NetBank Inc., which has been unloading and shutting down ancillary businesses for more than a year, is bowing out of its core line under pressure from regulators.
The Alpharetta, Ga., company said Monday that it had agreed to sell its Internet banking division, including $2.5 billion of core and brokered deposits and the NetBank handle, to EverBank Financial Corp.
The two companies also are in talks over two other mortgage-related NetBank businesses. After those are sold, NetBank would be left with its prime retail mortgage operation, Market Street Mortgage, a servicing platform — both of which Steven Herbert, the company's chief executive, said are for sale — plus an insurance claim it has been fighting for in court.
Mr. Herbert, who became NetBank's chief executive in October, has been trying to refocus the company on the business for which it is named. On a conference call Monday, he said it had little choice about quitting the banking business.
"Regulators were concerned about capital adequacy in light of significant operating losses and charges, and they directed us to secure an immediate solution," he said. "They made it pretty clear that if we did not" find another home for "all of the deposits, then they would step in."
EverBank "was the only partner that stepped in with a plan that regulators considered," Mr. Herbert said.
The Office of Thrift Supervision, which regulates both NetBank and EverBank, would not discuss the matter.
The deal, expected to close next month, would nearly double EverBank's assets, to $7 billion, and its deposit base, to $6 billion.
The Jacksonville, Fla., thrift company also would get 150,000 customers and NetBank's small-business equipment leasing and finance operation.
In an interview, Blake Wilson, EverBank's president and chief financial officer, called the deal "an important milestone" that would let his privately held company expand its core banking and mortgage businesses while diversifying into "high-value specialty businesses" like small-business equipment leasing.
Mr. Herbert said NetBank expects to report a loss of $60 million to $70 million on the sale. His company and EverBank are negotiating over NetBank's portfolio of servicing rights on $3.2 billion of mortgages and over certain assets and liabilities of its captive mortgage reinsurance unit, MG Reinsurance.
He described a difficult scenario in which NetBank set out to dispose of noncore businesses. The subprime mortgage meltdown "did not help our cause, and neither did the heightened regulatory oversight," he said.
"I clearly had hoped for better circumstances and a better outcome when I took over as CEO seven months ago," Mr. Herbert said, ending the conference call by telling analysts he had "poured my whole heart and soul" into the company.
He joined NetBank in 2002, when it purchased Resource Bancshares Mortgage Group Inc., where he had been the chief financial officer.
By February, NetBank was considering selling itself. But because its auditor, Ernst & Young LLP, had quit in November, the company could not file its full-year and first-quarter financial statements on time. The delay significantly narrowed the potential buyers, Mr. Herbert said.
(Porter Keadle Moore LLP succeeded Ernst & Young as NetBank's auditor in February.)
NetBank had reported a $73.3 million loss for the third quarter, when it divested its nonconforming mortgage unit, Meritage Mortgage.
In the third quarter it also shuttered its banking software and services unit, Financial Technologies Inc., and sold certain assets of Beacon Credit Services, which financed aircraft, boats, and recreational vehicles.
NetBank said it is shutting down its third-party conforming mortgage business, NetBank Funding Services — a process that will take 60 days. The unit has stopped taking applications but is honoring those in its pipeline.
Mr. Herbert said NetBank had $182 million of equity at the end of last month, including operating losses for the first four months of the year.
He told analysts that charges to shut down NetBank Funding will range from $26 million to $34 million.
A worst-case scenario, which would include an operating lease writeoff, contracts to provide for continuing operation, and severance and retention bonuses for the shutdown of its bank platform, would result in charges of $50 million to $70 million, he said.
NetBank expects to file its yearend and first-quarter financial statements by June 30.
