EverBank Financial Corp Announces First Quarter 2015 Financial Results and Sale of Non-Core MSRs

EverBank Financial Corp (NYSE: EVER) announced today its financial results for the first quarter ended March 31, 2015.

"The core fundamental performance of our franchise was strong in the quarter, with robust loan and deposit growth driving higher levels of net interest income and an adjusted ROE of 9.7%," said Robert M. Clements, chairman and chief executive officer. "In addition, we announced today two strategic servicing transactions that we expect will be accretive to future earnings, enhance our capital position, improve efficiency and reduce risk."

Adjusted net income available to common shareholders was $39.1 million for the first quarter 2015, compared to $37.6 million for the fourth quarter 2014 and $27.6 million for the first quarter 2014. Adjusted diluted earnings per common share in the first quarter 2015 were $0.31 compared to $0.30 in the fourth quarter 2014 and $0.22 in the first quarter 2014.1 We recorded a $43 million valuation allowance at March 31, 2015 resulting from a temporary valuation allowance on our core remaining mortgage servicing rights (MSR) due to low interest rates as well as a valuation allowance on the non-core MSR portfolio that we have committed to sell. As a result, GAAP net income available to common shareholders was $11.7 million for the first quarter 2015, compared to $35.5 million for the fourth quarter 2014 and $29.2 million for the first quarter 2014. GAAP diluted earnings per share in the first quarter 2015 were $0.09 compared to $0.28 in the fourth quarter 2014 and $0.23 in the first quarter 2014.

"Organic lending volumes were strong across our consumer and commercial businesses and we continued to execute on our commercial deposit growth strategy in the quarter", said W. Blake Wilson, president and chief operating officer. "Our strategy of selling longer duration jumbo loans to accommodate shorter duration government-insured loans generated attractive risk-adjusted returns in the quarter."

First Quarter 2015 Key Highlights

• Total assets of $23.3 billion, an increase of 8% compared to the prior quarter.
• Portfolio loans held for investment (HFI) of $18.5 billion, an increase of 4% compared to the prior quarter.
• Total originations of $3.1 billion, an increase of 2% compared to the prior quarter and 52% year over year.
• Total deposits of $16.1 billion, an increase of 4% compared to the prior quarter. Commercial deposits increased 9% compared to the prior quarter to $3.2 billion.
• Net interest margin (NIM) of 3.09%, an increase of 9 basis points compared to the prior quarter.
• Adjusted return on average equity (ROE)1 was 9.7% for the quarter and GAAP ROE was 2.9%.
• Tangible common equity per common share increased 7% year over year to $12.55 at March 31, 2015.
• Adjusted non-performing assets to total assets1 improved to 0.40% at March 31, 2015 from 0.46% at December 31, 2014. Annualized net charge-offs to average total loans and leases held for investment were 0.16% for the quarter.
• Consolidated common equity Tier 1 capital ratio of 10.6% and bank Tier 1 leverage ratio of 8.1% as of March 31, 2015.

Strategic Business Activities

The Company also announced today two separate transactions designed to further optimize its mortgage servicing business by agreeing to sell substantially all of its remaining non-core MSR not included in the 2014 default servicing platform sale.

We expect these sales to improve our Tier 1 capital by $10-15 million, $45-50 million and $90-95 million in 2015, 2016 and 2017, respectively. We also expect pre-tax income accretion of $2-5 million in 2015, $8-12 million in 2016 and $29-35 million in 2017 driven by improved operational efficiency and our ability to deploy the tier 1 capital created as a result of these transactions.

These transactions were entered into on April 27, 2015 and include the following:

• Sale of MSR related to approximately $5.7 billion of unpaid principal balance (UPB) of Ginnie Mae (GNMA) MSR to Green Tree Servicing LLC (GTS), a subsidiary of Walter Investment Management Corp., and termination of our existing subservicing agreement with GTS.
• Sale of MSR related to approximately $6.7 billion of UPB consisting of collateral owned or insured by Fannie Mae, Freddie Mac, and private investors to Nationstar Mortgage LLC.

The Company expects total non-recurring costs of approximately $40 million pre-tax, including approximately $27 million that was incurred in the first quarter 2015 and $13 million it expects to incur in the second quarter 2015.

Balance Sheet

Strong Asset Growth

Total assets were $23.3 billion at March 31, 2015, an increase of $1.7 billion, or 8%, compared to the prior quarter and an increase of $5.7 billion, or 32%, year over year. The strong sequential increase was driven by a $773 million, or 4%, increase in portfolio loans HFI to $18.5 billion and an $888 million, or 91%, increase in loans held for sale (HFS) to $1.9 billion.

Loans HFI for the first quarter of 2015, as compared to the fourth quarter of 2014 and first quarter of 2014, were comprised of:

Total consumer banking loans HFI decreased $127 million, or 1%, compared to the prior quarter and increased $2.2 billion, or 28%, year over year, to $10.0 billion. Total residential mortgages decreased $141 million, or 1%, in the quarter driven by jumbo loan portfolio sales activities. During the quarter, the Company transferred $770 million of jumbo ARMs committed to be sold in the second quarter to loans HFS. Consumer banking loans represented 54% of total loans and leases HFI, compared to 57% in the prior quarter.

Total commercial banking loans and leases HFI increased $901 million, or 12%, compared to the prior quarter and $2.5 billion, or 40%, year over year to $8.6 billion. Mortgage warehouse finance outstanding balances increased $746 million, or 55%, compared to the prior quarter, to $2.1 billion, lender finance increased $89 million, or 12%, to $852 million, equipment financing receivables increased $42 million, or 2%, to $2.1 billion and commercial real estate and other commercial loans increased $23 million, or 1%, to $3.6 billion. Commercial banking loans and leases represented 46% of total loans and leases HFI, compared to 43% in the prior quarter.

Loan Origination Activities

The following table presents total organic loan and lease origination information by product type:

Total originations were $3.1 billion for the first quarter of 2015, an increase of 2% compared to the prior quarter and 52% year over year. Retained originations were $1.7 billion for the first quarter 2015, a 3% decrease compared to the prior quarter and a 56% increase year over year.

Commercial originations were $704 million for the first quarter, a decrease of 16% compared to the prior quarter and an increase of 116% year over year. Consumer originations were $2.4 billion for the first quarter of 2015, an increase of 9% compared to the prior quarter and an increase of 39% year over year. Prime jumbo origination volume was $1.3 billion in the first quarter, an increase of 10% compared to the prior quarter and an increase of 61% year over year. Loans sold during the quarter totaled $1.4 billion, a decrease of 17% compared to the prior quarter and an increase of 13% year over year. The mix of purchase transactions for the first quarter was 41% of total originations and 51% of retail channel originations.

Deposits

At March 31, 2015, as compared to the fourth quarter of 2014 and first quarter of 2014, our deposits were comprised of the following:

Total deposits were $16.1 billion at March 31, 2015, an increase of $568 million, or 4% compared to the prior quarter and an increase of $2.8 billion, or 21%, year over year. Commercial deposits were $3.2 billion, an increase of $257 million, or 9%, compared to the prior quarter and $1.4 billion, or 82%, year over year. Commercial deposits represented 20% of total deposits at quarter end, compared to 19% in the prior quarter and 13% a year ago.

Total other borrowings were $5.2 billion at March 31, 2015, compared to $4.0 billion in the prior quarter and $2.4 billion at March 31, 2014, driven by increased Federal Home Loan Bank borrowings resulting from increased loans HFS and mortgage warehouse finance balances.

Capital Strength

Total shareholders' equity was $1.8 billion at March 31, 2015, an increase of 1% quarter over quarter and 7% year over year. Our consolidated common equity Tier 1 capital ratio was 10.6% at March 31, 2015. The bank’s Tier 1 leverage and total risk-based capital ratios were 8.1% and 12.3%, respectively, at March 31, 2015. As a result, the bank is considered "well-capitalized" under all applicable regulatory guidelines. Our estimate of the fully phased-in Basel III common equity Tier 1 capital ratio was between 10.00% and 10.25%.

Credit Quality

Adjusted non-performing assets were 0.40% of total assets at March 31, 2015, compared to 0.46% for the prior quarter and 0.62% at March 31, 2014. Net charge-offs during the first quarter of 2015 were $7 million, an increase of $2 million compared to the prior quarter. On an annualized basis, net charge-offs were 0.16% of total average loans and leases held for investment, compared to 0.12% for the prior quarter and 0.12% for the first quarter of 2014.

Income Statement Highlights

Revenue

Revenue for the first quarter of 2015 was $188 million, a decrease of $35 million, or 16%, from $223 million in the fourth quarter of 2014. The decrease for the quarter was driven by a $43 million valuation allowance associated with the fair market value of our MSR. Excluding the valuation allowance impact in the quarter, revenue would have been $231 million, an increase of 4% compared to the prior quarter.

Net Interest Income

For the first quarter of 2015, net interest income was $155 million, an increase of $8 million, or 5%, compared to the prior quarter. This increase resulted from an $862 million, or 4%, increase in average interest-earning assets compared to the prior quarter, driven by higher average commercial loans and leases HFI in addition to higher average residential mortgage loans HFI and average loans HFS, partially offset by higher average interest-bearing liabilities.

Net interest margin increased to 3.09% for the first quarter of 2015 from 3.00% in the fourth quarter of 2014, driven by a 0.02% increase in the average interest-earning asset yield to 3.99% and a 0.01% decrease in the average cost of total interest-bearing liabilities to 1.03%.

Noninterest Income

Noninterest income for the first quarter of 2015 was $33 million, a decrease of $43 million, or 57%, compared to the prior quarter. Net loan servicing income declined $45 million compared to the prior quarter driven by a $43 million valuation allowance associated with the fair market value of our MSR. Excluding the impact of the valuation allowance, net loan servicing income for the first quarter would have been $14 million, a decrease of $2 million, or 11%, compared to the prior quarter. Gain on sale of loans was $43 million, an increase of $8 million, or 25%, compared to the prior quarter, driven by higher lending volumes and higher gain on sale margins.

Noninterest Expense

Noninterest expense for the first quarter of 2015 was $156 million, an increase of $3 million, or 2%, compared to the prior quarter. Salaries, commissions and employee benefits were $92 million, an increase of $5 million, or 6%, compared to the prior quarter driven by normal seasonal increases in benefits and payroll tax expenses. General and administrative expense was $42 million, flat compared to the prior quarter.

EverBank's efficiency ratio was 83%, compared to 69% in the prior quarter. Excluding the impact of the $43 million MSR valuation allowance and other non-recurring items, EverBank's efficiency ratio would have been 66% for the first quarter.

Income Tax Expense

Our effective tax rate for the first quarter of 2015 was 38%, which was the same for the prior quarter and for the first quarter of 2014.

Segment Analysis for the First Quarter of 2015

• Consumer Banking pre-tax income was $7 million, an 85% decrease compared to pre-tax income of $44 million in the prior quarter. Excluding the $43 million valuation allowance and other non-recurring items, pre-tax income increased 13% compared to the prior quarter.
• Commercial Banking pre-tax income was $47 million, a 3% increase compared to $46 million in the prior quarter, driven by a 6% increase in net interest income after provision and a 14% increase in noninterest income, offset by a 15% increase in noninterest expense.
• Corporate Services had a pre-tax loss of $31 million, an 8% increase compared to a pre-tax loss of $29 million in the prior quarter driven by a 9% increase in noninterest expense.

Dividends

On April 23, 2015, the Company's Board of Directors declared a quarterly cash dividend of $0.04 per common share, payable on May 20, 2015, to stockholders of record as of May 12, 2015. Also on April 23, 2015, the Company's Board of Directors declared a quarterly cash dividend of $421.875, payable on July 6, 2015, for each share of 6.75% Series A Non-Cumulative Perpetual Preferred Stock held as of June 19, 2015.

Conference Call and Webcast

The Company will host a conference call at 8:30 a.m. Eastern Time on Wednesday, April 29, 2015 to discuss its first quarter 2015 results. The dial-in number for the conference call is 1-855-209-8214 and the international dial-in number is 1-412-542-4103. A replay will be available following completion of the call and can be accessed by dialing 1-877-344-7529, or for international callers, 1-412-317-0088. The passcode for the replay is 10063519. The replay will be available through May 6, 2015. A live webcast of the conference call will also be available on the investor relations page of the Company's website at https://about.everbank/investors.

About EverBank Financial Corp

EverBank Financial Corp, through its wholly-owned subsidiary EverBank, provides a diverse range of financial products and services directly to clients nationwide through multiple business channels. Headquartered in Jacksonville, Florida, EverBank has $23.3 billion in assets and $16.1 billion in deposits as of March 31, 2015. With an emphasis on value, innovation and service, EverBank offers a broad selection of banking, lending and investing products to consumers and businesses nationwide. EverBank provides services to clients through the internet, over the phone, through the mail, at its Florida-based financial centers and at other business offices throughout the country. More information on EverBank can be found at https://about.everbank/investors.

Forward Looking Statements

This news release contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and such statements are intended to be covered by the safe harbor provided by the same. These statements may address issues that involve significant risks, uncertainties, estimates and assumptions made by management. Words such as “outlook,” “believes,” “expects,” “potential,” “continues,” “may,” “will,” “could,” “should,” “seeks,” “approximately,” “predicts,” “intends,” “plans,” “estimates,” “anticipates” or the negative version of those words or other comparable words are intended to identify forward-looking statements but are not the exclusive means of identifying such statements. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about the Company’s asset growth and earnings, industry, management’s beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond the Company’s control. Factors that could cause actual results to differ from those discussed in the forward-looking statements include, but are not limited to: deterioration of general business and economic conditions, including the real estate and financial markets, in the United States and in the geographic regions and communities we serve; risks related to liquidity; our capital and liquidity requirements (including under regulatory capital standards, such as Basel III capital standards) and our ability to generate or raise capital; changes in interest rates that affect the pricing of our financial products, the demand for our financial services and the valuation of our financial assets and liabilities, mortgage servicing rights and mortgages held for sale; risk of higher loan and lease charge-offs; legislative or regulatory actions affecting or concerning mortgage loan modification and refinancing and foreclosure; our ability to comply with any supervisory actions to which we are or become subject as a result of examination by our regulators; concentration of our commercial real estate loan portfolio; higher than normal delinquency and default rates; limited ability to rely on brokered deposits as a part of our funding strategy; our ability to comply with the amended consent order and the terms and conditions of our settlement of the Independent Foreclosure Review; concentration of mass-affluent clients and jumbo mortgages; hedging strategies; the effectiveness of our derivatives to manage interest rate risk; delinquencies on our equipment leases and reductions in the resale value of leased equipment; increases in loan repurchase requests and our reserves for loan repurchases; changes in currency exchange rates or other political or economic changes in certain foreign countries; loss of key personnel; fraudulent and negligent acts by loan applicants, mortgage brokers, other vendors and our employees; changes in and compliance with laws and regulations that govern our operations; failure to establish and maintain effective internal controls and procedures; effects of changes in existing U.S. government or government-sponsored mortgage programs; changes in laws and regulations that may restrict our ability to originate or increase our risk of liability with respect to certain mortgage loans; risks related to the approval and consummation of anticipated acquisitions and dispositions; risks related to the continuing integration of acquired businesses and any future acquisitions; environmental liabilities with respect to properties that we take title to upon foreclosure; and the inability of our banking subsidiary to pay dividends.

For additional factors that could materially affect our financial results, please refer to EverBank Financial Corp’s filings with the Securities and Exchange Commission, including but not limited to, the risks described under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” The Company undertakes no obligation to revise these statements following the date of this news release, except as required by law.

Non-GAAP Financial Measures

This press release contains financial information and performance measures determined by methods other than in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Adjusted Net Income, Adjusted Earnings Per Share, Adjusted Return on Equity, Tangible Shareholders’ Equity, Tangible Common Shareholders' Equity, Tangible Assets, Adjusted Non-Performing Asset Ratio and Segment Adjusted Income (Loss) Before Income Tax are non-GAAP financial measures. The Company’s management uses these measures to evaluate the underlying performance and efficiency of its operations. The Company’s management believes these non-GAAP measures provide meaningful additional information about the operating performance of the Company’s business and facilitate a meaningful comparison of our results in the current period to those in prior periods and future periods because these non-GAAP measures exclude certain items that may not be indicative of our core operating results and business outlook. In addition, the Company’s management believes that certain of these non-GAAP measures represent a consistent benchmark against which to evaluate the Company’s growth, profitability and capital position. These non-GAAP measures are provided to enhance investors’ overall understanding of our current financial performance, and not as a substitute for, the Company’s reported results. Moreover, the manner in which we calculate these measures may differ from that of other companies reporting non-GAAP measures with similar names.

In the tables below, we have provided a reconciliation of, where applicable, the most comparable GAAP financial measures and ratios to the non-GAAP financial measures and ratios used in this press release, or a reconciliation of the non-GAAP calculation of the financial measure for the periods indicated:

(1) We define non-performing assets, or NPA, as non-accrual loans, accruing loans past due 90 days or more and foreclosed property. Our NPA calculation excludes government insured pool buyout loans for which payment is insured by the government. We also exclude loans and foreclosed property accounted for under ASC 310-30 because we expect to fully collect the carrying value of such loans and foreclosed property.