ATLANTA, May 1, 2006 (PRIMEZONE) -- NetBank, Inc. (Nasdaq:NTBK), a diversified financial services provider and parent company of NetBank(r) (www.netbank.com), today announced a plan to sell its mortgage servicing platform along with most of its portfolio of mortgage servicing rights. The proposed sale is part of management's continuous, proactive capital management program. Management estimates such a sale would likely free up between $20 and $35 million in risk-based capital that the company currently has allocated to its servicing asset. Management would then have the opportunity to redeploy this capital in other business initiatives that it believes can generate higher returns or better serve shareholder interest.
"When we committed to this line of business as part of our overall income diversification strategy for the company, we set a goal of growing the servicing asset to at least the $25 billion mark," said Douglas K. Freeman, chairman and chief executive officer. "Based on our analysis, we needed to reach this minimum level to rationalize our investment and to have the asset serve as an effective macro hedge against our mortgage production network.
"The economic and market environments have changed dramatically since we initiated our plan, and we have not been able to achieve the level of growth in the servicing asset we had anticipated," Freeman added. "Given prevailing business conditions, we have determined the mortgage servicing business no longer represents the best use of our capital.
"Our obligation first and foremost is to create value for our shareholders," Freeman concluded. "Although we will continue to plan for the long-term and persist in the face of short-term operational pressures when it is right to do so, we will also remain flexible and have the conviction to revise our business strategy when it clearly furthers the interest of our shareholders."
Other details or likely results of the proposed sale include:
-- The company has engaged a third-party firm to market the platform
and asset to potential buyers beginning this week. Management
believes a transaction would likely take at least 90 to 120 days
to complete, although any deal is dependent on a number of
factors including the company's ability to receive an offer that
meets management's price expectations.
-- A sale should improve the company's earnings profile. Management
could immediately redeploy available capital in additional
earning asset growth at the bank. This would result in interest
margin expansion and incremental income growth on a carry-forward
basis. A certain level of earnings volatility would also be
eliminated since quarterly servicing results can vary greatly.
Any operational cost savings would generally be offset by the
loss of escrow deposits related to the servicing asset. These
deposits represent an interest-free source of liquidity that
management would likely have to replace with interest-bearing
liabilities.
-- The sale would entail a significant one-time restructuring
charge. However, management would seek to moderate the impact of
the charge on the company's tangible book value. The effect on
tangible book value would be part of management's criteria in
approving any transaction.
-- The company intends to keep a small servicing operation to
service its own mortgage production before it is delivered into
the capital markets. Management may also choose to retain certain
portions of its current servicing portfolio for strategic
purposes or to facilitate a deal.
As of March 31, the company's core servicing asset was comprised of $13.0 billion in loans. Management believes the underlying mortgage servicing platform could be scaled up to the $35.0 billion mark almost immediately using the operation's existing facility and infrastructure.
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) A sale of the mortgage servicing asset freeing up between $20 to $35 million in capital; 2) Management's ability to generate higher returns or better serve shareholder interest with any available capital; 3) Any sale of the platform or asset occurring within the 90- to 120-day timeframe or at all; 4) A sale leading to an improvement in the company's earnings profile; and 5) A restructuring charge being moderated at the tangible book value level.
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, 2005. 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.