Good morning, ladies and gentlemen. Thank you for standing by. Welcome to EverBank Financial Corp's Third Quarter 2014 Earnings Conference Call. My name is Andrew and I will be your conference operator today. At this time, all participants are in a listen-only mode.

After the prepared remarks, EverBank Financial Corp's management will conduct a question-and-answer session. (Operator Instructions) As a reminder, this conference call is being recorded. I would now like to turn the conference call over to Scott Verlander, Vice President, Corporate Development and Investor Relations for the company.

Please go ahead sir..

Thank you, Andrew. Good morning, everyone, and welcome to EverBank Financial Corp's third quarter 2014 earnings call. Today I'm joined by Rob Clements, our Chairman and CEO; Blake Wilson, our President and COO; and Steve Fisher, our Executive Vice President and CFO.

Before we begin, I would like to remind you that our third quarter earnings release and financial tables are available on the Investor Relations section of our website. I would also like to remind you certain comments made on today's call are forward-looking statements related to the Company and are subject to risks and uncertainties.

Factors may cause our actual results to differ from expectations are detailed in the Company's filings with the SEC. In addition, some of the Company's remarks this morning may contain non-GAAP financial measures. You can find reconciliations to the most comparable GAAP measures in the Company's earnings release and financial tables.

I would now like to turn the call over to the Company's Chairman and CEO, Rob Clements..

Thank you, Scott and good morning everyone. We are pleased with our third quarter performance as we delivered strong earnings and ROE driven by continued robust loan and deposit growth across our consumer and commercial banking segments.

In addition, we benefited from the full quarter impact of our strategic repositioning initiatives which resulted in a lower level of expenses and a meaningful improvement in our efficiency.

Net income available to common shareholders was $41 million in the third quarter compared to $32 million last quarter and $31 million in the third quarter last year. Earnings for fully diluted share were $0.33 in the quarter compared to $0.26 last quarter and $0.25 in the third quarter last year.

Return on average equity was 10.6% during the third quarter and tangible common equity per share increased 8% year-over-year to $12.36 at September 30th.

We continue to achieve strong loan originations in the quarter that resulted in total portfolio loans and leases growing $1.3 billion to $16.6 billion which represents an 8% increase compared to the prior quarter.

Total assets grew 4% sequentially to $20.5 billion and deposits increase 4% to $14.5 billion driven by continued success in our commercial deposit growth initiative. Our capital position remains strong in the third quarter with a bank Tier 1 leverage ratio of 8.5%, a bank total risk-based capital ratio of 14% and a Tier 1 common ratio of 12%.

These levels are at the high end of our targeted range and position us to continue executing on our growth objective. And finally asset quality remained strong in the quarter with adjusted non-performing assets of 50 basis points and annualized net charge-offs of nine basis points.

Looking forward we are confident in our ability to continue growing our loan portfolio which will allow us to leverage our platform and position us to continue improving the earnings and return profile of our business over the immediate term. I will now turn the call over to Blake..

Thanks, Rob and good morning, everyone. Retained originations were $1.7 billion in the quarter, an increase of 4% compared to the prior quarter and 66% increase year-over-year. Year-to-date retained originations were $4.3 billion or $5.8 billion annualized which remains ahead of our targets for the year.

In the third quarter, we originated $754 million of commercial and commercial real estate loans and leases to small and mid-size businesses, which represents a 10% increase compared to the prior quarter and a 115% increase year-over-year.

The strong sequential growth was driven by an 80% increase in commercial real estate originations to $219 million. We were pleased to see this pick in commercial real estate closings during the quarter, as well as the continued strength in our commercial finance and leasing originations.

We expect these trends to continue into the fourth quarter driven by our robust commercial pipeline which totaled nearly $1 billion as of September 30th, an increase of 18% sequentially.

We continue to be pleased with the profile of our growing commercial client base and I would like to again highlight some recent transactions to demonstrate the quality of the assets we are originating.

To give you an example, the typical single tenant loan we closed an $8 million, 70% loan-to-value, full recourse loan in Denver secured by a lease to a leading upscale grocery store operator in the quarter with pricing in the upper 4% range.

Another representative transaction is a $10 million, 58% loan-to-value loan in Southern California secured by a multi-tenant retail shopping center that was priced in the mid 4% range which also comes with the commercial deposit relationship.

These types of transactions represent the nationwide reach, geographic diversification in terms that fit our credit risk appetite. We also enjoyed strong growth in our consumer lending business, which strategically focuses on serving the needs of our core consumer clients with prime purchase-oriented lending in top metro markets nationwide.

During the quarter, prime jumbo originations were $1.2 billion, a 7% increase compared to the second quarter and a 55% increase year-over-year.

The client profile of our jumbo loan originations has remained consistent, as we continue to grow the business with an average balance of approximately $800,000, an average loan-to-value of 70% and an average FICO score of 763. Total residential originations were $2.3 billion in the third quarter, an increase of 3% in the quarter.

Purchase transactions represented 59% of total loans in the quarter and our retail channel purchase mix was strong at 72% Total deposits increased approximately $600 million or 4% from the prior quarter to $14.5 billion in line with our expected funding plan, as we continue to see momentum from our targeted marketing efforts in recent quarters.

Commercial deposits were a highlight as they grew 31% in the quarter to $2.4 billion and are up 35% year-over-year. As we indicated last quarter, we have dedicated resources to this initiative and I'm pleased by the commercial clients receptivity to our value proposition. We expect continued momentum throughout the fourth quarter and into next year.

Now, I would like to turn the call over to Steve to cover the financial results for the quarter in more detail..

Thanks Blake and good morning. Net interest income was $146 million in the quarter, an increase of $6 million or 4% compared to the second quarter driven by $1.7 billion or 10% sequential increase in average interest earning assets.

Net interest income represented over 62% of total revenue in the quarter, and we expect the mix to spread revenue to continue to grow in the future. Net interest margin declined 20 basis points in the quarter to 3.02%.

The decline was driven by a 17 basis point decline in average interest earning asset yield resulting from the asset rotation strategies in the shorter duration assets that we discussed last quarter, as well as one-off of higher yielding assets.

Specifically the average yield on our government insured pool buyouts declined 53 basis points in the quarter which contributed to approximately 10 basis points of the total NIM decline.

While having a negative impact on our overall margin, we believe that the shorter duration Ginnie Mae buyouts allow us to maintain balance sheet flexibility and generate attractive risk adjusted returns.

In addition, we experienced lower yields in both of our commercial finance businesses which contributed to approximately six basis points of the NIM decline. This was driven by a recent opportunity to pursue larger transactions sizes, which tend to tighter spreads due to the investment group quality of the typical clients.

Commercial and commercial real estate and mortgage warehouse finance average yields increased five and six basis point respectively compared to the second quarter. Our credit trends continue to be strong as our non-performing assets declined to 50 basis points and net charge-offs declined to nine basis points.

At quarter end, approximately 90% or $4.5 billion of our originated and retained non government residential held for investment portfolio was originated in 2010 or later with an average LTV of approximately 66% and a weighted average FICO score of 7.64.

In addition, approximately 93% or $3.2 billion of our originated commercial and commercial real estate loans were originated in 2010 or later. The profile of these loans are strong with a weighted average LTV of 66% on a commercial real estate loan originations.

Non-interest income was $88 million for the third quarter, a decrease of $1 million or 1% quarter-over-quarter. Gain on sale loans was flat quarter-over-quarter at $48 million on loans sold $2.2 billion.

Net loans servicing income declined $2 million or 9% quarter-over-quarter driven by a $5 million or 11% decline in loan servicing fee income and a $1 million or 3% increase in amortization. Partially offsetting this decline was a $3 million valuation allowance recovery.

We are now fully recovered the entire valuation allowance incurred on our MSR asset. Non-interest expense decreased $10 million or 6% to $158 million in the third quarter driven by lower salaried expense, O&E expense and lower G&A expenses. Salaries, benefits and commissions declined 5% compared to the second quarter than $91 million.

The primary driver was the full quarter impact from lower staffing levels resulting from a transfer of our default servicing platform to Green Tree in May.

G&A expense declined $4 million or 8% compared to the second quarter to $43 million driven by lower credit related expense, FDIC and other agency fees, consent order expense, and other G&A partially offset by higher advertising and sub-servicing expense.

We are pleased with the progress we continue to make in driving efficiency across our franchise, as evidenced by the 600 basis point decline in our efficiency ratio to 67% in the quarter. Consistent with our previous guidance, we continue to expect total non-interest expense to be approximately $650 million for 2014.

Now I would like to turn it back over to Rob for some closing remarks..

Thanks Steve. Overall we are pleased with our results for the quarter, which capture the full impact of the numerous strategic repositioning initiatives we have executed over the past year.

We continue to benefit from our diversified business model, which has enabled us to produce strong and consistent results over many interest rate and economic cycles. In addition, our strong capital and liquidity levels have us well position to execute on our growth plans.

As always, we will continue to manage the business with the goal of achieving sustainable risk adjusted returns on equity, which we believe is the formula for building shareholder value over the long term. Now, I would like to turn the call over to the operator for questions..

(Operator Instructions) First question comes from Michael Rose of Raymond James. Please go ahead..

Hey, good morning, guys.

How are you?.

Good morning, Michael..

Good morning..

Just on the expenses, you said you kind of still expect $650 million in non-interest expenses this year, that would imply a pretty steep ramp in the fourth quarter, and if that's the case, then what's going to drive that ramp?.

Hey Michael, we feel good about the pace we're on right now. I know its significant progress we've made in reducing non-interest expense. Certainly we feel very good about achieving our target or coming in under our target for the rest of the year. But that's still our target..

Okay. That's helpful..

Michael, just to add that, we were at $157 million – almost $158 million for the quarter, included in that was about $3 million of non recurring expenses. So, on a pure run rate we'd imply about closer to $155 million or $154 million. That will be influenced by the production volume and the commissions paid in the next quarter.

So, that's probably the biggest variable in that change to that run rate. So I think its - we’re obviously, are feeling very good about as Rob said, our guidance that we gave originally and certainly feel very confident that we will hit it or do better than the $650 million..

Okay. That's helpful. Then as my follow-up, can you just tell us what the loan pipeline was at the end of the quarter? I think last quarter was about $800 million. I'm just trying to get a sense for our origination volumes, and where the pipeline stands today? Thanks..

The pipeline that remain very strong which we indicated for commercial being right under $1 billion. Resi pipelines have come down slightly, but relative to the market environment, we continue to feel good about our prospects of gaining market share and continue to generate very attractive jumbo product for our balance sheet..

And Michael, if you want to look in table 11 in the financial table that’ll give you from residential side, what the changes in apps and rate locks, it's implying some seasonal decline there.

As you know, there is obviously, with some of the rallying in the bond market there is a – we saw some of the impact – positive impact origination volumes over the last couple of weeks.

So, while you'll get a glimpse that kind of at the quarter end as to what the rate locks are, we did see some of the benefit mid-quarter like some of the other lenders have indicated as well..

Understood. Thanks for taking my questions..

Thanks Mike..

(Operator Instructions) The next question comes from Jared Shaw of Wells Fargo Securities. Please go ahead..

Hi. Good morning. This is actually [T. Moore Braziller] (ph) filling in for Jared. My first question is on NIM and NIM projection going forward. I understand that the quarter decline was partially driven by the rebalancing of the balance sheet and to shorter duration assets.

I'm just wondering where in the cycle this is, and what type of additional pressure we can expect in coming quarters?.

Yeah. This is Blake, first of, overall as you indicated, the growth in total net interest income is really been impressive quarter-over-quarter and really throughout the repositioning overall. As you know, we focus on maximizing risk adjusted return on capital.

And so clearly the largest impact in NIM was adding the significant amount of government insured short duration Ginnie Mae pool buyouts. And overall with the balance sheet growth and the average outstanding growth saw leverage in the platforms and net interest income overall.

Steve, I don’t know if you want to cover some other details of the NIM change..

Yeah. I think maybe just to add to that and probably what rolls forward from where we are right now is, 10 of the 20 basis points related to the government insured buyouts, the remaining five to 10 is really more asset re-pricing. And as you know, we’re also starting to grow deposits little bit, so you see a little bit of an increase in deposit rate.

I think that gives you a pretty good benchmark that, that five to 10 basis point of NIM pressure this quarter and must something material changes from an interest rate environment, probably something along those lines with their expectation next quarter..

Great. That's very helpful. And my follow-up is just on the loan to deposit ratio ticked up to 114% this quarter, and from the sound of it, it seems like loan growth is going to be very strong again in the fourth quarter.

I'm just wondering where your overall level of comfort stands with that ratio, and where you could potentially see that tracking up to before you start addressing it?.

As we’ve indicated on prior quarters, we’re really comfortable at this range and even slightly higher.

The ability to use our substantial borrowing base to fund not only longer duration cash flows from a re-pricing perspective but also short duration assets like loans held for sale and other operating cash flows, gives us a lot of financial flexibility to not only manage liquidity but to manage interest rate risk.

So, in or around these range - that range is very comfortable from our perspective given the significant broad base of liquidity both on the liability side of the balance sheet and the asset side.

I would say on the deposit growth side, we’re really, really pleased with the momentum of the $600 million of deposit growth throughout the quarter, really notable as we think we really identified a new growth engine in deposits on the commercial side.

We did have a re-class in the period, if you adjust for that it’s about $400 million of deposit growth on the commercial side, about $200 million of growth on the consumer side, as proven over a long period of time the consumer growth really played out as expected, saw a good balance growth in Florida, as well as the nationwide channels.

But the initiative to really focus on capitalizing on the real opportunity of business in commercial deposits creates a really attractive opportunity. We've proven that in the quarter and we see new momentum as we look forward there..

Perfect. Thank you..

The next question comes from Peyton Green of Sterne Agee. Please go ahead..

Good morning. I was wondering if maybe Steve, you could talk a little bit about the marginal loan yield contraction that you expect on the CRE end, and then the leasing side? Thank you..

Hey Peyton, sure – I just said that each quarter has been mild and not – actually if you look at the yield tables, you'll see CRE I think came in a little bit, leasing went up a little bit.

And then - and it also is impacted by as you heard in the comments the quality of the transactions with some of the – we’re moving up in quality of some of the transactions that we’re doing. So, generally speaking, I don’t think we’re seeing a lot of margin pressure in the commercial space.

But - kind of back to the guidance from a NIM perspective and how you’re seeing some of the core asset yields roll down from last quarter to this quarter is probably a pretty good indication of what we’ll see next quarter..

Okay.

maybe I'll ask it a different way, do you see the five to 10 basis points of core pressure in the fourth quarter, is that something that you would expect to flow down as you head into 2015, just because of mix changes as you favor more commercial versus residential? Help me out on understanding that?.

If you extend out from next quarter into 2015 and 2016 as you can see with the success from a commercial perspective, I think overall you're right, it does feel like we’re at the kind of the plateau generally speaking as it relates to NIM. So, I think that’s right.

I think if it's next quarter, I think it’s somewhat representative what we saw now but I do think as we see momentum on the commercial side, you see that spread obviously improves the NIM and we’ll be a support to it in 2015 and 2016..

Okay..

We remain confident in our ability to continue to grow net interest income despite the current pressure on NIM..

Okay. Alright. And then in terms of the Ginnie Mae pool buyout opportunity.

How would you handicap that over the next quarter or two, in terms of growing it into 2015?.

We continue to see good opportunities there.

We've - as proven over the last several quarters, really been focused on new organic and third party relationship opportunities and although sometimes it's a little lumpy as it comes in, it represents a great risk adjusted return to supplement our strategic commercial and residential growth and we see opportunities into 2015 as well..

Okay. And then last question, and I'll get out of the queue. But how do you think about expenses going into 2015? Clearly you all set a goal that you're going to exceed, with your rationalization and really reengineering of the company with the $650 million in expense goal for this year.

How should we think about marginal expense versus marginal revenue growth in 2015?.

This is Blake, I'll take a stab at it, and then if Steve wants to add to. Overall, one of the things that's pretty interesting to look at is the segment results.

And it really speaks to when you look at the corporate expense line quarter-over-quarter and even the expense drivers within the consumer business and commercial business, you're really starting to see the benefits of this strategic repositioning, leveraging the overall expense based on the corporate shared services front, getting scaled within the business platforms overall, particularly on the commercial side.

And then we’ll have some variability on the consumer side depending on variable base commission and other compensation based on volume level. So, overall the strategic repositioning is really translating into how we’re leveraging both the corporate and business expense base..

And we would certainly anticipate continued improvement in our efficiency ratio. We've come a long way with last few quarters, but we think there is still lot of room to see that decline meaningfully in the future..

Yeah, and just to put to a point on it, as Blake referred in the segment, financials you can see the pre-taxing come in our consumer banking segment was up about 14% on a sequential basis. And commercial was up 20%, while the corporate services were held flat. So, we really are at that point now.

We've talked about it in the past that we built the infrastructure to be able to scale the balance sheet. And we think the third quarter really begins to show that..

Great. Thank you..

The next question comes from Matthew Keating of Barclays. Please go ahead..

Yes. Good morning. Thanks. My question is related to the mortgage banking gain on sale loans this quarter, obviously you sold a lot more loans this quarter.

I think mortgage loans sold were about over 40%, but the gain on mortgage banking loans was the stable linked quarter, maybe you can talk about what happened to the gain on sale margin, and what your expectations are for that going forward? Thanks..

Yeah, one of the things we’ve seen with the rally overall is a bit of shift in mix to some of the 30 year fixed jumbled product. That played into the overall margin percentage, as well as the volume sold. We did settle out on some of the longer duration hybrids during the period.

Both of those on the jumbo side tend to have lower percentage base margin contributions overall. And overall we - those were probably the two biggest drivers in the quarter..

I think the agency margin held up well quarter-over-quarter. As Blake said, we cleared – we talked last quarter about – if you look at the loans held for sale last quarter, we had a significant amount that we cleared this quarter, that’s the jumbo math that you can see in table 11 that we cleared this quarter.

And that had – I think it’s well publicized where the margins are with those types of products. So it's really a mix change in the quarter but overall pleased with how the margin turned out..

Understood. That's helpful. And then my follow-up question would just be on provisions.

I guess last quarter you bought between $5 million to $7 million, obviously it came in right around towards the high end of that range this quarter, but do you still feel comfortable that that's an appropriate range, given the pretty strong loans held for investment growth that the Company is experiencing as of late?.

We do, yes, and then if you look at the net charge offs of nine basis points, we’ll be obviously growing the reserve if we did stay at this level. We don’t see any other signs of credit distress in the portfolio. So, we’re still comfortable with the $5 million to $7 million range..

Okay. And then my final question would just be on deposit growth., obviously it's great to see the commercial deposit growth starting to really kick in.

I know you said you directed more resources there, but what resources are those, have you spoken to your employees more on getting those deposits, if you could provide some more color on what's driving that growth it would be helpful? Thanks..

Yes, it’s a combination of things. One is, we’ve dedicated business development resources to broadening targeted relationships, and that’s been an opportunity of success.

We're also expanding existing relationships where we have either a lending facility or some other kind of credit facility in place and brought, have been successfully in broadening the opportunities there.

And we’re also getting further along in rolling out our deposit products just in the day-to-day activities of the business and client discussions both on the finance side and then down the road more so on the commercial real estate side.

So, in the early innings, but given what’s going on in the broader market on commercial and business deposits, we think we’re really uniquely positioned to capitalize this and see that the key growth engine..

And it's really a function of greater emphasis and focus on going after this opportunity than any meaningful investment we’ve had to make to achieve this growth..

Thanks very much..

The next question comes from Ryan Nash of Goldman Sachs. Please go ahead..

Hey, good morning guys..

Good morning, Ryan..

Rob, you noted in your prepared remarks that Tier 1 leverage is at 8.5%, which is at the high end of your range, but guess given the pace of how fast you guys are growing, how low are you willing to take that before you do start to have to think about additional sources of capital?.

Sure Ryan. We are at the high end of our targets both Tier 1 leverage and our risk base capital ratio at 14%. So, we've got sufficient capital to execute on our plans going forward and certainly there’s no imminent need to raise additional capital.

We've got a lot of flexibility on our balance sheet going forward as well to allow us to leverage our existing capital and continue to grow our balance sheet..

And just add to that, as you see some of the marginal activity, we’re seeing good momentum in growth in the higher yielding segments on the commercial side, that will continue to be a source of leverage.

We've got a lot of flexibility on how we deal with some of the growth on the residential ARM side, particularly some of the longer duration hybrids, as we mentioned earlier with the rally in the market and the flattening of the yield curve, we’re seeing some shift to the 30-year fixed, that will move some of that more into the secondary market.

And so real strategic core growth commercial, lot of flexibility to tailor the balance sheet between residential and the Ginnie Mae pool buyouts..

Got it. And then you've been talking for a couple quarters about just remixing into shorter yielding assets.

I'd be curious while you are seeing margin pressure, how is this impacting the interest rate sensitivity of the overall balance sheet?.

It certainly has improved, it was intentional to improve, shorten our duration and improve our asset sensitivity. So we continue to remain well positioned for a rise in rate environment..

Got it. Thanks..

(Operator Instructions) The next question comes from Kevin Barker of Compass Point. Please go ahead..

Good morning..

Good morning, Kevin..

On the Tier 1 common equity ratio, it came up roughly 100 basis points this quarter per Basel III, given that you're adding back the DTA this quarter, could you discuss the change in the calculation in some of the moving parts, regarding allowing the DTA back on regulatory capital?.

Kevin it's Steve. The primary, if you look at the balance sheet, you'll see the DTA moved I think from about $54 million asset to $3 million asset. So that $51 million net reduction is the primary driver of that. And so - we’ve been in a net DTA position for quite some point.

As you know some of the changes we made around the MSR asset, some of the equipment lease accounting that drives the DTA and DTL activity, some of the growth and some of those other assets. So less MSR, more leasing has really led our being almost in a flat, almost a deferred tax liability position.

So, that’s the primary driver for why we’ve been able to now reduce the deduct for DTAs..

Okay. That's helpful.

And then given all the movement in the balance sheet in the recent quarters, could you give us an estimate of what your weighted average - versus your consumer portfolio, and then maybe your effective duration on your securities portfolio today?.

So, on the commercial side, overall the weighted average duration is right on two years. Clearly the vast majority of all the warehouse finance and lender finances, floating rates in nature and then that blends in with some of the other commercial - financing commercial real estate to get to that two year type number.

The securities portfolio is shorter than that. The duration on that is below two, it’s around one and half years overall. And then on the residential ARM product, that duration overall is around three years. So, blended all in around two years duration overall which we feel really good about..

Are you worried about any duration extension, if we were to see rates rise specifically in the consumer portfolio?.

Yeah, clearly we model that in our interest stocks and analysis. And we spend a lot of time focusing on making sure we’ve got the cash flows and cash flow extension covered, particularly in that four years and out period with a lot of flexibility to maneuver inside of that from a deposit re-pricing perspective overall.

We really feel like the asset rotation strategies and where the balance sheet fits right now gives us a lot of flexibility to be successful in a variety of interest rate environments depending on how the economy, and how the Fed performs in the coming months..

Okay. Great.

And then regarding the Ginnie Mae buyouts, could you estimate an ROA that you expect, the return on assets you expect from investing in Ginnie Mae buyouts versus your weighted average return on assets of roughly 75 to 80 basis points over the last couple of quarters?.

We really don’t disclose that. We obviously look at it in terms of risk adjusted return on equity and given the short duration of the cash flows, as well as the government insured nature of them, it's financially one of the most attractive assets that we invest in..

So, it's safe to say it’s one of the things that are driving up your ROA in the last couple of quarters, not to mention the expense saves that you've done?.

Not really. On an ROA basis, you'd probably – you'd say the mix of commercial growth is probably driving the performance there..

All right. Thank you for taking my questions..

Thanks..

This concludes our question-and-answer session. I would like to turn the conference back over to Rob Clements, Chairman and CEO, for any closing remarks..

Well, thank you for joining us today. And we look forward to getting back together in future quarters. Thank you..

The conference has not concluded. Thank you for attending today's presentation. You may now disconnect..