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First online bank's final withdrawal

Security First Network Bank, the first Internet-only bank, doesn't want to be a banker anymore.

Security First Network Bank (SFNB), the first Internet-only bank, will soon close its books for good.

The company wants to sell its $48.4 million in bank assets and concentrate instead on its software business, run through wholly owned subsidiary Security First Technologies, which sells software to banks so that they can set up their own Net bank sites. Sale of SFNB's banking assets would address the company's dual personality--Is it a bank or a software developer?--and might boost the company's stock price.

"The industry fixated too much on the bank, and not enough on S1, and it cost the company as a result," said e-commerce analyst Scott Smith of Current Analysis. "It created a regulatory burden for what is essentially a software company."

SFNB chief financial officer Robert Stockwell said banking operations were set up in October 1995 to prove the concept that an Internet bank could be both safe and efficient and to test S1's suite of Internet banking software. Some of SFNB's software customers use the same data center that runs SFNB's banking operations.

"To take the bank to where it needed to be required significant capital resources, and we felt they are better applied to the software company in the short term," Stockwell said. SFNB disclosed in an August regulatory filing that it was considering ways to reduce the bank's capital commitments.

The proposed sale of SFNB's bank operations is the second move by the company in recent months aimed at raising capital. In August, SFNB raised $14.2 million by issuing common and preferred shares, including about $1 million each from software customers Barnett Banks, Citicorp, Principal Financial Group, Synovus Financial, Huntington Bancshares, and Wachovia.

Stockwell said the bank sale already has elicited interest from online brokerages, nonbank financial institutions, and several banks that got a late start on the Net and see Security First Bank as a way to catch up.

To underscore its software operations, SFNB also announced today that it will acquire Solutions By Design, an Atlanta technology consulting firm, in a stock deal worth about $9 million at today's prices. SBD's 36 professional employees qualify for 275,000 options for additional shares if performance goals are met.

SFNB's stock traded at 9 at mid-day, up 15/16, but stock movements may have been affected by today's SFNB earnings report. The company beat analyst expectations by losing 64 cents a share, less than the Wall Street consensus of a 68-cent loss, as reported by First Call.

The company lost $5.8 million for the quarter ending September 30, compared with a net loss of $4.8 million for the same period in 1996. Its software subsidiary reported quarterly revenues of $2.9 million, up from $368,000 in the 1996 quarter. Revenues include software licensing fees, professional services, and hosting fees.

In its banking operations, SFNB narrowed its quarterly loss to $331,000, from $1.3 million in the 1996 period. The company is accounting for the bank operations as a discontinued business.

S1 today counts more than 50 customers, including 16 of the largest 100 U.S. banks. Six customers are offering Internet banking services, with 14 others expected to begin by early next year.