Two community banks came to the proverbial fork in the road Monday and chose different paths.

One is in Missouri, and the other is in Oregon. Each has solid capital levels and wants to grow by acquiring rivals, providing more loans or making other moves. But they diverge on a key point: the right time to sell stock given the market turbulence caused by the European debt crisis and other economic concerns.

Southern Missouri Bancorp Inc., a $687.9 million-asset company in Poplar Bluff, Mo., on Monday unveiled plans to sell up to 1 million shares in a secondary offering. On the same day, $860 million-asset South Valley Bancorp Inc., of Klamath Falls, Ore., withdrew plans to raise as much as $46 million in an initial public offering.

Southern Missouri said it will use the proceeds from its offering to fund "organic loan growth and the purchase of securities by the bank, the pursuit of strategic acquisition opportunities" and to pay dividends. Officials declined an interview request, citing a quiet period tied to the offering.

South Valley's reasons for its IPO were more complicated. South Valley Bank & Trust has been operating under a consent order from regulators, which required the bank to raise its Tier 1 leverage ratio above 10%; as of June 30, that ratio stood at 8.19%. South Valley expected the funds would boost its leverage ratio above the 10% threshold, it said in a regulatory filing.

But South Valley intended to use the new funds to do more than boost capital ratios. It also planned "to fund new loans, invest in securities, [and] finance long-term growth activities," its Sept. 28 registration statement for the now-canceled IPO said. Officials at South Valley did not comment for this story.

As for timing the market, a valid argument can be made for either decision — to sell shares now, or to indefinitely postpone — depending on a bank's specific situation, said FIG Partners LLC analyst Christopher Marinac.

Many banks are trading at steep discounts to book value, and so it makes sense for some to wait.

"There are community banks trading at 50% to 60% of book value, and the company's management has no interest in setting up to raise capital at today's prices," Marinac said. "They have the view that their book value is going to grow. If it's going to grow, why be in a hurry to dilute your shareholders?"

"Maybe you are better off running your business and letting the market stabilize, and come back with a higher book value," Marinac said.

Also, South Valley may have been scared off by investors' widespread negative sentiment about banks with less than $1 billion of assets. Bigger banks are thought to be better equipped to handle a long period of low rates and higher regulatory costs.

"Smaller institutions are unlikely to get investors unless it's in a small funds or a roll-up strategy," a bank investor who declined to be named told American Banker on Oct. 26.

"It's still challenging out there, no question," Marinac said.

Other banks that have called off stock offerings this year include Hancock Holding Co. and Clifton Savings Bancorp.

The case of Florida's Old Harbor Bank shows investor concerns about troubled smaller banks. The $216 million-asset Old Harbor earlier this year had lined up a $25 million recapitalization and buyout from CBM Florida Holding Co. But CBM called off the deal in August, and Old Harbor failed in October. Old Harbor, however, had far worse capital ratios than either Southern Missouri or South Valley.

Southern Missouri provided a litany of reasons why now is the time to tap the capital markets. In a document filed on Monday with the Securities and Exchange Commission, Southern Missouri said there are "weak competitors" in its existing markets in southern Missouri and northern Arkansas, as well as in adjacent markets. Further, acquisition prices are historically low and there are few bidders to acquire banks.

Southern Missouri may also believe now is a good time to raise capital for acquisitions, because there are blueprints available for how to manage the integration of a new bank, specifically recent acquisitions made by Hancock, Old National Bancorp and Old Line Bancshares Inc., Marinac said.

"You can use these deals as guideposts," he said. "Those are very well-documented transactions and you can walk through the machinations of these deals and get comfortable with them."

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