EverBank Financial Corp. of Jacksonville, Fla., has pulled out of an agreement to take over NetBank Inc.'s consumer deposits and some of its assets, and analysts said the development raises the possibility that regulators could take over the Alpharetta, Ga., thrift company.
The $4.7 billion-asset EverBank agreed in May to buy NetBank's Internet banking division, including $2.5 billion of core and brokered deposits. The deal, which NetBank said was motivated at least in part by regulatory pressure, was originally expected to close in June, but the closing date was pushed back several times.
Some parts of the deal have closed; EverBank took over NetBank's $3.2 billion mortgage servicing portfolio on July 1. But on Monday, EverBank said that it had become clear that NetBank would not be able to meet certain conditions to conclude the retail banking deal. EverBank did not explain what those conditions were.
One point left unclear was whether NetBank would be obligated to pay EverBank a $6 million breakup fee because the deal failed to close by Aug. 31.
When the deal was announced, NetBank said that it had been deemed undercapitalized, and that it would have to make a cash payment to EverBank to cover the gap between assets and liabilities.
"We are disappointed that the transaction was unable to be consummated," Robert M. Clements, EverBank's chairman and CEO, said in a press release. "EverBank remains in a strong position to take advantage of many other growth and acquisition opportunities."
An EverBank spokesman said executives would not comment.
Matthew Shepherd, a NetBank spokesman, would say only that his company would "continue to look at other alternatives."
Steven F. Herbert, its CEO, made it clear in a May conference call that regulators were pressuring his company to find a buyer. "Regulators were concerned about capital adequacy in light of significant operating losses and charges, and they directed us to secure an immediate solution," he said. "They made it pretty clear that if we did not" find another home for "all of the deposits, then they would step in."
Regulators would not speculate on the situation Monday.
"OTS officials are aware of the situation and are monitoring it closely," said a spokesman for the Office of Thrift Supervision, which regulates both companies. "I can't look into the future and speculate what might happen next."
A spokesman for the Federal Deposit Insurance Corp. said would not comment "on open and operating institutions, and both of these are open and operating."
The Alexandria, Va., banking consultant Bert Ely said the ongoing liquidity crunch likely hindered NetBank from selling assets to cover its payment to EverBank.
The deal was "the last opportunity to salvage something out of NetBank, and it did not fly," he said. "They are almost certainly insolvent."
A NetBank failure, if one were to occur, would be the biggest since the FDIC took over Superior Bank of Hinsdale, Ill., in July 2001. At that time Superior had $2.3 billion of assets and $1.6 billion of deposits.
The two thrift companies have several similarities. Both operate only online, and have extensive mortgage exposure. However, EverBank has maintained conservative underwriting standards — it stressed Monday its chargeoff rate of 0.03% in the first half and said it "does not originate or own subprime or exotic loan types."
NetBank has been a more aggressive lender, and its fortunes have risen and fallen with the mortgage market. It has been in the red since the second quarter of last year and has spent much of the past year shedding or shuttering operations. It has divested its nonconforming mortgage unit, Meritage Mortgage, closed its banking software unit, Financial Technologies Inc., and sold some assets of Beacon Credit Services, which financed aircraft, boats, and recreational vehicles.
In the second quarter NetBank shut down its third-party conforming mortgage business, NetBank Funding Services.
The company has not filed financial statements for this year.
NetBank reported $2.5 billion of assets and $2.3 billion of deposits as of June 30, and a spokesman said in mid-August that the company was experiencing "very little" deposit runoff.
Mr. Ely said that regulators may face questions if NetBank does shut down. "A real question comes up whether they moved fast enough to deal with it."
