NetBank, Inc. Reports First Quarter Results; Difficult Non-Conforming Mortgage Environment Leads to $.04 Loss per Share; Other Lines of Business Show Continued Strength
ATLANTA--(BUSINESS WIRE)--May 4, 2005--NetBank, Inc. (Nasdaq: NTBK), a diversified financial services provider and parent company of NetBank® (www.netbank.com), today reported financial results for the first quarter of 2005. The company recorded a net loss of $2.0 million or $.04 per share, compared with net income of $9.4 million or $.20 per share during the same period a year ago.
On a sequential quarter basis, key trends include:
-- Net interest margin expansion. The bank's net interest margin, after provision, widened to 188 basis points (bps) from a normalized net interest margin of 182 bps. (Actual fourth quarter results included a provision expense of $29 million related to the company's Commercial Money Center (CMC) lease receivable. Inclusive of this charge, the net interest margin was -80 bps.)
-- Record business finance profitability. Pre-tax profitability from the company's business finance operation grew by 13% to $3.6 million.
-- Seasonally low mortgage production and sales. Conforming production and sales totaled $2.1 billion and $2.1 billion respectively, representing declines of 8.6% and 14.7%. Non-conforming production and sales were $630 million and $702 million respectively, representing declines of 18.4% and 6.6%.
-- Significant conforming margin improvement. The conforming pre-tax income margin improved to breakeven from -29 bps.
-- Significant non-conforming margin pressure. The non-conforming pre-tax income margin fell to -92 bps from 6 bps.
As previously reported, the company's board of directors approved a dividend of $.02 per share. The dividend is payable to shareholders of record on May 15, and it will be disbursed on June 15.
During the quarter, the company bought 423,726 shares of its stock at an average price of $9.29 per share. The board recently authorized management to purchase up to one million additional shares. Along with shares remaining under the previous authorization, management now has approval to repurchase up to 1,240,238 shares.
Management Commentary
"The current period loss is largely centered in our non-conforming mortgage operation," said Douglas K. Freeman, Chairman and Chief Executive Officer. "As we communicated in our monthly statistical reports, the non-conforming channel came under extreme pressure during the quarter. More aggressive pricing industry-wide and higher-than-normal provision expenses pushed results well below the level our other developing lines of business can offset today. We consider the prevailing non-conforming business conditions atypical. We are fully committed to the non-conforming operation and believe in its ability to contribute significant profitability to our bottom line in normal conditions.
"Our other lines of business reported solid results," Freeman continued. "Our conforming mortgage operation showed marked improvement from last quarter's low. The channel neared breakeven performance, and we currently believe its earnings trend will gain momentum over the course of the year. Our banking segment continues to show impressive growth. We have been able to widen the bank's net interest margin through the steady retention of high-quality, internally originated assets.
"Our strategy to diversify the company's income is working. Many of our start-up and emerging lines of business provided meaningful offset this period. Their impact and ability to contribute stable earnings should grow more pronounced with each passing quarter."
