Net.B@NK Common Stock (MM) (NASDAQ:NTBK)
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NetBank, Inc. (Nasdaq:NTBK), a diversified financial
services provider and parent company of NetBank(R) (www.netbank.com),
today reported financial results for the third quarter of 2005. The
company recorded a net loss of $1.4 million or $.03 per share,
compared with net income of $4.0 million or $.09 per share during the
same period a year ago. The company's year-to-date results represent a
net loss of $1.1 million or $.02 per share, versus income of $21.9
million or $.46 per share during the first nine months of 2004.
These results include a provision of $3.5 million, pre-tax, or
$.05 per share, after-tax. This additional provision relates to a
limited group of conforming mortgages the company has mentioned in
recent releases. The company believes certain misrepresentations may
have been made by one or more of the parties involved during the loan
application process. These loans have an outstanding balance of
approximately $13 million. They were previously sold by the company to
different investors. Although none of the loans has been returned to
date, management believes it is prudent to record a reserve under the
circumstances.
The $3.5 million provision is based on a review of the underlying
property values in a foreclosure and liquidation scenario. Management
believes the actual loss related to these loans, if any, could be less
since the company may have recourse to pursue recovery from the title
insurance company and other parties to the origination. These sources
were purposely excluded from management's assessment since they
involve varying degrees of uncertainty.
Other significant drivers behind third quarter results appear
below. Comparisons are on a sequential quarter basis unless noted
otherwise.
-- Net Interest Margin Compression - The banking segment's
risk-adjusted net interest margin fell 13 basis points (bps)
to 169 bps due to the flattening of the yield curve in recent
months.
-- Better Leverage - The banking segment's average earning assets
rose by $336 million or 7.5% to $4.8 billion.
-- Positive Servicing Asset Performance - Servicing asset
performance went from a loss of $2.3 million to pre-tax income
of $130,000 as higher rates and improving valuations for
mortgage servicing rights led to prior impairment expense
recovery.
-- Higher Loan Production and Sales - Total mortgage production
increased by $309 million or 9.0% to $3.8 billion, while total
sales grew by $550 million or 17.5% to $3.7 billion.
-- Additional Repurchase Activity - Routine loan repurchase
activity ran higher than expected in the conforming mortgage
channel. Management booked additional provisions to replenish
reserves and increased provision assumptions for current
production.
The company did not repurchase any of its common shares this
quarter. Management opted to deploy capital in other strategic
initiatives. These include asset growth within the bank's loan and
investment portfolio and the acquisition of approximately 30
conforming mortgage branches by the company's direct conforming
mortgage lender, Market Street Mortgage.
The company's board of directors approved a dividend of $.02 per
share to shareholders of record on November 25, 2005. The dividend
will be disbursed on December 15, 2005.
Management Commentary
"Our results today include a provision of $3.5 million related to
some concerns we have with a limited group of related loans," said
Douglas K. Freeman, chairman and chief executive officer. "We became
aware of some potential appraisal and underwriting problems with these
loans after the close of the quarter. We disclosed the issue and our
process for assessing any potential exposure in October. To complete
the process, we found it necessary to move back our announcement of
third quarter results and the filing of our 10-Q until now. We felt
this was the right decision for our shareholders since we knew the
outcome of our review could impact the quarterly results if we deemed
it prudent to record provisions against these specific loans, which
our review ultimately led us to do."
"Looking at the quarter apart from the special provision, we faced
a number of challenges. Our banking and mortgage operations were
confronted with difficult operating environments. The bank's net
interest margin has come under pressure as the disproportionate
increases in short- and long-term rates during the year have created a
flatter yield curve. This same interest rate environment has also kept
pricing competition in the mortgage industry at elevated levels since
lenders are increasingly concerned with declining origination volumes.
This pressure was compounded in our conforming mortgage channel by
increased repurchase activity. The number of returned loans ran higher
than our projections, which prompted us to book additional provisions
to account for the difference. Although we expect the repurchase
volume to moderate somewhat, we believe the heightened activity is
indicative of a larger industry trend where investors have become
increasingly assertive in returning loans.
"Beyond these pressures, there were a number of positive
developments that clearly reflect our company's strong fundamentals
and the steady traction we are seeing with our revenue diversification
efforts," Freeman concluded. "Our customer and deposit growth trends
showed improvement over the quarter. We continued to build leverage at
the bank by growing earning assets. Our servicing asset provided a
meaningful offset and demonstrated how it can serve as a natural,
counter-cyclical hedge to our mortgage origination businesses during a
rising interest rate environment. And last, our retail mortgage
channel surpassed the $1 billion mark in quarterly production for the
first time ever."
Banking Segment Performance
Table 1 below details results in the company's banking segment.
Pre-tax income totaled $3.1 million, representing a decrease of
$354,000 or 10.3% on a quarter-over-quarter basis. Segment results
were largely driven by two forces. The retail bank saw declining
profitability due to margin compression and higher operating expenses.
These factors are evident in the 13-basis-point decrease in the
segment's risk-adjusted net interest margin and the 11-basis-point
rise in the segment's operating expense ratio. Expenses were up mostly
due to a peak in marketing costs as several campaigns culminated
during the quarter.
Servicing asset results provided significant offset and helped to
mitigate lower profitability at the retail bank and other channels
within the segment. Servicing results contributed pre-tax income of
$130,000 versus a loss of $2.3 million last quarter. As interest rates
moved higher, prepayment speed expectations lessened and promoted
higher valuations for mortgage servicing rights. Based on these
improving fundamentals, the company was able to recover a portion of
prior impairment expenses.
Table 1
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*T
RETAIL BANKING
($ in 000s, Unaudited)
2005 2005
3rd Qtr 2nd Qtr Change
------------ ------------ ------------
Net interest income $ 23,094 $ 22,820 $ 274
Provision for credit losses 2,646 2,316 330
------------ ------------ ------------
Net interest income after
provision 20,448 20,504 (56)
Gains on sales of loans - - -
Fees, charges and other income 3,663 3,597 66
------------ ------------ ------------
Total revenues 24,111 24,101 10
Total expenses 21,168 18,380 2,788
------------ ------------ ------------
Pre-tax income before net
servicing results 2,943 5,721 (2,778)
Net servicing results 130 (2,294) 2,424
------------ ------------ ------------
Pre-tax income (loss) $ 3,073 $ 3,427 $ (354)
============ ============ ============
Average earning assets $ 4,832,728 $ 4,496,414 $ 336,314
Average UPB underlying MSRs $13,976,998 $14,593,781 $ (616,783)
Operations to average earning
assets
Net interest income after
provision 1.69% 1.82% (0.13%)
Gain on sale, fees, charges and
other income 0.30% 0.32% (0.02%)
------------ ------------ ------------
Banking revenues 1.99% 2.14% (0.15%)
Total expenses 1.75% 1.64% 0.11%
------------ ------------ ------------
Pre-tax income before net
servicing results 0.24% 0.50% (0.26%)
============ ============ ============
Net servicing results to
average UPB underlying MSRs 0.00% (0.06%) 0.06%
*T
Additional banking segment highlights appear below. All
comparisons are on a sequential quarter basis unless noted otherwise.
-- Total deposits rose to $3.0 billion, an increase of $214
million or 7.6%. The growth was spread across retail and small
business customers, mortgage escrow accounts and brokered
funds.
-- Average earning assets grew by $336 million or 7.5% to $4.8
billion.
-- Our business finance operation reported pre-tax income of $3.2
million, a decrease of $275,000 or 7.9%. The decline was
centered mainly in provision expense, which had been running
at near-record lows for the past several quarters. Production
declined by $1.1 million or 2.3% but remained robust at $45.5
million.
-- Auto loan production was impacted by a strategic decision to
increase pricing. Production fell to $119 million, a decline
of $13.3 million or 10.1%. However, the channel's
profitability improved by $130,000 or 310% to $172,000.
Financial Intermediary Segment Performance
Table 2 below details results in the company's financial
intermediary segment. The segment recorded a net loss of $4.5 million,
pre-tax, compared with pre-tax income of $1.6 million a quarter ago.
As discussed in greater detail above, these results reflect the impact
of heightened provision in the conforming mortgage channel. Repurchase
activity in this channel ran higher than expected during the quarter.
This elevated activity prompted the company to book additional
provisions for past production and to adjust its provision assumptions
for current production. This heightened expense was in addition to the
$3.5 million reserve the company booked on the group of related loans
described earlier.
The collective effect of these provisions shows up in the
29-basis-point decline in the revenue margin reported for the quarter.
Provision is taken as a direct charge against gain on sale income.
Operating expenses within the segment remained in check during the
quarter. Total production improved by $309 million, providing the
lending operations with better leverage over their expenses.
Table 2
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*T
FINANCIAL INTERMEDIARY
($ in 000s, Unaudited)
2005 2005
3rd Qtr 2nd Qtr Change
------------ ------------ ------------
Net interest income $ 6,901 $ 7,959 $ (1,058)
Gain on sales of loans 27,034 28,810 (1,776)
Other income 107 1,081 (974)
Net Beacon credit services
results (303) (122) (181)
Net MG Reinsurance results 812 841 (29)
------------ ------------ ------------
Total revenues 34,551 38,569 (4,018)
Salary and employee benefits 21,776 20,883 893
Occupancy & Depreciation
expense 7,987 7,494 493
Other expenses 9,281 8,581 700
------------ ------------ ------------
Total expenses 39,044 36,958 2,086
------------ ------------ ------------
Pre-tax (loss) income $ (4,493) $ 1,611 $ (6,104)
============ ============ ============
Production $ 3,764,981 $ 3,455,499 $ 309,482
Sales (includes intercompany
sales) $ 3,688,402 $ 3,138,302 $ 550,100
Total revenues to sales 0.94% 1.23% (0.29%)
Total expenses to production 1.04% 1.07% (0.03%)
------------ ------------ ------------
Pre-tax margin (0.10%) 0.16% (0.26%)
============ ============ ============
*T
Additional financial intermediary segment highlights appear below.
All comparisons are on a sequential quarter basis unless noted
otherwise.
-- Conforming mortgage production totaled $2.9 billion, an
increase of $292 million or 11.3%. Nearly all of this increase
came through the company's retail mortgage channel. Conforming
sales accelerated to $2.8 billion, a jump of $502 million or
21.5%.
-- Non-conforming production grew by $18.0 million or 2.1% to
$883 million, while non-conforming sales totaled $847 million,
an increase of $47.6 million or 6.0%. Revenue margins remained
relatively consistent at 168 bps. But, the higher sales volume
allowed the channel to return to profitability for the first
time in three quarters.
Transaction Processing Segment Performance
Table 3 below details results in the company's transaction
processing segment. Pre-tax income totaled $499,000, a decrease of
$400,000 or 44% on a quarter-over-quarter basis. The decline is
comprised of two primary components. One, the servicing factory
recorded additional provision on a limited number of aging items. Two,
revenue within our ATM and merchant processing business fell because
of seasonally lighter transaction volumes and hurricane-related
disruptions. Our machines, along with those of other providers, were
affected by connectivity issues following the widespread power and
telephone outages in the hardest hit regions of the Gulf Coast. We
expect both of these trends to reverse going forward.
Table 3
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*T
TRANSACTION PROCESSING
($ in 000s, Unaudited)
2005 2005
3rd Qtr 2nd Qtr Change
------------ ------------ ------------
Total revenue $ 6,634 $ 6,680 $ (46)
Total expenses 6,135 5,781 354
------------ ------------ ------------
Pre-tax income $ 499 $ 899 $ (400)
============ ============ ============
*T
Additional transaction processing segment highlights appear below.
All comparisons are on a sequential quarter basis unless noted
otherwise.
-- The company added 177 ATMs to its network during the quarter.
Within the past two weeks, the company has acquired a
portfolio of more than 1,100 new ATM relationships, which
brings the total number of machines in its network to
approximately 9,600.
Next Quarter Earnings Outlook
Analyst estimates for the company's fourth quarter earnings
currently range from $.03 to $.09. Management is biased toward the low
end of this range. Management is concerned with further net interest
margin compression at the bank given the prevailing interest rate
environment today. Mortgage originations also reach seasonal lows
during this period, and declining volumes could lead to stronger
pricing pressures across the industry. The potential for significant
negative net servicing results still exists.
Supplemental Financial Data
Management has updated the quarterly financial data available on
its Web site. This data provides further detail on the performance of
the company's different business channels over the past five quarters.
It is intended to supplement the information in this announcement and
to give interested parties a better understanding of the company's
operations and financial trends.
Interested parties can find this quarterly supplement on the
company's Web site at www.netbankinc.com. The material is accessible
through the link titled "Financial Data" under "Investor Relations."
Within this same area, the company posts a monthly statistical
report, which is intended to give individuals a means of tracking the
company's performance during a quarter. The monthly report is
published directly to the Web site around the 20th of each month.
Conference Call Information
Management has scheduled a conference call to discuss today's
reported results with investors, financial analysts and other
interested parties. The call will be held today at 4:30 p.m. EST.
Interested parties may dial in or listen via an audiocast on the
company's Web site.
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*T
Call Title: NetBank, Inc. Earnings Announcement
Call Leader: Douglas K. Freeman
Passcode: NetBank
Toll-Free: 888-889-1959
International: +1-773-756-0455
One-Week Replay: 800-310-4931
*T
About NetBank, Inc.
NetBank, Inc. (Nasdaq: NTBK) operates with a revolutionary
business model through a diverse group of complementary financial
services businesses that leverage technology for more efficient and
cost-effective delivery of services. Its primary areas of operation
include personal and small business banking, retail and wholesale
mortgage lending, and transaction processing. For more information,
please visit www.netbankinc.com.
Forward-Looking Statements
Statements in this press release that are not historical facts are
forward-looking statements that reflect management's current
expectations, assumptions, and estimates of future performance and
economic conditions. Such statements are made in reliance upon the
safe harbor provisions of Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements in this press release include but are
not limited to: 1) The suggestion that the company could recover any
potential losses on the limited group of loans that may be returned in
the future due to apparent misrepresentations made during the
application process; 2) The belief that mortgage repurchase activity
within the conforming channel will decline from third quarter levels;
3) Any suggestion the company will fully achieve each of the long-term
goals presented as part of management's revenue diversification
strategy; 4) The servicing asset's ability to behave counter
cyclically to the company's mortgage operations and provide continued
earnings offset when needed; 5) The retail mortgage channel's ability
to post quarterly production above the $1 billion mark on any
consistent basis; and 6) Any suggestion that the valuation of mortgage
servicing rights will continue to improve.
These forward-looking statements are subject to a number of risks
and uncertainties that may cause actual results and future trends to
differ materially from those expressed in or implied by such
forward-looking statements. The company's consolidated results of
operations and such forward-looking statements could be affected by
many factors, including but not limited to: 1) the evolving nature of
the market for internet banking and financial services generally; 2)
the public's perception of the internet as a secure, reliable channel
for transactions; 3) the success of new products and lines of business
considered critical to the company's long-term strategy, such as small
business banking and transaction processing services; 4) potential
difficulties in integrating the company's operations across its
multiple lines of business; 5) the cyclical nature of the mortgage
banking industry generally; 6) a possible decline in asset quality; 7)
changes in general economic or operating conditions that could
adversely affect mortgage loan production and sales, mortgage
servicing rights, loan delinquency rates and/or loan defaults; 8) the
possible adverse effects of unexpected changes in the interest rate
environment; 9) adverse legal rulings, particularly in the company's
litigation over leases originated by Commercial Money Center, Inc.;
and 10) increased competition and regulatory changes.
Further information relating to these and other factors that may
impact the company's results of operations and such forward-looking
statements are disclosed in the company's filings with the SEC,
including under the caption "Item 1. Business--Risks Relating to
NetBank's Business" in its Annual Report on Form 10-K for the year
ended December 31, 2004. Except as required by the securities laws,
the company disclaims any intention or obligation to update or revise
any forward-looking statements, whether as a result of new
information, future events or otherwise.
-0-
*T
NetBank, Inc.
Consolidated Statements of Operations
For the Nine Months Ended September 30,
(Unaudited and in 000's except per share data)
2005
--------------------------------------
Retail Financial Transaction
Banking Intermediary Processing
----------------------------------------------------------------------
Interest income:
Loans and leases $ 82,807 $ 75,438 $ 27
Investment securities 26,166 3 -
Short-term investments 1,254 303 -
Inter-segment 52,426 2,551 (20)
----------------------------------------------------------------------
Total interest income 162,653 78,295 7
Interest expense:
Deposits 48,992 - -
Other borrowed funds 38,811 5,637 32
Inter-segment 6,591 49,257 6
----------------------------------------------------------------------
Total interest expense 94,394 54,894 38
----------------------------------------------------------------------
Net interest income 68,259 23,401 (31)
Provision for credit losses 7,298 91 -
----------------------------------------------------------------------
Net interest income after
provision for credit losses 60,961 23,310 (31)
Non-interest income:
Mortgage servicing fees 32,315 2,356 4,075
Amortization of MSRs (34,480) (393) -
Recovery (impairment) of MSRs 3,224 - -
(Loss) gain on derivatives (110) (39) -
Gain on sales of investment
securities 4,182 - -
Service charges and fees 8,049 37 7,053
Gain on sales of loans and MSRs 501 81,723 -
Other income 2,688 2,326 3,026
Intersegment
servicing/processing fees - - 10,482
----------------------------------------------------------------------
Total non-interest income 16,369 86,010 24,636
Non-interest expense:
Salaries and benefits 15,894 67,467 6,985
Customer service 8,819 7 1,271
Marketing costs 5,332 3,974 224
Data processing 7,754 3,515 1,836
Depreciation and amortization 6,191 8,416 2,749
Office expenses 2,658 4,858 1,785
Occupancy 2,981 14,287 1,075
Travel and entertainment 535 3,139 414
Professional fees 2,257 7,379 1,610
Prepaid lost interest from
curtailments 3,297 48 -
Other 4,829 1,649 4,244
Inter-segment
servicing/processing fees 7,666 2,816 -
----------------------------------------------------------------------
Total non-interest expense 68,213 117,555 22,193
----------------------------------------------------------------------
(Loss) income before income
taxes 9,117 (8,235) 2,412
======================================
2005 2004
------------------------- ------------
Consolidated Consolidated
Other / NetBank, NetBank,
Eliminations Inc. Inc.
--------------------------------------------------------- ------------
Interest income:
Loans and leases $ 779 $ 159,051 $ 160,102
Investment securities - 26,169 13,568
Short-term investments - 1,557 684
Inter-segment (54,957) - -
--------------------------------------------------------- ------------
Total interest income (54,178) 186,777 174,354
Interest expense:
Deposits - 48,992 34,364
Other borrowed funds 1,356 45,836 33,625
Inter-segment (55,854) - -
--------------------------------------------------------- ------------
Total interest expense (54,498) 94,828 67,989
--------------------------------------------------------- ------------
Net interest income 320 91,949 106,365
Provision for credit losses - 7,389 3,982
--------------------------------------------------------- ------------
Net interest income after
provision for credit losses 320 84,560 102,383
Non-interest income:
Mortgage servicing fees - 38,746 38,058
Amortization of MSRs - (34,873) (28,422)
Recovery (impairment) of MSRs - 3,224 (10,388)
(Loss) gain on derivatives - (149) 5,730
Gain on sales of investment
securities - 4,182 5,417
Service charges and fees - 15,139 13,052
Gain on sales of loans and MSRs 598 82,822 93,968
Other income (281) 7,759 9,005
Intersegment
servicing/processing fees (10,482) - -
--------------------------------------------------------- ------------
Total non-interest income (10,165) 116,850 126,420
Non-interest expense:
Salaries and benefits 2,303 92,649 94,812
Customer service 19 10,116 9,407
Marketing costs 167 9,697 6,974
Data processing - 13,105 13,888
Depreciation and amortization 337 17,693 14,714
Office expenses 121 9,422 8,409
Occupancy 68 18,411 16,277
Travel and entertainment 135 4,223 3,662
Professional fees 2,030 13,276 10,719
Prepaid lost interest from
curtailments - 3,345 4,174
Other 34 10,756 10,791
Inter-segment
servicing/processing fees (10,482) - -
--------------------------------------------------------- ------------
Total non-interest expense (5,268) 202,693 193,827
--------------------------------------------------------- ------------
(Loss) income before income
taxes (4,577) (1,283) 34,976
============
Income tax benefit (expense) 208 (13,100)
------------ ------------
Net (loss) income $ (1,075) $ 21,876
============ ============
Net (loss) income per common and potential
common shares outstanding:
Basic $ (0.02) $ 0.47
Diluted $ (0.02) $ 0.46
Weighted average common and potential
common shares outstanding:
Basic 46,201 46,962
Diluted 46,201 47,431
NetBank, Inc.
Consolidated Statements of Operations
For the Three Months Ended September 30,
(Unaudited and in 000's except per share data)
2005
--------------------------------------
Retail Financial Transaction
Banking Intermediary Processing
----------------------------------------------------------------------
Interest income:
Loans and leases $ 28,531 $ 29,213 $ 8
Investment securities 8,501 1 -
Short-term investments 529 133 -
Inter-segment 22,426 123 (26)
----------------------------------------------------------------------
Total interest income 59,987 29,470 (18)
Interest expense:
Deposits 20,178 - -
Other borrowed funds 14,408 1,890 1
Inter-segment 2,372 20,484 -
----------------------------------------------------------------------
Total interest expense 36,958 22,374 1
----------------------------------------------------------------------
Net interest income 23,029 7,096 (19)
Provision for credit losses 2,646 62 -
----------------------------------------------------------------------
Net interest income after
provision for credit losses 20,383 7,034 (19)
Non-interest income:
Mortgage servicing fees 11,629 287 1,376
Amortization of MSRs (12,608) (121) -
Recovery (impairment) of MSRs 4,244 - -
Gain on derivatives 756 39 -
Gain on sales of investment
securities - - -
Service charges and fees 2,844 (1) 2,453
Gain on sales of loans and MSRs - 27,809 -
Other income 819 643 772
Intersegment
servicing/processing fees - - 3,591
----------------------------------------------------------------------
Total non-interest income 7,684 28,656 8,192
Non-interest expense:
Salaries and benefits 5,283 22,479 2,298
Customer service 3,181 - 405
Marketing costs 3,070 1,264 82
Data processing 2,593 1,056 669
Depreciation and amortization 2,030 3,030 907
Office expenses 1,254 1,621 711
Occupancy 1,192 5,008 333
Travel and entertainment 196 1,217 128
Professional fees 683 2,866 595
Prepaid lost interest from
curtailments 1,242 20 -
Other 1,650 651 1,546
Inter-segment
servicing/processing fees 2,620 971 -
----------------------------------------------------------------------
Total non-interest expense 24,994 40,183 7,674
----------------------------------------------------------------------
(Loss) income before income
taxes $ 3,073 $ (4,493) $ 499
======================================
2005 2004
------------------------- ------------
Consolidated Consolidated
Other / NetBank, NetBank,
Eliminations Inc. Inc.
--------------------------------------------------------- ------------
Interest income:
Loans and leases $ 340 $ 58,092 $ 57,481
Investment securities - 8,502 5,697
Short-term investments - 662 314
Inter-segment (22,523) - -
--------------------------------------------------------- ------------
Total interest income (22,183) 67,256 63,492
Interest expense:
Deposits - 20,178 11,862
Other borrowed funds 549 16,848 13,513
Inter-segment (22,856) - -
--------------------------------------------------------- ------------
Total interest expense (22,307) 37,026 25,375
--------------------------------------------------------- ------------
Net interest income 124 30,230 38,117
Provision for credit losses - 2,708 469
--------------------------------------------------------- ------------
Net interest income after
provision for credit losses 124 27,522 37,648
Non-interest income:
Mortgage servicing fees - 13,292 12,727
Amortization of MSRs - (12,729) (9,499)
Recovery (impairment) of MSRs - 4,244 (15,031)
Gain on derivatives - 795 7,272
Gain on sales of investment
securities - - 2,248
Service charges and fees - 5,296 4,713
Gain on sales of loans and MSRs 261 28,070 27,755
Other income (54) 2,180 3,204
Intersegment
servicing/processing fees (3,591) - -
--------------------------------------------------------- ------------
Total non-interest income (3,384) 41,148 33,389
Non-interest expense:
Salaries and benefits 772 30,832 31,730
Customer service 10 3,596 3,383
Marketing costs 60 4,476 2,551
Data processing - 4,318 4,722
Depreciation and amortization 113 6,080 5,098
Office expenses 14 3,600 2,938
Occupancy 25 6,558 5,770
Travel and entertainment 42 1,583 1,100
Professional fees 327 4,471 2,806
Prepaid lost interest from
curtailments - 1,262 906
Other 77 3,924 3,532
Inter-segment
servicing/processing fees (3,591) - -
--------------------------------------------------------- ------------
Total non-interest expense (2,151) 70,700 64,536
--------------------------------------------------------- ------------
(Loss) income before income
taxes $ (1,109) (2,030) 6,501
============
Income tax benefit (expense) 659 (2,486)
------------ ------------
Net (loss) income $ (1,371) $ 4,015
============ ============
Net (loss) income per common and potential
common shares outstanding:
Basic $ (0.03) $ 0.09
Diluted $ (0.03) $ 0.09
Weighted average common and potential
common shares outstanding:
Basic 46,119 46,846
Diluted 46,119 47,156
NetBank, Inc.
Condensed Consolidated Balance Sheet
As of September 30,
(Unaudited and in 000's except per share data)
2005
--------------------------------------
Retail Financial Transaction
Banking Intermediary Processing
----------------------------------------------------------------------
Assets
Cash and cash equivalents:
Cash and due from banks $ 144,771 $ 47,310 $ 65
Cash equivelants and fed
funds 93,110 18,378 902
----------------------------------------------------------------------
Total cash, cash
equivalents and fed funds 237,881 65,688 967
Investment securities available
for sale-at fair value 681,418 2 -
Stock of Federal Home Loan Bank
of Atlanta-at cost 69,952 - -
Loans held for sale 71,490 1,388,036 -
Loan and lease receivables-net
of allowance for losses of
$26,730 and $45,306,
respectively 2,118,786 29,814 -
Mortgage servicing rights 192,342 1,456 -
Accrued interest receivable 10,339 5,774 -
Furniture, equipment and
capitalized software 12,875 32,299 1,752
Goodwill and other intangibles 1,462 49,387 30,017
Due from servicers and
investors 24,699 2,138 -
Inter-segment receivables 1,325,869 327 794
Other assets 22,790 63,828 5,520
----------------------------------------------------------------------
Total assets $ 4,769,903 $ 1,638,749 $ 39,050
======================================
Liabilities
Deposits $3,009,457 $- $-
Other borrowed funds 1,407,618 36,400 -
Inter-segment payables 211,503 1,133,114 2,726
Subordinated debt - - -
Accrued interest payable 16,048 408 -
Loans in process - 59,122 -
Representations and warranties - 21,275 -
Accounts payable and accrued
liabilities 30,531 100,274 4,732
----------------------------------------------------------------------
Total liabilities 4,675,157 1,350,593 7,458
----------------------------------------------------------------------
Minority interests in
affiliates - 561 -
Shareholders' equity
Preferred stock, no par (10,000
shares authorized, none
outstanding) - - -
Common stock, $.01 par (100,000
shares authorized, 52,820 and
52,820 shares issued,
respectively) - - -
Additional paid-in capital - - -
Retained earnings - - -
Accumulated other comprehensive
(loss) income, net of tax - - -
Treasury stock, at cost (6,462
and 6,073 shares,
respectively) - - -
Unearned compensation - - -
Allocated equity 94,746 287,595 31,592
----------------------------------------------------------------------
Total shareholders' equity 94,746 287,595 31,592
----------------------------------------------------------------------
Total liabilities, minority
interests and shareholders'
equity $ 4,769,903 $ 1,638,749 $ 39,050
======================================
2005 2004
------------------------- ------------
Other / NetBank, NetBank,
Eliminations Inc. Inc.
--------------------------------------------------------- ------------
Assets
Cash and cash equivalents:
Cash and due from banks $ (2,216) $ 189,930 $ 220,300
Cash equivelants and fed
funds - 112,390 9,110
--------------------------------------------------------- ------------
Total cash, cash
equivalents and fed funds (2,216) 302,320 229,410
Investment securities available
for sale-at fair value - 681,420 312,602
Stock of Federal Home Loan Bank
of Atlanta-at cost - 69,952 61,446
Loans held for sale 191 1,459,717 1,291,137
Loan and lease receivables-net
of allowance for losses of
$26,730 and $45,306,
respectively (3,577) 2,145,023 2,088,899
Mortgage servicing rights - 193,798 171,993
Accrued interest receivable - 16,113 11,059
Furniture, equipment and
capitalized software 2,078 49,004 52,628
Goodwill and other intangibles 265 81,131 78,992
Due from servicers and
investors - 26,837 110,112
Inter-segment receivables (1,326,990) - -
Other assets (2,140) 89,998 79,993
--------------------------------------------------------- ------------
Total assets $(1,332,389) $ 5,115,313 $ 4,488,271
========================= ============
Liabilities
Deposits $(2,314) $3,007,143 $2,744,709
Other borrowed funds - 1,444,018 1,065,294
Inter-segment payables (1,347,343) - -
Subordinated debt 32,477 32,477 11,857
Accrued interest payable 228 16,684 10,004
Loans in process - 59,122 47,562
Representations and warranties - 21,275 22,339
Accounts payable and accrued
liabilities (3,287) 132,250 148,699
--------------------------------------------------------- ------------
Total liabilities (1,320,239) 4,712,969 4,050,464
--------------------------------------------------------- ------------
Minority interests in
affiliates - 561 450
Shareholders' equity
Preferred stock, no par (10,000
shares authorized, none
outstanding) - - -
Common stock, $.01 par (100,000
shares authorized, 52,820 and
52,820 shares issued,
respectively) 528 528 528
Additional paid-in capital 432,202 432,202 431,712
Retained earnings 39,180 39,180 62,918
Accumulated other comprehensive
(loss) income, net of tax (6,092) (6,092) 1,420
Treasury stock, at cost (6,462
and 6,073 shares,
respectively) (62,628) (62,628) (58,931)
Unearned compensation (1,407) (1,407) (290)
Allocated equity (413,933) - -
--------------------------------------------------------- ------------
Total shareholders' equity (12,150) 401,783 437,357
--------------------------------------------------------- ------------
Total liabilities, minority
interests and shareholders'
equity $(1,332,389) $ 5,115,313 $ 4,488,271
========================= ============
NetBank, Inc. Consolidated
Selected Financial and Operating Data
(Unaudited and in 000's except per share data)
Quarter Ended
September September
30, June 30, 30,
------------ ------------ ------------
2005 2005 2004
------------ ------------ ------------
Consolidated:
Net (loss) income $ (1,371) $ 2,325 $ 4,015
Total assets $ 5,115,313 $ 4,954,767 $ 4,488,271
Total equity $ 401,783 $ 409,089 $ 437,357
Shares outstanding 46,358 46,298 46,747
Return on average equity (1.35%) 2.29% 3.70%
Return on average assets (0.11%) 0.19% 31.00%
Book value per share $ 8.67 $ 8.84 $ 9.36
Tangible book value per share $ 6.92 $ 7.08 $ 7.67
NetBank, FSB:
Deposits $ 3,007,928 $ 2,794,220 $ 2,744,858
Customers 282,575 268,849 162,654
Estimated Capital Ratios:
Tier 1 core capital ratio 6.09% 6.42% 6.95%
Total risk-based capital
ratio 10.21% 10.93% 11.91%
Asset quality numbers:
CMC Lease portfolio $ 26,435 $ 26,960 $ 81,993
Non-performing loan and lease
receivables 6,481 5,056 4,052
------------ ------------ ------------
Total non-performing loan and
lease receivables 32,916 32,016 86,045
Non-performing loans held for
sale (1) 27,432 22,859 43,889
------------ ------------ ------------
Total non-performing loans
and leases 60,348 54,875 129,934
Repossessed assets (2) 7,963 7,102 6,776
------------ ------------ ------------
Total non-performing assets $ 68,311 $ 61,977 $ 136,710
Allowance for credit losses
(ALLL) $ 26,730 $ 25,792 $ 45,306
Net charge-offs of loan and
lease receivables $ (1,770) $ (1,613) $ (1,195)
Asset quality ratios:
Total non-performing assets /
average assets 1.35% 1.27% 2.62%
ALLL / total non-performing
loan and lease receivables 81.21% 80.56% 52.65%
Net annualized charge-offs /
total assets 0.14% 0.13% 0.11%
Mortgage Banking:
Production Activity:
Retail $ 1,089,137 $ 843,914 $ 609,545
Correspondent 1,025,626 1,009,951 1,174,625
Wholesale 692,828 681,865 714,615
RMS 74,180 54,540 41,532
------------ ------------ ------------
Total Agency-eligible 2,881,771 2,590,270 2,540,317
Non-conforming 883,210 865,229 808,559
------------ ------------ ------------
Total $ 3,764,981 $ 3,455,499 $ 3,348,876
============ ============ ============
Sales Activity:
Third party sales $ 3,631,112 $ 3,084,829 $ 3,639,337
Intercompany sales 57,290 53,473 137,968
------------ ------------ ------------
Total sales $ 3,688,402 $ 3,138,302 $ 3,777,305
============ ============ ============
Pipeline:
Locked conforming mortgage
loan pipeline $ 1,053,315 $ 1,200,719 $ 1,088,434
UPB of loans serviced: $18,470,922 $18,483,938 $17,217,391
(1) Held for sale assets are carried at the lower of cost or market
(LOCOM). LOCOM adjustments, under GAAP, are direct reductions of
the assets' carrying values and are not considered allowances.
(2) Repossessed assets are carried at net realizable value.
*T