Federal regulators have shut down NetBank, an Internet bank with no physical branches, after the bank failed to rebound from “significant losses in 2006 primarily due to early payment defaults on loans sold, weak underwriting, poor documentation, a lack of proper controls, and failed business strategies,” according to a Friday announcement.
The U.S. Office of Thrift Supervision reported that it had executed a formal enforcement action with NetBank in 2006 directing the bank to correct its operating problems, though that effort was unsuccessful “and it became clear that high operating expenses combined with continuing losses were jeopardizing the institution’s viability,” the office reported.
Directors for NetBank, based in Alpharetta, Ga., reportedly attempted to sell the bank, though those efforts failed and the bank had “no remaining prospects for raising capital and achieving profitability.”
The board of directors of the Federal Deposit Insurance Corp. today approved the assumption of the insured deposits of NetBank by ING Bank, based in Wilmington, Del. The FDIC has been named the receiver.
NetBank has more than $2.5 billion in total assets and $2.3 billion in total deposits as of June 30, the FDIC reported. “Depositors of NetBank will automatically become depositors of ING Bank,” according to an FDIC statement.
Customers of NetBank can access their money by writing checks or using debit or ATM cards, according to the FDIC statement, and beginning on Monday customers will have full access to their insured deposits via the Internet “and for the foreseeable future should continue to utilize NetBank’s current Web site to transact banking business.”
ING Bank will assume $1.5 billion of NetBank’s insured nonbrokered deposits for a 1 percent premium, the FDIC announced, and will buy $724 million of assets. “NetBank had approximately $109 million in 1,500 deposit accounts that exceeded the federal deposit insurance limit. While these customers will have access to their insured deposits, they will become creditors of the receivership for the amount of their uninsured funds.”
Also, the FDIC stated that it has entered into a loan purchase agreement with EverBank in Jacksonville, Fla., to buy some NetBank assets. EverBank will purchase about $700 million of mortgages held by NetBank, according to the statement, and the FDIC “will retain the remaining $1.1 billion in assets for later disposition, including NetBank’s leasing division … which will continue operations. Loan customers should continue to make payments as usual.”
NetBank is the second FDIC-insured bank to fail this year, and the first in Georgia to fail since AmTrade International Bank in Atlanta was closed on Sept. 30, 2002. The FDIC estimates a $110 million cost to the Deposit Insurance Fund for the transaction related to the NetBank failure.