Southwest Bancorp in Stillwater, Okla., agreed to buy First Commercial Bancshares in Edmond, Okla., in a deal that came together several months after a previous letter of intent between the companies fell through.
The $2 billion-asset Stillwater agreed in May to pay $42 million in cash and stock for the $305 million-asset First Commercial in a deal that gives the buyer branches around Denver. The merger could have come together sooner; Southwest backed out of an earlier arrangement in July 2014 following a review of First Commercial's credit files.
The review caused Southwest "to believe it would not be willing to pay the price provided for" in the original letter of intent, based on details disclosed in a recent regulatory filing. Southwest also had concerns about change-in-control provisions in the employment contracts for First Commercial's executives, the filing said.
First Commercial took action after the terminated letter of intent, pursuing "an extensive internal analysis of its loan portfolio" and hiring an accounting firm to assess the level of repayment risk for selected borrowers and the accuracy of assigned risk grades. The firm recommended improvements to First Commercial's documentation procedures and "minimal changes" to the classification of criticized, classified and nonaccrual loans.
First Commercial took another shot at merging with Southwest in January. The company considered talking to an unnamed bank in Oklahoma City; it also discussed hiring an investment banker to handle an auction, the filing said. First Commercial never hired an investment bank, though its management monitored pricing and terms for other deals.
Southwest was given another opportunity to review First Commercial's loan book. The companies also agreed that any concerns tied to the portfolio or employment agreements "would be dealt with" before agreeing to a new letter of intent. First Commercial subsequently agreed to handle any costs associated with terminating its existing executive officer employment agreements.
A new letter of intent was signed in early April; the deal was finalized an announced a few weeks later.
The pricing changed some from the terms of the original letter of intent, which priced First Commercial at 160% of its tangible book value, with 70% of the consideration involving Southwest's common stock. The deal announced in May had a purchase price equal to 141% of the seller's tangible book value with stock representing 51% of the total consideration.