Sunday, August 5, 2007

NetBank Again

On the morning of September 20, 2006, I posted here that I was about to begin the process of withdrawing my money from NetBank and close my account with them. In that post, Sayonara NetBank, I referred to this process as "evacuating my money." There and in subsequent posts on PFStock, I cited deteriorating financial conditions at NetBank as one of my prime reasons for closing out my account. Even then, I conceded that NetBank was not likely to be forced into bankruptcy, but in the event that they did declare bankruptcy, it would be a hassle for depositors to get their funds back from the FDIC.

Let's take a look back over the last ten months at NetBank (Nasdaq: NTBK). On September 20th, the stock closed at $6.10. Today, NTBK trades at a mere $0.22 (and is on the verge of being delisted). And, NTBK recently reached an all-time low of $0.18 (a 97% decline). This decline is not surprising considering NetBank's deteriorating financials. From NetBank's previous press releases and other information available at their website, we can clearly see a series of quarterly losses over the past year. And early last year, NetBank stopped paying its shareholder dividend saying that they needed "to protect the company's capital base and tangible book value from further erosion."

Then on October 3rd, NetBank announced that it would be replacing its CEO. Even before this event, I had speculated that something fishy was going on at NetBank. A worst-case scenario could be that NetBank customers would need to recover their funds from the FDIC if NetBank becomes insolvent. However, I noted that while this is certainly possible, it is not the most likely case. Nevertheless, I asserted that NetBank could no longer remain competitive with other banks in its market space.

According to a more recent NTBK press release dated February 21, 2007, NetBank recorded a net loss of $202 million or $4.36 per share for 2006. This loss of $4.36 per share over the 12-month period is absolutely staggering when you consider that the entire company is only valued at $0.22 a share. Unfortunately, what is really lacking from NetBank's report is any type of good news. To further exacerbate the already existing problems, NTBK has received a notice from the Nasdaq Stock Market that the company's common stock is subject to delisting. NetBank has been delinquent in its regulatory filings because its former independent auditor resigned as of November 9, 2006. Since then, NTBK has been having difficulty bringing a new auditor on board. Again, this cannot be construed as good news.

And, the other shoe dropped on May 21st. NetBank announced that it is selling a substantial portion of what remaining assets it has to privately held EverBank. Here are a couple of statements from the NTBK press release:

The company has been under extreme financial pressure for more than a year due to a difficult mortgage origination market, a flat yield curve environment and other factors. These pressures have resulted in large operating losses that have significantly reduced the company's capital position and prompted heightened regulatory oversight.


Regulators have been increasingly concerned about the bank's capital and earnings trends and advised management to find an alternative immediately that covered all of the bank's deposit obligations.

Doesn't this seem to imply that the aforementioned "regulators" forced NetBank to essentially liquidate its remaining assets in order to protect depositors' money? And the NTBK stock price has reacted very negatively to these developments.

So, what is left of NetBank? According to NetBank CEO, Steven F. Herbert, "Our remaining businesses will include our mortgage servicing operation, along with our retail prime mortgage franchise, Market Street Mortgage." My interpretation is that there won't be anything left of the online banking operation, after EverBank takes its share. So substantially I can say that as you and I know it, the online bank, NetBank is no more!

Further reading:
The Decline and Fall of Internet-only Banks
Unprofitable and Unstable, NetBank Ousts its CEO
More on NetBank
NetBank's Demise


This article was originally published on April 15, 2007. It is being republished today due to previous posting problems. It has been updated.


Anonymous said...


Jacksonville, FL - EverBank®, one of the nation's largest privately-held financial services firms, announced today it has reached an agreement that will increase its asset base to approximately $7 billion, its deposit base to approximately
$6 billion, and its customer base to over 550,000 through the acquisition of NetBank's direct banking and small business financing divisions and intended purchase of NetBank's mortgage servicing portfolio.

Unknown said...

How long will it take to shutdown NetBank? They agreed to sell their banking branch on May 21st and were supposed to close around the 1st of July! What's taking so long!

pfstock said...

That is a good question. You probably know as much as I do. I have looked at the NetBank and EverBank websites, and they don't seem to have any additional information other than giving the late June or early July time frame that you mentioned. Obviously, this information is now outdated.