Investors who bought NetBank (NASDAQ:NTBK) back in 1999 and held -- before the dot-com bomb went off -- must be kicking themselves. The promise of avoiding the brick-and-mortar business model, and enjoying a competitive advantage because of it, just hasn't paid off. But NetBank is still alive and kicking, as its third-quarter results indicate.

Analysts, on average, expected the company to earn $0.01 a share this quarter, down from $0.09 for the comparable quarter a year ago. The company ended up reporting a $0.03 loss, but that figure included a $0.05 reserve that was probably not in analysts' estimates.

The reserve covers conforming mortgages that the company believes were made on the basis of misrepresentations. NetBank delayed reporting third-quarter results in October to allow time to determine what to record against these specific loans. While these loans are not in default, and NetBank can pursue recovery from the title insurance company and other originating parties, there is still uncertainty about what the final financial consequence will be -- if any at all -- for the $13 million in loan balances still outstanding.

Also hurting results was a flat yield curve and mortgage industry pricing that has become increasingly aggressive as mortgage originating volume declines -- and today's rising mortgage rates will certainly not help that trend into the current quarter. Hurricanes also put a crimp on ATM income for the quarter.

On the positive side were a 7.6% increase in total deposits and a sharp increase in auto loan profitability caused by a strategic decision to increase pricing, which also produced a 10.1% decline in loan production.

The bank is not positive about its prospects for the fourth quarter. Last year, it earned $0.09, and analysts are projecting $0.06 this year. But the company is sticking with its wide $0.03 to $0.09 earnings range while saying it is "biased toward the low end of this range." Hey, get real. The fourth quarter is already half over. The trends say that an earnings surprise to the upside just isn't happening.

While NetBank reported a net loss for this quarter, analysts expect the company to be profitable this year and next. In fact, the 10 analysts making forecasts for 2006 see earnings in a range of $0.20 to $0.48 a share -- with the average rounding out at $0.36 a share, or 19.7 times forward earnings.

Investors interested in banks will find that NetBank is expensively priced. It lingers between profitability and, well, a distinct lack thereof, while the likes of Citigroup (NYSE:C), Bank of America (NYSE:BAC), and Wells Fargo (NYSE:WFC) hang out at roughly 12 times or less 2006 earnings.

NetBank's business model may make for interesting conversation at a cocktail party, but it is simply not the Tiffany of banks. Investors, for now, would be wise to look elsewhere for banking industry investments.

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Fool contributor W.D. Crotty owns shares of Wells Fargo. Click here to see The Motley Fool's disclosure policy.