EVER-3.31.13-10Q
Table of Contents


 
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 March 31, 2013.
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 ý    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 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 April 25, 2013, there were 122,233,510 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,
2013
 
December 31,
2012
Assets
 
 
 
Cash and due from banks
$
44,938

 
$
175,400

Interest-bearing deposits in banks
548,458

 
268,514

Total cash and cash equivalents
593,396

 
443,914

Investment securities:
 
 
 
Available for sale, at fair value
1,497,278

 
1,619,878

Held to maturity (fair value of $126,308 and $146,709 as of March 31, 2013 and December 31, 2012, respectively)
124,242

 
143,234

Other investments
144,070

 
158,172

Total investment securities
1,765,590

 
1,921,284

Loans held for sale (includes $1,350,289 and $1,452,236 carried at fair value as of March 31, 2013 and December 31, 2012, respectively)
2,416,599

 
2,088,046

Loans and leases held for investment:
 
 
 
Loans and leases held for investment, net of unearned income
12,255,294

 
12,505,089

Allowance for loan and lease losses
(77,067
)
 
(82,102
)
Total loans and leases held for investment, net
12,178,227

 
12,422,987

Equipment under operating leases, net
44,863

 
50,040

Mortgage servicing rights (MSR), net
375,641

 
375,859

Deferred income taxes, net
164,053

 
170,877

Premises and equipment, net
65,746

 
66,806

Other assets
702,373

 
703,065

Total Assets
$
18,306,488

 
$
18,242,878

Liabilities
 
 
 
Deposits:
 
 
 
Noninterest-bearing
$
1,287,292

 
$
1,445,783

Interest-bearing
12,387,074

 
11,696,605

Total deposits
13,674,366

 
13,142,388

Other borrowings
2,707,331

 
3,173,021

Trust preferred securities
103,750

 
103,750

Accounts payable and accrued liabilities
316,599

 
372,543

Total Liabilities
16,802,046

 
16,791,702

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, 2013 and December 31, 2012)
150,000

 
150,000

Common Stock, $0.01 par value (500,000,000 shares authorized; 122,066,260 and 120,987,955 issued and outstanding at March 31, 2013 and December 31, 2012, respectively)
1,221

 
1,210

Additional paid-in capital
823,696

 
811,085

Retained earnings
609,849

 
575,665

Accumulated other comprehensive income (loss) (AOCI)
(80,324
)
 
(86,784
)
Total Shareholders’ Equity
1,504,442

 
1,451,176

Total Liabilities and Shareholders’ Equity
$
18,306,488

 
$
18,242,878


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 March 31,
 
2013
 
2012
Interest Income
 
 
 
Interest and fees on loans and leases
$
173,786

 
$
124,778

Interest and dividends on investment securities
16,250

 
20,549

Other interest income
298

 
104

Total Interest Income
190,334

 
145,431

Interest Expense
 
 
 
Deposits
26,823

 
20,974

Other borrowings
19,695

 
8,834

Total Interest Expense
46,518

 
29,808

Net Interest Income
143,816

 
115,623

Provision for Loan and Lease Losses
1,919

 
11,355

Net Interest Income after Provision for Loan and Lease Losses
141,897

 
104,268

Noninterest Income
 
 
 
Loan servicing fee income
42,163

 
45,556

Amortization and impairment of mortgage servicing rights
(22,523
)
 
(44,483
)
Net loan servicing income
19,640

 
1,073

Gain on sale of loans
82,311

 
48,177

Loan production revenue
9,489

 
7,437

Deposit fee income
5,925

 
6,239

Other lease income
6,411

 
8,663

Other
9,533

 
1,604

Total Noninterest Income
133,309

 
73,193

Noninterest Expense
 
 
 
Salaries, commissions and other employee benefits expense
110,479

 
66,590

Equipment expense
19,852

 
15,948

Occupancy expense
7,384

 
5,349

General and administrative expense
74,101

 
70,934

Total Noninterest Expense
211,816

 
158,821

Income before Provision for Income Taxes
63,390

 
18,640

Provision for Income Taxes
24,244

 
6,794

Net Income
$
39,146

 
$
11,846

Less: Net Income Allocated to Preferred Stock
(2,531
)
 
(5,879
)
Net Income Allocated to Common Shareholders
$
36,615

 
$
5,967

Basic Earnings Per Common Share
$
0.30

 
$
0.08

Diluted Earnings Per Common Share
$
0.30

 
$
0.08

Dividends Declared Per Common Share
$
0.02

 
$

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 March 31,
 
2013
 
2012
Net Income
$
39,146

 
$
11,846

Unrealized Gains on Debt Securities
 
 
 
Unrealized gains due to changes in fair value
704

 
21,286

Tax effect
(264
)
 
(8,029
)
Change in unrealized gains on debt securities
440

 
13,257

Interest Rate Swaps
 
 
 
Net unrealized gains due to changes in fair value
4,383

 
6,628

Reclassification of unrealized losses to interest expense
5,357

 
1,710

Tax effect
(3,720
)
 
(3,042
)
Change in interest rate swaps
6,020

 
5,296

Other Comprehensive Income
6,460

 
18,553

Comprehensive Income
$
45,606

 
$
30,399


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, 2013
$
150,000

 
$
1,210

 
$
811,085

 
$
575,665

 
$
(86,784
)
 
$
1,451,176

Net income

 

 

 
39,146

 

 
39,146

Other comprehensive income

 

 

 

 
6,460

 
6,460

Issuance of common stock

 
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

 
 
 
 
 
 
 
 
 
 
 
 
Balance, January 1, 2012
$
3

 
$
751

 
$
561,247

 
$
513,413

 
$
(107,749
)
 
$
967,665

Net income

 

 

 
11,846

 

 
11,846

Other comprehensive loss

 

 

 

 
18,553

 
18,553

Conversion of preferred stock
(2
)
 
28

 
(26
)
 

 

 

Issuance of common stock

 
1

 
57

 

 

 
58

Repurchase of common stock

 

 
(360
)
 

 

 
(360
)
Share-based grants (including income tax benefits)

 

 
1,409

 

 

 
1,409

Cash dividends on preferred stock

 

 

 
(4,482
)
 

 
(4,482
)
Balance, March 31, 2012
$
1

 
$
780

 
$
562,327

 
$
520,777

 
$
(89,196
)
 
$
994,689


See notes to unaudited condensed consolidated financial statements.

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Table of Contents
EverBank Financial Corp and Subsidiaries
Condensed Consolidated Statements of Cash Flows (unaudited)
(Dollars in thousands)

 
Three Months Ended March 31,
 
2013
 
2012
Operating Activities:
 
 
 
Net income
$
39,146

 
$
11,846

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
Amortization of premiums and deferred origination costs
10,385

 
2,582

Depreciation and amortization of tangible and intangible assets
9,901

 
8,804

Amortization of loss on settlement of interest rate swaps
5,357

 
1,710

Amortization and impairment of mortgage servicing rights
22,523

 
44,483

Deferred income taxes (benefit)
2,839

 
(2,654
)
Provision for loan and lease losses
1,919

 
11,355

Loss on other real estate owned (OREO)
1,923

 
2,731

Share-based compensation expense
1,779

 
1,282

Payments for settlement of forward interest rate swaps
(14,416
)
 
(3,552
)
Other operating activities
299

 
(2,632
)
Changes in operating assets and liabilities:
 
 
 
Loans held for sale, including proceeds from sales and repayments
(376,076
)
 
79,718

Other assets
95,214

 
51,567

Accounts payable and accrued liabilities
(44,338
)
 
(14,641
)
Net cash provided by (used in) operating activities
(243,545
)
 
192,599

Investing Activities:
 
 
 
Investment securities available for sale:
 
 
 
Purchases

 
(138,186
)
Proceeds from prepayments and maturities
122,874

 
123,477

Investment securities held to maturity:
 
 
 
Purchases
(8,900
)
 
(7,965
)
Proceeds from prepayments and maturities
27,365

 
6,705

Purchases of other investments
(40,175
)
 
(1,547
)
Proceeds from sales of other investments
54,277

 

Net change in loans and leases held for investment
98,476

 
(830,144
)
Purchases of premises and equipment, including equipment under operating leases
(3,852
)
 
(20,659
)
Proceeds related to sale or settlement of other real estate owned
5,540

 
9,024

Proceeds from insured foreclosure claims
59,817

 
28,037

Other investing activities
(2,154
)
 
(1,463
)
Net cash provided by (used in) investing activities
313,268

 
(832,721
)
Financing Activities:
 
 
 
Net increase in nonmaturity deposits
524,999

 
190,742

Net increase in time deposits
11,827

 
95,036

Net change in repurchase agreements
(142,322
)
 

Net change in short-term Federal Home Loan Bank (FHLB) advances
(400,000
)
 
35,000

Proceeds from long-term FHLB advances
150,000

 
500,000

Repayments of long-term FHLB advances
(73,158
)
 
(86,200
)
Proceeds from issuance of common stock
8,551

 
58

Other financing activities
(138
)
 
(4,772
)
Net cash provided by financing activities
79,759

 
729,864

Net change in cash and cash equivalents
149,482

 
89,742

Cash and cash equivalents at beginning of period
443,914

 
294,981

Cash and cash equivalents at end of period
$
593,396

 
$
384,723


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

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EverBank Financial Corp and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(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 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 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, 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. (EWM); and
Business Property Lending, Inc.
On January 31, 2012, as part of a tax-free reorganization, the assets, liabilities and business activities of EWM were transferred to EB.
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) 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 (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 of EverBank Florida 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 in the business, management, fiscal year, assets, liabilities or location of the principal offices 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 (U.S. 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, 2012. 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, 2013.
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.    
d) Supplemental Cash Flow Information - Noncash investing activities are presented in the following table:
 
Three Months Ended March 31,
 
2013
 
2012
Supplemental Schedules of Noncash Investing Activities:
 
 
 
Loans transferred to foreclosure claims from loans held for sale
103,918

 
68,591

Loans transferred from held for investment to held for sale
101,984

 
1,604

2.  Recent Accounting Pronouncements
Presentation of Comprehensive Income — In June 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update (ASU) 2011-05, Comprehensive Income (Topic 220)Presentation of Comprehensive Income, to require an entity to present

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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 ASU 2011-05, to allow time to redeliberate whether to present on the face of the financial statements the effects of reclassifications out of AOCI 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. In February 2013, the FASB issued ASU 2013-02, Comprehensive Income (Topic 220)—Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, to require an entity to disaggregate the total change of each component of other comprehensive income and separately present reclassification adjustments and current period other comprehensive income. ASU 2013-02 also requires that entities either (1) present in a single note or parenthetically on the face of the financial statements the effect of significant amounts reclassified from each component of AOCI based on its source and the income line item affected by the reclassification if items are reclassified out of AOCI in their entirety or (2) cross reference to other required, related disclosures for additional information if items are not reclassified out of AOCI in their entirety. ASU 2013-02 is effective prospectively for annual reporting periods beginning after December 15, 2012, and interim periods within those annual periods. The adoption of this standard resulted in the additional disclosure of the lines of income or expense impacted by reclassifications out of AOCI within the statement of comprehensive income but did not have any impact on the Company's condensed consolidated financial statements or results of operations.
Balance Sheet Offsetting—In December 2011, the FASB issued ASU 2011-11, Balance Sheet (Topic 210)—Disclosures about Offsetting Assets and Liabilities, which will enhance disclosures by requiring improved information about financial instruments and derivative instruments that are either (1) offset in accordance with either Section 210-20-45 or Section 815-10-45 or (2) subject to an enforceable master netting arrangement or similar agreement. The guidance will require that entities disclose the gross and net information about both instruments that are offset in the balance sheet or are subject to a master netting arrangement. In January 2013, the FASB issued ASU 2013-01, Balance Sheet (Topic 210)—Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, which limits the scope of the new balance sheet offsetting disclosures to only (1) derivatives, including bifurcated embedded derivatives; (2) repurchase agreements and reverse repurchase agreements; and (3) securities borrowing and securities lending transactions, to the extent they are offset in the financial statements or are subject to an enforceable master netting arrangement or similar agreement, irrespective of whether they are offset in the statement of financial position. The requirements set forth in both ASU 2011-11 and ASU 2013-01 are effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods with retrospective disclosure necessary for all comparative periods presented. The adoption of these standards resulted in additional disclosures as presented in Note 11 but did not have any impact on the Company's condensed consolidated financial statements or results of operations.

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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, 2013 and December 31, 2012:
 
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value
 
Carrying Amount
March 31, 2013
 
 
 
 
 
 
 
 
 
Available for sale:
 
 
 
 
 
 
 
 
 
Residential collateralized mortgage obligations (CMO) securities - agency
$
60

 
$
5

 
$

 
$
65

 
$
65

Residential CMO securities - nonagency
1,455,529

 
37,992

 
3,844

 
1,489,677

 
1,489,677

Residential mortgage-backed securities (MBS) - agency
211

 
15

 

 
226

 
226

Asset-backed securities (ABS)
7,901

 

 
896

 
7,005

 
7,005

Equity securities
77

 
228

 

 
305

 
305

Total available for sale securities
$
1,463,778

 
$
38,240

 
$
4,740

 
$
1,497,278

 
$
1,497,278

Held to maturity:
 
 
 
 
 
 
 
 
 
Residential CMO securities - agency
$
80,203

 
$
2,297

 
$

 
$
82,500

 
$
80,203

Residential MBS - agency
39,052

 
1,814

 
10

 
40,856

 
39,052

Corporate securities
4,987

 

 
2,035

 
2,952

 
4,987

Total held to maturity securities
$
124,242

 
$
4,111

 
$
2,045

 
$
126,308

 
$
124,242

December 31, 2012
 
 

 
 
 
 
 
 
Available for sale:
 
 
 
 
 
 
 
 
 
Residential CMO securities - agency
$
63

 
$
6

 
$

 
$
69

 
$
69

Residential CMO securities - nonagency
1,577,270

 
39,860

 
5,355

 
1,611,775

 
1,611,775

Residential MBS - agency
226

 
15

 

 
241

 
241

Asset-backed securities
9,461

 

 
1,935

 
7,526

 
7,526

Equity securities
77

 
190

 

 
267

 
267

Total available for sale securities
$
1,587,097

 
$
40,071

 
$
7,290

 
$
1,619,878

 
$
1,619,878

Held to maturity:
 
 
 
 
 
 
 
 
 
Residential CMO securities - agency
$
106,346

 
$
3,497

 
$

 
$
109,843

 
$
106,346

Residential MBS - agency
31,901

 
1,986

 

 
33,887

 
31,901

Corporate securities
4,987

 

 
2,008

 
2,979

 
4,987

Total held to maturity securities
$
143,234

 
$
5,483

 
$
2,008

 
$
146,709

 
$
143,234

At March 31, 2013 and December 31, 2012, investment securities with a carrying value of $209,762 and $421,209, 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.
There were no gross gains or gross losses realized on available for sale investments during the three months ended March 31, 2013 or 2012.

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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 March 31, 2013 and December 31, 2012 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, 2013
 
 
 
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
 
 
 
 
Residential CMO securities - nonagency
$
62,892

 
$
748

 
$
110,943

 
$
3,096

 
$
173,835

 
$
3,844

Residential MBS - agency
8,936

 
10

 

 

 
8,936

 
10

Asset-backed securities

 

 
7,005

 
896

 
7,005

 
896

Corporate securities

 

 
2,952

 
2,035

 
2,952

 
2,035

Total debt securities
$
71,828

 
$
758

 
$
120,900

 
$
6,027

 
$
192,728

 
$
6,785

December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
Debt securities:
 
 
 
 
 
 
 
 
 
 
 
Residential CMO securities - nonagency
$
57,715

 
$
299

 
$
183,285

 
$
5,056

 
$
241,000

 
$
5,355

Asset-backed securities

 

 
7,526

 
1,935

 
7,526

 
1,935

Corporate securities

 

 
2,979

 
2,008

 
2,979

 
2,008

Total debt securities
$
57,715

 
$
299

 
$
193,790

 
$
8,999

 
$
251,505

 
$
9,298

The Company had unrealized losses at March 31, 2013 and December 31, 2012 on nonagency residential CMO securities, residential agency MBS, ABS and corporate securities. These unrealized losses are primarily attributable to weak market conditions. 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.
At March 31, 2013, the Company had 26 debt securities in an unrealized loss position. A total of five were in an unrealized loss position for less than 12 months. These five securities consisted of four nonagency residential CMO securities and one residential agency MBS. The remaining 21 debt securities were in an unrealized loss position for 12 months or longer. These 21 securities consisted of three ABS, one corporate security and 17 nonagency residential CMO securities. Of the $6,785 in unrealized losses, $3,854 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, 2012, the Company had 31 debt securities in an unrealized loss position. A total of three were in an unrealized loss position for less than 12 months, all of which were residential CMO securities. The remaining 28 debt securities were in an unrealized loss position for 12 months or longer. These 28 securities consisted of three ABS, one corporate security and 24 nonagency residential CMO securities. Of the $9,298 in unrealized losses, $5,355 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, 2013 or 2012.
During the three months ended March 31, 2013 and 2012, interest and dividend income on investment securities was comprised of the following:
 
Three Months Ended March 31,
 
2013
 
2012
Interest income on available for sale securities
$
14,865

 
$
18,871

Interest income on held to maturity securities
624

 
1,400

Other interest and dividend income
761

 
278

 
$
16,250

 
$
20,549

All investment interest income recognized by the Company during the three months ended March 31, 2013 and 2012 was fully taxable.

11


4.  Loans Held for Sale
Loans held for sale as of March 31, 2013 and December 31, 2012, consist of the following:
 
March 31,
2013
 
December 31,
2012
Mortgage warehouse (carried at fair value)
$
1,350,289


$
1,452,236

Government insured pool buyouts
91,691


96,635

Other
974,619


539,175

Total loans held for sale
$
2,416,599


$
2,088,046

The Company typically transfers residential mortgage loans originated or acquired to various financial institutions, government agencies, and GSEs. In addition, the Company enters into loan securitization transactions related to certain conforming residential mortgage loans. In connection with these transactions, loans are converted into mortgage-backed securities issued primarily by the Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac), the Federal National Mortgage Association (FNMA or Fannie Mae) and the Government National Mortgage Association (GNMA or Ginnie Mae), and are subsequently sold to third party investors. 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. This liability includes 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 a material breach of contractual representations and warranties. Refer to Note 13 for the maximum exposure to loss for material breaches of contractual representations and warranties.
The following is a summary of cash flows related to transfers accounted for as sales for three months ended March 31, 2013 and 2012:
 
Three Months Ended March 31,
 
2013
 
2012
Proceeds received from agency securitizations
$
2,404,610

 
$
1,920,970

Proceeds received from nonagency sales
341,882

 
12,794

 
 
 
 
Servicing fees collected
26,213

 
23,956

 
 
 
 
Repurchased loans from agency securitizations
1,092

 
1,471

Repurchased loans from nonagency sales
5,277

 
5,168

The Company periodically transfers conforming residential mortgages to GNMA in exchange for mortgage-backed securities.  As of March 31, 2013 and December 31, 2012, the Company retained $92,946 and $99,121, 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 transfers which qualify as sales are recorded in the condensed consolidated statements of income in gain on sale of loans, which includes the gain or loss on sale, change in fair value related to fair value option loans, rate lock commitments, and the offsetting hedging positions.
In connection with these transfers, the Company recorded servicing assets in the amount of $23,501, and $18,529 for the three months ended March 31, 2013 and 2012, 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, 2013, the Company transferred $24,440 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 preferred jumbo residential mortgages which were intended to be sold to an unrelated third party. The loans did not meet eligibility requirements for sale in accordance with the executed contract. After evaluation of the specific loans, the Company determined it has positive intent to hold these loans for the foreseeable future and thus transferred these loans to the held for investment portfolio. During the three months ended March 31, 2012, the Company transferred $14,946 in commercial real estate 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 months ended March 31, 2013, the Company transferred $101,984 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.

12

Table of Contents


5.  Loans and Leases Held for Investment, Net
Loans and leases held for investment as of March 31, 2013 and December 31, 2012 are comprised of the following:
 
March 31, 2013
 
December 31, 2012
Residential mortgages
$
6,279,655

 
$
6,708,748

Commercial and commercial real estate
4,883,330

 
4,771,768

Lease financing receivables
911,371

 
836,935

Home equity lines
173,704

 
179,600

Consumer and credit card
7,234

 
8,038

Total loans and leases held for investment, net of discounts
12,255,294

 
12,505,089

Allowance for loan and lease losses
(77,067
)
 
(82,102
)
Total loans and leases held for investment, net
$
12,178,227

 
$
12,422,987

As of March 31, 2013 and December 31, 2012, the carrying values presented above include net purchased loan and lease discounts and net deferred loan and lease origination costs as follows:
 
March 31, 2013
 
December 31, 2012
Net purchased loan and lease discounts
$
146,666

 
$
164,132

Net deferred loan and lease origination costs
25,889

 
25,275

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, 2013 are as follows:
 
March 31, 2013
Contractual payments receivable for acquired loans and leases at acquisition
$
78,496

Expected cash flows for acquired loans and leases at acquisition
45,914

Basis in acquired loans and leases at acquisition
41,944

Information pertaining to the ACI portfolio as of March 31, 2013 and December 31, 2012 is as follows:
 
Bank of Florida  
 
Other Acquired Loans
 
Total
March 31, 2013
 
 
 
 
 
Carrying value, net of allowance
$
428,863

 
$
861,548

 
$
1,290,411

Outstanding unpaid principal balance (UPB)
477,799

 
893,435

 
1,371,234

Allowance for loan and lease losses, beginning of period
16,789

 
5,175

 
21,964

Allowance for loan and lease losses, end of period
18,322

 
5,212

 
23,534

 
Bank of Florida  
 
Other Acquired Loans
 
Total
December 31, 2012
 
 
 
 
 
Carrying value, net of allowance
$
472,374

 
$
876,351

 
$
1,348,725

Outstanding unpaid principal balance
520,873

 
913,020

 
1,433,893

Allowance for loan and lease losses, beginning of year
11,638

 
4,351

 
15,989

Allowance for loan and lease losses, end of year
16,789

 
5,175

 
21,964

The Company recorded $1,570 and $3,640 in provision for loan and lease losses for the ACI portfolio for the three months ended March 31, 2013 and 2012, respectively. The increase in provision is the result of a decrease in expected cash flows on ACI loans.

13

Table of Contents


The following is a summary of the accretable yield activity for the ACI loans during the three months ended March 31, 2013 and 2012:
 
Bank of Florida  
 
Other Acquired Loans
 
Total
March 31, 2013
 
 
 
 
 
Balance, beginning of period
$
99,201

 
$
121,207

 
$
220,408

Additions

 
3,970

 
3,970

Accretion
(7,157
)
 
(12,829
)
 
(19,986
)
Reclassifications to accretable yield
2,500

 
10,085

 
12,585

Balance, end of period
$
94,544

 
$
122,433

 
$
216,977

March 31, 2012
 
 
 
 
 
Balance, beginning of period
$
141,750

 
$
65,973

 
$
207,723

Accretion
(9,679
)
 
(6,308
)
 
(15,987
)
Reclassifications (from) to accretable yield
(11,923
)
 
8,463

 
(3,460
)
Balance, end of period
$
120,148

 
$
68,128

 
$
188,276

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 Federal Deposit Insurance Corporation (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. As of March 31, 2013 and December 31, 2012, the Company does not expect to receive cash payments under these indemnification agreements due to the performance of the underlying loans.
The following is a summary of the recorded investment of major categories of covered loans and leases outstanding as of March 31, 2013 and December 31, 2012:
 
Bank of Florida
 
Tygris
 
Total
March 31, 2013
 
 
 
 
 
Residential mortgages
$
53,426

 
$

 
$
53,426

Commercial and commercial real estate
400,958

 

 
400,958

Lease financing receivables

 
59,732

 
59,732

Home equity lines
17,266

 

 
17,266

Consumer and credit card
1,196

 

 
1,196

Total recorded investment of covered loans and leases
$
472,846

 
$
59,732

 
$
532,578

December 31, 2012
 
 
 
 
 
Residential mortgages
$
56,390

 
$

 
$
56,390

Commercial and commercial real estate
441,998

 

 
441,998

Lease financing receivables

 
75,201

 
75,201

Home equity lines
17,992

 

 
17,992

Consumer and credit card
1,378

 

 
1,378

Total recorded investment of covered loans and leases
$
517,758

 
$
75,201

 
$
592,959


14

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, 2013 and 2012 are as follows:
Three Months Ended March 31, 2013
Residential Mortgages
 
Commercial
and Commercial Real Estate
 
Lease Financing Receivables    
 
Home Equity Lines
 
Consumer and Credit Card
 
Total    
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

Three Months Ended March 31, 2012
 
 
 
 
 
 
 
 
 
 
 
Balance, beginning of period
$
43,454

 
$
28,209

 
$
3,766

 
$
2,186

 
$
150

 
$
77,765

Provision for loan and lease losses
3,836

 
5,308

 
723

 
1,493

 
(5
)
 
11,355

Charge-offs
(6,694
)
 
(2,294
)
 
(1,181
)
 
(1,108
)
 
(11
)
 
(11,288
)
Recoveries
143

 
168

 
36

 
61

 
14

 
422

Balance, end of period
$
40,739

 
$
31,391

 
$
3,344

 
$
2,632

 
$
148

 
$
78,254

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, 2013 and December 31, 2012:
March 31, 2013
Individually Evaluated for Impairment
 
Collectively Evaluated for Impairment
 
ACI Loans
 
Total
Allowance for Loan and Lease Losses
 
 
 
 
 
 
 
Residential mortgages
$
13,236

 
$
11,737

 
$
5,212

 
$
30,185

Commercial and commercial real estate
3,315

 
16,898

 
18,322

 
38,535

Lease financing receivables

 
3,590

 

 
3,590

Home equity lines

 
4,582

 

 
4,582

Consumer and credit card

 
175

 

 
175

Total allowance for loan and lease losses
$
16,551

 
$
36,982

 
$
23,534

 
$
77,067

Loans and Leases Held for Investment at Recorded Investment
 
 
 
 
 
 
 
Residential mortgages
$
95,793

 
$
5,329,231

 
$
854,631

 
$
6,279,655

Commercial and commercial real estate
80,320

 
4,343,696

 
459,314

 
4,883,330

Lease financing receivables

 
911,371

 

 
911,371

Home equity lines

 
173,704

 

 
173,704

Consumer and credit card

 
7,234

 

 
7,234

Total loans and leases held for investment
$
176,113

 
$
10,765,236

 
$
1,313,945

 
$
12,255,294

 
 
 
 
 
 
 
 
December 31, 2012
Individually Evaluated for Impairment
 
Collectively Evaluated for Impairment
 
ACI Loans
 
Total
Allowance for Loan and Lease Losses
 
 
 
 
 
 
 
Residential mortgages
$
12,568

 
$
15,888

 
$
5,175

 
$
33,631

Commercial and commercial real estate
5,569

 
17,505

 
16,789

 
39,863

Lease financing receivables

 
3,181

 

 
3,181

Home equity lines

 
5,265

 

 
5,265

Consumer and credit card

 
162

 

 
162

Total allowance for loan and lease losses
$
18,137

 
$
42,001

 
$
21,964

 
$
82,102

Loans and Leases Held for Investment at Recorded Investment
 
 
 
 
 
 
 
Residential mortgages
$
95,274

 
$
5,747,862

 
$
865,612

 
$
6,708,748

Commercial and commercial real estate
92,262

 
4,174,429

 
505,077

 
4,771,768

Lease financing receivables

 
836,935

 

 
836,935

Home equity lines

 
179,600

 

 
179,600

Consumer and credit card

 
8,038

 

 
8,038

Total loans and leases held for investment
$
187,536

 
$
10,946,864

 
$
1,370,689

 
$
12,505,089


15

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 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.
The following tables present the recorded investment for loans and leases by credit quality indicator as of March 31, 2013 and December 31, 2012:
 
 
 
Non-performing    
 
 
 
 
 
Performing
 
Accrual
 
Nonaccrual
 
Total
 
 
March 31, 2013
 
 
 
 
 
 
 
 
 
Residential mortgages:
 
 
 
 
 
 
 
 
 
Residential
$
3,613,142

 
$

 
$
64,099

 
$
3,677,241

 
 
Government insured pool buyouts (1)
1,598,116

 
1,004,298

 

 
2,602,414

 
 
Lease financing receivables
908,580

 

 
2,791

 
911,371

 
 
Home equity lines
169,191

 

 
4,513

 
173,704

 
 
Consumer and credit card
6,869

 

 
365

 
7,234

 
 
Total
$
6,295,898

 
$
1,004,298

 
$
71,768

 
$
7,371,964

 
 
 
 
 
 
 
 
 
 
 
 
 
Pass
 
Special Mention
 
Substandard
 
Doubtful
 
Total
March 31, 2013
 
 
 
 
 
 
 
 
 
Commercial and commercial real estate:
 
 
 
 
 
 
 
 
 
Commercial
$
1,557,200

 
$
553

 
$
7,412

 
$
4,081

 
$
1,569,246

Commercial real estate
2,990,295

 
73,154

 
250,635

 

 
3,314,084

Total commercial and commercial real estate
$
4,547,495

 
$
73,707

 
$
258,047

 
$
4,081

 
$
4,883,330

 
 
 
 
 
 
 
 
 
 
 
 
 
Non-performing
 
 
 
 
 
Performing
 
Accrual
 
Nonaccrual
 
Total
 
 
December 31, 2012
 
 
 
 
 
 
 
 
 
Residential mortgages:
 
 
 
 
 
 
 
 
 
Residential
$
3,880,360

 
$

 
$
68,924

 
$
3,949,284

 
 
Government insured pool buyouts (1)
1,590,732

 
1,168,732

 

 
2,759,464

 
 
Lease financing receivables
834,925

 

 
2,010

 
836,935

 
 
Home equity lines
175,354

 

 
4,246

 
179,600

 
 
Consumer and credit card
7,699

 

 
339

 
8,038

 
 
Total
$
6,489,070

 
$
1,168,732

 
$
75,519

 
$
7,733,321

 
 
 
 
Pass
 
Special Mention
 
Substandard
 
Doubtful
 
Total
December 31, 2012
 
 
 
 
 
 
 
 
 
Commercial and commercial real estate:
 
 
 
 
 
 
 
 
 
Commercial
$
1,368,054

 
$
565

 
$
8,416

 
$
4,405

 
$
1,381,440

Commercial real estate
3,027,554

 
79,779

 
282,995

 

 
3,390,328

Total commercial and commercial real estate
$
4,395,608

 
$
80,344

 
$
291,411

 
$
4,405

 
$
4,771,768

(1)
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.







16

Table of Contents


The following tables present an aging analysis of the recorded investment for loans and leases by class as of March 31, 2013 and December 31, 2012:
 
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, 2013
 
 
 
 
 
 
 
 
 
 
 
Residential mortgages:
 
 
 
 
 
 
 
 
 
 
 
Residential
$
11,685

 
$
5,642

 
$
64,099

 
$
81,426

 
$
3,497,853

 
$
3,579,279

Government insured pool buyouts (1)
96,570

 
58,057

 
1,004,298

 
1,158,925

 
686,820

 
1,845,745

Commercial and commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
Commercial
249

 
5

 
3,060

 
3,314

 
1,550,185

 
1,553,499

Commercial real estate

 
1,723

 
17,189

 
18,912

 
2,851,605

 
2,870,517

Lease financing receivables
3,710

 
1,350

 
873

 
5,933

 
905,438

 
911,371

Home equity lines
1,040

 
877

 
5,007

 
6,924

 
166,780

 
173,704

Consumer and credit card
40

 
17

 
95

 
152

 
7,082

 
7,234

Total loans and leases held for investment
$
113,294

 
$
67,671

 
$
1,094,621

 
$
1,275,586

 
$
9,665,763

 
$
10,941,349

 
 
 
 
 
 
 
 
 
 
 
 
December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
Residential mortgages:
 
 
 
 
 
 
 
 
 
 
 
Residential
$
12,648

 
$
4,844

 
$
68,924

 
$
86,416

 
$
3,759,325

 
$
3,845,741

Government insured pool buyouts (1)
132,479

 
70,915

 
1,168,732

 
1,372,126

 
625,269

 
1,997,395

Commercial and commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
Commercial
242

 
271

 
4,985

 
5,498

 
1,358,107

 
1,363,605

Commercial real estate

 

 
71,149

 
71,149

 
2,831,937

 
2,903,086

Lease financing receivables
4,250

 
2,039

 
571

 
6,860

 
830,075

 
836,935

Home equity lines
1,221

 
1,108

 
4,246

 
6,575

 
173,025

 
179,600

Consumer and credit card
57

 
30

 
339

 
426

 
7,612

 
8,038

Total loans and leases held for investment
$
150,897

 
$
79,207

 
$
1,318,946

 
$
1,549,050

 
$
9,585,350

 
$
11,134,400

(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, 2013 and December 31, 2012:
 
March 31, 2013
 
December 31, 2012
 
Unpaid Principal Balance
 
Recorded Investment (1)
 
Related Allowance
 
Unpaid Principal Balance
 
Recorded Investment (1)
 
Related Allowance
With an allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
Residential mortgages:
 
 
 
 
 
 
 
 
 
 
 
Residential
$
81,347

 
$
76,781

 
$
13,236

 
$
77,501

 
$
75,111

 
$
12,568

Commercial and commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
Commercial
12,594

 
2,853

 
503

 
12,356

 
2,615

 
371

Commercial real estate
19,924

 
18,098

 
2,812

 
56,997

 
33,967

 
5,198

Total impaired loans with an allowance recorded
$
113,865

 
$
97,732

 
$
16,551

 
$
146,854

 
$
111,693

 
$
18,137

 
 
 
 
 
 
 
 
 
 
 
 
Without a related allowance recorded:
 
 
 
 
 
 
 
 
 
 
 
Residential mortgages:
 
 
 
 
 
 
 
 
 
 
 
Residential
$
24,494

 
$
19,012

 
$

 
$
25,602

 
$
20,163

 
$

Commercial and commercial real estate:
 
 
 
 
 
 
 
 
 
 
 
Commercial
3,402

 
2,788

 

 
5,413

 
4,446

 

Commercial real estate
65,606

 
56,581

 

 
59,332

 
51,234

 

Total impaired loans without an allowance recorded
$
93,502

 
$
78,381

 
$

 
$
90,347

 
$
75,843

 
$

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

17

Table of Contents


The following table presents the average investment and interest income recognized on impaired loans for the three months ended March 31, 2013 and 2012:
 
Three Months Ended March 31,
 
2013
 
2012
 
Average Investment
 
Interest Income Recognized
 
Average Investment
 
Interest Income Recognized
With and without a related allowance recorded:
 
 
 
 
 
 
 
Residential mortgages:
 
 
 
 
 
 
 
Residential
$
95,534

 
$
770

 
$
91,806

 
$
660

Commercial and commercial real estate:
 
 
 
 
 
 
 
Commercial
6,351

 
2

 
11,685

 
23

Commercial real estate
79,940

 
214

 
123,098

 
558

Total impaired loans
$
181,825

 
$
986

 
$
226,589

 
$
1,241

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, 2013 and December 31, 2012:
 
March 31, 2013
 
December 31, 2012
 
Nonaccrual Status
 
Greater than 90 Days Past Due and Accruing
 
Nonaccrual Status
 
Greater than 90 Days Past Due and Accruing
Residential mortgages:
 
 
 
 
 
 
 
Residential
$
64,099

 
$

 
$
68,924

 
$

Government insured pool buyouts

 
1,004,298

 

 
1,168,732

Commercial and commercial real estate:
 
 
 
 
 
 
 
Commercial
4,928

 

 
4,985

 

Commercial real estate
58,994

 

 
71,149

 

Lease financing receivables
2,791

 

 
2,010

 

Home equity lines
4,513

 

 
4,246

 

Consumer and credit card
365

 

 
339

 

Total nonaccrual loans and leases
$
135,690

 
$
1,004,298

 
$
151,653

 
$
1,168,732

Troubled Debt Restructurings (TDR) — Modifications considered to be TDRs are individually evaluated for credit loss based on a discounted cash flow model using the loan’s effective interest rate at the time of origination. The discounted cash flow model used in this evaluation is adjusted to reflect the modified loan’s elevated probability of future default based on the Company’s historical redefault rate. These loans are classified as nonaccrual and have been included in the Company’s impaired loan disclosures in the tables above. A loan is considered to redefault when it is 30 days past due. Once a modified loan demonstrates a consistent period of performance under the modified terms, generally six months, the Company returns the loan to an accrual classification. If a modified loan defaults under the terms of the modified agreement, the Company measures the allowance for loan and lease losses based on the fair value of collateral less cost to sell.
The following is a summary of information relating to modifications considered to be TDRs for the three months ended March 31, 2013 and 2012:
Three Months Ended March 31, 2013
Number of Contracts
 
Pre-modification Recorded Investment
 
Post-modification Recorded Investment
Residential mortgages:
 
 
 
 
 
Residential
12
 
$
5,588

 
$
5,600

Commercial and commercial real estate:
 
 
 
 
 
Commercial real estate
1
 
376

 
376

Total
13
 
$
5,964

 
$
5,976

Three Months Ended March 31, 2012
 
 
 
 
 
Residential mortgages:

 

 

Residential
16
 
$
6,014

 
$
6,021

Commercial and commercial real estate:

 

 

Commercial
3
 
3,035

 
3,035

Commercial real estate
6
 
8,241

 
8,241

Total
25
 
$
17,290

 
$
17,297


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Table of Contents


The Company included 119 loans with an unpaid principal balance of $14,797 in Chapter 7 bankruptcy as TDRs at March 31, 2013. Modifications made to residential loans during the period included extension of original contractual maturity date, extension of the period of below market rate interest only payments, or contingent reduction of past due interest. Commercial loan modifications made during the period included extension of original contractual maturity date, payment forbearance, reduction of interest rates, or extension of interest only periods.
The number of contracts and recorded investment of loans that were modified during the last 12 months and subsequently defaulted during the three months ended March 31, 2013 and 2012 are as follows:
 
Number of Contracts
 
Recorded Investment
Three Months Ended March 31, 2013
 
 
 
Residential mortgages:
 
 
 
Residential
2
 
$
852

Total
2
 
$
852

Three Months Ended March 31, 2012
 
 
 
Residential mortgages:

 

Residential
8
 
$
2,222

Commercial and commercial real estate:

 

Commercial
3
 
1,802

Commercial real estate
1
 
98

Total
12
 
$
4,122

The recorded investment of TDRs as of March 31, 2013 and December 31, 2012 are summarized as follows:
 
March 31, 2013
 
December 31, 2012
Loan Type:
 
 
 
Residential mortgages
$
95,793

 
$
95,275

Commercial and commercial real estate
49,310

 
64,674

Total recorded investment of TDRs
$
145,103

 
$
159,949

Accrual Status:
 
 
 
Current
$
81,361

 
$
86,495

30-89 days past-due accruing
7,526

 
3,600

90+ days past-due accruing
481

 
244

Nonaccrual
55,735

 
69,610

Total recorded investment of TDRs
$
145,103

 
$
159,949

 
 
 
 
TDRs classified as impaired loans
$
145,103

 
$
159,949

Valuation allowance on TDRs
13,707

 
16,258

7.  Servicing Activities and Mortgage Servicing Rights
A summary of MSR activities for the three months ended March 31, 2013 and 2012 is as follows:
 
Three Months Ended March 31,
 
2013
 
2012
Balance, beginning of period
$
375,859

 
$
489,496

Originated servicing rights capitalized upon sale of loans
23,501

 
18,529

Amortization
(35,078
)
 
(29,339
)
Decrease (increase) in valuation allowance
12,555

 
(15,144
)
Other
(1,196
)
 
(1,122
)
Balance, end of period
$
375,641

 
$
462,420

Valuation allowance:
 
 
 
Balance, beginning of period
$
102,963

 
$
39,455

Increase in valuation allowance

 
15,144

Recoveries
(12,555
)
 

Balance, end of period
$
90,408

 
$
54,599


19

Table of Contents


Components of loan servicing fee income for the three months ended March 31, 2013 and 2012 are presented below:
 
Three Months Ended March 31,
 
2013
 
2012
Contractually specified service fees, net
$
31,789

 
$
35,385

Other ancillary fees
9,737

 
9,619

Other
637

 
552

 
$
42,163

 
$
45,556

Residential
For loans securitized and sold with servicing retained during the three months ended March 31, 2013 and 2012, management used the following assumptions to determine the fair value of residential MSR at the date of securitization:
 
Three Months Ended March 31, 2013
Average discount rates
9.38
%
 
 
9.85%
Expected prepayment speeds
13.61
%
 
 
13.85%
Weighted-average life in years
5.57

 
 
5.69
 
Three Months Ended March 31, 2012
Average discount rates
8.60
%
 
 
9.14%
Expected prepayment speeds
10.13
%
 
 
14.62%
Weighted-average life in years
5.46

 
 
6.70
At March 31, 2013 and December 31, 2012, the Company estimated the fair value of its capitalized residential MSR to be approximately $364,737 and $363,173, respectively. The unpaid principal balance below excludes $8,951,000 and $7,049,000 at March 31, 2013 and December 31, 2012, respectively, for residential loans with no related MSR basis.
The characteristics used in estimating the fair value of the residential MSR portfolio at March 31, 2013 and December 31, 2012 are as follows:
 
March 31, 2013
 
December 31, 2012
Unpaid principal balance
$
41,859,000

 
$
42,373,000

Gross weighted-average coupon
4.58
%
 
4.66
%
Weighted-average servicing fee
0.30
%
 
0.30
%
Expected prepayment speed (1)
17.72
%
 
19.73
%
(1) The prepayment speed assumptions include a blend of prepayment speeds that are influenced by mortgage interest rates, the current macroeconomic environment and borrower behaviors and may vary over the expected life of the asset.
A sensitivity analysis of the Company’s fair value of residential MSR portfolio to hypothetical adverse changes of 10% and 20% to the weighted-average of certain key assumptions as of March 31, 2013 and December 31, 2012 is presented below.
 
March 31, 2013
 
December 31, 2012
Prepayment Rate
 
 
 
10% adverse rate change
$
21,154

 
$
23,100

20% adverse rate change
40,654

 
44,232

Discount Rate
 
 
 
10% adverse rate change
12,752

 
12,696

20% adverse rate change
24,655

 
24,539

In the previous table, the effect of a variation in a specific assumption on the fair value is calculated without changing any other assumptions. This analysis typically cannot be extrapolated because the relationship of a change in one key assumption to the change in the fair value of the Company’s residential mortgage servicing rights usually is not linear. The effect of changing one key assumption will likely result in the change of another key assumption which could impact the sensitivities.
Commercial
The carrying value and fair value of our commercial MSR was $10,960 at March 31, 2013. As of December 31, 2012, the carrying value and fair value of our commercial MSR was $12,700 and $15,698, respectively.
8.  Income Taxes
For the three months ended March 31, 2013 and 2012, the Company’s effective income tax rates of 38.2% and 36.4%, respectively, differ from the statutory federal income tax rate primarily due to state income taxes.

20

Table of Contents


9. Share-Based Compensation
Option Plans - On March 6, 2013, 537,154 options were granted with a fair value on the grant date of $7.53. The fair value of each option award was estimated as of the grant date using the Black-Scholes option-pricing model. Significant assumptions used in the Black-Scholes option-pricing model to determine the fair value of stock options are as follows:
Risk-free interest rate
1.76
%
Expected volatility
38.93
%
Expected term (years)
9.10

Dividend yield
0.55
%
The risk-free interest rate is based on the U.S. Treasury constant maturity yield for treasury securities with maturities approximating the expected life of the options granted on the date of grant. The expected option terms were based on the Company’s historical exercise and post-vesting termination behaviors. The Company analyzes a group of publicly-traded peer institutions to determine the expected volatility of its stock. The peer group is assessed for adequacy annually, or as circumstances indicate significant changes to the composition of the peer group are warranted. Volatility for the Company's stock is estimated utilizing the average volatility calculated for the peer group, which is based upon daily price observations over the estimated term of the options granted.
During the three months ended March 31, 2013 1,015,500 options were exercised with a total intrinsic value of $6,976.
Nonvested Stock - The Company issued 247,335 nonvested shares of stock to certain employees as an incentive for continued employment and certain directors in lieu of cash payouts for compensation during the three months ended March 31, 2013. The weighted-average grant date fair value of these shares was $16.67.
10.  Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per common share for the three months ended March 31, 2013 and 2012:
 
Three Months Ended March 31,
 
2013
 
2012
Net income
$
39,146

 
$
11,846

Less dividends on preferred stock
(2,531
)
 
(4,482
)
Less undistributed net income allocated to participating preferred stock

 
(1,397
)
Net income allocated to common shareholders
$
36,615

 
$
5,967

(Units in Thousands)
 
 
 
Average common shares outstanding
121,583

 
76,129

Common share equivalents:
 
 
 
Stock options
1,777

 
1,917

Nonvested stock
79

 
278

Average common shares outstanding, assuming dilution
123,439

 
78,324

Basic earnings per share
$
0.30

 
$
0.08

Diluted earnings per share
$
0.30

 
$
0.08

On January 25, 2012, the Company’s Board of Directors approved a special cash dividend of $4,482 to the holders of the Series A 6% Preferred Stock, which was paid on March 1, 2012, in order to induce conversion to shares of Common Stock. In addition, the Company included the Series A 6% Preferred Stock as a participating security through the date of conversion and upon conversion, the Company included the shares in common shares outstanding.
Certain securities were antidilutive and were therefore excluded from the calculation of diluted earnings per share. Common shares attributed to these antidilutive securities had these securities been exercised or converted as of March 31, 2013 and 2012 are as follows:
 
Three Months Ended March 31,
 
2013
 
2012
Stock Options
6,431,741

 
5,882,160


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Table of Contents


11.  Derivative Financial Instruments
The fair values of derivatives are reported in other assets, deposits, or accounts payable and accrued liabilities. The fair values are derived using the valuation techniques described in Note 12. The total notional or contractual amounts and fair values as of March 31, 2013 and December 31, 2012 are as follows:
 
 
 
Fair Value        
 
Notional Amount
 
Asset Derivatives
 
Liability Derivatives
March 31, 2013
 
 
 
 
 
Qualifying hedge contracts accounted for under Accounting Standards Codification (ASC) 815, Derivatives and Hedging
 
 
 
 
 
Fair value hedges:
 
 
 
 
 
Interest rate swaps
$
30,688

 
$

 
$
496

Cash flow hedges:
 
 
 
 
 
Forward interest rate swaps
553,000

 

 
86,366

Derivatives not designated as hedging instruments under ASC 815, Derivatives and Hedging
 
 
 
 
 
Freestanding derivatives:
 
 
 
 
 
Interest rate lock commitments (IRLCs)
1,773,714

 
7,917

 
1,289

Forward and optional forward sales commitments
2,926,514

 
6,393

 
10,092

Foreign exchange contracts
944,780

 
4,559

 
7,410

Equity, foreign currency, commodity and metals indexed options
145,350

 
11,942

 

Options embedded in client deposits
146,155

 

 
11,918

Indemnification assets
230,922

 
8,916

 

Total freestanding derivatives
 
 
39,727

 
30,709

Netting and cash collateral adjustments (1)
 
 
(6,783
)
 
(93,503
)
Total derivatives
 
 
$
32,944

 
$
24,068

 
 
 
Fair Value                 
 
Notional Amount    
 
Asset Derivatives
 
Liability Derivatives
December 31, 2012
 
 
 
 
 
Qualifying hedge contracts accounted for under ASC 815, Derivatives and Hedging
 
 
 
 
 
Fair value hedges:
 
 
 
 
 
Interest rate swaps
$
31,247

 
$

 
$
579

Cash flow hedges:
 
 
 
 
 
Forward interest rate swaps
703,000

 

 
105,166

Derivatives not designated as hedging instruments under ASC 815, Derivatives and Hedging
 
 
 
 
 
Freestanding derivatives:
 
 
 
 
 
IRLCs
1,737,555

 
10,904

 
970

Forward and optional forward sales commitments
2,781,788

 
2,498

 
6,481

Foreign exchange contracts
963,820

 
10,368

 
2,121

Equity, foreign currency, commodity and metals indexed options
150,885

 
15,880

 

Options embedded in client deposits
150,181

 

 
15,750

Indemnification assets
273,687

 
9,092

 

Total freestanding derivatives
 
 
48,742

 
25,322

Netting and cash collateral adjustments (1)
 
 
(15,481
)
 
(110,641
)
Total derivatives
 
 
$
33,261

 
$
20,426

(1)
Amounts represent the effect of legally enforceable master netting agreements that allow the Company to settle positive and negative positions as well as cash collateral and related accrued interest held or placed with the same counterparties. Amounts netted as of March 31, 2013 and December 31, 2012 include derivative positions netted totaling $2,147 and $651, respectively.


22

Table of Contents


Fair Value Hedges
Activity for derivatives in fair value hedge relationships for the three months ended March 31, 2013 is as follows:
 
Three Months Ended March 31,
 
2013
Loss on fair value hedge, recognized in interest income
$
(86
)
Gain on hedged items, recognized in interest income
72

Ineffectiveness, recognized in interest income
$
(14
)
There was no fair value hedge activity for the three months ended March 31, 2012.
Cash Flow Hedges
Activity for derivatives in cash flow hedge relationships for the three months ended March 31, 2013 and 2012 is as follows:
 
Three Months Ended March 31,
 
2013
 
2012
Pretax losses recognized in interest expense (ineffective portion)
$

 
$
(65
)
All changes in the value of the derivatives were included in the assessment of hedge effectiveness.
As of March 31, 2013, AOCI included $20,363 of deferred pre-tax net losses expected to be reclassified into earnings during the next 12 months for derivative instruments designated as cash flow hedges of forecasted transactions. The Company is hedging its exposure to the variability of future cash flows for forecasted transactions of fixed-rate debt for a maximum of 10 years.
 Freestanding Derivatives
The following table shows the net losses recognized for the three months ended March 31, 2013 and 2012 in the condensed consolidated statements of income related to derivatives not designated as hedging instruments under ASC 815, Derivatives and Hedging. These gains and losses are recognized in other noninterest income, except for the indemnification assets which are recognized in general and administrative expense.
 
Three Months Ended March 31,
 
2013
 
2012
Freestanding derivatives
 
 
 
Gains (losses) on interest rate contracts (1)
$
21,960

 
$
(11,830
)
Gains (losses) on indemnification assets (2)
(177
)
 
273

Other
(140
)
 
446

Total
$
21,643

 
$
(11,111
)
(1) Interest rate contracts include interest rate lock commitments, forward and optional forward sales commitments, and interest rate swaps.
(2) Refer to Note 12 for additional information relating to the indemnification asset.
Interest rate contracts are predominantly used as economic hedges of interest rate lock commitments and loans held for sale. Other derivatives are predominantly used as economic hedges of foreign exchange, commodity, metals and equity risk.
Credit Risk Contingent Features
Certain of the Company’s derivative instruments contain provisions that require the Company to post collateral when derivatives are in a net liability position. The provisions generally are dependent upon the Company’s credit rating based on certain major credit rating agencies or dollar amounts in a liability position at any given time which exceed specified thresholds, as indicated in the relevant contracts. In these circumstances, the counterparties could demand additional collateral or require termination or replacement of derivative instruments in a net liability position. The aggregate fair value of all derivative instruments with such credit-risk-related contingent features in a net liability position on March 31, 2013 and December 31, 2012 was $94,270 and $107,215, respectively. The Company offsets derivative instruments against the rights to reclaim cash collateral or the obligations to return cash collateral in the balance sheet. As of March 31, 2013 and December 31, 2012, $95,650 and $109,990, respectively, in collateral was netted against liability derivative positions subject to master netting agreements. As of March 31, 2013 and December 31, 2012, $56,350 and $40,260, respectively, of collateral was posted for positions not subject to master netting agreements.
Counterparty Credit Risk
The Company is exposed to counterparty credit risk if counterparties to the derivative contracts do not perform as expected. If the counterparty fails to perform, counterparty credit risk equals the amount reported as derivative assets in the balance sheet. The amounts reported as derivative assets are derivative contracts in a gain position, and to the extent subject to master netting arrangements, net of derivatives in a loss position with the same counterparty and cash collateral received. The Company minimizes this risk through obtaining credit approvals, monitoring credit limits, monitoring procedures, and executing master netting arrangements and obtaining collateral, where appropriate. The Company offsets derivative instruments against the rights to reclaim cash collateral or the obligations to return cash collateral in the balance sheet. As of March 31, 2013 and December 31, 2012, $8,930 and $14,830, respectively, in collateral was netted against asset derivative positions subject to master netting agreements. As of March 31, 2013 and December 31, 2012, the Company held $8,970 and $15,220, respectively, in collateral from its counterparties. Counterparty credit risk related to derivatives is considered in determining fair value.

23

Table of Contents


12.  Fair Value Measurements
Asset and liability fair value measurements have been categorized based upon the fair value hierarchy described below:
Level 1 – Valuation is based upon quoted market prices for identical instruments in active markets.
Level 2 – Valuation is based upon quoted market prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3 – Valuation is generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect estimates or assumptions that market participants would use in pricing the assets or liabilities. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.
Recurring Fair Value Measurements
As of March 31, 2013 and December 31, 2012, assets and liabilities measured at fair value on a recurring basis, including certain loans held for sale for which the Company has elected the fair value option, are as follows:
 
Level 1    
 
Level 2    
 
Level 3    
 
Netting
 
Total    
March 31, 2013
 
 
 
 
 
 
 
 
 
Financial assets:
 
 
 
 
 
 
 
 
 
Available for sale securities:
 
 
 
 
 
 
 
 
 
Residential CMO securities - agency
$

 
$
65

 
$

 
$

 
$
65

Residential CMO securities - nonagency

 
1,489,677

 

 

 
1,489,677

Residential MBS - agency

 
226

 

 

 
226

Asset-backed securities

 
7,005

 

 

 
7,005

Equity securities
305

 

 

 

 
305

Total available for sale securities
305

 
1,496,973

 

 

 
1,497,278

Loans held for sale

 
1,350,289

 

 

 
1,350,289

Financial liabilities:
 
 
 
 
 
 
 
 
 
FDIC clawback liability

 

 
52,188

 

 
52,188

Derivative financial instruments:
 
 
 
 
 
 
 
 
 
Derivative assets (Note 11)
4,559

 
18,335

 
16,833

 
(6,783
)
 
32,944

Derivative liabilities (Note 11)
7,410

 
108,872

 
1,289

 
(93,503
)
 
24,068

 
 
Level 1    
 
Level 2    
 
Level 3    
 
Netting
 
Total    
December 31, 2012
 
 
 
 
 
 
 
 
 
Financial assets:
 
 
 
 
 
 
 
 
 
Available for sale securities:
 
 
 
 
 
 
 
 
 
Residential CMO securities - agency
$

 
$
69

 
$

 
$

 
$
69

Residential CMO securities - nonagency

 
1,611,775

 

 

 
1,611,775

Residential MBS - agency

 
241

 

 

 
241

Asset-backed securities

 
7,526

 

 

 
7,526

Equity securities
267

 

 

 

 
267

Total available for sale securities
267

 
1,619,611

 

 

 
1,619,878

Loans held for sale

 
1,452,236

 

 

 
1,452,236

Financial liabilities:
 
 
 
 
 
 
 
 
 
FDIC clawback liability

 

 
50,720

 

 
50,720

Derivative financial instruments:
 
 
 
 
 
 
 
 
 
Derivative assets (Note 11)
10,368

 
29,282

 
9,092

 
(15,481
)
 
33,261

Derivative liabilities (Note 11)
2,121

 
128,946

 

 
(110,641
)
 
20,426


24

Table of Contents


Changes in assets and liabilities measured at Level 3 fair value on a recurring basis for the three months ended March 31, 2013 and 2012 are as follows:
 
Loans Held for Sale (1)    
 
FDIC Clawback Liability (2)    
 
Freestanding Derivatives, net (3)
Three Months Ended March 31, 2013
 
 
 
 
 
Balance, beginning of period
$

 
$
(50,720
)
 
$
9,092

Transfers into Level 3

 

 
6,628

Losses included in earnings for the period

 
(1,468
)
 
(176
)
Balance, end of period
$

 
$
(52,188
)
 
$
15,544

Change in unrealized net losses included in net income related to assets and liabilities still held as of March 31, 2013
$

 
$
(1,468
)
 
$
(176
)
 
 
 
 
 
 
Three Months Ended March 31, 2012
 
 
 
 
 
Balance, beginning of period
$
15,462

 
$
(43,317
)
 
$
8,539

Settlements
(623
)
 

 

Transfers out of Level 3
(14,946
)
 

 

Gains (losses) included in earnings for the period
107

 
(377
)
 
275

Balance, end of period
$

 
$
(43,694
)
 
$
8,814

Change in unrealized net gains (losses) included in net income related to assets and liabilities still held as of March 31, 2012
$
107

 
$
(377
)
 
$
275

(1)
Net realized and unrealized gains on loans held for sale are included in gain on sale of loans.
(2)
Changes in fair value of the FDIC clawback liability are recorded in general and administrative expense.
(3)
Net realized and unrealized gains (losses) on IRLCs are included in gain on sale of loans. Changes in the fair value of the indemnification assets are recorded in general and administrative expense.
The Company monitors the availability of observable market data to assess the appropriate classification of financial instruments within the fair value hierarchy. Changes in economic conditions or model-based valuation techniques may require the transfer of financial instruments from one fair value level to another. In such instances, the Company reports the transfer at the end of the reporting period.
The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a recurring basis at March 31, 2013 and December 31, 2012:
Level 3 Assets
 
Fair Value    
 
Valuation Technique
 
Unobservable Inputs
 
Significant Unobservable Input Value
March 31, 2013
 
 
 
 
 
 
 
 
 
 
 
FDIC clawback liability
 
$
52,188

 
Discounted cash flow
 
Servicing cost
 
$6,780
-
$14,449
(1) 
Indemnification asset
 
8,916

 
Discounted cash flow
 
Reinstatement rate
 
4.9
%
-
65.6%
(2) 
 
 
 
 
 
 
Loss duration (in months)
 
8

-
51
(2) 
 
 
 
 
 
 
Loss severity (3)
 
2.3
%
-
14.9%
(2) 
IRLCs, net
 
6,628

 
Discounted cash flow
 
Loan closing ratio
 
0.0
%
-
99.0%
(4) 
December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
FDIC clawback liability
 
$
50,720

 
Discounted cash flow
 
Servicing cost
 
$6,790
-
$14,558
(1) 
Indemnification asset
 
9,092

 
Discounted cash flow
 
Reinstatement rate
 
3.8
%
-
79.5%
(2) 
 
 
 
 
 
 
Loss duration (in months)
 
8

-
50
(2) 
 
 
 
 
 
 
Loss severity (3)
 
2.4
%
-
11.3%
(2) 
(1)
The range represents the sum of the highest and lowest servicing cost values for all tranches that we use in our valuation process. The servicing cost represents 1% of projected UPB of the underlying loans.
(2)
The range represents the sum of the highest and lowest values for all tranches that we use in our valuation process.
(3)
Loss severity represents the interest loss severity as a percentage of UPB.
(4)
The range represents the highest and lowest loan closing rates used in the IRLC valuation. The range includes the closing ratio for rate locks unclosed at the end of the period, as well as the closing ratio for loans which have settled during the period.
The significant unobservable input used in the fair value measurement of the FDIC clawback liability is servicing cost. Significant increases (decreases) in this input in isolation could result in a significantly lower (higher) fair value measurement. The Company estimates the fair value of the FDIC clawback liability using a discounted cash flow model. The Company enters observable and unobservable inputs into the model to arrive at fair value. Changes in the estimate are primarily driven by changes in the interpolated discount rate (an observable input) and changes in servicing cost as a result of changes in projected UPB. The assumptions are reviewed and updated on a quarterly basis by management.
The significant unobservable inputs used in the fair value measurement of the indemnification asset are the reinstatement rate, loss severity and duration. Significant increases (decreases) in any of those inputs in isolation could result in a significantly lower (higher) fair value measurement. The reinstatement rate is determined by analyzing historical default activity of similar loans, while the loss severity is estimated as the interest rate spread between the note and debenture rate of the government insured loans as well as advance costs that are not

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reimbursable by the Federal Housing Administration (FHA), which is then extrapolated over the expected duration. The Company’s portfolio management group is responsible for analyzing and updating the assumptions and cash flow model of the underlying loans on a quarterly basis, which includes corroboration with historical experience.
The significant unobservable input used in the fair value measurement of the Company's IRLCs is the closing ratio, which represents the percentage of loans currently in a lock position which management estimates will ultimately close. Generally, the fair value of an IRLC is positive (negative) if the prevailing interest rate is lower (higher) than the IRLC rate. Therefore, an increase in the loan closing probability (i.e., higher percentage of loans estimated to close) will result in the fair value of the IRLC to increase if in a gain position, or decrease if in a loss position. The loan closing ratio is largely dependent on the loan processing stage that a loan is currently in and the change in prevailing interest rates from the time of the rate lock through the time the loan closes. The closing ratio is computed by our secondary marketing system using historical data and the ratio is periodically reviewed by the Company's secondary marketing department of the portfolio management group for reasonableness.
Loans Held for Sale Accounted for under the Fair Value Option
Following is information on loans held for sale reported under the fair value option at March 31, 2013 and December 31, 2012:
 
Total    
March 31, 2013
 
Fair value carrying amount
$
1,350,289

Aggregate unpaid principal balance
1,303,059

Fair value carrying amount less aggregate unpaid principal
$
47,230

December 31, 2012
 
Fair value carrying amount
$
1,452,236

Aggregate unpaid principal balance
1,387,423

Fair value carrying amount less aggregate unpaid principal
$
64,813

No loans recorded under the fair value option were on nonaccrual status at March 31, 2013 or December 31, 2012.
Differences between the fair value carrying amount and the aggregate unpaid principal balance include changes in fair value recorded at and subsequent to funding, gains and losses on the related loan commitment prior to funding and premiums or discounts on acquired loans.
The net gain from initial measurement of loans accounted for under the fair value option and subsequent changes in fair value were $61,631 and $64,709 for the three months ended March 31, 2013 and 2012, respectively, and are included in gain on sale of loans. These amounts exclude the impact from offsetting hedging arrangements which are also included in gain on sale of loans in the condensed consolidated statements of income. An immaterial portion of the change in fair value was attributable to changes in instrument-specific credit risk.
Non-recurring Fair Value Measurements
Certain assets and liabilities are measured at fair value on a non-recurring basis and therefore are not included in the tables above. These measurements primarily result from assets carried at the lower of cost or fair value or from impairment of individual assets. Losses disclosed below represent changes in fair value recognized subsequent to initial classification. The change in the MSR value represents a change due to impairment or recoveries on previous write downs. The carrying value of assets measured at fair value on a non-recurring basis and held at March 31, 2013 and December 31, 2012 and related changes in fair value are as follows:
 
Level 1        
 
Level 2        
 
Level 3        
 
Total        
 
Loss (Gain) Due to Change in Fair Value 
March 31, 2013
 
 
 
 
 
 
 
 
 
Collateral-dependent loans
$

 
$

 
$
16,796

 
$
16,796

 
$
1,961

Other real estate owned (1)

 

 
14,429

 
14,429

 
1,974

Mortgage servicing rights (2)

 

 
323,579

 
323,579

 
(12,555
)
December 31, 2012
 
 
 
 
 
 
 
 
 
Collateral-dependent loans
$

 
$

 
$
48,048

 
$
48,048

 
$
6,163

Other real estate owned (1)

 
4,030

 
26,787

 
30,817

 
6,230

Mortgage servicing rights (2)

 

 
320,901

 
320,901

 
63,508

(1)
Gains and losses resulting from subsequent measurement of OREO are included in the condensed consolidated statements of income as general and administrative expense. OREO is included in other assets in the condensed consolidated balance sheets.
(2)
The fair value for mortgage servicing rights represents the value of the strata with recoveries on previous valuation allowances.

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The following table presents quantitative information about Level 3 fair value measurements for financial instruments measured at fair value on a non-recurring basis at March 31, 2013 and December 31, 2012:
Level 3 Assets
 
Fair Value
 
Valuation Technique
 
Unobservable Inputs
 
Significant Unobservable Input Value
March 31, 2013
 
 
 
 
 
 
 
 
 
 
 
Collateral-dependent loans
 
$
16,796

 
Appraised value
 
Appraised value
 
NM
(1) 
Other real estate owned
 
14,429

 
Appraised value
 
Appraised value
 
NM
(1) 
Mortgage servicing rights
 
323,579

 
Discounted cash flow    
 
Prepayment speed
 
16.4
%
-
21.3%
(2) 
 
 
 
 
 
 
Discount rate
 
9.4
%
-
10.0%
(3) 
December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
Collateral-dependent loans
 
$
36,609

 
Sales comparison approach    
 
Appraisal value adjustment
 
0
%
-
47%
 
Collateral-dependent loans
 
11,439

 
Discounted appraisals
 
Collateral discounts
 
5.0
%
-
5.0%
 
Other real estate owned
 
23,359

 
Sales comparison approach    
 
Appraisal value adjustment
 
0.0
%
-
82.0%
 
Other real estate owned
 
3,428

 
Discounted appraisals
 
Collateral discounts
 
5.0
%
 
10.0%
 
Mortgage servicing rights
 
320,901

 
Discounted cash flow    
 
Prepayment speed
 
16.5
%
-
19.8%
(2) 
 
 
 
 
 
 
Discount rate
 
9.2
%
-
9.8%
(3) 
(1)
NM - Not Meaningful
(2)
The prepayment speed assumptions include a blend of prepayment speeds that are influenced by mortgage interest rates, the current macroeconomic environment and borrower behaviors and may vary over the expected life of the asset. The range represents the highest and lowest values for the strata with recoveries on previous valuation allowances.
(3)
The discount rate range represents the highest and lowest values for the MSR strata with recoveries on previous valuation allowances.
The Company estimates the fair value of collateral-dependent loans and OREO using appraisal valuation. Appraisals for both collateral-dependent impaired loans and OREO are performed by certified general appraisers (for commercial properties) or certified residential appraisers (for residential properties) whose qualifications and licenses have been reviewed and verified by the Company. Once received, a member of the Company's valuation services group reviews the assumptions and approaches utilized in the appraisal. To assess the reasonableness of the fair value, the Company's valuation services group compares the assumptions to independent data sources such as recent market data or industry-wide statistics.  For collateral dependent loans in which a new appraisal is expected in the next quarter, the appraisal is reviewed by an officer and an adjustment may be made based on a review of the property, historical property value changes, and current market rates.
The fair value of mortgage servicing rights is determined by using a discounted cash flow model to calculate the present value of estimated future net servicing income. The assumptions are a combination of market and company-specific data. On a quarterly basis, the portfolio management group compares the Company’s estimated fair value of the mortgage servicing rights to a third-party valuation as part of the valuation process. Discussions are held between executive management and the independent third-party to discuss the key assumptions used by the respective parties in arriving at those estimates.

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Disclosures about Fair Value of Financial Instruments
The following table presents the carrying amount, fair value, and placement in the fair value hierarchy of the Company’s financial instruments as of March 31, 2013 and December 31, 2012. This table excludes financial instruments with a short-term or without a stated maturity, prevailing market rates and limited credit risk, where carrying amounts approximate fair value. For financial assets such as cash and due from banks, FHLB restricted stock, and other investments, the carrying amount is a reasonable estimate of fair value. For financial liabilities such as noninterest-bearing demand, interest-bearing demand, and savings and money market deposits, the carrying amount is a reasonable estimate of fair value as these liabilities have no stated maturity. 
 
 
 
 
 
 
 
 
 
 
 
Carrying Amount
 
Estimated Fair Value
 
Level 1
 
Level 2
 
Level 3
March 31, 2013
 
 
 
 
 
 
 
 
 
Financial assets:
 
 
 
 
 
 
 
 
 
Investment securities:
 
 
 
 
 
 
 
 
 
Held to maturity
$
124,242

 
$
126,308

 
$

 
$
123,356

 
$
2,952

Loans held for sale (1)
1,066,310

 
1,086,964

 

 
741,926

 
345,038

Loans held for investment (2)
11,270,446

 
11,410,391

 

 

 
11,410,391

Financial liabilities:
 
 
 
 
 
 
 
 
 
Time deposits
$
4,124,322

 
$
4,171,707

 
$

 
$
4,171,707

 
$

Other borrowings
2,707,331

 
2,722,560

 

 
2,722,560

 

Trust preferred securities
103,750

 
78,034

 

 

 
78,034

 
 
 
 
 
 
 
 
 
 
December 31, 2012
 
 
 
 
 
 
 
 
 
Financial assets:
 
 
 
 
 
 
 
 
 
Investment securities:
 
 
 
 
 
 
 
 
 
Held to maturity
$
143,234

 
$
146,709

 
$

 
$
143,730

 
$
2,979

Loans held for sale (1)
635,810

 
658,091

 

 
642,437

 
15,654

Loans held for investment (2)
11,589,233

 
11,716,283

 

 

 
11,716,283

Financial liabilities:
 
 
 
 
 
 
 
 
 
Time deposits
$
4,123,594

 
$
4,165,065

 
$

 
$
4,165,065

 
$

Other borrowings (3)
3,050,698

 
3,085,174

 

 
3,085,174

 

Trust preferred securities
103,750

 
78,112

 

 

 
78,112

(1)
The carrying value of loans held for sale excludes $1,350,289 and $1,452,236 in loans measured at fair value on a recurring basis as of March 31, 2013 and December 31, 2012, respectively.
(2)
The carrying value of loans held for investment is net of the allowance for loan loss of $73,477 and $78,921 as of March 31, 2013 and December 31, 2012, respectively. In addition, the carrying values exclude $907,781 and $833,754 of lease financing receivables as of March 31, 2013 and December 31, 2012, respectively.
(3)
The carrying value of other borrowings excludes $122,323 in repurchase agreements which have remaining maturities of less than one month as of December 31, 2012.
Following are descriptions of the valuation methodologies used for assets and liabilities recorded at fair value and for estimating fair value for financial instruments not carried at fair value:
Investment Securities — Fair values are derived from quoted market prices and values from third party pricing services for which management understands the methods used to determine fair value and is able to assess the values. The Company also performs an assessment on the pricing of investment securities received from third party pricing services to ensure that the prices represent a reasonable estimate of fair value. The procedures include, but are not limited to, initial and on-going review of pricing methodologies and trends. The Company has the ability to challenge values and discuss its analysis with the third party pricing service provider in order to ensure that investments are recorded or disclosed at the appropriate fair value.
When the level and volume of trading activity for certain securities has significantly declined and/or when the Company believes that third party pricing may be based in part on forced liquidations or distressed sales, the Company analyzes each security for the appropriate valuation methodology based on a combination of the market approach reflecting third party pricing information and a discounted cash flow approach. In calculating the fair value derived from the income approach, the Company makes certain significant assumptions in addition to those discussed above related to the liquidity risk premium, specific non-performance and default experience specific to the collateral underlying the security. The values resulting from each approach (i.e., market and income approaches) are weighted to derive the final fair value for each security trading in an inactive market. As of March 31, 2013 and December 31, 2012, management did not make any adjustments to the prices provided by the third party pricing service as a result of illiquid or inactive markets. In addition, the Company has one corporate security that is valued using the income approach. To determine the price, the Company determines the cash flows based on the contract terms which include London Interbank Offered Rate (LIBOR) plus the spread and then discounts those cash flows at a rate that makes the present value of total discounted cash flows of a newly issued security approximate par. The spread to swap curve is interpolated based on the comparable securities that would issue in the market on the valuation date. Industry and rating factors are used to determine the comparable securities. This security has been classified as level 3.

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Loans Held for Sale — Fair values for loans held for sale valued under the fair value option were derived from quoted market prices or from models using loan characteristics (product type, pricing features and loan maturity dates) and economic assumptions (prepayment estimates and discount rates) based on prices currently offered in secondary markets for similar loans.
Fair values for loans carried at lower of cost or fair value were derived from models using characteristics of the loans (e.g., product type, pricing features and loan maturity dates) and economic assumptions (e.g., prepayment estimates, discount rates and estimated credit losses). Certain loans are valued using market observable pricing. All other loans are classified as level 3.
Loans Held for Investment — The fair value of loans held for investment is derived from discounted cash flows and includes an evaluation of the collateral and underlying loan characteristics, as well as assumptions to determine the discount rate such as credit loss and prepayment forecasts, and servicing costs. Held for investment loans are classified as level 3.
Impaired Loans — At the time a loan is considered impaired, it is valued at the lower of cost or fair value. Fair value is determined primarily by using an income, cost, or market approach and is normally provided through appraisals.  Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. For collateral-dependent loans for which a new appraisal is expected in the next quarter, the appraisal is reviewed by an officer and an adjustment may be made based on a review of the property, historical changes, and current market rates. Such adjustments are usually significant and typically result in a level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a level 3 fair value classification. Impaired loans are evaluated at least quarterly for additional impairment and adjusted accordingly.  Impaired loans carried at fair value generally receive specific allocations of the allowance for loan losses.
Other Real Estate Owned — Foreclosed assets are carried at the lower of carrying value or fair value. Foreclosed assets are adjusted to fair value less costs to sell upon transfer of the loans to foreclosed assets. Fair value is generally based upon appraisals or independent market prices that are periodically updated subsequent to classification as OREO. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments on OREO are usually significant and typically result in a level 3 classification of the inputs for determining fair value.
Mortgage Servicing Rights — Mortgage servicing rights are evaluated for impairment on a quarterly basis. If the carrying amount of an individual stratum exceeds fair value, a valuation allowance is recorded on that stratum so that the servicing asset is carried at fair value. Additionally, subsequent to the impairment, the MSR asset can recover its value up to the amount of valuation allowance recorded. A third-party valuation is obtained quarterly. The servicing portfolio is valued using all relevant positive and negative cash flows including servicing fees, miscellaneous income and float, costs of servicing, the cost of carry of advances, foreclosure losses, and applying certain prevailing assumptions used in the marketplace. Mortgage servicing rights do not trade in an active, open market with readily observable prices. Due to the nature of the valuation inputs, mortgage servicing rights are classified within level 3 of the hierarchy.
Time Deposits — The fair value of fixed-rate certificates of deposit is estimated using quantitative models, including discounted cash flow models that require the use of multiple market inputs including interest rates and spreads to generate continuous yield or pricing curves, and volatility factors. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third party pricing services. The Company considers the impact of its own credit spreads in the valuation of these liabilities. The credit risk is determined by reference to observable credit spreads in the secondary cash market.
Other Borrowings — For advances that bear interest at a variable rate, the carrying amount is a reasonable estimate of fair value. For fixed-rate advances and repurchase agreements, fair value is estimated using quantitative discounted cash flow models that require the use of interest rate inputs that are currently offered for fixed-rate advances and repurchase agreements of similar remaining maturities. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third party pricing services. For hybrid advances, fair value is obtained from an FHLB proprietary model mathematical approximation of the market value of the underlying hedge. The terms of the hedge are similar to the advances.
Trust Preferred Securities — Fair value is estimated using quantitative models, including discounted cash flow models that require the use of multiple market inputs including interest rates and spreads to generate pricing curves. The majority of market inputs are actively quoted and can be validated through external sources, including brokers, market transactions and third party pricing services. The Company interpolates its own credit spreads in the valuation of these liabilities. Due to the significance of the credit spread in the valuation inputs, trust preferred securities are classified within level 3 of the hierarchy.
FDIC Clawback Liability — The fair value of the FDIC clawback liability represents the net present value of expected true-up payments due 45 days after the fifth and tenth anniversaries of the closing of the Bank of Florida acquisition pursuant to the purchase and assumption agreements between the Company and the FDIC. On the true-up measurement dates, the Company is required to make a true-up payment to the FDIC in an amount equal to 50% of the excess, if any, of (1) 20% of the intrinsic loss estimate (an established figure by the FDIC) less (2) the sum of (a) 25% of the asset discount, (part of the Company’s bid) plus (b) 25% of the cumulative loss share payments plus (c) a 1% servicing fee based on the principal amount of the covered assets over the term (calculated annually based on the average principal amount at the beginning and end of each year and then summed up for a total fee included in the calculation). The liability was discounted using an estimated cost of debt capital, based on an interpolated cost of debt capital of banks with credit quality comparable to the Company’s (using USD US Bank (BBB) BFV Curve index). This liability is considered to be contingent consideration as it requires the return of a portion of the initial consideration in the event contingencies are met. Due to the nature of the valuation inputs, FDIC clawback liability is classified within level 3 of the hierarchy.
Fair Value and Cash Flow Hedges — The fair value of interest rate swaps is determined by a third party from a derivative valuation model. The inputs for the valuation model primarily include start and end swap dates, swap coupon, interest rate curve and notional amounts. See Note 11 for additional information on fair value and cash flow hedges.
Freestanding Derivatives — The fair value of forward sales and optional forward sales commitments is determined based upon the difference between the settlement values of the commitments and the quoted market values of the securities. Fair values of foreign exchange contracts are based on quoted prices for each foreign currency at the balance sheet date. For indexed options and embedded options, the fair value is determined by obtaining market or dealer quotes for instruments with similar characteristics. The Company uses a cash flow model to project cash flows for GNMA pool buyouts with and without recourse to determine the fair value for the indemnification asset. As this derivative is

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based on company-specific assumptions and is not actively traded, the indemnification asset is classified within level 3 of the hierarchy. Fair values of interest rate lock commitments are derived by using valuation models incorporating current market information or by obtaining market or dealer quotes for instruments with similar characteristics, subject to anticipated loan funding probability or fallout. The funding probability is the loan closing ratio. This ratio is estimated based primarily upon historical experience by product. Because of the significance of the closing ratio in the fair value calculation, interest rate locks are classified within level 3 of the hierarchy. Counterparty credit risk is taken into account when determining fair value. See Note 11 for additional information on freestanding derivatives.
13.  Commitments and Contingencies
Commitments — Commitments to extend credit are agreements to lend to customers in accordance with predetermined contractual provisions. These commitments, predominantly at variable interest rates, are for specific periods or contain termination clauses and may require the payment of a fee. The total amounts of unused commitments do not necessarily represent future credit exposure or cash requirements, as commitments often expire without being drawn upon.
In order to meet the needs of its clients, the Company also issues standby letters of credit, which are conditional commitments generally to provide credit support for some creditors in case of default. The credit risk and potential cash requirements involved in issuing standby letters of credit are essentially the same as those involved in extending loan facilities to clients.
Unfunded credit extension commitments at March 31, 2013 and December 31, 2012 are as follows:
 
March 31,
2013
 
December 31,
2012
Commercial
$
1,300,871

 
$
1,094,900

Leasing
166,273

 
172,808

Home equity lines of credit
39,622

 
40,915

Credit card lines of credit
33,896

 
32,496

Standby letters of credit
1,341

 
1,274

Total unfunded credit extension commitments
$
1,542,003

 
$
1,342,393

In the ordinary course of business, the Company enters into commitments to originate residential mortgage loans held for sale at interest rates determined prior to funding. Interest rate lock commitments for loans that the Company intends to sell are considered freestanding derivatives and are recorded at fair value. See Note 11 for information on interest rate lock commitments as they are not included in the table above.
The Company has an agreement with the Jacksonville Jaguars of the National Football League whereby the Company obtained the naming rights to the football stadium in Jacksonville, Florida. Under the agreement, the Company is obligated to pay $400 during the remainder of 2013. The amount due in 2014 is $3,647, which is a 5% increase from the total obligation due in 2013.
Guarantees — The Company sells and securitizes conventional conforming and federally insured single-family residential mortgage loans predominantly to GSEs, such as Fannie Mae and Freddie Mac. The Company also sells residential mortgage loans, primarily those that do not meet criteria for whole loan sales to GSEs, through whole loan sales to private non-GSE purchasers. In doing so, representations and warranties regarding certain attributes of the loans are made to the GSE or the third-party purchaser. Subsequent to the sale, if it is determined that the loans sold are (1) with respect to the GSEs, in breach of these representations or warranties or (2) with respect to non-GSE purchasers, in material breach of these representations and warranties, the Company generally has an obligation to either: (a) repurchase the loan for the UPB, accrued interest and related advances, (b) indemnify the purchaser or (c) make the purchaser whole for the economic benefits of the loan. From 2004 through March 31, 2013, the Company originated and securitized approximately $51,549,253 of mortgage loans to GSEs and private non-GSE purchasers. A majority of the loans sold to non-GSEs were agency deliverable products that were eventually sold by large aggregators of agency product who eventually securitized and sold to the agencies.
In some cases, the Company also has an obligation to repurchase loans in the event of early payment default (EPD) which is typically triggered if a borrower does not make the first several payments due after the loan has been sold to an investor. The Company’s private investors have agreed to waive EPD provisions for conventional conforming and federally insured single-family residential mortgage loans and certain jumbo loan products. However, the Company is subject to EPD provisions on the community reinvestment loans the Company originates and sells under the State of Florida housing program, which represents a minimal amount of total originations.
The Company’s obligations vary based upon the nature of the repurchase demand and the current status of the mortgage loan. The Company establishes reserves for estimated losses inherent in the Company’s origination of mortgage loans. In estimating the accrued liability for loan repurchase and make-whole obligations, the Company estimates probable losses inherent in the population of all loans sold based on trends in claims requests and actual loss severities experienced. The liability includes accruals for probable contingent losses in addition to those identified in the pipeline of repurchase or make-whole requests. There is additional inherent uncertainty in the estimate because the Company historically sold a majority of its loans servicing released and currently does not have servicing performance metrics on a majority of the loans it originated and sold. The estimation process is designed to include amounts based on actual losses experienced from actual repurchase activity. The baseline for the repurchase reserve uses historical loss factors that are applied to loan pools originated in 2003 through March 31, 2013 and sold in years 2004 through March 31, 2013. Loss factors, tracked by year of loss, are calculated using actual losses incurred on repurchase or make-whole arrangements. The historical loss factors experienced are accumulated for each sale vintage (year loan was sold) and are applied to more recent sale vintages to estimate inherent losses not yet realized. The Company’s estimated recourse related to these loans was $24,866 and $27,000 at March 31, 2013 and December 31, 2012, respectively, and is recorded in accounts payable and accrued liabilities.
In the ordinary course of its loan servicing activities, the Company routinely initiates actions to foreclose real estate securing serviced loans. For certain serviced loans, there are provisions in which the Company is either obligated to fund foreclosure-related costs or to repurchase loans in default. Additionally, as servicer, the Company could be obligated to repurchase loans from or indemnify GSEs for loans originated by defunct originators. The outstanding principal balance on loans serviced at March 31, 2013 and December 31, 2012, was $50,809,825 and $49,422,104, respectively, including residential mortgage loans held for sale. The amount of estimated recourse recorded in

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accounts payable and accrued liabilities related to servicing activities at March 31, 2013 and December 31, 2012, was $23,599 and $26,026, respectively.
Federal Reserve Requirement — The Federal Reserve Board (FRB) requires certain institutions, including EB, to maintain cash reserves in the form of vault cash and average account balances with the Federal Reserve Bank. The reserve requirement is based on average deposits outstanding and was approximately $139,943 and $154,706 at March 31, 2013 and December 31, 2012, respectively.
Legal Actions — On April 13, 2011, each of the Company and EverBank entered into a consent order with the Office of Thrift Supervision (OTS) with respect to EverBank's mortgage foreclosure practices and the Company's oversight of those practices. The Office of the Comptroller of the Currency (OCC) succeeded the OTS with respect to EverBank's consent order, and the Board of Governors of the FRB succeeded the OTS with respect to the Company's consent order. The consent orders require, among other things, that the Company establish a new compliance program for mortgage servicing and foreclosure operations and that the Company ensures that it has dedicated resources for communicating with borrowers, policies and procedures for outsourcing foreclosure or related functions and management information systems that ensure timely delivery of complete and accurate information. The Company is also required to retain an independent firm to conduct a review of residential foreclosure actions that were pending from January 1, 2009 through December 31, 2010 in order to determine whether any borrowers sustained financial injury as a result of any errors, misrepresentations or deficiencies and to provide remediation as appropriate. The outcome of these processes could result in material fines, penalties, equitable remedies (including requiring default servicing or other process changes), or other enforcement actions, as well as significant legal costs in responding to governmental examinations and additional litigation for the Company. As of March 31, 2013, the independent consultant completed a portion of the review and provided a remediation plan based upon certain identified deficiencies. The Company accrued $8,000 based upon information available in the current remediation plan. As of March 31, 2013, the Company is unable to determine a possible range of loss as the review is not complete and the findings have not been finalized. There is at least a reasonable possibility that an exposure to loss exists in excess of the amount accrued.

In January 2013, thirteen mortgage servicing companies that were subject to similar consent orders reached an agreement in principle with the OCC and the FRB to terminate the independent foreclosure review requirements of the enforcement actions. As a result of this agreement, the participating servicers would cease their respective independent foreclosure reviews and instead make payments to borrowers within a framework established in the settlement agreement. For mortgage servicing companies like the Company and EverBank that did not enter into the settlement, the independent foreclosure review process will continue. The Company may be subject to civil monetary penalties with respect to the consent order, but the federal banking agencies have not indicated what the amount of any such penalties would be.

In addition, other government agencies, including state attorneys general and the U.S. Department of Justice, continue to investigate various mortgage related practices of the Company and other major mortgage servicers. The Company continues to cooperate with these investigations. These investigations could result in material fines, penalties, equitable remedies (including requiring default servicing or other process changes), or other enforcement actions, as well as significant legal costs in responding to governmental investigations and additional litigation. The Company has evaluated subsequent events through the date in which financial statements are available to be issued and currently, the Company is unable to estimate any loss that may result from penalties or fines imposed by the OCC or other governmental agencies and hence, no amounts have been accrued.

In the ordinary course of business, the Company and its subsidiaries are routinely involved in various claims and legal actions. In light of the uncertainties involved in these government proceedings, there is no assurance that the ultimate resolution of these matters will not significantly exceed the reserves currently accrued by the Company.
14. Variable Interest Entities
The Company, in the normal course of business, engages in certain activities that involve variable interest entities (VIEs), which are legal entities that lack sufficient equity to finance their activities, or the equity investors of the entities as a group lack any of the characteristics of a controlling interest. The primary beneficiary of a VIE is generally the enterprise that has both the power to direct the activities most significant to the economic performance of the VIE and the obligation to absorb losses or receive benefits that could potentially be significant to the VIE. The Company evaluates its interest in certain entities to determine if these entities meet the definition of a VIE and whether the Company is the primary beneficiary and should consolidate the entity based on the variable interests it held both at inception and when there is a change in circumstances that require a reconsideration. If the Company is determined to be the primary beneficiary of a VIE, it must account for the VIE as a consolidated subsidiary. If the Company is determined not to be the primary beneficiary of a VIE but holds a variable interest in the entity, such variable interests are accounted for under accounting standards as deemed appropriate.
Non-consolidated VIEs
The table below summarizes select information related to variable interests held by the Company at March 31, 2013 and December 31, 2012:
 
 
March 31, 2013
 
December 31, 2012
Non-consolidated VIEs
 
Total Assets
 
Maximum Exposure
 
Total Assets
 
Maximum Exposure
Loans provided to VIEs
 
$
174,497

 
$
174,497

 
$
185,000

 
$
185,000

On-balance-sheet securitizations
 
92,946

 
92,946

 
99,121

 
99,121

Debt securities
 
1,616,228

 
1,616,228

 
1,757,858

 
1,757,858

Loans provided to VIEs
The Company has provided funding to certain unconsolidated VIEs sponsored by third parties. These VIEs are generally established to finance certain small business loans originated by third parties and are not considered to have significant equity at risk. The entities are primarily funded through the issuance of a loan from the Company and a certified development company (CDC). The Company's loan is secured by a first lien. Although the Company retains the servicing rights to the loan, the Company is unable to unilaterally make all decisions necessary to direct the activities that most significantly impact the VIE; therefore, it is not the primary beneficiary. The principal risk to which these entities are exposed is credit risk related to the underlying assets. The loans to these VIEs are included in the Company’s overall analysis of the ALLL and reserve for unfunded commitments, respectively. The Company does not provide any implicit or explicit liquidity guarantees or principal

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value guarantees to these VIEs. The Company records the commercial loans on its condensed consolidated balance sheet as loans held for investment.
On-balance sheet securitizations
The Company engages in on-balance-sheet securitizations which are securitizations that do not qualify for sales treatment; thus, the assets remain on the Company’s balance sheet. The Company securitizes mortgage loans generally through a GSE, such as GNMA, FNMA or FHLMC (U.S. agency-sponsored mortgages). Occasionally, the Company will transfer conforming residential mortgages to GNMA in exchange for mortgage-backed securities. The Company maintains effective control over pools of transferred assets that remain unsold at the end of the period. 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.
Debt securities    
All MBS, CMO and ABS securities owned by the Company are issued through VIEs. The related VIEs were not consolidated, as the Company was not determined to be the primary beneficiary. See Note 3 for information related to debt securities.
Mortgage securitizations
The Company provides a variety of mortgage loan products to a diverse customer base. Once originated, the Company often securitizes these loans through the use of VIEs. These VIEs are funded through the issuance of trust certificates backed solely by the transferred assets. These mortgage loan securitizations are non-recourse except in accordance with the Company's standard obligations under representations and warranties. Thereby, the transaction effectively transfers the risk of future credit losses to the purchasers of the securities issued by the trust. The Company generally retains the servicing rights of the transferred assets but does not retain any other interest in the entities.
As noted above, the Company securitizes mortgage loans through government-sponsored entities or through private label (non-agency sponsored) securitizations. The Company is not the primary beneficiary of its U.S. agency-sponsored mortgage securitizations, because the Company does not have the power to direct the activities of the VIE that most significantly impact the entity’s economic performance. Therefore, the Company does not consolidate these U.S. agency-sponsored mortgage securitizations. Additionally, the Company does not consolidate VIEs of private label securitizations. Although the Company is the servicer of the VIE, the servicing relationship is deemed to be a fiduciary relationship and, therefore, the Company is not deemed to be the primary beneficiary of the entity. Refer to Note 4 for information related to sales of residential mortgage receivables and Note 7 mortgage servicing rights.    
15.  Segment Information
The Company has three reportable segments: Banking and Wealth Management, Mortgage Banking, and Corporate Services. The Company’s reportable business segments are strategic business units that offer distinctive products and services marketed through different channels. These segments are managed separately because of their marketing and distribution requirements.
The Banking and Wealth Management segment includes all banking, lending and investing products and services offered to customers either over the web or telephone or through financial centers or financial advisors. Activity relating to recent acquisitions has been included in the Banking and Wealth Management segment.
The Mortgage Banking segment includes the origination and servicing of mortgage loans and focuses primarily on residential loans for purposes of resale to GSEs, institutional investors or for investment by the Banking and Wealth Management segment.
The Corporate Services segment consists of services provided to the Banking and Wealth Management and Mortgage Banking segments including executive management, technology, legal, human resources, marketing, corporate development, treasury, accounting, finance and other services and transaction-related items. Direct expenses are allocated to the operating segments. Unallocated expenses are included in Corporate Services. Certain other expenses, including interest expense on trust preferred debt and transaction-related items, are included in the Corporate Services segment.
The chief operating decision maker’s review of each segment’s performance is based on segment income, which is defined as income from operations before income taxes and certain corporate allocations. Additionally, total net revenue is defined as net interest income before provision for loan and lease losses and total noninterest income.
Intersegment revenue among the Company’s business units reflects the results of a funds transfer pricing (FTP) process, which takes into account assets and liabilities with similar interest rate sensitivity and maturity characteristics and reflects the allocation of net interest income related to the Company’s overall asset and liability management activities. This provides for the creation of an economic benchmark, which allows the Company to determine the profitability of the Company’s products and cost centers by calculating profitability spreads between product yields and internal references. However, business segments have some latitude to retain certain interest rate exposures related to customer pricing decisions within guidelines.
FTP serves to transfer interest rate risk to the treasury function through a transfer pricing methodology and cost allocating model. The basis for the allocation of net interest income is a function of the Company’s methodologies and assumptions that management believes are appropriate to accurately reflect business segment results. These factors are subject to change based on changes in current interest rates and market conditions.

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The results of each segment are reported on a continuing basis. The following table presents financial information of reportable segments as of and for the three months ended March 31, 2013 and 2012. The eliminations column includes intersegment eliminations required for consolidation purposes.
 
As of and for the Three Months Ended March 31, 2013
 
Banking and Wealth Management
 
Mortgage Banking
 
Corporate Services
 
Eliminations
 
Consolidated
Net interest income (expense)
$
132,373

  
$
13,014

  
$
(1,571
)
 
$

 
$
143,816

Total net revenue
160,154

  
118,383

(1) 
(1,412
)
 

 
277,125

Intersegment revenue
3,155

  
(3,155
)
  

 

 

Depreciation and amortization
7,051

  
1,304

  
1,546

 

 
9,901

Income before income taxes
76,430

  
13,447

(1) 
(26,487
)
(3) 

 
63,390

Total assets
15,251,578

  
3,152,487

  
158,767

 
(256,344
)
 
18,306,488

 
 
 
 
 
 
 
 
 
 
 
As of and for the Three Months Ended March 31, 2012
 
Banking and Wealth Management
 
Mortgage Banking
 
Corporate Services
 
Eliminations
 
Consolidated 
Net interest income (expense)
$
106,545

  
$
10,496

  
$
(1,418
)
 
$

 
$
115,623

Total net revenue
131,773

  
58,369

(2) 
(1,326
)
 

 
188,816

Intersegment revenue
(2,624
)
  
2,624

  

 

 

Depreciation and amortization
6,391

  
586

  
1,827

 

 
8,804

Income before income taxes
61,833

 
(14,522
)
(2) 
(28,671
)
 

 
18,640

Total assets
12,494,752

  
1,438,744

  
92,381

 
(251,056
)
 
13,774,821

 
 
 
 
 
 
 
 
 
 
(1)
Segment earnings in the Mortgage Banking segment included a $12,555 recovery on the MSR valuation allowance for the three months ended March 31, 2013.
(2)
Segment earnings in the Mortgage Banking segment included a $15,144 charge for MSR impairment for three months ended March 31, 2012.
(3)
Income before income taxes includes additional allocation of intersegment expenses beginning in 2013. The allocation was $13,196 from corporate services, of which $5,848 and $7,348 was allocated to Banking and Wealth Management and Mortgage Banking, respectively.
16.   Subsequent Events
On April 1, 2013, EverBank entered into an agreement to purchase the servicing rights to $12,962,454 of UPB of Fannie Mae residential servicing assets with an effective transfer date of July 1, 2013 for $68,420, which amount will be adjusted for changes in the underlying loan population between signing and transfer. The acquired servicing rights will be included in the residential class of MSR. At February 28, 2013, there were 93,155 loans with a weighted average interest rate of 5.2% with an original average term of 30.2 years and a remaining average term of 23.9 years. The Company will earn a weighted average servicing fee of 27 basis points on the acquired UPB allowing the Company to generate additional servicing income by utilizing its already existing servicing capabilities.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis is intended to assist readers in understanding the condensed consolidated financial condition and results of operations of the Company during the three month period ended March 31, 2013 and should be read in conjunction with the condensed consolidated financial statements and notes thereto included in this Quarterly Report on Form 10-Q and the Company's Annual Report on Form 10-K for the period ended December 31, 2012, as filed with the SEC on March 15, 2013.
Forward-Looking Statements
This report contains certain statements that are forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. We generally identify forward-looking statements by terminology such as outlook, believes, expects, potential, continues, may, will, could, should, seeks, approximately, predicts, intends, plans, estimates, anticipates or the negative version of those words or other comparable words. These forward-looking statements are not historical facts, and are based on current expectations, estimates and projections about our industry, management's beliefs and certain assumptions made by management, many of which, by their nature, are inherently uncertain and beyond our control. Accordingly, you are cautioned that any such forward-looking statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to predict. Although we believe that the expectations reflected in such forward-looking statements are reasonable as of the date made, expectations may prove to have been materially different from the results expressed or implied by such forward-looking statements. Unless otherwise required by law, we also disclaim any obligation to update our view of any such risks or uncertainties or to announce publicly the result of any revisions to the forward-looking statements contained in this report. A number of important factors could cause actual results to differ materially from those indicated by the forward-looking statements, including, but not limited to, those factors described in Item 1A Risk Factors contained in this Quarterly Report and in our Annual Report on Form 10-K for the period ended December 31, 2012, as filed with the SEC on March 15, 2013. These factors include without limitation:

deterioration of general business and economic conditions, including the real estate and financial markets, in the United States and in the geographic regions and communities we serve;
risks related to liquidity, including the adequacy of our cash flow from operations and borrowings to meet our short-term liquidity needs;
changes in interest rates that affect the pricing of our financial products, the demand for our financial services and the valuation of our financial assets and liabilities, mortgage servicing rights and mortgage loans held for sale;
risk of higher loan and lease charge-offs;
legislative or regulatory actions affecting or concerning mortgage loan modification, refinancing and foreclosure;
our ability to comply with any supervisory actions to which we are or become subject as a result of examination by our regulators;
concentration of our commercial real estate loan portfolio;
higher than normal delinquency and default rates affecting our mortgage banking business;
limited ability to rely on brokered deposits as a part of our funding strategy;
concentration of mass-affluent clients and jumbo mortgages;
hedging strategies we use to manage our mortgage pipeline;
the effectiveness of our derivatives to manage interest rate risk;
delinquencies on our equipment leases and reductions in the resale value of leased equipment;
increases in loan repurchase requests and our reserves for loan repurchases;
failure to prevent a breach to our Internet-based system and online commerce security;
soundness of other financial institutions;
changes in currency exchange rates or other political or economic changes in certain foreign countries;
the competitive industry and market areas in which we operate;
historical growth rate and performance may not be a reliable indicator of future results;
loss of key personnel;
fraudulent and negligent acts by loan applicants, mortgage brokers, other vendors and our employees;
compliance with laws, rules, regulations and orders that govern our operations;
failure to establish and maintain effective internal controls and procedures;
impact of current and future legal and regulatory changes, including the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the Dodd-Frank Act) and the capital requirements promulgated by the Basel Committee on Banking Supervision ("Basel III");
effects of changes in existing U.S. government or government-sponsored mortgage programs;
changes in laws and regulations that may restrict our ability to originate or increase our risk of liability with respect to certain mortgage loans;
risks related to the continuing integration of acquired businesses and any future acquisitions;
legislative action regarding foreclosures or bankruptcy laws;
changes to generally accepted accounting principles (GAAP);
environmental liabilities with respect to properties that we take title to upon foreclosure; and
inability of EverBank, our banking subsidiary, to pay dividends.


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Management’s Discussion and Analysis of Financial Condition and Results of Operations

Reclassifications
Certain prior period information in Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) has been reclassified to conform to current period classifications.
Introduction and Overview
We are a thrift holding company which operates primarily through our direct subsidiary, EverBank (EB or EverBank). EB is a federally chartered thrift institution with its home office located in Jacksonville, Florida. References to “we,” “our,” “us,” or the “Company” refer to the holding company and its subsidiaries that are consolidated for financial reporting purposes. We are a diversified financial services company that provides innovative banking, lending and investment products and services to clients nationwide through scalable, low-cost distribution channels. Our business model attracts financially sophisticated, self-directed, mass-affluent clients and a diverse base of small and medium-sized business clients. We market and distribute our products and services primarily through our integrated on-line financial portal, which is augmented by our nationwide network of independent financial advisors, high-volume financial centers in targeted Florida markets and other financial intermediaries. These channels are connected by technology-driven centralized platforms, which provide operating leverage throughout our business.
We have a suite of asset origination and fee income businesses that individually generate attractive financial returns and collectively leverage our core deposit franchise and client base. We originate, invest in, sell and service residential mortgage loans, equipment leases, and various other consumer and commercial loans, as market conditions warrant. Our organic origination activities are scalable, significant relative to our balance sheet size and provide us with substantial growth potential. Our origination, lending and servicing expertise positions us to acquire assets in the capital markets when risk-adjusted returns available through acquisition exceed those available through origination. Our rigorous analytical approach provides capital markets discipline to calibrate our levels of asset origination, retention and acquisition. These activities diversify our earnings, strengthen our balance sheet and provide us with flexibility to capitalize on market opportunities.
Our deposit franchise fosters strong relationships with a large number of financially sophisticated clients and provides us with a stable and flexible source of low, all-in cost funding. We have a demonstrated ability to grow our client deposit base significantly with short lead time by adapting our product offerings and marketing activities rather than incurring the higher fixed operating costs inherent in more branch-intensive banking models. Our extensive offering of deposit products and services includes proprietary features that distinguish us from our competitors and enhance our value proposition to clients. Our products, distribution and marketing strategies allow us to generate substantial deposit growth while maintaining an attractive mix of high-value transaction and savings accounts.
Key Factors Affecting Our Business and Financial Statements
2012 Acquisitions
General Electric Capital Corporation (GECC) Business Property Lending, Inc. (BPL) Acquisition
In June 2012, we entered into a Stock and Asset Purchase Agreement and a Tax Matters Agreement with GECC pursuant to which we agreed to purchase all of the issued and outstanding stock of BPL, a wholly owned subsidiary of GECC. On October 1, 2012, we completed the purchase for approximately $2.4 billion in cash and announced the closing of the transaction. No debt was assumed in the acquisition. The acquisition included approximately $2.3 billion of performing business lending loans selected by us, the origination and servicing platforms and servicing rights relating to $2.9 billion of loans securitized by GECC. We believe this fully integrated, high quality franchise will accelerate our strategic growth plans and will further enhance and diversify our robust, nationwide asset generation capabilities.
Acquisition of Warehouse Finance Business
In April 2012, we acquired MetLife Bank’s warehouse finance business, including approximately $351.6 million in assets for a price of approximately $351.1 million. In connection with the acquisition, we hired 16 sales and operational staff from MetLife who were a part of the existing warehouse business. The warehouse business will continue to be operated out of locations in Boston, Massachusetts and Jacksonville, Florida. This line of business will provide residential loan financing to mid-sized, high-quality mortgage banking companies across the country.
Economic and Interest Rate Environment
The results of our operations are highly dependent on economic conditions and market interest rates. Beginning in 2007, turmoil in the financial sector resulted in a reduced level of confidence in financial markets among borrowers, lenders and depositors, as well as extreme volatility in the capital and credit markets. In response to these conditions, the Board of Governors of the Federal Reserve Board (FRB) began decreasing short-term interest rates, with 11 consecutive decreases totaling 525 basis points between September 2007 and December 2008. To stimulate economic activity and stabilize the financial markets, the FRB maintained historically low market interest rates from 2009 to 2013. While market conditions and home prices improved during this period, continued economic uncertainty resulted in high unemployment and low consumer confidence. As part of a sustained effort to spur economic growth, the FRB has indicated that low market interest rates will likely continue into 2014.
Net interest income is our largest source of income and is driven primarily as a function of the average balance of interest-earning assets, the average balance of interest-bearing liabilities and the spread between the contractual yield on such assets and the contractual cost of such liabilities. These factors are influenced by both the pricing and mix of interest-earning assets and interest-bearing liabilities which, in turn, are impacted by external factors such as the local economy, competition for loans and deposits, the monetary policy of the FRB and market interest rates. The cost of our deposits is largely based on short-term interest rates which are driven primarily by the FRB’s actions. However, the yields generated by our loans and securities are typically driven by longer-term interest rates which are set by the market, or, at times by the FRB’s actions. Our net interest income is therefore influenced by movements in interest rates and the pace at which these movements occur. Currently, short-term and long-term interest rates are at near historic lows, with overall market and industry margins tightening.
Regulatory Changes
Our financial condition and the results of our operations are dependent upon the composition of our balance sheet and the assets which we originate, sell, and/or retain for investment. Proposed changes to the regulatory capital treatment of certain securities and asset classes have caused our management to reevaluate components of our capital structure as well as our exposure to certain assets.

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Management’s Discussion and Analysis of Financial Condition and Results of Operations

The Basel III capital proposal requires, among other things, the phase-out of certain hybrid securities, such as trust preferred securities, as Tier 1 capital of depository institution holding companies would be subject to phase out over a 10-year period.
In addition, Basel III would expand the risk-weighting categories from the current four Basel I-derived categories (0%, 20%, 50% and 100%) to a much larger and more risk-sensitive number of categories, depending on the nature of the assets, generally ranging from 0% for U.S. government and agency securities, to 600% for certain equity exposures, and resulting in higher risk weights for a variety of asset categories, including many residential mortgages and certain commercial real estate loans.
Management believes, at March 31, 2013, that we and EverBank would meet all capital adequacy requirements under the Basel III and Standardized Approach Proposals on a fully phased-in basis if such requirements were currently effective. There can be no guarantee that the Basel III and the Standardized Approach Proposals will be adopted in their current form, what changes may be made before adoption, or when ultimate adoption will occur.
Performance Highlights
GAAP diluted earnings per share was $0.30, a 36% increase from $0.22 in the fourth quarter 2012 and a 275% increase from $0.08 in the first quarter 2012. Adjusted diluted earnings per share was $0.33 in the first quarter 2013, a 3% decrease from $0.34 in the fourth quarter 2012 and an 18% increase from $0.28 in the first quarter 2012.
Adjusted return on equity ("ROE") was 12.4% for the first quarter, an increase of 137 basis points year over year.
GAAP net income of $39 million, an increase of 36% compared to the prior quarter and 230% compared to the first quarter of 2012.
Adjusted net income of $44 million, an increase of 1% compared to the prior quarter and 60% compared to the first quarter of 2012.
Revenue of $277 million, an increase of 2% compared to the prior quarter and 47% compared to the first quarter of 2012.
Residential origination volume of $2.9 billion, an increase of 52% compared to the first quarter 2012. Gain on sale margin was 3.03% for the quarter, up 8 basis points compared to the fourth quarter of 2012.
Total loans and leases were $14.6 billion, up 1% for the quarter and up 49% compared to the first quarter of 2012.
Deposits were $13.7 billion, up 4% for the quarter and up 30% compared to the first quarter of 2012.
Asset quality improved as adjusted non-performing assets were 0.99% of total assets at March 31, 2013. Annualized net charge-offs to average loans and leases held for investment were 0.23% for the quarter.
Tangible common equity per common share was $10.65 at March 31, 2013, and was $11.31 excluding accumulated other comprehensive loss.
Closed $307 million private securitization of residential mortgage pass-through certificates issued by EverBank Mortgage Loan Trust 2013-1 on a servicing-retained basis.
Subsequent to the quarter end, agreed to purchase $13.0 billion of unpaid principal balance ("UPB") Fannie Mae residential servicing rights for $68 million.
                    
 1 Reconciliations of Non-GAAP financial measures can be found in Table 1, Table 1A, Table 1B, and Table 18


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Balance Sheet
Diversified Asset Growth
Total assets increased by $64 million quarter over quarter to $18.3 billion at March 31, 2013. Year over year, this represents a $4.5 billion, or 33%, increase from $13.8 billion at March 31, 2012. Interest-earning assets for the first quarter 2013 were largely comprised of:
Residential loans held for sale ("HFS") of $2.4 billion, a 16% increase from the prior quarter due to our increased focus on originating preferred jumbo loans eligible for sale into the capital markets;
Residential loans held for investment ("HFI") of $6.3 billion, a 6% decline from the prior quarter as we originated more loans for sale and further diversified into commercial loans and leases;
Commercial and commercial real estate loans of $4.9 billion, a 2% increase from the prior quarter;
Commercial leases of $911 million, a 9% increase from the prior quarter; and
Investment securities of $1.8 billion, an 8% decline from the prior quarter.
Loan Origination Activities
Residential loan originations were $2.9 billion for the first quarter, flat from the fourth quarter 2012 and an increase of 52% from the first quarter 2012, reflecting continued market share gains during the seasonally slow quarter. Loan production volume from our retail channel was $833 million in the first quarter, flat from the fourth quarter 2012 and a nearly ten fold increase year over year. Our gain on sale margins increased 8 basis points during the quarter to 3.03%, driven by the impact of our jumbo securitization activity and origination channel mix.
Organic asset generation totaled $3.3 billion and retained organic production totaled $0.5 billion for the first quarter of 2013. We originated record preferred jumbo loan volume of $768 million during the first quarter, an increase of 36% over the prior quarter. All of the first quarter 2013 jumbo volume was classified as HFS, resulting in $939 million of preferred jumbo loans HFS at quarter end, which we intend to sell or securitize. Total commercial loans and leases originated during the quarter were $414 million.
Continued Strong Deposit Generation
Total deposits grew by $532 million, or 4%, quarter over quarter to $13.7 billion at March 31, 2013. Year over year, this represents an increase of $3.1 billion, or 30%, from $10.6 billion at March 31, 2012. At March 31, 2013, our deposits were comprised of the following:
Non-interest bearing accounts were $1.3 billion, or 9% of total deposits;
Interest-bearing checking accounts were $2.9 billion, or 21% of total deposits;
Savings and money market accounts were $4.9 billion, or 36% of total deposits;
Global markets money market and time accounts were $1.1 billion, or 8% of total deposits; and
Time deposit accounts, excluding global markets, were $3.4 billion, or 25% of total deposits.
Other Funding Sources
Total other borrowings were $2.7 billion at March 31, 2013, a decrease of $466 million, or 15%, compared to $3.2 billion at December 31, 2012. The reduction in wholesale borrowings in the quarter was driven by the repayment of repurchase agreements executed to close the BPL acquisition in October 2012. We expect to continue to replace a portion of our wholesale borrowings with core deposits over time.


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Financial Highlights
 
 
Table 1

 
Three Months Ended March 31,
(dollars in thousands, except per share amounts)
2013
 
2012
For the Period:
 
 
 
Operating Results:
 
 
 
Total revenue
$
277,125

 
$
188,816

Net interest income
143,816

 
115,623

Provision for loan and lease losses
1,919

 
11,355

Noninterest income
133,309

 
73,193

Noninterest expense
211,816

 
158,821

Net income
39,146

 
11,846

Net earnings per common share, basic
0.30

 
0.08

Net earnings per common share, diluted
0.30

 
0.08

Performance Metrics:
 
 
 
Adjusted net income(1)
$
43,737

 
$
27,254

Adjusted net earnings per common share, basic(2)
0.34

 
0.29

Adjusted net earnings per common share, diluted(2)
0.33

 
0.28

Yield on interest-earning assets
4.47
%
 
4.96
%
Cost of interest-bearing liabilities
1.23
%
 
1.16
%
Net interest spread
3.24
%
 
3.80
%
Net interest margin
3.42
%
 
3.97
%
Return on average assets
0.85
%
 
0.36
%
Return on average equity(3)
11.04
%
 
4.81
%
Adjusted return on average assets(4)
0.95
%
 
0.83
%
Adjusted return on average equity(5)
12.42
%
 
11.05
%
Credit Quality Ratios:
 
 
 
Net charge-offs to average loans and leases held for investment
0.23
%
 
0.65
%
Banking and Wealth Management Metrics:
 
 
 
Efficiency ratio(6)
52.3
%
 
45.2
%
Mortgage Banking Metrics:
 
 
 
Unpaid principal balance of loans originated (in millions)
$
2,898.4

 
$
1,906.3



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Financial Highlights
Table 1 (cont.)
 
(dollars in thousands, except per share amounts)
March 31,
2013
 
December 31, 2012
As of Period End:
 
 
 
Balance Sheet Data:
 
 
 
Cash and cash equivalents
$
593,396

 
$
443,914

Investment securities
1,765,590

 
1,921,284

Loans held for sale
2,416,599

 
2,088,046

Loans and leases held for investment, net
12,178,227

 
12,422,987

Total assets
18,306,488

 
18,242,878

Deposits
13,674,366

 
13,142,388

Total liabilities
16,802,046

 
16,791,702

Total shareholders’ equity
1,504,442

 
1,451,176

Credit Quality Ratios:
 
 
 
Adjusted non-performing assets as a percentage of total assets (see Table 18)
0.99
%
 
1.08
%
Allowance for loan and lease losses (ALLL) as a percentage of loans and leases held for investment (see Table 19)
0.63
%
 
0.66
%
Capital Ratios:
 
 
 
Tier 1 leverage ratio (bank level) (see Table 31)
8.2
%
 
8.0
%
Tier 1 risk-based capital ratio (see Table 31)
13.0
%
 
12.8
%
Total risk-based capital ratio (bank level) (see Table 31)
13.7
%
 
13.5
%
Tangible equity to tangible assets (see Table 1B)
7.9
%
 
7.7
%
Deposit Metrics:
 
 
 
Deposit growth (trailing 12 months)
29.6
%
 
28.0
%
Mortgage Banking Metrics:
 
 
 
Unpaid principal balance of loans serviced for the Company and others (in millions)
$
50,809.8

 
$
51,198.7

Tangible Common Equity Per Common Share:
 
 
 
Excluding accumulated other comprehensive loss(7)
$
11.31

 
$
11.02

Including accumulated other comprehensive loss(8)
10.65

 
10.30

 
(1)
Adjusted net income includes adjustments to our net income for certain material items that we believe are not reflective of our ongoing business or operating performance. For a reconciliation of adjusted net income to net income, which is the most directly comparable GAAP measure, see Table 1A.
(2)
Both basic and diluted adjusted net earnings per common share are calculated using a numerator based on adjusted net income. Adjusted net earnings per common share, basic is a non-GAAP financial measure and its most directly comparable GAAP measure is net earnings per common share, basic. Adjusted net earnings per common share, diluted is a non-GAAP financial measure and its most directly comparable GAAP measure is net earnings per common share, diluted. For 2012, both basic and diluted adjusted net earnings per common share have been adjusted to exclude the impact of the $4.5 million special cash dividend paid in March 2012 to holders of the Series A 6% Cumulative Convertible Preferred Stock and the $1.1 million special cash dividend paid in June 2012 to holders of the Series B 4% Cumulative Convertible Preferred Stock. The special cash dividends were paid in connection with the conversion of all shares of both the Series A 6% Cumulative Convertible Preferred Stock and the Series B 4% Cumulative Convertible Preferred Stock into common stock.
(3)
Due to the issuance of non-participating perpetual preferred stock during the fourth quarter of 2012, we amended our calculation for return on average equity. Beginning with the fourth quarter of 2012, return on average equity is calculated as net income less dividends declared on the Series A 6.75% Non-Cumulative Perpetual Preferred Stock divided by average common shareholders' equity (average shareholders' equity less average Series A 6.75% Non-Cumulative Perpetual Preferred Stock). Prior to the fourth quarter of 2012, return on average equity was calculated as net income divided by average shareholders' equity.
(4)
Adjusted return on average assets equals adjusted net income divided by average total assets. Adjusted net income is a non-GAAP measure of our financial performance and its most directly comparable GAAP measure is net income. For a reconciliation of net income to adjusted net income, see Table 1A.
(5)
Due to the issuance of non-participating perpetual preferred stock during the fourth quarter of 2012, we amended our calculation for adjusted return on average equity. Beginning with the fourth quarter of 2012, adjusted return on average equity is calculated as adjusted net income less dividends declared on the Series A 6.75% Non-Cumulative Perpetual Preferred Stock divided by average common shareholders' equity. Prior to the fourth quarter of 2012, adjusted return on average equity was calculated as adjusted net income divided by average shareholders' equity. Adjusted net income is a non-GAAP measure of our financial performance and its most directly comparable GAAP measure is net income. For a reconciliation of net income to adjusted net income, see Table 1A.
(6)
The efficiency ratio represents noninterest expense from our Banking and Wealth Management segment as a percentage of total revenues from our Banking and Wealth Management segment. We use the efficiency ratio to measure noninterest costs expended to generate a dollar of revenue. Because of the significant costs we incur and fees we generate from activities related to our mortgage production and servicing operations, we believe the efficiency ratio is a more meaningful metric when evaluated within our Banking and Wealth Management segment.
(7)
Calculated as adjusted tangible common shareholders' equity divided by shares of common stock. Adjusted tangible common shareholders' equity equals shareholders' equity less goodwill, other intangible assets, perpetual preferred stock and accumulated other comprehensive loss (see Table 1B). Tangible common equity per common share is calculated using a denominator that includes

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actual period end common shares outstanding and for periods prior to the fourth quarter of 2012, additional common shares assuming conversion of all outstanding convertible preferred stock to common stock. Tangible common equity per common share excluding accumulated other comprehensive loss is a non-GAAP financial measure, and its most directly comparable GAAP financial measure is book value per common share.
(8)
Calculated as tangible common shareholders' equity divided by shares of common stock. Tangible common shareholders' equity equals shareholders' equity less goodwill, other intangible assets and perpetual preferred stock (see Table 1B). Tangible common equity per common share is calculated using a denominator that includes actual period end common shares outstanding and for periods prior to the fourth quarter of 2012, additional common shares assuming conversion of all outstanding convertible preferred stock to common stock. Tangible common equity per common share including accumulated other comprehensive loss is a non-GAAP financial measure, and its most directly comparable GAAP financial measure is book value per common share.
A reconciliation of adjusted net income to net income, which is the most directly comparable GAAP measure, is as follows:
Adjusted Net Income
Table 1A
 
 
Three Months Ended March 31,
(dollars in thousands, except per share data)
2013
 
2012
Net income
$
39,146

 
$
11,846

Transaction expense, net of tax

 
821

Non-recurring regulatory related expense, net of tax
11,425

 
3,063

Increase in Bank of Florida non-accretable discount, net of tax
950

 
2,135

MSR impairment (recovery), net of tax
(7,784
)
 
9,389

Adjusted net income
$
43,737

 
$
27,254

Adjusted net income allocated to preferred stock
2,531

 
5,172

Adjusted net income allocated to common shareholders
$
41,206

 
$
22,082

Adjusted net earnings per common share, basic
$
0.34

 
$
0.29

Adjusted net earnings per common share, diluted
$
0.33

 
$
0.28

Weighted average common shares outstanding:
 
 
 
(units in thousands)
 
 
 
Basic
121,583

 
76,129

Diluted
123,439

 
78,324


A reconciliation of both tangible equity and adjusted tangible equity to shareholders’ equity, which is the most directly comparable GAAP measure, and tangible assets to total assets, which is the most directly comparable GAAP measure, is as follows:
Tangible Equity, Tangible Common Equity, Adjusted Tangible Common Equity and Tangible Assets
Table 1B
 
(dollars in thousands)
March 31, 2013
 
December 31, 2012
 
Shareholders’ equity
$
1,504,442

 
$
1,451,176

Less:

 
 
Goodwill
46,859

 
46,859

Intangible assets
7,394

 
7,921

Tangible equity
1,450,189

 
1,396,396

Less:
 
 
 
Perpetual preferred stock
150,000

 
150,000

Tangible common equity
1,300,189

 
1,246,396

Less:
 
 
 
Accumulated other comprehensive loss
(80,324
)
 
(86,784
)
Adjusted tangible common equity
$
1,380,513

 
$
1,333,180

Total assets
$
18,306,488

 
$
18,242,878

Less:
 
 
 
Goodwill
46,859

 
46,859

Intangible assets
7,394

 
7,921

Tangible assets
$
18,252,235

 
$
18,188,098


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Analysis of Statements of Income
The following table sets forth, for the periods indicated, information regarding (i) the total dollar amount of interest income of the Company from earning assets and the resultant average yields; (ii) the total dollar amount of interest expense on interest-bearing liabilities and the resultant average rate; (iii) net interest income; (iv) net interest spread; and (v) net interest margin.
Average Balance Sheet, Interest and Yield/Rate Analysis
 
 
 
Table 2   

 
Three Months Ended
 
March 31, 2013
 
March 31, 2012
(dollars in thousands)
Average Balance
 
Interest
 
Yield/Rate
 
Average Balance
 
Interest
 
Yield/Rate    
Assets:
 
 
 
 
 
 
 
 
 
 
 
Interest-earning assets:
 
 
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
550,683

 
$
298

 
0.22
%
 
$
165,116

 
$
104

 
0.25
%
Investment securities
1,712,705

 
15,489

 
3.62
%
 
2,083,922

 
20,271

 
3.89
%
Other investments
138,617

 
761

 
2.23
%
 
98,531

 
278

 
1.13
%
Loans held for sale
2,428,324

 
20,309

 
3.35
%
 
2,706,953

 
33,949

 
5.02
%
Loans and leases held for investment:

 

 

 

 

 

Residential mortgages
6,547,768

 
70,579

 
4.31
%
 
4,683,368

 
48,088

 
4.11
%
Commercial and commercial real estate
4,627,274

 
61,264

 
5.30
%
 
1,179,988

 
16,446

 
5.51
%
Lease financing receivables
860,986

 
19,413

 
9.02
%
 
583,479

 
23,866

 
16.36
%
Home equity lines
176,682

 
2,152

 
4.94
%
 
197,819

 
2,370

 
4.82
%
Consumer and credit card
7,204

 
69

 
3.88
%
 
7,859

 
59

 
3.02
%
Total loans and leases held for investment
12,219,914

 
153,477

 
5.02
%
 
6,652,513

 
90,829

 
5.45
%
Total interest-earning assets
17,050,243

 
$
190,334

 
4.47
%
 
11,707,035

 
$
145,431

 
4.96
%
Noninterest-earning assets
1,341,095

 
 
 
 
 
1,352,553

 
 
 
 
Total assets
$
18,391,338

 
 
 
 
 
$
13,059,588

 
 
 
 
Liabilities and Shareholders’ Equity:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing liabilities:
 
 
 
 
 
 
 
 
 
 
 
Deposits:
 
 
 
 
 
 
 
 
 
 
 
Interest-bearing demand
$
2,809,317

 
$
5,458

 
0.79
%
 
$
2,107,758

 
$
3,740

 
0.71
%
Market-based money market accounts
431,542

 
838

 
0.79
%
 
450,688

 
852

 
0.76
%
Savings and money market accounts, excluding market-based
4,684,683

 
9,034

 
0.78
%
 
3,772,238

 
7,048

 
0.75
%
Market-based time
725,629

 
1,571

 
0.88
%
 
901,188

 
2,364

 
1.06
%
Time, excluding market-based
3,795,298

 
9,922

 
1.06
%
 
1,906,910

 
6,970

 
1.47
%
Total deposits
12,446,469

 
26,823

 
0.87
%
 
9,138,782

 
20,974

 
0.92
%
Borrowings:
 
 
 
 
 
 
 
 
 
 
 
Trust preferred securities
103,750

 
1,642

 
6.42
%
 
103,750

 
1,418

 
5.50
%
Federal Home Loan Bank (FHLB) advances
2,594,940

 
17,831

 
2.75
%
 
1,062,178

 
7,329

 
2.78
%
Repurchase agreements
56,605

 
222

 
1.59
%
 
22,295

 
87

 
1.57
%
Other

 

 
0.00
%
 
36

 

 
0.00
%
Total interest-bearing liabilities
15,201,764

 
$
46,518

 
1.23
%
 
10,327,041

 
$
29,808

 
1.16
%
Noninterest-bearing demand deposits
1,377,102

 
 
 
 
 
1,304,715

 
 
 
 
Other noninterest-bearing liabilities
335,459

 
 
 
 
 
441,703

 
 
 
 
Total liabilities
16,914,325

 
 
 
 
 
12,073,459

 
 
 
 
Total shareholders’ equity
1,477,013

 
 
 
 
 
986,129

 
 
 
 
Total liabilities and shareholders’ equity
$
18,391,338

 
 
 
 
 
$
13,059,588

 
 
 
 
Net interest income/spread
 
 
$
143,816

 
3.24
%
 
 
 
$
115,623

 
3.80
%
Net interest margin
 
 
 
 
3.42
%
 
 
 
 
 
3.97
%
 
 
 
 
 
 
 
 
 
 
 
 
Memo: Total deposits including non-interest bearing
$
13,823,571

 
$
26,823

 
0.79
%
 
$
10,443,497

 
$
20,974

 
0.81
%
(1)
The average balances are principally daily averages, and for loans, include both performing and non-performing balances.
(2)
Interest income on loans includes the effects of discount accretion and net deferred loan origination costs accounted for as yield adjustments.
(3)
All interest income was fully taxable for all periods presented.


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Increases and decreases in interest income and interest expense result from changes in average balances (volume) of interest-earning assets and interest-bearing liabilities, as well as changes in average interest rates. The following table shows the effect that these factors had on the interest earned on our interest-earning assets and the interest incurred on our interest-bearing liabilities.
Analysis of Change in Net Interest Income
 
 
 
 
Table 3

 
Three Months Ended
 
March 31, 2013 Compared
 
to March 31, 2012
 
Increase (Decrease) Due to
(dollars in thousands)
Volume  
 
Rate     
 
Total    
Interest-earning assets:
 
 
 
 
 
Cash and cash equivalents
$
238

 
$
(44
)
 
$
194

Investment securities
(3,561
)
 
(1,221
)
 
(4,782
)
Other investments
112

 
371

 
483

Loans held for sale
(3,449
)
 
(10,191
)
 
(13,640
)
Loans and leases held for investment:

 

 

Residential mortgages
18,894

 
3,597

 
22,491

Commercial and commercial real estate
46,836

 
(2,018
)
 
44,818

Lease financing receivables
11,195

 
(15,648
)
 
(4,453
)
Home equity lines
(251
)
 
33

 
(218
)
Consumer and credit card
(5
)
 
15

 
10

Total loans and leases held for investment
76,669

 
(14,021
)
 
62,648

Total change in interest income
70,009

 
(25,106
)
 
44,903

Interest-bearing liabilities:
 
 
 
 
 
Deposits:
 
 
 
 
 
Interest-bearing demand
$
1,228

 
$
490

 
$
1,718

Market-based money market accounts
(36
)
 
22

 
(14
)
Savings and money market accounts, excluding market-based
1,687

 
299

 
1,986

Market-based time
(459
)
 
(334
)
 
(793
)
Time, excluding market-based
6,845

 
(3,893
)
 
2,952

Total deposits
9,265

 
(3,416
)
 
5,849

Borrowings:
 
 
 
 
 
Trust preferred securities

 
224

 
224

FHLB advances
10,507

 
(5
)
 
10,502

Repurchase agreements
133

 
2

 
135

Other

 

 

Total change in interest expense
19,905

 
(3,195
)
 
16,710

Total change in net interest income
$
50,104

 
$
(21,911
)
 
$
28,193


(1)
The effect of changes in volume is determined by multiplying the change in volume by the previous period's average yield/cost. Similarly, the effect of rate changes is calculated by multiplying the change in average yield/cost by the previous period's volume. Changes applicable to both volume and rate have been allocated to rate.
Net Interest Income
Net interest income is affected by both changes in interest rates and the amount and composition of earning assets and interest-bearing liabilities. Net interest margin is defined as net interest income as a percentage of average earning assets.
Net interest income increased by $28.2 million, or 24%, in the first quarter of 2013 compared to the same period in 2012 due to an increase in interest income of $44.9 million, or 31%, partially offset by an increase in interest expense of $16.7 million, or 56%.
Our net interest margin decreased by 55 basis points in the first quarter of 2013 compared to the same period in 2012, which was led by a decrease in yields in our interest-earning assets.
Yields on our interest-earning assets decreased by 49 basis points in the first quarter of 2013 compared to the same period in 2012 due primarily to a decrease in yields on our loans and leases held for investment. Our lease financing receivables portfolio led the decrease in loan and lease yields as a result of a decrease in excess accretion as well as continued organic production of lease financing receivables at market interest rates. We define excess accretion as above market yields as a result of the market dislocation in 2008 and 2009. We recognized $6.4 million, a decrease of $6.8 million, in excess accretion in the first quarter of 2013 compared to the same period in 2012. Excess accretion is currently limited to our acquired Tygris leases which included a significant liquidity discount at acquisition. Additional decreases in yields in our loan and lease portfolios are due to the continued low interest rate environment coupled with strong organic production at prevailing market interest rates. Another significant contributor to the decrease in asset yield was the average balance in our loans held for sale portfolio related to our mortgage warehouse. In the third quarter of 2012, we transferred $1.9 billion of mortgage pool buyouts from LHFS to LHFI which had

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attractive yields.
Average balances of our interest-earning assets increased by $5.3 billion, or 46%, in the first quarter of 2013 compared to the same period in 2012 primarily due to a $5.6 billion increase in loans and leases held for investment.
The increase in the average balance of loans held for investment for the first quarter of 2013 compared to the same period in 2012 was due primarily to our commercial and commercial real estate and residential mortgage portfolios. Our fourth quarter 2012 acquisition of BPL contributed to the growth in our commercial and commercial real estate portfolio with a $2.2 billion increase in our average balance in the first quarter of 2013. Our warehouse finance acquisition, which closed in the second quarter of 2012, contributed $859.0 million to the increase in our average balance in the first quarter of 2013.
The increase in the average balance of our residential mortgage portfolio increased primarily due to the transfer of mortgage pool buyouts during the third quarter of 2012. As noted above, during the third quarter of 2012, we transferred $1.9 billion in residential mortgage and commercial loans from loans held for sale to loans held for investment at the lower of cost or fair value. A majority of these transferred loans were mortgage pool buyouts. In addition to our transfer, we continue to acquire government insured loans which we consider to be attractive investments. In addition, the preferred adjustable rate mortgage (ARM) loans originated for our portfolio remained strong as the credit profile and duration of these loans make them attractive to our portfolio.
Average balances in our interest-bearing liabilities increased by $4.9 billion, or 47%, in the first quarter of 2013 compared to the same period in 2012 primarily due to an increase in average balances in our interest-bearing deposits and FHLB advances. Average balances in our interest-bearing deposits increased by $3.3 billion, or 36%, in the first quarter of 2013 compared to the same period in 2012 primarily due to growth in time deposits (excluding market-based), savings and money market accounts (excluding market-based), and interest-bearing demand deposits. The growth in lower-cost deposits was the result of successful sales and marketing efforts and clients' increased preference for more liquid products during 2012. We continued to focus on marketing and promoting products in the first quarter of 2013 and expect to replace a portion of our wholesale borrowings with core deposits over time. Average balances in our FHLB advances increased by $1.5 billion in the first quarter of 2013 compared to the same periods in 2012 to fund strategic acquisitions and other asset growth in 2012 and to take advantage of historically low interest rates.
Provision for Loan and Lease Losses
We assess the allowance for loan and lease losses and make provisions for loan and lease losses as deemed appropriate in order to maintain the adequacy of the allowance for loan and lease losses. Increases in the allowance for loan and lease losses are achieved through provisions for loan and lease losses that are charged against net interest income. Additional allowance may result from a reduction of the net present value (NPV) of our acquired credit impaired (ACI) loans. We recorded a provision for loan and lease losses of $1.9 million in the first quarter of 2013, which is a decrease of 83% from $11.4 million in the same period in 2012. Provision for loan and lease losses decreased for both our residential and commercial portfolios. The residential provision decreased primarily due to sustained performance in preferred product originations and continued loan performance from the portfolio acquisition in the first quarter of 2012.  In addition, our provision related to residential TDRs decreased due to improved expected performance of these loans and lower charge-off amounts. 

The commercial and commercial real estate loan provision decreased due to new originations in the commercial real estate lending (CREL) business with increased credit quality. The net commercial provision also decreased due to favorable property sales, lower charge off amounts and an increase in performing TDR's that resulted in a change in our default assumption. Commercial impairment decreased due to increases in residual values of collateral as well as the expected cash flows.
Noninterest Income
Noninterest income increased by $60.1 million, or 82%, in the first quarter of 2013 compared to the same period in 2012. The following table illustrates the primary components of noninterest income for the periods indicated.
Noninterest Income
 
 
Table 4

 
Three Months Ended March 31,
(dollars in thousands)
2013
 
2012
Loan servicing fee income
$
42,163

 
$
45,556

Amortization of MSR
(35,078
)
 
(29,339
)
Recovery (impairment) of MSR
12,555

 
(15,144
)
Net loan servicing income
19,640

 
1,073

Gain on sale of loans
82,311

 
48,177

Loan production revenue
9,489

 
7,437

Deposit fee income
5,925

 
6,239

Other lease income
6,411

 
8,663

Other
9,533

 
1,604

Total Noninterest Income
$
133,309

 
$
73,193

The increase in noninterest income was driven primarily by gain on sale of loans, net loan servicing income, and other noninterest income. Gain on sale of loans increased by $34.1 million, or 71%, in the first quarter of 2013 compared to the same period in 2012 primarily driven by increased lending volume, strong gain on sale margins and favorable changes in the fair value of our hedging positions related to our Mortgage Banking segment. Gain on sale of loans generated through our production channels increased by $29.9 million in the first quarter of 2013 compared to the same period in 2012. Gain on sale spreads increased in the first quarter of 2013 compared to the same period in 2012 due to pricing power on refinancing demand. Refinancing demand was most notably due to the Home Affordable Refinance Program (HARP) 2.0 and the low mortgage interest rate environment. Lending volume also benefited from the continued expansion of our retail lending channel and increased lending of some of our preferred products. Mortgage lending volume increased by $992.1 million, or 52%, to $2.9 billion in the first quarter of 2013 compared to the same period in 2012.

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Realized gains from third party loan sales and changes in fair value of loans held for sale, rate lock commitments, and related hedging positions were up $6.4 million in the first quarter of 2013 compared to the same period in 2012. The increase resulted from hedge settlements offset by negative changes in the fair value of our interest rate lock commitments.
Additionally, net loan servicing income increased by $18.6 million in the first quarter of 2013 compared to the same period in 2012. The increase was primarily due to recoveries recognized on MSR valuation allowance in the first quarter of 2013 compared to MSR impairment recognized in the first quarter of 2012. MSR recovery is due primarily to an increase in mortgage interest rates and lower prepayment speeds than projected. This increase in net loan servicing income was offset by increased amortization of $5.7 million in the first quarter of 2013 compared to the same period in 2012 due to elevated prepayment levels driven by refinancing demand and government sponsored refinancing programs, such as HARP. In addition, servicing fees declined by $3.4 million in the first quarter of 2013 as the UPB of our servicing portfolio decreased by $2.8 billion to $50.8 billion as of March 31, 2013 compared to the same period in 2012.
Loan production revenue increased by $2.1 million, or 28%, in the first quarter of 2013 compared to the same period in 2012 due to increased origination volume and increased margins.
Other lease income decreased by $2.3 million, or 26%, in the first quarter of 2013 compared to the same period in 2012. Lease income decreased as a result of lower income related to late fees and greater lease termination losses on operating leases.
Other noninterest income increased by $7.9 million in the first quarter of 2013 compared to the same period in 2012 due primarily to prepayment penalty income related to serviced loans in the business lending trusts (BLTs), acquired with the BPL acquisition as well as income related to the recovery of losses experienced on loans and servicing rights previously acquired.
Noninterest Expense
Noninterest expense increased by $53.0 million, or 33%, in the first quarter of 2013 compared to the same period in 2012. The following table illustrates the primary components of noninterest expense for the periods indicated.
Noninterest Expense
 
 
Table 5

 
Three Months Ended March 31,
(dollars in thousands)
2013
 
2012
Salaries, commissions and other employee benefits expense
$
110,479

 
$
66,590

Equipment expense
19,852

 
15,948

Occupancy expense
7,384

 
5,349

General and administrative expense:
 
 
 
Professional fees
23,048

 
15,610

Foreclosure and other real estate owned (OREO) expense
7,027

 
10,959

Other credit-related expenses
2,328

 
11,810

Federal Deposit Insurance Corporation (FDIC) premium assessment and other agency fees
13,702

 
9,261

Advertising and marketing expense
10,381

 
5,907

Other
17,615

 
17,387

Total general and administrative expense
74,101

 
70,934

Total Noninterest Expense
$
211,816

 
$
158,821

The increase in noninterest expense was driven by increases in salaries, commissions and employee benefits, occupancy and equipment expense, and general and administrative expense. Salaries, commissions and employee benefits increased by $43.9 million, or 66%, in the first quarter of 2013 compared to the same period in 2012 due primarily to growth in our Mortgage Banking reporting segment. Mortgage Banking salaries, commissions and employee benefits increased by $27.0 million in the first quarter of 2013 which included an increase in variable commissions of $10.2 million. Salary and headcount increases were driven by increased mortgage lending and the expansion of our retail and consumer direct production channels. Additional growth was also due to headcount increases in our Corporate Services and Banking and Wealth Management reporting segments due to the recent acquisitions of warehouse finance and BPL, legal and regulatory compliance, as well as general operations growth. Headcount growth was 64%, 24%, and 27% in our Mortgage Banking, Banking and Wealth Management and Corporate Services reporting segments, respectively, as of March 31, 2013 compared to the same period in 2012.
Occupancy and equipment expense increased by $5.9 million, or 28%, in the first quarter of 2013 compared to the same period in 2012. The increase was primarily due to increased costs associated with the expansion of our retail lending channels. Additionally, increased expenses are due to our warehouse finance and BPL acquisitions and overall expansion and growth of the business.
General and administrative expense increased by $3.2 million, or 4%, in the first quarter of 2013 compared to the same period in 2012. Growth in general and administrative expenses was due primarily to increases in professional fees, advertising and marketing expense, and FDIC premium assessment and other agency fees. Increases are offset by decreases in other credit-related expenses, and foreclosure and OREO expenses.
Professional fees increased by $7.4 million, or 48%, in the first quarter of 2013 compared to the same period in 2012. The increase was primarily associated with the increase in consultant costs associated with regulatory compliance.
Advertising and marketing expense increased by $4.5 million, or 76%, in the first quarter of 2013 compared to the same period in 2012 due primarily to our deposit gathering initiatives and our sponsorship of the Professional Golfers' Association (PGA) Golf Tournament.
FDIC insurance assessment and other agency fees increased by $4.4 million, or 48%, in the first quarter of 2013 compared to the same period in 2012 due to a new fee assessment which was assessed on a retrospective basis.
Foreclosure and OREO expense decreased by $3.9 million, or 36%, in the first quarter of 2013 compared to the same period in 2012 due primarily to a decrease in foreclosure-related expenses. OREO expense decreased $2.1 million due to stabilizing property values and

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declining losses incurred on OREO properties as a result. Foreclosure expenses decreased by $1.8 million in the first quarter of 2013 compared to the same periods in 2012 due to improved credit quality and the decrease in government insured pool buyout activity over the past year.
Other credit-related expenses decreased by $9.5 million, or 80%, in the first quarter of 2013 compared to the same period in 2012 primarily due to a decrease in our repurchase reserve expenses related to our originated and serviced loans. We describe our reserves for loans subject to representations and warranties in Note 13 in our condensed consolidated financial statements and in our Analysis of Statements of Condition in the "Loans Subject to Representations and Warranties" section of this Quarterly Report on Form 10-Q.
Provision for Income Taxes and Effective Tax Rates
Provision for Income Taxes and Effective Tax Rates
 
Table 6

 
Three Months Ended March 31,
(dollars in thousands)
2013
 
2012
Provision for income taxes
$
24,244

 
$
6,794

Effective tax rates
38.2
%
 
36.4
%
For the three months ended March 31, 2013 and 2012, our effective income tax rate differs from the statutory federal income tax rate primarily due to state income taxes.
Segment Results
We evaluate our overall financial performance through three financial reporting segments: Banking and Wealth Management, Mortgage Banking and Corporate Services. To generate financial information by operating segment, we use an internal profitability reporting system which is based on a series of management estimates and allocations. We continually review and refine many of these estimates and allocations, many of which are subjective in nature. Any changes we make to estimates and allocations that may affect the reported results of any business segment do not affect our consolidated financial position or consolidated results of operations. Beginning in 2013, we updated our intersegment allocation of expenses for legal, human resources, and marketing expenses from the corporate services segment to the Banking and Wealth Management and Mortgage Banking segments, as applicable.
We use funds transfer pricing in the calculation of the respective operating segment’s net interest income to measure the value of funds used in and provided by an operating segment. The difference between the interest income on earning assets and the interest expense on funding liabilities and the corresponding funds transfer pricing charge for interest income or credit for interest expense results in net interest income. We allocate risk-adjusted capital to our segments based upon the credit, liquidity, operating and interest rate risk inherent in the segment’s asset and liability composition and operations. These capital allocations are determined based upon formulas that incorporate regulatory, GAAP and economic capital frameworks including risk-weighting assets, allocating noninterest expense and incorporating economic liquidity premiums for assets deemed by management to lower liquidity profiles.
Our Banking and Wealth Management segment often invests in loans originated from asset generation channels contained within our Banking and Wealth Management and Mortgage Banking segments as well as third party loan acquisitions. When intersegment acquisitions take place, we assign an estimate of the market value to the asset and record the transfer as a market purchase. In addition, intersegment cash balances are eliminated in segment reporting. The effects of these intersegment allocations and transfers are eliminated in consolidated reporting.
The following table summarizes segment income and total assets for each of our segments as of and for each of the periods shown:
Business Segments Selected Financial Information
 
 
 
Table 7A

 
 
Banking and Wealth Management
 
Mortgage Banking
 
Corporate Services
 
Eliminations  
 
Consolidated 
(dollars in thousands)
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2013
 
 
 
 
 
 
 
 
 
Net interest income
$
132,373

 
$
13,014

 
$
(1,571
)
 
$

 
$
143,816

Provision for loan and lease losses
(79
)
 
1,998

 

 

 
1,919

Net interest income after provision for loan and lease losses
132,452

 
11,016

 
(1,571
)
 

 
141,897

Noninterest income
27,781

 
105,369

 
159

 

 
133,309

Noninterest expense:
 
 
 
 
 
 
 
 
 
Foreclosure and OREO expense
5,285

 
1,742

 

 

 
7,027

Other credit-related expenses
670

 
1,658

 

 

 
2,328

All other noninterest expense
77,848

 
99,538

 
25,075

 

 
202,461

Income (loss) before income tax
76,430

 
13,447

 
(26,487
)
 

 
63,390

Adjustment items (pre-tax):
 
 
 
 
 
 
 
 
 
Increase in Bank of Florida non-accretable discount
1,532

 

 

 

 
1,532

MSR impairment (recovery)

 
(12,555
)
 

 

 
(12,555
)
Transaction and non-recurring regulatory related expense
5,252

 
11,531

 
1,646

 

 
18,429

Adjusted income (loss) before income tax
$
83,214

 
$
12,423

 
$
(24,841
)
 
$

 
$
70,796

Total assets as of March 31, 2013
$
15,251,578

 
$
3,152,487

 
$
158,767

 
$
(256,344
)
 
$
18,306,488


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Business Segments Selected Financial Information
 
 
 
Table 7B

 
 
Banking and Wealth Management
 
Mortgage Banking
 
Corporate Services
 
Eliminations 
 
Consolidated 
(dollars in thousands)
 
 
 
 
 
 
 
 
 
Three Months Ended March 31, 2012
 
 
 
 
 
 
 
 
 
Net interest income
$
106,545

 
$
10,496

 
$
(1,418
)
 
$

 
$
115,623

Provision for loan and lease losses
10,315

 
1,040

 

 

 
11,355

Net interest income after provision for loan and lease losses
96,230

 
9,456

 
(1,418
)
 

 
104,268

Noninterest income
25,228

 
47,873

 
92

 

 
73,193

Noninterest expense:
 
 
 
 
 
 
 
 
 
Foreclosure and OREO expense
7,962

 
2,997

 

 

 
10,959

Other credit-related expenses
(183
)
 
11,990

 
3

 

 
11,810

All other noninterest expense
51,846

 
56,864

 
27,342

 

 
136,052

Income (loss) before income tax
61,833

 
(14,522
)
 
(28,671
)
 

 
18,640

Adjustment items (pre-tax):
 
 
 
 
 
 
 
 
 
Increase in Bank of Florida non-accretable discount
3,444

 

 

 

 
3,444

MSR impairment

 
15,144

 

 

 
15,144

Transaction and non-recurring regulatory related expense

 
4,722

 
1,542

 

 
6,264

Adjusted income (loss) before income tax
$
65,277

 
$
5,344

 
$
(27,129
)
 
$

 
$
43,492

Total assets as of March 31, 2012
$
12,494,752

 
$
1,438,744

 
$
92,381

 
$
(251,056
)
 
$
13,774,821






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Banking and Wealth Management
Banking and Wealth Management
Table 8
 
 
Three Months Ended March 31,
(dollars in thousands)
2013
 
2012
Interest income
 
 
 
Interest and fees on loans and leases
$
157,612

 
$
116,901

Interest and dividends on investment securities
16,250

 
20,549

Other interest income (1)
10,661

 
7,201

Total interest income
184,523

 
144,651

Interest expense

 

Deposits
26,818

 
20,969

Other borrowings
18,053

 
7,417

Other interest expense (2)
7,279

 
9,720

Total interest expense
52,150

 
38,106

Net interest income
132,373

 
106,545

Provision for loan and lease losses
(79
)
 
10,315

Net interest income after provision for loan and lease losses
132,452

 
96,230

Noninterest income

 

Gain on sale of loans
8,329

 
10,552

Other
19,452

 
14,676

Total noninterest income
27,781

 
25,228

Noninterest expense

 

Salaries, commissions and employee benefits
30,803

 
20,664

Equipment and occupancy
13,554

 
11,348

Foreclosure and OREO
5,285

 
7,962

Other general and administrative
34,161

 
19,651

Total noninterest expense
83,803

 
59,625

Income before income taxes
$
76,430

 
$
61,833

(1)
Other interest income includes interest income from interest-bearing cash and cash equivalents and intersegment interest income.
(2)
Other interest expense represents intersegment interest expense.
Banking and Wealth Management segment earnings increased by $14.6 million, or 24%, in the first quarter of 2013 compared to the same period in 2012 primarily due to an increase in net interest income after provision for loan and leases losses which was which was partially offset by an increase in noninterest expense.
Net interest income increased by $25.8 million, or 24%, in the first quarter of 2013 compared to the same period in 2012 due to an increase in interest income of $39.9 million, partially offset by an increase in interest expense of $14.0 million. The warehouse finance acquisition, completed in second quarter 2012, and BPL acquisition, completed in fourth quarter 2012, contributed $5.9 million and $24.2 million, respectively, to interest income during the first quarter of 2013. Interest expense increased primarily due to growth in FHLB advances and deposits throughout 2012. We increased our FHLB advances primarily to fund a portion of our asset growth and to take advantage of historically low fixed borrowing rates. For a detailed explanation of changes in net interest income, please refer to our volume/rate analysis in Table 3.
Provision for loan and lease losses decreased by $10.4 million, or 101%, in the first quarter of 2013 compared to the same period in 2012 due primarily to our residential and commercial portfolios. The residential provision decreased $4.9 million primarily due to a decrease of $3.4 million from sustained performance in preferred product originations and continued loan performance from the portfolio acquisition in the first quarter of 2012. The net TDR provision, which is a component of ALLL, decreased $1.5 million due to a change in the redefault assumption for performing TDR's as a result of improved performance and lower charge-off amounts. 
The commercial provision decreased by $6.3 million, of which $2.7 million was primarily attributed to new originations in the CREL business with increased credit quality. The net commercial TDR provision decreased $1.8 million primarily due to favorable property sales. Commercial impairment decreased by $1.9 million due primarily to increases in residual values of collateral as well as the expected cash flows due to improved performance expectations.
The decreases in provision are offset by an increase in provision related to loans acquired with or originated by BPL.
Noninterest income increased by $2.6 million, or 10%, in the first quarter of 2013 compared to the same period in 2012. The warehouse finance and BPL acquisitions contributed $1.3 million and $3.2 million, respectively, to noninterest income during the first quarter of 2013. Prepayment penalty income related to servicing loans in the BLTs, drove the noninterest income contributed by the BPL acquisition. Additionally, we generated $4.0 million in the first quarter of 2013 of noninterest income related to the recovery of losses experienced on loans and servicing rights previously acquired. Increases were offset by a $2.3 million decrease in lease income and $2.2 million decrease in gains from third party loan sales. Lease income decreased as a result of lower income related to late fees and greater lease termination losses on operating leases. Lower gains from third party loan sales resulted from lower portfolio product volume in the first quarter of 2013 compared to the same period in 2012 combined with unfavorable changes in pricing.

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Noninterest expense increased by $24.2 million, or 41%, in the first quarter of 2013 compared to the same period in 2012. The increase was due to an increase in our other general and administrative expenses, salaries, commissions, and employee benefits, and equipment and occupancy expenses, which was partially offset by the decrease in foreclosure and OREO expenses.
Salaries, commissions, and employee benefits increased by $10.1 million, or 49%, in the first quarter of 2013 compared to the same period in 2012 due to growth in the Banking and Wealth Management segment. The warehouse finance and BPL acquisitions drove most of the growth in this segment. Total Banking and Wealth Management headcount increased by 24% as of March 31, 2013, compared to the same period in 2012.
Equipment and occupancy expense increased by $2.2 million, or 19%, in the first quarter or 2013 compared to the same period in 2012 primarily due to growth within the business segment due to our warehouse finance and BPL acquisitions. Additional growth is due to our new WorldCurrency® system and overall expansion and growth of the segment.
Foreclosure and OREO expense decreased by $2.7 million, or 34%, in the first quarter of 2013 compared to the same period in 2012 primarily due to stabilizing property values and declining losses on OREO properties as a result. OREO related expenses and provisions decreased by $1.8 million in the first quarter of 2013 compared to the same period in 2012. Additionally, foreclosure expenses decreased by $0.9 million in the first quarter of 2013 compared to the same period in 2012 due to improved credit quality and the decrease in government insured pool buyout activity over the past year.
Other general and administrative expense increased by $14.5 million, or 74%, in the first quarter of 2013 compared to the same period in 2012. The increase in other general and administrative expense was driven primarily by an increase in corporate allocations of $7.1 million in the first quarter of 2013 compared to the same period in 2012. The increase in corporate allocation was due primarily to the allocation of additional corporate expenses to our business segments to more closely align cost with utilization by the segments, as well as an increase in marketing allocations, as we continue to focus on increasing our deposit base. Professional and legal expense increased by $1.3 million in the first quarter of 2013 due to vendor commissions associated with an increase in the EverBank Commercial Finance, Inc. (ECF) leasing portfolio. FDIC clawback expense increased by $1.0 million in the first quarter of 2013 due to changes in fair value as a result of the continuing decline in market interest rates. FDIC insurance assessment and other agency fees increased by $4.3 million in the first quarter 2013 compared to the same period in 2012. The increase was due to additional FDIC fees recorded in the first quarter of 2013 due to a fee assessment which was assessed on a retrospective basis.
Mortgage Banking
Mortgage Banking
 
 
Table 9

 
Three Months Ended March 31,
(dollars in thousands)
2013
 
2012
Net interest income
$
13,014

 
$
10,496

Provision for loan and lease losses
1,998

 
1,040

Net interest income after provision for loan and lease losses
11,016

 
9,456

Noninterest income
 
 
 
Gain on sale of loans
73,980

 
37,625

Loan servicing fee income:
 
 
 
Loan servicing fee income
43,090

 
47,690

Amortization and impairment of MSR
(20,782
)
 
(44,483
)
Net loan servicing income
22,308

 
3,207

Other
9,081

 
7,041

Total noninterest income
105,369

 
47,873

Noninterest expense
 
 
 
Salaries, commissions and employee benefits
56,468

 
29,437

Equipment and occupancy
7,425

 
4,474

Professional fees
13,482

 
6,150

Foreclosure and OREO
1,742

 
2,997

Other credit-related expenses
1,658

 
11,990

Other general and administrative
22,163

 
16,803

Total noninterest expense
102,938

 
71,851

Income (loss) before income taxes
$
13,447

 
$
(14,522
)
Mortgage Banking segment earnings increased by $28.0 million in the first quarter of 2013 compared to the same period in 2012, primarily due to an increase in gain on sale of loans and net loan servicing income partially offset by an increase in noninterest expense.
Noninterest income increased by $57.5 million in the first quarter of 2013 compared to the same period in 2012. The increase was driven by an increase in gain on sale of loans in our mortgage lending business of $36.4 million in the first quarter of 2013 compared to the same period in 2012. An increase in mortgage lending volume contributed to the increase in gain on sale of loans. Lending volume increased by $992.1 million, or 52%, to $2.9 billion in the first quarter of 2013 compared to the same period in 2012. Lending volume benefited substantially from growth in our retail channel, which generated 75% of the increase in lending volume. Refinancing demand and government sponsored programs, such as HARP, continued to contribute to lending growth in the first quarter of 2013, as well as, increased lending of certain preferred mortgage products. In addition to an increase in lending volume, we continued to benefit from pricing power on refinancing demand. Lending

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gain on sale margins increased 83 basis points in the first quarter of 2013 compared to the same period in 2012. Pricing power continues to be most notable in HARP products; however, other mortgage products continue to generate margin growth due to the low interest rate environment. Additionally, $6.4 million, or 18%, of the increase in gain on sale of loans was generated through favorable changes in fair value of loans held for sale, rate lock commitments and related hedging instruments.
In addition, we experienced an increase in net loan servicing income of $19.1 million in the first quarter of 2013 compared to the same period in 2012, due to a decrease in amortization and impairment of MSR offset by a decrease in loan servicing fees. Amortization and impairment of MSR decreased by $23.7 million, or 53%, in the first quarter of 2013 due primarily to a $15.1 million MSR impairment charge recorded during the first quarter of 2012. Additionally, we recognized recoveries of $12.6 million of the related valuation allowance in the first quarter of 2013. Impairment during 2012 was due to a combination of a declining rate environment that resulted in higher prepayment speeds than expected along with the impact from HARP 2.0 which also contributed to accelerated prepayment speeds. In the first quarter of 2013, actual prepayment speeds decreased from expectations largely due to an increase in interest rates during the quarter, which resulted in a recovery of our valuation allowance.
Additionally, loan servicing fees declined by $4.6 million, or 10%, in the first quarter of 2013 compared to the same period in 2012. These declines in net loan servicing income are due to increased run-off as a result of refinancing activity and a decline in servicing fees due to a decline in the UPB of the servicing portfolio.
Noninterest expense increased by $31.1 million, or 43%, in the first quarter of 2013 compared to the same period in 2012 primarily due to increases in salaries, commissions, and employee benefits, professional fees, and other general and administrative costs. These increases were partially offset by decreases in other credit-related expenses due to a decrease in our repurchase reserve expenses.
Mortgage Banking segment growth drove the increase in salaries, commissions, and employee benefits with headcount increasing by 64% as of March 31, 2013, compared to the same period in 2012 due to the expansion of our retail and consumer direct production channels and our servicing default services.
Professional fees increased by $7.3 million in the first quarter of 2013 compared to the same period in 2012 primarily related to consultant costs associated with regulatory compliance.
Other general and administrative expenses increased by $5.4 million, or 32%, in the first quarter of 2013 compared to the same period in 2012 primarily due primarily to an increase in corporate allocations of $7.5 million. Additional corporate expenses were allocated to our business segments to more closely align cost with utilization by the segments. Additional increases are due to operating cost growth associated with growth within our segment. This increase was offset by a $3.7 million decrease in Federal National Mortgage Association (FNMA) compensatory fees which is attributed to the reduction in accruals for fees that are in negotiations with FNMA.
Other credit-related expenses decreased by $10.3 million, or 86%, in the first quarter of 2013 compared to the same period in 2012. This decrease was due to the decrease in repurchase reserve expenses related to our originated and serviced loans. We describe our reserves related to loans subject to representations and warranties in Note 13 in our condensed consolidated financial statements and in our Analysis of Statements of Condition in "Loans Subject to Representations and Warranties."
Corporate Services
Corporate Services
 
 
Table 10

 
Three Months Ended March 31,
(dollars in thousands)
2013
 
2012
Net interest income
$
(1,571
)
 
$
(1,418
)
Noninterest income
159

 
92

Noninterest expense
 
 
 
Salaries, commissions and employee benefits
23,208

 
16,489

Equipment and occupancy
6,257

 
5,476

Other general and administrative
16,891

 
11,513

   Intersegment allocations
(21,281
)
 
(6,133
)
Total noninterest expense
25,075

 
27,345

Loss before income taxes
$
(26,487
)
 
$
(28,671
)
Corporate Services segment earnings increased by $2.2 million, or 8%, in the first quarter of 2013 compared to the same period in 2012. Noninterest expense decreased by $2.3 million, or 8%, in the first quarter of 2013 compared to the same period in 2012, due to decreases in general operating costs partially offset by increases in salaries, commissions, and employee benefits and occupancy and equipment. Headcount increased by 27% as of the three months ended March 31, 2013 compared to the same period in 2012. The growth is due to continued business development and the need for additional support services due to increased governance and regulatory requirements. Other general and administrative costs increased by $5.4 million in the first quarter of 2013 compared to the same period in 2012 partially due to increased operating expenses as a result of the settlement of the amounts in escrow related to certain representations made in a previous divestiture as well as overall company growth. Professional fees decreased by $1.2 million, or 23%, in the first quarter of 2013 compared to the same period in 2012, due primarily to decreases in costs associated with strategic business acquisitions as well as costs associated with our initial public offering (IPO). The decreases are offset by increases in our risk management functions which have increased to fulfill compliance requirements associated with becoming a public company. Corporate allocations increased by $15.1 million in the first quarter of 2013 compared to the same period in 2012. Additional corporate expenses were allocated to our business segments to more closely align cost with utilization by the segments.

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Analysis of Statements of Condition
Investment Securities
Our overall investment strategy focuses on acquiring investment-grade senior mortgage-backed securities backed by seasoned loans with high credit quality and credit enhancements to generate earnings in the form of interest and dividends while offering liquidity, credit and interest rate risk management opportunities to support our asset and liability management strategy. Within our investment strategy, we also utilize highly rated structured products including Re-securitized Real Estate Mortgage Investment Conduits (Re-REMICs) for the added protection from credit losses and ratings deteriorations that accompany alternative securities. All securities investments satisfy our internal guidelines for credit profile and have a relatively short duration which helps mitigate interest rate risk arising from historically low market interest rates.
Available for sale securities are used as part of our asset and liability management strategy and may be sold in response to, or in anticipation of, factors such as changes in market conditions and interest rates, changes in security prepayment rates, liquidity considerations and regulatory capital requirements.
The following tables show the amortized cost and fair value of investment securities as of March 31, 2013 and December 31, 2012:
Investment Securities
 
Table 11

(dollars in thousands)
Amortized Cost
 
Gross Unrealized Gains
 
Gross Unrealized Losses
 
Fair Value        
 
Carrying Amount
March 31, 2013
 
 
 
 
 
 
 
 
 
Available for sale:
 
 
 
 
 
 
 
 
 
Residential collateralized mortgage obligations (CMO) securities - agency
$
60

 
$
5

 
$

 
$
65

 
$
65

Residential CMO securities - nonagency
1,455,529

 
37,992

 
3,844

 
1,489,677

 
1,489,677

Residential mortgage-backed securities (MBS) - agency
211

 
15

 

 
226

 
226

Asset-backed securities (ABS)
7,901

 

 
896

 
7,005

 
7,005

Equity securities
77

 
228

 

 
305

 
305

Total available for sale securities
1,463,778

 
38,240

 
4,740

 
1,497,278

 
1,497,278

Held to maturity:
 
 
 
 
 
 
 
 
 
Residential CMO securities - agency
80,203

 
2,297

 

 
82,500

 
80,203

Residential MBS - agency
39,052

 
1,814

 
10

 
40,856

 
39,052

Corporate securities
4,987

 

 
2,035

 
2,952

 
4,987

Total held to maturity securities
124,242

 
4,111

 
2,045

 
126,308

 
124,242

Total investment securities
$
1,588,020

 
$
42,351

 
$
6,785

 
$
1,623,586

 
$
1,621,520

 
 
 
 
 
 
 
 
 
 
December 31, 2012
 
 
 
 
 
 
 
 
 
Available for sale:
 
 
 
 
 
 
 
 
 
Residential CMO securities - agency
$
63

 
$
6

 
$

 
$
69

 
$
69

Residential CMO securities - nonagency
1,577,270

 
39,860

 
5,355

 
1,611,775

 
1,611,775

Residential MBS agency
226

 
15

 

 
241

 
241

Asset-backed securities
9,461

 

 
1,935

 
7,526

 
7,526

Equity securities
77

 
190

 

 
267

 
267

Total available for sale securities
1,587,097

 
40,071

 
7,290

 
1,619,878

 
1,619,878

Held to maturity:
 
 
 
 
 
 
 
 
 
Residential CMO securities - agency
106,346

 
3,497

 

 
109,843

 
106,346

Residential MBS - agency
31,901

 
1,986

 

 
33,887

 
31,901

Corporate securities
4,987

 

 
2,008

 
2,979

 
4,987

Total held to maturity securities
143,234

 
5,483

 
2,008

 
146,709

 
143,234

Total investment securities
$
1,730,331

 
$
45,554

 
$
9,298

 
$
1,766,587

 
$
1,763,112

Residential — Agency
At March 31, 2013, our residential agency portfolio consisted of both residential agency CMO securities and residential agency MBS securities. Investments in residential agency CMO securities totaled $80.3 million, or 5%, of our investment securities portfolio. Our residential agency MBS portfolio totaled $39.3 million, or 2%, of our investment securities portfolio. Our residential agency portfolio is secured by seasoned first-lien fixed and adjustable rate residential mortgage loans insured by government sponsored entities (GSEs).
Our residential agency CMO securities decreased by $26.1 million, or 25%, to $80.3 million at March 31, 2013 from $106.4 million at December 31, 2012 primarily due to reductions to amortized cost resulting from principal payments received and the amortization of premiums and discounts. Our residential agency MBS securities increased by $7.1 million, or 22%, to $39.3 million at March 31, 2013, from $32.1 million at December 31, 2012 primarily due to purchases of additional securities.

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Residential — Nonagency
At March 31, 2013, our residential nonagency portfolio consisted entirely of investments in residential nonagency CMO securities. Investments in residential nonagency CMO securities totaled $1.5 billion, or 92% of our investment securities portfolio. Our residential nonagency CMO securities decreased by $122.1 million, or 8%, to $1.5 billion, at March 31, 2013, from $1.6 billion at December 31, 2012 primarily due to reductions to amortized cost resulting from principal payments received and the amortization of premiums and discounts.
Our residential nonagency CMO securities are secured by seasoned first-lien fixed and adjustable rate residential mortgage loans backed by loan originators other than GSEs. Mortgage collateral is structured into a series of classes known as tranches, each of which contains a different maturity profile and pay-down priority in order to suit investor demands for duration, yield, credit risk and prepayment volatility. We have primarily invested in CMO securities rated in the highest category assigned by a nationally recognized statistical ratings organization. Many of these securities are Re-REMICs, which adds credit subordination to provide protection against future losses and rating downgrades. Re-REMICs constituted $1.0 billion, or 67%, of our residential nonagency CMO investment securities at March 31, 2013.
We have internal guidelines for the credit quality and duration of our residential CMO securities portfolio and monitor these on a regular basis. At March 31, 2013, the portfolio carried a weighted average Fair Isaac Corporation, or FICO, score of 730, an amortized loan-to-value ratio, or LTV, of 65%, and were seasoned 93 months. This portfolio includes protection against credit losses through subordination in the securities structures and borrower equity.
During the first three months of 2013, there were no sales of residential agency and nonagency CMO securities.
Loans Held for Sale
The following table presents the balance of each major category in our loans held for sale portfolio at March 31, 2013 and December 31, 2012:
Loans Held for Sale
 
 
Table 12A

(dollars in thousands)
March 31,
2013
 
December 31,
2012
Mortgage warehouse (carried at fair value)
$
1,350,289

 
$
1,452,236

Government insured pool buyouts
91,691

 
96,635

Other
974,619

 
539,175

 
$
2,416,599

 
$
2,088,046

At March 31, 2013, our government insured pool buyout loans totaled $91.7 million, or 4%, of our total loans held for sale portfolio. During the three months ended March 31, 2013, we transferred $109.4 million of conforming mortgages to the GNMA in exchange for mortgage-backed securities. At March 31, 2013, we securitized and retained $92.9 million of these GNMA securities that were transferred and are included in the loans held for sale balance above as we retained effective control of these assets. In addition to the ability to work-out these assets and securitize into GNMA pools, we have acquired a significant portion of these assets at a discount to UPB. The UPB and a portion of the interest is government insured which provides an attractive overall return on the underlying delinquent assets.
At March 31, 2013, our fair value mortgage warehouse loans accounted for at fair value totaled $1.4 billion, or 56%, of our total loans held for sale portfolio. Our mortgage warehouse loans are largely comprised of agency deliverable products that we typically sell within three months subsequent to origination. We hedge our mortgage warehouse portfolio with forward sales commitments designed to protect against potential changes in fair value. Due to the short duration that these loans are present on our balance sheet, we have elected fair value accounting on this portfolio of loans due to the burden of complying with the requirements of hedge accounting. Mortgage warehouse loans accounted for at fair value decreased by $101.9 million, or 7%, from December 31, 2012 due primarily to increased sales opportunities of our originated preferred jumbo products within the capital markets.
The following table represents the length of time the mortgage warehouse loans have been classified as held for sale:
Mortgage Warehouse
 
 
Table 12B

(dollars in thousands)
March 31,
2013
 
December 31,
2012
30 days or less
$
712,562

 
$
898,908

31- 90 days
476,329

 
486,419

Greater than 90 days
161,398

 
66,909

 
$
1,350,289

 
$
1,452,236

Subsequent to March 31, 2013, we sold $90.8 million of the mortgage warehouse loans classified as held for sale that were held for more than 90 days. The remaining $70.6 million of warehouse loans were made up of conforming or government product and were current at March 31, 2013.
Our other loans held for sale totaled $974.6 million, or 40%, of our total loans held for sale portfolio. Other loans increased by $435.4 million, from $539.2 million at December 31, 2012, due to a change in strategy on certain originated longer duration, preferred loans. We have a history of originating high credit quality loans that are attractive to other market participants due to current increased demand in the secondary markets for these loans. At March 31, 2013 this population of loans consists of short to intermediate term adjustable rate mortgages, along with fixed rate mortgages. During the three months ended March 31, 2013, we sold $311.0 million compared to $178.2 million during the three months ended December 31, 2012.
These loans are accounted for under the lower of cost or fair value. These preferred loans made up $939.6 million, or 96%, of our other loans held for sale loan category and are current at March 31, 2013.

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Loans and Leases Held for Investment
The following table presents the balance of each major category in our loan and lease held for investment portfolio at March 31, 2013 and at December 31, 2012:
Loans and Leases Held for Investment
Table 13
 
(dollars in thousands)
March 31, 2013
 
December 31, 2012
Residential mortgages:
 
 
 
Residential
3,677,241

 
3,949,284

Government insured pool buyouts
2,602,414

 
2,759,464

Commercial and commercial real estate
4,883,330

 
4,771,768

Lease financing receivables
911,371

 
836,935

Home equity lines
173,704

 
179,600

Consumer and credit card
7,234

 
8,038

Total loans and leases, net of discounts
12,255,294

 
12,505,089

Allowance for loan and lease losses
(77,067
)
 
(82,102
)
Total loans and leases, net
$
12,178,227

 
$
12,422,987

The balances presented above include:
Net purchase loan and lease discounts
$
146,666

 
$
164,132

Net deferred loan and lease origination costs
25,889

 
25,275

Residential Mortgage Loans
At March 31, 2013, our residential mortgage loans totaled $3.7 billion, or 30%, of our total held for investment loan and lease portfolio. We primarily offer our customers residential closed-end mortgage loans typically secured by first liens on one-to-four family residential properties. Additionally, we invest in government-insured GNMA pool buyouts purchased from GNMA pool securities and other loans secured by residential real estate.
Residential mortgage loans decreased by $272.0 million, or 7%, to $3.7 billion at March 31, 2013 from $3.9 billion at December 31, 2012. The decrease was due primarily to paydowns and payoffs of existing loans. The decrease was also due to increased originations of fixed-rate loans held for sale and further diversification into commercial loans and leases.
Government Insured Buyouts
At March 31, 2013, our government insured buyout loan portfolio totaled $2.6 billion, or 21%, of our total loans held for investment portfolio. Government insured pool buyouts decreased by $157.1 million, or 6%, from $2.8 billion at December 31, 2012. We continue to acquire government insured pool buyouts for our portfolio. However, the acquisitions are offset by transfers to foreclosure of delinquent loans as well as subsequent securitizations through GNMA.
We have a history of servicing Federal Housing Administration, or FHA, loans. As a servicer, the buyout opportunity is the right to purchase above market rate, government insured loans at par (i.e., the amount that has to be passed through to the GNMA security holder when repurchased). For banks like us, with cost effective sources of short term capital, this strategy represents a very attractive return with limited additional investment risk.
Each loan in a GNMA pool is insured or guaranteed by one of several federal government agencies, including the Federal Housing Administration, Department of Veterans’ Affairs or the Department of Agriculture’s Rural Housing Service. The loans must at all times comply with the requirements for maintaining such insurance or guarantee. Prior to our acquisition of these loans, we perform due diligence to ensure a valid guarantee is in place; therefore we believe that no principal is at risk.
Duration is a potential risk of holding these loans and exposes us to interest rate risk and funding mismatch. In most cases, acquired loans or loans purchased out of our servicing assets are greater than 89 days past due upon purchase. Loans that go through foreclosure have an expected duration of one to two years, depending on the state’s servicing timelines. Bankruptcy proceedings and loss mitigation requirements could extend the duration of these loans. Extensions for these reasons do not impact the insurance or guarantee and are modeled into the acquisition price.
Loans can re-perform on their own or through loss mitigation and/or modification. Most loans are 20 to 30 year fixed rate instruments. Re-performing loans earn a higher yield as they can earn an above market note rate rather than a government guaranteed reimbursement rate. In order to mitigate the duration risk on re-performing loans, we have the ability to securitize and sell those loans into the secondary market.
Operational capacity poses a lesser risk to the claim through missed servicing milestones. Servicing operations must comply with the government agencies' servicing requirements in order to avoid interest curtailments (principal is not at risk). For acquired pool buyouts, we, in general, purchase loans early in the default cycle to obtain control of the files before processing errors jeopardize claims.
Commercial and Commercial Real Estate Loans
At March 31, 2013, our commercial and commercial real estate loans, which include owner-occupied commercial real estate, commercial investment properties, asset-backed commercial and small business commercial loans, totaled $4.9 billion, or 40%, of our total held for investment loan and lease portfolio.
Commercial and commercial real estate loans increased by $111.6 million, or 2%, to $4.9 billion at March 31, 2013 from $4.8 billion at December 31, 2012 due to continued growth within the warehouse finance operations acquired during 2012.

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Lease Financing Receivables
Lease financing receivables increased by $74.4 million, or 9%, to $911.4 million, or 7% of our total held for investment loan and lease portfolio at March 31, 2013 from $836.9 million at December 31, 2012. The increase was due to new lease originations, which were partially offset by paydowns of existing leases. Our leases generally consist of short-term and medium-term leases and loans secured by office equipment, office technology systems, healthcare and other essential-use small business equipment. All of our lease financing receivables were either purchased as a part of the Tygris acquisition or originated out of the operations of Tygris, which was re-branded ECF.
Home Equity Lines
At March 31, 2013, our home equity lines totaled $173.7 million, or 1%, of our total held for investment loan and lease portfolio. We offer home equity closed-end loans and revolving lines of credit typically secured by junior or senior liens on one-to-four family residential properties. Home equity lines decreased by $5.9 million, or 3%, to $173.7 million at March 31, 2013 from $179.6 million at December 31, 2012, due to paydowns on our existing lines of credit.
Consumer and Credit Card Loans
At March 31, 2013, consumer and credit card loans, in the aggregate, totaled $7.2 million, or less than 1% of our total held for investment portfolio. These loans include direct personal loans, credit card loans and lines of credit, automobile and other loans to our customers which are generally secured by personal property. Lines of credit are generally floating rate loans that are unsecured or secured by personal property.
Mortgage Servicing Rights
The following table presents the change in our MSR portfolio for the three months ended at March 31, 2013 and 2012:
Change in Mortgage Servicing Rights
 
 
Table 14

 
Three Months Ended March 31,
 
2013
 
2012
Balance, beginning of period
$
375,859

 
$
489,496

Originated servicing rights capitalized upon sale of loans
23,501

 
18,529

Amortization
(35,078
)
 
(29,339
)
Decrease (increase) in valuation allowance
12,555

 
(15,144
)
Other
(1,196
)
 
(1,122
)
Balance, end of period
$
375,641

 
$
462,420

Valuation allowance:
 
 
 
Balance, beginning of period
$
102,963

 
$
39,455

Increase in valuation allowance

 
15,144

Recoveries
(12,555
)
 

Balance, end of period
$
90,408

 
$
54,599

We carry MSR at amortized cost net of any required valuation allowance. We amortize MSR in proportion to and over the period of estimated net servicing income and evaluate MSR quarterly for impairment.
Originated servicing rights increased by $5.0 million, or 27%, in the first quarter of 2013 compared to the same period in 2012. The increase was primarily due to increased mortgage lending volume of $1.0 billion in the first quarter of 2013 compared to the same period in 2012.
Amortization expense increased by $5.7 million, or 20%, in the first quarter of 2013, compared to the same period in 2012. The increase in amortization expense was due to refinancing activity resulting in higher prepayment speeds compared to the same period in 2012. The increase in prepayment speeds is attributable to borrowers taking advantage of the historically low rate environment and government sponsored programs. Annualized amortization rates as of March 31, 2013 and 2012 approximated 29.1% and 22.5%, respectively.
A decrease in actual prepayment speeds as compared to expected speeds was the primary driver for the recovery of the MSR valuation allowance during the first quarter 2013. At March 31, 2013, we estimate that approximately 21.9% of our portfolio was eligible to refinance under the HARP program. As such, near term annualized prepayment speeds were estimated at 24.7% at March 31, 2013. At March 31, 2012, the impact of HARP 2.0 and a further decline in interest rates caused our prepayment speeds to exceed our expectations and resulted in impairment of $15.1 million.

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Other Assets
The following table sets forth other assets by category as of March 31, 2013 and December 31, 2012:
Other Assets
 
 
 
Table 15

(dollars in thousands)
 
March 31, 2013
 
December 31, 2012
Foreclosure claims receivable, net of allowance of $10,571 and $11,721, respectively
 
$
192,741

 
$
196,952

Servicing advances, net of allowance of $10,142 and $11,518, respectively
 
119,959

 
125,118

Accrued interest receivable
 
82,525

 
82,965

Other real estate owned (OREO), net of allowance of $17,637 and $16,051, respectively
 
62,531

 
55,277

Margin receivable, net
 
56,350

 
40,260

Corporate advances, net
 
49,231

 
47,778

Goodwill
 
46,859

 
46,859

Fair value of derivatives, net
 
33,325

 
33,261

Prepaid assets
 
10,936

 
8,841

Intangible assets, net
 
7,394

 
7,921

Other
 
40,522

 
57,833

 
 
$
702,373

 
$
703,065

Other assets decreased by $0.7 million to $702.4 million at March 31, 2013 from $703.1 million at December 31, 2012. The decrease was driven primarily by a decrease in the other assets category partially offset by increases in margin receivable and OREO.
The other assets category decreased by $17.3 million, or 30%, primarily due to accounts receivable. Accounts receivable decreased by $12.4 million, or 46%, from December 31, 2012 primarily due to receivables for transition services in connection with the BPL acquisition as well as the timing of mortgage payments received.
Margin receivable increased by $16.1 million, or 40%, during the three months ended March 31, 2013 compared to December 31, 2012. The increase was primarily attributable to an increase in collateral posted for certain derivative trading activity related to hedging of our pipeline that is not subject to a master netting arrangement. See Note 11 in our condensed consolidated financial statements for more information related to our netting and cash collateral adjustments.
OREO increased by $7.3 million, or 13%, from December 31, 2012, primarily due to the movement of commercial properties from loans held for investment to OREO during the first quarter 2013.
Deferred Tax Asset
Our net deferred tax asset decreased by $6.8 million, to $164.1 million at March 31, 2013 from $170.9 million at December 31, 2012, primarily due to other comprehensive income adjustments related to interest rate swaps and the recovery of MSR impairment during the quarter.
Loan and Lease Quality

We use a comprehensive methodology to monitor credit quality and prudently manage credit concentration within our portfolio of loans and leases. Our underwriting policies and practices govern the risk profile, credit and geographic concentration of our loan and lease portfolios. We also have a comprehensive methodology to monitor these credit quality standards, including a risk classification system that identifies potential problem loans based on risk characteristics by loan type as well as the early identification of deterioration at the individual loan level. In addition to our ALLL, we have additional protections against potential credit losses, including credit indemnification and similar support agreements with the FDIC and other parties, purchase discounts on acquired loans and leases and other credit-related reserves, such as those on unfunded commitments.
Discounts on Acquired Loans and Lease Financing Receivables
For ACI loans accounted for under Accounting Standards Codification (ASC) 310-30, we periodically reassess cash flow expectations at a pool or loan level. In the case of improving cash flow expectations for a particular loan or pool of loans, we reclassify an amount of non-accretable difference as accretable yield, thus increasing the prospective yield of the pool. In the case of deteriorating cash flow expectations, we record a provision for loan or lease losses following the allowance for loan loss framework. For more information on ACI loans accounted for under ASC 310-30, see Note 5 in our condensed consolidated financial statements.

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The following table presents a bridge from UPB, or contractual net investment, to carrying value for ACI loans accounted for under ASC 310-30 at March 31, 2013 and December 31, 2012:
Carrying Value of ACI Loans
 
 
 
Table 16

(dollars in thousands)
Bank of Florida    
 
Other      
 
Total      
Under ASC 310-30
 
 
 
 
 
March 31, 2013
 
 
 
 
 
UPB or contractual net investment
$
477,799

 
$
893,435

 
$
1,371,234

Plus: contractual interest due or unearned income
200,301

 
680,312

 
880,613

Contractual cash flows due
678,100

 
1,573,747

 
2,251,847

Less: nonaccretable difference
136,371

 
584,554

 
720,925

Less: Allowance for loan losses
18,322

 
5,212

 
23,534

Expected cash flows
523,407

 
983,981

 
1,507,388

Less: accretable yield
94,544

 
122,433

 
216,977

Carrying value
$
428,863

 
$
861,548

 
$
1,290,411

Carrying value as a percentage of UPB or contractual net investment
90
%
 
96
%
 
94
%
December 31, 2012
 
 
 
 
 
UPB or contractual net investment
$
520,873

 
$
913,020

 
$
1,433,893

Plus: contractual interest due or unearned income
214,682

 
753,274

 
967,956

Contractual cash flows due
735,555

 
1,666,294

 
2,401,849

Less: nonaccretable difference
147,191

 
663,561

 
810,752

Less: Allowance for loan losses
16,789

 
5,175

 
21,964

Expected cash flows
571,575

 
997,558

 
1,569,133

Less: accretable yield
99,201

 
121,207

 
220,408

Carrying value
$
472,374

 
$
876,351

 
$
1,348,725

Carrying value as a percentage of UPB or contractual net investment
91
%
 
96
%
 
94
%
In the Bank of Florida ACI portfolio, an impairment charge of $1.5 million was recognized for the three months ended March 31, 2013 due to a reduction in cash flow expectations in certain pools of loans. During the three months ended March 31, 2013, we also reclassified $2.5 million from nonaccretable difference to accretable yield due to increases in cash flow expectations in some of our other pools of loans.
In our other ACI portfolio, additional impairment of $37 thousand was recognized for the three months ended March 31, 2013. Within this portfolio, we reclassified $10.1 million to accretable yield as there was an increase in expected cash flows in certain pools of loans.
For non-ACI loans and lease financing receivables accounted for under ASC 310-20, we periodically monitor the accretable purchase discount and recognize an allowance for loan and lease loss if the discount is not sufficient to absorb incurred losses. The following table presents a bridge from UPB, or contractual net investment, to carrying value for non-ACI loans and lease financing receivables accounted for under ASC 310-20 at March 31, 2013 and December 31, 2012:
Recorded Investment of Non-ACI Loans and Leases
 
Table 17  

(dollars in thousands)
Bank of Florida    
 
Tygris      
 
Other      
 
Total      
Under ASC 310-20
 
 
 
 
 
 
 
March 31, 2013
 
 
 
 
 
 
 
UPB or contractual net investment
$
40,802

 
$
72,513

 
$
2,902,161

 
$
3,015,476

Less: net purchase discount
15,141

 
12,781

 
82,915

 
110,837

Recorded investment
$
25,661

 
$
59,732

 
$
2,819,246

 
$
2,904,639

Recorded investment as a percentage of UPB or contractual net investment
63
%
 
82
%
 
97
%
 
96
%
December 31, 2012
 
 
 
 
 
 
 
UPB or contractual net investment
$
44,019

 
$
93,042

 
$
3,069,948

 
$
3,207,009

Less: net purchase discount
15,424

 
17,841

 
89,595

 
122,860

Recorded investment
$
28,595

 
$
75,201

 
$
2,980,353

 
$
3,084,149

Recorded investment as a percentage of UPB or contractual net investment
65
%
 
81
%
 
97
%
 
96
%
Our non-ACI portfolio for Bank of Florida consists of revolving lines of credit that do not fall within the scope of ASC 310-30 due to their revolving nature. During the three months ended March 31, 2013, there was not a significant change in the amount of purchase discount in this portfolio as there was normal accretion of the discount (non-credit) and nominal charge-offs for the period. Charge-offs associated with this

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portfolio are initially taken through the purchase discount and any additional allowance that may be necessary would be taken through provision for loan and lease losses.
Our non-ACI portfolio for Tygris consists of leases that did not have evidence of credit deterioration since origination when we purchased these leases.  The purchase discount related to the Tygris portfolio is considered to be the additional discount when comparing our carrying value to the contractual net investment of the leases as recorded by Tygris prior to our acquisition and represents additional yield in addition to the normal yield associated with these leases.  During the three months ended March 31, 2013, we recognized $5.0 million in discount accretion through interest income and had charge-offs of $0.1 million.  Similar to the Bank of Florida portfolio, charge-offs associated with this portfolio are initially taken through the purchase discount and any additional allowance that may be necessary would be taken through provision for loan and leases losses.
Our remaining non-ACI portfolio includes loans we have strategically acquired over the years. During the three months ended March 31, 2013, we recognized $1.9 million in related premiums, $8.5 million in discount accretion through interest income, and had no charge-offs, respectively.
Problem Loans and Leases
Loans and leases are placed on nonaccrual status when, in the judgment of management, the probability of collection of interest is deemed to be insufficient to warrant further accrual, which is generally when the loan becomes 90 days past due, with the exception of government insured loans and ACI loans. When a loan is placed on nonaccrual status, previously accrued but unpaid interest is reversed from interest income, and interest income is recorded as collected.
For purposes of disclosure in the table below, we exclude government insured pool buyout loans from our definition of non-performing loans and leases. We also exclude ACI loans from non-performing status because we expect to fully collect their new carrying value which reflects significant purchase discounts. If our expectation of reasonably estimable future cash flows deteriorates, these loans may be classified as nonaccrual loans and interest income will not be recognized until the timing and amount of future cash flows can be reasonably estimated.
Real estate we acquired as a result of foreclosure or by deed-in-lieu of foreclosure is classified as OREO until sold, and is carried at the balance of the loan at the time of foreclosure or at estimated fair value less estimated costs to sell, whichever is less.
In cases where a borrower experiences financial difficulties and we make certain concessionary modifications to contractual terms, the loan is classified as a TDR. Loans restructured with terms and at a rate equal to or greater than that of a new loan with comparable risk at the time the contract is modified are not considered to be impaired loans in calendar years subsequent to the restructuring.
The following table sets forth the composition of our non-performing assets (NPA), including nonaccrual, accruing loans and leases past due 90 or more days, TDR and OREO, as of the dates indicated. The balances of NPA reflect the net investment in such assets including deductions for purchase discounts.
Non-Performing Assets (1)
 
 
Table 18

(dollars in thousands)
March 31, 2013
 
December 31, 2012
Nonaccrual loans and leases:
 
 
 
Residential mortgages
$
69,876

 
$
73,752

Commercial and commercial real estate
63,924

 
76,289

Lease financing receivables
2,791

 
2,010

Home equity lines
4,513

 
4,246

Consumer and credit card
364

 
332

Total nonaccrual loans and leases
141,468

 
156,629

Accruing loans 90 days or more past due

 

Total non-performing loans (NPL)
141,468

 
156,629

Other real estate owned
39,576

 
40,492

Total non-performing assets
181,044

 
197,121

Troubled debt restructurings less than 90 days past due
88,888

 
90,094

Total NPA and TDR (1)
$
269,932

 
$
287,215

Total NPA and TDR
$
269,932

 
$
287,215

Government insured 90 days or more past due still accruing
1,547,995

 
1,729,877

Loans and leases accounted for under ASC 310-30:
 
 
 
90 days or more past due
67,630

 
79,984

OREO
22,955

 
16,528

Total regulatory NPA and TDR
$
1,908,512

 
$
2,113,604


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Adjusted credit quality ratios: (1)
 
 
 
NPL to total loans
0.97
%
 
1.08
%
NPA to total assets
0.99
%
 
1.08
%
NPA and TDR to total assets
1.47
%
 
1.57
%
Credit quality ratios including government-insured loans and loans and leases accounted for under ASC 310-30 :
 
 
 
NPL to total loans
12.04
%
 
13.55
%
NPA to total assets
9.94
%
 
11.09
%
NPA and TDR to total assets
10.43
%
 
11.59
%
(1)
We define NPA, as nonaccrual loans, accruing loans past due 90 days or more and foreclosed property. Our NPA calculation excludes government insured pool buyout loans for which payment is insured by the government. We also exclude ACI loans and foreclosed property accounted for under ASC 310-30 because we expect to fully collect the carrying value of such loans and foreclosed property.
We use an asset risk classification system in compliance with guidelines established by the Office of the Comptroller of Currency (OCC) Handbook as part of our efforts to monitor asset quality. In connection with examinations of insured institutions, examiners have the authority to identify problem assets and, if appropriate, classify them. There are three classifications for problem assets: “substandard,” “doubtful,” and “loss.” Substandard assets have one or more defined weaknesses and are characterized by the distinct possibility that the insured institution will sustain some loss if the deficiencies are not corrected. Doubtful assets have the weaknesses of substandard assets with the additional characteristic that the weaknesses make collection or liquidation in full questionable and there is a high probability of loss based on currently existing facts, conditions and values. An asset classified as loss is considered uncollectible and of such little value that continuance as an asset is not warranted. Commercial loans with adverse classifications are reviewed by the commercial credit committee of our executive credit committee monthly.
In addition to the problem loans described above, as of March 31, 2013, we had special mention loans and leases totaling $86.1 million, which are not included in either the non-accrual or 90 days past due loan and lease categories but which, in our opinion, were subject to potential future rating downgrades. Special mention loans and leases decreased by $4.9 million, or 5%, to $86.1 million at March 31, 2013, from $91.0 million at December 31, 2012. Loans and leases rated as special mention totaled $86.1 million, or 0.6% of the total loan portfolio and 0.6% of the noncovered loan portfolio at March 31, 2013, including $27.2 million acquired from Bank of Florida and $46.4 million acquired in the BPL acquisition.
Analysis for the Allowance for Loan and Lease Losses
The tables below set forth the calculation of the ALLL based on the method for determining the allowance.
Analysis for Loan and Lease Losses
 
 
 
 
 
 
 
 
 
 
Table 19
 
March 31, 2013
 
December 31, 2012
(dollars in thousands)
Excluding ACI Loans
 
ACI Loans
 
Total
 
Excluding ACI Loans
 
ACI Loans
 
Total
Residential mortgages
$
24,973

 
$
5,212

 
$
30,185

 
$
28,456

 
$
5,175

 
$
33,631

Commercial and commercial real estate
20,213

 
18,322

 
38,535

 
23,074

 
16,789

 
39,863

Lease financing receivables
3,590

 

 
3,590

 
3,181

 

 
3,181

Home equity lines
4,582

 

 
4,582

 
5,265

 

 
5,265

Consumer and credit card
175

 

 
175

 
162

 

 
162

Total ALLL
$
53,533

 
$
23,534

 
$
77,067

 
$
60,138

 
$
21,964

 
$
82,102

ALLL as a percentage of loans and leases held for investment
0.49
%
 
1.79
%
 
0.63
%
 
0.54
%
 
1.60
%
 
0.66
%
 
 
 
 
 
 
 
 
 
 
 
 
Residential mortgages
$
5,425,024

 
$
854,631

 
$
6,279,655

 
$
5,843,136

 
$
865,612

 
$
6,708,748

Commercial and commercial real estate
4,424,016

 
459,314

 
4,883,330

 
4,266,691

 
505,077

 
4,771,768

Lease financing receivables
911,371

 

 
911,371

 
836,935

 

 
836,935

Home equity lines
173,704

 

 
173,704

 
179,600

 

 
179,600

Consumer and credit card
7,234

 

 
7,234

 
8,038

 

 
8,038

Total loans and leases held for investment
$
10,941,349

 
$
1,313,945

 
$
12,255,294

 
$
11,134,400

 
$
1,370,689

 
$
12,505,089

The recorded investment in loans and leases held for investment, excluding ACI loans, decreased by $193.1 million, or 1.7%, to $10.9 billion at March 31, 2013 from $11.1 billion at December 31, 2012. The decrease is primarily attributable to fewer residential originations offset by growth in commercial loans generated within the warehouse finance operations.
The recorded investment in residential mortgages, excluding ACI loans, decreased by $418.1 million, or 7%, to $5.4 billion at March 31, 2013, from $5.8 billion at December 31, 2012. The ALLL for residential mortgages, excluding ACI loans, decreased by $3.5 million, or 12%, to $25.0 million at March 31, 2013, from $28.5 million at December 31, 2012 as a result of the continued performance of our high credit quality residential first portfolio. Charge-off activity for residential mortgages decreased by 24% to $5.1 million for the three months ended March 31, 2013 from $6.7 million for the three months ended March 31, 2012. Loan performance and historical loss rates are analyzed using the prior 12 months delinquency rates and actual charge-offs.

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The recorded investment for commercial and commercial real estate, excluding ACI loans, increased by $157.3 million, or 4%, to $4.4 billion at March 31, 2013, from $4.3 billion at December 31, 2012. The increase is primarily due to organic growth in our commercial portfolio generated by our warehouse finance operations during the three months ended March 31, 2013. The warehouse finance portfolio is characterized by large revolving lines with current outstanding balances of $1.2 billion as of March 31, 2013.
The ALLL for commercial and commercial real estate, excluding ACI loans, decreased by 12%, to $20.2 million at March 31, 2013, from $23.1 million at December 31, 2012. The reserve on loans collectively evaluated for impairment decreased by 3% to $16.9 million at March 31, 2013 from $17.5 million at December 31, 2012. The reserves on loans individually evaluated for impairment decreased by 40% to $3.3 million at March 31, 2013, from $5.6 million at December 31, 2012. The outstanding balance of loans individually evaluated for impairment decreased by 13% from December 31, 2012 to March 31, 2013.  The ALLL as a percentage of loans and leases held for investment for commercial and commercial real estate, excluding ACI loans, decreased to 0.46% as of March 31, 2013 compared with 0.54% at December 31, 2012. The decreased coverage ratio is due to improvement in the credit quality of our loans along with growth in the portfolio within the warehouse finance operations. Newly originated loans adhere to higher underwriting standards than in previous periods.
For commercial and commercial real estate loans, the most significant historical loss factors include credit quality and charge-off activity. The loss factors used in our allowance calculation have remained consistent over the periods presented.  Charge-off activity is analyzed using a 15 quarter time period to determine loss rates consistent with loan segments used in recording the allowance estimate. During periods of more consistent and stable performance, this period is considered the most relevant starting point for analyzing the reserve.  During periods of significant volatility and severe loss experience, a shortened period may be used which is more reflective of expected future losses. At March 31, 2013, three segments that are included in commercial and commercial real estate loans used shortened historical loss periods of 9, 8 and 6 quarters as compared with 8, 7 and 5 quarters used at December 31, 2012. The difference is due to additional loan history that is more indicative of future expected losses. Charge-off activity for commercial and commercial real estate decreased by 37% to $1.4 million for the three months ended March 31, 2013, from $2.3 million for the three months ended March 31, 2012. Loan delinquency is one of the leading indicators of credit quality. As of March 31, 2013, 0.5% of the recorded investment in commercial and commercial real estate was past due as compared to 1.8% as of December 31, 2012.
The following table provides an analysis of the ALLL, provision for loan and lease losses and net charge-offs for the three months ended March 31, 2013 and 2012:
Allowance for Loan and Lease Losses Activity
 
 
Table 20

 
Three Months Ended March 31,
(dollars in thousands)
2013
 
2012
ALLL, beginning of period
$
82,102

 
$
77,765

Charge-offs:

 

Residential mortgages
5,069

 
6,694

Commercial and commercial real estate
1,447

 
2,294

Lease financing receivables
708

 
1,181

Home equity lines
489

 
1,108

Consumer and credit card
20

 
11

Total charge-offs
7,733

 
11,288

Recoveries:
 
 
 
Residential mortgages
111

 
143

Commercial and commercial real estate
443

 
168

Lease financing receivables
79

 
36

Home equity lines
129

 
61

Consumer and credit card
17

 
14

Total recoveries
779

 
422

Net charge-offs
6,954

 
10,866

Provision for loan and lease losses
1,919

 
11,355

ALLL, end of period
$
77,067

 
$
78,254

Net charge-offs to average loans held for investment
0.23
%
 
0.65
%
Loans Subject to Representations and Warranties
We originate residential mortgage loans, primarily first-lien home loans, through our direct and wholesale channels with the intent of selling a substantial majority of them in the secondary mortgage market. We sell and securitize conventional conforming and federally insured single-family residential mortgage loans predominantly to GSEs, such as FNMA and Federal Home Loan Mortgage (FHLMC or Freddie Mac). A majority of the loans sold to non-GSEs were agency deliverable product that were eventually sold by large aggregators of agency product who securitized and sold the loans to the agencies. We also sell residential mortgage loans that do not meet criteria for whole loan sales to GSEs (nonconforming mortgage loans) and to private non-GSE purchasers through whole loan sales.
Although we structure all of our loan sales as non-recourse sales, the underlying sale agreements require us to make certain market standard representations and warranties at the time of sale, which may vary from agreement to agreement. Such representations and warranties typically include those made regarding the existence and sufficiency of file documentation, credit information, compliance with underwriting

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guidelines and the absence of fraud by borrowers or other third parties such as appraisers in connection with obtaining the loan. We have exposure to potential loss because, among other things, the representations and warranties we provide purchasers typically survive for the life of the loan.
Beginning in 2009, higher loan delinquencies, resulting from deterioration in overall economic conditions and trends, particularly those impacting the residential housing sector, caused investors to carefully examine and re-underwrite credit files for those loans in default to determine if there had been a breach of a representation or a warranty in the sale agreement. Investors have most often cited income and employment misrepresentations as the grounds for us to repurchase loans.
Upon receipt of a repurchase demand from an investor, we review the allegations and re-underwrite the loan. We also verify any third-party information included as support for the repurchase demand. In certain cases, we may request the investor to provide additional information to assist us in our determination whether to repurchase the loan.
Upon completion of our own internal investigation as to the validity of a repurchase claim, our findings are discussed by senior management and subject-matter experts as part of our loan repurchase subcommittee. If the subcommittee determines that we are obligated to repurchase a loan, such recommendation is presented to executive management for review and approval.
If it is determined that the loans sold are (1) with respect to the GSEs, in breach of these representations or warranties, or (2) with respect to non-GSE purchasers, in material breach of these representations and warranties, we generally have an obligation to either: (a) repurchase the loan for the UPB, accrued interest and related advances, which we refer to collectively as the Repurchase Price, (b) indemnify the purchaser or (c) make the purchaser whole for the economic benefits of the loan. Our obligations vary based upon the nature of the repurchase demand and the current status of the mortgage loan. For example, if an investor has already liquidated the mortgage loan, the investor no longer has a mortgage asset that we could repurchase.
Of the three courses of action described above, a loan repurchase is the only remedy where we will place the loan asset that is the subject of the repurchase demand on our balance sheet. In the case of indemnification, the investor still owns the loan asset and we indemnify the investor for losses incurred resulting from our breach of a representation and warranty. In the case of a make-whole payment, the investor or subsequent purchaser of a loan asset has liquidated the loan and there is no loan asset for us to repurchase. We are simply obligated to make the investor whole for losses incurred between the initial purchase price and the liquidation price, and related costs.
At the time we repurchase a loan, we determine whether to hold the loan for sale or for investment. If the loan is sellable on the secondary market, we may elect to do so. If the loan is not sellable on the secondary market or there are other reasons why we would elect to retain the loan, we will service the asset to minimize our losses. This may include, depending on the status of the loan at the time of repurchase, modifying the loan, or foreclosure on the loan and subsequent liquidation of the mortgage property.
When we sell residential mortgage loans on the secondary mortgage market, our repurchase obligations are typically not limited to any specific period of time. Rather, the contractual representations and warranties we make on these loans survive indefinitely for the life of the loan.
We also have a limited repurchase exposure for early payment defaults (EPD) which are typically triggered if a borrower does not make the first several payments due after the mortgage loan has been sold to an investor. Certain of our private investors have agreed to waive EPD provisions for conventional conforming and federally insured single-family residential mortgage loans and certain jumbo loan products.  However, we are subject to EPD provisions and prepayment protection provisions on non-conforming jumbo loan products and community reinvestment loans.  Total non-conforming UPB sold subject to prepayment and default protection was $310.7 million at March 31, 2013.  Total originations of community reinvestment loans sold under the State of Florida housing program were minimal.
As of March 31, 2013, we had 268 active repurchase requests. We have summarized the activity for the three months ended March 31, 2013 and 2012 below regarding repurchase requests received, requests successfully defended, and loans that we repurchased or for which we indemnified investors or made investors whole with the corresponding origination years:
Loan Repurchase Activity
Table 21
 
 
Three Months Ended March 31,
(dollars in thousands)
2013
 
2012
Agency
50

 
35

Agency Aggregators / Non-GSE (1)
66

 
80

Repurchase requests received
116

 
115

Agency
24

 
26

Agency Aggregators / Non-GSE (1)
56

 
24

Requests successfully defended
80

 
50

Agency
8

 
18

Agency Aggregators / Non-GSE (1)
27

 
16

Loans repurchased, indemnified or made whole
35

 
34

Agency
$
727

 
$
1,607

Agency Aggregators / Non-GSE (1)
2,337

 
1,627

Net realized losses on loan repurchases
$
3,064

 
$
3,234

Years of origination of loans repurchased
2004-2012

 
2001-2012

 
(1)
Includes a majority of agency deliverable products that were sold to large aggregators of agency product who securitized and sold the loans to the agencies.

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We have summarized repurchase statistics by vintage below:
Summary Statistics by Vintage
 
 
 
 
 
 
Table 22

Losses to date
2004-2005
 
2006-2008
 
2009-2013
 
Total
(dollars in thousands)
 
 
 
 
 
 
 
Total sold UPB
$
11,334,198

 
$
11,977,829

 
$
28,237,227

 
$
51,549,254

Request rate
0.35
%
 
2.23
%
 
0.32
%
 
0.80
%
Requests received
181

 
1,283

 
394

 
1,858

 
 
 
 
 
 
 
 
Pending requests
13

 
215

 
36

 
264

Resolved requests
168

 
1,068

 
358

 
1,594

Repurchase rate
42
%
 
41
%
 
29
%
 
38
%
 
 
 
 
 
 
 
 
Loans repurchased
71

 
434

 
103

 
608

Average loan size
$
222

 
$
209

 
$
228

 
$
222

Loss severity
12
%
 
48
%
 
29
%
 
38
%
 
 
 
 
 
 
 
 
Losses realized
$
1,815

 
$
43,038

 
$
6,752

 
$
51,605

Losses realized (bps) (1)
2

 
36

 
2

 
10

(1)
Basis Points
The most common reasons for loan repurchases and make-whole payments relate to missing documentation, program violation, and claimed misrepresentations related to falsified employment documents and/or verifications, occupancy, credit and/or stated income. Additionally, in the same time period we received requests to repurchase or make whole loans because they did not meet the specified investor guidelines. Repurchase demands relating to early payment defaults, generally surface sooner, typically within six months of selling the loan to an investor. Historically, we have sold loans servicing released, therefore the lack of servicing statistics and status of the loans sold is not known. As such, there is additional uncertainty surrounding the reserves for repurchase obligations for loans sold or securitized.
The following is a rollforward of our reserves for repurchase losses for the three months ended March 31, 2013 and 2012:
Reserves for Loans Sold or Securitized
 
 
Table 23

 
Three Months Ended March 31,
(dollars in thousands)
2013
 
2012
Balance, beginning of period
$
27,000

 
$
32,000

Provision for new sales/securitizations
1,266

 
384

Provision for changes in estimate of existing reserves
(336
)
 
5,850

Net realized losses on repurchases
(3,064
)
 
(3,234
)
Balance, end of period
$
24,866

 
$
35,000

 

 

Quarters of coverage ratio(1)
6

 
11

(1)
Quarters of coverage ratio is calculated as the current reserve for repurchases divided by the average realized losses over the previous four quarters.
The liability for repurchase losses was $24.9 million as of March 31, 2013, compared to $35.0 million as of March 31, 2012. The decrease in the liability since March 31, 2012 is primarily due to the continued run-off of losses that were estimated in the prior periods partially offset by the provisioning for new sales and securitizations as well as changes in estimates due to increased information and clarity into the repurchase loan pipeline. We recognized expense of $0.9 million for the three months ended March 31, 2013 compared to $6.2 million for the first three months of 2012 due to the stabilization of repurchase requests received as well as stabilization of property values over the last three months compared to the same period in 2012. The amount of incoming repurchase requests remained elevated.
Our quarters of coverage ratio showed approximately 6 quarters of coverage given our current reserve levels at March 31, 2013. Until 2009, we sold a majority of our loans servicing released and as a result, we have less visibility into the current delinquency status of these populations of loans and thus the elevated coverage ratio. Unlike reserves for loans we service where we have insight into the current delinquency status of the population, the calculated repurchase reserve is based on historical repurchase trends.
We performed a sensitivity analysis on our loan repurchase reserve by varying the frequency and severity assumptions independently for each loan sale vintage year. By increasing the frequency and severity by 20%, the reserve balance as of March 31, 2013 would have increased by 77% from the baseline. Conversely, by decreasing the frequency and the severity 20%, the reserve balance as of March 31, 2013 would have decreased by 54%. Based upon qualitative and quantitative factors, including the number of pending repurchase requests, rescission rates and trends in loss severities, we may make adjustments to the base reserve balance to incorporate recent, known trends.

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The sensitivity analysis for the loan repurchase reserve as of March 31, 2013 is as follows:
Sensitivity of Repurchase Reserve
 
 
 
 
 
 
 
 
Table 24

 
Frequency and Severity
(dollars in thousands)
Up 20%  
 
Up 10%  
 
Base  
 
Down 10%
 
Down 20%
Reserve for originated loan repurchases
$
43,927

 
$
33,809

 
$
24,866

 
$
17,284

 
$
11,506

Loan Servicing
When we service residential mortgage loans where FNMA or FHLMC is the owner of the underlying mortgage loan asset, we are subject to potential repurchase risk for: (1) breaches of loan level representations and warranties even though we may not have originated the mortgage loan; and (2) failure to service such loans in accordance with the applicable GSE servicing guide. If a loan purchased or securitized by FNMA or FHLMC is in breach of an origination representation and warranty, such GSE may look to the loan servicer for repurchase. If we are obligated to repurchase a loan from either FNMA or FHLMC, we seek indemnification from the counterparty that sold us the MSR, if the counterparty is a third party, which presents potential counterparty risk if such party is unable or unwilling to satisfy its indemnification obligations.
Total acquired UPB for counterparties unable or unwilling to satisfy their indemnification obligations subject to repurchase risk was $6.3 billion at March 31, 2013. At March 31, 2013, we were actively servicing $1.6 billion of remaining UPB. During 2013, no new counterparties were identified that were unwilling or unable to satisfy their indemnification obligations.
The following is a rollforward of our reserves for servicing repurchase losses related to these counterparties for the three months ended March 31, 2013 and 2012:
Reserves for Repurchase Obligations for Loans Serviced
 
 
Table 25

 
Three Months Ended March 31,
(dollars in thousands)
2013

2012
Balance, beginning of period
$
26,026

 
$
30,364

Provision for changes in estimate of existing reserves
3,831

 
3,031

Net realized losses on repurchases
(6,258
)
 
(2,968
)
Balance, end of period
$
23,599

 
$
30,427


 
 
 
Quarters of coverage ratio (1)
5

 
6

(1)
Quarters of coverage ratio is calculated as the current reserve for repurchases divided by the average realized losses over the previous four quarters.
We performed a sensitivity analysis on our loan servicing repurchase reserve by varying the frequency and severity assumptions. By increasing the frequency and severity 20%, the reserve balance as of March 31, 2013 would have increased by 41% from the baseline. Conversely, by decreasing the frequency and the severity by 20%, the reserve balance as of March 31, 2013 would have decreased by 38%. Based upon qualitative and quantitative factors, including the number of pending repurchase requests, rescission rates and trends in loss severities, management may make adjustments to the base reserve balance to incorporate recent, observable trends.
The following is a sensitivity analysis as of March 31, 2013 of our reserve related to our estimated servicing repurchase losses based on ASC Topic 460, Guarantees:
Sensitivity of Servicing Repurchase Losses
 
 
 
 
 
Table 26

 
 Frequency and Severity
(dollars in thousands)
Up 20%  
 
Up 10%  
 
Base    
 
 Down 10%
 
 Down 20%
Reserve for servicing repurchase losses
$
33,165

 
$
27,868

 
$
23,599

 
$
18,655

 
$
14,740

Loans in Foreclosure
Losses can arise from certain government agency agreements which limit the agency’s repayment guarantees on foreclosed loans, resulting in certain minimal foreclosure costs being borne by servicers. In particular, government insured loans serviced under GNMA guidelines require servicers to fund any foreclosure claims not otherwise covered by insurance claim funds of the U.S. Department of Housing and Urban Development and/or the U.S. Department of Veterans Affairs.
Other than foreclosure-related costs associated with servicing government insured loans, we have not entered into any servicing agreements that require us as servicer to cover foreclosure-related costs.
Funding Sources
Deposits obtained from clients are our primary source of funds for use in lending, acquisitions and other business purposes. We generate deposit client relationships through our consumer direct, financial center and financial intermediary distribution channels. The consumer direct channel includes: internet, email, telephone and mobile device access to product and customer support offerings. Our differentiated products, integrated online financial portal and value-added account features deepen our interactions and relationships with our clients resulting in high retention rates. Other funding sources include short-term and long-term borrowings and shareholders’ equity. Borrowings have become an important funding source as we have grown. 

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Deposits
The following table shows the distribution of our deposits by type of deposit at the dates indicated:
Deposits
 
 
Table 27

(dollars in thousands)
March 31, 2013
 
December 31, 2012
Noninterest-bearing demand
$
1,287,292

 
$
1,445,783

Interest-bearing demand
2,932,643

 
2,681,769

Market-based money market accounts
428,183

 
439,399

Savings and money market accounts, excluding market-based
4,901,926

 
4,451,843

Market-based time
708,137

 
736,612

Time, excluding market-based
3,416,185

 
3,386,982

Total deposits
$
13,674,366

 
$
13,142,388

Our major source of funds and liquidity is our deposit base, which provides funding for our investment securities, loan and lease portfolios. We carefully manage our interest paid on deposits to control the level of interest expense we incur. The mix and type of interest-bearing and noninterest-bearing deposits in our deposit base changes due to our funding needs, marketing activities and market conditions. We have experienced deposit growth as a result of the increased marketing initiatives we executed as part of our growth plan.
Total deposits increased by $532.0 million, or 4%, to $13.7 billion at March 31, 2013 from $13.1 billion at December 31, 2012. This strong growth in retail deposits during the first quarter of 2013 allowed us to replace a portion of our more costly wholesale funding sources such as FHLB borrowings and repurchase agreements. During the first three months of 2013, noninterest-bearing demand deposits decreased by $158.5 million to $1.3 billion primarily due to decreases in escrow deposits and business accounts. Interest-bearing deposits increased by $690.5 million to $12.4 billion at March 31, 2013 from $11.7 billion at December 31, 2012. This increase in interest-bearing deposits was primarily due to growth in savings and money market accounts and interest-bearing demand accounts as we continue our marketing efforts to acquire new depositors.
FHLB Borrowings
In addition to deposits, we use borrowings from the FHLB as a source of funds to meet the daily liquidity needs of our clients and fund growth in earning assets. Our FHLB borrowings decreased by $0.3 billion, or 11%, to $2.7 billion at March 31, 2013 from $3.0 billion at December 31, 2012. The decrease in FHLB borrowings were primarily funded by growth in retail deposits.
The table below summarizes the average outstanding balance of our FHLB advances, the weighted average interest rate, and the maximum amount of borrowings in each category outstanding at any month end during the three months ended March 31, 2013 and 2012, respectively.
FHLB Borrowings
Table 28
 
 
Three Months Ended March 31,
(dollars in thousands)
2013
 
2012
Fixed-rate advances:
 
 
 
Average daily balance
$
2,453,336

 
$
792,270

Weighted-average interest rate
2.00
%
 
2.49
%
Maximum month-end amount
$
2,489,700

 
$
1,470,586

Convertible advances:
 
 
 
Average daily balance
$
17,000

 
$
42,571

Weighted-average interest rate
4.24
%
 
4.42
%
Maximum month-end amount
$
17,000

 
$
44,000

Overnight advances:
 
 
 
Average daily balance
$
124,389

 
$
226,247

Weighted-average interest rate
0.40
%
 
0.37
%
Maximum month-end amount
$
200,500

 
$
315,500

Repurchase Agreements
Repurchase agreements decreased by $142.3 million to $0 at March 31, 2013 from $142.3 million at December 31, 2012. The decrease in repurchase agreements was funded by growth in retail deposits.

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The table below summarizes the average outstanding balance of our repurchase agreements, the weighted average interest rate, and the maximum amount of repurchase agreements at any month-end during the three months ended March 31, 2013.
Repurchase Agreements
Table 29

(dollars in thousands)
2013
Repurchase agreements:
 
Average daily balance
$
56,555

Weighted-average interest rate
1.94
%
Maximum month-end amount
$
20,000

Liquidity Management
Liquidity refers to the measure of our ability to meet the cash flow requirements of depositors and borrowers, while at the same time meeting our operating, capital and strategic cash flow needs. We continuously monitor our liquidity position to ensure that assets and liabilities are managed in a manner that will meet all short-term and long-term cash requirements.
Funds invested in short-term marketable instruments, the continuous maturing of other interest-earning assets, cash flows from self-liquidating investments such as mortgage-backed securities, the possible sale of available for sale securities, and the ability to securitize certain types of loans provide sources of liquidity from an asset perspective. The liability base provides sources of liquidity through issuance of deposits and borrowed funds. In addition, raises of equity capital provide us with a source of liquidity. To manage fluctuations in short-term funding needs, we utilize borrowings under lines of credit with other financial institutions, such as the Federal Home Loan Bank of Atlanta, securities sold under agreements to repurchase, federal fund lines of credit with correspondent banks, and, for contingent purposes, the Federal Reserve Bank Discount Window. We also have access to term advances with the FHLB, as well as brokered certificates of deposits, for longer term liquidity needs. We believe our sources of liquidity are sufficient to meet our cash flow needs for the foreseeable future.
We continued to maintain a strong liquidity position during the first quarter of 2013. Cash and cash equivalents were $593.4 million, available for sale investment securities were $1.5 billion, and total deposits were $13.7 billion as of March 31, 2013.
As of March 31, 2013, we had a $3.3 billion line of credit with the FHLB, of which $2.7 billion was outstanding. Based on asset size, the maximum potential line available with the FHLB was $5.5 billion at March 31, 2013, assuming eligible collateral to pledge. As of March 31, 2013, we pledged collateral with the FRB that provided $75.6 million of borrowing capacity at the discount window but did not have any borrowings outstanding. The maximum potential borrowing at the FRB is limited only by eligible collateral.
At March 31, 2013, our availability under Promontory Interfinancial Network, LLC’s CDARS® One-Way BuySM deposits was $1.8 billion with $154.8 million in outstanding balances. As of March 31, 2013, our availability under federal funds commitments was $40.0 million with no outstanding borrowings.
We own certain investment securities that are available for pledging under repurchase agreements. As of March 31, 2013, the principal balance of our repurchase agreements was $0 and therefore, no securities were currently pledged for this type of borrowing.
We continue to evaluate the potential impact on liquidity management of regulatory proposals, including Basel III and those required under the Dodd-Frank Act, as government regulators move closer to implementing the final rules.
Capital Management
Management, including our Board of Directors, regularly reviews our capital position to help ensure it is appropriately positioned under various operating and market environments.
2013 Capital Actions
On April 23, 2013, the Company's Board of Directors declared a quarterly cash dividend of $0.02 per common share, payable on May 21, 2013, to stockholders of record as of May 9, 2013. Also on April 23, 2013, the Company's Board of Directors declared a quarterly cash dividend of $421.875, payable on July 5, 2013, for each share of Series A Preferred Stock held as of June 20, 2013.
Capital Ratios
As a savings and loan holding company, we are not currently subject to specific statutory capital requirements. However, we are required to serve as a source of strength for EverBank and must have the ability to provide financial assistance if EverBank experiences financial distress.
We expect that, as a result of recent regulatory requirements pursuant to the Dodd-Frank Act and Basel III, we will be subject to increasingly stringent regulatory capital requirements.
At March 31, 2013, EverBank exceeded all regulatory capital requirements and is considered to be “well-capitalized” with a Tier 1 leverage ratio of 8.2% and a total risk-based capital ratio of 13.7%.

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The table below shows regulatory capital and risk-weighted assets for EB at March 31, 2013 and December 31, 2012:
Regulatory Capital (bank level)
Table 30
 
(dollars in thousands)
March 31, 2013
 
December 31, 2012
Shareholders’ equity
$
1,560,001

 
$
1,518,934

Less:
Goodwill and other intangibles
(52,089
)
 
(54,780
)
 
Disallowed servicing asset
(31,585
)
 
(32,378
)
 
Disallowed deferred tax asset
(66,351
)
 
(67,296
)
Add:
Accumulated losses on securities and cash flow hedges
77,073

 
83,477

Tier 1 Capital
1,487,049

 
1,447,957

Add:
Allowance for loan and lease losses
77,067

 
82,102

Total regulatory capital
$
1,564,116

 
$
1,530,059

Adjusted total assets
$
18,234,886

 
$
18,141,856

Risk-weighted assets
11,406,725

 
11,339,415

The regulatory capital ratios for EB, along with the capital amounts and ratios for the minimum OCC requirement and the framework for prompt corrective action are as follows:
Regulatory Capital Ratios (bank level)
 
Table 31
 
 
Actual
 
For OCC Capital Adequacy Purposes
 
To Be Well Capitalized Under Prompt Corrective Action Provisions
(dollars in thousands)
Capital    
 
Ratio    
 
Minimum Amount      
 
Ratio      
 
Minimum Amount    
 
Ratio    
March 31, 2013
 
 
 
 
 
 
 
 
 
 
 
Tier 1 capital to adjusted tangible assets
$
1,487,049

 
8.2
%
 
$
729,395

 
4.0
%
 
$
911,744

 
5.0
%
Total capital to risk-weighted assets
1,564,116

 
13.7

 
912,538

 
8.0

 
1,140,673

 
10.0

Tier 1 capital to risk-weighted assets
1,487,049

 
13.0

 
N/A

 
N/A

 
684,404

 
6.0

December 31, 2012
 
 
 
 
 
 
 
 
 
 
 
Tier 1 capital to adjusted tangible assets
$
1,447,957

 
8.0
%
 
$
725,674

 
4.0
%
 
$
907,093

 
5.0
%
Total capital to risk-weighted assets
1,530,059

 
13.5

 
907,153

 
8.0

 
1,133,942

 
10.0

Tier 1 capital to risk-weighted assets
1,447,957

 
12.8

 
N/A

 
N/A

 
680,365

 
6.0

Restrictions on Paying Dividends
Federal banking regulations impose limitations upon certain capital distributions by savings banks, such as certain cash dividends, payments to repurchase or otherwise acquire its shares, payments to shareholders of another institution in a cash-out merger and other distributions charged against capital. The OCC regulates all capital distributions by EB directly or indirectly to us, including dividend payments. EB may not pay dividends to us if, after paying those dividends, it would fail to meet the required minimum levels under risk-based capital guidelines and the minimum leverage and tangible capital ratio requirements, or in the event the OCC notifies EB that it is subject to heightened supervision. Under the Federal Deposit Insurance Act (FDIA), an insured depository institution such as EB is prohibited from making capital distributions, including the payment of dividends, if, after making such distribution, the institution would become “undercapitalized.” Payment of dividends by EB also may be restricted at any time at the discretion of the appropriate regulator if it deems the payment to constitute an “unsafe and unsound” banking practice.
Asset and Liability Management and Market Risk
Interest rate risk is our primary market risk and results from our investments in interest-earning assets with funds obtained from interest-bearing deposits and borrowings. Interest rate risk is defined as the risk of loss of future earnings or market value due to changes in interest rates. We are subject to this risk because:
assets and liabilities may mature or re-price at different times or by different amounts;
short-term and long-term market interest rates may change by different amounts;
similar term rate indices may exhibit different re-pricing characteristics; and
the life of assets and liabilities may shorten or lengthen as interest rates change.
Interest rates may also have a direct or indirect effect on loan demand, credit losses, mortgage origination volume, the fair value of MSRs and other items affecting earnings. Our objective is to measure the impact of interest rate changes on our capital and earnings and manage the balance sheet in order to decrease interest rate risk.
Interest rate risk is primarily managed by the Asset and Liability Committee (ALCO), which is composed of certain of our executive officers and other members of management, in accordance with policies approved by our Board of Directors. ALCO has employed policies that attempt to manage our interest-sensitive assets and liabilities, in order to control interest rate risk and avoid incurring unacceptable levels of credit or concentration risk. We manage our exposure to interest rates by structuring our balance sheet according to these policies in the

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ordinary course of business. In addition, the ALCO policy permits the use of various derivative instruments to manage interest rate risk or hedge specified assets and liabilities.
Consistent with industry practice, we primarily measure interest rate risk by utilizing the concept of "Economic Value of Equity" (EVE) which is defined as the present value of assets less the present value of liabilities. EVE scenario analysis estimates the fair value of the balance sheet in alternative interest rate scenarios. The EVE does not consider management intervention and assumes the new rate environment is constant and the change is instantaneous. Further, as this framework evaluates risks to the current balance sheet only, changes to the volumes and pricing of new business opportunities that can be expected in the different interest rate outcomes are not incorporated in this analytical framework. For instance, analysis of our history suggests that declining interest rate levels are associated with higher loan production volumes at higher levels of profitability. While this business hedge historically offsets most, if not all, of the heightened amortization of our MSR portfolio and other identified risks associated with declining interest rate scenarios, these factors fall outside of the EVE framework. As a result, we further evaluate and consider the impact of other business factors in a separate net income sensitivity analysis.
If EVE rises in a different interest rate scenario, that would indicate incremental prospective earnings in that hypothetical rate scenario. A perfectly matched balance sheet would result in no change in the EVE, no matter what the rate scenario. The table below shows the estimated impact on EVE of increases in interest rates of 1%, 2% and 3% and decreases in interest rates of 1%, as of March 31, 2013 and December 31, 2012.
Interest Rate Sensitivity
Table 32
 
(dollars in thousands)
March 31, 2013
 
December 31, 2012
 
Net Change in EVE
 
% of Assets     
 
Net Change in EVE
 
% of Assets     
Up 300 basis points
$
213,583

 
10.2
 %
 
$
392,915

 
17.1
 %
Up 200 basis points
203,970

 
9.7
 %
 
348,431

 
15.2
 %
Up 100 basis points
146,519

 
7.0
 %
 
217,315

 
9.5
 %
Down 100 basis points
(312,732
)
 
(14.9
)%
 
(300,577
)
 
(13.1
)%
The projected exposure of EVE to changes in interest rates at March 31, 2013 was in compliance with established policy guidelines. Exposure amounts depend on numerous assumptions. Due to historically low interest rates, the table above may not predict the full effect of decreasing interest rates upon our net interest income that would occur under a more traditional, higher interest rate environment because short-term interest rates are near zero percent and facts underlying certain of our modeling assumptions, such as the fact that deposit and loan rates cannot fall below zero percent, distort the model’s results.
Use of Derivatives to Manage Risk
Interest Rate Risk
An integral component of our interest rate risk management strategy is our use of derivative instruments to minimize significant fluctuations in earnings caused by changes in interest rates. As part of our overall interest rate risk management strategy, we enter into contracts or derivatives to hedge interest rate lock commitments, loans held for sale, certain loans in our held for sale portfolio, trust preferred debt, and forecasted issuances of debt. These derivatives include forward sales commitments, optional forward sales commitments, and forward interest rate swaps.
We enter into these derivative contracts with major financial institutions. Credit risk arises from the inability of these counterparties to meet the terms of the contracts. We minimize this risk through collateral arrangements, exposure limits and monitoring procedures.
Commodity and Equity Market Risk
Commodity risk represents exposures to deposit instruments linked to various commodity and metals markets. Equity market risk represents exposures to our equity-linked deposit instruments. We offer market-based deposit products consisting of MarketSafe® products, which provide investment capabilities for customers seeking portfolio diversification with respect to commodities and other indices, which are typically unavailable from our banking competitors. MarketSafe® deposits rate of return is based on the movement of a particular market index. In order to manage the risk that may occur from fluctuations in the related markets, we enter into offsetting options with exactly the same terms as the commodity and equity linked MarketSafe® deposits, which provide an economic hedge.
Foreign Exchange Risk
Foreign exchange risk represents exposures to changes in the values of deposits and future cash flows denominated in currencies other than the U.S. dollar. We offer WorldCurrency® deposit products which provide investment capabilities to customers seeking portfolio diversification with respect to foreign currencies. The products include WorldCurrency® single-currency certificates of deposit and money market accounts denominated in the world’s major currencies. In addition, we offer foreign currency linked MarketSafe® deposits which provide returns based upon foreign currency linked indices. Exposure to loss on these products will increase or decrease over their respective lives as currency exchange rates fluctuate. In addition, we offer foreign exchange contracts to small and medium size businesses with international payment needs. Foreign exchange contract products, which include spot and simple forward contracts, represent agreements to exchange the currency of one country for the currency of another country at an agreed-upon price on an agreed-upon settlement date. Exposure to loss on these contracts will increase or decrease over their respective lives as currency exchange and interest rates fluctuate. These types of products expose us to a degree of risk. To manage the risk that may occur from fluctuations in world currency markets, we enter into offsetting short-term forward foreign exchange contracts with terms that match the amount and the maturity date of each single-currency certificate of deposit, money market deposit instrument, or foreign exchange contract. In addition, we enter into offsetting options with exactly the same terms as the foreign currency linked MarketSafe® deposits, which provide an economic hedge. For more information, including the notional amount and fair value, of these derivatives, see Note 11 in our condensed consolidated financial statements.

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Off Balance Sheet Arrangements
On March 28, 2013, we closed a private securitization transaction in which a special purpose wholly-owned subsidiary of the Company, EverBank Funding, LLC (EverBank Funding), sold approximately $307.4 million of residential mortgage pass-through certificates issued by EverBank Mortgage Loan Trust 2013-1 (the Trust) pursuant to a pooling and servicing agreement. The certificates were offered and sold to qualified institutional buyers. Unless so registered, the offered certificates may not be offered or sold in the United States except pursuant to an exemption from the registration requirements of the Securities Act of 1933, as amended.
In connection with the transaction, we sold, on a servicing-retained basis, certain residential mortgage loans we originated to unaffiliated purchasers (the Sellers). The Sellers subsequently sold such mortgage loans to EverBank Funding, which transferred the mortgage loans to the Trust in exchange for the offered certificates and certain non-offered certificates. None of the certificates were retained by EverBank Funding or any affiliate of EverBank Funding.
We retained the servicing rights associated with the mortgages held by the Trust, and we will continue to service the loans. Additionally, the creditors of the Trust have no recourse against us except in accordance with our obligations under standard representations and warranties.  The trust has not been consolidated into the financial statements as we are not the primary beneficiary of the trust. 
Contractual Obligations
On April 1, 2013, We entered into an agreement to purchase the servicing rights to $13.0 billion of UPB of Fannie Mae residential servicing assets with an effective transfer date of July 1, 2013 for $68.4 million, which amount will be adjusted for changes in the underlying loan population between signing and transfer. The acquired servicing rights will be included in the residential class of MSR. At February 28, 2013, there were 93,155 loans with a weighted average interest rate of 5.2% with an original average term of 30.2 years and a remaining average term of 23.9 years. We will earn a weighted average servicing fee of 27 basis points on the acquired UPB allowing us to generate additional servicing income by utilizing its already existing servicing capabilities.
Item 3.   Quantitative and Qualitative Disclosures About Market Risk
See the “Asset and Liability Management and Market Risk” section of Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Item 4.   Controls and Procedures
Disclosure Controls and Procedures
The Company’s management, including the Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act)) as of March 31, 2013. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the U.S. Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Company’s Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures were effective as of March 31, 2013.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the quarter ended March 31, 2013 that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.

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Part II.   Other Information
Item 1.   Legal Proceedings
We are subject to various claims and legal actions in the ordinary course of our business. Some of these matters include employee-related matters and inquiries and investigations by governmental agencies regarding our employment practices. We are not presently party to any legal proceedings the resolution of which we believe would have a material adverse effect on our business, operating results, financial condition or cash flows.
In addition to the legal proceedings previously disclosed in our Annual Report on Form 10-K as filed with the SEC on March 15, 2013, we are currently subject to the following legal proceedings:
Mortgage Electronic Registration Services Related Litigation
MERS, EverHome Mortgage Company, EverBank and other lenders and servicers that have held mortgages through MERS are parties to the following class action lawsuits where the plaintiffs allege improper mortgage assignment and, in some instances, the failure to pay recording fees in violation of state recording statutes: (1) State of Ohio, ex. rel. David P. Joyce, Prosecuting Attorney General of Geauga County, Ohio v. MERSCORP, Inc., Mortgage Electronic Registration Services, Inc. et al. filed in October 2011 in the Court of Common Pleas for Geauga County, Ohio, and later removed to federal court and subsequently remanded to state court; (2) State of Iowa, by and through Darren J. Raymond, Plymouth County Attorney v. MERSCORP, Inc., Mortgage Electronic Registration Services, Inc., et al., filed in March 2012 in the Iowa District Court for Plymouth County and later removed to federal court; (3) Boyd County, ex. rel. Phillip Hedrick, County Attorney of Boyd County, Kentucky, et al. v. MERSCORP, Inc., Mortgage Electronic Registration Services, Inc., et al. filed in April 2012 in the United States District Court for the Eastern District of Kentucky; (4) St. Clair County, Illinois v. Mortgage Electronic Registration Systems, Inc., MERSCORP, Inc. et al., filed in May 2012 in the Circuit Court of the Twentieth Judicial Circuit, St. Clair County, Illinois; (5) Macon County, Illinois v. MERSCORP, Inc., Mortgage Electronic Registration Systems, Inc., et al. filed in July 2012 in the Circuit Court of the Sixth Judicial Circuit, Macon County, Illinois and later removed to federal court; (6) County of Multnomah v. Mortgage Electronic Registration Systems, Inc., et al., filed in December 2012 in an Oregon state court and subsequently removed to the U.S. District Court for the District of Oregon; (7) County of Union Illinois, et al. v. MERSCORP, Inc., Mortgage Electronic Registration Services, Inc., et al. filed in April 2012 in the Circuit Court for the First Judicial Circuit, Union County, Illinois and later removed to federal court and now pending on appeal in the United States Court of Appeals for the Seventh Circuit; and (8) County of Ramsey and County of Hennepin, Minnesota v. MERSCORP Holdings, Inc., et al. filed in February 2013 in the Second Judicial District Court and subsequently removed to the U.S. District Court, District of Minnesota. In these class action lawsuits, the plaintiffs in each case generally seek judgment from the courts compelling the defendants to record all assignments, restitution, compensatory and punitive damages, and appropriate attorneys' fees and costs. We believe the plaintiff's claims are without merit and intend to contest all such claims vigorously. EverBank was previously subject to two additional lawsuits: (1) Jackson County, Missouri v. MERSCORP, Inc., Mortgage Electronic Registrations Systems, Inc., et al., filed in April 2012 in the Circuit Court of Jackson County, Missouri and later removed to federal court where the court granted the defendants' motion to dismiss, and (2) Christian County Clerk, et al. v. MERS and EverHome Mortgage Company filed in April 2011 in the United States District Court for the Western District of Kentucky, which was the subject of an appeal in the United States Court of Appeals for the Sixth Circuit that upheld the lower court's dismissal of the complaint.
Item 1A.   Risk Factors

Our operations and financial results are subject to various risks and uncertainties, which could adversely affect our business, financial condition, results of operations, cash flows, and the trading price of our common stock. You should carefully consider the risks and uncertainties described in our prior filings. Additional risks not presently known to us or that we currently believe are immaterial may also significantly impair our business, financial condition and results of operation. There have not been any material changes from the discussion of risk factors affecting the Company previously disclosed in Part I, Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2012, as filed with the SEC on March 15, 2013. The Risk Factors set forth the material factors that could affect our financial condition and operations. Readers should not consider any descriptions of such factors to be a complete set of all potential risks that could affect the Company.
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3.   Default Upon Senior Securities
None.
Item 4.   Mine Safety Disclosures
None.
Item 5.   Other Information
None.
Item 6. Exhibits
A list of exhibits to this Form 10-Q is set forth on the Exhibit Index and is incorporated herein by reference.

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Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
 
 
 
 
 
 
EverBank Financial Corp
 
 
 
 
Date:
April 30, 2013
 
/s/ Robert M. Clements
 
 
 
Robert M. Clements
 
 
 
Chairman of the Board and Chief Executive Officer
 
 
 
(Principal Executive Officer)
 
 
 
 
Date:
April 30, 2013
 
/s/ Steven J. Fischer
 
 
 
Steven J. Fischer
 
 
 
Executive Vice President and Chief Financial Officer
 
 
 
(Principal Financial and Accounting Officer)

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EXHIBIT INDEX
Exhibit
No.
 
Description
 
 
3.1
 
Amended and Restated Certificate of Incorporation of EverBank Financial Corp (filed as Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q filed with the SEC on November 13, 2012 and incorporated herein by reference)
 
 
 
3.2
 
Amended and Restated Bylaws of EverBank Financial Corp (filed as Exhibit 3.2 to the Company's Quarterly Report on Form 10-Q filed with the SEC on May 30, 2012 and incorporated herein by reference)
 
 
 
31.1
 
Certification of Chief Executive Officer pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.**
 
 
31.2
 
Certification of Chief Financial Officer pursuant to Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.**
 
 
32.1
 
Certification of Chief Executive Officer pursuant to Rule pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
 
 
32.2
 
Certification of Chief Financial Officer pursuant to Rule pursuant to Rule 13a-14(b) and 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.**
 
 
101
 
The following materials from the Company’s 10-Q for the period ended March 31, 2013,
formatted in Extensible Business Reporting Language (XBRL): (a) Condensed Consolidated Balance Sheets; (b) Condensed Consolidated Statements of Income; (c) Condensed Consolidated Statements of Comprehensive Income (Loss); (d) Condensed Consolidated Statements of Shareholders’ Equity; (e) Condensed Consolidated Statements of Cash Flows; and (f) Notes to Condensed Consolidated Financial Statements.*
 
 
*
 
Furnished herewith. Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
**
 
Filed herewith



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