NetBank, Inc. Reports Financial Results for Third Quarter; Loss of $.03 per Share Based on $3.5 Million Provision Related to Previously Identified Issues on a Limited Group of Loans

ATLANTA--()--Nov. 14, 2005--NetBank, Inc. (Nasdaq:NTBK), a diversified financial services provider and parent company of NetBank(R) (www.netbank.com), today reported financial results for the third quarter of 2005. The company recorded a net loss of $1.4 million or $.03 per share, compared with net income of $4.0 million or $.09 per share during the same period a year ago. The company's year-to-date results represent a net loss of $1.1 million or $.02 per share, versus income of $21.9 million or $.46 per share during the first nine months of 2004.

These results include a provision of $3.5 million, pre-tax, or $.05 per share, after-tax. This additional provision relates to a limited group of conforming mortgages the company has mentioned in recent releases. The company believes certain misrepresentations may have been made by one or more of the parties involved during the loan application process. These loans have an outstanding balance of approximately $13 million. They were previously sold by the company to different investors. Although none of the loans has been returned to date, management believes it is prudent to record a reserve under the circumstances.

The $3.5 million provision is based on a review of the underlying property values in a foreclosure and liquidation scenario. Management believes the actual loss related to these loans, if any, could be less since the company may have recourse to pursue recovery from the title insurance company and other parties to the origination. These sources were purposely excluded from management's assessment since they involve varying degrees of uncertainty.

Other significant drivers behind third quarter results appear below. Comparisons are on a sequential quarter basis unless noted otherwise.

-- Net Interest Margin Compression - The banking segment's risk-adjusted net interest margin fell 13 basis points (bps) to 169 bps due to the flattening of the yield curve in recent months.

-- Better Leverage - The banking segment's average earning assets rose by $336 million or 7.5% to $4.8 billion.

-- Positive Servicing Asset Performance - Servicing asset performance went from a loss of $2.3 million to pre-tax income of $130,000 as higher rates and improving valuations for mortgage servicing rights led to prior impairment expense recovery.

-- Higher Loan Production and Sales - Total mortgage production increased by $309 million or 9.0% to $3.8 billion, while total sales grew by $550 million or 17.5% to $3.7 billion.

-- Additional Repurchase Activity - Routine loan repurchase activity ran higher than expected in the conforming mortgage channel. Management booked additional provisions to replenish reserves and increased provision assumptions for current production.

The company did not repurchase any of its common shares this quarter. Management opted to deploy capital in other strategic initiatives. These include asset growth within the bank's loan and investment portfolio and the acquisition of approximately 30 conforming mortgage branches by the company's direct conforming mortgage lender, Market Street Mortgage.

The company's board of directors approved a dividend of $.02 per share to shareholders of record on November 25, 2005. The dividend will be disbursed on December 15, 2005.

Management Commentary

"Our results today include a provision of $3.5 million related to some concerns we have with a limited group of related loans," said Douglas K. Freeman, chairman and chief executive officer. "We became aware of some potential appraisal and underwriting problems with these loans after the close of the quarter. We disclosed the issue and our process for assessing any potential exposure in October. To complete the process, we found it necessary to move back our announcement of third quarter results and the filing of our 10-Q until now. We felt this was the right decision for our shareholders since we knew the outcome of our review could impact the quarterly results if we deemed it prudent to record provisions against these specific loans, which our review ultimately led us to do."

"Looking at the quarter apart from the special provision, we faced a number of challenges. Our banking and mortgage operations were confronted with difficult operating environments. The bank's net interest margin has come under pressure as the disproportionate increases in short- and long-term rates during the year have created a flatter yield curve. This same interest rate environment has also kept pricing competition in the mortgage industry at elevated levels since lenders are increasingly concerned with declining origination volumes. This pressure was compounded in our conforming mortgage channel by increased repurchase activity. The number of returned loans ran higher than our projections, which prompted us to book additional provisions to account for the difference. Although we expect the repurchase volume to moderate somewhat, we believe the heightened activity is indicative of a larger industry trend where investors have become increasingly assertive in returning loans.

"Beyond these pressures, there were a number of positive developments that clearly reflect our company's strong fundamentals and the steady traction we are seeing with our revenue diversification efforts," Freeman concluded. "Our customer and deposit growth trends showed improvement over the quarter. We continued to build leverage at the bank by growing earning assets. Our servicing asset provided a meaningful offset and demonstrated how it can serve as a natural, counter-cyclical hedge to our mortgage origination businesses during a rising interest rate environment. And last, our retail mortgage channel surpassed the $1 billion mark in quarterly production for the first time ever."

Banking Segment Performance

Table 1 below details results in the company's banking segment. Pre-tax income totaled $3.1 million, representing a decrease of $354,000 or 10.3% on a quarter-over-quarter basis. Segment results were largely driven by two forces. The retail bank saw declining profitability due to margin compression and higher operating expenses. These factors are evident in the 13-basis-point decrease in the segment's risk-adjusted net interest margin and the 11-basis-point rise in the segment's operating expense ratio. Expenses were up mostly due to a peak in marketing costs as several campaigns culminated during the quarter.

Servicing asset results provided significant offset and helped to mitigate lower profitability at the retail bank and other channels within the segment. Servicing results contributed pre-tax income of $130,000 versus a loss of $2.3 million last quarter. As interest rates moved higher, prepayment speed expectations lessened and promoted higher valuations for mortgage servicing rights. Based on these improving fundamentals, the company was able to recover a portion of prior impairment expenses.

Table 1

                            RETAIL BANKING
                        ($ in 000s, Unaudited)

                                    2005         2005
                                  3rd Qtr      2nd Qtr       Change
                                ------------ ------------ ------------
Net interest income             $    23,094  $    22,820  $       274
Provision for credit losses           2,646        2,316          330
                                ------------ ------------ ------------
Net interest income after
 provision                           20,448       20,504          (56)
Gains on sales of loans                   -            -            -
Fees, charges and other income        3,663        3,597           66
                                ------------ ------------ ------------
Total revenues                       24,111       24,101           10
Total expenses                       21,168       18,380        2,788
                                ------------ ------------ ------------
Pre-tax income before net
 servicing results                    2,943        5,721       (2,778)
Net servicing results                   130       (2,294)       2,424
                                ------------ ------------ ------------
Pre-tax income (loss)           $     3,073  $     3,427  $      (354)
                                ============ ============ ============

Average earning assets          $ 4,832,728  $ 4,496,414  $   336,314
Average UPB underlying MSRs     $13,976,998  $14,593,781  $  (616,783)

Operations to average earning
 assets
Net interest income after
 provision                             1.69%        1.82%      (0.13%)
Gain on sale, fees, charges and
 other income                          0.30%        0.32%      (0.02%)
                                ------------ ------------ ------------
Banking revenues                       1.99%        2.14%      (0.15%)
Total expenses                         1.75%        1.64%        0.11%
                                ------------ ------------ ------------
Pre-tax income before net
 servicing results                     0.24%        0.50%      (0.26%)
                                ============ ============ ============

Net servicing results to
 average UPB underlying MSRs           0.00%      (0.06%)        0.06%

Additional banking segment highlights appear below. All comparisons are on a sequential quarter basis unless noted otherwise.

-- Total deposits rose to $3.0 billion, an increase of $214 million or 7.6%. The growth was spread across retail and small business customers, mortgage escrow accounts and brokered funds.

-- Average earning assets grew by $336 million or 7.5% to $4.8 billion.

-- Our business finance operation reported pre-tax income of $3.2 million, a decrease of $275,000 or 7.9%. The decline was centered mainly in provision expense, which had been running at near-record lows for the past several quarters. Production declined by $1.1 million or 2.3% but remained robust at $45.5 million.

-- Auto loan production was impacted by a strategic decision to increase pricing. Production fell to $119 million, a decline of $13.3 million or 10.1%. However, the channel's profitability improved by $130,000 or 310% to $172,000.

Financial Intermediary Segment Performance

Table 2 below details results in the company's financial intermediary segment. The segment recorded a net loss of $4.5 million, pre-tax, compared with pre-tax income of $1.6 million a quarter ago. As discussed in greater detail above, these results reflect the impact of heightened provision in the conforming mortgage channel. Repurchase activity in this channel ran higher than expected during the quarter. This elevated activity prompted the company to book additional provisions for past production and to adjust its provision assumptions for current production. This heightened expense was in addition to the $3.5 million reserve the company booked on the group of related loans described earlier.

The collective effect of these provisions shows up in the 29-basis-point decline in the revenue margin reported for the quarter. Provision is taken as a direct charge against gain on sale income. Operating expenses within the segment remained in check during the quarter. Total production improved by $309 million, providing the lending operations with better leverage over their expenses.

Table 2

                        FINANCIAL INTERMEDIARY
                        ($ in 000s, Unaudited)

                                    2005         2005
                                  3rd Qtr      2nd Qtr       Change
                                ------------ ------------ ------------
Net interest income             $     6,901  $     7,959  $    (1,058)
Gain on sales of loans               27,034       28,810       (1,776)
Other income                            107        1,081         (974)
Net Beacon credit services
 results                               (303)        (122)        (181)
Net MG Reinsurance results              812          841          (29)
                                ------------ ------------ ------------
Total revenues                       34,551       38,569       (4,018)
Salary and employee benefits         21,776       20,883          893
Occupancy & Depreciation
 expense                              7,987        7,494          493
Other expenses                        9,281        8,581          700
                                ------------ ------------ ------------
Total expenses                       39,044       36,958        2,086
                                ------------ ------------ ------------
Pre-tax (loss) income           $    (4,493) $     1,611  $    (6,104)
                                ============ ============ ============

Production                      $ 3,764,981  $ 3,455,499  $   309,482
Sales (includes intercompany
 sales)                         $ 3,688,402  $ 3,138,302  $   550,100

Total revenues to sales                0.94%        1.23%      (0.29%)
Total expenses to production           1.04%        1.07%      (0.03%)
                                ------------ ------------ ------------
Pre-tax margin                       (0.10%)        0.16%      (0.26%)
                                ============ ============ ============

Additional financial intermediary segment highlights appear below. All comparisons are on a sequential quarter basis unless noted otherwise.

-- Conforming mortgage production totaled $2.9 billion, an increase of $292 million or 11.3%. Nearly all of this increase came through the company's retail mortgage channel. Conforming sales accelerated to $2.8 billion, a jump of $502 million or 21.5%.

-- Non-conforming production grew by $18.0 million or 2.1% to $883 million, while non-conforming sales totaled $847 million, an increase of $47.6 million or 6.0%. Revenue margins remained relatively consistent at 168 bps. But, the higher sales volume allowed the channel to return to profitability for the first time in three quarters.

Transaction Processing Segment Performance

Table 3 below details results in the company's transaction processing segment. Pre-tax income totaled $499,000, a decrease of $400,000 or 44% on a quarter-over-quarter basis. The decline is comprised of two primary components. One, the servicing factory recorded additional provision on a limited number of aging items. Two, revenue within our ATM and merchant processing business fell because of seasonally lighter transaction volumes and hurricane-related disruptions. Our machines, along with those of other providers, were affected by connectivity issues following the widespread power and telephone outages in the hardest hit regions of the Gulf Coast. We expect both of these trends to reverse going forward.

Table 3

                        TRANSACTION PROCESSING
                        ($ in 000s, Unaudited)

                                    2005         2005
                                  3rd Qtr      2nd Qtr       Change
                                ------------ ------------ ------------
Total revenue                   $     6,634  $     6,680  $       (46)
Total expenses                        6,135        5,781          354
                                ------------ ------------ ------------
Pre-tax income                  $       499  $       899  $      (400)
                                ============ ============ ============

Additional transaction processing segment highlights appear below. All comparisons are on a sequential quarter basis unless noted otherwise.

-- The company added 177 ATMs to its network during the quarter. Within the past two weeks, the company has acquired a portfolio of more than 1,100 new ATM relationships, which brings the total number of machines in its network to approximately 9,600.

Next Quarter Earnings Outlook

Analyst estimates for the company's fourth quarter earnings currently range from $.03 to $.09. Management is biased toward the low end of this range. Management is concerned with further net interest margin compression at the bank given the prevailing interest rate environment today. Mortgage originations also reach seasonal lows during this period, and declining volumes could lead to stronger pricing pressures across the industry. The potential for significant negative net servicing results still exists.

Supplemental Financial Data

Management has updated the quarterly financial data available on its Web site. This data provides further detail on the performance of the company's different business channels over the past five quarters. It is intended to supplement the information in this announcement and to give interested parties a better understanding of the company's operations and financial trends.

Interested parties can find this quarterly supplement on the company's Web site at www.netbankinc.com. The material is accessible through the link titled "Financial Data" under "Investor Relations."

Within this same area, the company posts a monthly statistical report, which is intended to give individuals a means of tracking the company's performance during a quarter. The monthly report is published directly to the Web site around the 20th of each month.

Conference Call Information

Management has scheduled a conference call to discuss today's reported results with investors, financial analysts and other interested parties. The call will be held today at 4:30 p.m. EST. Interested parties may dial in or listen via an audiocast on the company's Web site.

     Call Title:          NetBank, Inc. Earnings Announcement
     Call Leader:         Douglas K. Freeman
     Passcode:            NetBank    
     Toll-Free:           888-889-1959
     International:       +1-773-756-0455
     One-Week Replay:     800-310-4931

About NetBank, Inc.

NetBank, Inc. (Nasdaq: NTBK) operates with a revolutionary business model through a diverse group of complementary financial services businesses that leverage technology for more efficient and cost-effective delivery of services. Its primary areas of operation include personal and small business banking, retail and wholesale mortgage lending, and transaction processing. For more information, please visit www.netbankinc.com.

Forward-Looking Statements

Statements in this press release that are not historical facts are forward-looking statements that reflect management's current expectations, assumptions, and estimates of future performance and economic conditions. Such statements are made in reliance upon the safe harbor provisions of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.

Forward-looking statements in this press release include but are not limited to: 1) The suggestion that the company could recover any potential losses on the limited group of loans that may be returned in the future due to apparent misrepresentations made during the application process; 2) The belief that mortgage repurchase activity within the conforming channel will decline from third quarter levels; 3) Any suggestion the company will fully achieve each of the long-term goals presented as part of management's revenue diversification strategy; 4) The servicing asset's ability to behave counter cyclically to the company's mortgage operations and provide continued earnings offset when needed; 5) The retail mortgage channel's ability to post quarterly production above the $1 billion mark on any consistent basis; and 6) Any suggestion that the valuation of mortgage servicing rights will continue to improve.

These forward-looking statements are subject to a number of risks and uncertainties that may cause actual results and future trends to differ materially from those expressed in or implied by such forward-looking statements. The company's consolidated results of operations and such forward-looking statements could be affected by many factors, including but not limited to: 1) the evolving nature of the market for internet banking and financial services generally; 2) the public's perception of the internet as a secure, reliable channel for transactions; 3) the success of new products and lines of business considered critical to the company's long-term strategy, such as small business banking and transaction processing services; 4) potential difficulties in integrating the company's operations across its multiple lines of business; 5) the cyclical nature of the mortgage banking industry generally; 6) a possible decline in asset quality; 7) changes in general economic or operating conditions that could adversely affect mortgage loan production and sales, mortgage servicing rights, loan delinquency rates and/or loan defaults; 8) the possible adverse effects of unexpected changes in the interest rate environment; 9) adverse legal rulings, particularly in the company's litigation over leases originated by Commercial Money Center, Inc.; and 10) increased competition and regulatory changes.

Further information relating to these and other factors that may impact the company's results of operations and such forward-looking statements are disclosed in the company's filings with the SEC, including under the caption "Item 1. Business--Risks Relating to NetBank's Business" in its Annual Report on Form 10-K for the year ended December 31, 2004. Except as required by the securities laws, the company disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

                             NetBank, Inc.
                 Consolidated Statements of Operations
                For the Nine Months Ended September 30,
            (Unaudited and in 000's except per share data)

                                                 2005
                                --------------------------------------
                                   Retail     Financial   Transaction
                                  Banking    Intermediary  Processing
----------------------------------------------------------------------

Interest income:
Loans and leases                $    82,807  $    75,438  $        27
Investment securities                26,166            3            -
Short-term investments                1,254          303            -
Inter-segment                        52,426        2,551          (20)
----------------------------------------------------------------------
  Total interest income             162,653       78,295            7

Interest expense:
Deposits                             48,992            -            -
Other borrowed funds                 38,811        5,637           32
Inter-segment                         6,591       49,257            6
----------------------------------------------------------------------
  Total interest expense             94,394       54,894           38
----------------------------------------------------------------------
Net interest income                  68,259       23,401          (31)
Provision for credit losses           7,298           91            -
----------------------------------------------------------------------
Net interest income after
 provision for credit losses         60,961       23,310          (31)

Non-interest income:
Mortgage servicing fees              32,315        2,356        4,075
Amortization of MSRs                (34,480)        (393)           -
Recovery (impairment) of MSRs         3,224            -            -
(Loss) gain on derivatives             (110)         (39)           -
Gain on sales of investment
 securities                           4,182            -            -
Service charges and fees              8,049           37        7,053
Gain on sales of loans and MSRs         501       81,723            -
Other income                          2,688        2,326        3,026
Intersegment
 servicing/processing fees                -            -       10,482
----------------------------------------------------------------------
  Total non-interest income          16,369       86,010       24,636

Non-interest expense:
Salaries and benefits                15,894       67,467        6,985
Customer service                      8,819            7        1,271
Marketing costs                       5,332        3,974          224
Data processing                       7,754        3,515        1,836
Depreciation and amortization         6,191        8,416        2,749
Office expenses                       2,658        4,858        1,785
Occupancy                             2,981       14,287        1,075
Travel and entertainment                535        3,139          414
Professional fees                     2,257        7,379        1,610
Prepaid lost interest from
 curtailments                         3,297           48            -
Other                                 4,829        1,649        4,244
Inter-segment
 servicing/processing fees            7,666        2,816            -
----------------------------------------------------------------------
  Total non-interest expense         68,213      117,555       22,193
----------------------------------------------------------------------
(Loss) income before income
 taxes                                9,117       (8,235)       2,412
                                ======================================


                                          2005                2004  
                                ------------------------- ------------
                                             Consolidated Consolidated
                                  Other /      NetBank,     NetBank,
                                Eliminations     Inc.         Inc.
--------------------------------------------------------- ------------

Interest income:
Loans and leases                $       779  $   159,051  $   160,102
Investment securities                     -       26,169       13,568
Short-term investments                    -        1,557          684
Inter-segment                       (54,957)           -            -
--------------------------------------------------------- ------------
  Total interest income             (54,178)     186,777      174,354

Interest expense:
Deposits                                  -       48,992       34,364
Other borrowed funds                  1,356       45,836       33,625
Inter-segment                       (55,854)           -            -
--------------------------------------------------------- ------------
  Total interest expense            (54,498)      94,828       67,989
--------------------------------------------------------- ------------
Net interest income                     320       91,949      106,365
Provision for credit losses               -        7,389        3,982
--------------------------------------------------------- ------------
Net interest income after
 provision for credit losses            320       84,560      102,383

Non-interest income:
Mortgage servicing fees                   -       38,746       38,058
Amortization of MSRs                      -      (34,873)     (28,422)
Recovery (impairment) of MSRs             -        3,224      (10,388)
(Loss) gain on derivatives                -         (149)       5,730
Gain on sales of investment
 securities                               -        4,182        5,417
Service charges and fees                  -       15,139       13,052
Gain on sales of loans and MSRs         598       82,822       93,968
Other income                           (281)       7,759        9,005
Intersegment
 servicing/processing fees          (10,482)           -            -
--------------------------------------------------------- ------------
  Total non-interest income         (10,165)     116,850      126,420

Non-interest expense:
Salaries and benefits                 2,303       92,649       94,812
Customer service                         19       10,116        9,407
Marketing costs                         167        9,697        6,974
Data processing                           -       13,105       13,888
Depreciation and amortization           337       17,693       14,714
Office expenses                         121        9,422        8,409
Occupancy                                68       18,411       16,277
Travel and entertainment                135        4,223        3,662
Professional fees                     2,030       13,276       10,719
Prepaid lost interest from
 curtailments                             -        3,345        4,174
Other                                    34       10,756       10,791
Inter-segment
 servicing/processing fees          (10,482)           -            -
--------------------------------------------------------- ------------
  Total non-interest expense         (5,268)     202,693      193,827
--------------------------------------------------------- ------------
(Loss) income before income
 taxes                               (4,577)      (1,283)      34,976
                                ============
Income tax benefit (expense)                         208      (13,100)
                                             ------------ ------------
Net (loss) income                            $    (1,075) $    21,876
                                             ============ ============

Net (loss) income per common and potential
 common shares outstanding:
Basic                                        $     (0.02) $      0.47
Diluted                                      $     (0.02) $      0.46

Weighted average common and potential
 common shares outstanding:
Basic                                             46,201       46,962
Diluted                                           46,201       47,431



                            NetBank, Inc.
                Consolidated Statements of Operations
               For the Three Months Ended September 30,
            (Unaudited and in 000's except per share data)

                                                 2005
                                --------------------------------------
                                   Retail     Financial   Transaction
                                  Banking    Intermediary  Processing
----------------------------------------------------------------------

Interest income:
Loans and leases                $    28,531  $    29,213  $         8
Investment securities                 8,501            1            -
Short-term investments                  529          133            -
Inter-segment                        22,426          123          (26)
----------------------------------------------------------------------
  Total interest income              59,987       29,470          (18)

Interest expense:
Deposits                             20,178            -            -
Other borrowed funds                 14,408        1,890            1
Inter-segment                         2,372       20,484            -
----------------------------------------------------------------------
  Total interest expense             36,958       22,374            1
----------------------------------------------------------------------
Net interest income                  23,029        7,096          (19)
Provision for credit losses           2,646           62            -
----------------------------------------------------------------------
Net interest income after
 provision for credit losses         20,383        7,034          (19)

Non-interest income:
Mortgage servicing fees              11,629          287        1,376
Amortization of MSRs                (12,608)        (121)           -
Recovery (impairment) of MSRs         4,244            -            -
Gain on derivatives                     756           39            -
Gain on sales of investment
 securities                               -            -            -
Service charges and fees              2,844           (1)       2,453
Gain on sales of loans and MSRs           -       27,809            -
Other income                            819          643          772
Intersegment
 servicing/processing fees                -            -        3,591
----------------------------------------------------------------------
  Total non-interest income           7,684       28,656        8,192

Non-interest expense:
Salaries and benefits                 5,283       22,479        2,298
Customer service                      3,181            -          405
Marketing costs                       3,070        1,264           82
Data processing                       2,593        1,056          669
Depreciation and amortization         2,030        3,030          907
Office expenses                       1,254        1,621          711
Occupancy                             1,192        5,008          333
Travel and entertainment                196        1,217          128
Professional fees                       683        2,866          595
Prepaid lost interest from
 curtailments                         1,242           20            -
Other                                 1,650          651        1,546
Inter-segment
 servicing/processing fees            2,620          971            -
----------------------------------------------------------------------
  Total non-interest expense         24,994       40,183        7,674
----------------------------------------------------------------------
(Loss) income before income
 taxes                          $     3,073  $    (4,493) $       499
                                ======================================


                                          2005                2004
                                ------------------------- ------------
                                             Consolidated Consolidated
                                  Other /      NetBank,     NetBank,
                                Eliminations     Inc.         Inc.
--------------------------------------------------------- ------------

Interest income:
Loans and leases                $       340  $    58,092  $    57,481
Investment securities                     -        8,502        5,697
Short-term investments                    -          662          314
Inter-segment                       (22,523)           -            -
--------------------------------------------------------- ------------
  Total interest income             (22,183)      67,256       63,492

Interest expense:
Deposits                                  -       20,178       11,862
Other borrowed funds                    549       16,848       13,513
Inter-segment                       (22,856)           -            -
--------------------------------------------------------- ------------
  Total interest expense            (22,307)      37,026       25,375
--------------------------------------------------------- ------------
Net interest income                     124       30,230       38,117
Provision for credit losses               -        2,708          469
--------------------------------------------------------- ------------
Net interest income after
 provision for credit losses            124       27,522       37,648

Non-interest income:
Mortgage servicing fees                   -       13,292       12,727
Amortization of MSRs                      -      (12,729)      (9,499)
Recovery (impairment) of MSRs             -        4,244      (15,031)
Gain on derivatives                       -          795        7,272
Gain on sales of investment
 securities                               -            -        2,248
Service charges and fees                  -        5,296        4,713
Gain on sales of loans and MSRs         261       28,070       27,755
Other income                            (54)       2,180        3,204
Intersegment
 servicing/processing fees           (3,591)           -            -
--------------------------------------------------------- ------------
  Total non-interest income          (3,384)      41,148       33,389

Non-interest expense:
Salaries and benefits                   772       30,832       31,730
Customer service                         10        3,596        3,383
Marketing costs                          60        4,476        2,551
Data processing                           -        4,318        4,722
Depreciation and amortization           113        6,080        5,098
Office expenses                          14        3,600        2,938
Occupancy                                25        6,558        5,770
Travel and entertainment                 42        1,583        1,100
Professional fees                       327        4,471        2,806
Prepaid lost interest from
 curtailments                             -        1,262          906
Other                                    77        3,924        3,532
Inter-segment
 servicing/processing fees           (3,591)           -            -
--------------------------------------------------------- ------------
  Total non-interest expense         (2,151)      70,700       64,536
--------------------------------------------------------- ------------
(Loss) income before income
 taxes                          $    (1,109)      (2,030)       6,501
                                ============
Income tax benefit (expense)                         659       (2,486)
                                             ------------ ------------
Net (loss) income                            $    (1,371) $     4,015
                                             ============ ============

Net (loss) income per common and potential
 common shares outstanding:
Basic                                        $     (0.03) $      0.09
Diluted                                      $     (0.03) $      0.09

Weighted average common and potential
 common shares outstanding:
Basic                                             46,119       46,846
Diluted                                           46,119       47,156



                            NetBank, Inc.
                 Condensed Consolidated Balance Sheet
                         As of September 30,
            (Unaudited and in 000's except per share data)

                                                 2005
                                --------------------------------------
                                   Retail     Financial   Transaction
                                  Banking    Intermediary  Processing
----------------------------------------------------------------------
Assets
Cash and cash equivalents:
    Cash and due from banks     $   144,771  $    47,310  $        65
    Cash equivelants and fed
     funds                           93,110       18,378          902
----------------------------------------------------------------------
    Total cash, cash
     equivalents and fed funds      237,881       65,688          967
Investment securities available
 for sale-at fair value             681,418            2            -
Stock of Federal Home Loan Bank
 of Atlanta-at cost                  69,952            -            -
Loans held for sale                  71,490    1,388,036            -
Loan and lease receivables-net
 of allowance for losses of
 $26,730 and $45,306,
 respectively                     2,118,786       29,814            -
Mortgage servicing rights           192,342        1,456            -
Accrued interest receivable          10,339        5,774            -
Furniture, equipment and
 capitalized software                12,875       32,299        1,752
Goodwill and other intangibles        1,462       49,387       30,017
Due from servicers and
 investors                           24,699        2,138            -
Inter-segment receivables         1,325,869          327          794
Other assets                         22,790       63,828        5,520
----------------------------------------------------------------------
Total assets                    $ 4,769,903  $ 1,638,749  $    39,050
                                ======================================

Liabilities
Deposits                         $3,009,457           $-           $-
Other borrowed funds              1,407,618       36,400            -
Inter-segment payables              211,503    1,133,114        2,726
Subordinated debt                         -            -            -
Accrued interest payable             16,048          408            -
Loans in process                          -       59,122            -
Representations and warranties            -       21,275            -
Accounts payable and accrued
 liabilities                         30,531      100,274        4,732
----------------------------------------------------------------------
  Total liabilities               4,675,157    1,350,593        7,458
----------------------------------------------------------------------

Minority interests in
 affiliates                               -          561            -

Shareholders' equity
Preferred stock, no par (10,000
 shares authorized, none
 outstanding)                             -            -            -
Common stock, $.01 par (100,000
 shares authorized, 52,820 and
 52,820 shares issued,
 respectively)                            -            -            -
Additional paid-in capital                -            -            -
Retained earnings                         -            -            -
Accumulated other comprehensive
 (loss) income, net of tax                -            -            -
Treasury stock, at cost (6,462
 and 6,073 shares,
 respectively)                            -            -            -
Unearned compensation                     -            -            -
Allocated equity                     94,746      287,595       31,592
----------------------------------------------------------------------
  Total shareholders' equity         94,746      287,595       31,592
----------------------------------------------------------------------
Total liabilities, minority
 interests and shareholders'
 equity                         $ 4,769,903  $ 1,638,749  $    39,050
                                ======================================


                                          2005                2004
                                ------------------------- ------------
                                  Other /      NetBank,     NetBank,
                                Eliminations     Inc.         Inc.
--------------------------------------------------------- ------------
Assets
Cash and cash equivalents:
    Cash and due from banks     $    (2,216) $   189,930  $   220,300
    Cash equivelants and fed
     funds                                -      112,390        9,110
--------------------------------------------------------- ------------
    Total cash, cash
     equivalents and fed funds       (2,216)     302,320      229,410
Investment securities available
 for sale-at fair value                   -      681,420      312,602
Stock of Federal Home Loan Bank
 of Atlanta-at cost                       -       69,952       61,446
Loans held for sale                     191    1,459,717    1,291,137
Loan and lease receivables-net
 of allowance for losses of
 $26,730 and $45,306,
 respectively                        (3,577)   2,145,023    2,088,899
Mortgage servicing rights                 -      193,798      171,993
Accrued interest receivable               -       16,113       11,059
Furniture, equipment and
 capitalized software                 2,078       49,004       52,628
Goodwill and other intangibles          265       81,131       78,992
Due from servicers and
 investors                                -       26,837      110,112
Inter-segment receivables        (1,326,990)           -            -
Other assets                         (2,140)      89,998       79,993
--------------------------------------------------------- ------------
Total assets                    $(1,332,389) $ 5,115,313  $ 4,488,271
                                ========================= ============

Liabilities
Deposits                            $(2,314)  $3,007,143   $2,744,709
Other borrowed funds                      -    1,444,018    1,065,294
Inter-segment payables           (1,347,343)           -            -
Subordinated debt                    32,477       32,477       11,857
Accrued interest payable                228       16,684       10,004
Loans in process                          -       59,122       47,562
Representations and warranties            -       21,275       22,339
Accounts payable and accrued
 liabilities                         (3,287)     132,250      148,699
--------------------------------------------------------- ------------
  Total liabilities              (1,320,239)   4,712,969    4,050,464
--------------------------------------------------------- ------------

Minority interests in
 affiliates                               -          561          450

Shareholders' equity
Preferred stock, no par (10,000
 shares authorized, none
 outstanding)                             -            -            -
Common stock, $.01 par (100,000
 shares authorized, 52,820 and
 52,820 shares issued,
 respectively)                          528          528          528
Additional paid-in capital          432,202      432,202      431,712
Retained earnings                    39,180       39,180       62,918
Accumulated other comprehensive
 (loss) income, net of tax           (6,092)      (6,092)       1,420
Treasury stock, at cost (6,462
 and 6,073 shares,
 respectively)                      (62,628)     (62,628)     (58,931)
Unearned compensation                (1,407)      (1,407)        (290)
Allocated equity                   (413,933)           -            -
--------------------------------------------------------- ------------
  Total shareholders' equity        (12,150)     401,783      437,357

--------------------------------------------------------- ------------
Total liabilities, minority
 interests and shareholders'
 equity                         $(1,332,389) $ 5,115,313  $ 4,488,271
                                ========================= ============



                      NetBank, Inc. Consolidated
                Selected Financial and Operating Data
            (Unaudited and in 000's except per share data)

                                            Quarter Ended
                                 September                 September
                                     30,       June 30,        30,
                                ------------ ------------ ------------
                                    2005         2005         2004
                                ------------ ------------ ------------
Consolidated:

  Net (loss) income             $    (1,371) $     2,325  $     4,015
  Total assets                  $ 5,115,313  $ 4,954,767  $ 4,488,271
  Total equity                  $   401,783  $   409,089  $   437,357
  Shares outstanding                 46,358       46,298       46,747
  Return on average equity           (1.35%)        2.29%        3.70%
  Return on average assets           (0.11%)        0.19%       31.00%
  Book value per share          $      8.67  $      8.84  $      9.36
  Tangible book value per share $      6.92  $      7.08  $      7.67

NetBank, FSB:

  Deposits                      $ 3,007,928  $ 2,794,220  $ 2,744,858
  Customers                         282,575      268,849      162,654

  Estimated Capital Ratios:
  Tier 1 core capital ratio            6.09%        6.42%        6.95%
  Total risk-based capital
   ratio                              10.21%       10.93%       11.91%

  Asset quality numbers:
  CMC Lease portfolio           $    26,435  $    26,960  $    81,993
  Non-performing loan and lease
   receivables                        6,481        5,056        4,052
                                ------------ ------------ ------------
  Total non-performing loan and
   lease receivables                 32,916       32,016       86,045
  Non-performing loans held for
   sale   (1)                        27,432       22,859       43,889
                                ------------ ------------ ------------
  Total non-performing loans
   and leases                        60,348       54,875      129,934
  Repossessed assets  (2)             7,963        7,102        6,776
                                ------------ ------------ ------------
  Total non-performing assets   $    68,311  $    61,977  $   136,710

  Allowance for credit losses
   (ALLL)                       $    26,730  $    25,792  $    45,306
  Net charge-offs of loan and
   lease receivables            $    (1,770) $    (1,613) $    (1,195)

  Asset quality ratios:
  Total non-performing assets /
   average assets                      1.35%        1.27%        2.62%
  ALLL / total non-performing
   loan and lease receivables         81.21%       80.56%       52.65%
  Net annualized charge-offs /
   total assets                        0.14%        0.13%        0.11%

Mortgage Banking:

  Production Activity:
    Retail                      $ 1,089,137  $   843,914  $   609,545
    Correspondent                 1,025,626    1,009,951    1,174,625
    Wholesale                       692,828      681,865      714,615
    RMS                              74,180       54,540       41,532
                                ------------ ------------ ------------
  Total Agency-eligible           2,881,771    2,590,270    2,540,317
    Non-conforming                  883,210      865,229      808,559
                                ------------ ------------ ------------
  Total                         $ 3,764,981  $ 3,455,499  $ 3,348,876
                                ============ ============ ============

  Sales Activity:
  Third party sales             $ 3,631,112  $ 3,084,829  $ 3,639,337
  Intercompany sales                 57,290       53,473      137,968
                                ------------ ------------ ------------
  Total sales                   $ 3,688,402  $ 3,138,302  $ 3,777,305
                                ============ ============ ============

  Pipeline:
  Locked conforming mortgage
   loan pipeline                $ 1,053,315  $ 1,200,719  $ 1,088,434

  UPB of loans serviced:        $18,470,922  $18,483,938  $17,217,391

(1) Held for sale assets are carried at the  lower of cost or market
    (LOCOM).  LOCOM adjustments, under GAAP, are direct reductions of
    the assets' carrying values and are not considered allowances.
(2) Repossessed assets are carried at net realizable value.

Contacts

NetBank, Inc.
Matthew Shepherd, 678-942-2683
mshepherd@netbank.com
www.netbank.com

Contacts

NetBank, Inc.
Matthew Shepherd, 678-942-2683
mshepherd@netbank.com
www.netbank.com