EverBank, WaFd say merger would address each firm's issues

• Key insight: In a merger announced Monday, Seattle-based WaFd plans to combine with Jacksonville, Florida-based EverBank.
  
• Expert quote: "While investors may need time to get to know EverBank and its long-term strategy, we view it as a logical combination that should position EverBank and WaFd to generate more competitive returns together than either could achieve independently." Piper Sandler analyst Matthew Clark
  
• Forward look: The deal is expected to close in the first quarter of 2027.

Executives at Seattle-based WaFd Inc. and EverBank Financial in Jacksonville, Florida, insist they'll be stronger together since their merger, announced late Monday, addresses key issues for both companies.

For the $46.7 billion-asset EverBank the deal diversifies a funding profile that has leaned heavily on higher-cost deposits generated by its online-only digital bank. And for the smaller WaFd, it promises to accelerate a transition from a traditional thrift to a commercial business model.

The resulting $75 billion regional bank is expected to generate $788 million in pro forma net income in 2027, 14.5% more than WaFd and EverBank are projecting on a stand-alone basis. The combined company is considering leveraging that enhanced earnings power to sell some of WaFd's $7.4 billion legacy residential portfolio, then investing the proceeds into higher-yielding commercial loans.

Combining with EverBank "helps us achieve things together that would take considerably longer as a standalone bank," WaFd CEO Brent Beardall said Tuesday on a conference call with analysts.

WaFd, the $27.6 billion-asset parent of WaFd Bank, announced plans to exit mortgage lending in January 2025. Eighteen months later, at the end of the second quarter, single-family mortgages still comprised more than a third of its loan book, while its return on tangible common equity, a profitability metric closely watched by investors, remained a thrift-like 11%. The merged company, by contrast, is expected to produce an ROTCE north of 15% in 2027.

"We believe the combination of EverBank and WaFd is highly accretive to WaFd's earnings per share, with robust earnings power and profitability that would not be possible for at least the next five years as a stand-alone company," Beardall said on the conference call.

WaFd Bank

Matthew Clark, who covers WaFd for Piper Sandler, wrote in a research note Tuesday that WaFd's mortgage loans currently act as a "headwind" limiting profitability. He likes the combination with EverBank. 

"While investors may need time to get to know EverBank and its long-term strategy, we view it as a logical combination that should position EverBank and WaFd to generate more competitive returns together than either could achieve independently," Clark wrote.  

EverBank, which also got its start as a thrift, began transitioning to become a commercial bank nearly a decade before WaFd. For it, the primary logic of a deal with WaFd centers around the opportunity to deploy its larger commercial and consumer platforms across a significantly bigger footprint. WaFd operates 212 branches in nine states, compared with EverBank's 42 locations in Florida, New York and California.

The merged company will keep EverBank's digital-only subsidiary, which will be rebranded as EverBank Direct, but limit its focus to new markets or existing ones where it has a smaller presence, according to EverBank CEO Greg Seibly.

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"We're bringing together complementary institutions to create a highly profitable and high-growth franchise," he said on the conference call.

The deal, which is valued at $3.9 billion, is structured as a reverse merger, with WaFd acquiring EverBank. After closing, which is expected to occur in the first quarter of 2027, WaFd Inc. will rebrand as EverBank Financial.

Meanwhile, WaFd Bank will merge into EverBank, leaving the latter company as the surviving bank subsidiary. WaFd will issue about 103 million shares to fund the all-stock transaction. That will leave EverBank's shareholders — largely private-equity investors who took control under a 2023 spin-off from the retirement giant TIAA — with a 59.2% ownership stake.

Seibly will serve as CEO of the merged company. Beardall will be its president. 

Seibly is no stranger to the Pacific Northwest. He served as CEO at Sterling Financial in Spokane from 2009 to 2014, when Portland, Oregon-based Umpqua Holdings acquired it. Seibly was named CEO of EverBank in 2023, after the spin-off from TIAA, which had acquired the bank six years earlier. 

Beardall noted that he and Seibly have known each other more than two decades. Their relationship served as the starting point for deal negotiations, which began "several months ago," he said. 

"It became immediately clear to us our two banks would be stronger together in every way," Beardall said. "It is not that our banks are identical — we are different than one another — but those differences are actually very complementary."