million, or 7.15% of total assets as of June 30, increasing from 4.64% a year earlier. The second-quarter net charge-off ratio was 4.76%, and reserves covered 2.53% of portfolio loans as of June 30.

Southwest Bancorp's regulatory capital ratios remained strong, with a Tier 1 leverage ratio of 16.25% and a total risk-based capital ratio of 20.20% as of June 30, although the company in July "determined to defer future payments of interest on our debentures and dividends on related trust preferred securities," and also deferred dividend payments on the preferred shares held by the U.S. Treasury for the TARP assistance.

The shares trade for less than a third of tangible book value, according to SNL.

While Southwest Bancorp clearly has its work cut out for it as the company works through a late-cycle decline in credit quality, and the consensus among analysts polled by FactSet is for the company to lose nine cents a share in 2012, some analysts think the market has over-reacted.

The four analysts covering Southwest Bancorp are evenly split between buy ratings and neutral ratings.
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