Edgar Filing: EverBank Financial Corp

EVER-6.30.2012-10Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)



	ý	Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended June 30, 2012



	o	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, FL		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 o No ý

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 ý No o

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 o		Accelerated filer o
	Non-accelerated filer ý (Do not check if a smaller reporting company)		Smaller reporting company o

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

Yes o No ý

As of July 31, 2012, there were 116,543,563 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 June 30, 2012 and December 31, 2011	3
	Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 2012 and 2011	4
	Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended June 30, 2012 and 2011	5
	Condensed Consolidated Statements of Shareholders’ Equity for the Six Months Ended June 30, 2012 and 2011	6
	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 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	35

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	69

Item 4.	Controls and Procedures	69

Part II - Other Information

Item 1.	Legal Proceedings	70

Item 1A.	Risk Factors	70

Item 5.	Other Information	72

Item 6.	Exhibits	72

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)



	June 30, 2012			December 31, 2011
Assets
Cash and due from banks	$	39,689		$	31,441
Interest-bearing deposits in banks	478,543			263,540
Total cash and cash equivalents	518,232			294,981
Investment securities:
Available for sale, at fair value	1,850,526			1,903,922
Held to maturity (fair value of $196,382 and $194,350 as of June 30, 2012 and December 31, 2011, respectively)	190,615			189,518
Other investments	133,282			98,392
Total investment securities	2,174,423			2,191,832
Loans held for sale (includes $1,105,985 and $777,280 carried at fair value as of June 30, 2012 and December 31, 2011, respectively)	3,178,597			2,725,286
Loans and leases held for investment:
Covered by loss share or indemnification agreements	727,708			841,146
Not covered by loss share or indemnification agreements	7,057,722			5,678,135
Loans and leases held for investment, net of unearned income	7,785,430			6,519,281
Allowance for loan and lease losses	(77,393		)	(77,765		)
Total loans and leases held for investment, net	7,708,037			6,441,516
Equipment under operating leases, net	61,811			56,399
Mortgage servicing rights (MSR), net	415,962			489,496
Deferred income taxes, net	163,561			151,634
Premises and equipment, net	52,037			43,738
Other assets	768,164			646,796
Total Assets	$	15,040,824		$	13,041,678
Liabilities
Deposits:
Noninterest-bearing	$	1,356,769		$	1,234,615
Interest-bearing	9,446,974			9,031,148
Total deposits	10,803,743			10,265,763
Other borrowings	2,503,636			1,257,879
Trust preferred securities	103,750			103,750
Accounts payable and accrued liabilities	448,326			446,621
Total Liabilities	13,859,455			12,074,013
Commitments and Contingencies (Note 14)
Shareholders’ Equity
Series A 6% Cumulative Convertible Preferred Stock, $0.01 par value (1,000,000 shares authorized and 186,744 shares issued and outstanding at December 31, 2011; no shares authorized, issued or outstanding at June 30, 2012) (Note 9)	—			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 and 136,544 shares issued and outstanding at December 31, 2011; no shares authorized, issued or outstanding at June 30, 2012) (Note 9)	—			1
Common Stock, $0.01 par value (500,000,000 and 150,000,000 shares authorized at June 30, 2012 and December 31, 2011, respectively; 116,479,658 and 75,094,375 issued and outstanding at June 30, 2012 and December 31, 2011, respectively)	1,165			751
Additional paid-in capital	762,422			561,247
Retained earnings	530,876			513,413
Accumulated other comprehensive income (loss) (AOCI)	(113,094		)	(107,749		)
Total Shareholders’ Equity	1,181,369			967,665
Total Liabilities and Shareholders’ Equity	$	15,040,824		$	13,041,678

See notes to unaudited condensed consolidated financial statements.

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EverBank Financial Corp and Subsidiaries

Condensed Consolidated Statements of Income (unaudited)

(Dollars in thousands, except per share data)



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2012			2011			2012			2011
Interest Income
Interest and fees on loans and leases	$	135,816		$	118,527		$	260,594		$	241,520
Interest and dividends on investment securities	20,699			29,333			41,248			55,577
Other interest income	82			273			186			1,115
Total interest income	156,597			148,133			302,028			298,212
Interest Expense
Deposits	20,419			25,410			41,393			51,600
Other borrowings	11,194			9,813			20,028			20,009
Total interest expense	31,613			35,223			61,421			71,609
Net Interest Income	124,984			112,910			240,607			226,603
Provision for Loan and Lease Losses	5,757			9,004			17,112			27,034
Net Interest Income after Provision for Loan and Lease Losses	119,227			103,906			223,495			199,569
Noninterest Income
Loan servicing fee income	42,483			46,757			88,039			95,633
Amortization and impairment of mortgage servicing rights	(64,277		)	(21,429		)	(108,760		)	(44,217		)
Net loan servicing income (loss)	(21,794		)	25,328			(20,721		)	51,416
Gain on sale of loans	69,926			5,456			118,103			18,933
Loan production revenue	9,852			5,588			17,289			11,995
Deposit fee income	5,828			6,435			12,067			11,595
Other lease income	8,822			8,336			17,485			15,068
Other	1,489			1,790			3,093			9,778
Total noninterest income	74,123			52,933			147,316			118,785
Noninterest Expense
Salaries, commissions and other employee benefits expense	76,277			56,321			142,867			113,694
Equipment expense	16,889			11,709			32,837			22,469
Occupancy expense	6,017			5,031			11,366			9,571
General and administrative expense	76,600			48,650			147,534			121,216
Total noninterest expense	175,783			121,711			334,604			266,950
Income before Provision for Income Taxes	17,567			35,128			36,207			51,404
Provision for Income Taxes	6,395			13,333			13,189			20,193
Net Income	$	11,172		$	21,795		$	23,018		$	31,211
Less: Net Income Allocated to Participating Preferred Stock	(1,685		)	(4,417		)	(7,664		)	(6,824		)
Net Income Allocated to Common Shareholders	$	9,487		$	17,378		$	15,354		$	24,387
Basic Earnings Per Share	$	0.09		$	0.23		$	0.17		$	0.33
Diluted Earnings Per Share	$	0.09		$	0.23		$	0.17		$	0.32

See notes to unaudited condensed consolidated financial statements.

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EverBank Financial Corp and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (unaudited)

(Dollars in thousands)



	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2012			2011			2012			2011
Net Income	$	11,172		$	21,795		$	23,018		$	31,211
Unrealized Gains (Losses) on Debt Securities
Reclassification of unrealized gains to earnings	—			—			—			(2,739		)
Unrealized gains (losses) due to changes in fair value	(7,581		)	(378		)	13,705			(10,550		)
Other-than-temporary impairment (OTTI) (noncredit portion), net of accretion	—			—			—			502
Tax effect	2,883			144			(5,146		)	4,696
Change in unrealized gains (losses) on debt securities	(4,698		)	(234		)	8,559			(8,091		)
Interest Rate Swaps
Net unrealized losses due to changes in fair value	(32,932		)	(27,715		)	(26,304		)	(22,829		)
Reclassification of unrealized losses to earnings	1,964			1,768			3,674			3,797
Tax effect	11,769			9,861			8,726			7,451
Change in interest rate swaps	(19,199		)	(16,086		)	(13,904		)	(11,581		)
Other Comprehensive Income (Loss)	(23,897		)	(16,320		)	(5,345		)	(19,672		)
Comprehensive Income (Loss)	$	(12,725	)	$	5,475		$	17,673		$	11,539

See notes to unaudited condensed consolidated financial statements.

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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	—			—			—			23,018			—			23,018
Other comprehensive loss	—			—			—			—			(5,345		)	(5,345		)
Conversion of preferred stock	(3		)	188			(185		)	—			—			—
Issuance of common stock, net of issue costs	—			226			198,536			—			—			198,762
Repurchase of common stock	—			—			(360		)	—			—			(360		)
Share-based grants (including income tax benefits)	—			—			3,184			—			—			3,184
Cash dividends on preferred stock	—			—			—			(5,555		)	—			(5,555		)
Balance, June 30, 2012	$	—		$	1,165		$	762,422		$	530,876		$	(113,094	)	$	1,181,369

Balance, January 1, 2011	$	3		$	747		$	556,001		$	461,503		$	(5,056	)	$	1,013,198
Net income	—			—			—			31,211			—			31,211
Other comprehensive loss	—			—			—			—			(19,672		)	(19,672		)
Issuance of common stock	—			4			1,089			—			—			1,093
Repurchase of common stock	—			(1		)	(2,312		)	—			—			(2,313		)
Share-based grants (including income tax benefits)	—			—			4,281			—			—			4,281
Cash dividends on preferred stock	—			—			—			(113		)	—			(113		)
Paid-in-kind dividends on Series B Preferred Stock	—			—			591			(591		)	—			—
Balance, June 30, 2011	$	3		$	750		$	559,650		$	492,010		$	(24,728	)	$	1,027,685

See notes to unaudited condensed consolidated financial statements.

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EverBank Financial Corp and Subsidiaries

Condensed Consolidated Statements of Cash Flows (unaudited)

(Dollars in thousands)



	Six Months Ended
	June 30,
	2012			2011
Operating Activities:
Net income	$	23,018		$	31,211
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Amortization of premiums on investments	4,710			4,308
Depreciation and amortization of tangible and intangible assets	18,091			9,643
Amortization of loss on settlement of interest rate swaps	3,674			3,797
Amortization and impairment of mortgage servicing rights	108,760			44,217
Deferred income taxes	(8,347		)	39,272
Provision for loan and lease losses	17,112			27,034
Loss on other real estate owned	4,605			8,664
Share-based compensation expense	2,229			4,281
Payments for settlement of forward interest rate swaps	(14,002		)	(2,796		)
Other operating activities	(2,778		)	2,665
Changes in operating assets and liabilities:
Loans held for sale, including proceeds from sales and repayments	(788,325		)	401,193
Other assets	37,043			3,800
Accounts payable and accrued liabilities	1,638			6,093
Net cash provided by (used in) operating activities	(592,572		)	583,382
Investing Activities:
Investment securities available for sale:
Purchases	(210,717		)	(972,910		)
Proceeds from sales	—			60,961
Proceeds from prepayments and maturities	274,042			302,866
Investment securities held to maturity:
Purchases	(14,917		)	(153,885		)
Proceeds from prepayments and maturities	13,506			4,531
Purchases of other investments	(37,422		)	(2,552		)
Proceeds from sales of other investments	—			43,060
Net change in loans and leases held for investment	(880,630		)	(940,821		)
Cash paid for acquisition	(351,071		)	—
Purchases of premises and equipment, including equipment under operating leases	(31,267		)	(26,225		)
Proceeds related to sale or settlement of other real estate owned	18,664			24,540
Proceeds from insured foreclosure claims	61,869			116,348
Other investing activities	(190		)	(653		)
Net cash used in investing activities	(1,158,133		)	(1,544,740		)
Financing Activities:
Net increase in nonmaturity deposits	343,692			153,393
Net increase in time deposits	182,987			100,007
Increase in short-term Federal Home Loan Bank (FHLB) advances	370,000			310,000
Proceeds from long-term FHLB advances	1,100,000			6,158
Repayments of long-term FHLB advances	(223,500		)	(85,008		)
Proceeds from issuance of common stock	207,514			1,093
Other financing activities	(6,737		)	(9,916		)
Net cash provided by financing activities	1,973,956			475,727
Net change in cash and cash equivalents	223,251			(485,631		)
Cash and cash equivalents at beginning of period	294,981			1,169,221
Cash and cash equivalents at end of period	$	518,232		$	683,590

Supplemental Schedules of Noncash Investing Activities:
Loans transferred to foreclosure claims from loans held for investment	$	67,487		$	120,526
Loans transferred to foreclosure claims from loans held for sale	142,519			10,264
Loans transferred to other real estate owned from loans held for investment	26,472			40,186
Additions of originated mortgage servicing assets for loans sold	37,027			26,657

Supplemental Schedules of Noncash Financing Activities:
Conversion of preferred stock	$	135,585		$	—

See notes to unaudited condensed consolidated financial statements.

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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 financial centers in Florida and retail lending centers across the United States. 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, Inc. (Tygris), the parent of EverBank Commercial Finance, Inc.;


•	EverInsurance, Inc.;


•	Elite Lender Services, Inc.; and


•	EverBank Wealth Management, Inc. (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, (EverBank Florida), formed EverBank Financial Corp, a Delaware corporation, (EverBank Delaware). Subsequent to its formation, EverBank Delaware held no assets, had no subsidiaries and did not engage 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;


•	As a result of the reincorporation of EverBank Florida in Delaware, the Company is now 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, comprehensive income, 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 years ended December 31, 2011, 2010 and 2009 , which are included in the Company’s registration statement on Form S-1.

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, comprehensive income, and changes in cash flows have been made.

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 these 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 Financial Accounting Standards Board (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 was effective for the first quarter of 2012 and was applied prospectively. Adoption of this standard resulted in additional disclosures as presented in Note 13 but did not have any impact on the Company’s results of operations.

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Presentation of Comprehensive Income — In June 2011, the 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 a new statement 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 did not have any impact on the Company’s consolidated financial statements or results of operations.

Intangibles - Goodwill & Other — In September 2011, the FASB issued ASU 2011-08, Intangibles - Goodwill and Other (Topic 350) —Testing Goodwill for Impairment, which affect all entities that have goodwill reported in their financial statements. The amendments in ASU 2011-08 permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than the carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test described in ASC Topic 350. The more likely than not threshold is defined as having a likelihood of more than 50 percent. If, after assessing the totality of events or circumstances, an entity determines that it is more likely than not that the fair value of a reporting unit is more than its carrying amount, then performing the two-step impairment test is not required. Under the amendments in this update, an entity is no longer permitted to carry forward its detailed calculation of a reporting unit's fair value from a prior year as previously permitted under ASC Topic 350. This guidance was adopted in conjunction with the performance of the Company's annual goodwill impairment test performed during the second quarter of 2012. Adoption of this standard did not have any impact on the Company's consolidated financial statements or results of operations.

Updates to Significant Accounting Policies

Goodwill and Intangible Assets - Goodwill, core deposit premiums and other intangible assets are included in other assets in the consolidated balance sheets.

Goodwill is not amortized and is evaluated for potential impairment on an annual basis or when events or circumstances indicate a potential impairment, at the reporting unit level. Reporting units are first evaluated qualitatively to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is believed that it is more likely than not that a reporting unit's fair value is less than its carrying value, the Company will estimate the reporting unit's fair market value to determine whether carrying value exceeds fair market value. If carrying value exceeds fair market value, goodwill is written down.

The Company may use judgment in assessing goodwill and intangible assets for impairment. Estimates of fair value are based on projections of revenues, operating costs and cash flows of each reporting unit considering historical and anticipated future results, general economic and market conditions as well as the impact of planned business or operational strategies. The valuations employ a combination of present value techniques to measure fair value and consideration of market factors. Additionally, judgment is used in determining the useful lives of finite-lived intangible assets. Changes in judgments and projections could result in a significantly different estimate of the fair value of the reporting units and could result in an impairment of goodwill.

Core deposit premiums are amortized over the estimated life of the acquired deposits using the straight-line method. Core deposit premiums are evaluated for impairment whenever events or changes in circumstances indicate that the carrying value of the asset may not be recoverable. Other identifiable intangible assets were recognized through business combinations. These intangible assets are amortized over their estimated life. No residual value was assigned to any of these intangible assets.

3. Acquisition Activities

On April 2, 2012, the Company completed its acquisition of 100% of the net assets of the Warehouse Lending Division of MetLife Bank, N.A. pursuant to the asset purchase agreement dated February 8, 2012 between the Company and MetLife Bank, N.A. The acquisition was funded entirely by cash with the transaction accounted for using the acquisition method. Based on the acquisition method of accounting, the consideration paid was allocated to the acquired assets and liabilities. No identifiable intangible assets or goodwill were recognized in the transaction. Information regarding the acquisition is as follows:



Recognized amounts of identifiable assets acquired and liabilities assumed:
Loans	$	350,997
Accrued interest and fees	617
Total Assets Acquired	351,614
Other liabilities	543
Total Liabilities Assumed	543
Total Identifiable Net Assets	$	351,071

Under the acquisition method of accounting, the measurement period for a transaction is to extend for a period necessary to obtain all available information to facilitate a complete and accurate recording of the transaction as of the acquisition date. This period, however, may not extend beyond a period of one year from the date of acquisition. In the event information not currently available is obtained during the measurement period that would affect the recording of this transaction, any applicable adjustments will be performed retrospectively adjusting the initial recording of this acquisition.

See Note 16 for information on the agreement the Company entered into to acquire Business Property Lending, Inc, a wholly owned subsidiary of General Electric Capital Corporation.

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4. Investment Securities

The amortized cost and fair value of investment securities with gross unrealized gains and losses were as follows as of June 30, 2012 and December 31, 2011:



	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses		Fair Value		Carrying Amount
June 30, 2012
Available for sale:
Residential collateralized mortgage obligations (CMO) securities - agency	$	70	$	7	$	—	$	77	$	77
Residential CMO securities - nonagency	1,851,998		18,957		28,624		1,842,331		1,842,331
Residential mortgage-backed securities (MBS) - agency	266		15		—		281		281
Asset-backed securities (ABS)	10,554		—		2,938		7,616		7,616
Equity securities	77		144		—		221		221
Total available for sale securities	$	1,862,965	$	19,123	$	31,562	$	1,850,526	$	1,850,526
Held to maturity:
Residential CMO securities - agency	$	146,163	$	5,840	$	—	$	152,003	$	146,163
Residential MBS - agency	34,176		1,998		—		36,174		34,176
Corporate securities	10,276		—		2,071		8,205		10,276
Total held to maturity securities	$	190,615	$	7,838	$	2,071	$	196,382	$	190,615
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	10,573		—		3,096		7,477		7,477
Equity securities	77		108		—		185		185
Total available for sale securities	$	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
Total held to maturity securities	$	189,518	$	7,493	$	2,661	$	194,350	$	189,518

At June 30, 2012 and December 31, 2011, investment securities with a carrying value of $473,820 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 six months ended June 30, 2012, there were neither gross gains nor gross losses realized on available for sale investments. For the six months ended June 30, 2011, gross gains of $2,739 and gross losses of $0 were realized on available for sale investments in other noninterest income. The cost of investments sold is calculated using the specific identification method.

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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 June 30, 2012 and December 31, 2011 are as follows:



	Less Than 12 Months				12 Months or Greater				Total
	Fair Value		Unrealized Losses		Fair Value		Unrealized Losses		Fair Value		Unrealized Losses
June 30, 2012
Debt securities:
Residential CMO securities - nonagency	$	501,091	$	7,243	$	393,745	$	21,381	$	894,836	$	28,624
Asset-backed securities	—		—		7,616		2,938		7,616		2,938
Corporate securities	—		—		2,916		2,071		2,916		2,071
Total debt securities	$	501,091	$	7,243	$	404,277	$	26,390	$	905,368	$	33,633
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
Total debt securities	$	580,152	$	16,724	$	236,388	$	29,870	$	816,540	$	46,594

The Company had unrealized losses at June 30, 2012 and December 31, 2011 on residential CMO securities, ABS and corporate securities. These unrealized losses are primarily attributable to weak 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 June 30, 2012, the Company had 72 debt securities in an unrealized loss position. A total of 27 were in an unrealized loss position for less than 12 months, all of which were residential CMO securities. Of these, 95% in amortized cost attained credit ratings of A or better. The remaining 45 debt securities were in an unrealized loss position for 12 months or longer. These 45 securities consisted of three ABS, one corporate security and 41 nonagency residential CMO securities. Of these debt securities in an unrealized loss position, 65% 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 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 AOCI. The Company recognized credit-related OTTI losses $685 in other noninterest income for the six months ended June 30, 2011 primarily due to a continued decline in the collateral value of a corporate security.

There were no OTTI losses recognized on available for sale or held to maturity securities during the six months ended June 30, 2012 or for the three months ended June 30, 2011.

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 six months ended June 30, 2011 are 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, June 30, 2011	$	—		$	—		$	—


(1)	The value for these securities for which impairment is related to credit loss were written down 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.

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During the three and six months ended June 30, 2012 and 2011, interest and dividend income on investment securities was comprised of the following:



	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
Interest income on available for sale securities	$	18,728	$	27,457	$	37,599	$	53,085
Interest income on held to maturity securities	1,409		1,637		2,809		2,009
Other interest and dividend income	562		239		840		483
	$	20,699	$	29,333	$	41,248	$	55,577

All investment interest income recognized by the Company during the three and six months ended June 30, 2012 and 2011 was fully taxable.

5. Loans Held for Sale

Loans held for sale as of June 30, 2012 and December 31, 2011, consist of the following:



	June 30, 2012		December 31, 2011
Government insured pool buyouts	$	1,972,701	$	1,939,114
Mortgage warehouse (carried at fair value)	1,105,985		761,818
Other	99,911		24,354
Total loans held for sale	$	3,178,597	$	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 and six months ended June 30, 2012 and 2011:



	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2011		2012		2011
Proceeds received from new securitizations	$	1,869,387	$	623,915	$	3,790,357	$	2,053,036
Net fees paid to agencies	15,910		6,551		27,662		17,721
Servicing fees collected	2,448		1,352		3,203		2,035
Repurchased loans	2,045		2,503		3,516		3,350

During the six months ended June 30, 2012, the Company transferred $333,446 of conforming residential mortgages to Ginnie Mae (GNMA) in exchange for mortgage-backed securities. As of June 30, 2012, the Company retained $103,952 of these securities backed by the transferred loans and maintained effective control over these pools of transferred assets. Accordingly, the Company has not recorded these transfers as sales. These transferred assets are recorded in the condensed consolidated balance sheet as loans held for sale. The remaining $229,494 in securities were sold to unrelated third parties during the six months ended June 30, 2012 and have been recorded as sales.

During the three and six months ended June 30, 2012, the Company transferred $8,700 and $26,138 in residential mortgage and commercial loans from 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.

During the three and six months ended June 30, 2012, the Company purchased $347,114 of government insured loans, net of discounts, with the intent of pooling and selling the loans as they become eligible.

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6. Loans and Leases Held for Investment, Net

Loans and leases held for investment as of June 30, 2012 and December 31, 2011 are comprised of the following:



	June 30, 2012			December 31, 2011
Residential mortgages	$	5,060,942		$	4,556,841
Commercial and commercial real estate	1,846,689			1,165,384
Lease financing receivables	681,205			588,501
Home equity lines	188,820			200,112
Consumer and credit card	7,774			8,443
Total loans and leases held for investment, net of discounts	7,785,430			6,519,281
Allowance for loan and lease losses	(77,393		)	(77,765		)
Total loans and leases held for investment, net	$	7,708,037		$	6,441,516

As of June 30, 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:



	June 30, 2012		December 31, 2011
Net purchased loan and lease discounts	$	180,779	$	237,170
Net deferred loan and lease origination costs	20,366		19,057

Acquired Credit Impaired (ACI) Loans and Leases — 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 ACI portfolio as of June 30, 2012 and December 31, 2011 is as follows:



	Bank of Florida		Other Acquired Loans		Total
June 30, 2012
Carrying value, net of allowance	$	557,008	$	488,833	$	1,045,841
Outstanding unpaid principal balance or contractual net investment	613,623		508,605		1,122,228
Allowance for loan and lease losses, beginning of year	11,638		4,351		15,989
Allowance for loan and lease losses, end of period	15,828		4,490		20,318



	Bank of Florida		Tygris		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 year	6,189		97		3,695		9,981
Allowance for loan and lease losses, end of year	11,638		—		4,351		15,989

The Company recorded $689 and $269 in provision for loan and lease losses for the ACI portfolio for the three months ended June 30, 2012 and 2011 and $4,329 and $1,093 in provision for loan and lease losses for the ACI portfolio for the six months ended June 30, 2012 and 2011, respectively. The increase in provision is the result of a decrease in expected cash flows on ACI loans.

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The following is a summary of the accretable yield activity for the ACI loans during the six months ended June 30, 2012 and 2011:



June 30, 2012				Bank of Florida			Other Acquired Loans			Total
Balance, beginning of period				$	141,750		$	65,973		$	207,723
Accretion				(18,614		)	(12,611		)	(31,225		)
Reclassifications (from) to accretable yield				(10,723		)	1,446			(9,277		)
Balance, end of period				$	112,413		$	54,808		$	167,221

June 30, 2011	Bank of Florida			Tygris			Other Acquired Loans			Total
Balance, beginning of period	$	198,633		$	9,745		$	44,603		$	252,981
Additions	—			—			17,295			17,295
Accretion	(24,188		)	(2,391		)	(5,618		)	(32,197		)
Reclassifications (from) to accretable yield	(4,587		)	1,989			236			(2,362		)
Transfer to cost recovery	—			(6,678		)	—			(6,678		)
Balance, end of period	$	169,858		$	2,665		$	56,516		$	229,039

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

The following is a summary of the recorded investment of major categories of covered loans and leases outstanding as of June 30, 2012 and December 31, 2011:



	Bank of Florida		Tygris		Total
June 30, 2012
Residential mortgages	$	71,153	$	—	$	71,153
Commercial and commercial real estate	513,867		—		513,867
Lease financing receivables	—		122,633		122,633
Home equity lines	18,150		—		18,150
Consumer and credit card	1,905		—		1,905
Total recorded investment of covered loans and leases	$	605,075	$	122,633	$	727,708
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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7. Allowance for Loan and Lease Losses

Changes in the allowance for loan and lease losses for the three and six months ended June 30, 2012 and 2011 are as follows:



	Three Months Ended June 30, 2012
	Residential Mortgages			Commercial and Commercial Real Estate			Lease Financing Receivables			Home Equity Lines			Consumer and Credit Card			Total
Balance, beginning of period	$	40,739		$	31,391		$	3,344		$	2,632		$	148		$	78,254
Provision for loan and lease losses	957			1,958			1,704			1,085			53			5,757
Charge-offs	(4,139		)	(1,710		)	(917		)	(484		)	(40		)	(7,290		)
Recoveries	162			411			29			55			15			672
Balance, end of period	$	37,719		$	32,050		$	4,160		$	3,288		$	176		$	77,393

	Three Months Ended June 30, 2011
	Residential Mortgages			Commercial and Commercial Real Estate			Lease Financing Receivables			Home Equity Lines			Consumer and Credit Card			Total
Balance, beginning of period	$	57,275		$	27,473		$	1,134		$	3,630		$	147		$	89,659
Provision for loan and lease losses	2,597			2,582			1,699			2,116			10			9,004
Charge-offs	(5,406		)	(1,825		)	(1,032		)	(1,144		)	(138		)	(9,545		)
Recoveries	6			65			5			10			5			91
Balance, end of period	$	54,472		$	28,295		$	1,806		$	4,612		$	24		$	89,209



	Six Months Ended June 30, 2012
	Residential Mortgages			Commercial and Commercial Real Estate			Lease Financing Receivables			Home Equity Lines			Consumer and Credit Card			Total
Balance, beginning of period	$	43,454		$	28,209		$	3,766		$	2,186		$	150		$	77,765
Provision for loan and lease losses	4,793			7,266			2,427			2,578			48			17,112
Charge-offs	(10,833		)	(4,004		)	(2,098		)	(1,592		)	(51		)	(18,578		)
Recoveries	305			579			65			116			29			1,094
Balance, end of period	$	37,719		$	32,050		$	4,160		$	3,288		$	176		$	77,393

	Six Months Ended June 30, 2011
	Residential Mortgages			Commercial and Commercial Real Estate			Lease Financing Receivables			Home Equity Lines			Consumer and Credit 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	12,367			5,813			3,269			3,333			345			25,127
Charge-offs	(14,644		)	(10,913		)	(3,128		)	(3,316		)	(140		)	(32,141		)
Recoveries	11			587			13			11			5			627
Balance, end of period	$	54,472		$	28,295		$	1,806		$	4,612		$	24		$	89,209

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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 June 30, 2012 and December 31, 2011:



	Allowance for Loan and Lease Losses
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		ACI Loans		Total
June 30, 2012
Residential mortgages	$	7,571	$	24,545	$	5,603	$	37,719
Commercial and commercial real estate	4,243		13,092		14,715		32,050
Lease financing receivables	—		4,160		—		4,160
Home equity lines	—		3,288		—		3,288
Consumer and credit card	—		176		—		176
Total allowance for loan and lease losses	$	11,814	$	45,261	$	20,318	$	77,393



	Loans and Leases Held for Investment at Recorded Investment
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		ACI Loans		Total
June 30, 2012
Residential mortgages	$	89,791	$	4,398,143	$	573,008	$	5,060,942
Commercial and commercial real estate	107,468		1,246,070		493,151		1,846,689
Lease financing receivables	—		681,205		—		681,205
Home equity lines	—		188,820		—		188,820
Consumer and credit card	—		7,774		—		7,774
Total loans and leases held for investment	$	197,259	$	6,522,012	$	1,066,159	$	7,785,430

	Allowance for Loan and Lease Losses
	Individually Evaluated for Impairment		Collectively Evaluated for Impairment		ACI Loans		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
Total allowance for loan and lease losses	$	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		ACI Loans		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
Total loans and leases held for investment	$	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.

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The following tables present the recorded investment for loans and leases by credit quality indicator as of June 30, 2012 and December 31, 2011:



	Performing		Non-performing		Total
June 30, 2012
Residential mortgages:
Residential	$	4,226,940	$	65,080	$	4,292,020
Government insured pool buyouts	618,882		150,040		768,922
Lease financing receivables	679,910		1,295		681,205
Home equity lines	184,564		4,256		188,820
Consumer and credit card	7,202		572		7,774
Total	$	5,717,498	$	221,243	$	5,938,741

	Pass		Special Mention		Substandard		Doubtful	Total
June 30, 2012
Commercial and commercial real estate: