Every Friday, well-capitalized banks are notified that they have won their bids for the assets and deposits of failed financial institutions, in effect, they are invited to the FDIC's table to feast on some quite delectable assets. In exchange for managing the loan portfolios of moribund banks, the FDIC promises to limit their losses to 20% of any loans that default, while allowing them to keep 100% of current loans.
Lately, the pickings have been pretty meager: The FDIC has definitely slowed down its takeovers. Those banks that have thrived on this play have gone hungry. BB&T Corp. (NYSE:BBT) had been a big player. So was NY Community Bancorp (NYB), while US Bancorp (NYSE:USB) captured about ten. They've left the playing field, probably due to a lack of supply and maybe risk aversion.
Two Fridays ago, the FDIC finally took down some significant failed banks and invited several companies over to "dinner" to swallow down the assets and deposits. The big winner of the week -- and, indeed, for the last two years, was Bank of the Ozarks (NASDAQ:OZRK), a bank which had already taken five banks. This time, the FDIC turned over the assets and deposits of two Georgia banks, amounting to $1 billion in assets. That's quite a gobble for the $3.5 billion Bank of Ozarks.
For those unaware, this voracious, small cap bank has strong capital requirements, increased earnings, an absurdly low NPL/loan ratio of 0.77% and a desire to grow to the moon. Covered loans (meaning loans backed by the government) characteristically have very high interest rates which make them extremely attractive, especially in today's low rate environment. Bank of Ozark's current portfolio of covered loans sports an 8.4% interest rate, helping to create a supercharged net interest margin (NIM).
This bank was invited to dinner and given double helpings. Both acquisitions are heaped with assets, including $700 million in loans. They should accelerate earnings and add to Bank of Ozark's book value.
Disclosure: I am long OZRK, NYB.