NetBank Inc. said it is nearly done shedding its less appealing businesses, but it reiterated that it will take at least until next quarter to return to profitability.
The Alpharetta, Ga., company said Wednesday that it had completed some of the changes it said it was considering after the third quarter, including unloading its insurance unit and Financial Technologies Inc., which ran its QuickPost deposit service.
All that remains is selling its automated teller machine processing business, for which NetBank recorded a fourth-quarter goodwill impairment of $9.7 million, bringing the value of that business closer to what the company would expect to receive in a sale.
"We've checked everything off the list," Steven F. Herbert, NetBank's chief executive, said in a conference call with analysts to discuss its fourth-quarter and full-year earnings. "It's done — subject to the ATM side."
Though his company is improving this quarter, it will not realize "the full impact" of its efforts until next quarter, Mr. Herbert said. "We're not where we plan to be. We're not where we need to be."
The fourth-quarter and full-year results were preliminary, as NetBank is switching auditors. It has hired Porter Keadle Moore LLP to replace Ernst & Young LLP (which resigned in November) and expects to file its annual report by the end of June.
The preliminary results it reported Wednesday show a fourth-quarter after-tax loss of $86.3 million, or $1.86 a share, versus net income of $895,000, or 2 cents a share, a year earlier. For the full year, the net loss widened to $202 million, from $180,000.
Last quarter NetBank spent $12.8 million to get out of four noncore businesses (Financial Technologies, insurance, auto lending, and boat, recreational vehicle and aircraft lending) and to consolidate the regional operating centers of its indirect conforming mortgage business.
It also spent $8.5 million to shut down its nonconforming mortgage business. NetBank had to lower its fourth-quarter guidance in December, because it was forced to repurchase far more of these mortgages than it expected. Provisions for such repurchases totaled $30.3 million in the fourth quarter.
"Subprime repurchases exceeded any expectation that I thought was reasonable," Mr. Herbert said, but "in this business, you always have to expect the unexpected."
He also said it was better to pay these costs now than to stay in that business. "Thank God we're out of that business now."
There was no clear update on whether NetBank would sell itself, a possibility it raised this month. Mr. Herbert said that although a sale would be a good option, it is not NetBank's only one.
"As a company, we can go it alone, and that's sort of what we're working on," but that stance does not rule out a merger or a sale, he said. "It's now time, I think, for us to take a broader look at what our options are. There's been a lot of interest in the company."
Samuel Caldwell, a vice president and research analyst at KBW Inc.'s Keefe, Bruyette & Woods Inc., said Mr. Herbert has done "an excellent job of being very straightforward and telling it basically like it is."
However, Mr. Caldwell also said he doubted NetBank would break even next quarter. "That seems pretty unlikely in the current environment," especially for conforming mortgages.
In nonconforming mortgages, buyers in the secondary market were exaggerating NetBank's problems, because of the changes being made there, he said.
"What's happened was that the institutions that were buying these mortgages realized that this company was in shutdown mode and wanted to make sure they weren't getting bad paper pushed on them," so they probably took a much closer look at those mortgages than they normally would, Mr. Caldwell said.
The ATM business is likely to be sold, he said. "It just takes time to complete a transaction like that," he said.
Getting rid of all the other businesses were tough decisions, but necessary ones, Mr. Caldwell said. "Just about all of them were losing money pretty significantly."
But if NetBank wants to sell itself, it has more work to do, he said. In its current state, "I still think they're going to be a money-losing operation" for any buyer.
