NetBank Inc. blamed its $11 million first-quarter loss on its mortgage servicing unit, which it is trying to sell.
Douglas K. Freeman, the Internet banking and mortgage company’s chairman and chief executive, said Wednesday on a conference call with analysts that he was “very disappointed with first-quarter results” and that “we remain a company in transition.”
NetBank wants to be less dependent on its mortgage operations and to build its other banking businesses. “The bank itself is doing fine,” Mr. Freeman said in an interview. “It’s the mortgage business that’s not particularly attractive today.”
The Alpharetta, Ga., company’s per-share loss was 24 cents. Analysts on average had expected a 12-cent loss. The mortgage servicing unit posted a pretax loss of $5.8 million.
In last year’s first quarter NetBank lost $2 million, or 4 cents a share.
Mr. Freeman said that the mortgage servicing unit is typically weak in the winter quarter, and that it also faced strong pricing pressure. The unit reported a $6.9 million pretax profit in the fourth quarter.
NetBank said last week that it would try to sell the 100-employee servicing business, including its technology platform and an operations center in Columbia, S.C. It also wants to sell most of its $13 billion loan portfolio, separately.
Steven F. Herbert, the company’s chief finance executive, said some Wall Street firms are considering the platform for servicing some of their own securities.
Mr. Freeman said he did not expect a sale this quarter. “By the time of our second-quarter earnings call, we should be finally narrowing in, if not having executed something,” he said.
Neither he nor Mr. Herbert would say what the asking prices would be for the technology platform or the loan portfolio.
Mr. Freeman said NetBank would continue to service mortgages it originates for its own banking customers. Mortgage production fell 13.8% from the fourth quarter, to $2.8 billion, but the CEO rejected an analyst’s suggestion that NetBank get out of the nonconforming mortgage market.
“There are a number of straws in the wind that give us a better feeling today than if you had asked that question six or nine months ago,” Mr. Freeman said.
He said that despite the mortgage industry’s volatility, NetBank expects to remain in the third-party loan business, and he voiced some optimism about the market.
“Some of the mortgage market pressures may be easing,” Mr. Freeman said. He noted that some smaller competitors have dropped out of the business and that some major competitors — including Bank of America Corp., Washington Mutual Inc., and Ameriquest — have announced significant layoffs. He said NetBank has already cut 20% of the jobs in its indirect mortgage business.
Mr. Herbert said second-quarter mortgage originations should improve “toward break-even,” and retail banking should also strengthen.
The retail bank had a $1.4 million loss as a stand-alone business, but business finance had a better quarter with higher volumes, Mr. Herbert said. NetBank also had to add $1.6 million of expenses in the quarter because it started expensing stock options.
NetBank said it had signed several customers — including USAA Federal Savings bank, Navy Federal Credit Union, and E-Bank — for its QuickPost overnight deposit service, which lets customers submit deposits free using United Parcel Service Inc.’s overnight courier service. Mr. Freeman said there are “a number of others we’re chatting with.”
The company’s automated teller machine business was slow in the winter quarter because of seasonal factors but should improve in the current quarter, executives said.
Mr. Herbert said second-quarter results should come in “toward the lower end” of analysts’ range of forecasts from a 4-cent profit to a 5-cent loss.
Michael T. Vinciquerra, an analyst at Raymond James & Associates, called the first-quarter results “fairly weak across the board.” NetBank’s expenses were higher than expected and its hedging efforts hurt the bottom line rather than helping, Mr. Vinciquerra wrote in a note to clients Wednesday. He rates the company “market perform.”
