NEW YORK ( TheStreet) -- Analysts are predicting that the banking industry's heavy consolidation will continue this year, especially in the small cap and community- banking sector.

According to SNL Financial, there have been four bank and thrift deals worth $1.6 billion announced so far this year. That compares to a total of 207 in 2010, valued of $12.1 billion.

"I think M&A is going to be stronger than people expect. What you have seen thus far has been the purchase of healthy banks with excess capital of troubled banks. We think 2011 will be the year that healthy banks will purchase healthy banks," said FBR Capital Markets analyst Brett Scheiner in an interview with TheStreet.

Bank deals so far this year include Bank of Montreal's ( BMO) acquisition of Marshall & Ilsley ( MI) and Comerica's ( CMA) acquisition of Sterling Bancshares ( SBIB).

Mergers in small cap will likely provide some good investment opportunities, especially for shareholders of non-failing banks who sell, according to analysts.

Brain Foran - an analyst with Nomura Securities International, is struck by "how quickly it has transitioned from a buyer's market to a seller's market," pointing how that recent sellers, including M&I, Whitney Holding ( WTNY) (which Hancock Holding ( HBHC) agreed in December to acquire for $1.5 billion) and Sterling, are all being taken out for "around 15 times normalized earnings."

Foran said that level of valuation was "a big price from where we were a couple years ago. As a result what you are seeing is the sellers stock goes up a lot and the buyers stock go down a lot."

Matt Olney, an analyst at Stephens Inc, said that "while earnings have traditionally been the primary catalyst for the bank industry, we believe valuations in 2011 will be driven by M&A volume and pricing."

Olney sees M&A valuations returning to normal levels in 2011 and 2012, but says most exits will be at a bank to bank basis due to the high supply of banks looking to exit and the limited number of banks with cash on hand to acquire. TARP of course is also a factor in deals as healthy bank deals are back and banks without TARP will make for cleaner deals.

At the moment some of the most attractive small cap bank takeout targets are in Texas, says Olney.

"We believe the only Southeastern state that can sustain elevated takeout multiples is Texas as it contains several strong buyers, few sellers and a relatively positive economic climate," Olney said in a note.

Olney and Scheiner and other industry analysts have singled out some of the most likely small cap banks that will be acquired this year along with potential acquirers and possible valuations.

Among possible buyers, Scheiner lists Eagle Bancorp ( EGBN) of Bethesda, Md., United Bankshares ( UBSI) of Charleston, W.V., and First Citizens BancShares ( FCNCA) of Raleigh, N.C.

Here are the 10 community bank targets, by ascending asset size. Most are trading at forward price-to-earnings ratios below the "15 times normalized earnings" that Brian Foran said was the trend for recent deals. Of course, for many banks, the consensus earnings estimates for 2012 will still be below the "normalized" levels, so potential takeout deals for most of these banks would be winners for their shareholders, provided the recent pricing trend were to hold up.

Terms

For each of the 10 banks discussed on the following pages, we'll be looking at capital strength, earnings quality and asset quality. For an explanation of those terms you can click on the box below.

10. Guaranty Bancorp

Company Profile

Shares of Guaranty Bancorp ( GBNK) of Denver, Colo. closed at $1.53 Monday, returning 20% over the previous year.

The company is one of three community bank targets named by FBR analyst Brett Scheiner, who cited credit problems and said that Guaranty Bancorp's market footprint in Denver could be attractive to buyers.

Income Statement

The company hasn't said when it will announce its fourth-quarter results and didn't return a call requesting comment. For the third quarter, Guaranty Bancorp reported a net loss applicable to common stockholders of $5.4 million, or 11 cents a share, improving from a loss of $5.7 million, or 11 cents a share, the previous quarter and $16.9 million, or 33 cents a share a year earlier.

The provision for loan losses was $2.5 million, declining from $8.4 million the previous quarter and $20 million a year earlier, however, the linked-quarter improvement was more than offset by third-quarter foreclosure expenses totaling $7.8 million. Scheiner said the third quarter appeared "to represent a setback in credit quality." Net charge-offs - loan losses less recoveries - during the quarter totaled $7.5 million.

Guaranty Bancorp's third-quarter net interest margin improved to 3.53% from 3.14% a year earlier.

Balance Sheet

Total assets were $1.9 billion as of September 30 and nonperforming assets - including nonaccrual loans and repossessed assets - totaled $116 million, or 6.00% of total assets, compared to 4.82% in June and 5.51% a year earlier.

The annualized ratio of net charge-offs for the third quarter was 2.19% and loan loss reserves covered 3.25% of total loans as of September 30.

Scheiner said his firm believed that "Guaranty's robust capital base (tangible equity to assets of 8.88%) will be more than sufficient to absorb any future losses associated with it s loan portfolio.

Stock Ratios

Scheiner estimated in October that the company would lose 6 cents per common share for all of 2011. There are no earnings estimates available for 2012. The shares trade for 0.7 times tangible book value, according to SNL Financial.

Analyst Ratings

Scheiner has a "market perform" or neutral rating on the shares.

9. Seacoast Banking Corp. of Florida

Company Profile

Shares of Seacoast Banking Corp of Florida ( SBCF) of Stuart closed at $1.66 Monday, down 6% over the previous year. The company was also listed as a possible target by Brett Scheiner.

Income Statement

Seacoast reported a fourth-quarter net loss to common shareholders of $11.1 million, or 12 cents a share, which was higher than the third-quarter loss of $8.6 million, or 9 cents a share, but sharply down from the fourth quarter of 2009, when the loss to common shareholders was $39.1 million, or 73 cents a share.

Earnings available to common shareholders exclude dividends paid on the $50 million in preferred shares held by the government for bailout assistance received in December 2008.

The company's provision for loan losses continued to decline, to $4 million in the fourth quarter, from $8.9 million the previous quarter and $41.5 million during the fourth quarter of 2009. The decline in linked-quarter earnings reflected an increase in losses on repossessed real estate, which totaled $8.8 million in the fourth quarter, compared to $859 thousand the previous quarter and $2.1 million a year earlier.

The fourth-quarter net interest margin was 3.42%, increasing from 3.35% a year earlier.

CEO Dennis Hudson said the company was "encouraged by the improvement in our operating results, driven by several of our business lines," and also said he expected Seacoast to return to profitability during 2011.

Balance Sheet

Total assets were $2 billion as of December 31 and nonperforming assets - including nonaccrual loans and repossessed assets and excluding performing restructured loans - totaled $94 million, or 4.66% of total assets, improving from 5.06% the previous quarter and 5.73% a year earlier.

The net charge-off ratio for the fourth quarter was 1.47% and loan loss reserves covered 3.04% of total loans as of December 31.

Seacoast's regulatory total risk-based capital ratio was a strong 17.8% as of December 31. The company raised $50 million in common equity during the second quarter. The tangible common equity ratio was 5.81% as of December 31 and was up from 4.79% a year earlier, but was still a relatively low level, considering the continued losses and eventual need to repay Troubled Asset Relief Program.

Stock Ratios

The shares trade at about tangible book value, which Seacoast said was $1.75 a share as of December 31. The forward price-to-earnings ratio is 24, based on the consensus 2012 earnings estimate of 7 cents a share, among analysts polled by Thomson Reuters.

Analyst Ratings

All 10 analysts covering Seacoast Banking Corp. of Florida have neutral ratings on the shares. The company has been a survivor on Florida's Treasure Coast, having successfully raised the capital it needed to weather the credit storm. In October, Christopher Marinac of FIG Partners said in a report that "investors in SBCF must remain patient for near-term upside," and placed a "franchise Value for SBCF of around $1.95 per share."

8. Cardinal Financial

Company Profile

Shares of Cardinal Financial ( CFNL) of McLean, Va. closed at $11.50 Monday, up 33% over the previous year. The company operates 31 branches and mortgage offices in the Washington, D.C. area and was also mentioned by Brett Scheiner as a possible acquisition candidate.

Income Statement

Cardinal reported fourth-quarter net income of $4 million, or 14 cents a share, declining from $5.9 million, or 20 cents a share the previous quarter but improving from $3.4 million, or 12 cents a share, in the fourth quarter of 2009. The linked-quarter earnings decline reflected a noncash goodwill impairment charge of $2.6 million resulting from "a review of the goodwill and other intangible assets recorded in its Wealth management and Trust Services business segment."

The company also reported $1.4 million in fourth-quarter impairments on repossessed real estate, but its provision for loan losses declined to $1.9 million from $3.5 million the previous quarter and $2 million a year earlier.

The net interest margin for the fourth quarter was 3.77%, down slightly from 3.82% the previous quarter but increasing from 3.32% a year earlier. The third-quarter return on average assets was 0.77%.

Balance Sheet

Total assets were 2.1 billion, increasing 10% year-over-year, as Cardinal Financial's organic growth also led to a 9% increase in loans held for investment. Asset quality was strong, with an NPA ratio of just 0.42% as of September 30. The net charge-off ratio was also low, at 0.37%.

Cardinal Financial is not a TARP participant. The company's Tier 1 leverage ratio was 10.82% and its total risk-based capital ratio was 14.06% as of September 30. The tangible common equity ratio was 10.07%, which is a high level for a profitable bank.

Stock Ratios

The shares trade for 12 times the consensus 2012 earnings estimate of 97 cents a share.

Analyst Ratings

Four of the nine analysts covering Cardinal Financial rate the shares a buy. The remaining analysts recommend investors hold the shares.

Priced relatively low to forward earnings, especially for a bank with a decent ROA - especially in the current environment - and a strong balance sheet, Cardinal Financial appears to be a pretty safe play for investors, who would profit handsomely if the company were to sell for the apparent going rate of 15 times forward earnings.

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.

6. Pinnacle Financial Partners

Company Profile

Shares of Pinnacle Financial Partners ( PNFP) of Nashville, Tenn. closed at $14.50 Monday and were flat from a year earlier.

Matt Olney said in a January 12 note that based on the valuation of Whitney in its merger deal with Hancock Holding, Pinnacle could have a "a takeout price of $16.14 or 16% upside. In his interview with TheStreet he listed First Horizon National ( FHN), IBERIABANK ( IBKC) and BB&T ( BBT) as possible bidders because of Pinnacle's attractive Tennessee footprint.

Income Statement

Fourth-quarter net income available to common stockholders was $2.2 million, or 7 cents a share, improving from $549 thousand, or 2 cents a share, in the third quarter and a net loss to common stockholders of $4 million, or 12 cents a share, in the fourth quarter of 2009.

The fourth-quarter provision for loan losses was $5.2 million, compared to $4.8 million the previous quarter and $15.7 million a year earlier. With net charge-offs totaling $7.1 million during the fourth quarter, the company released $2 million in reserves, which provided most of its profit.

The fourth-quarter net interest margin was 3.29%, increasing from 3.23% in the third quarter and 3.19% in the fourth quarter of 2009. While the company was profitable for a second consecutive quarter, earnings were still weak, as expenses on repossessed real estate totaled $7.9 million and the ROA was just 0.18%.

Balance Sheet

Total assets were $4.9 billion as of December 31 and nonperforming assets - including nonaccrual loans and repossessed real estate - totaled $140.5 million or 2.86% of total assets. The fourth-quarter net charge-off ratio was 1.96% and loan loss reserves covered 2.57% of total loans as of December 31.

The company owes $95 million in TARP money and reported a regulatory Tier 1 leverage ratio of 10.6% and a total risk-based capital ratio of 15.2% as of September 30. The tangible common equity ratio was 7.1%.

Stock Ratios

The shares trade for 17 times the consensus earnings estimate of 84 cents a share for 2012.

Analyst Ratings

Three of the 13 analysts covering Pinnacle Financial Partners rate the shares a buy, while nine have neutral ratings and one analyst recommends selling the shares.

Several analysts have indicated that the shares are fully-valued in anticipation of a take-out. After Pinnacle's fourth-quarter conference call, Guggenheim Securities analyst Jeff Davis maintained his neutral rating on Pinnacle with a $15 price target, based on his 2012 earnings estimate of 75 cents a share and "a 30% weight to the acquisition value." Despite "a spirited defense of remaining independent on the conference call," Davis said his firm was assuming that "the board and management are tired of dealing with regulators and asset quality issues the past few years."

5. Texas Capital Bancshares

Company Profile

Texas Capital Bancshares ( TCBI) of Dallas has seen its stock rise 44% over the past year, to close at $22.11 Monday.

Out of the four targets Olney discussed with TheStreet, he said "TCBI will probably get the most attention," as the "franchise is very good and it is in a fantastic position to be acquired by any out of state bank looking to get into the state." Not only does Texas have a growing market for residential real estate, "it has a friendly tax structure." Olney listed BB&T as possibly having interest in Texas Capital Bancshares following Comerica's deal to acquire Sterling. He also said that "Canadian banks might be interested like TD ( TD)," and that " BBVA ( BBVA) might also be interested because it has a significant presence in Texas. "

Income Statement

The company reported fourth-quarter net income of $12.1 million, or 32 cents a share, increasing from $9.5 million, or 25 cents a share, the previous quarter and $6.4 million, or 18 cents a share, a year earlier. The provision for credit losses in the fourth quarter was $12 million, declining from $13.5 million in the third quarter but up from $6.4 million in the fourth quarter of 2009.

Net interest income increased 16% year-over-year to $66 million in the fourth quarter, as the company grew its deposit base by 32% and its demand deposits (most of which are non-interest-bearing) increased 61%. The fourth-quarter net interest margin was a healthy 4.12%, although it declined from 4.27% the previous quarter and 4.21% a year earlier.

The fourth-quarter return on average assets was 0.72%.

Balance Sheet

Total assets were $6.5 billion as of December 31 and the NPA ratio was 2.39%. The fourth-quarter net charge-off ratio was 1.14% and loan loss reserves covered 1.58% of total loans as of December 31.

Texas Capital Bancshares exited TARP in May 2009. The company's regulatory Tier 1 leverage ratio was 9.4% and its total risk-based capital ratio was 11.8% as of December 31. The tangible common equity ratio was 8.0%.

Stock Ratios

The shares trade for 13 times the consensus 2012 earnings estimate of $1.68 a share.

Analyst Ratings

Five of the 14 analysts covering Texas Capital rate the shares a buy, while the remaining analysts all recommend holding the shares.

Olney estimates the company has "a potential takeout price of $24.09," which would be a 9% premium to Monday's close.

4. United Community Banks

Company Profile

Shares of United Community Banks ( UCBI) of Blairsville, Ga. closed at $1.71 Monday, declining 62% over the previous year.

Matt Olney said the company "fits a different type of bidder. Private equity might be a better fit for UCBI."

This outlook was supported by United Community's announcement early this month that it would defer interest payments on $54.6 million in trust-preferred securities, in a move the bank said was taken in consultation with the Federal Reserve Bank of Atlanta, which would "improve the company's liquidity position," according to CEO Jimmy Tallent.

Chip MacDonald, a partner at Jones Day, also named United Community Banks as a target, as the company is "looking to recapitalize or sell I suspect," he said. This view is supported by 10 consecutive quarters of operating losses, a year-end tangible common equity ratio of 6.35% and $180 million in TARP money owed to the government.

The company's fourth-quarter results showed some signs of a turnaround in credit quality.

Income Statement

United Community reported a fourth-quarter net loss of $16.4 million, or 20 cents a share, following a net loss of $239 million, or $2.52 a share, in the third quarter, when the company recorded a noncash goodwill charge of $210.6 million In the fourth quarter of 2009, the net loss was $39.9 million, or 45 cents a share.

The fourth quarter results included a partial reversal of previously recorded fraud losses, of $.2 million. After $2.6 million in preferred dividends and discount accretion, the bottom-line net loss to common shareholders was $19 million.

The provision for loan losses declined to $47.8 million in the fourth quarter, from $$50.5 million in the third quarter and $90 million in the fourth quarter of 2009. The fourth-quarter provision kept pace with net charge-offs of $47.7 million.

Jimmy Tallent said that "credit quality improved from the third quarter in every measure, with nonperforming assets, net charge-offs and provision for loan losses falling to their lowest levels in many quarters." He added that with the housing market and economy within United Community's footprint remaining week, the company was looking "toward the future with guarded optimism."

The net interest margin was 3.58% in the fourth quarter, increasing from 3.40% a year earlier. Tallent said the margin would have been 30 basis points higher in the fourth quarter if the company hadn't maintained "liquidity significantly above historical levels in light of the uncertain times."

Balance Sheet

Total assets were $7.4 billion as of December 31, and the nonperforming assets ratio was 4.32%, declining from 4.96% the previous quarter and 4.81% a year earlier. The fourth-quarter net charge-off ratio was 4.03% and loan loss reserves covered 3.79% of total loans as of December 31.

Stock Ratios

The shares trade for 0.4 times the $4.76 tangible book value per share reported by the company as of December 31.

Analyst Ratings

All nine analysts covering the company have neutral ratings.

3. First Midwest Bancorp

Company Profile

Shares of First Midwest Bancorp ( FMBI) of Itasca, Ill. closed at $12.50 Monday and were flat from a year earlier.

The company is one of two Chicago area banks mentioned as possible targets by John Rodis of Howe Barnes Hoefer & Arnett, because of "scarcity value" for acquirers seeking an entrance into the local market and because of the "renewed interest in non-assisted M&A, like we saw in Texas." Following a disappointing fourth-quarter earnings release, Rodis downgraded his rating for the company and said there was "no doubt" that First Midwest was a potential takeout target at $15 to $18" a share, based on his "internal burn-down assumptions."

Regarding the long-term prospects for the company and the possibility of a take-out, Rodis said "historically, First Midwest has had solid fundamentals. It's still very viable and very attractive which should ultimately bode well, one way or another, for shareholders," he said.

First Midwest has acquired two failed banks over the past year with assistance from the FDIC, including Palos Bank & Trust of Palos Heights, Ill. in August and Peotone Bank & Trust of Peotone, Ill. in April.

Income Statement

First Midwest reported a fourth-quarter net loss applicable to common shares of $30.3 million, or 41 cents a share, after breaking even the previous quarter. A year earlier, the company reported a net loss applicable to common shares of $39.5 million, or 73 cents a share.

CEO Michael Scudder said First Midwest's "year-end assessment of market realities" for its nonperforming land and construction loans, as well as repossessed property, led the company to "more aggressively pursue disposition, significantly increasing our fourth quarter credit costs." He added that the moves would "better position the Company to remediate problem assets sooner, lower future remediation costs, and expand and stabilize earnings."

The fourth-quarter provision for loan losses was $73.4 million, as the company recorded net loan charge-offs of $73.8 million.

On a brighter note, the First Midwest reported that its average transactional deposits were up 18% year-over year and its net interest margin during the fourth quarter was a competitive 4.02%, down slightly from 4.04% a year earlier.

On Thursday, Christopher McGratty of KBW maintained his neutral rating on First Midwest but lowered his earnings estimates for the company, as "the focus will remain on improving asset quality trends. For 2011, McGratty now expects First Midwest to lose 10 cents a share when he previously estimated earnings of 33 cents a share. He lowered his 2012 earnings estimate to 80 cents a share from a dollar.

Balance Sheet

Total assets were $8.1 billion as of December 31 and with the aggressive credit actions in the fourth quarter, nonperforming assets totaled $269.5 million, or 3.06% of total assets, improving from 3.39% the previous quarter and 4.36% a year earlier.

The fourth quarter net charge-off ratio was 5.61% and reserves covered 2.84% of total loans as of December 31.

The company owes $193 million in TARP money and reported a Tier 1 leverage ratio of 11.10% and a total risk-based capital ratio of 16.18% as of December 31. The tangible common equity ratio was 7.99%.

Stock Ratios

The shares trade for 12 times the consensus 2012 earnings estimate of 97 cents a share.

Analyst Ratings

Two of the 12 analysts covering First Midwest rate the shares a buy, nine have neutral ratings and one analyst recommends selling the shares.

Following the fourth-quarter earnings release, Rodis said that "any time you see a big loss like this which wasn't previously telegraphed, management's credibility is called into question," but bad news is potentially good news from an investor's standpoint," since a take-out for a premium could be more likely. He lowered his rating to neutral following the earnings release, and said that "while we applaud this more realistic approach to valuing troubled assets we wonder if this quarter's marks were enough or if more will be needed in the future."

2. MB Financial

Company Profile

Shares of MB Financial ( MBFI) of Chicago closed at $18.04 Monday, down 16% over the previous year.

MB Financial is the other Chicago-area bank mentioned by John Rodis as a possible acquisition target, with "a good management team" and a ninth-place deposit market share.

The company has acquired several failed banks in government-assisted transactions, including New Century Bank and Broadway Bank - two of the seven Illinois banks closed by regulators back on April 23.

Income Statement

The company reported fourth-quarter net income available to common shareholders of $595 thousand, or a penny a share, compared to a net losses to common shareholders of $5.4 million, or 10 cents a share, in the third quarter and $12.4 million, or 25 cents a share, during the fourth quarter of 2009.

Net income available to common shareholders for the fourth quarter excluded $2.6 million, or 5 cents a share, in dividends and discount accretion on $196 million in TARP preferred shares.

Following the pattern for so many banks at this point in the credit cycle, the main factor in the earnings improvement was a decline in the provision for loan losses, which was $49 million during the fourth quarter, down from $65 million the previous quarter and $70 million a year earlier. The fourth-quarter provision was slightly below the $50.7 million in net charge-offs.

MB Financial's fourth-quarter net interest margin was a tax-adjusted 3.83%, rising from 2.86% a year earlier.

Balance Sheet

Total assets were $10.3 billion as of December 31. Nonperforming assets totaled $434 million, or 4.21% of total assets, compared to 4.26% in September and 2.84% in December 2009. The fourth-quarter net charge-off ratio was 2.99% and loan loss reserves covered 2.90% of total loans as of December 31.

During the fourth quarter, the company sold $22 million in nonperforming commercial real estate and construction loans.

The company had very strong regulatory capital ratios, with a Tier 1 leverage ratio of 10.66%, a total risk-based capital ratio of 17.75% as of December 31. The tangible common equity ratio was 7.47%.

Stock Ratios

The shares trade for 10 times the consensus 2012 earnings estimate of $1.69 a share. This is, by far, the lowest forward P/E among the bank holding companies listed here.

Analyst Ratings

Five of the 13 analysts covering MB Financial rate the shares a buy, seven recommend holding and one analysts recommends selling the shares.

1. BancorpSouth

Company Profile

Shares of BancorpSouth ( BXS) of Tupelo, Miss. closed at $14.97 Monday, down 32% over the previous year. Based on a quarterly payout of 22 cents, the shares have a dividend yield of 5.88%.

Matt Olney said that "Bancorp South is focused on smaller communities and towns so it would be a target of a regional such as Wells Fargo," at "a take-out price of 16.66." The analyst pointed out that the company failed to earn enough to support its dividend for four consecutive quarters, through the third quarter, causing capital levels to decline.

BancorpSouth earned enough to cover its dividend during the fourth quarter, although an expansion of the balance sheet caused a slight decline in its tangible common equity ratio.

Income Statement

Fourth-quarter net income was $15.8 million, or 19 cents a share, improving from $11.3 million, or 13 cents a share, in the third quarter and a net loss of $2.1 million, or 3 cents a share during the fourth quarter of 2009.

Credit costs continued to decline, with a fourth-quarter provision for loan losses of $43.3 million, down from $54.9 million the previous quarter and $62.3 million a year earlier. With net charge-offs of $51.5 million during the fourth quarter, the company released $8.2 million in loan loss reserves.

The Overall earnings improvement was also fed by a significant increase in mortgage revenue, to $18.1 million, from $8.9 million in the third quarter and $8.6 million a year earlier. The elevated level of mortgage revenue during the fourth quarter reflected an $8.9 million positive fair value adjustment for mortgage servicing rights.

The fourth-quarter net interest margin was 3.59%, declining from 3.70% a year earlier, as increased deposits were invested in lower-yielding securities, amid weak loan demand.

Balance Sheet

Total assets were $13.6 billion, increasing 3% year-over-year. Nonperforming assets - including nonaccrual loans and repossessed real estate - totaled $480.9 million as of December 31, or 3.53% of total assets, rising from 3.16% the previous quarter and 1.54% a year earlier.

The fourth-quarter net charge-off ratio was 2.19% and reserves covered 2.11% of total loans as of December 31. CEO Aubrey Patterson said that non-accrual construction, acquisition and development loans declined $17.5 million during the fourth quarter and that "this loan category has been the segment most significantly affected by the economic downturn, particularly those loans related to housing." The CEO also said "we believe that we remain appropriately reserved for losses inherent in our loan portfolio. "

The company's Tier 1 leverage ratio was 8.07% and its total risk-based capital ratio was 11.87% as of December 31. The tangible common equity ratio was 7.00%, down slightly from 7.11% the previous quarter.

Stock Ratios

The shares trade for 13 times the consensus earnings estimate for 2012 of $1.15 a share.

Analyst Ratings

Out of 13 analysts covering Bancorp South, 12 rate the shares a hold and the remaining analyst recommends investors sell.

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-- Written by Maria Woehr in New York and Philip van Doorn in Jupiter, Fla.

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