Online Banking: New NetBank CEO Eyes Insurance Expansion

Now that it has acquired a second mortgage operation, NetBank Inc. is looking to expand in other areas, including insurance.

Douglas K. Freeman, who became NetBank’s chief executive officer on Sunday when it bought the mortgage company he had headed, would not go into specifics about the nearly six-year-old bank’s ambitions in insurance, except to say he favored forming partnerships with existing companies, buying other companies, or relying on outsourcers to round out its offerings.

The Atlanta-based NetBank, which says it is the largest FDIC-insured federal savings bank operating exclusively online, already has partnerships to provide credit cards and brokerage accounts, and a referral-for-fee relationship with Fidelity Investments’ Insurance.com.

But Mr. Freeman hinted that there could be similar alliances ahead to bring more products and services under NetBank’s roof — even if they are not all built in-house. “It’s a very different proposition than most large banks would have for their customers.”

NetBank’s deal for Resources Bancshares Mortgage Group Inc. of Alpharetta, Ga., closed on Sunday. In July, NetBank bought Market Street Mortgage, a Clearwater, Fla., lender.

Mr. Freeman said his former company’s resources give NetBank access to high-yield earning assets and cross-sales exposure to 100,000 new customers a year. In exchange, Resource Bancshares gets more liquidity and a lower-cost source of funding for its loans, he said.

Resource Bancshares, which processes about $1 million of mortgage products a month, previously had to borrow from Wall Street and various commercial banks to finance its operations.

Mr. Freeman, who earlier in his career ran Wells Fargo & Co.’s business bank, said NetBank is making a subtle but important shift from a technology business offering banking products to a “world-class bank that delivers our products over the Internet.”

NetBank’s former CEO, D.R. Grimes, will remain the company’s chairman.

Like Mr. Grimes, Mr. Freeman views large institutions — including his former employer Wells — as NetBank’s main competitors.

“We want to be a superregional bank that provides all the products and services our customers want,” he said. “Our region isn’t geographic — it’s the Internet.”

NetBank has done a good job of looking after the liability side of the balance sheet, but it “has not knocked the ball out of the park with loans,” he said.

The company will now be more focused on asset liability management, Mr. Freeman said. It will transfer loans held for investment to loans held for sale, in order to replace long-term mortgages with shorter-term ones that can be sold into the secondary market, he said.

Christopher Marinac, a research analyst at SunTrust Robinson Humphrey Capital Markets, said NetBank now faces the challenge of carrying out its plan to increase loan volume. However, Mr. Freeman has a solid track record and will probably be able to lead NetBank to further growth, he said.

Mr. Marinac expects NetBank to earn 53 cents a share this year and at least $1.10 next year. NetBank’s shares, which were trading at around $7.85 when the Resource deal was announced in mid-November, now trade at about $16.50, he noted.

“The market quickly realized that there is a very big margin improvement when you marry up the asset generation of Resource with the low-cost funding of NetBank,” he said.