EVER-3.31.14-10Q

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
 
 
Q
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the quarterly period ended March 31, 2014.
or
 
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 Q    No o
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 Q  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 Q
 
Accelerated filer o
 
Non-accelerated filer o (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 Q
As of April 25, 2014, there were 122,741,501 shares of common stock outstanding.
 

Table of Contents

EverBank Financial Corp
Form 10-Q
Index
Part I - Financial Information
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
Part II - Other Information
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.

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,
2014
 
December 31,
2013
Assets
 
 
 
Cash and due from banks
$
60,587

 
$
46,175

Interest-bearing deposits in banks
439,242

 
801,603

Total cash and cash equivalents
499,829

 
847,778

Investment securities:
 
 
 
Available for sale, at fair value
1,118,646

 
1,115,627

Held to maturity (fair value of $117,910 and $107,921 as of March 31, 2014 and December 31, 2013, respectively)
116,984

 
107,312

Other investments
122,918

 
128,063

Total investment securities
1,358,548

 
1,351,002

Loans held for sale (includes $552,681 and $672,371 carried at fair value as of March 31, 2014 and December 31, 2013, respectively)
596,729

 
791,382

Loans and leases held for investment:
 
 
 
Loans and leases held for investment, net of unearned income
13,864,109

 
13,252,724

Allowance for loan and lease losses
(62,969
)
 
(63,690
)
Total loans and leases held for investment, net
13,801,140

 
13,189,034

Equipment under operating leases, net
24,170

 
28,126

Mortgage servicing rights (MSR), net
446,493

 
506,680

Deferred income taxes, net
42,140

 
51,375

Premises and equipment, net
60,654

 
60,733

Other assets
801,245

 
814,874

Total Assets
$
17,630,948

 
$
17,640,984

Liabilities
 
 
 
Deposits:
 
 
 
Noninterest-bearing
$
1,054,796

 
$
1,076,631

Interest-bearing
12,233,615

 
12,184,709

Total deposits
13,288,411

 
13,261,340

Other borrowings
2,377,000

 
2,377,000

Trust preferred securities
103,750

 
103,750

Accounts payable and accrued liabilities
214,148

 
277,881

Total Liabilities
15,983,309

 
16,019,971

Commitments and Contingencies (Note 13)


 


Shareholders’ Equity
 
 
 
Series A 6.75% Non-Cumulative Perpetual Preferred Stock, $0.01 par value (liquidation preference of $25,000 per share;10,000,000 shares authorized; 6,000 issued and outstanding at March 31, 2014 and December 31, 2013)
150,000

 
150,000

Common Stock, $0.01 par value (500,000,000 shares authorized; 122,703,958 and 122,626,315 issued and outstanding at March 31, 2014 and December 31, 2013, respectively)
1,227

 
1,226

Additional paid-in capital
834,460

 
832,351

Retained earnings
715,599

 
690,051

Accumulated other comprehensive income (loss) (AOCI)
(53,647
)
 
(52,615
)
Total Shareholders’ Equity
1,647,639

 
1,621,013

Total Liabilities and Shareholders’ Equity
$
17,630,948

 
$
17,640,984


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,
 
2014
 
2013
Interest Income
 
 
 
Interest and fees on loans and leases
$
158,470

 
$
173,786

Interest and dividends on investment securities
9,831

 
16,250

Other interest income
162

 
298

Total Interest Income
168,463

 
190,334

Interest Expense
 
 
 
Deposits
22,607

 
26,823

Other borrowings
15,012

 
19,695

Total Interest Expense
37,619

 
46,518

Net Interest Income
130,844

 
143,816

Provision for Loan and Lease Losses
3,071

 
1,919

Net Interest Income after Provision for Loan and Lease Losses
127,773

 
141,897

Noninterest Income
 
 
 
Loan servicing fee income
46,617

 
42,163

Amortization of mortgage servicing rights
(20,572
)
 
(35,078
)
Recovery (impairment) of mortgage servicing rights
4,941

 
12,555

Net loan servicing income
30,986

 
19,640

Gain on sale of loans
33,851

 
82,311

Loan production revenue
4,579

 
9,489

Deposit fee income
3,335

 
5,925

Other lease income
4,905

 
6,411

Other
6,928

 
9,533

Total Noninterest Income
84,584

 
133,309

Noninterest Expense
 
 
 
Salaries, commissions and other employee benefits expense
97,694

 
110,479

Equipment expense
18,648

 
19,852

Occupancy expense
8,072

 
7,384

General and administrative expense
36,798

 
74,101

Total Noninterest Expense
161,212

 
211,816

Income before Provision for Income Taxes
51,145

 
63,390

Provision for Income Taxes
19,385

 
24,244

Net Income
$
31,760

 
$
39,146

Less: Net Income Allocated to Preferred Stock
(2,531
)
 
(2,531
)
Net Income Allocated to Common Shareholders
$
29,229

 
$
36,615

Basic Earnings Per Common Share
$
0.24

 
$
0.30

Diluted Earnings Per Common Share
$
0.23

 
$
0.30

Dividends Declared Per Common Share
$
0.03

 
$
0.02

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,
 
2014
 
2013
Net Income
$
31,760

 
$
39,146

Unrealized Gains (Losses) on Debt Securities
 
 
 
Unrealized gains (losses) due to changes in fair value
(90
)
 
704

Tax effect
34

 
(264
)
Change in unrealized gains (losses) on debt securities
(56
)
 
440

Interest Rate Swaps
 
 
 
Net unrealized gains (losses) due to changes in fair value
(5,624
)
 
4,383

Reclassification of net unrealized losses to interest expense
4,050

 
5,357

Tax effect
598

 
(3,720
)
Change in interest rate swaps
(976
)
 
6,020

Other Comprehensive Income (Loss)
(1,032
)
 
6,460

Comprehensive Income (Loss)
$
30,728

 
$
45,606


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, 2014
$
150,000

 
$
1,226

 
$
832,351

 
$
690,051

 
$
(52,615
)
 
$
1,621,013

Net income
—

 
—

 
—

 
31,760

 
—

 
31,760

Other comprehensive income (loss)
—

 
—

 
—

 
—

 
(1,032
)
 
(1,032
)
Issuance of common stock
—

 
1

 
209

 
—

 
—

 
210

Share-based grants (including income tax benefits)
—

 
—

 
1,900

 
—

 
—

 
1,900

Cash dividends on common stock
—

 
—

 
—

 
(3,681
)
 
—

 
(3,681
)
Cash dividends on preferred stock
—

 
—

 
—

 
(2,531
)
 
—

 
(2,531
)
Balance, March 31, 2014
$
150,000

 
$
1,227

 
$
834,460

 
$
715,599

 
$
(53,647
)
 
$
1,647,639

 
 
 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2013
$
150,000

 
$
1,210

 
$
811,085

 
$
575,665

 
$
(86,784
)
 
$
1,451,176

Net income
—

 
—

 
—

 
39,146

 
—

 
39,146

Other comprehensive income (loss)
—

 
—

 
—

 
—

 
6,460

 
6,460

Issuance of common stock, net of issue costs
—

 
11

 
8,540

 
—

 
—

 
8,551

Share-based grants (including income tax benefits)
—

 
—

 
4,071

 
—

 
—

 
4,071

Cash dividends on common stock
—

 
—

 
—

 
(2,431
)
 
—

 
(2,431
)
Cash dividends on preferred stock
—

 
—

 
—

 
(2,531
)
 
—

 
(2,531
)
Balance, March 31, 2013
$
150,000

 
$
1,221

 
$
823,696

 
$
609,849

 
$
(80,324
)
 
$
1,504,442


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,
 
2014
 
2013
Operating Activities:
 
 
 
Net income
$
31,760

 
$
39,146

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
Amortization of premiums and deferred origination costs
8,423

 
10,385

Depreciation and amortization of tangible and intangible assets
8,753

 
9,901

Reclassification of net loss on settlement of interest rate swaps
4,050

 
5,357

Amortization and impairment of mortgage servicing rights, net of recoveries
15,631

 
22,523

Deferred income taxes (benefit)
9,853

 
2,839

Provision for loan and lease losses
3,071

 
1,919

Loss on other real estate owned (OREO)
892

 
1,923

Share-based compensation expense
1,719

 
1,779

Payments for settlement of forward interest rate swaps
(11,161
)
 
(14,416
)
Other operating activities
(896
)
 
299

Changes in operating assets and liabilities:
 
 
 
Loans held for sale, including proceeds from sales and repayments
199,591

 
(376,076
)
Other assets
71,148

 
95,214

Accounts payable and accrued liabilities
(40,241
)
 
(44,338
)
Net cash provided by (used in) operating activities
302,593

 
(243,545
)
Investing Activities:
 
 
 
Investment securities available for sale:
 
 
 
Purchases
(77,994
)
 
—

Proceeds from prepayments and maturities
76,687

 
122,874

Investment securities held to maturity:
 
 
 
Purchases
(14,162
)
 
(8,900
)
Proceeds from prepayments and maturities
4,332

 
27,365

Purchases of other investments
(72,902
)
 
(40,175
)
Proceeds from sales of other investments
78,048

 
54,277

Net change in loans and leases held for investment
(753,139
)
 
98,476

Purchases of premises and equipment, including equipment under operating leases
(5,092
)
 
(3,852
)
Purchases of mortgage servicing assets
(1,320
)
 
—

Proceeds related to sale or settlement of other real estate owned
8,837

 
5,540

Proceeds from insured foreclosure claims
59,616

 
59,817

Proceeds from sale of mortgage servicing rights
37,738

 
289

Other investing activities
1,075

 
(2,443
)
Net cash provided by (used in) investing activities
(658,276
)
 
313,268

Financing Activities:
 
 
 
Net increase (decrease) in nonmaturity deposits
(148,422
)
 
524,999

Net increase (decrease) in time deposits
161,977

 
11,827

Net change in repurchase agreements
—

 
(142,322
)
Net change in short-term Federal Home Loan Bank (FHLB) advances
(25,000
)
 
(400,000
)
Proceeds from long-term FHLB advances
75,000

 
150,000

Repayments of long-term FHLB advances, including early extinguishment
(50,000
)
 
(73,158
)
Proceeds from issuance of common stock
210

 
8,551

Other financing activities
(6,031
)
 
(138
)
Net cash provided by (used in) financing activities
7,734

 
79,759

Net change in cash and cash equivalents
(347,949
)
 
149,482

Cash and cash equivalents at beginning of period
847,778

 
443,914

Cash and cash equivalents at end of period
$
499,829

 
$
593,396


See Note 1 for disclosures related to supplemental noncash information.
See notes to unaudited condensed consolidated financial statements.

7
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 savings and loan holding company with two direct operating subsidiaries, EverBank (EB) and EverBank Funding, LLC (EBF). EB is a federally chartered thrift institution with its home office located in Jacksonville, Florida. Its direct banking services are offered nationwide. In addition, EB operates financial centers in Florida and commercial and consumer lending centers across the United States. EB (a) accepts deposits from the general public; (b) originates, purchases, services, sells and securitizes residential real estate mortgage loans, commercial real estate loans and commercial loans and leases; (c) originates consumer and home equity loans; and (d) 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.;
•EverBank Wealth Management, Inc.; and
•Business Property Lending, Inc.
On February 14, 2013, the Company formed EverBank Funding, LLC, a Delaware limited liability company, to facilitate the pooling and securitization of mortgage loans for issuance into the secondary market.
b) 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. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the audited consolidated financial statements and accompanying notes to the financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2013. Operating results for the interim periods disclosed herein are not necessarily indicative of the results that may be expected for the year ending December 31, 2014.    The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its majority-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The results of operations for acquired companies are included from their respective dates of acquisition. 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 condensed 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, contingent liabilities, and the fair values of investment securities, loans held for sale, MSR 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.    
c) Supplemental Cash Flow Information - Noncash investing activities are presented in the following table:
 
Three Months Ended
March 31,
 
2014
 
2013
Supplemental Schedules of Noncash Activities:
 
 
 
Loans transferred to foreclosure claims
$
119,353

 
$
142,289

Loans transferred from held for investment to held for sale
110,209

 
101,984

2.  Recent Accounting Pronouncements
Presentation of Residential Mortgage Loans Upon Foreclosure — In January 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2014-04, Receivables- Troubled Debt Restructurings by Creditors (Subtopic 310-40), which will eliminate diversity in practice regarding the timing of derecognition for residential mortgage loans when a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan. Under ASU 2014-04, physical possession of residential real estate property is achieved when either the creditor obtains legal title to the residential real estate property upon completion of a foreclosure or the borrower conveys all interest in the residential real estate property through completion of a deed in lieu of foreclosure in order to satisfy that loan. Once physical possession has been achieved, the loan is derecognized and the property recorded within other assets at the lower of cost or fair value (less estimated costs to sell). In addition, the guidance requires both interim and annual disclosure of both the amount of foreclosed residential real estate property held by the creditor and the recorded investment in consumer mortgage loans collateralized by residential real estate property that are in the process of foreclosure. The additional disclosure requirements are effective for annual reporting periods beginning on or after December 15, 2014, and interim periods within those annual periods with retrospective disclosure necessary for all comparative periods presented. The adoption of this standard will result in additional disclosures but is not expected to have any impact on the Company’s condensed consolidated financial statements or results of operations.

8
Table of Contents

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, 2014 and December 31, 2013:
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
 
Carrying Amount
March 31, 2014
 
 
 
 
 
 
 
 
 
Available for sale:
 
 
 
 
 
 
 
 
 
Residential collateralized mortgage obligations (CMO) securities - nonagency
$
1,101,296

 
$
13,445

 
$
3,264

 
$
1,111,477

 
$
1,111,477

Asset-backed securities (ABS)
3,260

 
—

 
640

 
2,620

 
2,620

Other
2,924

 
1,625

 
—

 
4,549

 
4,549

Total available for sale securities
$
1,107,480

 
$
15,070

 
$
3,904

 
$
1,118,646

 
$
1,118,646

Held to maturity:
 
 
 
 
 
 
 
 
 
Residential CMO securities - agency
$
38,289

 
$
1,116

 
$
2

 
$
39,403

 
$
38,289

Residential mortgage-backed securities (MBS) - agency
78,695

 
856

 
1,044

 
78,507

 
78,695

Total held to maturity securities
$
116,984

 
$
1,972

 
$
1,046

 
$
117,910

 
$
116,984

December 31, 2013
 
 

 
 
 
 
 
 
Available for sale:
 
 
 
 
 
 
 
 
 
Residential CMO securities - nonagency
$
1,097,293

 
$
15,253

 
$
3,275

 
$
1,109,271

 
$
1,109,271

Asset-backed securities
4,144

 
—

 
1,058

 
3,086

 
3,086

Other
2,933

 
337

 
—

 
3,270

 
3,270

Total available for sale securities
$
1,104,370

 
$
15,590

 
$
4,333

 
$
1,115,627

 
$
1,115,627

Held to maturity:
 
 
 
 
 
 
 
 
 
Residential CMO securities - agency
$
41,347

 
$
1,408

 
$
5

 
$
42,750

 
$
41,347

Residential MBS - agency
65,965

 
754

 
1,548

 
65,171

 
65,965

Total held to maturity securities
$
107,312

 
$
2,162

 
$
1,553

 
$
107,921

 
$
107,312

At March 31, 2014 and December 31, 2013, investment securities with a carrying value of $187,240 and $181,836, respectively, were pledged to secure other borrowings, securities sold under agreements to repurchase, and for other purposes as required or permitted by law.
For the three months ended March 31, 2014 and 2013, there were no gross gains or gross losses realized on available for sale investments.
The gross unrealized losses and fair value of the Company’s investments in an unrealized loss position at March 31, 2014 and December 31, 2013, aggregated by investment category and the length of time individual securities have been in a continuous unrealized loss position, are as follows:
 
Less Than 12 Months
 
12 Months or Greater
 
Total
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
 
Fair Value
 
Unrealized Losses
March 31, 2014
 
 
 
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
 
 
 
 
Residential CMO securities - nonagency
$
263,146

 
$
3,039

 
$
10,262

 
$
225

 
$
273,408

 
$
3,264

Residential CMO securities - agency
633

 
2

 
—

 
—

 
633

 
2

Residential MBS - agency
51,957

 
917

 
2,237

 
127

 
54,194

 
1,044

Asset-backed securities
—

 
—

 
2,620

 
640

 
2,620

 
640

Total debt securities
$
315,736

 
$
3,958

 
$
15,119

 
$
992

 
$
330,855

 
$
4,950

December 31, 2013
 
 
 
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
 
 
 
 
Residential CMO securities - nonagency
$
169,829

 
$
3,012

 
$
10,932

 
$
263

 
$
180,761

 
$
3,275

Residential CMO securities - agency
887

 
5

 
—

 
—

 
887

 
5

Residential MBS - agency
54,355

 
1,548

 
—

 
—

 
54,355

 
1,548

Asset-backed securities
—

 
—

 
3,086

 
1,058

 
3,086

 
1,058

Total debt securities
$
225,071

 
$
4,565

 
$
14,018

 
$
1,321

 
$
239,089

 
$
5,886

The Company had unrealized losses at March 31, 2014 and December 31, 2013 on residential CMO securities, residential agency MBS, and ABS. These unrealized losses are primarily attributable to weak market conditions and interest rates. Based on the nature of the 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.

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Table of Contents

At March 31, 2014, the Company had 50 debt securities in an unrealized loss position. A total of 42 were in an unrealized loss position for less than 12 months. These 42 securities consisted of 27 residential nonagency CMO securities, one residential agency CMO security and 14 residential agency MBS. The remaining eight debt securities were in an unrealized loss position for 12 months or longer. These eight securities consisted of three ABS, one residential agency MBS and four residential nonagency CMO securities. Of the $4,950 in unrealized losses, $3,942 relate to debt securities that are rated investment grade with the remainder representing securities for which the Company believes it has both the intent and ability to hold to recovery.
At December 31, 2013, the Company had 36 debt securities in an unrealized loss position. A total of 29 were in an unrealized loss position for less than 12 months. These 29 securities consisted of 14 residential nonagency CMO securities, one residential agency CMO security and 14 residential agency MBS. The remaining seven debt securities were in an unrealized loss position for 12 months or longer. These seven securities consisted of three ABS and four non agency residential CMO securities. Of the $5,886 in unrealized losses, $4,659 relate to debt securities that are rated investment grade with the remainder representing securities for which the Company believes it has both the intent and ability to hold to recovery.
When certain triggers indicate the likelihood of an other-than-temporary-impairment (OTTI) or the qualitative evaluation performed cannot support the expectation of recovering the entire amortized cost basis of an investment, the Company performs cash flow analyses that project 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 is recognized in earnings as a credit-related impairment, while the remaining difference between the fair value and the amortized cost is recognized in AOCI. There were no OTTI losses recognized on available for sale or held to maturity securities during the three months ended March 31, 2014 or 2013.
During the three months ended March 31, 2014 and 2013, interest and dividend income on investment securities was comprised of the
following:
 
Three Months Ended
March 31,
 
2014
 
2013
Interest income on available for sale securities
$
8,805

 
$
14,865

Interest income on held to maturity securities
781

 
624

Other interest and dividend income
245

 
761

 
$
9,831

 
$
16,250

All investment interest income recognized by the Company during the three months ended March 31, 2014 and 2013 was fully taxable.
4.  Loans Held for Sale
Loans held for sale as of March 31, 2014 and December 31, 2013, consist of the following:
 
March 31,
2014
 
December 31,
2013
Mortgage warehouse (carried at fair value)
$
488,976


$
613,459

Other residential (carried at fair value)
63,705


58,912

   Total loans held for sale carried at fair value
552,681

 
672,371

Government insured pool buyouts
26,570


53,823

Other residential
7,699

 
8,939

Commercial and commercial real estate
9,779


56,249

  Total loans held for sale carried at lower of cost or market
44,048

 
119,011

Total loans held for sale
$
596,729


$
791,382

The Company typically transfers originated or acquired residential mortgage loans to various financial institutions, government agencies, or government-sponsored enterprises. In addition, the Company enters into loan securitization transactions related to certain conforming and non-conforming residential mortgage loans. In connection with the conforming loan transactions, loans are converted into mortgage-backed securities issued primarily by the Federal Home Loan Mortgage Corporation (FHLMC), the Federal National Mortgage Association (FNMA) and the Government National Mortgage Association (GNMA), and are subsequently sold to third party investors. For non-conforming transactions the Company either sells whole loans to qualified institutional buyers or the Company’s special purpose wholly-owned subsidiary, EverBank Funding, LLC issues certificates that are offered and sold to qualified institutional buyers. Typically, the Company accounts for these transfers as sales and either retains or releases the right to service the loans. The servicing arrangement represents the Company's continuing involvement with these transferred loans.
In addition, the Company also may be exposed to limited liability related to recourse agreements and repurchase agreements made to our issuers and purchasers, which are included in commitments and contingencies in Note 13. Commitments and contingencies include amounts related to loans sold that we may be required to repurchase, or otherwise indemnify or reimburse the investor or insurer for losses incurred, due to material breach of contractual representations and warranties. Refer to Note 13 for the maximum exposure to loss for material breach of contractual representations and warranties.
Other residential loans held for sale carried at fair value represent preferred jumbo residential mortgage loans that the Company originated with the intent to market and sell in the secondary market either through third party sales or securitizations. The Company has elected the fair value option for these loans to provide a better offset of the changes in the fair values of the loans and the derivative instruments used to economically hedge them without the burden of complying with the requirements for hedge accounting.
Other residential loans held for sale that are carried at lower of cost or market value represent loans acquired or originated by the Company with the intention to hold these loans for a short duration and subsequently sell in the near term. Commercial and commercial real

10
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estate loans held for sale carried at the lower of cost or market represent the portion of certain commercial lines of credit that the Company has the intent to market and sell.
The following is a summary of cash flows related to transfers accounted for as sales for the three months ended March 31, 2014 and 2013:
 
Three Months Ended
March 31,
 
2014
 
2013
Proceeds received from agency securitizations
$
1,187,074

 
$
2,404,610

 
 
 
 
Proceeds received from nonagency sales - residential
76,387

 
341,882

Proceeds received from nonagency sales - commercial and commercial real estate
38,811

 
—

   Proceeds received from nonagency sales
$
115,198

 
$
341,882

 
 
 
 
Repurchased loans from agency securitizations
$
301

 
$
1,092

Repurchased loans from nonagency sales
1,152

 
5,277

The Company periodically transfers conforming residential GNMA mortgages in exchange for mortgage-backed securities.  As of March 31, 2014 and December 31, 2013, the Company retained $22,785 and $50,534, respectively, of these securities backed by the transferred loans and maintained effective control over these pools of transferred assets. Accordingly, the Company did not record these transfers as sales. These transferred assets were recorded in the condensed consolidated balance sheets as loans held for sale. The remaining securities were sold to unrelated third parties and were recorded as sales.
The gains and losses on the transfers which qualified as sales are recorded on the consolidated statements of income in gain on sale of loans, which includes the gain or loss on sale, change in fair value related to our fair value option loans, and the offsetting hedging positions.
In connection with these transfers, the Company recorded servicing assets in the amount of $11,552 and $23,501 for the three months ended March 31, 2014 and 2013, respectively. All servicing assets are initially recorded at fair value using a Level 3 measurement technique. Refer to Note 7 for information relating to servicing activities and MSR.
During the three months ended March 31, 2014, the Company transferred $26,351 in residential mortgage loans from loans held for sale to loans held for investment at lower of cost or market. A majority of these loans were originated residential preferred jumbo adjustable rate mortgages (ARM) which were intended to be sold in the secondary market. As a result of changing economic conditions and the Company's capacity and desire to hold these loans on the balance sheet, the Company intends to hold these loans for the foreseeable future and has transferred these loans to the held for investment portfolio. During the three months ended March 31, 2013, the Company transferred $24,440 in residential mortgage loans held for sale to loans held for investment at lower of cost or market as the Company had the intent to hold these loans for the foreseeable future.
During the three months ended March 31, 2014 and March 31, 2013, the Company transferred $110,209 and $101,984, respectively, of loans held for investment to held for sale at lower of cost or market. The majority of these loans were government insured pool buyouts initially originated for the held for investment portfolio. These loans were transferred to held for sale based upon a change in intent to no longer hold these loans for the foreseeable future.

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Table of Contents

5.  Loans and Leases Held for Investment, Net
Loans and leases held for investment as of March 31, 2014 and December 31, 2013 are comprised of the following:
 
March 31,
2014
 
December 31,
2013
Residential mortgages
$
7,599,826

 
$
7,044,743

Commercial and commercial real estate
4,819,020

 
4,812,970

Lease financing receivables
1,292,750

 
1,237,941

Home equity lines
147,086

 
151,916

Consumer and credit card
5,427

 
5,154

Total loans and leases held for investment, net of discounts
13,864,109

 
13,252,724

Allowance for loan and lease losses
(62,969
)
 
(63,690
)
Total loans and leases held for investment, net
$
13,801,140

 
$
13,189,034

As of March 31, 2014 and December 31, 2013, the carrying values presented above include net purchased loan and lease discounts and net deferred loan and lease origination costs as follows:
 
March 31,
2014
 
December 31,
2013
Net purchased loan and lease discounts
$
79,905

 
$
102,416

Net deferred loan and lease origination costs
64,688

 
54,107

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.
Acquisition date details of loans and leases acquired with evidence of credit deterioration during the three months ended March 31, 2014 and 2013 are as follows:
 
March 31,
2014
 
March 31,
2013
Contractual payments receivable for acquired loans and leases at acquisition
$
308,426

 
$
78,496

Expected cash flows for acquired loans and leases at acquisition
207,240

 
45,914

Basis in acquired loans and leases at acquisition
193,177

 
41,944

Information pertaining to the ACI portfolio as of March 31, 2014 and December 31, 2013 is as follows:
 
Residential
 
Commercial and Commercial Real Estate
 
Total      
March 31, 2014
 
 
 
 
 
Carrying value, net of allowance
$
757,833

 
$
307,806

 
$
1,065,639

Outstanding unpaid principal balance (UPB)
793,839

 
313,712

 
1,107,551

Allowance for loan and lease losses, beginning of period
4,925

 
9,834

 
14,759

Allowance for loan and lease losses, end of period
4,638

 
10,659

 
15,297

December 31, 2013
 
 
 
 
 
Carrying value, net of allowance
$
646,470

 
$
331,771

 
$
978,241

Outstanding unpaid principal balance
696,222

 
339,179

 
1,035,401

Allowance for loan and lease losses, beginning of year
5,175

 
16,789

 
21,964

Allowance for loan and lease losses, end of year
4,925

 
9,834

 
14,759

The Company recorded $534 and $1,570 in provision for loan and lease losses for the ACI portfolio for the three months ended March 31, 2014 and 2013, respectively. The adjustments to provision are the result of changes in expected cash flows on ACI loans.

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Table of Contents

The following is a summary of the accretable yield activity for the ACI loans during the three months ended March 31, 2014 and 2013:
 
Residential
 
Commercial and Commercial Real Estate
 
Total      
March 31, 2014
 
 
 
 
 
Balance, beginning of period
$
101,183

 
$
59,663

 
$
160,846

Additions
14,063

 
—

 
14,063

Accretion
(13,034
)
 
(5,563
)
 
(18,597
)
Reclassifications to accretable yield
2,056

 
17,916

 
19,972

Balance, end of period
$
104,268

 
$
72,016

 
$
176,284

March 31, 2013
 
 
 
 
 
Balance, beginning of period
111,868

 
108,540

 
220,408

Additions
3,970

 
—

 
3,970

Accretion
(10,132
)
 
(9,854
)
 
(19,986
)
Reclassifications (from) to accretable yield
2,034

 
10,551

 
12,585

Balance, end of period
$
107,740

 
$
109,237

 
$
216,977

Covered Loans and Leases — Covered loans and leases are acquired and recorded at fair value at acquisition, exclusive of the indemnification agreement with former shareholders of Tygris. All loans and leases acquired through the purchase of Tygris are considered covered during the applicable indemnification period. The recorded investment of loans covered under the Tygris indemnification agreement are $17,458 and $24,330 at March 31, 2014 and December 31, 2013, respectively. As of March 31, 2014, the Company does not expect to receive cash payments under these indemnification agreements due to the performance of the underlying loans.

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Table of Contents

6.  Allowance for Loan and Lease Losses
Changes in the allowance for loan and lease losses for the three months ended March 31, 2014 and 2013 are as follows:
Three Months Ended March 31, 2014
Residential Mortgages
 
Commercial
and Commercial Real Estate
 
Lease Financing Receivables    
 
Home Equity Lines
 
Consumer and Credit Card
 
Total    
Balance, beginning of period
$
26,497

 
$
29,987

 
$
4,273

 
$
2,812

 
$
121

 
$
63,690

Provision for loan and lease losses
1,503

 
284

 
1,038

 
283

 
(37
)
 
3,071

Charge-offs
(3,165
)
 
(5
)
 
(1,189
)
 
(316
)
 
(15
)
 
(4,690
)
Recoveries
566

 
1

 
190

 
141

 
—

 
898

Balance, end of period
$
25,401

 
$
30,267

 
$
4,312

 
$
2,920

 
$
69

 
$
62,969

Three Months Ended March 31, 2013
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
33,631

 
$
39,863

 
$
3,181

 
$
5,265

 
$
162

 
$
82,102

Provision for loan and lease losses
1,512

 
(324
)
 
1,038

 
(323
)
 
16

 
1,919

Charge-offs
(5,069
)
 
(1,447
)
 
(708
)
 
(489
)
 
(20
)
 
(7,733
)
Recoveries
111

 
443

 
79

 
129

 
17

 
779

Balance, end of period
$
30,185

 
$
38,535

 
$
3,590

 
$
4,582

 
$
175

 
$
77,067

 
 
 
 
 
 
 
 
 
 
 
 
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, 2014 and December 31, 2013:
March 31, 2014
Individually Evaluated for Impairment
 
Collectively Evaluated for Impairment
 
ACI Loans
 
Total
Allowance for Loan and Lease Losses
 
 
 
 
 
 
 
Residential mortgages
$
8,630

 
$
12,133

 
$
4,638

 
$
25,401

Commercial and commercial real estate
928

 
18,680

 
10,659

 
30,267

Lease financing receivables
—

 
4,312

 
—

 
4,312

Home equity lines
—

 
2,920

 
—

 
2,920

Consumer and credit card
—

 
69

 
—

 
69

Total allowance for loan and lease losses
$
9,558

 
$
38,114

 
$
15,297

 
$
62,969

Loans and Leases Held for Investment at Recorded Investment
 
 
 
 
 
 
 
Residential mortgages
$
83,240

 
$
6,754,115

 
$
762,471

 
$
7,599,826

Commercial and commercial real estate
30,128

 
4,470,427

 
318,465

 
4,819,020

Lease financing receivables
—

 
1,292,750

 
—

 
1,292,750

Home equity lines
—

 
147,086

 
—

 
147,086

Consumer and credit card
—

 
5,427

 
—

 
5,427

Total loans and leases held for investment
$
113,368

 
$
12,669,805

 
$
1,080,936

 
$
13,864,109

 
 
 
 
 
 
 
 
December 31, 2013
Individually Evaluated for Impairment
 
Collectively Evaluated for Impairment
 
ACI Loans
 
Total
Allowance for Loan and Lease Losses
 
 
 
 
 
 
 
Residential mortgages
$
9,134

 
$
12,438

 
$
4,925

 
$
26,497

Commercial and commercial real estate
248

 
19,905

 
9,834

 
29,987

Lease financing receivables
—

 
4,273

 
—

 
4,273

Home equity lines
—

 
2,812

 
—

 
2,812

Consumer and credit card
—

 
121

 
—

 
121

Total allowance for loan and lease losses
$
9,382

 
$
39,549

 
$
14,759

 
$
63,690

Loans and Leases Held for Investment at Recorded Investment
 
 
 
 
 
 
 
Residential mortgages
$
90,472

 
$
6,302,876

 
$
651,395

 
$
7,044,743

Commercial and commercial real estate
22,747

 
4,448,618

 
341,605

 
4,812,970

Lease financing receivables
—

 
1,237,941

 
—

 
1,237,941

Home equity lines
—

 
151,916

 
—

 
151,916

Consumer and credit card
—

 
5,154

 
—

 
5,154

Total loans and leases held for investment
$
113,219

 
$
12,146,505

 
$
993,000

 
$
13,252,724


14
Table of Contents

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 by credit administration personnel based on current information and events. The Company monitors the credit quality of all other loan types based on performing status.
The following tables present the recorded investment for loans and leases by credit quality indicator as of March 31, 2014 and December 31, 2013:
 
 
 
Non-performing    
 
 
 
 
 
Performing
 
Accrual
 
Nonaccrual
 
Total
 
 
March 31, 2014
 
 
 
 
 
 
 
 
 
Residential mortgages:
 
 
 
 
 
 
 
 
 
Residential (1)
$
5,643,662

 
$
—

 
$
44,391

 
$
5,688,053

 
 
Government insured pool buyouts (2) (3)
1,321,449

 
590,324

 
—

 
1,911,773

 
 
Lease financing receivables
1,287,304

 
—

 
5,446

 
1,292,750

 
 
Home equity lines
143,624

 
—

 
3,462

 
147,086

 
 
Consumer and credit card
5,393

 
—

 
34

 
5,427

 
 
Total
$
8,401,432

 
$
590,324

 
$
53,333

 
$
9,045,089

 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
 
Special Mention
 
Substandard
 
Doubtful
 
Total
March 31, 2014
 
 
 
 
 
 
 
 
 
Commercial and commercial real estate:
 
 
 
 
 
 
 
 
 
Commercial
$
1,664,499

 
$
—

 
$
1,187

 
$
—

 
$
1,665,686

Commercial real estate
2,960,278

 
29,724

 
163,332

 
—

 
3,153,334

Total commercial and commercial real estate
$
4,624,777

 
$
29,724

 
$
164,519

 
$
—

 
$
4,819,020

 
 
 
 
 
 
 
 
 
 
 
 
 
Non-performing
 
 
 
 
 
Performing
 
Accrual
 
Nonaccrual
 
Total
 
 
December 31, 2013
 
 
 
 
 
 
 
 
 
Residential mortgages:
 
 
 
 
 
 
 
 
 
Residential (1)
$
5,096,589

 
$
—

 
$
56,517

 
$
5,153,106

 
 
Government insured pool buyouts (2) (3)
1,219,719

 
671,918

 
—

 
1,891,637

 
 
Lease financing receivables
1,233,414

 
—

 
4,527

 
1,237,941

 
 
Home equity lines
148,646

 
—

 
3,270

 
151,916

 
 
Consumer and credit card
5,117

 
—

 
37

 
5,154

 
 
Total
$
7,703,485

 
$
671,918

 
$
64,351

 
$
8,439,754

 
 
 
 
Pass
 
Special Mention
 
Substandard
 
Doubtful
 
Total
December 31, 2013
 
 
 
 
 
 
 
 
 
Commercial and commercial real estate:
 
 
 
 
 
 
 
 
 
Commercial
$
1,621,479

 
$
135

 
$
1,106

 
$
—

 
$
1,622,720

Commercial real estate
2,989,493

 
34,012

 
166,745

 
—

 
3,190,250

Total commercial and commercial real estate
$
4,610,972

 
$
34,147

 
$
167,851

 
$
—

 
$
4,812,970

(1)
For the periods ended March 31, 2014 and December 31, 2013, performing residential mortgages included $7,164 and $7,879, respectively, of ACI loans greater than 90 days past due and still accruing.
(2)
For the periods ended March 31, 2014 and December 31, 2013, performing government insured pool buyouts included $430,147 and $350,312, respectively, of ACI loans greater than 90 days past due and still accruing.
(3)
Non-performing government insured pool buyouts represent loans that are 90 days or greater past due but remain on accrual status as the interest earned is insured and thus collectible from the insuring governmental agency.

15
Table of Contents

The following tables present an aging analysis of the recorded investment for loans and leases by class as of March 31, 2014 and December 31, 2013:
 
30-59 Days Past Due
 
60-89 Days Past Due
 
90 Days and Greater Past Due
 
Total Past Due
 
Current
 
Total Loans Held for Investment Excluding ACI
March 31, 2014
 
 
 
 
 
 
 
 
 
 
 
Residential mortgages:
 
 
 
 
 
 
 
 
 
 
 
Residential
$
10,860

 
$
8,060

 
$
44,391

 
$
63,311

 
$
5,557,545

 
$
5,620,856

Government insured pool buyouts (1)
69,281

 
36,971

 
590,324

 
696,576

 
519,923

 
1,216,499

Commercial and commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
Commercial
5

 
—

 
57

 
62

 
1,658,398

 
1,658,460

Commercial real estate
—

 
1,076

 
—

 
1,076

 
2,841,019

 
2,842,095

Lease financing receivables
9,107

 
2,711

 
2,260

 
14,078

 
1,278,672

 
1,292,750

Home equity lines
458

 
629

 
3,462

 
4,549

 
142,537

 
147,086

Consumer and credit card
12

 
10

 
34

 
56

 
5,371

 
5,427

Total loans and leases held for investment
$
89,723

 
$
49,457

 
$
640,528

 
$
779,708

 
$
12,003,465

 
$
12,783,173

 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2013
 
 
 
 
 
 
 
 
 
 
 
Residential mortgages:
 
 
 
 
 
 
 
 
 
 
 
Residential
$
10,145

 
$
4,683

 
$
56,517

 
$
71,345

 
$
5,011,257

 
$
5,082,602

Government insured pool buyouts (1)
90,795

 
55,666

 
671,918

 
818,379

 
492,367

 
1,310,746

Commercial and commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
Commercial
—

 
2

 
1,005

 
1,007

 
1,613,899

 
1,614,906

Commercial real estate
2,909

 
—

 
—

 
2,909

 
2,853,550

 
2,856,459

Lease financing receivables
7,277

 
3,098

 
1,024

 
11,399

 
1,226,542

 
1,237,941

Home equity lines
2,614

 
396

 
3,270

 
6,280

 
145,636

 
151,916

Consumer and credit card
23

 
12

 
37

 
72

 
5,082

 
5,154

Total loans and leases held for investment
$
113,763

 
$
63,857

 
$
733,771

 
$
911,391

 
$
11,348,333

 
$
12,259,724

(1)
Government insured pool buyouts remain on accrual status after 90 days as the interest earned is collectible from the insuring governmental agency.
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 unpaid principal balance, the recorded investment and the related allowance for impaired loans as of March 31, 2014 and December 31, 2013:
 
March 31, 2014
 
December 31, 2013
 
Unpaid Principal Balance
 
Recorded Investment (1)
 
Related Allowance
 
Unpaid Principal Balance
 
Recorded Investment (1)
 
Related Allowance
With an allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
Residential mortgages:
 
 
 
 
 
 
 
 
 
 
 
Residential
$
64,466

 
$
61,072

 
$
8,630

 
$
67,663

 
$
64,079

 
$
9,134

Commercial and commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
Commercial real estate
7,514

 
7,499

 
928

 
1,161

 
1,172

 
248

Total impaired loans with an allowance recorded
$
71,980

 
$
68,571

 
$
9,558

 
$
68,824

 
$
65,251

 
$
9,382

 
 
 
 
 
 
 
 
 
 
 
 
Without a related allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
Residential mortgages:
 
 
 
 
 
 
 
 
 
 
 
Residential
$
28,500

 
$
22,168

 
 
 
$
34,898

 
$
26,393

 
 
Commercial and commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
Commercial
1

 
1

 
 
 
—

 
—

 
 
Commercial real estate
23,258

 
22,628

 
 
 
23,281

 
21,575

 
 
Total impaired loans without an allowance recorded
$
51,759

 
$
44,797

 
 
 
$
58,179

 
$
47,968

 
 
(1)
The primary difference between the unpaid principal balance and recorded investment represents charge offs previously taken.

16
Table of Contents

The following table presents the average investment and interest income recognized on impaired loans for the three months ended March 31, 2014 and 2013:
 
Three Months Ended March 31,
 
2014
 
2013
 
Average Investment
 
Interest Income Recognized
 
Average Investment
 
Interest Income Recognized
With and without a related allowance recorded:
 
 
 
 
 
 
 
Residential mortgages:
 
 
 
 
 
 
 
Residential
$
86,856

 
$
617

 
$
95,534

 
$
770

Commercial and commercial real estate:
 
 
 
 
 
 
 
Commercial
1

 
—

 
6,351

 
2

Commercial real estate
26,437

 
166

 
79,940

 
214

Total impaired loans
$
113,294

 
$
783

 
$
181,825

 
$
986

 
 
 
 
 
 
 
 
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, 2014 and December 31, 2013:
 
March 31, 2014
 
December 31, 2013
 
Nonaccrual Status
 
Greater than 90 Days Past Due and Accruing