The struggling NetBank Inc. has appointed a new chief executive and plans to overhaul its strategy.
Douglas K. Freeman stepped down Tuesday as chairman and CEO, acknowledging that his turnaround efforts at the online banking company had fallen short.
Steven F. Herbert, the chief financial officer, was named CEO. Mr. Herbert said he planned to shed risky and unprofitable businesses such as mortgage servicing and subprime loans and to refocus the $4.1 billion-asset NetBank on conforming loans and its Internet banking business.
"In many respects, this is going back to our roots," Mr. Herbert said.
Both Mr. Freeman and Mr. Herbert joined NetBank in 2002 after it acquired Resource Bancshares Mortgage Group Inc. of Columbia, S.C., where Mr. Freeman had been chief executive and Mr. Herbert had been CFO. Resource Bancshares continues to exert a strong influence on the Atlanta company's executive suite, as two other alumni were also given expanded roles Tuesday.
NetBank had said previously that it wanted to sell its mortgage servicing business, and on Tuesday it confirmed that it is also trying to sell its nonconforming mortgage operation. It had hinted in August that it might sell the operation.
Analysts said the changes announced Tuesday could augur the sale of not just those operations, but of the company as a whole.
A spokesman said Mr. Freeman was not available Tuesday, but he said in a press release that "a transition in leadership at this point in the company's life cycle is in the best interest of our shareholders. Economic and market conditions have weighed heavily on the company's performance and impeded our ability to fully execute a number of the strategies we intended."
Mr. Herbert would not comment on speculation about a sale of the company, though he said, "We're always looking at ways of maximizing shareholder value and maximizing shareholder return."
But he said he believed NetBank could achieve those goals without selling itself, and discussed a three-point plan to return it to profitability, stabilize its operations, and preserve its capital.
He offered few details about how he intends to execute the three-point plan, but did say that he expected "soon" to announce a deal to sell a majority of the company's mortgage servicing portfolio, and that NetBank was actively exploring a sale of its nonconforming mortgage business.
The result will be a smaller company, and Mr. Herbert warned of job cuts. "We'll have to right-size the back-office operations around our core businesses," he said.
As for its online banking business, Mr. Herbert said, "That's about blocking and tackling." He said, "I believe we can get that franchise back into a growth mode."
One tactic would be offering higher interest rates for online savings accounts, something several others - including ING Group NV, HSBC Holdings PLC, Washington Mutual Inc., and Emigrant Bancorp - already do through their low-maintenance online channels. "That's in the arsenal of the different alternatives we're looking at," Mr. Herbert said.
He also said NetBank would make changes in other lines of business outside of the core banking and mortgage operations, but he would not say what he planned.
Richard H. Repetto, an analyst at Sandler O'Neill & Partners LP, said it was not surprising that Mr. Freeman had stepped down, since NetBank has lost money in four of its last six quarters. Under the circumstances, he wrote in a note issued to clients Tuesday, "it is somewhat surprising to see that the new CEO is the former CFO. However, we believe that this was likely necessary given the complexity of the business."
NetBank, which has relied heavily on its mortgage unit to drive growth, has suffered as the housing market cooled this year. It posted a second-quarter loss of $31.4 million after reporting a profit of $2.3 million for last year's second quarter.
Samuel Caldwell, an analyst at Keefe, Bruyette & Woods Inc., said Mr. Herbert could be planning to sell additional parts of NetBank. "For the same reason, we believe it is also possible that the company is being cleaned up for an outright sale," Mr. Caldwell said in a note to clients.
In other executive changes, Thomas H. Muller Jr., a director and the chairman of NetBank's audit committee since the company's inception in 1996, was named chairman.
David W. Johnson Jr., a former president and director at Resource Bancshares and a NetBank director since 2002, was named vice chairman.
And James P. Gross, a former director of financial planning and reporting at NetBank and Resource Bancshares and NetBank's controller since 2004, was named the new chief financial officer.
NetBank already has taken steps to reduce its reliance on its wholesale mortgage business. That "financial intermediary" unit, which accounted for 74% of NetBank's 2003 revenue, generated just 52% of last year's revenue, regulatory filings show.
The company has been an innovator in other areas. Last year it unveiled QuickPost, which lets customers across the country receive next-day credit for deposits sent through United Parcel Service Inc.'s overnight courier service. Five companies, including First Horizon National Corp. of Memphis and USAA Federal Savings Bank of San Antonio, have licensed this service.
Matthew Shepherd, a NetBank spokesman, would not discuss the future of any of NetBank's business lines. "The focus is on a smooth transition," he said. "It is a deliberative process. It takes time to work through that analysis."
