NTBK Net.B@NK Common Stock (MM)

NetBank, Inc. (Nasdaq: NTBK), a diversified financial services provider and parent company of NetBank(R) (www.netbank.com), today reported financial results for the first quarter of 2005. The company recorded a net loss of $2.0 million or $.04 per share, compared with net income of $9.4 million or $.20 per share during the same period a year ago. On a sequential quarter basis, key trends include: -- Net interest margin expansion. The bank's net interest margin, after provision, widened to 188 basis points (bps) from a normalized net interest margin of 182 bps. (Actual fourth quarter results included a provision expense of $29 million related to the company's Commercial Money Center (CMC) lease receivable. Inclusive of this charge, the net interest margin was -80 bps.) -- Record business finance profitability. Pre-tax profitability from the company's business finance operation grew by 13% to $3.6 million. -- Seasonally low mortgage production and sales. Conforming production and sales totaled $2.1 billion and $2.1 billion respectively, representing declines of 8.6% and 14.7%. Non-conforming production and sales were $630 million and $702 million respectively, representing declines of 18.4% and 6.6%. -- Significant conforming margin improvement. The conforming pre-tax income margin improved to breakeven from -29 bps. -- Significant non-conforming margin pressure. The non-conforming pre-tax income margin fell to -92 bps from 6 bps. As previously reported, the company's board of directors approved a dividend of $.02 per share. The dividend is payable to shareholders of record on May 15, and it will be disbursed on June 15. During the quarter, the company bought 423,726 shares of its stock at an average price of $9.29 per share. The board recently authorized management to purchase up to one million additional shares. Along with shares remaining under the previous authorization, management now has approval to repurchase up to 1,240,238 shares. Management Commentary "The current period loss is largely centered in our non-conforming mortgage operation," said Douglas K. Freeman, Chairman and Chief Executive Officer. "As we communicated in our monthly statistical reports, the non-conforming channel came under extreme pressure during the quarter. More aggressive pricing industry-wide and higher-than-normal provision expenses pushed results well below the level our other developing lines of business can offset today. We consider the prevailing non-conforming business conditions atypical. We are fully committed to the non-conforming operation and believe in its ability to contribute significant profitability to our bottom line in normal conditions. "Our other lines of business reported solid results," Freeman continued. "Our conforming mortgage operation showed marked improvement from last quarter's low. The channel neared breakeven performance, and we currently believe its earnings trend will gain momentum over the course of the year. Our banking segment continues to show impressive growth. We have been able to widen the bank's net interest margin through the steady retention of high-quality, internally originated assets. "Our strategy to diversify the company's income is working. Many of our start-up and emerging lines of business provided meaningful offset this period. Their impact and ability to contribute stable earnings should grow more pronounced with each passing quarter." Banking Segment Performance Table 1 below details results in the company's banking segment. The segment reported pre-tax income of $6.2 million before net servicing results. This compares to pre-tax income of $5.4 million in the previous quarter, exclusive of the $29.0 million provision expense against the company's CMC lease receivable. The improvement was driven by expansion of the net interest margin to 188 bps from a normalized margin of 182 bps earlier. The segment also recorded a net servicing loss of $3.6 million this quarter, compared with income of $957,000 a quarter ago. Last quarter's results included the recovery of previous impairment expenses. The current period loss is due primarily to the impact of stubbornly high pre-payment speeds on amortization expenses and a lack of significant leverage over operating costs. Management believes net servicing results will moderate over time as pre-payment activity slows and the company builds scale in the portfolio. As part of its strategy to grow the servicing asset, management acquired a portfolio of $2.5 billion in conventional, fixed-rate servicing rights on March 31. At quarter-end, the core servicing portfolio stood at $15.0 billion, versus $12.9 billion a quarter earlier. -0- *T Table 1 RETAIL BANKING SEGMENT ($ in 000s, Unaudited) 2005 2004 1st Qtr 4th Qtr Change ------------ ------------ ---------- Net interest income $ 22,542 $ 21,938 $ 604 Provision for credit losses 2,336 30,807 (28,471) ------------ ------------ ---------- Net interest income after provision 20,206 (8,869) 29,075 Gains on sales of loans 501 88 413 Fees, charges and other income 3,327 3,256 71 ------------ ------------ ---------- Total revenues 24,034 (5,525) 29,559 Total expenses 17,845 18,044 (199) ------------ ------------ ---------- Pre-tax income (loss) before net servicing results 6,189 (23,569) 29,758 Net servicing results (3,572) 957 (4,529) ------------ ------------ ---------- Pre-tax income (loss) $ 2,617 $ (22,612) $ 25,229 ============ ============ ========== Average earning assets $ 4,305,234 $ 4,417,153 $(111,919) Average UPB underlying MSRs $13,175,247 $12,766,699 $ 408,548 Operations to earning assets Net interest income after provision 1.88% (0.80%) 2.68% Gain on sale, fees, charges and other income 0.36% 0.30% 0.06% ------------ ------------ ---------- Banking revenues 2.24% (0.50%) 2.74% Total expenses 1.66% 1.63% 0.03% ------------ ------------ ---------- Pre-tax income (loss) before net servicing results 0.58% (2.13%) 2.71% ============ ============ ========== Net servicing results to UPB underlying MSRs (0.11%) 0.03% (0.14%) *T On a sequential quarter basis, other key banking segment comparisons include: -- Total deposits decreased by 2% to $2.6 billion. The decline was comprised mainly of single-service certificate of deposit relationships. -- The business finance operation's production was off by 2% to $45.9 million. As mentioned above, the operation posted record profitability this quarter due to its continued strong production levels and tight control over expenses. -- The auto lending business saw an 11% increase in production to $87.4 million. However, profitability within this channel was adversely impacted by additional provision and operating expenses. Financial Intermediary Segment Performance Table 2 below details results in the company's financial intermediary segment. The segment reported a pre-tax loss of $5.5 million, compared with a similar loss in the previous quarter. The pre-tax margin was -20 bps, compared with -19 bps last quarter. On the surface, results for this channel appear little changed. However, the current period loss was centered primarily in the non-conforming channel, not the conforming channel. Based on significant pricing pressures and heightened provision expense, the non-conforming margin fell to -92 bps from 6 bps a quarter ago. -0- *T Table 2 FINANCIAL INTERMEDIARY ($ in 000s, Unaudited) 2005 2004 1st Qtr 4th Qtr Change ----------- ----------- ---------- Net interest income $ 8,185 $ 10,970 $ (2,785) Gain on sales of loans 22,885 20,733 2,152 Other income 887 441 446 Net Beacon Credit Services results (663) 30 (693) Net MG Reinsurance results 864 702 162 ----------- ----------- ---------- Total revenues 32,158 32,876 (718) Salary and employee benefits 22,534 21,480 1,054 Occupancy & Depreciation expense 7,056 7,257 (201) Other expenses 8,046 9,606 (1,560) ----------- ----------- ---------- Total expenses 37,636 38,343 (707) ----------- ----------- ---------- Pre-tax loss $ (5,478) $ (5,467) $ (11) =========== =========== ========== Production $2,776,609 $3,121,865 $(345,256) Sales (includes intercompany sales) $2,760,463 $3,163,874 $(403,411) Total revenues to sales 1.16% 1.04% 0.12% Total expenses to production 1.36% 1.23% 0.13% ----------- ----------- ---------- Pre-tax margin (0.20%) (0.19%) (0.01%) =========== =========== ========== *T On a sequential quarter basis, other key financial intermediary segment comparisons include: -- Seasonal weakness affected both conforming and non-conforming loan activity. Conforming production decreased by 8.6% to $2.1 billion, while sales were down 14.7% to $2.1 billion. Non-conforming production declined by 18.4% to $630 million, while sales eased by 6.6% to $702 million. -- The conforming pre-tax margin improved to breakeven from -29 bps. Transaction Processing Segment Performance Table 3 below details results in the company's transaction processing segment. The segment reported pre-tax income of $1.0 million, compared with income of $1.6 million in the previous quarter. Revenues remained consistent. The decline in profitability was centered in the expense line. Last quarter the servicing factory benefited from a recovery of previous charge-offs that went against expenses. This quarter the servicing factory's expenses returned to a more normal level. -0- *T Table 3 TRANSACTION PROCESSING ($ in 000s, Unaudited) 2005 2004 1st Qtr 4th Qtr Change ---------- ---------- --------- Total revenue $ 6,742 $ 6,780 $ (38) Total expenses 5,728 5,220 508 --------- ---------- --------- Pre-tax income $ 1,014 $ 1,560 $ (546) ========= ========== ========= *T On a sequential quarter basis, other key transaction processing segment comparisons include: -- The number of ATM transactions processed by our ATM and merchant processing business increased by 1% to 6.3 million. The value of items cleared through our point-of-sale terminals grew by 2% to $66.7 million. -- The company acquired a portfolio of conventional, fixed-rate mortgage servicing rights at quarter-end. Servicing for the more than 14,000 loans in the portfolio should be transferred to the company's servicing operation in July. Trust Preferred Securities During the quarter, the company completed a private offering of $20.6 million in trust preferred securities. The securities were issued through a newly formed trust, NBI Trust IV, and placed in a pooled transaction. They carry a variable rate and were initially priced at LIBOR plus a spread. The securities mature in 30 years and cannot be redeemed by NBI Trust IV for a minimum of five years. The securities have not been registered under the Securities Act of 1933, as amended, and may not be sold in the United States under the Securities Act of 1933, as amended, absent registration or an applicable exemption from the registration requirements. Next Quarter Earnings Outlook Current analyst estimates for the company's second quarter results range from $.02 to $.08. Management considers the range reasonable at this time. Mortgage profitability is likely to improve if non-conforming pricing pressures ease from first quarter levels. However, the return of more aggressive pricing and the potential for negative net servicing results represent downside risks. 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 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 the quarterly results with financial analysts, media and other interested parties. The call will be held today at 10 a.m. EDT. Call Title: NetBank, Inc. Earnings Announcement Call Leader: Douglas K. Freeman Passcode: NetBank Toll-Free: 888-982-4613 International: +1-212-287-1615 One-Week Replay: 866-463-4176 The company will audiocast the call on the NetBank, Inc. Web site within the "Investor Relations" area. Individuals who cannot participate in the live call may e-mail their questions to mshepherd@netbank.com. Questions must be received before 8:30 a.m. EDT for inclusion in the discussion. 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. "Safe Harbor" Statement under the Private Securities Litigation Reform Act of 1995: Information in this press release about 1) the expansion of net interest margin within the banking segment; 2) increasing profitability within the business finance operation; 3) the payment of quarterly dividends; 4) the repurchase of shares of the company's outstanding stock; 5) achievement of a balanced business model with a more stable earnings profile; 6) the company's intention to remain in the non-conforming mortgage business; 7) further improvement in conforming mortgage profitability; and 8) mitigation of net servicing losses through a larger portfolio of servicing rights are "forward-looking statements" involving risks and uncertainties that could cause actual results to differ materially. Potential risks include but are not limited to 1) higher than expected interest or provision expenses; 2) unforeseen economic or operating conditions that adversely affect business finance profitability; 3) a decision by the board to discontinue the payment of quarterly dividends; 4) a decision by management or the board to discontinue share repurchases; 5) failure to achieve key goals or objectives in the execution of the company's business plan; 6) a decision by management to exit the non-conforming mortgage business; 7) unforeseen economic or operating conditions that adversely affect conforming mortgage profitability; and 8) unforeseen economic or operating conditions that adversely affect servicing asset results. The company has no obligation to update any forward-looking statements. For a discussion of additional risks and uncertainties facing NetBank, Inc., see "Risk Factors" in the company's SEC filings. -0- *T NetBank, Inc. Consolidated Statements of Operations For the Three Months Ended March 31, (Unaudited and in 000's except per share data) 2005 ------------------------------------ Retail Financial Transaction Banking Intermediary Processing ---------------------------------------------------------------------- Interest income: Loans and leases $ 26,727 $ 20,986 $ 10 Investment securities 8,787 1 - Short-term investments 309 70 - Inter-segment 13,066 2,278 7 ------------------------------------ Total interest income 48,889 23,335 17 Interest expense: Deposits 13,216 - - Other borrowed funds 11,224 1,480 20 Inter-segment 1,974 13,606 - ------------------------------------ Total interest expense 26,414 15,086 20 ------------------------------------ Net interest income 22,475 8,249 (3) Provision for credit losses 2,336 15 - ------------------------------------ Net interest income after provision for credit losses 20,139 8,234 (3) Non-interest income: Service charges and fees 12,606 736 3,671 Gain on sales of loans and MSRs 501 23,717 - Other income 5,228 1,022 1,149 Gain on sales of investment securities 2,477 - - Loss on derivatives (7,121) - - Inter-segment servicing/processing fees - - 3,456 ------------------------------------ Total non-interest income 13,691 25,475 8,276 Non-interest expense: Salaries and benefits 5,249 23,287 2,424 Customer service 2,670 - 449 Marketing costs 1,141 1,607 47 Data processing 2,653 1,156 558 Depreciation and amortization 2,065 2,520 906 Impairment and amortization of MSRs 9,849 99 - Office expenses 521 1,596 618 Occupancy 888 4,582 390 Travel and entertainment 142 913 146 Professional fees 891 2,069 416 Prepaid lost interest from curtailments 1,010 14 - Other 1,568 454 1,305 Inter-segment servicing/processing fees 2,566 890 - ------------------------------------ Total non-interest expense 31,213 39,187 7,259 ------------------------------------ Income (loss) before income taxes 2,617 (5,478) 1,014 Income tax (expense) benefit (919) 1,923 (356) ------------------------------------ Net income (loss) $ 1,698 $ (3,555) $ 658 ==================================== Net income (loss) per common and potential common shares outstanding: Basic Diluted Weighted average common and potential common shares outstanding: Basic Diluted NetBank, Inc. Consolidated Statements of Operations For the Three Months Ended March 31, (Unaudited and in 000's except per share data) 2005 2004 -------------------------- ------------- Other / Consolidated Consolidated Eliminations NetBank, Inc. NetBank, Inc. ---------------------------------------------------------------------- Interest income: Loans and leases $ 130 $ 47,853 $ 48,039 Investment securities - 8,788 3,966 Short-term investments - 379 180 Inter-segment (15,351) - - -------------------------- ----------- Total interest income (15,221) 57,020 52,185 Interest expense: Deposits - 13,216 11,818 Other borrowed funds 303 13,027 8,618 Inter-segment (15,580) - - -------------------------- ----------- Total interest expense (15,277) 26,243 20,436 -------------------------- ----------- Net interest income 56 30,777 31,749 Provision for credit losses - 2,351 1,847 -------------------------- ----------- Net interest income after provision for credit losses 56 28,426 29,902 Non-interest income: Service charges and fees - 17,013 17,032 Gain on sales of loans and MSRs 602 24,820 32,314 Other income (179) 7,220 4,176 Gain on sales of investment securities - 2,477 3,169 Loss on derivatives - (7,121) - Inter-segment servicing/processing fees (3,456) - - -------------------------- ----------- Total non-interest income (3,033) 44,409 56,691 Non-interest expense: Salaries and benefits 763 31,723 30,927 Customer service 5 3,124 2,913 Marketing costs 60 2,855 2,259 Data processing 8 4,375 4,491 Depreciation and amortization 112 5,603 4,783 Impairment and amortization of MSRs - 9,948 10,246 Office expenses 85 2,820 2,680 Occupancy 41 5,901 5,134 Travel and entertainment 49 1,250 1,176 Professional fees 614 3,990 2,910 Prepaid lost interest from curtailments - 1,024 1,372 Other 22 3,349 2,670 Inter-segment servicing/processing fees (3,456) - - -------------------------- ----------- Total non-interest expense (1,697) 75,962 71,561 -------------------------- ----------- Income (loss) before income taxes (1,280) (3,127) 15,032 Income tax (expense) benefit 450 1,098 (5,638) -------------------------- ----------- Net income (loss) $ (830) $ (2,029) $ 9,394 ========================== =========== Net income (loss) per common and potential common shares outstanding: Basic $ (0.04) $ 0.20 Diluted $ (0.04) $ 0.20 Weighted average common and potential common shares outstanding: Basic 46,366 47,250 Diluted 46,366 47,968 *T -0- *T NetBank, Inc. Condensed Consolidated Balance Sheet As of March 31, (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 $ 113,347 $ 32,472 $ (203) Federal funds sold 18,003 4,120 1,572 -------------------------------------- Total cash and cash equivalents 131,350 36,592 1,369 Investment securities available for sale, at fair value 741,104 4 - Stock of Federal Home Loan Bank of Atlanta-at cost 71,054 - - Loans held for sale 4,763 1,115,111 - Loan and lease receivables-net of allowance for losses 2,124,596 3,239 - Mortgage servicing rights 209,006 1,247 - Accrued interest receivable 9,214 3,045 - Furniture, equipment and capitalized software 13,195 31,472 2,242 Goodwill and other intangibles 1,765 49,218 29,269 Due from servicers and investors 21,026 1,657 - Inter-segment receivables 980,948 132 1,014 Unsettled trades 75,000 - - Other assets 24,456 52,002 4,239 -------------------------------------- Total assets $4,407,477 $1,293,719 $ 38,133 ====================================== Liabilities Deposits $2,592,358 $ - $ - Other borrowed funds 1,436,073 70,765 20 Inter-segment payables 263,052 750,469 1,267 Subordinated debt - - - Accrued interest payable 9,004 652 - Loans in process - 47,937 - Representations and warranties - 22,031 - Accounts payable and accrued liabilities 23,911 113,669 4,240 -------------------------------------- Total liabilities 4,324,398 1,005,523 5,527 -------------------------------------- Minority interests in affiliates - 519 - 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 income (loss), net of tax - - - Treasury stock, at cost (6,583 and 5,831 shares, respectively) - - - Unearned compensation - - - Allocated equity 83,079 287,677 32,606 -------------------------------------- Total shareholders' equity 83,079 287,677 32,606 -------------------------------------- Total liabilities, minority interests and shareholders' equity $4,407,477 $1,293,719 $ 38,133 ====================================== NetBank, Inc. Condensed Consolidated Balance Sheet As of March 31, (Unaudited and in 000's except per share data) 2005 2004 ------------------------ ------------ Other/ NetBank, NetBank, Eliminations Inc. Inc. ------------------------- ------------ Assets Cash and cash equivalents: Cash and due from banks $ (683) $ 144,933 $ 160,919 Federal funds sold - 23,695 27,664 ------------------------- ----------- Total cash and cash equivalents (683) 168,628 188,583 Investment securities available for sale, at fair value - 741,108 301,960 Stock of Federal Home Loan Bank of Atlanta-at cost - 71,054 56,711 Loans held for sale (18) 1,119,856 1,374,553 Loan and lease receivables-net of allowance for losses (4,837) 2,122,998 2,038,582 Mortgage servicing rights - 210,253 156,624 Accrued interest receivable - 12,259 10,767 Furniture, equipment and capitalized software 2,206 49,115 53,315 Goodwill and other intangibles 265 80,517 65,330 Due from servicers and investors - 22,683 32,125 Inter-segment receivables (982,094) - - Unsettled trades - 75,000 13,740 Other assets 847 81,544 79,662 ------------------------- ----------- Total assets $ (984,314) $4,755,015 $4,371,952 ========================= =========== Liabilities Deposits $ (870) $2,591,488 $2,644,171 Other borrowed funds - 1,506,858 1,071,648 Inter-segment payables (1,014,788) - - Subordinated debt 32,477 32,477 11,857 Accrued interest payable 197 9,853 9,404 Loans in process - 47,937 53,880 Representations and warranties - 22,031 18,465 Accounts payable and accrued liabilities (228) 141,592 128,940 ------------------------- ----------- Total liabilities (983,212) 4,352,236 3,938,365 ------------------------ ----------- Minority interests in affiliates - 519 - 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 432,132 432,132 431,920 Retained earnings 40,553 40,553 52,555 Accumulated other comprehensive income (loss), net of tax (6,738) (6,738) 4,992 Treasury stock, at cost (6,583 and 5,831 shares, respectively) (64,020) (64,020) (56,056) Unearned compensation (195) (195) (352) Allocated equity (403,362) - - ------------------------- ----------- Total shareholders' equity (1,102) 402,260 433,587 ------------------------- ----------- Total liabilities, minority interests and shareholders' equity $ (984,314) $4,755,015 $4,371,952 ========================= =========== *T -0- *T NetBank, Inc. Consolidated Selected Financial and Operating Data (Unaudited and in 000's except per share data) Quarter Ended March 31, December 31, March 31, ------------- ------------- ------------- 2005 2004 2004 ------------- ------------- ------------- Consolidated: Net income (loss) $ (2,029) $ (17,656) $ 9,394 Total assets $ 4,755,015 $ 4,622,181 $ 4,371,952 Total equity $ 402,260 $ 414,027 $ 433,587 Shares outstanding 46,237 46,528 46,990 Return on average equity -1.99% -16.59% 8.70% Return on average assets -0.17% -1.48% 0.84% Book value per share $ 8.70 $ 8.90 $ 9.23 Tangible book value per share $ 6.96 $ 7.20 $ 7.84 NetBank, FSB: Deposits $ 2,592,680 $ 2,642,288 $ 2,644,608 Customers 270,898 270,427 274,018 Estimated Capital Ratios: Tier 1 (core) capital ratio 6.42% 6.73% 6.63% Total risk-based capital ratio 10.93% 11.30% 12.23% Asset quality numbers: CMC lease portfolio $ 31,294 $ 31,527 $ 77,835 Non-performing loan and lease receivables 5,789 5,518 3,583 ------------- ------------- ------------- Total non-performing loan and lease receivables 37,083 37,045 81,418 Non-performing loans held for sale (1) 36,443 36,253 21,680 ------------- ------------- ------------- Total non-performing loans and leases 73,526 73,298 103,098 Other real estate owned (2) 6,330 5,799 3,839 ------------- ------------- ------------- Total non-performing assets $ 79,856 $ 79,097 $ 106,937 Allowance for credit losses (ALLL) $ 25,075 $ 24,461 $ 44,591 Net (charge-offs) of loan and lease receivables $ (1,738) $ (51,639) $ (945) Asset quality ratios: Total non-performing assets / average assets 1.72% 1.66% 2.38% ALLL / total non- performing loan and lease receivables 67.62% 66.03% 54.77% Net annualized charge- offs / total assets 0.15% 4.47% 0.09% Mortgage Banking: Production Activity: Retail $ 637,522 $ 613,313 $ 563,165 Correspondent 859,109 1,075,388 1,271,034 Wholesale 608,546 627,019 847,762 RMS 41,249 33,694 48,877 ------------- ------------- ------------- Total Agency-eligible 2,146,426 2,349,414 2,730,838 Non-conforming 630,183 772,451 527,928 ------------- ------------- ------------- Total $ 2,776,609 $ 3,121,865 $ 3,258,766 ============= ============= ============= Sales Activity: Third-party sales $ 2,722,062 $ 3,106,956 $ 3,478,133 Sales to the retail bank 38,401 56,918 293,370 ------------- ------------- ------------- Total sales $ 2,760,463 $ 3,163,874 $ 3,771,503 ============= ============= ============= Pipeline: Locked mortgage loan pipeline $ 917,450 $ 754,876 $ 1,678,698 Mortgage application pipeline 3,169,196 2,709,891 4,067,125 ------------- ------------- ------------- Total pipeline $ 4,086,646 $ 3,464,767 $ 5,745,823 ============= ============= ============= UPB of loans serviced: $18,698,781 $16,706,702 $17,581,242 (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) Other real estate owned is carried at net realizable value. *T