Compass Point Remains Sidelined on EverBank Financial (EVER) as Risks Remain Post 4Q

Compass Point maintained a Neutral rating on EverBank Financial (NYSE: EVER), and cut the price target to $16.50 (from $18.00), following the company's 4Q earnings report. EVER reported EPS of $0.34/share. The results beat the consensus' estimate of $0.30. While EVER's gain on sale margins recovered in 4Q15, the bank once again saw its funding costs increase which remains an area of concern for investors, in particular given its internet deposit base.

Analyst Jesus Bueno commented, "We reiterate our Neutral rating and lower our price target to $16.50 from $18 following 4Q15 earnings. EVER posted a solid quarter in 4Q15 following the forgettable 3Q15 result where the bank posted a large earnings miss after seeing a steep drop in gain on sale income. The bank once again posted strong period end loan growth in 4Q15 of 6.5% Q/Q, which helped to drive the operating EPS beat relative to our estimate. While EVER's gain on sale margins recovered in 4Q15, the bank once again saw its funding costs increase which remains an area of concern for investors, in particular given its internet deposit base. Funding costs have crept up over the past few quarters as the bank has offered promotional products in order to attract deposits. EVER's balance sheet is also liability sensitive, and if we were to see rates move higher at some point it could have an adverse impact on EVER given their dependence on non-deposit funding (loan/deposit ratio of 130%). For 2016, we expect that balance sheet growth will slow as EVER manages its capital ratios, with its tier 1 leverage ratio at 7.7% at the end of 4Q15. While we are less concerned with a common capital raise at this time with EVER's share price now closer to TBV, the bank could also adjust its capital stack through the issuance of preferred stock or subdebt. This need for additional capital could pressure EPS by as much as $0.10/sh as we move into 2017 in the form of higher preferred dividends/interest expense. We are adjusting our FY16E operating EPS to $1.37 from $1.46 in order to account for an uptick in borrowing costs and higher provision expense as EVER builds their reserves. We also introduce our FY17E operating EPS of $1.50/sh."

For an analyst ratings summary and ratings history on EverBank Financial click here. For more ratings news on EverBank Financial click here.

Shares of EverBank Financial closed at $13.86 yesterday.

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