EverBank-WaFd Merger Could Reshape the Regional Banking Landscape

EverBank Financial has agreed to merge with WaFd, Inc. (NASDAQ: WAFD ) in a $3.9 billion reverse merger to create a regional bank with about $75 billion in assets. As part of the deal, EverBank will merge into WaFd, which will remain the publicly traded company but take the EverBank Financial Corp. name. The new company will trade on Nasdaq under the EVBK ticker.

The deal brings together EverBank's digital banking platform and specialty lending business with WaFd's network of more than 200 branches across the Western U.S. Together, the two banks would create a much larger regional institution with a broader customer base, stronger funding sources, and greater scale.

EverBank could gain a lot from the merger, particularly through access to a public-market listing, a larger deposit base, and WaFd, Inc. (NASDAQ:WAFD)'s extensive branch network in the Western U.S. The combined bank would have about $75 billion in assets, giving EverBank more room to expand its commercial and consumer banking operations while relying less on wholesale funding. The deal would also help diversify EverBank's loan portfolio. Reuters reports that more than 40% of EverBank's roughly $37 billion loan portfolio is currently linked to nonbank financial companies, but that figure would fall to about 28% after the merger.

That diversification could become especially valuable as private-equity and private-credit markets face a more difficult environment. EverBank's digital banking and specialty lending capabilities could also work well alongside WaFd's established commercial relationships and physical branch presence. Management expects the combined company to achieve meaningful cost savings and eventually generate a pro forma return on tangible common equity of around 15% once the expected synergies are fully realized.

On the other hand, the biggest issue for EverBank is its significant exposure to nonbank financial companies, including businesses connected to private equity, at a time when those markets are becoming more challenging. Reuters has pointed to slower private-credit activity and growing difficulties for private-equity firms looking to exit investments, which could create additional credit and growth risks for EverBank. While the bank has built a strong track record in this area, maintaining that performance could become more difficult if credit conditions weaken.

EverBank shareholders will also own about 59.2% of the combined company, so they are not simply cashing out; they will remain exposed to the risks involved in integrating the two banks. The transaction also still needs regulatory and shareholder approval, and the expected cost savings and diversification benefits may take time to show up.