Monday, October 2, 2006

More on NetBank

A previous post about my reasons for withdrawing my money from NetBank created a bit of a buzz among personal finance bloggers. Mostly, people wanted to know where I get my information about NetBank's financial condition from. I get it from NetBank (Nasdaq: NTBK) press releases and Securities and Exchange Commission (SEC) filings.

From NetBank's previous releases and other information available at their website, I can discern the following facts:
1) NetBank lost $11 million in the first quarter of 2006.
2) NetBank lost $31.4 million in the second quarter of 2006.
3) NetBank has stopped paying its shareholder dividend saying that they need "to protect the company's capital base and tangible book value from further erosion."
4) Most people know that money market interest rates at most banks have increased significantly in the past year. However, NetBank has not increased their MM rates since January 2006.

On September 25, NetBank filed a Form 8-K with the SEC. This covers their monthly financial data for the past year. This report shows that NetBank's deposits (assets) have been steadily declining over the last year. This means that people (like me) have been taking their money out of NetBank.

Regarding NetBank's dismal interest rates, I have copied this quote from the 8-K:

The online marketplace for deposits remains hypercompetitive. A number of providers continue to advertise money market rates in excess of the short-term FedFunds rate at 5.25%. Given the current overall rate environment, these rates are difficult to rationalize and likely not sustainable over the long-term. Since [NetBank] cannot invest deposits at such rates profitably, we have not matched them.

It stops a little bit short of saying that NetBank won't ever increase their interest rates. But it does look like NetBank is not even trying to compete with other online banks anymore. NetBank is currently paying a 2.9% APY on their money markets for existing customers. And they are pretty much admitting here that some of their competition is paying a lot more in interest.

The NetBank 8-K filing has already forecast that they will continue to lose money in the third quarter of 2006. They talk about selling off parts of the company that they are losing money on. Unfortunately, what is really lacking from the NetBank 8-K report is any type of good news.


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