* SWS rejects $6.25/share cash offer from Sterne Agee
* SWS shares, up 24 pct on Thursday, fall 2.6 pct
* SWS says offer undervalues company's long-term value
NEW YORK, March 18 (Reuters) - SWS Group Inc SWS.N, a tiny, publicly traded brokerage company, rejected a $200 million takeover offer from Sterne Agee & Leach, saying the deal was not in its shareholders' best interests.
The unsolicited offer of $6.25 a share "substantially undervalues the future potential of SWS Group," the company said in a statement on Friday.
In a letter to Sterne Agee Chief Executive James Holbrook, SWS Chairman Don Buchholz said the "highly conditional proposal" fails to address important regulatory requirements and financial commitments.
SWS on Thursday said it previously received and rejected similar takeover proposals from Sterne Agee.
"We believe SWS Group's stockholders should not be asked to transfer the future value of the company to Sterne Agee on such opportunistic terms," Buchholz wrote.
Last year SWS tried but failed to raise $95 million to bolster its capital after suffering humbling commercial real estate losses.
Birmingham, Alabama-based Sterne Agee, which has not returned repeated calls, is a closely held firm.
SWS shares fell 2.6 percent to $5.96 on Friday after surging 24 percent on Thursday on news of the Sterne Agee offer. Sterne Agee's proposal represented a 27 percent premium to SWS' Wednesday closing price but a 40 percent discount to its book value -- the value of its assets minus its liabilities.
SWS owns three businesses: broker-dealer Southwest Securities, the troubled banking unit, and a correspondent clearing business that services smaller brokers.
KBW analyst Joel Jeffrey told Reuters on Thursday that SWS last month reported better-than-expected quarterly results but still has serious credit issues. These include "classified assets" that could sour and become bad loans if economic conditions should weaken, he said, while the bank unit now operates under a federal bank regulator's close supervision. (Reporting by Joseph A. Giannone; editing by John Wallace)