The $100 million invested in EverBank Financial Corp. in Jacksonville, Fla., last week is Sageview Capital LP's first bet on the banking sector.
It might seem like an odd pick: The $6 billion-asset EverBank relies heavily on an Internet model; has only five branches, all in a state reeling from the housing market's collapse; and operates a national wholesale mortgage business. Other banking companies have run into trouble contending with just one of those challenges.
But Scott Stuart, a co-founder and partner at Sageview, said he has known Rob Clements, EverBank's chairman and chief executive officer, for about two decades.
"When he tells me about his balance sheet, I believe him," Mr. Stuart said.
His Greenwich, Conn., private-equity firm became the largest shareholder in the privately held EverBank with its investment, and Mr. Stuart joined its board. Neither Sageview nor EverBank would specify the ownership percentage.
The goal is to take EverBank public, potentially within five years, he said. But for now, EverBank intends to use the cash infusion to increase its assets about 30% by buying loan portfolios, mortgage-servicing rights, and maybe even other banking companies.
"We know there are going to be a lot of business lines that other financial institutions will be divesting, as well as outright company sales, and we want to be in the middle of all that," Mr. Clements said. "This is a good time to have liquidity to be in a position of strength."
Though EverBank is well capitalized, it began looking for more capital partly because it wanted to retain more of the loans it originates. Mr. Clements said it currently keeps about 10% of the loans and sells the rest to the secondary market. It expects to start keeping up to 20%.
He said his company originates only prime loans, even in its national wholesale mortgage business. It has nine wholesale lending offices in cities such as Dallas, Sacramento, Chicago, and Atlanta.
"We're getting a much higher return on these assets today than before the market corrected," Mr. Clements said. "The spreads were so tight that you were settling for maybe single digits or low teens on equity," compared with "north of 20%" today.
About two-thirds of EverBank's earnings come from net interest income, and about a third comes from its fee-based mortgage servicing business.
It has $4.1 billion of deposits — about $3.7 billion of that from its national Internet bank and the rest from its five branches in Jacksonville.
Mr. Stuart said EverBank is the first banking company that has gotten an investment from Sageview since he founded it with Edward A. Gihuly in 2006. (Before founding Sageview, Mr. Stuart and Mr. Gihuly had been partners at Kohlberg Kravis Roberts & Co.)
Between $100 million and $150 million is a standard-size investment for Sageview, which has taken positions in three private companies and 10 public ones, Mr. Stuart said. The industries range from energy to specialty retailing.
Mr. Stuart said he "kept the dialogue going" with Mr. Clements from the time Sageview was founded, in case EverBank might ever be looking for capital.
Mr. Stuart would not rule out making other investments in the banking sector, but he said Sageview is not actively looking to do so.
He also said he likes to invest in industries that are having trouble; while at KKR, he invested in utilities after Enron Corp. collapsed.
Sageview takes a "very long-term" view with its investments — typically five years, Mr. Stuart said.
Ken Thomas, president of the Miami consulting firm K.H. Thomas Associates, said five years "is a lifetime" for a private-equity firm. "Many bankers will have nothing to do with that type of capital, because it comes with a lot of strings."
But Mr. Clements said "there are no strings" beyond Mr. Stuart's board seat. "One of the big differences is that we didn't raise capital because we were under pressure to raise capital, but it was more because we saw great opportunities. Since we were under no pressure, we could have more influence and control over the terms."
EverBank historically has been focused on its "branchless deposit base," Mr. Clements said, but it is interested in adding branches affordably. If it bought a bank, it would likely be in Florida or elsewhere in the Southeast, he said.
EverBank's second-quarter net income from continuing operations rose 29% from a year earlier and 46% from the first quarter, to $8.6 million. Those results exclude its sale of a reverse mortgage unit to MetLife Inc. for a $30 million after-tax gain during the quarter. Mr. Clements said EverBank was not generating enough volume in reverse mortgages.
Though some Internet banking firms have struggled, Karen Dorway, the president and director of research at BauerFinancial Inc. in Coral Cables, Fla., said EverBank's banking unit is doing "fine" financially, according to first-quarter data from the Federal Deposit Insurance Corp. (Second-quarter data is not available yet.)
In the first quarter nonperforming loans increased 22% from the fourth quarter, to $328.3 million, or 6.8% of its total. That ratio is high, Ms. Dorway said, but $266.4 million of those loans were government guaranteed; excluding them, the ratio would be 1.27%. "That is not a bad number."
Mr. Clements did not say how the Sageview investment would increase EverBank's capital ratios. Its banking unit had a total risk-based capital ratio of 10.59% in the first quarter.
EverBank purchased a $700 million loan portfolio in November from NetBank Inc., which was in receivership at the time and is now defunct, Mr. Clements said. That deal left it "at capacity" for expanding its balance sheet before the capital infusion.
As a result, he said one of the first calls he made was to Mr. Stuart. Mr. Clements was a student at Dartmouth College when he met Mr. Stuart, an alumnus; they had mutual acquaintances, so their paths crossed over the years and they became friends.
"When I met him, Scott was already successful, so I probably was hoping he would offer me a job someday," Mr. Clements said. "It's fair to say I would never have anticipated this outcome."
