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 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 $2.3 million last quarter. As interest rates moved higher, prepayment speed expectations lessened and promoted higher valuations for mortgage servicing rights. Based on these improving fundamentals, the company was able to recover a portion of prior impairment expenses. Table 1 -0- *T RETAIL BANKING ($ 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 $309 million, providing the lending operations with better leverage over their expenses. Table 2 -0- *T FINANCIAL INTERMEDIARY ($ 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 $400,000 or 44% on a quarter-over-quarter basis. The decline is comprised of two primary components. One, the servicing factory recorded additional provision on a limited number of aging items. Two, revenue within our ATM and merchant processing business fell because of seasonally lighter transaction volumes and hurricane-related disruptions. Our machines, along with those of other providers, were affected by connectivity issues following the widespread power and telephone outages in the hardest hit regions of the Gulf Coast. We expect both of these trends to reverse going forward. Table 3 -0- *T TRANSACTION PROCESSING ($ 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. -0- *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