NetBank Inc. continued its housecleaning by saying it was preparing to shutter its banking software and services unit, Financial Technologies Inc.
The struggling Alpharetta, Ga., online banking company announced the plan Wednesday, just two days after announcing deals to sell some assets of its aircraft, recreational vehicle, and boat lending operation and to hand off the employees of its nonconforming mortgage business.
NetBank also is preparing to sell its insurance unit. It has already sold its mortgage servicing operations, and it has yet to decide the fate of its auto lending and merchant processing units.
Steven F. Herbert, who became NetBank's chief executive last month in yet another restructuring initiative, said during a conference call with analysts Wednesday that the divestitures would let it focus on its core retail banking and conforming mortgage operations -almost all it would have left - and that he hopes to break even, or come close to doing so, next year.
For the third quarter, his company reported an after-tax loss of $73.3 million, compared with a loss of $1.4 million in the same quarter last year. The most recent loss included a $19.3 million after-tax charge for selling most of its mortgage servicing rights and a goodwill impairment of $19.5 million for its nonconforming mortgage business.
Mr. Herbert said that when he took the job, he knew that he and his team "were going to take a hard look at every underperforming business that we had, and we were going to make the difficult decisions that needed to be made."
Closing down FTI, which offers the well-received QuickPost deposit service, was a "hard decision that we needed to make," but the unprofitable business is yet another drag on NetBank's earnings, he said.
QuickPost, a service that stemmed from a partnership between FTI and United Parcel Service Inc., allows NetBank customers to make overnight deposits from UPS stores. It has also become a service NetBank could resell to other financial institutions.
As of July six financial companies were using the service. In addition to NetBank, they included First Horizon National Corp. of Memphis; USAA Federal Savings Bank of San Antonio; Ebank Financial Services Inc. of Atlanta; Navy Federal Credit Union; and Dime Community Bancshares Inc. of Brooklyn, N.Y.
Nevertheless, QuickPost was losing money; it cost NetBank $3.3 million in the third quarter.
Mr. Herbert said that NetBank has not decided the fate of its auto lending and automated teller machine merchant processing businesses. Its network of 8,427 ATMs includes about 5% owned by the company. The number of ATMs declined 3.7% from the second quarter, because NetBank shut down several inactive ones.
The processing business has about $28.5 million of contracts.
On Monday it said it would transfer the employees of its nonconforming mortgage business, Meritage Mortgage, to Lime Financial Services of Lake Oswego, Ore., and that it would sell some assets of its specialty lending unit, Beacon Credit Services, to its management team.
Also during the quarter, NetBank sold its servicing rights on $8.5 billion on mortgages, about 70% of its total portfolio, to a pair of buyers, and Mr. Herbert said Wednesday that it is close to a deal to sell its NetInsurance Inc.
He summarized the company's extensive restructuring efforts, expected to be complete by early next year.
"We have sold the majority of our mortgage servicing rights. Check it off the list," he said. "We have sold the RV, boat, and aircraft financing operation, which was an underperformer for us. Check it off the list. We are currently in process of closing a sale of our NetInsurance units. Check it off the list. … And a management downsizing is currently under way, and although we can't check it off the list, there are a number of employees who have been checked off the list."
Mr. Herbert, previously NetBank's chief financial officer, was promoted last month after Douglas Freeman resigned as its chairman and CEO.
After the restructuring, his company would have an online banking business (including a business financing operation, which it called "consistently profitable") and a conforming mortgage unit.
Both of those businesses are struggling. NetBank's deposits fell 9.3% in the third quarter, to $2.7 billion. Its conforming mortgage production shrank 31%, to $2 billion.
Samuel Caldwell, a vice president and research analyst for Keefe, Bruyette & Woods Inc., said Mr. Herbert "did a good job of addressing" his plan to turn NetBank around. However, the analyst also said he was not certain whether the plan will deliver the desired results.
"He's very frank," Mr. Caldwell said. "The company's likely to still be losing money even after all these initiatives are put into place."
The plan to shut down FTI "surprised me the most," he said. "I would have thought some people would have seen some value in that," but "it just came down to that it was losing a lot of money."
Aside from the FTI announcement and Mr. Herbert's plan for reducing quarterly losses, "nothing really stands out," Mr. Caldwell said. "The mortgage business continues to be a very tough environment, and that hasn't changed."
When the dust finally settles, the turnaround plan might be simply a preface to a larger transaction, he said. "The company is more likely to be for sale at some point in 2007. That's the sense that I get from some of these efforts."
