Form 10-Q
Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

 

for the quarterly period ended March 31, 2012
  x Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2012

or

 

  ¨ Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from                to             

EverBank Financial Corp

(Exact name of registrant as specified in its charter)

 

Delaware   001-35533   52-2024090
(State of incorporation)   (Commission File Number)   (I.R.S. Employer Identification No.)
501 Riverside Ave., Jacksonville, Florida     32202
(Address of principal executive offices)     (Zip Code)

904-281-6000

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes ¨    No x

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes x  No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ¨    Accelerated filer ¨
Non-accelerated filer x (Do not check if a smaller reporting company)    Smaller reporting company ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes ¨  No x

As of May 15, 2012, there were 116,317,343 shares of common stock outstanding.

 

 

 

 


Table of Contents

EverBank Financial Corp

Form 10-Q

Index

 

Part I - Financial Information   

Item 1.

  

Financial Statements (Unaudited)

     3   
  

Condensed Consolidated Balance Sheets as of March 31, 2012 and December 31, 2011

     3   
  

Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2012 and 2011

     4   
  

Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2012 and 2011

     5   
  

Condensed Consolidated Statements of Shareholders’ Equity for the Three Months Ended March 31, 2012 and 2011

     6   
  

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2012 and 2011

     7   
  

Notes to Condensed Consolidated Financial Statements (Unaudited)

     8   

Item 2.

  

Management’s Discussion and Analysis of Financial Condition and Results of Operations

     44   

Item 3.

  

Quantitative and Qualitative Disclosures About Market Risk

     80   

Item 4.

  

Controls and Procedures

     80   
Part II - Other Information   

Item 1.

  

Legal Proceedings

     81   

Item 1A.

  

Risk Factors

     81   

Item 6.

  

Exhibits

     100   


Table of Contents

Part I. Financial Information

Item 1. Financial Statements (unaudited)

EverBank Financial Corp and Subsidiaries

Condensed Consolidated Balance Sheets (unaudited)

(Dollars in thousands, except per share data)

 

 

   

    March 31,    

2012

   

    December 31,    

2011

 

Assets

         

Cash and due from banks

      $      29,142          $      31,441   

Interest-bearing deposits in banks

       355,581           263,540   
    

 

 

      

 

 

 

Total cash and cash equivalents

       384,723           294,981   

Investment securities:

         

Available for sale, at fair value

       1,937,748           1,903,922   

Held to maturity (fair value of $194,867 and $194,350 as of March 31, 2012 and December 31, 2011, respectively)

       190,642           189,518   

Other investments

       99,915           98,392   
    

 

 

      

 

 

 

Total investment securities

       2,228,305           2,191,832   

Loans held for sale (includes $672,651 and $777,280 carried at fair value as of March 31, 2012 and December 31, 2011, respectively)

       2,530,966           2,725,286   

Loans and leases held for investment:

         

Covered by loss share or indemnification agreements

       788,129           841,146   

Not covered by loss share or indemnification agreements

       6,535,058           5,678,135   
    

 

 

      

 

 

 

Loans and leases held for investment, net of unearned income

       7,323,187           6,519,281   

Allowance for loan and lease losses

       (78,254)           (77,765)   
    

 

 

      

 

 

 

Total loans and leases held for investment, net

       7,244,933           6,441,516   

Equipment under operating leases, net

       67,899           56,399   

Mortgage servicing rights (MSR), net

       462,420           489,496   

Deferred income taxes, net

       143,218           151,634   

Premises and equipment, net

       45,744           43,738   

Other assets

       666,613           646,796   
    

 

 

      

 

 

 

Total Assets

    $      13,774,821        $      13,041,678   
    

 

 

      

 

 

 

Liabilities

         

Deposits

         

Noninterest-bearing

    $      1,367,592        $      1,234,615   

Interest-bearing

       9,185,368           9,031,148   
    

 

 

      

 

 

 

Total deposits

       10,552,960           10,265,763   

Other borrowings

       1,706,298           1,257,879   

Trust preferred securities

       103,750           103,750   

Accounts payable and accrued liabilities

       417,124           446,621   
    

 

 

      

 

 

 

Total Liabilities

               12,780,132                   12,074,013   

Commitments and Contingencies (Note 13)

         

Shareholders’ Equity

         

Series A 6% Cumulative Convertible Preferred Stock, $0.01 par value (1,000,000 shares authorized; 0 and 186,744 issued and outstanding at March 31, 2012 and December 31, 2011, respectively)

                 2   

Series B 4% Cumulative Convertible Preferred Stock, $0.01 par value (liquidation preference of $1,000 per share; 1,000,000 shares authorized inclusive of Series A Preferred Stock; 136,544 issued and outstanding at March 31, 2012 and December 31, 2011)

       1           1   

Common Stock, $0.01 par value (150,000,000 shares authorized; 77,994,699 and 75,094,375 issued and outstanding at March 31, 2012 and December 31, 2011 respectively)

       780           751   

Additional paid-in capital

       562,327           561,247   

Retained earnings

       520,777           513,413   

Accumulated other comprehensive loss

       (89,196)           (107,749)   
    

 

 

      

 

 

 

Total Shareholders’ Equity

       994,689           967,665   
    

 

 

      

 

 

 

Total Liabilities and Shareholders’ Equity

    $      13,774,821        $      13,041,678   
    

 

 

      

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

3


Table of Contents

EverBank Financial Corp and Subsidiaries

Condensed Consolidated Statements of Income (unaudited)

(Dollars in thousands, except per share data)

 

 

   

        Three Months Ended        

March 31,

 
   

2012

   

2011

 

Interest Income

         

Interest and fees on loans and leases

    $      124,778        $      122,993   

Interest and dividends on investment securities

       20,549           26,244   

Other interest income

       104           842   
    

 

 

      

 

 

 

Total interest income

       145,431           150,079   

Interest Expense

         

Deposits

       20,974           26,190   

Other borrowings

       8,834           10,196   
    

 

 

      

 

 

 

Total interest expense

       29,808           36,386   

Net Interest Income

               115,623                   113,693   

Provision for Loan and Lease Losses

       11,355           18,030   
    

 

 

      

 

 

 

Net Interest Income after Provision for Loan and Lease Losses

       104,268           95,663   

Noninterest Income

         

Loan servicing fee income

       45,556           48,876   

Amortization and impairment of mortgage servicing rights

       (44,483)           (22,788)   
    

 

 

      

 

 

 

Net loan servicing income

       1,073           26,088   

Gain on sale of loans

       48,177           13,477   

Loan production revenue

       7,437           6,407   

Deposit fee income

       6,239           5,160   

Other lease income

       8,663           6,732   

Other

       1,604           7,988   
    

 

 

      

 

 

 

Total noninterest income

       73,193           65,852   

Noninterest Expense

         

Salaries, commissions and other employee benefits expense

       66,590           57,373   

Equipment expense

       15,948           10,760   

Occupancy expense

       5,349           4,540   

General and administrative expense

       70,934           72,566   
    

 

 

      

 

 

 

Total noninterest expense

       158,821           145,239   
    

 

 

      

 

 

 

Income before Income Taxes

       18,640           16,276   

Provision for Income Taxes

       6,794           6,860   
    

 

 

      

 

 

 

Net Income

    $      11,846        $      9,416   
    

 

 

      

 

 

 

Less: Net Income Allocated to Participating Preferred Stock

       (5,879)           (2,407)   
    

 

 

      

 

 

 

Net Income Allocated to Common Shareholders

    $      5,967        $      7,009   
    

 

 

      

 

 

 

Net Earnings per Common Share, Basic

    $      0.08        $      0.09   

Net Earnings per Common Share, Diluted

    $      0.08        $      0.09   

See notes to unaudited condensed consolidated financial statements.

 

4


Table of Contents

EverBank Financial Corp and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (unaudited)

(Dollars in thousands)

 

 

                  Three Months Ended         
March 31,
 
    

    2012    

   

    2011    

 

Net Income

     $      11,846      $      9,416   

Unrealized Holding Gains (Losses) on Debt Securities

          

Reclassification of unrealized gains to earnings

                  (2,739)   

Unrealized gains (losses) due to changes in fair value

        21,286           (10,172)   

Other-than-temporary impairment (OTTI) (noncredit portion), net of accretion

                  502   

Tax effect

        (8,029)           4,552   
     

 

 

      

 

 

 

Change in unrealized holding gains (losses) on debt securities

        13,257           (7,857)   
     

 

 

      

 

 

 

Changes in Interest Rate Swaps for the Period:

          

Net unrealized gains due to changes in fair value

        6,628           4,887   

Reclassification of unrealized losses to earnings

        1,710           2,029   

Tax effect

        (3,042)           (2,410)   
     

 

 

      

 

 

 

Changes in interest rate swaps

        5,296           4,506   
     

 

 

      

 

 

 

Total Other Comprehensive Income (Loss)

        18,553           (3,351)   
     

 

 

      

 

 

 

Total Comprehensive Income

     $      30,399      $      6,065   
     

 

 

      

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

5


Table of Contents

EverBank Financial Corp and Subsidiaries

Condensed Consolidated Statements of Shareholders’ Equity (unaudited)

(Dollars in thousands)

 

 

    

Shareholders’ Equity

             
    

Preferred
Stock

   

Common
Stock

    

Additional
Paid-In
Capital

   

Retained
Earnings

   

Accumulated
Other
Comprehensive
Income (Loss),
Net of Tax

    

Total

Equity

 

Balance, January 1, 2012

    $      3       $       751        $        561,247       $       513,413       $       (107,749)        $       967,665   
     

 

 

      

 

 

       

 

 

      

 

 

      

 

 

       

 

 

 

Net income

                                       11,846                      11,846   

Total other comprehensive income

                                                 18,553            18,553   

Conversion of Series A Preferred Stock

        (2        28            (26                               

Issuance of common stock

                  1            57                                58   

Repurchase of common stock

                             (360)                                (360)   

Share-based grants (including income tax benefits)

                             1,409                                1,409   

Dividends paid on Series A Preferred Stock

                                       (4,482)                      (4,482)   
     

 

 

      

 

 

       

 

 

      

 

 

      

 

 

       

 

 

 

Balance, March 31, 2012

    $      1           780        $      562,327       $      520,777       $      (89,196)            994,689   
     

 

 

      

 

 

       

 

 

      

 

 

      

 

 

       

 

 

 

Balance, January 1, 2011

    $      3           747        $      556,001       $      461,503      $      (5,056)            1,013,198   
     

 

 

      

 

 

       

 

 

      

 

 

      

 

 

       

 

 

 

Net income

                                       9,416                      9,416   

Total other comprehensive loss

                                                 (3,351)            (3,351)   

Issuance of common stock

                  1            64                                65   

Repurchase of common stock

                             (267)                                (267)   

Share-based grants (including income tax benefits)

                             1,579                                1,579   

Dividends paid on Series A Preferred Stock

                                       (56                   (56

Paid-in-kind dividends on Series B Preferred Stock

                             592           (592                     
     

 

 

      

 

 

       

 

 

      

 

 

      

 

 

       

 

 

 

Balance, March 31, 2011

    $      3       $      748        $      557,969       $      470,271       $      (8,407)        $      1,020,584   
     

 

 

      

 

 

       

 

 

      

 

 

      

 

 

       

 

 

 

See notes to unaudited condensed consolidated financial statements.

 

6


Table of Contents

EverBank Financial Corp and Subsidiaries

Condensed Consolidated Statements of Cash Flows (unaudited)

(Dollars in thousands)

 

 

   

Three Months Ended

March 31,

 
   

2012

   

2011

 

Operating Activities:

       

Net income

    $     11,846        $     9,416   

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

       

Amortization of premiums on investments

      2,582          1,113   

Depreciation and amortization of tangible and intangible assets

      8,804          4,458   

Amortization of loss on settlement of interest rate swaps

      1,710          2,029   

Amortization and impairment of mortgage servicing rights

      44,483          22,788   

Deferred income taxes

      (2,654)          11,808   

Provision for loan and lease losses

      11,355          18,030   

Loss on other real estate owned

      2,731          6,768   

Share-based compensation expense

      1,282          1,579   

Payments for settlement of forward interest rate swaps

      (3,552)          (1,281)   

Other operating activities

      (2,632)          2,725   

Changes in operating assets and liabilities, net of acquired assets and liabilities:

       

Loans held for sale, including proceeds from sales and repayments

      79,718          595,662   

Other assets

      51,567          39,972   

Accounts payable and accrued liabilities

      (14,641)          (7,665)   
   

 

 

     

 

 

 

Net cash provided by operating activities

      192,599          707,402   

Investing Activities:

       

Investment securities available for sale:

       

Purchases

      (138,186)          (850,784)   

Proceeds from sales

               60,961   

Proceeds from prepayments and maturities

      123,477          162,292   

Investment securities held to maturity:

       

Purchases

      (7,965)            

Proceeds from prepayments and maturities

      6,705            

Purchases of other investments

      (1,547)          (10,219)   

Decrease (increase) in loans held for investment, net of discount accretion, premium amortization and principal repayments

      (830,144)          (544,163)   

Purchases of premises and equipment, including equipment under operating leases

      (20,659)          (8,998)   

Proceeds related to sale or settlement of real estate owned

      9,024          16,437   

Proceeds from insured foreclosure claims

      28,037          55,694   

Other investing activities

      (1,463)          (524)   
   

 

 

     

 

 

 

Net cash provided by (used in) investing activities

      (832,721)          (1,119,304)   

Financing Activities:

       

Net increase (decrease) in nonmaturity deposits

      190,742          (29,536)   

Net increase in time deposits

      95,036          31,971   

Increase (decrease) in short-term Federal Home Loan Bank (FHLB) advances

      35,000          (100,000)   

Proceeds from long-term FHLB advances

      500,000          6,158   

Repayments of long-term FHLB advances, including early extinguishment

      (86,200)          (10,004)   

Other financing activities

      (4,714)          (5,878)   
   

 

 

     

 

 

 

Net cash provided by (used in) financing activities

      729,864          (107,289)   
   

 

 

     

 

 

 

Net Increase (Decrease) in Cash and Cash Equivalents

      89,742          (519,191)   

Cash and Cash Equivalents

       

Beginning of period

      294,981          1,169,221   
   

 

 

     

 

 

 

End of period

  $             384,723      $             650,030   
   

 

 

     

 

 

 

Supplemental Schedules of Noncash Investing Activities:

       

Loans transferred to foreclosure claims from loans held for investment

  $     13,906      $     62,704   

Loans transferred to foreclosure claims from loans held for sale

      68,591          5,746   

See notes to unaudited condensed consolidated financial statements.

 

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Table of Contents

EverBank Financial Corp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(Dollars in thousands, except per share data)

 

1.  Organization and Basis of Presentation

a) Organization — EverBank Financial Corp (the Company) is a thrift holding company with one direct subsidiary, EverBank (EB). EB is a federally chartered thrift institution with its home office located in Jacksonville, Florida. In addition, its direct banking services are offered nationwide. EB operates 14 financial centers in Florida. EB (a) accepts deposits from the general public; (b) originates, purchases, services and sells residential real estate mortgage loans; (c) originates, services, and sells commercial real estate loans; (d) originates consumer, home equity, and commercial loans and leases; and (e) offers full-service securities brokerage and investment advisory services.

EB’s subsidiaries are:

 

   

AMC Holding, Inc., the parent of CustomerOne Financial Network, Inc.;

 

   

Tygris Commercial Finance Group (TCFG);

 

   

EverInsurance, Inc.;

 

   

Elite Lender Services, Inc.; and

 

   

EverBank Wealth Management (EWM).

On January 31, 2012, as part of a tax-free reorganization, the assets, liabilities and business activities of EWM were transferred to EB.

b) Reincorporation — In September 2010, EverBank Financial Corp, a Florida corporation, or EverBank Florida, formed EverBank Financial Corp, a Delaware corporation, or EverBank Delaware. Subsequent to its formation, EverBank Delaware held no assets and had no subsidiaries having never engaged in any business or other activities except in connection with its formation. In May 2012, EverBank Delaware completed an initial public offering with its common stock listed on the New York Stock Exchange LLC (NYSE) under the symbol “EVER”. Immediately preceding the consummation of that offering, EverBank Florida merged with and into EverBank Delaware, with EverBank Delaware continuing as the surviving corporation and succeeding to all of the assets, liabilities and business of EverBank Florida. The merger resulted in the following:

 

   

All of the outstanding shares of common stock of EverBank Florida were converted into approximately 77,994,699 shares of EverBank Delaware common stock;

 

   

All of the outstanding shares of Series B Preferred Stock were converted into 15,964,644 shares of EverBank Delaware common stock;

 

   

The reincorporation of EverBank Florida in Delaware results in the Company now being governed by the laws of the State of Delaware.

Reincorporation of EverBank Florida in Delaware did not result in any change of the business, management, fiscal year, assets, liabilities or location of the principal facilities of the Company.

c) Basis of Presentation — The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all information or footnotes necessary for a complete presentation of financial position, results of operations and cash flows in conformity with generally accepted accounting principles. These interim financial statements should be read in conjunction with the audited financial statements and note disclosures as of and for the year ended December 31, 2011, which are included in the Company’s registration statement on Form S-1 for the years ended December 31, 2011, 2010 and 2009.

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its majority-owned subsidiary. All intercompany balances and transactions have been eliminated in consolidation. In management’s opinion, all adjustments (which include normal recurring adjustments) necessary to present fairly the financial position, results of operations and changes in cash flows have been made.

 

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Table of Contents

EverBank Financial Corp and Subsidiaries

Notes to Condensed Consolidated Financial Statements (unaudited)

(Dollars in thousands, except per share data)

 

 

GAAP requires management to make estimates that affect the reported amounts and disclosures of contingencies in the consolidated financial statements. Estimates by their nature are based on judgment and available information. Material estimates relate to the Company’s allowance for loan and lease losses, loans and leases acquired with evidence of credit deterioration, repurchase obligations, lease residuals, contingent liabilities, and the fair values of investment securities, loans held for sale, MSR, share-based compensation and derivative instruments. Because of the inherent uncertainties associated with any estimation process and future changes in market and economic conditions, it is possible that actual results could differ significantly from those estimates.

2.  Recent Accounting Pronouncements and Updates to Significant Accounting Policies

Recent Accounting Pronouncements

Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements — In May 2011, the FASB issued ASU 2011-04, Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (Topic 820)Fair Value Measurement, to provide a consistent definition of fair value and ensure that the fair value measurement and disclosure requirements are similar between U.S. GAAP and International Financial Reporting Standards. ASU 2011-04 changes certain fair value measurement principles and enhances the disclosure requirements particularly for level 3 fair value measurements. ASU 2011-04 is effective for the first quarter of 2012 and should be applied prospectively. Adoption of this standard resulted in additional disclosures as presented in Note 12 but did not have any impact on the Company’s results of operations.

Presentation of Comprehensive Income — In June 2011, the Financial Accounting Standards Board (FASB) issued ASU 2011-05, Comprehensive Income (Topic 220)Presentation of Comprehensive Income, to require an entity to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. ASU 2011-05 eliminates the option to present the components of other comprehensive income as part of the statement of shareholders’ equity. ASU 2011-05 is effective for the first quarter of 2012 and should be applied retrospectively. Adoption of this standard resulted in the presentation of Condensed Consolidated Statements of Comprehensive Income separate from the statement of shareholders’ equity but did not have any impact on the Company’s results of operations. In December 2011, the FASB issued ASU 2011-12,Comprehensive Income (Topic 220)- Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05, to allow time to redeliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented. Adoption of this ASU will not have any impact on the Company’s consolidated financial statements or results of operations since it reinstates the presentation requirements before ASU 2011-05 was issued.

Updates to Significant Accounting Policies

There have been no material changes to our significant accounting policies as compared to the significant accounting policies described in the Company’s registration statement on Form S-1.

 

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Table of Contents

EverBank Financial Corp and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, except per share data)

 

 

3.  Investment Securities

The amortized cost and fair value of investment securities with gross unrealized gains and losses were as follows as of March 31, 2012 and December 31, 2011:

 

 

   

Amortized
Cost

   

Gross
Unrealized
Gains

   

Gross
Unrealized
Losses

   

Fair

Value

   

Carrying
Amount

 

March 31, 2012

                   

Available for sale:

                   

Residential collateralized mortgage obligations (CMO) securities - agency

    $     80         $     7         $            $     87        $     87   

Residential CMO securities - nonagency

      1,931,621          22,276          24,103          1,929,794          1,929,794   

Residential mortgage-backed securities (MBS) - agency

      291          17                   308          308   

Asset-backed securities (ABS)

      10,556                   3,211          7,345          7,345   

Equity securities

      77          137                   214          214   
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
      1,942,625          22,437          27,314          1,937,748          1,937,748   
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Held to maturity:

                   

Residential CMO securities - agency

      151,919          5,275                   157,194          151,919   

Residential MBS - agency

      28,263          1,427          67          29,623          28,263   

Corporate securities

      10,460                   2,410          8,050          10,460   
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
      190,642          6,702          2,477          194,867          190,642   
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
    $     2,133,267        $     29,139        $     29,791        $     2,132,615      $     2,128,390   
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

December 31, 2011

                   

Available for sale:

                   

Residential CMO securities - agency

    $     96        $     8        $            $     104        $     104   

Residential CMO securities - nonagency

      1,919,046          17,609          40,837          1,895,818          1,895,818   

Residential MBS agency

      317          21                   338          338   

Asset-backed securities (ABS)

      10,573                   3,096          7,477          7,477   

Equity securities

      77          108                   185          185   
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
          1,930,109              17,746              43,933              1,903,922              1,903,922   
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Held to maturity:

                   

Residential CMO securities - agency

      159,882          6,029          78          165,833          159,882   

Residential MBS - agency

      19,132          1,464                   20,596          19,132   

Corporate securities

      10,504                   2,583          7,921          10,504   
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
      189,518          7,493          2,661          194,350          189,518   
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
    $     2,119,627        $     25,239        $     46,594        $     2,098,272        $     2,093,440   
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

 

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Table of Contents

EverBank Financial Corp and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, except per share data)

 

 

At March 31, 2012 and December 31, 2011, investment securities with a carrying value of $515,483 and $543,705, respectively, were pledged to secure other borrowings, public deposits, securities sold under agreements to repurchase, and for other purposes as required or permitted by law.

For the three months ended March 31, 2012, there were neither gross gains nor gross losses realized on available for sale investments. For the three months ended March 31, 2011, gross gains of $2,739 and zero losses were realized on available for sale investments in other noninterest income. The cost of investments sold is calculated using the specific identification method.

The gross unrealized losses and fair value of the Company’s investments with unrealized losses, aggregated by investment category and the length of time individual securities have been in a continuous unrealized loss position, at March 31, 2012 and December 31, 2011 are as follows:

 

                                                                       Other-Than-
Temporary
Impairment
 
    

Less Than 12 Months

    

12 Months or Greater

    

Total

    

(OTTI)

 
    

Fair

Value

    

Unrealized
Losses

    

Fair

Value

    

Unrealized
Losses

    

Fair

Value

    

Unrealized
Losses

    

Realized
Losses

 

March 31, 2012

                                  

Debt securities:

                                  

Residential CMO securities - nonagency

    $     526,918        $     9,054        $     266,131        $     15,049        $     793,049        $     24,103        $       

Residential MBS - agency

       10,333           67                               10,333           67             

Asset-backed securities

                           7,345           3,211           7,345           3,211             

Corporate securities

                           8,050           2,410           8,050           2,410             
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total debt securities

    $     537,251        $     9,121        $     281,526        $     20,670        $     818,777        $     29,791        $       
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

December 31, 2011

                                  

Debt securities:

                                  

Residential CMO securities - nonagency

    $     573,928        $     16,646        $     226,507        $     24,191        $     800,435        $     40,837        $       

Residential CMO securities - agency

       6,224           78                               6,224           78             

Asset-backed securities

                           7,477           3,096           7,477           3,096             

Corporate securities

                           2,404           2,583           2,404           2,583           685   
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

Total debt securities

    $     580,152        $     16,724        $     236,388        $     29,870        $     816,540        $     46,594        $     685   
    

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

      

 

 

 

The Company had unrealized losses at March 31, 2012 and December 31, 2011 on residential CMO securities, MBS, ABS and corporate securities. These unrealized losses are primarily attributable to market conditions. Based on the nature of impairment, these unrealized losses are considered temporary. The Company does not intend to sell nor is it more likely than not that it will be required to sell these investments before their anticipated recovery.

At March 31, 2012, the Company had 68 debt securities in an unrealized loss position. A total of 34 were in an unrealized loss position for less than 12 months. These 34 consisted of 32 nonagency residential CMO securities and 2 agency residential MBS. Of these, 57% in amortized cost attained credit ratings of A or better. The remaining 34 debt securities were in an unrealized loss position for 12 months or longer. These 34 securities consisted of three ABS, one corporate security and 30 nonagency residential CMO securities. Of these debt securities in an unrealized loss position, 24% in amortized cost had credit ratings of A or better.

At December 31, 2011, the Company had 71 debt securities in an unrealized loss position. A total of 42 were in an unrealized loss position for less than 12 months, all of which were residential CMO

 

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Table of Contents

EverBank Financial Corp and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, except per share data)

 

 

securities. Of these, 84% in amortized cost had credit ratings of A or better. The remaining 29 debt securities were in an unrealized loss position for 12 months or longer. These 29 securities consisted of three ABS, one corporate security and 25 nonagency residential CMO securities. Of these 25 nonagency securities, 68% in amortized cost had credit ratings of A or better.

In assessing whether these securities were impaired, the Company performed cash flow analyses that projected prepayments, default rates and loss severities on the collateral supporting each security. If the net present value of the investment is less than the amortized cost, the difference would be recognized in earnings as a credit-related impairment, while the remaining difference between the fair value and the amortized cost is recognized in accumulated other comprehensive income (AOCI). The Company recognized credit-related OTTI losses of $0 and $685 in other noninterest income for the three months ended March 31, 2012 and 2011, respectively, primarily due to a continued decline in the collateral value of a corporate security.

There were no OTTI losses recognized on AFS and HTM securities during the three months ended March 31, 2012.

Information regarding impairment related to credit loss recognized on securities in other noninterest income and impairment related to all other factors recognized in AOCI for the three months ended March 31, 2011 is as follows:

 

Debt securities:  

Impairment
Related to
Credit
Loss

   

Impairment
Related to
All Other
Factors

   

Total      
Impairment

 

Balance, January 1, 2011

       $     3,354            $     502            $     3,856   

Additional charges on securities for which OTTI was previously recognized

      685          (499       186   

Reduction for securities on which a reduction in value was taken against earnings (1)

      (4,039)                   (4,039)   

Accretion of impairment related to all other factors

               (3)          (3)   
   

 

 

     

 

 

     

 

 

 

Balance, March 31, 2011

       $                $                $       
   

 

 

     

 

 

     

 

 

 

 

(1) The value for these securities for which impairment is related to credit loss were written to a zero value during 2011 reflecting that the Company does not anticipate the ability to collect cash flows on these investments at any point in the future. This reduction in value was taken through earnings and thus, is reflected in the rollforward as a reduction of the credit loss balance to zero.

During the three months ended March 31, 2012 and 2011, interest and dividend income on investment securities is comprised of the following:

 

   

Three Months Ended

March 31,

 
   

2012

   

2011

 

Interest income on available for sale securities

    $      18,871        $      25,628   

Interest income on held to maturity securities

       1,400           372   

Other interest and dividend income

       278           244   
    

 

 

      

 

 

 
    $              20,549        $              26,244   
    

 

 

      

 

 

 

 

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Table of Contents

EverBank Financial Corp and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, except per share data)

 

 

All interest income recognized by the Company during the three months ended March 31, 2012 and 2011 is taxable.

4.  Loans Held for Sale

Loans held for sale as of March 31, 2012 and December 31, 2011, consist of the following:

 

    March 31,     December 31,  
   

2012

   

2011

 

Residential mortgages

      $     2,530,966           $     2,709,825   

Commercial and commercial real estate

               15,461   
   

 

 

     

 

 

 
  $     2,530,966      $     2,725,286   
   

 

 

     

 

 

 

The Company sells loans to various financial institutions, government agencies, government-sponsored enterprises, and individual investors. Currently, the Company sells a concentration of loans to government-sponsored entities. The Company does not originate, acquire or sell subprime mortgage loans.

The Company securitizes a portion of its residential mortgage loan originations through government agencies. The following is a summary of cash flows between the Company and the agencies for securitized loans for the three months ended March 31, 2012 and 2011:

 

 

    Three Months Ended
March 31,
 
    2012      2011  

Proceeds received from new securitizations

      $     1,920,970           $     1,429,121   

Net fees paid to agencies

    11,752         11,170   

Servicing fees collected

    755         683   

Repurchased loans

    1,471         847   

During the three months ended March 31, 2012, the Company transferred $154,340 of conforming residential mortgages to Ginnie Mae (GNMA) in exchange for mortgage-backed securities, which the Company may sell in the market to third party investors for cash. As of March 31, 2012, the Company retained all of the securities backed by the transferred loans and maintained effective control over the transferred assets. Accordingly, the Company has not recorded the transfers as sales. The transferred assets are recorded in the condensed consolidated balance sheet as loans held for sale.

During the three months ended March 31, 2012, the Company sold $4,919 of loans previously described as loans held for investment that were transferred to loans held for sale in 2011 and recognized a gain of $329, which is recorded as gain on sale of loans.

On March 31, 2012, the Company transferred $14,946 in commercial real estate loans held for sale to loans held for investment at lower of cost or market as the Company has the intent to hold these loans for the foreseeable future.

 

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EverBank Financial Corp and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, except per share data)

 

 

5.  Loans and Leases Held for Investment, Net

Loans and leases held for investment as of March 31, 2012 and December 31, 2011 are comprised of the following:

 

 

   

    March 31,    
2012

   

December 31,
2011

 

Residential mortgages

       $      5,277,707           $      4,556,841   

Commercial and commercial real estate

       1,237,376           1,165,384   

Lease financing receivables

       605,763           588,501   

Home equity lines

       195,178           200,112   

Consumer and credit card

       7,163           8,443   
    

 

 

      

 

 

 

Total loans and leases, net of discounts

           7,323,187               6,519,281   

Allowance for loan and lease losses

       (78,254)           (77,765)   
    

 

 

      

 

 

 

Total loans and leases, net

       $      7,244,933           $      6,441,516   
    

 

 

      

 

 

 

As of March 31, 2012 and December 31, 2011, the carrying values presented above include net purchase loan and lease discounts and net deferred loan and lease origination costs as follows:

 

 

         March 31,    
2012
         December 31,    
2011
 

Net purchase loan and lease discounts

        $         203,100            $         237,170   

Net deferred loan and lease origination costs

     20,202         19,057   

Loans and Leases Acquired with Evidence of Credit Deterioration — At acquisition, the Company estimates the fair value of acquired loans and leases by segregating the portfolio into pools with similar risk characteristics. Fair value estimates for acquired loans and leases require estimates of the amounts and timing of expected future principal, interest and other cash flows. For each pool, the Company uses certain loan and lease information, including outstanding principal balance, probability of default and the estimated loss in the event of default to estimate the expected future cash flows for each loan and lease pool.

Information pertaining to the acquired portfolio of loans and leases with evidence of credit deterioration as of March 31, 2012 and December 31, 2011 is as follows:

 

 

           Bank of      
Florida
     Other
      Acquired      
Loans
             Total          

March 31, 2012

        

Carrying value, net of allowance

      $         590,674          $         498,882          $         1,089,556   

Outstanding unpaid principal balance or contractual net investment

     653,410         519,997         1,173,407   

Allowance for loan and lease losses, beginning of period

     11,638         4,351         15,989   

Allowance for loan and lease losses, end of period

     15,081         4,548         19,629   

 

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Table of Contents

EverBank Financial Corp and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, except per share data)

 

 

     Bank of
        Florida        
             TCFG              Other
      Acquired      
Loans
             Total          

December 31, 2011

           

Carrying value, net of allowance

       $ 621,116           $           $ 522,071           $     1,143,187   

Outstanding unpaid principal balance or contractual net investment

     685,967                 543,240         1,229,207   

Allowance for loan and lease losses, beginning of period

     6,189         97         3,695         9,981   

Allowance for loan and lease losses, end of year

     11,638                 4,351         15,989   

The following is a summary of the accretable yield activity for the loans and leases acquired with evidence of credit deterioration during the three months ended March 31, 2012 and 2011:

 

   

        Bank of        
Florida

   

        TCFG        

   

Other
    Acquired    
Loans

   

        Total        

 

Balance, January 1, 2012

      $      141,750          $               $      65,973          $      207,723   

Accretion

       (9,679)                     (6,308)           (15,987)   

Reclassifications (from) to accretable yield

       (11,923)                     8,463           (3,460)   
    

 

 

      

 

 

      

 

 

      

 

 

 

Balance, March 31, 2012

      $      120,148          $               $      68,128          $      188,276   
    

 

 

      

 

 

      

 

 

      

 

 

 

Balance, January 1, 2011

      $      198,633          $      9,745          $      44,603          $      252,981   

Accretion

       (12,510)           (1,666)           (2,927)           (17,103)   

Reclassifications (from) to accretable yield

       (1,333)           974           289           (70)   
    

 

 

      

 

 

      

 

 

      

 

 

 

Balance, March 31, 2011

      $      184,790          $      9,053          $      41,965          $      235,808   
    

 

 

      

 

 

      

 

 

      

 

 

 

The Company recorded $3,640 and $824 in provision for loan and lease losses for the three months ended March 31, 2012 and 2011, respectively, as a result of a decrease in expected cash flows on acquired loans with evidence of credit deterioration.

Covered Loans and Leases — Covered loans and leases are acquired and recorded at fair value, exclusive of the loss share agreements with the FDIC and the indemnification agreement with former shareholders of TCFG. All loans acquired through the loss share agreement with the FDIC and all loans and leases acquired in the purchase of TCFG are considered covered during the applicable indemnification period.

 

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Table of Contents

EverBank Financial Corp and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, except per share data)

 

 

The following is a summary of the recorded investment of major categories of covered loans and leases outstanding as of March 31, 2012 and December 31, 2011:

 

 

   

    Bank of    
Florida

   

      TCFG      

   

        Total        

 

March 31, 2012

              

Residential mortgages

     $      74,104        $             $      74,104   

Commercial and commercial real estate

       546,358                     546,358   

Lease financing receivables

                 147,125           147,125   

Home equity lines

       18,424                     18,424   

Consumer and credit card

       2,118                     2,118   
    

 

 

      

 

 

      

 

 

 

Total recorded investment of covered loans and leases

     $      641,004        $      147,125        $      788,129   
    

 

 

      

 

 

      

 

 

 

December 31, 2011

              

Residential mortgages

     $      74,580        $             $      74,580   

Commercial and commercial real estate

       569,014                     569,014   

Lease financing receivables

                 176,125           176,125   

Home equity lines

       19,082                     19,082   

Consumer and credit card

       2,345                     2,345   
    

 

 

      

 

 

      

 

 

 

Total recorded investment of covered loans and leases

     $      665,021        $      176,125        $      841,146   
    

 

 

      

 

 

      

 

 

 

 

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Table of Contents

EverBank Financial Corp and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, except per share data)

 

 

6.  Allowance for Loan and Lease Losses

Changes in the allowance for loan and lease losses for the three months ended March 31, 2012 and 2011 are as follows:

 

   

Three Months Ended March 31, 2012

 
          Commercial                

 

    Consumer    

       
          and     Lease         Home     and        
          Residential                Commercial          Financing             Equity         Credit        
   

Mortgages

   

Real Estate

   

    Receivables    

        Lines    

Card

   

    Total    

 

Balance, beginning of period

    $     43,454        $     28,209        $     3,766      $     2,186      $     150      $     77,765   

Provision for loan and lease losses

      3,836          5,308          723          1,493          (5)          11,355   

Charge-offs

      (6,694)          (2,294)          (1,181)          (1,108)          (11)          (11,288)   

Recoveries

      143          168          36          61          14          422   
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Balance, end of period

  $     40,739      $     31,391      $     3,344      $     2,632      $     148      $     78,254   
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
   

Three Months Ended March 31, 2011

 
          Commercial                

 

Consumer

       
          and     Lease         Home     and        
    Residential     Commercial     Financing         Equity     Credit        
   

Mortgages

   

Real Estate

   

 Receivables 

        Lines    

Card

   

Total

 

Balance, beginning of period

  $     46,584      $     33,490      $     2,454      $     10,907        $     254         $     93,689   

Change in estimate

      10,154          (682)          (802)              (6,323)          (440)          1,907   

Provision for loan and lease losses

      9,770          3,231          1,570          1,217          335          16,123   

Charge-offs

      (9,238)          (9,088)          (2,096)          (2,172)          (2)          (22,596)   

Recoveries

      5          522          8          1                   536   
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

Balance, end of period

  $     57,275      $     27,473      $     1,134      $     3,630      $     147      $     89,659   
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

The following tables provide a breakdown of the allowance for loan and lease losses and the recorded investment in loans and leases based on the method for determining the allowance as of March 31, 2012 and December 31, 2011:

 

   

Allowance for Loan and Lease Losses

 
                Loans and Leases        
    Individually     Collectively     Acquired with        
      Evaluated for         Evaluated for       Deteriorated        
   

Impairment

   

Impairment

   

Credit Quality

   

Total

 

March 31, 2012

               

Residential mortgages

  $     7,702        $     27,377        $     5,660       $     40,739   

Commercial and commercial real estate

      5,445          11,977          13,969          31,391   

Lease financing receivables

               3,344                   3,344   

Home equity lines

               2,632                   2,632   

Consumer and credit card

               148                   148   
   

 

 

     

 

 

     

 

 

     

 

 

 
  $     13,147      $     45,478      $     19,629      $             78,254   
   

 

 

     

 

 

     

 

 

     

 

 

 

 

17


Table of Contents

EverBank Financial Corp and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, except per share data)

 

 

   

Loans and Leases Held for Investment at Recorded Investment

 
   

Individually
Evaluated for
Impairment

   

Collectively
Evaluated for
Impairment

   

Loans and Leases
Acquired with
Deteriorated
Credit Quality

   

Total

 

March 31, 2012

               

Residential mortgages

      $     92,684          $     4,595,525          $     589,498          $     5,277,707   

Commercial and commercial real estate

      127,204          590,485          519,687          1,237,376   

Lease financing receivables

               605,763                   605,763   

Home equity lines

               195,178                   195,178   

Consumer and credit card

               7,163                   7,163   
   

 

 

     

 

 

     

 

 

     

 

 

 
      $     219,888          $     5,994,114          $     1,109,185          $     7,323,187   
   

 

 

     

 

 

     

 

 

     

 

 

 
   

Allowance for Loan and Lease Losses

 
   

Individually
Evaluated for
Impairment

   

Collectively
Evaluated for
Impairment

   

Loans and Leases
Acquired with
Deteriorated
Credit Quality

   

Total

 

December 31, 2011

               

Residential mortgages

      $     7,436          $     30,554          $     5,464          $     43,454   

Commercial and commercial real estate

      6,021          11,663          10,525          28,209   

Lease financing receivables

               3,766                   3,766   

Home equity lines

               2,186                   2,186   

Consumer and credit card

               150                   150   
   

 

 

     

 

 

     

 

 

     

 

 

 
      $     13,457          $     48,319          $     15,989          $     77,765   
   

 

 

     

 

 

     

 

 

     

 

 

 
   

Loans and Leases Held for Investment at Recorded Investment

 
   

Individually
Evaluated for
Impairment

   

Collectively
Evaluated for
Impairment

   

Loans and Leases
Acquired with
Deteriorated
Credit Quality

   

Total

 

December 31, 2011

               

Residential mortgages

      $     90,927          $     3,852,119          $     613,795          $     4,556,841   

Commercial and commercial real estate

      142,360          477,643          545,381          1,165,384   

Lease financing receivables

               588,501                   588,501   

Home equity lines

               200,112                   200,112   

Consumer and credit card

               8,443                   8,443   
   

 

 

     

 

 

     

 

 

     

 

 

 
      $     233,287          $     5,126,818          $     1,159,176          $     6,519,281   
   

 

 

     

 

 

     

 

 

     

 

 

 

The Company uses a risk grading matrix to monitor credit quality for commercial and commercial real estate loans. Risk grades are continuously monitored and updated quarterly by credit administration personnel based on current information and events. The Company monitors the quarterly credit quality of all other loan types based on performing status.

 

18


Table of Contents

EverBank Financial Corp and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, except per share data)

 

 

The following tables present the recorded investment for loans and leases by credit quality indicator as of March 31, 2012 and December 31, 2011:

 

   

Performing

   

Non-
    performing    

   

Total

       

March 31, 2012

             

Residential mortgages:

             

Residential

      $     4,412,462          $     71,485          $     4,483,947     

Government insured pool buyouts

      632,329          161,431          793,760     

Lease financing receivables

      603,901          1,862          605,763     

Home equity lines

      191,408          3,770          195,178     

Consumer and credit card

      6,590          573          7,163     
   

 

 

     

 

 

     

 

 

   
      $     5,846,690          $     239,121          $     6,085,811     
   

 

 

     

 

 

     

 

 

   
   

Pass

   

Special
Mention

   

Substandard

   

Doubtful

   

Total

 

March 31, 2012

                   

Commercial and commercial real estate:

                   

Commercial

      $     197,324          $     187          $     13,170          $     4,589          $     215,270   

Commercial real estate

      635,513          97,516          289,077                   1,022,106   
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
      $     832,837          $     97,703          $     302,247          $     4,589          $     1,237,376   
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
   

Performing

   

Non-
performing

   

Total

       

December 31, 2011

             

Residential mortgages:

             

Residential

      $     3,655,884          $     71,658          $     3,727,542     

Government insured pool buyouts

      649,391          179,908          829,299     

Lease financing receivables

      586,116          2,385          588,501     

Home equity lines

      195,861          4,251          200,112     

Consumer and credit card

      8,024          419          8,443     
   

 

 

     

 

 

     

 

 

   
      $     5,095,276          $     258,621          $     5,353,897     
   

 

 

     

 

 

     

 

 

   

 

19


Table of Contents

EverBank Financial Corp and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, except per share data)

 

 

   

Pass

   

Special
Mention

   

Substandard

    Doubtful    

Total

 

December 31, 2011

                   

Commercial and commercial real estate:

                   

Commercial

   $     151,473       $     1,527       $     18,279       $          4,136       $     175,415   

Commercial real estate

      639,883          78,385          270,656          1,045          989,969   
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
   $             791,356       $             79,912       $           288,935       $                  5,181       $         1,165,384   
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

The following tables present an aging analysis of the recorded investment for loans and leases by class as of March 31, 2012 and December 31, 2011:

 

   

30-59
Days

Past Due

   

60-89
Days

Past Due

   

90 Days
and
Greater

   

Total

Past

Due

   

Current

   

Total Loans
Held for
Investment
Excluding
ASC 310-30

 

March 31, 2012

                       

Residential mortgages:

                       

Residential

   $     15,812       $     5,187       $     71,485       $     92,484       $     4,255,959       $     4,348,443   

Government insured pool buyouts

      20,277          12,976          161,431          194,684          145,081          339,765   

Commercial and commercial real estate:

                       

Commercial

      75          90          4,512          4,677          184,345          189,022   

Commercial real estate

      5,436          950          45,718          52,104          476,564          528,668   

Lease financing receivables

      2,026          1,362          979          4,367          601,396          605,763   

Home equity lines

      2,568          533          3,770          6,871          188,307          195,178   

Consumer and credit card

      191          94          243          528          6,635          7,163   
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
   $         46,385       $         21,192       $         288,138       $         355,715       $         5,858,287       $          6,214,002   
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

December 31, 2011

                       

Residential mortgages:

                       

Residential

   $     16,966       $     12,673       $     71,658       $     101,297       $     3,487,525       $     3,588,822   

Government insured pool buyouts

      23,396          17,909          179,908          221,213          133,011          354,224   

Commercial and commercial real estate:

                       

Commercial

               32          10,751          10,783          137,216          147,999   

Commercial real estate

      2,117          4,450          48,611          55,178          416,826          472,004   

Lease financing receivables

      3,394          971          962          5,327          583,174          588,501   

Home equity lines

      1,953          498          4,251          6,702          193,410          200,112   

Consumer and credit card

      106          50          233          389          8,054          8,443   
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 
   $     47,932       $     36,583       $     316,374       $     400,889       $     4,959,216       $     5,360,105   
   

 

 

     

 

 

     

 

 

     

 

 

     

 

 

     

 

 

 

 

20


Table of Contents

EverBank Financial Corp and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, except per share data)

 

 

Impaired Loans — Impaired loans include loans identified as troubled loans as a result of a borrower’s financial difficulties and other loans on which the accrual of interest income is suspended. The Company continues to collect payments on certain impaired loan balances on which accrual is suspended.

The following tables present the recorded investment and the related allowance for impaired loans as of March 31, 2012 and December 31, 2011:

 

   

March 31, 2012

   

December 31, 2011

 
   

Recorded
Investment

   

Related
Allowance

   

Recorded
Investment

   

Related
Allowance

 

With an allowance recorded:

               

Residential mortgages:

               

Residential

    $     68,278        $     7,702        $     74,189        $     7,436   

Commercial and commercial real estate:

               

Commercial

      3,032          432          4,697          779   

Commercial real estate

      33,626          5,013          37,189          5,242   
   

 

 

     

 

 

     

 

 

     

 

 

 
    $     104,936        $           13,147        $         116,075        $           13,457   
   

 

 

     

 

 

     

 

 

     

 

 

 
   

March 31, 2012

   

December 31, 2011

 
   

Recorded
Investment

   

Related
Allowance

   

Recorded
Investment

   

Related
Allowance

 

Without a related allowance recorded:

               

Residential mortgages:

               

Residential

    $     24,406        $            $     16,738        $       

Commercial and commercial real estate:

               

Commercial

      5,826                   9,814            

Commercial real estate

      84,720                   90,661            
   

 

 

     

 

 

     

 

 

     

 

 

 
    $         114,952        $            $     117,213        $       
   

 

 

     

 

 

     

 

 

     

 

 

 

The following table presents the average investment and interest income recognized on impaired loans for the three months ended March 31, 2012 and 2011:

 

 

   

Three Months Ended

 
   

March 31, 2012

   

March 31, 2011

 
   

Average
Investment

   

Interest
Income
Recognized

   

Average
Investment

   

Interest
Income
Recognized

 

With and without a related allowance recorded:

               

Residential mortgages:

               

Residential

    $     91,806        $     660        $     75,605        $     523   

Commercial and commercial real estate:

               

Commercial

      11,685          23          1,344          11   

Commercial real estate

      123,098          558          171,892          346   
   

 

 

     

 

 

     

 

 

     

 

 

 
    $           226,589        $             1,241        $           248,841        $               880   
   

 

 

     

 

 

     

 

 

     

 

 

 

 

21


Table of Contents

EverBank Financial Corp and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, except per share data)

 

 

The following table presents the recorded investment for loans and leases on nonaccrual status by class and loans greater than 90 days past due and still accruing as of March 31, 2012 and December 31, 2011:

 

   

March 31, 2012

   

December 31, 2011

 
          Greater than          

 

Greater than

 
          90 Days           90 Days  
    Nonaccrual     Past Due     Nonaccrual     Past Due  
   

Status

   

and Accruing

   

Status

   

and Accruing

 

Residential mortgages:

               

Residential

  $     71,485        $            $     71,658         $       

Government insured pool buyouts

               161,431                   179,908   

Commercial and commercial real estate:

               

Commercial

      7,107                   12,294            

Commercial real estate

      82,478                   86,772            

Lease financing receivables

      1,862                   2,385            

Home equity lines

      3,770                   4,251            

Consumer and credit card

      573                   419            
   

 

 

     

 

 

     

 

 

     

 

 

 
  $         167,275        $         161,431        $             177,779         $             179,908   
   

 

 

     

 

 

     

 

 

     

 

 

 

Troubled Debt Restructurings — Modifications considered to be TDRs are individually evaluated for credit loss based on a discounted cash flow model using the loan’s effective interest rate at the time of origination. The discounted cash flow model used in this evaluation is adjusted to reflect the modified loan’s elevated probability of future default based on the Company’s historical redefault rate. These loans are classified as nonaccrual and have been included in the Company’s impaired loan disclosures in the tables above. A loan is considered to redefault when it is 30 days past due. Once a modified loan demonstrates a consistent period of performance under the modified terms, generally six months, the Company returns the loan to an accrual classification. If, however, a modified loan defaults under the terms of the modified agreement, the Company measures the allowance for loan and lease losses based on the fair value of collateral less cost to sell.

The following is a summary of information relating to modifications considered to be TDRs for the three months ended March 31, 2012:

 

    Three Months Ended  
    March 31, 2012  
          Pre-    

 

Post-

 
          modification     modification  
    Number of     Recorded     Recorded  
    Contracts    

Investment

   

Investment

 

Residential mortgages:

            

Residential

       16      $     6,014      $     6,021   

Commercial and commercial real estate:

            

Commercial

       3          3,035          3,035   

Commercial real estate

       6          8,241          8,241   
    

 

 

     

 

 

     

 

 

 
       25      $     17,290      $     17,297   
    

 

 

     

 

 

     

 

 

 

 

22


Table of Contents

EverBank Financial Corp and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, except per share data)

 

 

Modifications made to residential loans during the period included extension of original contractual maturity date, extension of the period of below market rate interest only payments, or contingent reduction of past due interest. Commercial loan modifications made during the period included extension of original contractual maturity date, payment forbearance, reduction of interest rates, or extension of interest only periods.

The number of contracts and recorded investment of loans that were modified during the last 12 months and subsequently defaulted during the three months ended March 31, 2012 are as follows:

 

   

Three Months Ended

March 31, 2012

                                  
   

Number of
Contracts

    

Recorded
Investment

    

Residential mortgages:

            

Residential

       8       $     2,222      

Commercial and commercial real estate:

            

Commercial

       3           1,802      

Commercial real estate

       1           98      
    

 

 

      

 

 

    
                            12       $     4,122      
    

 

 

      

 

 

    

The recorded investment of TDRs as of March 31, 2012 and December 31, 2011 are summarized as follows:

 

    March 31,     December 31,  
   

2012

   

2011

 

Loan Type:

       

Residential mortgages

      $     92,684          $     90,927   

Commercial and commercial real estate

      51,067          61,481   
   

 

 

     

 

 

 
  $     143,751      $     152,408   
   

 

 

     

 

 

 

Accrual Status:

       

Current

  $     88,379      $     85,905   

30-89 days past-due accruing

      4,423          6,723   

90+ days past-due accruing

                 

Nonaccrual

      50,949          59,780   
   

 

 

     

 

 

 
  $     143,751      $     152,408   
   

 

 

     

 

 

 

TDRs classified as impaired loans

  $     143,751      $     152,408   

Valuation allowance on TDRs

      9,016          9,743   

 

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Table of Contents

EverBank Financial Corp and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, except per share data)

 

 

7.  Servicing Activities and Mortgage Servicing Rights

A summary of MSR activities for the three months ended March 31, 2012 and 2011 is as follows:

 

 

   

Three Months Ended
March 31,

                     
   

2012

   

2011

    

 

Balance, beginning of period

      $              489,496          $              573,196      

Originated servicing rights capitalized upon sale of loans

       18,529           19,616      

Amortization

       (29,339)           (22,788)      

Impairment

       (15,144)                

Other

       (1,122)           (1,379)      
    

 

 

      

 

 

    

 

Balance, end of period

      $      462,420          $      568,645      
    

 

 

      

 

 

    
            

Valuation Allowance:

            

 

Balance, beginning of period

      $      39,455           

 

Impairment

       15,144           
    

 

 

         

 

Balance, end of period

      $      54,599           
    

 

 

         

For loans securitized and sold for the three months ended March 31, 2012 with servicing retained, management used the following assumptions to determine the fair value of MSR at the date of securitization:

 

                 March 31,             
2012

Average discount rates

     8.60%    -      9.14%

Expected prepayment speeds

   10.13%    -    14.62%

Weighted average life in years

     5.46        -      6.70    

At March 31, 2012 and December 31, 2011, the Company estimated the fair value of its capitalized MSR to be approximately $462,427 and $494,547, respectively. The unpaid principal balance below includes $5,367,000 and $5,248,000 at March 31, 2012 and December 31, 2011, respectively, for loans with no related MSR basis.

The characteristics used in estimating the fair value of the loan servicing portfolio at March 31, 2012 and December 31, 2011 are as follows:

 

         March 31,    
2012
         December 31,    
2011
 

Unpaid principal balance

     $   51,896,000               $   53,066,000         

Gross weighted-average coupon

     4.95%           4.98%     

Weighted-average servicing fee

     0.31%           0.31%     

Estimated prepayment speed

     16.07%           12.74%     

 

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Table of Contents

EverBank Financial Corp and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, except per share data)

 

 

A sensitivity analysis of the Company’s fair value of mortgage servicing rights to hypothetical adverse changes of 10% and 20% to the weighted average of certain key assumptions as of March 31, 2012 and December 31, 2011 is presented below.

 

         March 31,    
2012
         December 31,    
2011
 

Prepayment Rate

     

10% adverse rate change

     $         25,917           $         26,955     

20% adverse rate change

     49,957           51,872     

Discount Rate

     

10% adverse rate change

     17,499           18,306     

20% adverse rate change

     33,750           35,336     

In the previous table, the effect of a variation in a specific assumption on the fair value is calculated without changing any other assumptions. This analysis typically cannot be extrapolated because the relationship of a change in one key assumption to the change in the fair value of the Company’s mortgage servicing rights usually is not linear. The effect of changing one key assumption will likely result in the change of another key assumption which could impact the sensitivities.

Components of loan servicing fee income for the three months ended March 31, 2012 and 2011 are presented below:

 

   

    Three Months Ended    
March 31,

                     
   

    2012    

   

    2011    

      

 

Contractually specified service fees, net

    $      35,385        $      38,050      

 

Other ancillary fees

       9,619           10,327      

 

Other

       552           499      
    

 

 

      

 

 

    
    $   

 

 

 

        45,556

 

  

    $              48,876      
    

 

 

      

 

 

    

8.  Shareholders’ Equity

Initial Public Offering — On May 8, 2012, the Company completed the issuance and sale of 22,103,000 shares of its common stock, par value of $0.01 per share (the Common Stock), in its initial public offering of Common Stock (the Offering), including 2,883,000 shares sold pursuant to the exercise in full by the underwriters of their option to purchase additional shares from the Company, at a price to the public of $10.00 per share. The shares were offered pursuant to the Company’s Registration Statement on Form S-1. The Company received net proceeds of approximately $198,700 from the Offering, after deducting underwriting discounts and commissions and estimated offering expenses.

Preferred Stock — On January 25, 2012, the Company’s Board of Directors approved a special cash dividend of $4,482 to the holders of the Series A 6% Cumulative Convertible Preferred Stock (Series A Preferred Stock), which was paid on March 1, 2012. As a result of the special cash dividend, all shares of Series A Preferred Stock were converted into 2,801,160 shares of Common Stock.

Immediately prior to the completion of the Offering, the 136,544 shares of outstanding Series B 4% Cumulative Convertible Preferred Stock automatically converted into 15,964,644 shares of Common Stock.

 

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Table of Contents

EverBank Financial Corp and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, except per share data)

 

 

Common Stock — At March 31, 2012, there were 150,000,000 shares of Common Stock authorized, and 77,994,699 shares issued and outstanding. Following the Offering, there were 500,000,000 shares authorized and 116,317,343 shares issued and outstanding.

9.  Income Taxes

For the three months ended March 31, 2012, the Company’s effective income tax rate of 36.4% differs from the statutory federal income tax rate primarily due to state income taxes. For the three months ending March 31, 2011, the Company’s effective income tax rate of 42.1% differs from the statutory federal income tax rate primarily due to state income taxes and a $691 increase to income tax expense for the revaluation of the net unrealized built-in losses associated with the Tygris acquisition.

10.  Earnings Per Share

The Company calculates earnings per share in accordance with ASC 260, Earnings per Share. Because the Company’s Series A and Series B Cumulative Convertible Preferred Stock meet the definition of participating securities, this guidance requires the use of the Two-Class Method to calculate basic and diluted earnings per share. The Two-Class Method allocates earnings between common and participating shares. In calculating basic earnings per common share, only the portion of earnings allocated to common shares is used in the numerator. The following table sets forth the computation of basic and diluted earnings per common share for the three months ended March 31, 2012 and 2011:

 

 

 

    

        Three Months Ended        
March  31,

 
    

    2012    

    

    2011    

 

Net income

     $      11,846         $      9,416   

Less distributed and undistributed net income allocated to participating preferred stock

        (5,879)            (2,407)   
     

 

 

       

 

 

 

Net income allocated to common shareholders

   $      5,967       $      7,009   
     

 

 

       

 

 

 

(Units in Thousands)

           

Average common shares outstanding

        76,129            74,735   

Common share equivalents:

           

Stock options

        1,917            2,497   

Nonvested stock

        278            389   
     

 

 

       

 

 

 

Average common shares outstanding, assuming dilution

        78,324            77,621   
     

 

 

       

 

 

 

Net income per common share, basic

   $      0.08       $      0.09   

Net income per common share, assuming dilution

   $      0.08       $      0.09   

On January 25, 2012, the Company’s Board of Directors approved a special cash dividend of $4,482 to the holders of the Series A Preferred Stock, which was paid on March 1, 2012, in order to induce conversion to shares of Common Stock. The Company has included the special cash dividend as distributed net income attributable to participating preferred stock. In addition, the Company included the Series A Preferred Stock as a participating security through the date of conversion and upon conversion, the Company included the shares in common shares outstanding.

 

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Table of Contents

EverBank Financial Corp and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, except per share data)

 

 

Certain securities were antidilutive and were therefore excluded from the calculation of diluted earnings per share. Common shares attributed to these antidilutive securities had these securities been exercised or converted as of March 31, 2012 and 2011 are as follows:

 

             Three Months Ended         
March 31,
 
         2012              2011      

Stock Options

     5,882,160         2,906,190   

11.  Derivative Financial Instruments

The fair values of derivatives are reported in other assets, deposits, or accounts payable and accrued liabilities. The fair values are derived using the valuation techniques described in Note 12. The total notional or contractual amounts and fair values as of March 31, 2012 and December 31, 2011 are as follows:

 

                            Fair Value          
    

    Notional    
Amount

    

Asset
    Derivatives    

    

Liability
    Derivatives    

 

March 31, 2012

              

Qualifying hedge contracts accounted for under ASC 815, Derivatives and Hedging

              

Cash flow hedges (risk management hedges):

              

Forward interest rate swaps

   $     1,103,000       $           $     123,717   
         

 

 

      

 

 

 

Derivatives not designated as hedging instruments under ASC 815, Derivatives and Hedging

              

Freestanding derivatives (economic hedges):

              

Interest rate lock commitments

       1,258,192           4,902           1,117   

Forward sales commitments

       1,518,476           8,027           2,108   

Optional forward sales commitments

       269                     1   

Interest rate swaps

       18,000                     932   

Foreign exchange contracts

       1,070,566           8,479           8,749   

Equity, foreign currency, commodity and metals indexed options

       218,890           23,717             

Options embedded in customer deposits

       216,677                     23,532   

Indemnification asset

       422,469           8,814             
         

 

 

      

 

 

 

Total freestanding derivatives

            53,939           36,439   
         

 

 

      

 

 

 

Total derivatives

        $     53,939       $     160,156   
         

 

 

      

 

 

 

 

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Table of Contents

EverBank Financial Corp and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, except per share data)

 

 

             

                   Fair Value                 

 
    Notional
      Amount      
   

Asset
   Derivatives   

   

Liability
   Derivatives   

 

December 31, 2011

         

Qualifying hedge contracts accounted for under ASC 815, Derivatives and Hedging

         

Cash flow hedges (risk management hedges):

         

Forward interest rate swaps

   $ 1,153,000      $          $     133,897   
     

 

 

     

 

 

 

Derivatives not designated as hedging instruments under ASC 815, Derivatives and Hedging

         

Freestanding derivatives (economic hedges):

         

Interest rate lock commitments

    828,866          8,059          126   

Forward sales commitments

    1,278,899          1,140          13,340   

Interest rate swaps

    18,000                   831   

Foreign exchange contracts

    1,114,838          9,494          16,293   

Equity, foreign currency, commodity and metals indexed options

    220,465          20,460            

Options embedded in customer deposits

    218,514                   20,192   

Indemnification assets

    482,094          8,540            
     

 

 

     

 

 

 

Total freestanding derivatives

        47,693          50,782   
     

 

 

     

 

 

 

Total derivatives

    $     47,693      $     184,679   
     

 

 

     

 

 

 

Cash Flow Hedges

Activity for derivatives in cash flow hedge relationships for the three months ended March 31, 2012 and 2011 are as follows:

 

    Three Months Ended
March 31,
 
          2012                 2011        

Gains (losses), net of tax, recognized in AOCI (effective portion)

   $         6,482       $         (3,951)   

Reclassifications to interest expense (effective portion)

    (1,710)        (2,029)   

Pretax losses recognized in interest expense (ineffective portion)

    (65)          

All changes in the value of the derivatives were included in the assessment of hedge effectiveness.

As of March 31, 2012, AOCI included $13,561 of deferred pre-tax net losses expected to be reclassified into earnings during the next 12 months for derivative instruments designated as cash flow hedges of forecasted transactions. The Company is hedging its exposure to the variability of future cash flows for all forecasted transactions of fixed-rate debt for a maximum of eight years.

 

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Table of Contents

EverBank Financial Corp and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, except per share data)

 

 

Freestanding Derivatives

The following table shows the net losses recognized for the three months ended March 31, 2012 and 2011 in the consolidated statements of income related to derivatives not designated as hedging instruments under ASC 815, Derivatives and Hedging. These gains and losses are recognized in other noninterest income, except for the indemnification assets which are recognized in general and administrative expense.

 

        Three Months Ended
March 31,
 
   

      2012      

   

      2011      

 

Freestanding derivatives (economic hedges)

       

Gains (losses) on interest rate contracts

   $     (11,830)      $     2,899   

Gains (losses) on indemnification assets

      273          (8,680)   

Other

      446            
   

 

 

     

 

 

 
  $     (11,111)      $     (5,781)   
   

 

 

     

 

 

 

Interest rate contracts are predominantly used as economic hedges of interest rate lock commitments and loans held for sale. Other derivatives are predominantly used as economic hedges of foreign exchange, commodity, metals and equity risk.

Credit Risk Contingent Features

Certain of the Company’s derivative instruments contain provisions that require the Company to post collateral when derivatives are in a net liability position. The provisions generally are dependent upon the Company’s credit rating based on certain major credit rating agencies or dollar amounts in a liability position at any given time which exceed specified thresholds, as indicated in the relevant contracts. In these circumstances, the counterparties could demand additional collateral or require termination or replacement of derivative instruments in a net liability position. The aggregate fair value of all derivative instruments with such credit-risk-related contingent features in a net liability position on March 31, 2012 and December 31, 2011 was $124,771 and $153,337, respectively, for which the Company posted $127,548 and $170,656, respectively, in collateral in the normal course of business.

Counterparty Credit Risk

The Company is exposed to counterparty credit risk if counterparties to the derivative contracts do not perform as expected. If the counterparty fails to perform, counterparty credit risk equals the amount reported as derivative assets in the balance sheet. The amounts reported as derivative assets are derivative contracts in a gain position, and to the extent subject to master netting arrangements, net of derivatives in a loss position with the same counterparty, and cash collateral received. The Company minimizes this risk through credit approvals, limits, monitoring procedures, and executing master netting arrangements and obtaining collateral, where appropriate. The Company does not offset derivative instruments against the rights to reclaim cash collateral or the obligations to return cash collateral in the balance sheet. As of March 31, 2012 and December 31, 2011, the Company held $8,670 and $3,560, respectively, in collateral from its counterparties. Counterparty credit risk related to derivatives is considered in determining fair value.

 

29


Table of Contents

EverBank Financial Corp and Subsidiaries

Notes to Condensed Consolidated Financial Statements

(Dollars in thousands, except per share data)

 

 

12.  Fair Value Measurements

Asset and liability fair value measurements have been categorized based upon the fair value hierarchy described below:

Level 1 – Valuation is based upon quoted market prices for identical instruments in active markets

Level 2 – Valuation is based upon quoted market prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market

Level 3 – Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect estimates or assumptions that market participants would use in pricing the assets to liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques

Recurring Fair Value Measurements

As of March 31, 2012 and December 31, 2011, assets and liabilities measured at fair value on a recurring basis, including certain loans held for sale for which the Company has elected the fair value option, are as follows:

 

   

    Level 1    

   

    Level 2    

   

    Level 3    

   

    Total    

 

 

March 31, 2012

               

Financial assets:

               

Available for sale securities:

               

Residential CMO securities - agency

      $      &nb