NetBank Inc. of Alpharetta, Ga., reported a first-quarter loss of $2 million and said nonconforming mortgage sales dragged down its business.
The mortgage trouble "wasn't a NetBank-only phenomenon," said chairman and chief executive Douglas K. Freeman in a conference call Wednesday with analysts. "Everybody was trying to compete in a pricing environment that has become completely irrational."
Mr. Freeman said he is hopeful that in the current quarter the nonconforming business will break even and conforming mortgages be profitable again.
The Internet banking company had posted a $9.4 million net profit for last year's first quarter. Its mortgage business lost $3.6 million in the latest quarter, versus a $7.4 million profit a year earlier.
Richard Eckert, an analyst at Roth Capital Partners LLC in Newport Beach, Calif., said nonconforming loans have become an industrywide problem. "You've just seen a ton of people get into the business in the past year and a half," he said, "because for so long it was easy money."
The added competition drove down prices, Mr. Eckert said. If NetBank's profits were hit harder than others', he said, "I'm willing to bet that NetBank was probably more aggressive than most" in pricing. Mr. Eckert covers competing lenders but not NetBank.
NetBank's strategy has been to build three business arms - banking, mortgages (which it calls "financial intermediary"), and transaction processing. Banking net income dropped 40%, to $1.7 million.
Transaction processing net income rose 515%, to $658,000, but Mr. Freeman said that business is too young to compensate for the other two.
NetBank lost $17.7 million in the fourth quarter, when it reserved $29 million before taxes for litigation still in progress with Commercial Money Center Inc., which had sold it leases in 1999 and 2000 and later filed for bankruptcy protection.
