ATLANTA, Feb. 21, 2007 (PRIME NEWSWIRE) -- NetBank, Inc. (Nasdaq:NTBK), a diversified financial services provider and parent company of NetBank(r) (www.netbank.com), today reported preliminary, unaudited financial results for the year ended December 31, 2006. The company recorded an after-tax loss of $86.3 million or $1.86 per share during the fourth quarter, compared with net income of $895,000 or $.02 per share during the same quarter a year ago. The company recorded a net loss of $202 million or $4.36 per share for the full year, compared with a net loss of $180,000 or $.00 per share for 2005.
The results set forth in this press release are preliminary and unaudited. As previously reported, the company recently engaged Porter Keadle Moore, LLP ("PKM") to replace Ernst & Young LLP as its independent auditor. These preliminary results are subject to potential adjustments, which may be material, arising from subsequent events or the audit of the company's financial statements for the year ended December 31, 2006 by PKM. The company currently believes that the 2006 audit, and related auditor attestation regarding the company's internal control over financial reporting, will be completed in June 2007 and expects to file its Annual Report on Form 10-K for the 2006 fiscal year with the SEC on or before June 30, 2007, although no assurance can be given.
Key items worth noting include the following. All comparisons are on a sequential quarter basis unless noted otherwise.
* Accelerated Repurchase Activity. As previously announced,
repurchase requests in the non-conforming mortgage channel rose
sharply following management's decision to close the business and
accelerated further at the end of the year. Provisions for the
non-conforming channel were $30.3 million, an increase of $25.7
million from last quarter. Overall, provisions for the financial
intermediary segment were $32.0 million versus $12.2 million the
prior quarter. Management believes the worst of the non-conforming
loan repurchase problem is now behind the company given the
accelerated repurchase requests already received relative to the
limited non-conforming production over the second half of 2006.
* Restructuring and Shutdown Costs. During the quarter, the company
exited several lines of business at a total cost of $21.3 million,
in line with the company's prior projections. Restructuring costs
related to the company's exit of FTI/QuickPost; its RV, boat and
aircraft financing unit; its insurance operation; its auto lending
unit; and the consolidation of its indirect conforming mortgage
regional operating centers totaled $12.8 million. Shutdown costs
related to the discontinuation of the company's non-conforming
mortgage operation totaled $8.5 million.
* Generation of Deferred Tax Asset. As reported earlier, the
company generated a significant deferred tax asset during the
quarter. We recorded a valuation allowance for the asset totaling
$23.4 million or $0.50 per share.
* Impairment of Goodwill. As previously disclosed, management
recorded a partial impairment charge related to goodwill and
intangibles on the company's ATM and merchant processing business
during the quarter. The company recorded $9.7 million, or $0.21
per share, in goodwill and intangibles impairment associated with
this business. The remaining goodwill and intangibles of $18.1
million is consistent with the pricing ranges the company recently
observed when marketing the business for sale.
* Impact on Tangible Book Value Lessened. Book value declined by
$1.94 per share from $6.26 on September 30, 2006 to $4.32 on
December 31, 2006. However, the impact on the company's tangible
book value was less. Tangible book value declined by $1.60 per
share from $5.10 on September 30, 2006 to $3.50 on December 31,
2006. On an after-tax basis, the reported loss included the $9.7
million write down related to the company's ATM and merchant
processing business mentioned above that did not negatively impact
tangible book value. (Details related to amounts excluded from tangible
book value are provided in the attached Reconciliation of Non-GAAP
Financial Measures.)
Management Commentary
"Last year, we were at a crossroads as a company," said Steven F. Herbert, chief executive officer. "Market and economic pressures combined with our poor financial performance demanded dramatic changes.
"I'm proud of the fact that, in the span of 90 days, we were able to substantially execute a restructuring plan designed to stabilize the company's operating profile and capital position. During the quarter, we sold, exited or shut down our non-conforming mortgage operation; our RV, boat and aircraft financing business; FTI and the QuickPost service; and NetInsurance. We consolidated two of our indirect conforming mortgage operating centers into our Columbia facility, and during December, we substantially effected a shut down of our auto lending unit.
"The final item remaining to be checked off our 'to do' list is the completion of the sale of our ATM and merchant processing business. We have a non-binding letter of intent in place and we are optimistic that a definitive agreement will be reached soon and the deal will close by the end of the first quarter. I am also pleased that we can check off 'engage an audit firm' which wasn't on our original list of things to do.
"When we began this process, I likened it to driving through a tunnel. We had a roadmap, but we went in not knowing exactly what things would look like on the other side. Now that we've emerged, we're evaluating our next steps. As we announced earlier this month, we are exploring longer-term strategic alternatives to drive shareholder value. We may also need to consider some different scenarios to proactively manage our risk-based capital.
"I'd be remiss if I didn't thank our associates for all the hard work they have done since last October. That work has moved us closer to our goal of restoring profitability and stabilizing book value. While we evaluate our next steps, our operating priorities will continue to be moving our indirect conforming mortgage operation back toward breakeven as quickly as possible and generating cost-effective deposit growth at the bank."
Retail Banking Segment Performance
Table 1 below details results in the company's Retail Banking segment. The segment reported a pre-tax loss of $5.3 million, versus a loss of $1.7 million last quarter. Excluding expenses and restructuring costs for QuickPost, the decline is a result of a loss on the sale of a pool of auto loans. Exclusive of restructuring charges, the segment's expenses were down $1.0 million from the previous quarter.
The bank's average earning assets fell to $4.2 billion for the year, representing a decrease of $424 million or 9.2% from a year ago.
Table 1
RETAIL BANKING
($ in 000s, Unaudited)
2006 2006
4th Quarter 3rd Quarter Change
---------- ---------- ---------
Net interest income $ 16,063 $ 16,878 $ (815)
Provision for credit losses 2,043 2,410 (367)
---------- ---------- ---------
Net interest income
after provision 14,020 14,468 (448)
Loss on sales of loans (1,856) (33) (1,823)
Fees, charges and other income 3,720 3,477 243
---------- ---------- ---------
Total retail banking revenues 15,884 17,912 (2,028)
Total retail banking expenses 15,399 16,334 (935)
Restructuring costs -
Online Bank 629 - 629
---------- ---------- ---------
Pre-tax retail banking
operations (144) 1,578 (1,722)
Net QuickPost, PowerPost
& NetServ results (3,252) (3,301) 49
Restructuring costs -
QuickPost, PowerPost &
NetServ 1,920 - 1,920
---------- ---------- ---------
Pre-tax net loss $ (5,316) $ (1,723) $ (3,593)
========== ========== =========
Average earning assets $3,724,980 $3,975,800 $(250,820)
Operations to average earning
assets excluding QuickPost
Net interest income after
provision 1.50% 1.46% 0.04%
Gain on sale, fees, charges
and other income 0.20% 0.35% (0.15%)
---------- ---------- ---------
Total retail banking revenues 1.70% 1.81% (0.11%)
Total retail banking expenses 1.72% 1.64% 0.08%
---------- ---------- ---------
Pre-tax retail banking
operations (0.02)% 0.17% (0.19%)
========== ========== =========
Additional performance drivers behind Retail Banking segment performance include the following. All comparisons are on a sequential quarter basis unless noted otherwise.
* The company's business finance operation continues to deliver
consistently positive results. Pre-tax earnings for the quarter
were flat at $3.1 million. Production was up $5.1 million, or
13.2%, to $44.3 million.
* Our auto lending business recorded a pre-tax loss of $709,000
compared to earnings of $410,000 last quarter. The decline was due
to restructuring costs as management commenced the closing of that
operation.
Financial Intermediary Segment Performance
Table 2 below details results in the company's Financial Intermediary segment. The segment reported a pre-tax loss of $58.3 million this quarter compared with a loss of $39.5 million last quarter. The majority of the operating loss was centered in the company's discontinued non-conforming operation, which recorded a pre-tax loss of $44.0 million.
The company's conforming mortgage operations reported a pre-tax loss of $14.8 million, compared with a loss of $14.7 million last quarter. Conforming production fell by 28% to $1.5 billion due primarily to a drop in production during the quarter as management implemented a number of procedural and cultural changes within the indirect channel aimed at addressing the repurchase issues.
During the quarter, the company's regional operating centers in Jacksonville, Fla., and Portland, Ore., were consolidated into the Columbia, S.C., facility. Management elected to continue operating the center located in St. Louis, Mo., based on its improved performance following the implementation of procedural and cultural changes throughout the channel. Maintaining the St. Louis center also provides a separate facility that can serve as a back up or overflow operation.
Table 2
FINANCIAL INTERMEDIARY
($ in 000s, Unaudited)
2006 2006
4th Quarter 3rd Quarter Change
---------- ---------- ---------
Net interest income $ (3,150) $ 2,408 $ (5,558)
Gain on sales of loans 10,311 5,927 4,384
Loss on sale of MSRs (60) (96) 36
Other income 481 245 236
Net Beacon credit services
results (126) (103) (23)
Net MG Reinsurance results 788 898 (110)
---------- ---------- ---------
Total revenues 8,244 9,279 (1,035)
Salary and employee benefits 10,225 11,136 (911)
Occupancy and depreciation
expense 4,596 5,110 (514)
Other expenses 6,673 6,992 (319)
Restructuring-related costs 981 - 981
---------- ---------- ---------
Total expenses 22,475 23,238 (763)
---------- ---------- ---------
Pre-tax loss from continuing
operations (14,231) (13,959) (272)
---------- ---------- ---------
Loss from discontinued
operations (44,035) (25,580) (18,455)
---------- ---------- ---------
Pre-tax loss from financial
intermediary segment $ (58,266) $ (39,539) $ (18,727)
========== ========== =========
Production - continuing
operations $1,461,458 $2,026,938 $(565,480)
Production - discontinued
operations $ 173,207 $ 412,716 $(239,509)
Sales - continuing operations $1,531,728 $1,992,825 $(461,097)
Sales - discontinued
operations $ 242,095 $ 435,066 $(192,971)
Total revenues to sales -
continuing operations 0.54% 0.47% 0.07%
Total expenses to production -
continuing operations 1.54% 1.15% 0.39%
---------- ---------- ---------
Pre-tax margin - continuing
operations (1.00%) (0.68%) (0.32%)
========== ========== =========
Additional performance drivers behind Financial Intermediary segment performance include the following. All comparisons are on a sequential quarter basis unless noted otherwise.
* Conforming production totaled $1.5 billion, a decrease of $565
million or 28% due to seasonal factors and management's decision
to slow production as it implemented the changes mentioned above.
Conforming sales fell by 23% to $1.5 billion. The channel's
revenue margin improved to 54 bps.
* Gain on sales of loans in the conforming channel improved to
$10.3 million, an increase of $4.4 million or 73.9%, due to
improvements in net hedge results.
Transaction Processing Segment Performance
Table 3 below details results in the company's Transaction Processing segment. The segment recorded a pre-tax loss of $9.5 million, compared to a loss of $2.4 million the previous quarter.
The loss was driven primarily by management's decision to record a partial impairment charge related to goodwill and intangibles on the company's ATM and merchant processing business, as mentioned earlier in this release. The company began marketing the business for sale during the quarter and now has a non-binding letter of intent in place. Management elected to write down the carrying value of the underlying ATM and merchant processing contracts based on the pricing ranges it observed during the marketing effort.
Table 3
TRANSACTION PROCESSING
($ in 000s, Unaudited)
2006 2006
4th Quarter 3rd Quarter Change
---------- ---------- ----------
Total revenue $ 5,754 $ 5,517 $ 237
Total expenses 15,243 7,894 7,349
---------- ---------- ----------
Pre-tax loss $ (9,489) $ (2,377) $ (7,112)
========== ========== ==========
Servicing Asset Segment Performance
Table 4 below details results in the company's Servicing Asset segment. The segment reported a pre-tax loss of $2.3 million compared with a pre-tax loss of $51.3 million last quarter. The improvement was a result of the company's sale of the majority of its mortgage servicing rights at the end of the third quarter. Since the sale closed on the last day of the third quarter, the full effect wasn't seen until the fourth quarter. The sale enabled the company to eliminate significant earnings volatility going forward, and it will no longer have the same exposure to impairment and hedge-related losses.
Table 4
SERVICING ASSET
($ in 000s, Unaudited)
2006 2006
4th Qtr 3rd Qtr Change
-------- -------- --------
Net interest income $ 750 $ 395 $ 355
Servicing fees 2,139 7,095 (4,956)
Loss on sale of MSRs 532 (29,702) 30,234
Other income 126 102 24
-------- -------- --------
Total revenue 3,547 (22,110) 25,657
Amortization of MSRs 2,539 6,981 (4,442)
Subservicing fees paid 882 2,345 (1,463)
Other expenses 108 543 (435)
-------- -------- --------
Total expenses 3,529 9,869 (6,340)
-------- -------- --------
Pre-tax servicing margin 18 (31,979) 31,997
-------- -------- --------
Loss on hedges (851) (4,357) 3,506
(Impairment) (1,534) (1,474) (60)
Loss on sale of securities 110 (13,461) 13,571
-------- -------- --------
Net hedge results (2,275) (19,292) 17,017
-------- -------- --------
Net pre-tax loss $ (2,257) $(51,271) $ 49,014
======== ======== ========
First Quarter Earnings Outlook
Analyst estimates for first quarter results currently range from a loss of $0.08 to a loss of $0.24. Management is presently biased to the lower end of the range and cautions there is still key downside risk related to:
* Moving our indirect conforming mortgage operation back to breakeven * Our inability to recognize tax benefits until we return to profitability
Supplemental Financial Data
The company posts additional financial information directly to its Web site. We publish a report that breaks out quarterly results by line of business within each segment. This report is designed to give interested parties a more granular look at the company's results and to make it easier for them to monitor performance trends.
You can access this material at www.netbankinc.com. Go to the "Investor Relations" area and click on the "Financial Data" link. Within this same area, we post a monthly report that shows key operating statistics for the company's major lines of business. Management also uses this report to update the company's quarterly earnings guidance as needed. The company publishes this report around the 20th of each month and files it simultaneously with the Securities Exchange Commission under Form 8-K.
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 10 a.m. EST. Interested parties may dial in or listen via an audiocast on the company's Web site.
Call Title: NetBank, Inc. Earnings Announcement Call Leader: Steven F. Herbert Pass Code: NetBank Domestic: 1-888-677-1895 International: +1-210-795-9306 One-Week Replay: 1-800-879-5513 or +1-402-220-4734
About NetBank, Inc.
NetBank, Inc. (Nasdaq:NTBK) is a financial holding company that operates a family of businesses focused primarily on consumer and small business banking as well as conforming mortgage lending. The company's businesses have a shared value proposition of providing consumers in select markets a superior combination of price, service and experience through skilled associates and advanced technology systems. Retail brands include NetBank and Market Street Mortgage. For more information, please visit www.netbankinc.com.
Preliminary, Unaudited Financial Information
While the company believes that the preliminary, unaudited information set forth in this release has been prepared in accordance with accounting principles generally accepted in the United States, or "GAAP," and that all adjustments necessary for a fair presentation thereof have been made, the company can give no assurance that all adjustments are final or that all adjustments necessary for a fair presentation of the financial results in accordance with GAAP have been identified. All results included in this press release shall be considered preliminary until the audit of the company's financial statements for the year ended December 31, 2006 is completed and the company files its 2006 Form 10-K.
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 company's expectation that it's 2006 Form 10-K will be filed with the SEC by the end of June 2007; 2) Management's belief that the worst of the non-conforming loan repurchase problem is now behind the company; 3) A definitive agreement regarding the sale of the company's ATM and merchant processing business being reached and the deal closing by the end of the first quarter; 4) A decision by management to undertake additional capital management strategies.
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 1A. Risks Factors" in its Annual Report on Form 10-K for the year ended December 31, 2005 and Quarterly Reports on Form 10-Q for the quarters ended June 30, 2006 and September 30, 2006, as well as Exhibit 99.2 to its Current Report on Form 8-K filed with the SEC on January 3, 2007. 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.
Reconciliation of Non-GAAP Financial Measures
($ in 000s, Unaudited)
December 31, September 30,
2006
--------------------------------
Shareholders equity $229,007 $290,598
Goodwill and intangibles 43,724 53,849
-------- --------
Tangible equity $185,283 $236,749
Outstanding shares 52,982 46,397
-------- --------
Tangible book value $ 3.50 $ 5.10
======== ========
NetBank, Inc.
Consolidated Statements of Operations
For the year ended December 31,
(In 000s except per share data)
(Unaudited)
2006
-------------------------------------------------------
Other/
Retail Financial Transaction Servicing Corporate
Banking Intermediary Processing Asset overhead
---------------------------------------------------------------------
Interest income:
Loans and
leases $117,553 $ 66,052 $ 48 $ - $ 584
Investment
securities 26,593 6 - - -
Short-term
investments 1,131 748 1,007 1,027 -
Inter-segment 91,777 262 - 9,025 (101,064)
---------------------------------------------------------------------
Total interest
income 237,054 67,068 1,055 10,052 (100,480)
Interest expense:
Deposits 96,838 - - - -
Other borrowed
funds 47,799 841 588 308 2,681
Inter-segment 20,248 59,996 373 7,387 (101,582)
---------------------------------------------------------------------
Total interest
expense 164,885 60,837 961 7,695 (98,901)
---------------------------------------------------------------------
Net interest
income 72,169 6,231 94 2,357 (1,579)
Provision for
credit losses 8,424 112 - - -
---------------------------------------------------------------------
Net interest
income after
provision for
credit losses 63,745 6,119 94 2,357 (1,579)
Non-interest
income:
Mortgage
servicing fees 14 2,107 5,994 29,534 -
Amortization
of MSRs - (147) - (29,957) -
(Impairment)
recovery of
MSRs - - - (8,914) -
Losses on
derivatives 153 - - (16,562) -
(Loss) gain on
sales of
investment
securities - - - (13,461) -
Service charges
and fees 11,450 (1) 8,521 - -
Gain on sales
of loans (1,581) 53,407 - - (470)
Loss on sales
of MSRs - (455) - (29,702) -
Other income 4,183 2,155 1,470 822 (933)
Intersegment
servicing/
processing fees - - 10,613 - (10,613)
---------------------------------------------------------------------
Total non-
interest
income 14,219 57,066 26,598 (68,240) (12,016)
Non-interest
expense:
Salaries and
benefits 19,744 52,347 9,647 - 27,863
Customer service 10,248 - 365 - 143
Marketing costs 5,757 4,831 293 - 455
Data processing 10,733 2,512 2,057 - 2,492
Depreciation and
amortization 6,951 7,446 3,799 - 3,003
Office expenses 8,673 4,075 1,886 - (763)
Occupancy 4,112 12,126 1,001 - 6,827
Travel and
entertainment 723 1,577 332 - 867
Professional
fees 2,492 4,413 1,450 12 4,650
Prepaid lost
interest from
curtailments - 21 - 1,915 -
Impairment of
goodwill - 6,358 13,337 - -
Other 10,095 11,235 2,262 58 (13,043)
Restructuring
and other
associated
costs 2,549 981 - - 9,299
Inter-segment
servicing/
processing fees 453 (519) - 8,139 (10,613)
---------------------------------------------------------------------
Total non-
interest
expense 82,530 107,403 36,429 10,124 31,180
---------------------------------------------------------------------
(Loss) income
before income
taxes $ (4,566) $(44,218) $(9,737) $(76,007) $ (44,775)
Consolidated NetBank, Inc.
2006 2005
--------- ---------
Interest income:
Loans and leases $ 184,237 $ 187,773
Investment securities 26,599 35,085
Short-term investments 3,913 2,140
Inter-segment - -
--------- ---------
Total interest income 214,749 224,998
Interest expense:
Deposits 96,838 70,483
Other borrowed funds 52,217 62,445
Inter-segment (13,578) (14,579)
--------- ---------
Total interest expense 135,477 118,349
--------- ---------
Net interest income 79,272 106,649
Provision for credit losses 8,536 11,047
--------- ---------
Net interest income after provision
for credit losses 70,736 95,602
Non-interest income:
Mortgage servicing fees 37,649 50,414
Amortization of MSRs (30,104) (45,389)
(Impairment) recovery of MSRs (8,914) 14,055
Losses on derivatives (16,409) (880)
(Loss) gain on sales of investment securities (13,461) 4,675
Service charges and fees 19,970 20,570
Gain on sales of loans 51,356 81,458
Loss on sales of MSRs (30,157) (622)
Other income 7,697 9,891
Intersegment servicing/processing fees - -
--------- ---------
Total non-interest income 17,627 134,172
Non-interest expense:
Salaries and benefits 109,601 104,164
Customer service 10,756 13,632
Marketing costs 11,336 12,260
Data processing 17,794 17,435
Depreciation and amortization 21,199 20,918
Office expenses 13,871 9,758
Occupancy 24,066 19,601
Travel and entertainment 3,499 4,232
Professional fees 13,017 16,982
Prepaid lost interest from curtailments 1,936 4,289
Impairment of goodwill 19,695 -
Other 10,607 10,216
Restructuring and other associated costs 12,829 -
Inter-segment servicing/processing fees (2,540) (5,355)
--------- ---------
Total non-interest expense 267,666 228,132
--------- ---------
(Loss) income before income taxes (179,303) 1,642
Income tax benefit (expense) 48,749 (1,497)
--------- ---------
Net (loss) income from
continuing operations $(130,554) $ 145
(Loss) from discontinued operations,
net of income tax (71,437) (325)
--------- ---------
Net loss $(201,991) $ (180)
========= =========
Net loss per common and potential
common shares outstanding:
Basic $ (2.82) $ 0.00
Basic EPS from discontinued operations $ (1.54) (0.00)
--------- ---------
Basic EPS $ (4.36) $ 0.00
--------- ---------
Diluted $ (2.82) $ 0.00
Diluted EPS from discontinued operations $ (1.54) (0.00)
--------- ---------
Diluted EPS $ (4.36) $ 0.00
--------- ---------
Weighted average common and potential
common shares outstanding:
Basic 46,343 46,193
Diluted 46,343 46,193
NetBank, Inc.
Consolidated Statements of Operations
For the three months ended December 31,
(In 000s except per share data)
(Unaudited)
2006
-------------------------------------------------------
Other/
Retail Financial Transaction Servicing Corporate
Banking Intermediary Processing Asset overhead
---------------------------------------------------------------------
Interest income:
Loans and
leases $27,447 $ 11,737 $ 21 $ - $ 114
Investment
securities 3,970 1 - - -
Short-term
investments 451 219 1,007 1,027 -
Inter-segment 21,927 80 - 713 (22,720)
---------------------------------------------------------------------
Total interest
income 53,795 12,037 1,028 1,740 (22,606)
Interest expense:
Deposits 27,271 - - - -
Other borrowed
funds 6,744 92 588 153 703
Inter-segment 3,761 14,699 89 838 (22,779)
---------------------------------------------------------------------
Total interest
expense 37,776 14,791 677 991 (22,076)
---------------------------------------------------------------------
Net interest
income 16,019 (2,754) 351 749 (530)
Provision for
credit losses 2,043 10 - - -
---------------------------------------------------------------------
Net interest
income after
provision for
credit losses 13,976 (2,764) 351 749 (530)
Non-interest
income:
Mortgage
servicing fees 4 514 2,029 2,138 -
Amortization
of MSRs - (53) - (2,539) -
(Impairment)
recovery of
MSRs - - - (1,534) -
(Loss) gain on
derivatives 153 - - (743) -
Loss on sales of
investment
securities - - - - -
Service charges
and fees 2,560 (1) 2,091 - -
(Loss) gain on
sales of loans (1,857) 10,618 - - (61)
Loss on sales
of MSRs - (61) - - -
Other income 876 472 15 657 (281)
Intersegment
servicing/
processing fees - - 1,270 - (1,270)
---------------------------------------------------------------------
Total non-
interest
income 1,736 11,489 5,405 (2,021) (1,612)
Non-interest
expense:
Salaries and
benefits 4,759 10,506 2,277 - 6,500
Customer
service 2,079 - 109 - 30
Marketing costs 1,476 863 61 - 74
Data processing 2,500 575 450 - 409
Depreciation and
amortization 1,739 1,682 934 - 821
Office expenses 2,002 792 505 - (121)
Occupancy 899 2,972 252 - 1,779
Travel and
entertainment 120 275 49 - 210
Professional
fees 604 1,570 326 12 1,103
Prepaid lost
interest from
curtailments - 3 - 79 -
Impairment of
goodwill - - 9,655 - -
Other 2,198 2,781 627 12 (3,346)
Restructuring
and other
associated
costs 2,549 981 - - 9,299
Inter-segment
servicing/
processing fees 103 (44) - 882 (1,270)
---------------------------------------------------------------------
Total non-
interest
expense 21,028 22,956 15,245 985 15,488
---------------------------------------------------------------------
(Loss) income
before income
taxes $(5,316) $(14,231) $(9,489) $(2,257) $(17,630)
Consolidated NetBank, Inc.
-------------------------
2006 2005
------------------------------------------------------ ---------
Interest income:
Loans and leases $ 39,319 $ 49,096
Investment securities 3,971 8,916
Short-term investments 2,704 583
Inter-segment - -
------------------------------------------------------ ---------
Total interest income 45,994 58,595
Interest expense:
Deposits 27,271 21,491
Other borrowed funds 8,280 16,579
Inter-segment (3,392) (4,548)
------------------------------------------------------ ---------
Total interest expense 32,159 33,522
------------------------------------------------------ ---------
Net interest income 13,835 25,073
Provision for credit losses 2,053 3,658
------------------------------------------------------ ---------
Net interest income after provision
for credit losses 11,782 21,415
Non-interest income:
Mortgage servicing fees 4,685 12,337
Amortization of MSRs (2,592) (10,516)
(Impairment) recovery of MSRs (1,534) 10,831
(Loss) gain on derivatives (590) (731)
Loss on sales of investment securities - 493
Service charges and fees 4,650 5,431
(Loss) gain on sales of loans 8,700 24,361
Loss on sales of MSRs (61) (174)
Other income 1,739 2,135
Intersegment servicing/processing fees - -
------------------------------------------------------ ---------
Total non-interest income 14,997 44,167
Non-interest expense:
Salaries and benefits 24,042 28,278
Customer service 2,218 3,516
Marketing costs 2,474 3,360
Data processing 3,934 4,429
Depreciation and amortization 5,176 5,406
Office expenses 3,178 2,504
Occupancy 5,902 5,233
Travel and entertainment 654 1,237
Professional fees 3,615 4,367
Prepaid lost interest from curtailments 82 944
Impairment of goodwill 9,655 -
Other 2,272 3,107
Restructuring and other associated costs 12,829 -
Inter-segment servicing/processing fees (329) (1,419)
------------------------------------------------------ ---------
Total non-interest expense 75,702 60,962
------------------------------------------------------ ---------
(Loss) income before income taxes (48,923) 4,620
Income tax benefit (expense) 3,513 (2,298)
--------- ---------
Net (loss) income from continuing
operations $ (45,410) $ 2,322
Loss from discontinued operations,
net of income tax (40,913) (1,427)
--------- ---------
Net (loss) income $ (86,323) $ 895
========= =========
Net (loss) income per common and
potential common shares outstanding:
Basic $ (0.98) $ 0.05
Basic EPS from discontinued operations $ (0.88) (0.03)
--------- ---------
Basic EPS $ (1.86) $ 0.02
--------- ---------
Diluted $ (0.98) $ 0.05
Diluted EPS from discontinued operations $ (0.88) (0.03)
--------- ---------
Diluted EPS $ (1.86) $ 0.02
--------- ---------
Weighted average common and potential
common shares outstanding:
Basic 46,425 46,168
Diluted 46,425 46,480
NetBank, Inc.
Condensed Consolidated Balance Sheet
(In 000s except per share data)
(Unaudited)
Dec. 31, Sept. 30, Dec. 31,
2006 2006 2005
---------- ---------- ----------
Assets
Cash and cash equivalents:
Cash and due from banks $ 607,600 $ 347,980 $ 126,666
Cash equivalents and fed funds 22,712 21,995 23,590
---------- ---------- ----------
Total cash, cash equivalents
and fed funds 630,312 369,975 150,256
Investment securities available
for sale-at fair value 294,280 252,546 626,077
Stock of Federal Home Loan
Bank of Atlanta-at cost 36,507 36,507 67,049
Loans held for sale 720,715 946,475 1,233,918
Loan and lease receivables-net of
allowance for losses 1,759,097 1,910,770 2,224,363
Mortgage servicing rights - net 35,579 39,076 201,880
Accrued interest receivable 12,281 16,555 16,698
Furniture, equipment and
capitalized software - net 38,962 48,261 54,420
Goodwill and other
intangibles - net 43,724 53,849 85,097
Due from servicers and investors 16,630 113,624 26,557
Stock subscription receivable 25,350 - -
Other assets 74,016 61,770 85,304
---------- ---------- ----------
Total assets $3,687,453 $3,849,408 $4,771,619
========== ========== ==========
Liabilities
Deposits $2,615,636 $2,728,316 $2,793,847
Other borrowed funds 657,515 654,033 1,348,240
Subordinated debt 32,477 32,477 32,477
Accrued interest payable 33,443 24,049 17,595
Loans in process 20,712 31,843 34,060
Representations and warranties 14,741 21,550 20,668
Restructuring-related liabilities 11,637 - -
Accounts payable and
accrued liabilities 71,375 65,633 123,877
---------- ---------- ----------
Total liabilities 3,457,536 3,557,901 4,370,764
---------- ---------- ----------
Minority interests in affiliates 910 909 676
Shareholders' equity
Preferred stock, no par - - -
Common stock, $.01 par 528 528 528
Common stock subscribed 65 - -
Additional paid-in capital 457,905 434,303 432,140
Retained (deficit) earnings (165,136) (78,661) 39,005
Accumulated other comprehensive
loss, net of tax (2,959) (3,310) (7,965)
Treasury stock, at cost (61,396) (62,262) (62,276)
Unearned compensation - - (1,253)
---------- ---------- ----------
Total shareholders' equity 229,007 290,598 400,179
---------- ---------- ----------
Total liabilities, minority
interests and shareholders'
equity $3,687,453 $3,849,408 $4,771,619
========== ========== ==========
NetBank, Inc. Consolidated
Selected Financial and Operating Data
(In 000s except per share data)
(Unaudited)
Quarter Ended
-----------------------------------------
December 31, September 30, December 31,
----------- ----------- -----------
2006 2006 2005
----------- ----------- -----------
Consolidated:
Net (loss) income $ (86,323) $ (73,281) $ 895
Total assets $ 3,687,453 $ 3,849,408 $ 4,771,619
Total equity $ 229,007 $ 290,598 $ 400,179
Shares outstanding 52,982 46,397 46,396
Return on average equity (110.42%) (86.06%) 0.89%
Return on average assets (8.55%) (7.06%) 0.07%
Book value per share $ 4.32 $ 6.26 $ 8.63
Tangible book value per
share $ 3.50 $ 5.10 $ 6.79
NetBank, FSB:
Deposits $ 2,620,841 $ 2,734,080 $ 2,796,029
Customers 248,229 268,769 285,669
Estimated Capital Ratios:
Tier 1 core capital ratio 4.83% 6.38% 6.51%
Total risk-based capital
ratio 9.07% 10.13% 10.32%
Asset quality numbers:
CMC Lease portfolio $ 25,423 $ 25,505 $ 26,054
Non-performing loan and
lease receivables 7,716 7,300 6,995
----------- ----------- -----------
Total non-performing loan
and lease receivables 33,139 32,805 33,049
Non-performing loans held
for sale (a) 91,138 50,418 49,255
----------- ----------- -----------
Total non-performing loans
and leases 124,277 83,223 82,304
Repossessed assets (b) 14,285 13,357 8,200
----------- ----------- -----------
Total non-performing
assets $ 138,562 $ 96,580 $ 90,504
Allowance for credit
losses (ALLL) $ 28,042 $ 26,477 $ 27,601
Net charge-offs of loan
and lease receivables $ (4,081) $ (3,301) $ (2,786)
Asset quality ratios:
Total non-performing assets/
average assets 3.43% 2.33% 1.78%
ALLL/total non-performing
loan and lease receivables 84.62% 80.71% 83.52%
Net annualized charge-
offs/total assets 0.44% 0.34% 0.23%
Mortgage Banking:
Production Activity:
Retail $ 679,055 $ 779,963 $ 934,184
Correspondent 506,248 833,138 904,354
Wholesale 265,524 392,350 568,789
RMS 10,631 21,487 52,185
----------- ----------- -----------
Total Agency-eligible 1,461,458 2,026,938 2,459,512
Non-conforming 173,207 412,716 807,110
----------- ----------- -----------
Total $ 1,634,665 $ 2,439,654 $ 3,266,622
=========== =========== ===========
Sales Activity:
Third party sales $ 1,773,823 $ 2,419,711 $ 3,302,059
Intercompany sales - 8,180 56,449
----------- ----------- -----------
Total sales $ 1,773,823 $ 2,427,891 $ 3,358,508
=========== =========== ===========
Pipeline:
Locked conforming mortgage
loan pipeline $ 520,044 $ 610,853 $ 929,205
UPB of loans serviced: $13,665,809 $14,960,710 $17,107,575
(a) 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.
(b) Repossessed assets are carried at net realizable value.