NetBank
| Company type | Public |
|---|---|
| Industry | Banking, Financial services |
| Predecessor | Atlanta Internet Bank |
| Founded | 1996 |
| Defunct | September 28, 2007 |
| Fate | Shut down by regulators; deposit portfolio acquired by ING Group |
| Successor | ING Group (deposit portfolio) |
| Headquarters | Atlanta, Georgia , United States |
Area served | United States |
Key people | Douglas K. Freeman (CEO from 2002, chairman from 2003) |
| Products | Direct banking, vehicle insurance, auto loans, ATM and merchant services (until 2007) |
| Parent | NetBank Inc. |
NetBank, initially established as Atlanta Internet Bank in 1996 and later renamed Net.B@nk in 1998, was a U.S.-based direct bank that operated from its inception until regulators shut it down on September 28, 2007. Following its closure, ING Group acquired its deposit portfolio, and the Netbank.com domain was subsequently purchased by Axos Financial.
Establishment and Public Offering
Launched in February 1996 as one of the pioneering direct banks in the United States, NetBank’s business strategy centered on offering higher interest rates by avoiding traditional branch networks. On July 29, 1997, the company went public through an initial public offering, generating $42 million in capital. The institution rebranded itself as Net.B@nk in 1998. During the height of the dot-com boom in 1999, its share price fluctuated widely between $3.50 and $83.
Expansion and Acquisitions from 2000 to 2006
NetBank grew through strategic acquisitions such as CompuBank’s deposit accounts in March 2001, Market Street Mortgage in July 2001, and Resource Bancshares Mortgage Group in 2002. Douglas K. Freeman assumed the role of CEO in March 2002 and became chairman by January 2003.
Toward the end of 2003, NetBank broadened its offerings by entering the vehicle insurance market through its affiliate NetInsurance and launched direct auto loan programs via dealerships in Florida. Additionally, it acquired Financial Technologies Inc., a company specializing in ATM services and retail transaction processing, thereby diversifying its income sources.
In July 2004, NetBank purchased Beacon Credit Services, a lender focused on financing recreational vehicles, boats, and aircraft. The company posted losses in 2005 primarily due to increased provisions for non-performing loans. In 2006, it enhanced customer convenience by introducing check deposit services at The UPS Store locations.
Events Leading to Collapse (2006–2007)
In an effort to increase loan volume during 2006, NetBank relaxed underwriting criteria and documentation requirements, selling numerous loans with limited recourse. That year also saw the repurchase of $182 million worth of troubled loans. In November 2006, its independent auditor, Ernst & Young, resigned. The company ended the year with a reported loss of $202 million.
On May 1, 2007, NetBank divested NetBank Payment Systems, which handled ATM and merchant services. Later that month, it reached an agreement to sell its primary banking operations to EverBank, with plans to transfer customer accounts by September 15, 2007. However, this transaction depended on proceeds from other asset sales that did not materialize; as a result, EverBank withdrew from the deal on September 17.
Throughout early 2007, NASDAQ issued several notices due to delayed financial disclosures linked to auditor turnover. In February, Porter Keadle Moore LLP was appointed as the new auditor with intentions to file reports by June. Despite these efforts, on July 3, NetBank received a deficiency notice from NASDAQ after its stock price remained below $1 for over a month; it was officially delisted on August 3.
Closure and Consequences in 2007
The Office of Thrift Supervision (OTS), working alongside the Federal Deposit Insurance Corporation, closed NetBank on September 28, 2007. This event represented the largest failure of a savings and loan association since the savings and loan crisis of the 1980s and was Georgia’s biggest bank collapse to date. ING Group purchased $1.4 billion in FDIC-insured deposits along with certain loan assets for $14 million.
Customers holding deposits exceeding FDIC insurance limits were immediately compensated for half of their uninsured balances and became creditors for the remaining amounts through the bank’s receivership process.
In November of the same year, parent company NetBank Inc. filed for bankruptcy protection and announced intentions to liquidate assets including real estate holdings in Columbia, South Carolina and its captive insurer M.G. Reinsurance Inc. Federal savings and loan associations are prohibited from filing bankruptcy and must instead be liquidated by the FDIC.
A class action lawsuit was initiated by former shareholders against select executives and board members alleging stock price inflation through deceptive statements; this litigation was resolved with a $12.5 million settlement in November 2011.
External links
- Articles with short description
- 1996 establishments in Georgia (U.S. state)
- 1997 initial public offerings
- 2007 disestablishments in Georgia (U.S. state)
- Banks disestablished in 2007
- Bank failures in the United States
- Banks established in 1996
- Defunct banks of the United States
- Defunct companies based in Georgia (U.S. state)
- Online financial services companies of the United States
- Online banks
- Banks based in Georgia (U.S. state)
- Companies that filed for Chapter 11 bankruptcy in 2007