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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

(Mark One)

For fiscal year ended December 31, 2002

or

For the transition period from                              to                             

Commission file number 0-22361

NetBank, Inc.
(Exact Name of Registrant as Specified in Its Charter)

(770) 343-6006
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act: None.

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $.01 par value
Preferred Share Purchase Rights
(Title of Class)

        Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for past 90 days. Yes ý    No o

        Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.

        Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2): Yes ý    No o

        Aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant, computed by reference to the closing price of $11.98 of such common equity as of June 30, 2002: $551,356,211.

        Number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 48,086,797 shares of Common Stock at March 19, 2003.

DOCUMENTS INCORPORATED BY REFERENCE

        Portions of the Registrant's Proxy Statement for the Annual Meeting of Shareholders, scheduled to be held on April 24, 2003, are incorporated by reference into Part III. Portions of the Registrant's Annual Report to Shareholders, which is filed as Exhibit 13.1 to this filing, are incorporated by reference into Part II.

TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT

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PART I

ITEM 1.    BUSINESS

General

        NetBank, Inc. is a financial holding company that wholly owns the outstanding stock of NetBank, ("NetBank, FSB" or the "Bank"), a federal savings bank; Meritage Mortgage Corporation ("Meritage"), a wholesale nonconforming mortgage provider; MG Reinsurance Company ("MG Reinsurance"), a captive reinsurance company; NetInsurance, Inc., formerly known as RBMG Insurance Services, Inc. ("NetInsurance"), a licensed insurance agency; and NB Partners, Inc., a corporation formed to be involved in strategic partnering opportunities. NetBank, FSB also owns all of the outstanding stock of Market Street Mortgage Corporation ("Market Street"), a retail mortgage company, and Resource Bancshares Mortgage Group, Inc. ("Resource"). Resource wholly owns RBMG, Inc. ("RBMG"), a wholesale mortgage banking company, and Republic Leasing Company, Inc. ("Republic Leasing"), a small ticket equipment financing company. NetBank, Inc. acquired Resource on March 31, 2002 and subsequently reorganized the holding company structure as described above based on operational, licensing and funding needs. The entire consolidated company is referred to herein as "NetBank" or "the Company".

        NetBank was founded in October 1996 and did an initial public offering of stock in June 1997. It is one of the pioneers of the Internet banking industry, and NetBank, FSB is recognized as one of the first successful internet-only banks.

        NetBank's business model has three basic strategies:

        Internet-only bank—NetBank, through its Internet bank, operates as an FDIC-insured, federally chartered thrift institution that currently serves over 150,000 customers throughout the United States and in twenty foreign countries. NetBank operates a totally branchless model and passes on a portion of the cost savings to its customers in the form of attractive yields on deposits. Its array of products and services are available to its customers 24 hours per day, seven days a week, and all 365 days during the year.

        Financial Intermediary—Through its mortgage banking operations, NetBank serves as an intermediary between consumers and institutional investors. NetBank obtains mortgage loans by originating loans directly with consumers or through brokers or by buying closed loans from a network of correspondent banks, thrifts and independent mortgage companies. The majority of these loans are held for sale on the Company's balance sheet prior to delivery into the secondary market. The Company thus earns a long-term yield on an asset held short-term and also earns origination and servicing revenues and gains on the sale of the mortgages or resulting mortgage-backed securities.

        Transaction Processor—NetBank, through its Resource Mortgage Solutions initiative, sells its core mortgage lending competencies on a "private label" basis to community banks, credit unions and other financial businesses that lack the technical expertise, technology or critical mass to open up their own mortgage lending operations.

Segmented Income Statements

        NetBank's principal activities include retail banking and mortgage lending. The retail banking segment primarily consists of offering consumer banking products such as checking, money market, and certificates of deposit and the purchase of bulk loan portfolios. The mortgage banking segment either originates mortgage loans or acquires mortgage loans from correspondents and/or brokers and packages pools of such loans either inclusive of or exclusive of servicing rights for sale into the secondary market. The tables set forth in Note 20 to the consolidated financial statements in the Company's 2002 Annual Report to Shareholders (attached as Exhibit 13.1) present a summary of the revenues and

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expenses for each of the Company's business segments for each of the years ended December 31, 2002, 2001, and 2000, respectively, and are hereby incorporated herein by reference. The following represents the percentage and amount of total Company revenues contributed by the various operating segments for the years ended December 31, 2002, 2001, and 2000:

        Substantially all of the Company's revenues are derived from customers located in the United States of America.

Retail Banking Segment

        According to various, independent consumer research firms, approximately 606 million people have Internet access today on a worldwide basis, and two million new users come online each month. Consumers in the United States and Canada represent almost one third of the users worldwide, and women comprise 52% of Internet users. 100% of college graduates today classify themselves as active Internet users. In excess of 28 million households now do some of their banking online. In excess of 20 million households pay some of their bills using online services.

        NetBank's retail banking customers have an average age of 43 and a median household income in excess of $50,000. These customers typically are college educated homeowners who live in two-income households. A typical customer is a time-starved professional who judges value on a combination of convenience and price, not price alone. NetBank has positioned itself to participate in the rapid growth of Internet and online banking by offering:

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Attractive Interest Rates and Low Fees.    NetBank's operating costs are generally lower than those of traditional "bricks and mortar" banks because NetBank does not operate through a traditional branch network to generate deposits and conduct operations. NetBank passes a portion of its savings in operating costs on to customers by offering attractive interest rates and low fees in order to generate deposits without sacrificing profit margins.



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Convenience and Ease of Access.    NetBank believes that it provides customers with a higher level of convenience than can be achieved in a traditional bank branch or through PC-based home banking. The Internet allows our customers to conduct banking activities on a real-time, 7-day-a-week, 24-hour-a-day basis from any PC, wherever located, using a secure Web browser. In addition, NetBank's Web site is designed to be user-friendly and to expedite customer transactions with NetBank. Many common transactions including check reorders, account transfers, and review of cancelled checks are fully automated and can be completed over the Web at the customer's convenience.



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Broad Selection of Products and Services.    NetBank offers a broad array of products and services that customers would typically expect from a traditional bank including checking and money market accounts, certificates of deposit, IRA's, debit cards, credit cards, mortgage loans, automobile and motorcycle loans, securities brokerage services, foreign currency, traveler's checks and home equity lines as well as certain innovative services specifically designed to

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leverage the Company's Internet capabilities—electronic bill payment and presentment, eStatements, on-line check imaging, wireless account access, and account consolidation services.

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High-Quality Service and Customer Satisfaction.    NetBank continually seeks ways to enhance customer satisfaction. In an effort to serve the needs of its customers, NetBank offers services such as electronic bill payment and presentment and ATM cards without service charges. NetBank also emphasizes responsive, courteous customer service and utilizes a fully-trained, dedicated staff that processes new accounts and responds to inquiries from existing and potential customers. NetBank's customers can access account data and information regarding products and services 24 hours a day and can reach customer service representatives by telephone and e-mail.



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Advanced Security.    A barrier to on-line financial transactions has been a misperception of greater risk in the secure transmission of confidential information over public networks. NetBank uses sophisticated technology to provide what it believes to be among the most advanced security measures currently available in the Internet banking industry. All banking transactions are encrypted and all transactions are routed from the Internet server through a "firewall" that limits access to the NetBank server. NetBank's systems automatically detect attempts by third parties to access other users' accounts and feature a high degree of physical security, secure modem access, service continuity and transaction monitoring. Because most transactions are processed automatically, a customer's information is actually accessible and exposed to far fewer individuals than in a traditional branch bank setting.

Products and Services

        Account Activity.    Customers can access NetBank through any Internet service provider by means of an acceptable secure Web browser. In doing so, customers can apply for loans, review account activity, enter transactions into an on-line account register, pay bills electronically, conduct brokerage transactions, receive statements electronically or by mail and print bank statement reports from any PC with a secure Web browser, regardless of its location. To open a new account, customers complete the on-line enrollment form on NetBank, FSB's Web site, print their signature card and mail it to NetBank along with their deposit. Customers can make deposits into an open account at NetBank via direct deposit programs, by transferring funds between NetBank accounts, by wire transfer, by mail or through thousands of remote deposit-taking ATM terminals through our partnership with the Credit Union 24, MAC and STAR West ATM networks. Customers can also make withdrawals and have access to their accounts at ATMs that are affiliated with the Cirrus, STAR, NYCE, Armed Forces Financial, MAC and Credit Union 24 networks. NetBank does not charge its own fee for ATM usage, but the operator of the ATM may.

        Deposit Products and Services.    In order to build its customer base, NetBank offers a variety of deposit products at attractive interest rates. NetBank is able to offer attractive interest rates as a result of our low operating costs. NetBank also attracts customers by offering convenient services such as free electronic bill payment, overdraft protection and ATM cards. NetBank's deposit products and services include:

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Deposit Products.    NetBank offers two types of interest-bearing checking accounts, a money market account, and 6-, 12-, 18-, 30-, and 60-month certificates of deposit. NetBank has consistently offered interest rates on its deposit accounts that are higher than the national average.



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Bill Payment Service.    Through services provided by CheckFree, customers can pay their bills on-line through electronic funds transfer or a written draft prepared and sent to the creditor. NetBank does not charge a fee for this service.

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Bill Presentment Service.    Through services provided by CheckFree, customers can have their bills delivered electronically to their NetBank account. NetBank does not charge a fee for this service.



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Overdraft Protection.    NetBank offers overdraft protection to all interest checking customers who qualify. Customers with interest checking accounts may apply for overdraft protection on-line for amounts up to $1,000. If a customer has both a money market and an interest checking account, NetBank can establish overdraft protection between those accounts.



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ATM Cards.    Each customer automatically receives a free ATM or Visa check Card when he or she opens an account. Customers can access their accounts at ATMs affiliated with the Cirrus, STAR, NYCE, Armed Forces Financial, MAC and Credit Union 24 networks. NetBank does not charge its own fee for ATM usage, but the operator of the ATM may. Additionally, customers can make free deposits at thousands of ATMs nationwide through the Company's partnership with the Credit Union 24, MAC, and STAR West networks.



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eStatements.    NetBank generates eStatements automatically as part of the standard statement cycle on checking, money market and certificate of deposit accounts. Customers may view eStatements after logging into their accounts. They can print these statements to their own printers or save them indefinitely on their personal computers as PDF files. Customers may opt in or out of receiving paper statements.



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On-line check imaging.    On-line images of cancelled checks are available to customers 24-hours a day. Customers may view cancelled check images after logging into their accounts. They can print these images to their own printers or save them indefinitely on their personal computers as PDF files.

        Lending Programs.    To generate fee income and provide a convenient service to its customers, NetBank offers on-line loans and credit cards as described below.

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Mortgage Loans.    Through its mortgage banking subsidiaries, NetBank originates conventional and government, fixed and adjustable residential mortgage loans for its own portfolio as well as for sale in the secondary market. NetBank currently offers home equity lines and second mortgages on its Web site through an arrangement with PNC Bank Corp.



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Automobile and Motorcycle Loans.    Loans are available for new and used vehicles, lease buyouts or refinancing of existing loans through the Bank's arrangement with PeopleFirst.com. Benefits of this service include loan responses within 15 minutes during set business hours, a check approved up to a specific amount that a consumer can make payable to a dealership or individual, access to funds as early as the next day, and a locked-in interest rate good for 45 days.



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Credit Cards.    NetBank offers its customers Visa credit cards issued by First USA for no annual fee. First USA carries the credit card loans on its books, and NetBank has an income-sharing arrangement with First USA. Customers can apply for these credit cards on-line. The cards prominently display the NetBank logo with the Visa emblem appearing in the lower right corner of the card.



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Leases.    NetBank, through its wholly owned subsidiary, Republic Leasing, offers small-ticket commercial equipment financing.

        Non-Banking Financial Services.    To serve as a sole source for the financial services needs of Internet users and to generate additional non-interest income, NetBank offers a full range of

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non-banking financial services designed to attract and retain customers. These services currently include:

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Account Consolidation Services.    From their own NetBank account, customers can manage their accounts at other institutions. They are able to review balances and transaction histories on these accounts as well as transfer funds into their NetBank account.



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Wireless Account Access.    NetBank customers can receive account information over digital phones, WAP phones and Palm VII personal data assistants. This allows customers to review balances or transaction histories on their checking or money market accounts on demand.



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Securities Brokerage Services.    In 2002, NetBank, FSB was under contract with Ameritrade Holding Corp., through its AmeriVest subsidiary, a discount broker, to provide NetBank's customers with access to a full line of financial services and investment products. Customers could purchase securities without writing checks to their brokers, as trading fees were automatically deducted from their NetBank checking or money market accounts. Investment proceeds are automatically deposited into the customer's NetBank deposit account. Customers enjoy 24-hour on-line access, real-time quotes, low commissions and access to a professional brokerage staff. This relationship is being terminated as NetBank transitions toward its own offering of financial services and investment products, expected in the last half of 2003.



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Foreign currency or traveler's checks.    Consumers may order foreign currency or traveler's checks in a specific currency and receive them overnight or by two-day delivery. There is a $200 minimum and $1,500 maximum per order, and no service fee is assessed. Orders over $500 are sent via two-day delivery at no cost. Currently, there are more than 75 different currencies and 7 foreign currency travelers' checks available for purchase. Orders can be paid for using a Visa or MasterCard(R) credit or debit card, including NetBank's Visa Check Card.



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Visa TravelMoney.    Visa TravelMoney, a pre-paid debit card that is accepted at more than 627,000 ATMs worldwide, represents a good alternative for consumers who do not have a bank ATM or debit card or prefer not to use their bank cards abroad. The Visa TravelMoney card is loaded in U.S. dollars, up to a maximum amount of $1,500. Consumers can use the card to withdraw cash in local currencies at ATMs on the Visa or Plus(R) networks. The card is PIN-protected and can be replaced overnight if lost or stolen. There is a $300 minimum purchase amount and a $15 activation fee per card, which includes three free withdrawals.

        Future Products and Services.    In 2003, NetBank will focus on expanding the mortgage products offered to its customers through Market Street and RBMG. It will, likewise, make available to its customers NetInsurance, Inc. products. NetBank is also in the process of launching a small business banking array of products including commercial deposit products and services and commercial loans. NetBank also plans to launch a line of products to assist customers in portfolio and wealth management.

        Lending and Investment Activities.    Until its acquisition of Market Street and Resource, NetBank invested funds primarily in loans and leases acquired in bulk from third party originators and in U.S. Treasury and mortgage-backed securities. Since its acquisition of Market Street and Resource, NetBank's primary focus has turned to financing loans to sell into the secondary markets. These loans are pre-sold primarily through forward commitments to sell mortgage-backed securities or commitments to sell whole loans. The delivery of the loans to the permanent investor generally occurs within 30 to 45 days from origination or funding. NetBank is thus able to earn a long-term yield on a mortgage instrument while financing the loans with short-term deposits and borrowings. NetBank will hold the servicing of a portion of the loans that it originates for purposes of cross-selling deposit, insurance and other products to those customers.

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        During 2002, NetBank identified a significant portion of previously acquired commercial loan participations and second mortgage loans as non-core assets, whereby NetBank had no core relationship with the customer. NetBank is selling these non-core assets opportunistically into the market place.

        NetBank, through its subsidiary Republic Leasing, offers small-ticket leases and other related financing to small businesses, medical practices, etc. These assets are held for investment in NetBank's portfolio. NetBank also buys U.S. Treasuries, mortgage-backed securities and other investments to provide liquidity and to better match duration in its asset/liability mix.

Marketing

        The goal of NetBank's marketing strategy is to make NetBank® the leading brand in the Internet financial services market. NetBank conducts continuous advertising and public relations campaigns to attract new customers and retain existing ones. The bulk of its advertising is done online through top Internet portals and financial Web sites, such as MSN, The Motley Fool and Quicken.com. Additionally, the Bank actively pursues and engages in strategic marketing partnerships with other businesses to gain exposure to targeted, desirable consumer bases and/or to broaden its own product offerings through co-branded agreements with providers of complementary financial services. Marketing expenses totaled $4.8 million during 2002, a decrease of $1.1 million from 2001. Although NetBank continued to pursue significant customer growth during the year, more emphasis was spent on understanding and increasing the profitability of existing customer relationships. Deliberate changes in the Bank's pricing strategy and operational policies led to the closing of approximately 22,000 zero- or negative-balance accounts. These account closings contributed to a drop in the Bank's total account base year-over-year of approximately 9,000 accounts. However, total deposits and average balances showed substantial growth in spite of the decrease in accounts. Deposits grew by $551 million during 2002 and the average account balance rose to $9,037, representing a 62% increase from 2001.

        Strategic Partnerships.    NetBank's affinity alliances have become an important part of expanding its market reach. For example, NetBank's alliance with Intuit puts the NetBank brand in front of every Quicken user via a NetBank icon and message installed onto the user's desktop. With one click on the NetBank icon, potential customers are transported through their Internet connection to the NetBank Web site, where they have an opportunity to fund an account and receive a one-time cash bonus.

        NetBank has a number of pay-for-performance marketing partnerships. For example, NetBank partners with Federated Department Stores, Inc., with Federated marketing certain NetBank banking products and services to its more than 20 million active proprietary credit card holders through a co-branded NetBank Web site. NetBank also has an agreement with Six Continents Hotels to promote NetBank checking accounts to more than ten million members of Six Continents Hotels' frequent guest program. Members will receive a bonus of up to 10,000 Priority Club points when they open and fund a new NetBank account.

        Alliances with companies such as these helped to drive customers to NetBank during the year ended December 31, 2002. In fact, 22% of our account applications during 2002 were the result of affinity alliances. Of total applications, 16% were from pay-for-performance relationships, where we pay the partner a fee only for funded accounts that we receive. NetBank's strategy is to continue to build upon these types of relationships to gain customers, add additional financial services for our customers and continue to drive down account acquisition costs.

        Advertising Strategies.    During 2002, NetBank continued to emphasize pay-for-funded account type relationships with successful online businesses. NetBank conducted creative direct online marketing programs to attract new customers and focused on cross-selling products to existing customers. As a result, NetBank substantially increased its number of checking and money market customers, which traditionally retain longer-term banking relationships. In the future, NetBank plans to continue to

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pursue pay-for-funded account relationships and cross-sell existing customers. In addition, targeted advertising continues to be effective in bringing new customers to NetBank. In particular, NetBank has found that advertising on financial sites or the finance areas of high-traffic sites, such as MSN Money Central, Yahoo! Finance, Bankrate.com, and Motley Fool produces excellent results. In addition, NetBank has the ability to monitor the audience that it reaches as well as the results of its on-line advertising campaign. For example, in addition to tracking on-line click-through and conversion rates, NetBank also tracks the number of hits on its Web site that result from a particular advertisement and incorporates those findings into its subsequent marketing efforts.

        Public Relations.    NetBank also derives a marketing benefit from media coverage that it generates through its public relations efforts and community relations activities. NetBank believes that continuing press coverage increases the general public's awareness of NetBank and attracts new customers.

Mortgage Banking Segment

        NetBank originates and purchases principally agency-eligible mortgage loans through its subsidiaries Market Street and RBMG, Inc. Agency-eligible mortgage loans are loans that meet the size, documentation, borrower and credit standards to qualify to be pooled into mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac, or Ginnie Mae. The Company also originates non-conforming mortgages through its subsidiary Meritage Mortgage Corporation. These loans are sold to private whole loan investors and private-label mortgage conduits.

        After the sale or securitization of primarily agency-eligible mortgage loan production, NetBank, in some cases, continues to service mortgages on behalf of the permanent investor. Servicing activities include collecting and remitting mortgage loan payments, accounting for principal and interest, holding escrow funds for payment of mortgage-related expenses such as taxes and insurance, making advances to cover delinquent payments, making inspections of the mortgaged premises as required, making advances to cover delinquent payments, supervising foreclosures and property dispositions in the event of unremedied default, and generally administering agency-eligible mortgage loans.

        NetBank also sells its entire range of mortgage competencies on a private-label basis to small banks, thrifts, credit unions, etc. who lack the knowledge or infrastructure to originate mortgages themselves. NetBank has branded this product offering as "Resource Mortgage Solutions" (RMS). Beginning early in 2002, RMS partnered with the Independent Community Bankers of America (ICBA) to offer mortgage services to its 5,000 community bank members. Through December 31, 2002, RMS had contracts in place to offer services to 354 of ICBA's members. During the first year of this strategic partnership, RMS originated $223 million principal balance of mortgage loans. Fourth quarter 2002 originations were $120 million through the RMS channel.

Mortgage Loan Production

        Correspondent Production.    NetBank, through RBMG, Inc., acquires recently originated mortgages from a nationwide network of correspondent lenders. Correspondents are primarily mortgage lenders, mortgage brokers, savings and loan associations and small commercial banks. At December 31, 2002, the Company had approximately 800 correspondents originating mortgage loans in 49 states and the District of Columbia. Agency-eligible residential loan production for RBMG by correspondents is widely dispersed, with the top 20 correspondents supplying the Company with 46% of its dollar volume of correspondent loans.

        During 2002, RBMG emphasized correspondent loan production. By emphasizing correspondent lending, RBMG can match its costs more directly with the volume of agency-eligible loans purchased, so that a substantial portion of RBMG's cost is variable rather than fixed. By emphasizing the correspondent origination approach, RBMG has greater flexibility to adjust to varying market conditions. As conditions change, RBMG can expand into new geographic markets without incurring

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significant additional costs by utilizing existing and new correspondents that operate in each new market. The use of correspondents also enables RBMG to exit markets easily if circumstances dictate. Correspondent loan production enables NetBank to optimize available volumes and margins in lower rate environments without incurring significant fixed expenses.

        RBMG attracts and maintains relationships with correspondents by offering a variety of services that provide incentives for the correspondents to sell agency-eligible mortgage loans to RBMG. RBMG's strategy with respect to its correspondents is to provide a high level of service rather than the lowest price. Services provided include timely underwriting and approval or rejection of a loan (within approximately 48 hours after receipt of a completed loan application), timely purchase of loans (within 96 hours after being approved for acquisition), seminars on how to process and prepare a loan application and updates on current underwriting practices. In addition, RBMG provides correspondents with a variety of products and delivery capabilities and multiple means of funding loans. eRBMG, RBMG's business-to-business Internet offering, makes it easier for correspondents to interact with the Company by automating the flow of information between the correspondent and RBMG. eRBMG allows correspondent lenders to upload/key files, register and lock a loan, submit a loan to Fannie Mae Desktop Underwriting, print out a fax cover with a bar code to be faxed and routed electronically, submit an electronic file to one of RBMG's regional operating centers for validation and request closing funds on-line. As the mortgage lending market increases in sophistication and loan-price differentials narrow among mortgage bankers, RBMG believes that the level of service and commitment it provides to its correspondents will be paramount to its success.

        Management believes that through correspondent lending it can manage risks and maintain good quality control. Correspondents have to meet established standards to be approved by the Veteran's Administration (VA), the U. S. Department of Housing and Urban Development (HUD) or private mortgage insurance companies. A correspondent qualifies to participate in RBMG's correspondent program only after a thorough review of its reputation and mortgage lending expertise, including a review of references and financial statements and a personal visit by one or more representatives of RBMG. After a correspondent qualifies for RBMG's program, RBMG closely monitors the correspondent's performance in terms of delinquency ratios, document exceptions and other pertinent data. Furthermore, all mortgage loans purchased by RBMG through correspondents are subject to various aspects of RBMG's underwriting criteria, and correspondents are required to repurchase loans or otherwise indemnify RBMG for its losses in the event of fraud or misrepresentation in the origination process and for certain other reasons, including noncompliance with underwriting standards.

        All loan applications are subject to RBMG's underwriting criteria and the guidelines set forth by the Federal Housing Authority (FHA), the VA, Ginnie Mae, Fannie Mae, Freddie Mac or private investors, as applicable. RBMG or the correspondent, in the case of a correspondent with delegated underwriting authority, verifies each applicant's income and bank deposits, as well as the accuracy of the other information submitted by the applicant, and obtains and reviews a credit report from a credit reporting agency, a preliminary title report and a real estate appraisal. Generally, delegated underwriting authority is granted by RBMG to its larger correspondents that meet certain financial strength, delinquency ratio, underwriting and quality control standards.

        With respect to FHA and VA loans, HUD and the VA, respectively, have established approval guidelines for the underwriting of loans to be covered by FHA insurance or a VA guaranty. The Company is approved by both HUD and the VA to underwrite FHA and VA loans submitted by specified correspondents and wholesale brokers. The Company purchases FHA and VA loans only from those correspondents who are approved to underwrite FHA and VA loans and from those correspondents for whom the Company has been approved to underwrite FHA and VA loans.

        RBMG has implemented a quality control program to monitor compliance with the its established lending and servicing policies and procedures, as well as with applicable laws and regulatory guidelines.

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RBMG believes that the implementation and enforcement of its comprehensive underwriting criteria and its quality control program are significant elements in the Company's efforts to purchase high-quality mortgage loans and servicing rights. RBMG's quality control department examines loans in order to evaluate the loan purchasing function for compliance with underwriting criteria. The quality control department also reviews loan applications for compliance with federal and state lending standards, which may involve re-verifying employment and bank information and obtaining separate credit reports and property appraisals.

        Wholesale Production.    The wholesale division of RBMG receives loan applications through brokers, underwrites the loans, funds the loans at closing and prepares all closing documentation. Typically, mortgage brokers are responsible for taking applications and accumulating the information precedent to RBMG's processing of the loans. All loan applications processed by the wholesale division are subject to underwriting and quality control comparable to the standards used in RBMG's correspondent lending program.

        RBMG processes wholesale loans through regional operations centers. At December 31, 2002, RBMG had five regional operations centers serving approximately 5,000 brokers. These offices are located in San Jose, California; Boston, Massachusetts; Minneapolis, Minnesota; St. Louis, Missouri; and Jacksonville, Florida. Although maintaining regional operations centers involves the incurrence of fixed expenses associated with maintaining those offices, wholesale operations also generally provide for higher profit margins than correspondent loan production. Additionally, each regional operations center can serve a relatively sizable geographic area by establishing relationships with large numbers of independent mortgage loan brokers who bear much of the cost of identifying and interacting directly with loan applicants. RBMG also offers the use of e-RBMG to its brokers. e-RBMG has the same features and benefits for brokers as enumerated above for the correspondent lending program.

        Retail Production.    NetBank offers mortgage products directly to consumers through 44 retail branches located in 12 states. Market Street maintains relationships directly with realtors and builders to focus on purchase mortgage transactions (as opposed to refinance) business. NetBank also offers construction-to-perm loans enabling consumers to finance the construction and permanent financing of their new home in one seamless transaction. Although costs to produce through its retail channel are more expensive than correspondent and broker channels, the retail channel offers higher margins than those channels. Likewise, the retail channel offers a direct relationship with the customer, which allows for more potential cross-selling of other products and services to the customer. Market Street's production is less impacted by cyclical trends that affect the volumes and margins in the correspondent and wholesale channels because a larger portion of Market Street's volume comes from home purchase transactions.

        In its retail offices, Market Street's representatives take mortgage applications, process and underwrite the loans, and fund the approved loans. At its home office in Clearwater, Florida, Market Street performs quality control tests, secondary marketing and loan shipping.

        RMS Production.    NetBank also sells its entire range of mortgage banking competencies on a private label basis to small banks, thrifts, credit unions etc. who lack the knowledge and infrastructure to originate mortgages themselves. NetBank has branded this product offering as "Resource Mortgage Solutions" (RMS). Beginning early in 2002, RMS partnered with the Independent Community Bankers of America (ICBA) to offer mortgage services to its 5,000 community bank members. Through December 31, 2002, RMS had contracts in place to offer services to 354 of ICBA's members. During the first full year in operation, RMS originated $223 million of mortgage loans. Fourth quarter originations were $120 million through the RMS channel. RMS processes loans originated on behalf of these other financial institutions through its wholesale processing center in Jacksonville, Florida. Depending on the level of service provided to the business partner, the margins on RMS production

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can range from those found in the retail channel to those found in the correspondent and wholesale channels.

        Non-conforming Production.    Through Meritage Mortgage Corporation, the Company originates mortgages that will not qualify for agency-eligible mortgage-backed securities due to loan size, the extent of loan documentation, or borrower credit. Meritage originates non-conforming mortgages through a nationwide network of brokers. Meritage underwrites and processes loans at two regional processing centers located in Portland, Oregon and Jacksonville, Florida. All non-conforming loans are sold in the secondary market for cash, and Meritage retains no recourse risk beyond normal seller representations and warranties.

        Non-conforming mortgages are more expensive to process than agency-eligible loans. However, the margin on sale makes these products generally the Company's highest profit mortgage offering. Likewise, the majority of the loans funded through Meritage's non-conforming channel are home purchase mortgage loans as opposed to refinance transactions. Accordingly, Meritage's production volumes tend to be less cyclical than the volumes in NetBank's correspondent and wholesale channels.

Production Volumes

        The following summarizes NetBank's production volumes by channel:

        NetBank purchases and originates a variety of mortgage loan products that are designed, in conjunction with the requirements of prospective purchasers of such loans, to respond to consumer needs and competitive factors. In addition to 15-year and 30-year conventional mortgage loans and 15-year and 30-year FHA loans and VA loans, NetBank purchases and originates products designed to provide lower interest rates to borrowers or lower principal and interest payments by borrowers, including balloon mortgage loans that have relatively short terms (e.g., five or seven years) and longer amortization schedules (e.g., 25 or 30 years) and adjustable rate mortgage loans. The Company also purchases and originates mortgage loans featuring a variety of combinations of interest rates and discount points so that borrowers may elect to pay higher points at closing and less interest over the life of the loan, or pay a higher interest rate and reduce or eliminate points payable at closing. The portion of total loans held for sale at any time that consists of a particular product type depends upon the interest rate environment at the time such loans are orginated.

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        The following is a summary of NetBank's loan production for 2002 and 2001 by major product type.

        The following table shows residential production volume by state for the year ended December 31, 2002 for each state that represented 5% or more of NetBank's total residential mortgage volume.

Sale of Residential Loans

        NetBank customarily sells all agency-eligible mortgage loans that it originates or purchases, retaining the mortgage servicing rights, which may be sold separately or retained by NetBank. Under ongoing programs established with Fannie Mae and Freddie Mac, NetBank aggregates its conforming conventional loans into pools that are assigned to Fannie Mae or Freddie Mac in exchange for mortgage-backed securities. NetBank's FHA mortgage loans and VA mortgage loans are generally pooled and sold in the form of Ginnie Mae mortgage-backed securities. NetBank pays certain fees to Freddie Mac, Fannie Mae or Ginnie Mae, as applicable, in connection with these programs. NetBank

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then sells Freddie Mac, Fannie Mae and Ginnie Mae securities to securities dealers. Substantially all of the Company's agency-eligible mortgage loans qualify under the various Fannie Mae, Freddie Mac and Ginnie Mae program guidelines, which include specific property and credit standards, including a loan size limit. Depending on market conditions for conforming loans and the related servicing rights, NetBank from time to time will sell a portion of its conventional loan production in whole loan sales to other conventional loan seller/servicers to optimize its overall execution into the secondary markets.

        Non-conforming residential mortgage loans are sold to private investors through whole loan sales for cash, retaining no residual interests.

        In the case of conventional loans, subject to the obligations of any primary mortgage insurer, NetBank is generally at risk for any mortgage loan default until the loan is sold (typically less than 45 days). Once NetBank sells the loan, the risk of loss from mortgage loan default and foreclosure generally passes to the purchaser or insurer of the loan. In the case of FHA and VA loans, NetBank has, from the time such a loan is originated or purchased until the first borrower payment is due, a minimum of 31 days, to request insurance or a guarantee certificate. Once the insurance or the guarantee certificate is issued, NetBank has no risk of default, except with respect to certain losses related to foreclosures of FHA mortgage loans and losses that exceed the VA's guarantee limitations. In connection with NetBank's loan exchanges and sales, NetBank makes representations and warranties customary in the industry relating to, among other things, compliance with laws, regulations and program standards and as to accuracy of information. NetBank may become liable for certain damages or may be required to repurchase such loans and bear any potential related loss on the disposition of those loans. Typically, with respect to loans that NetBank repurchases, NetBank corrects the flaws that had resulted in the repurchase, and the loans are resold in the market or are repurchased by the original correspondent pursuant to the prior agreement.

        NetBank uses hedging techniques to reduce its exposure to interest rate risk in connection with loans not yet sold or securitized. NetBank projects the portion of the pipeline loans that it anticipates will close. NetBank assesses the interest-rate risk associated with the commitments that it has extended to originate or purchase loans and evaluates the interest-rate risk of these commitments based upon a number of factors, including the remaining term of the commitment, the interest rate at which the commitment was provided, current interest rates and interest-rate volatility. NetBank constantly monitors these factors and adjusts its hedging instruments when appropriate throughout each business day. NetBank's hedging strategy currently consists of utilizing a combination of mandatory forward sales commitments on mortgage-backed securities and mortgage loans and options on mortgage-backed securities.

        The sale of mortgage loans may generate a gain or loss to NetBank. Gains or losses result primarily from two factors. First, NetBank may originate or purchase a loan at a price (i.e., interest rate and discount) that may be higher or lower than NetBank would receive if it immediately sold the loan in the secondary market. These pricing differences occur principally as a result of competitive pricing conditions in the primary loan origination market. Second, gains or losses upon the sale of loans may result from changes in interest rates, which cause changes in the market value of the loans, or commitments to originate or purchase loans, from the time the price commitment is given to the customer until the time that the loan is sold by NetBank to the investor. To reduce the effect of interest-rate changes on the gain or loss on loan sales, NetBank generally commits to sell all of its agency-eligible warehouse loans and a portion of its pipeline loans to investors for delivery at a future time for a stated price.

        In connection with its agency-eligible loan sale program, which involves the sale of mortgage loans and mortgage-backed securities on a forward or other deferred delivery and payment basis, NetBank has credit risk exposure to the extent purchasers are unable to meet the terms of their forward purchase contracts. As is customary in the mortgage industry, none of the forward payment obligations

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of any of the Company's counterparties is secured or subject to margin requirements; however, NetBank attempts to limit its credit exposure on forward sales arrangements by entering into forward sales contracts solely with institutions that NetBank believes are sound credit risks, and by limiting exposure to any single counterparty by selling to a number of investors. For example, it is NetBank's current policy that not more than the lesser of (i) $500 million or (ii) 30% of the total forward purchase contracts outstanding at any time be with any single counterparty. All counterparties are obligated to settle such sales in accordance with the terms of the related forward sale agreement.

Mortgage Servicing

        NetBank services primarily agency-eligible loans that were securitized and sold as described above. While it services loans, NetBank earns servicing revenue (usually stated as a percent of the outstanding principal balance). NetBank earns late charges assessed to borrowers on payments not paid when contractually due. NetBank also receives a float benefit from escrow accounts for taxes and insurance and for collections of principal and interest that have not yet been passed on to the investor.

        As a servicer of mortgage loans underlying mortgage-backed securities, NetBank is obligated to make timely payments of principal and interest to security holders, whether or not such payments have been made by mortgagors on the underlying mortgage loans. Similarly, in the event of foreclosure, NetBank is responsible for covering with its own funds principal and foreclosure costs to the extent not covered by FHA insurance or a VA guarantee.

        The following table shows the delinquency percentages (excluding bankruptcies and foreclosures) of NetBank's residential mortgage servicing rights portfolio (excluding loans serviced under subservicing agreements) at December 31, 2002.

        At December 31, 2002, NetBank's owned mortgage servicing rights portfolio had an underlying unpaid principal balance of $7.0 billion. The portfolio had a weighted average note rate of 6.75%. The following table provides year of origination information regarding NetBank's agency-eligible mortgage servicing rights portfolio at December 31, 2002:

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        The following table sets forth NetBank's agency-eligible mortgage servicing rights portfolio by loan type at December 31, 2002:

        Since servicing rights are held as a longer-term investment, they are subject to interest rate (prepayment) risk. During periods of declining interest rates, prepayments of mortgage loans increase as homeowners seek to refinance at lower rates, resulting in a decrease in the value of NetBank's available for sale servicing rights portfolio. Mortgage loans with higher interest rates are more likely to result in prepayments. The following table sets forth certain information regarding the aggregate unpaid principal balance of mortgage loans underlying NetBank's portfolio of available for sale mortgage servicing rights. The table includes both fixed and adjustable rate loans at December 31, 2002:

        The following table sets forth the geographic distribution of the aggregate unpaid principal balance of mortgage loans underlying NetBank's portfolio of available for sale mortgage servicing rights at December 31, 2002: