EverBank Muscles Up With Buyout, Wall Street Cheers
The team atEverBank Financial ( EVER ) wasted no time hitting the acquisition trail after taking the company public May 3.
Last month, EverBank moved to further accelerate its growth plans by closing on the purchase of Business Property Lending, North America, a unit of GE Capital Real Estate, North America.
EverBank paidGeneral Electric ( GE ) $2.41 billion for Business Property, which originates and services commercial real estate loans for properties owned or leased by small and midsize businesses nationwide.
The Jacksonville, Fla.-based EverBank offers an array of banking, lending and investing products to consumers and businesses. It markets and distributes its products and services primarily through its integrated online financial portal, which is augmented by a nationwide network of independent financial advisers, 14 financial centers in targeted Florida markets and other financial intermediaries.
A large share of its deposit base and growth is related to the direct bank, though the branches are still an important part of the overall banking business.
All of its channels are connected by technology-driven centralized platforms, which provide operating leverage throughout its business.
EverBank had $16.5 billion in assets and $11.8 billion in deposits as of Sept. 30.
The Business Property buy included roughly $2.33 billion of performing commercial loans, the origination and servicing platforms, 110 employees and servicing rights on $2.9 billion in loans securitized by GE Capital.
"This acquisition made a great deal of sense for our company and we believe it will create real, durable long-term value for us," said Chief Executive Rob Clements. "We view this acquisition as another good example of EverBank's commitment to execute our strategic growth plan, diversify our balance sheet and grow our nationwide distribution capabilities."
The buy significantly expands EverBank's presence in this market segment coast to coast, he adds, and brings a team of highly seasoned lending professionals. It also brings a "robust pipeline" upon which EverBank can expand. And it provides an opportunity to expand customer relationships and offer products and services from other parts of the company.
Now called EverBank Business Property Lending, the unit provides commercial loans for properties owned or leased by small and midsize businesses, as well as single and multicredit tenant lease financing nationwide.
EverBank, which traces its roots to residential mortgage servicing and origination, has made several strategic acquisitions over the years. That includes the November 2002 purchase of CustomerOne Financial Network, which became the basis for its online banking platform.
Business Property is one of three recent acquisitions that complement EverBank's historical investment in residential mortgage lending, says Clements. In April, EverBank bought MetLife Warehouse Finance, which included roughly $350 million of loans outstanding. The business, now called EverBank Mortgage Warehouse Finance, provides funding for midsize, high-quality mortgage lenders across the U.S.
Warehouse loans are short-term revolving facilities, primarily securitized by agency and government collateral.
In February 2010, EverBank gained an equipment leasing origination channel through the purchase of Tygris Finance Group, Inc., a commercial finance and leasing company, which had $359.6 million of equity after purchase accounting adjustments.
All three of these acquired companies fit EverBank's business model and allow the company to diversify its product mix, Clements said.
"An important objective over the past several years is to continue to invest in residential mortgage lending and diversify into other product categories," he adds.
The Business Property buyout helps diversify EverBank's business mix and gives it another avenue for growth in commercial real estate loans, concurs Macquarie Capital analyst Thomas Alonso.
He says EverBank's more recent acquisitions are businesses that no longer made sense for their owners to hold .
"For EverBank, these acquisitions are opportunistic purchases that are going to benefit the longer-term growth of its loans," he said.
Clements says management is focused on integrating recent acquisitions and supporting existing channels.
"We're really experiencing strong growth in all our core business channels," he said.
In the third quarter, adjusted diluted earnings rose 11% to 30 cents a share, topping forecasts from analysts polled by Thomson Reuters.
Asset quality improved during the quarter. Adjusted nonperforming assets were 1.29% of total assets, compared to 1.46% in the second quarter and 1.73% for the third quarter of 2011.
Deposits were $11.8 billion, a 9% increase from the prior quarter and a 16% gain from a year earlier.
"The mortgage banking environment continued to strengthen in the third quarter with origination volumes increasing 12% compared to the second quarter," said President W. Blake Wilson in a statement.
Clements said all of EverBank's core business lines performed very well, and its recently acquired businesses also are seeing strong growth.
Investors have taken notice. After a slow start following its market debut, EverBank shares picked up steam over the summer, says Alonso, and have seen a nice run-up in the fall. Its stock price has shot up more than 40% since its market debut.
The reason its stock has performed so well? "EverBank is a growth story in an industry with very few growth stories," said Alonso.
He says while the rest of the industry is seeing average loan growth of low-single-digits at best, EverBank will grow loans almost 40% year over year this year.
"That makes people take notice," he said.
Analysts polled by Thomson Reuters expect full-year earnings to grow 51% to $1.25 a share. They see a 10% rise in 2013.
"I think there's a lot of opportunity for what they have in place to drive solid margins growth," said Alonso.
Clements says the climate for EverBank's business is very favorable.
"We're very pleased with our performance year to date, and looking forward we think the environment will be favorable for us," he adds.