"People who are branching, in my opinion, don't know what they're doing,"
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NetBank climbs to No. 6
14 percent jump in deposits helps it pass BB&T
Jill Lerner
Staff writer
While other Atlanta banks are feverishly opening branches to lure new customers, NetBank Inc. (Nasdaq: NTBK) appears to be having success with just the opposite strategy.
The Internet-based bank -- which has no physical branches -- grew deposits by more than 14 percent for the 12-month period ended June 30.
During the same time period, total bank deposits in the Atlanta metropolitan statistical area grew a more modest 6.4 percent -- even though the number of branches grew 8.4 percent to 1,312.
"People who are branching, in my opinion, don't know what they're doing," said Douglas Freeman, chairman and CEO of NetBank.
Without any branches, NetBank, founded in 1996, has grown to become the sixth-largest bank in metro Atlanta.
For the year ended June 30, NetBank's deposits in metro Atlanta increased to $2.4 billion from $2.1 billion a year ago, according to the Federal Deposit Insurance Corp. NetBank overtook Branch Banking & Trust Co. to take the no. 6 spot based on metro Atlanta deposits.
The bank's typical customer is a 43-year-old, time-starved individual from a two-income household, more than half of whom have post-graduate degrees. In addition to convenience, the bank's selling points include the ability to offer higher rates on deposits because of lower overhead.
But while deposits are growing quickly, the bank is still too heavily weighted toward the very cyclical mortgage business, Freeman said.
NetBank cited softness in the mortgage business to explain a drop in income for the third quarter to $4 million from $15.6 million, compared with the same period a year ago.
A Raymond James analyst also cited softness in the mortgage business in his Sept. 17 downgrade of the company.
NetBank shares were trading at around $9.50 on Oct. 27, near the low end of its 52-week range ($8.99 to $14.83)
Freeman said the bank is working to diversify its income stream evenly between the mortgage division, banking division and transaction processing unit, and said he expects to reach that goal within the next six years.
Financial technology analyst Cathy Graeber says that strategy will be key to NetBank's long-term success.
"That customer who's willing to live without a branch ... is limited," said Graeber, principal analyst for financial services with Cambridge, Mass.-based Forrester Research Inc. (Nasdaq: FORR).
Graeber added that while adoption of online banking has grown 30 percent over the last four years, two-thirds of consumers who buy merchandise via the Internet still don't bank online.
She said the top concern cited by nonusers is the security of their data.
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