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 year ended December 31, 2005. Net income during the fourth quarter totaled $895,000 or $.02 per share, compared with a net loss of $17.7 million or $.38 per share during the same quarter a year ago. The company recorded a net loss of $180,000 or $.00 per share for the full year, compared with net income of $4.2 million or $.09 per share for 2004. Key points to consider in analyzing year-over-year results include: -- Further Traction Within the Retail Banking Segment. The retail banking segment contributed pre-tax income of $19.1 million, compared with a pre-tax loss of $11.1 million a year ago, which included a $29.0 million Commercial Money Center (CMC) provision. -- Negative Mortgage Performance. The company's conforming and non-conforming mortgage operations reported pre-tax losses of $7.0 million and $10.8 million respectively, compared with pre-tax income of $7.2 million and $13.9 million respectively. The decline in profitability within both channels was due mainly to competitive margin pressure, not production volumes. -- Earning Asset Growth. The bank's average earning assets rose to $4.6 billion, representing an increase of $214 million or 4.9%. -- Capital Constraints. The mortgage-related losses hindered the company's ability to generate additional capital through retained earnings. As a result, management was unable to further leverage the bank's balance sheet toward its target of $6.0 billion in assets or to fund other key strategic initiatives. -- Customer and Deposit Growth: Total customers grew to 285,669, representing an increase of 15,242 or 5.6%, while deposits rose to $2.8 billion, up $154 million or 5.8%. During the year, the company repurchased 571,391 shares of its common stock at a weighted average share price of $9.07. Management has approval to buy up to 1,092,573 additional shares under standing authorizations from the board. No shares were repurchased during the fourth quarter. Following the close of the quarter, the company's board of directors declared a cash dividend of $.02 per share. The dividend is payable to shareholders of record on February 20, 2006, and will be disbursed on March 15, 2006. Management Commentary "Last year proved especially challenging for us and others in the industry," said Douglas K. Freeman, chairman and chief executive officer. "As we had reported throughout the year, our mortgage operations were under pressure due to a highly competitive pricing environment. This pressure, although not surprising, was simply more irrational than anticipated, particularly within the non-conforming business where our revenue margins dropped an average of 64 basis points during the year. Our mortgage operations went from a positive pre-tax contribution of $21.1 million a year ago to a pre-tax loss of $17.7 million this year. That's a $38.8 million swing in profitability. "Several other macro issues also impacted the bank's performance. One, the flat yield curve took a toll on our interest spread, which fell 23 basis points over the course of the year. Two, we continue to see a number of new entrants in the online banking space who are advertising extremely aggressive rates to attract deposits. So, we faced the dilemma of optimizing the trade-off between interest spread and customer growth. "In spite of these challenges, we continued to make real progress toward diversifying the company's income and reducing its overall dependency on mortgage earnings. The mere fact we were able to offset the $17.7 million pre-tax loss in our mortgage operations and keep bottom line performance at the breakeven level speaks directly to how far we have come in the past few years." Banking Segment Performance Table 1 below details results in the company's banking segment. The segment recorded pre-tax income of $10.6 million, an increase of $8.1 million from the previous quarter. The improvement is comprised of two factors. One, bank marketing expenses returned to more normal levels following a peak in the third quarter when several promotional campaigns converged. This drop is reflected in the $1.6 million decrease in the segment expense line. Two, net servicing results generated $6.7 million in income. This positive performance was based on an improving environment for mortgage servicing right valuations, which resulted in the recovery of prior impairment expenses. -0- *T Table 1 RETAIL BANKING ($ in 000s, Unaudited) 2005 2005 4th Qtr 3rd Qtr Change ------------ ------------ ---------- Net interest income $ 23,205 $ 23,094 $ 111 Provision for credit losses 3,645 2,646 999 ----------- ----------- --------- Net interest income after provision 19,560 20,448 (888) Gain on sales of loans 333 - 333 Fees, charges and other income 3,600 3,663 (63) ----------- ----------- --------- Total revenues 23,493 24,111 (618) Total expenses 19,617 21,168 (1,551) ----------- ----------- --------- Pre-tax income before net servicing results 3,876 2,943 933 Net servicing results 6,683 (446) 7,129 ----------- ----------- --------- Pre-tax income $ 10,559 $ 2,497 $ 8,062 =========== =========== ========= Average earning assets $ 4,741,288 $ 4,832,728 $ (91,440) Average unpaid principal balance (UPB) underlying MSRs $13,440,944 $13,976,998 $(536,054) Operations to average earning assets Net interest income after provision 1.65% 1.69% (0.04%) Gain on sale, fees, charges and other income 0.33% 0.30% 0.03% ----------- ----------- --------- Banking revenues 1.98% 1.99% (0.01%) Total expenses 1.65% 1.75% (0.10%) ----------- ----------- --------- Pre-tax income before net servicing results 0.33% 0.24% 0.09% =========== =========== ========= Net servicing results to average UPB underlying MSRs 0.20% (0.01%) 0.21% *T Additional banking segment highlights appear below. All comparisons are on a sequential quarter basis unless noted otherwise. -- Total deposits fell to $2.8 billion, a decrease of $212 million or 7.0%. The decline was centered in brokered certificate of deposit funds. Management elected to let these funds run off based on the availability of more attractive funding sources. -- Our business finance operation reported pre-tax income of $2.7 million, a decrease of $571,000 or 17.7%. Results were affected by increased provision expenses of $625,000 related to a few problem credits and higher production volumes. Production set a new quarterly record of $56.6 million. -- Pre-tax income from our auto lending operation fell to $80,000, a drop of $92,000 or 53.5%. The operation experienced a spike in defaults in advance of the more stringent bankruptcy laws that went into effect during the quarter. The company recorded $308,000 in charge-offs attributable to this change. Management continues to moderate the channel's production based on the company's current balance sheet needs. Quarterly production totaled $74.8 million, a decrease of $43.7 million or 36.9%. Financial Intermediary Segment Performance Table 2 below details results in the company's financial intermediary segment. The segment recorded a pre-tax loss of $7.9 million, compared with a pre-tax loss of $3.9 million in the previous quarter. Total production was off by $498 million or 13.2% to $3.3 billion. Sales declined to $3.4 billion, a decrease of $330 million or 8.9%. The segment's pre-tax margin totaled a negative 27 basis points (bps). Most of the loss for the segment was centered in the non-conforming channel, which experienced significant pricing pressure throughout the quarter. Non-conforming results went from pre-tax income of $301,000 last quarter to a pre-tax loss of $5.3 million this quarter. This change was driven by a 78 bps drop in the non-conforming revenue margin. -0- *T Table 2 FINANCIAL INTERMEDIARY ($ in 000s, Unaudited) 2005 2005 4th Qtr 3rd Qtr Change ----------- ----------- ---------- Net interest income $ 5,032 $ 6,901 $ (1,869) Gain on sales of loans 26,805 27,034 (229) Other income 905 683 222 Net Beacon credit services results (73) (303) 230 Net MG Reinsurance results 848 812 36 ---------- ---------- --------- Total revenues 33,517 35,127 (1,610) Salary and employee benefits 23,986 21,776 2,210 Occupancy and depreciation expense 7,719 7,987 (268) Other expenses 9,686 9,281 405 ---------- ---------- --------- Total expenses 41,391 39,044 2,347 ---------- ---------- --------- Pre-tax loss $ (7,874) $ (3,917) $ (3,957) ========== ========== ========= Production $3,266,622 $3,764,981 $(498,359) Sales (includes intercompany sales) $3,358,508 $3,688,402 $(329,894) Total revenues to sales 1.00% 0.95% 0.05% Total expenses to production 1.27% 1.04% 0.23% ---------- ---------- --------- Pre-tax margin (0.27%) (0.09%) (0.18%) ========== ========== ========= *T Additional financial intermediary segment highlights appear below. All comparisons are on a sequential quarter basis unless noted otherwise. -- Conforming mortgage production totaled $2.5 billion, a decrease of $422 million or 14.7%. Conforming sales slowed to $2.5 billion, a decline of $297 million or 10.5%. -- Non-conforming production totaled $807 million, a decrease of $76.1 million or 8.6%. Non-conforming sales slowed to $815 million, a decline of $32.8 million or 3.9%. Transaction Processing Segment Performance Table 3 below details results in the company's transaction processing segment. Pre-tax income totaled $704,000, an increase of $205,000 from the previous quarter. The increase was centered in the servicing factory where income was up 39.6%. -0- *T Table 3 TRANSACTION PROCESSING ($ in 000s, Unaudited) 2005 2005 4th Qtr 3rd Qtr Change ------- ------- ------ Total revenue $6,822 $6,634 $188 Total expenses 6,118 6,135 (17) ------ ------ ---- Pre-tax income $ 704 $ 499 $205 ====== ====== ==== *T Additional transaction processing segment highlights appear below. All comparisons are on a sequential quarter basis unless noted otherwise. -- The ATM and merchant processing operation acquired the servicing rights to more than 1,100 new machines in November 2005. The company's network of ATMs now stands at 9,649, an increase of 1,204 or 14.3%. First Quarter Earnings Outlook The company's first quarter results are presently tracking below current quarter earnings. The banking and mortgage businesses are showing only slight improvements relative to the results reported today. Although pricing pressures within the mortgage industry appear to be easing, any improvement in margins will affect new production and be recorded in mostly subsequent quarters as this production is delivered into the capital markets. The material difference between the two quarters will likely occur within the servicing asset. The servicing asset contributed pre-tax income of $6.7 million in the current quarter based mainly on the recovery of prior impairment expenses. Based on present market conditions, the servicing asset is not likely to generate a recovery in the first quarter. Given the volatile nature of the servicing asset, the potential for negative servicing results also exists as a significant risk. Current analyst estimates for the first quarter range from a loss of $.01 to income of $.08 per share. Management believes this range is too optimistic given the outlook provided above. 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 intra-quarter. The monthly report is published directly to the Web site around the 20th of the following 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 10 a.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: 888-568-0906 *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: Management's belief that first quarter 2006 results are tracking below fourth quarter 2005 earnings; 2) performance in the banking and mortgage segments is showing slight improvement today compared with performance in fourth quarter 2005; and 3) the likelihood that net servicing results will not include the benefit of an impairment expense recovery in the first quarter of 2006. 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 Year Ended December 31, (Unaudited and in 000's except per share data) 2005 --------------------------------- Retail Financial Transaction banking intermediary processing ---------------------------------- --------- ------------ ----------- Interest income: Loans and leases $112,096 $102,790 $ 34 Investment securities 35,081 4 - Short-term investments 1,686 454 - Inter-segment 76,217 2,626 (94) ---------------------------------- -------- -------- ------- Total interest income 225,080 105,874 (60) Interest expense: Deposits 70,483 - - Other borrowed funds 54,339 6,251 32 Inter-segment 8,881 70,963 6 ---------------------------------- -------- -------- ------- Total interest expense 133,703 77,214 38 ---------------------------------- -------- -------- ------- Net interest income 91,377 28,660 (98) Provision for credit losses 10,943 104 - ---------------------------------- -------- -------- ------- Net interest income after provision for credit losses 80,434 28,556 (98) Non-interest income: Mortgage servicing fees 42,037 3,875 5,430 Amortization of MSRs (45,036) (353) - Recovery (impairment) of MSRs 14,055 - - (Loss) gain on derivatives (841) (39) - Gain on sales of investment securities 4,675 - - Service charges and fees 10,852 50 9,668 Gain on sales of loans and MSRs 834 109,347 - Other income 3,520 2,995 3,734 Intersegment servicing/processing fees - - 14,135 ---------------------------------- -------- -------- ------- Total non-interest income 30,096 115,875 32,967 Non-interest expense: Salaries and benefits 21,109 92,099 9,500 Customer service 12,154 7 1,442 Marketing costs 7,232 5,494 279 Data processing 10,330 4,878 2,356 Depreciation and amortization 8,252 11,243 3,692 Office expenses 3,358 6,652 2,485 Occupancy 4,175 19,236 1,427 Travel and entertainment 745 4,350 573 Professional fees 2,951 9,968 2,258 Prepaid lost interest from curtailments 4,234 55 - Other 6,535 2,202 5,741 Inter-segment servicing/processing fees 10,355 3,780 - ---------------------------------- -------- -------- ------- Total non-interest expense 91,430 159,964 29,753 ---------------------------------- -------- -------- ------- Income before income taxes $ 19,100 $(15,533) $ 3,116 ======== ======== ======= 2005 2004 ------------------------ -------- Other / Consolidated Consolidated eliminations NetBank, Inc. NetBank, Inc. ------------ ------------- ------------- Interest income: Loans and leases $ 970 $ 215,890 $210,260 Investment securities - 35,085 20,838 Short-term investments - 2,140 1,065 Inter-segment (78,749) - - ---------------------------- -------- --------- -------- Total interest income (77,779) 253,115 232,163 Interest expense: Deposits - 70,483 47,044 Other borrowed funds 1,949 62,571 45,573 Inter-segment (79,850) - - ---------------------------- -------- --------- -------- Total interest expense (77,901) 133,054 92,617 ---------------------------- -------- --------- -------- Net interest income 122 120,061 139,546 Provision for credit losses - 11,047 34,777 ---------------------------- -------- --------- -------- Net interest income after provision for credit losses 122 109,014 104,769 Non-interest income: Mortgage servicing fees - 51,342 51,015 Amortization of MSRs - (45,389) (39,298) Recovery (impairment) of MSRs - 14,055 (7,305) (Loss) gain on derivatives - (880) 4,785 Gain on sales of investment securities - 4,675 7,780 Service charges and fees - 20,570 17,568 Gain on sales of loans and MSRs 858 111,039 115,574 Other income (372) 9,877 10,629 Intersegment servicing/processing fees (14,135) - - ---------------------------- -------- --------- -------- Total non-interest income (13,649) 165,289 160,748 Non-interest expense: Salaries and benefits 2,466 125,174 125,864 Customer service 29 13,632 12,530 Marketing costs 229 13,234 9,255 Data processing 1 17,565 18,705 Depreciation and amortization 406 23,593 20,024 Office expenses 137 12,632 11,331 Occupancy 97 24,935 21,896 Travel and entertainment 178 5,846 5,245 Professional fees 2,637 17,814 16,370 Prepaid lost interest from curtailments - 4,289 5,356 Other 613 15,091 12,611 Inter-segment servicing/processing fees (14,135) - - ---------------------------- -------- --------- -------- Total non-interest expense (7,342) 273,805 259,187 ---------------------------- -------- --------- -------- Income before income taxes $ (6,185) 498 6,330 ======== Income tax expense (678) (2,110) --------- -------- Net (loss) income $ (180) $ 4,220 ========= ======== Net (loss) income per common and potential common shares outstanding: Basic $ (0.00) $ 0.09 Diluted $ (0.00) $ 0.09 Weighted average common and potential common shares outstanding: Basic 46,193 46,862 Diluted 46,193 47,214 NetBank, Inc. Consolidated Statements of Operations For the Three Months Ended December 31, (Unaudited and in 000's except per share data) 2005 ---------------------------------------------- Retail Financial Transaction Other / banking intermediary processing eliminations --------------------- --------- ------------ ----------- ------------ Interest income: Loans and leases $ 29,289 $ 27,352 $ 7 $ 191 Investment securities 8,915 1 - - Short-term investments 432 151 - - Inter-segment 23,791 75 (74) (23,792) --------------------- -------- ----------- ---------- ----------- Total interest income 62,427 27,579 (67) (23,601) Interest expense: Deposits 21,491 - - - Other borrowed funds 15,528 614 - 593 Inter-segment 2,290 21,706 - (23,996) --------------------- -------- ----------- ---------- ----------- Total interest expense 39,309 22,320 - (23,403) --------------------- -------- ----------- ---------- ----------- Net interest income 23,118 5,259 (67) (198) Provision for credit losses 3,645 13 - - --------------------- -------- ----------- ---------- ----------- Net interest income after provision for credit losses 19,473 5,246 (67) (198) Non-interest income: Mortgage servicing fees 10,298 943 1,355 - Amortization of MSRs (10,556) 40 - - Recovery of MSRs 10,831 - - - Loss on derivatives (731) - - - Gain on sales of investment securities 493 - - - Service charges and fees 2,803 13 2,615 - Gain on sales of loans and MSRs 333 27,624 - 260 Other income 832 669 708 (91) Intersegment servicing/processing fees - - 3,653 (3,653) --------------------- -------- ----------- ---------- ----------- Total non-interest income 14,303 29,289 8,331 (3,484) Non-interest expense: Salaries and benefits 5,215 24,632 2,515 163 Customer service 3,335 - 171 10 Marketing costs 1,900 1,520 55 62 Data processing 2,576 1,363 520 1 Depreciation and amortization 2,061 2,827 943 69 Office expenses 700 1,794 700 16 Occupancy 1,194 4,949 352 29 Travel and entertainment 210 1,211 159 43 Professional fees 694 2,589 648 607 Prepaid lost interest from curtailments 937 7 - - Other 1,706 553 1,497 579 Inter-segment servicing/processing fees 2,689 964 - (3,653) --------------------- -------- ----------- ---------- ----------- Total non-interest expense 23,217 42,409 7,560 (2,074) --------------------- -------- ----------- ---------- ----------- Income (loss) before income taxes $ 10,559 $ (7,874) $ 704 $ (1,608) ======== =========== ========== =========== 2005 2004 ----------- -------- Consolidated Consolidated NetBank, NetBank, Inc. Inc. --------------------------------------------------------- ------------ Interest income: Loans and leases $ 56,839 $ 50,158 Investment securities 8,916 7,270 Short-term investments 583 381 Inter-segment - - --------------------------------------------- -------- -------- Total interest income 66,338 57,809 Interest expense: Deposits 21,491 12,680 Other borrowed funds 16,735 11,948 Inter-segment - - --------------------------------------------- -------- -------- Total interest expense 38,226 24,628 --------------------------------------------- -------- -------- Net interest income 28,112 33,181 Provision for credit losses 3,658 30,795 --------------------------------------------- -------- -------- Net interest income after provision for credit losses 24,454 2,386 Non-interest income: Mortgage servicing fees 12,596 12,957 Amortization of MSRs (10,516) (10,876) Recovery of MSRs 10,831 3,083 Loss on derivatives (731) (945) Gain on sales of investment securities 493 2,363 Service charges and fees 5,431 4,516 Gain on sales of loans and MSRs 28,217 21,606 Other income 2,118 1,624 Intersegment servicing/processing fees - - --------------------------------------------- -------- -------- Total non-interest income 48,439 34,328 Non-interest expense: Salaries and benefits 32,525 31,052 Customer service 3,516 3,123 Marketing costs 3,537 2,281 Data processing 4,460 4,817 Depreciation and amortization 5,900 5,310 Office expenses 3,210 2,922 Occupancy 6,524 5,619 Travel and entertainment 1,623 1,583 Professional fees 4,538 5,651 Prepaid lost interest from curtailments 944 1,182 Other 4,335 1,820 Inter-segment servicing/processing fees - - --------------------------------------------- -------- -------- Total non-interest expense 71,112 65,360 --------------------------------------------- -------- -------- Income (loss) before income taxes 1,781 (28,646) Income tax (expense) benefit (886) 10,990 -------- -------- Net income (loss) $ 895 $(17,656) ======== ======== Net income (loss) per common and potential common shares outstanding: Basic $ 0.02 $ (0.38) Diluted $ 0.02 $ (0.38) Weighted average common and potential common shares outstanding: Basic 46,168 46,563 Diluted 46,480 46,563 NetBank, Inc. Condensed Consolidated Balance Sheet As of December 31, (Unaudited and in 000's except per share data) 2005 ------------------------------------------------- Retail Financial Transaction Other & Banking Intermediary Processing Eliminations ----------- ------------ ----------- ------------- Assets Cash and cash equivalents: Cash and due from banks $ 88,937 $ 42,088 $ 424 $ (4,783) Cash equivalents and fed funds 8,270 14,073 1,247 - ---------- ---------- ------- ----------- Total cash, cash equivalents and fed funds 97,207 56,161 1,671 (4,783) Investment securities available for sale-at fair value 626,075 2 - - Stock of Federal Home Loan Bank of Atlanta-at cost 67,049 - - - Loans held for sale 2,123 1,231,810 - (15) Loan and lease receivables-net of allowance for losses of $27,601 and $24,462, respectively 2,191,580 35,636 - (2,853) Mortgage servicing rights 201,097 783 - - Accrued interest receivable 10,031 6,667 - - Furniture, equipment and capitalized software 19,144 31,579 1,631 2,066 Goodwill and other intangibles 1,311 49,512 34,009 265 Due from servicers and investors 22,857 3,700 - - Inter-segment receivables 1,210,877 704 1,598 (1,213,179) Other assets 36,757 44,995 6,887 (3,335) ---------- ---------- ------- ----------- Total assets $4,486,108 $ 1,461,549 $ 45,796 $ (1,221,834) ========== ========== ======= =========== Liabilities Deposits $2,798,997 $ - $ - $ (5,150) Other borrowed funds 1,348,240 - - - Inter-segment payables 212,620 1,012,291 7,868 (1,232,779) Subordinated debt - - - 32,477 Accrued interest payable 17,311 33 - 251 Loans in process - 34,060 - - Unsettled Trades - - - - Representations and warranties - 20,668 - - Accounts payable and accrued liabilities 33,545 85,605 6,327 (1,600) ---------- ---------- ------- ----------- Total liabilities 4,410,713 1,152,657 14,195 (1,206,801) ---------- ---------- ------- ----------- Minority interests in affiliates - 676 - - 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 Additional paid-in capital - - - 432,140 Retained earnings - - - 39,005 Accumulated other comprehensive loss, net of tax - - - (7,965) Treasury stock, at cost (6,424 and 6,292 shares, respectively) - - - (62,276) Unearned compensation - - - (1,253) Allocated equity 75,395 308,216 31,601 (415,212) ---------- ---------- ------- ----------- Total shareholders' equity 75,395 308,216 31,601 (15,033) ----------- ------------ ----------- ------------- Total liabilities, minority interests and shareholders' equity $4,486,108 $ 1,461,549 $ 45,796 $ (1,221,834) ========== ========== ======= =========== 2005 2004 ------------ ---------- NetBank, NetBank, Inc. Inc. ------------ ------------ Assets Cash and cash equivalents: Cash and due from banks $ 126,666 $ 129,319 Cash equivalents and fed funds 23,590 20,983 ---------- ---------- Total cash, cash equivalents and fed funds 150,256 150,302 Investment securities available for sale-at fair value 626,077 700,295 Stock of Federal Home Loan Bank of Atlanta- at cost 67,049 60,128 Loans held for sale 1,233,918 1,173,779 Loan and lease receivables-net of allowance for losses of $27,601 and $24,462, respectively 2,224,363 2,095,832 Mortgage servicing rights 201,880 172,819 Accrued interest receivable 16,698 11,513 Furniture, equipment and capitalized software 54,420 51,438 Goodwill and other intangibles 85,097 79,195 Due from servicers and investors 26,557 52,441 Inter-segment receivables - - Other assets 85,304 74,439 ---------- ---------- Total assets $ 4,771,619 $ 4,622,181 ========== ========== Liabilities Deposits $ 2,793,847 $ 2,639,441 Other borrowed funds 1,348,240 1,311,491 Inter-segment payables - - Subordinated debt 32,477 11,857 Accrued interest payable 17,595 10,309 Loans in process 34,060 27,820 Unsettled trades - 50,543 Representations and warranties 20,668 22,676 Accounts payable and accrued liabilities 123,877 133,562 ---------- ---------- Total liabilities 4,370,764 4,207,699 ---------- ---------- Minority interests in affiliates 676 455 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 Additional paid-in capital 432,140 432,132 Retained earnings 39,005 43,849 Accumulated other comprehensive loss, net of tax (7,965) (1,136) Treasury stock, at cost (6,424 and 6,292 shares, respectively) (62,276) (61,087) Unearned compensation (1,253) (259) Allocated equity - - ---------- ---------- Total shareholders' equity 400,179 414,027 ------------ ------------ Total liabilities, minority interests and shareholders' equity $ 4,771,619 $ 4,622,181 ========== ========== NetBank, Inc. Consolidated Selected Financial and Operating Data (Unaudited and in 000's except per share data) Quarter Ended December 31, September 30, December 31, ------------ ------------ ------------ 2005 2005 2004 ----------- ----------- ----------- Consolidated: Net income (loss) $ 895 $ (1,371) $ (17,656) Total assets $ 4,771,619 $ 5,115,313 $ 4,622,181 Total equity $ 400,179 $ 401,783 $ 414,027 Shares outstanding 46,396 46,358 46,528 Return on average equity 0.89% (1.35%) (16.59%) Return on average assets 0.07% (0.11%) (1.48%) Book value per share $ 8.63 $ 8.67 $ 8.90 Tangible book value per share $ 6.79 $ 6.92 $ 7.20 NetBank, FSB: Deposits $ 2,796,029 $ 3,007,928 $ 2,642,288 Customers 285,669 282,575 270,427 Estimated Capital Ratios: Tier 1 core capital ratio 6.51% 6.09% 6.73% Total risk-based capital ratio 10.32% 10.21% 11.30% Asset quality numbers: CMC Lease portfolio $ 26,054 $ 26,435 $ 31,527 Non-performing loan and lease receivables 6,995 6,481 5,518 ----------- ----------- ----------- Total non-performing loan and lease receivables 33,049 32,916 37,045 Non-performing loans held for sale (1) 49,255 27,432 36,253 ----------- ----------- ----------- Total non-performing loans and leases 82,304 60,348 73,298 Repossessed assets (2) 8,200 7,963 5,799 ----------- ----------- ----------- Total non-performing assets $ 90,504 $ 68,311 $ 79,097 Allowance for credit losses (ALLL) $ 27,601 $ 26,730 $ 24,461 Net charge-offs of loan and lease receivables $ (2,786) $ (1,770) $ (51,639) Asset quality ratios: Total non-performing assets / average assets 1.78% 1.35% 1.66% ALLL / total non-performing loan and lease receivables 83.52% 81.21% 66.03% Net annualized charge-offs / total assets 0.23% 0.14% 4.47% Mortgage Banking: Production Activity: Retail $ 934,184 $ 1,089,137 $ 613,313 Correspondent 904,354 1,025,626 1,075,388 Wholesale 568,789 692,828 627,019 RMS 52,185 74,180 33,694 ----------- ----------- ----------- Total Agency-eligible 2,459,512 2,881,771 2,349,414 Non-conforming 807,110 883,210 772,451 ----------- ------------ ----------- Total $ 3,266,622 $ 3,764,981 $ 3,121,865 =========== ============ =========== Sales Activity: Third party sales $ 3,302,059 $ 3,631,112 $ 3,106,956 Intercompany sales 56,449 57,290 56,918 ----------- ----------- ----------- Total sales $ 3,358,508 $ 3,688,402 $ 3,163,874 =========== =========== =========== Pipeline: Locked conforming mortgage loan pipeline $ 929,205 $ 1,053,315 $ 754,876 UPB of loans serviced: $17,107,575 $18,470,922 $16,706,702 (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