NETBANK INC, 424B4, 1999-06-04

NETBANK INC
424B4, 1999-06-04
SAVINGS INSTITUTIONS, NOT FEDERALLY CHARTERED

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<PAGE>
PROSPECTUS

3,000,000 SHARES

[LOGO]

COMMON STOCK

----------------

Net.B@nk, Inc. is offering 3,000,000 shares of its common stock. An underwriter
that is a foreign broker-dealer will purchase up to 300,000 of these shares for
sales outside of the United States.

The last reported sale price of our common stock, which is listed on the Nasdaq
National Market under the symbol "NTBK," was $32.00 per share on June 3, 1999.

SEE "RISK FACTORS" BEGINNING ON PAGE 7 TO READ ABOUT CERTAIN RISKS THAT YOU
SHOULD CONSIDER BEFORE BUYING SHARES OF OUR COMMON STOCK.

THE SHARES OF OUR COMMON STOCK OFFERED ARE NOT DEPOSITS, SAVINGS ACCOUNTS OR
OTHER OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL AGENCY.

NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY HAS
APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE ADEQUACY OR ACCURACY
OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

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<TABLE>
<CAPTION>
PER
SHARE TOTAL
--------------- ---------------
<S> <C> <C>
Public offering price..................................... $29.00 $87,000,000
Underwriting discounts and commissions.................... $ 1.45 $ 4,350,000
Proceeds, before expenses, to us.......................... $27.55 $82,650,000
</TABLE>

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The underwriters may purchase up to an additional 450,000 shares of common stock
from Net.B@nk at the public offering price less the underwriting discount.

The underwriters are severally underwriting the shares offered by this
prospectus. The underwriters expect to deliver the shares against payment in New
York, New York on June 9, 1999.
------------------------
BEAR, STEARNS & CO. INC.
BANCBOSTON ROBERTSON STEPHENS
RAYMOND JAMES & ASSOCIATES, INC.
KELTON INTERNATIONAL LTD.

The date of this prospectus is June 3, 1999.
<PAGE>
[INSIDE FRONT COVER]

[Graphics appear here, with title "Banking for the 21st Century" and
photographs of computer screens displaying Net.B@nk's home page and its banking,
investment, lending, interest checking, electronic bill payment and account
statement pages. Four bar graphs also appear, showing growth in total customer
accounts, checking accounts, deposits and assets from December 31, 1997 to March
31, 1999.]
<PAGE>
PROSPECTUS SUMMARY

THIS SUMMARY HIGHLIGHTS INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS.
THIS SUMMARY DOES NOT CONTAIN ALL OF THE INFORMATION YOU SHOULD CONSIDER BEFORE
INVESTING IN THE COMMON STOCK. YOU SHOULD READ THE ENTIRE PROSPECTUS CAREFULLY.
UNLESS STATED OTHERWISE, ALL SHARE DATA IN THIS PROSPECTUS REFLECTS OUR 3 FOR 1
STOCK SPLIT IN THE FORM OF A STOCK DIVIDEND, WHICH HAD A RECORD DATE OF APRIL
23, 1999 AND A DISTRIBUTION DATE OF MAY 14, 1999. REFERENCES TO "WE," "US,"
"OUR" AND "NET.B@NK" GENERALLY REFER TO NET.B@NK, INC. AND ITS SOLE SUBSIDIARY,
NET.B@NK, ON A CONSOLIDATED BASIS, EXCEPT WHERE WE INDICATE THAT NET.B@NK, INC.
MEANS ONLY THE PARENT ENTITY AND NET.B@NK REFERS ONLY TO THE BANKING SUBSIDIARY.

OUR BUSINESS

Our unique, internet-based operating strategy has allowed us to experience
rapid growth. During 1998, our customer accounts grew from 4,755 to 17,408,
deposits grew from $58.7 million to $283.6 million and total assets grew from
$93.2 million to $388.4 million. During 1998, we added an average of 1,054 net
customer accounts per month. At March 31, 1999, we had 24,634 customer accounts,
$332.7 million in deposits and $526.5 million in total assets. During the four
months ended April 30, 1999, we added an average of over 2,900 net customer
accounts per month with 4,865 added in April alone.

We offer a broad array of products and services that customers would
typically expect from a traditional bank. Our products and services include
checking and money market accounts, certificates of deposit, electronic bill
payment, debit cards, credit cards, mortgage loans, business equipment leases
and securities brokerage services. We plan to offer consumer loans, including
home equity and automobile loans, beginning in the third quarter of 1999. We
also intend to develop additional products and services such as insurance
products, electronic bill presentment and electronic document and image storage
in a virtual safe deposit box.

Since our equity offering in February 1999, we have continued to experience
rapid growth in our business and have entered into several new programs to
expand and improve our operational and product capabilities. Since February
1999, we have initiated the following:

- EXPANDED MARKETING PROGRAM. We embarked on a new marketing program that
has been highly successful in reaching our targeted audience and has
produced a significant increase in checking accounts. We believe this
growth in our checking account base indicates growing customer willingness
to move their everyday banking activities to Net.B@nk and will result in
long-term customer relationships. Furthermore, we believe that our
checking account customers will visit our Web site more frequently and
spend more time on our Web site, allowing us to cross-sell a variety of
other products and services.

- SERVICING AGREEMENT WITH PNC BANK CORP. We entered into a consumer loan
processing and servicing agreement with PNC Bank Corp. This agreement will
allow us to offer consumer loan products on-line. PNC will provide
origination and loan servicing for these consumer loans as well as
substantially all consumer loans for which we retain servicing rights on a
scalable basis at a favorable cost.

- IMPROVED CUSTOMER SERVICE. We increased our customer support staff by over
70% in order to maintain high-quality customer service. We have also
invested in advanced technology and

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implemented new procedures in order to continually improve the quality and
responsiveness of our customer service.

- STRENGTHENED LENDING AND FINANCIAL OPERATIONS. We expanded our mortgage
lending capabilities through a mortgage loan origination partnership with
Virtuallender.com. We strengthened our lending and financial operations by
adding several experienced individuals to our professional staff.
Additionally, we have significantly increased our loan portfolio while
continuing to maintain a conservative lending and investment strategy.

OUR MARKET OPPORTUNITY

By offering a broad array of financial services via the internet, we are
well-positioned to capitalize on the internet's rapid growth. According to
International Data Corporation, the number of worldwide internet users is
projected to grow from an estimated 159.3 million in 1998 to an estimated 410.4
million by 2002. The internet is emerging rapidly as a means of providing
financial services. According to Jupiter Communications, the number of on-line
banking households in the United States is projected to grow from an estimated
6.6 million in 1998 to an estimated 17.1 million in 2002. A demographic study by
Jupiter Communications indicates that internet users tend to be young, mobile
professionals with relatively high incomes. We believe these demographics
suggest a growing market for the convenience, attractive interest rates and low
fees that characterize Net.B@nk.

As the first federally-insured bank to operate solely on the internet, we
have a first mover advantage relative to on-line banks with less extensive
market presence and less established operating histories. In addition, we have a
competitive cost advantage over traditional banks.

OUR STRATEGY

Our objective is to become the leading provider of a full range of on-line
financial services. To accomplish this objective, we intend to:

- Build national brand awareness through increased marketing efforts.

- Expand our customer base by offering attractive interest rates and low
fees, a result of our low-cost, branchless business model.

- Develop new products and services and enter into strategic alliances where
appropriate.

- Employ a conservative lending and investment strategy to maintain high
asset quality.

- Outsource operational functions to provide scalability and flexibility.

- Generate noninterest income through cross-marketing initiatives.

------------------------

Our principal executive offices are located at 950 North Point Parkway,
Suite 350, Alpharetta, Georgia 30005, telephone (770) 343-6006. Our Web site is
located at www.netbank.com. Information contained on our Web site is not a part
of this prospectus.

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THE OFFERING

<TABLE>
<S> <C>
Common stock offered by us.................. 3,000,000 shares

Common stock to be outstanding after this
offering.................................. 28,802,985 shares

Use of proceeds............................. We intend to invest the majority of the net
proceeds from this offering in earning assets,
including purchased loan portfolios, new loans
that we originate and investment securities.
We intend to use the earnings from these
assets and the balance of the net proceeds
from this offering for general corporate
purposes, including increasing our budgeted
marketing efforts to $11.0 million for the
next twelve months. We also intend to hire
additional personnel, to fund other costs
related to our accelerated deposit growth and
to pursue strategic partnerships and
investments. See "Use of Proceeds."

Nasdaq National Market Symbol............... NTBK

Concurrent notes offering................... Concurrent with this common stock offering and
by a separate prospectus, we are offering
$100,000,000 aggregate principal amount of
4 3/4% Convertible Subordinated Notes Due
2004. The completion of the concurrent notes
offering and this common stock offering do not
depend on one another.
</TABLE>

------------------------

The number of shares of common stock to be outstanding after this offering
is based on the number of shares outstanding as of June 3, 1999. We are
permitted, and in some cases obligated, to issue shares of common stock in
addition to the common stock that will already be outstanding after this
offering. The following is a summary of these additional shares of common stock:

- 1,792,875 shares that are issuable under our stock option plan upon the
exercise of options outstanding as of April 30, 1999 at a weighted average
exercise price of $9.16 per share;

- 1,880,826 additional shares that could be issued under our stock option
plan;

- 450,000 shares that we will be required to issue if the underwriters
exercise their over-allotment option in full; and

- 2,803,476 shares subject to adjustment, that we will be required to issue,
if we complete the concurrent notes offering, at a conversion price of
$35.67 per share.

OTHER INTRODUCTORY MATTERS

Information regarding historical and projected growth in use of the internet
and electronic commerce or relating to the demographic profile of internet users
is derived from reports issued by Jupiter Communications and International Data
Corporation. The demographic profile of our customer base is derived from data
provided by John H. Harland Company, an independent firm that we retained. The
FDIC Institution Directory provides other statistical data relating to the
banking industry.

Net.B@nk-TM- is a trademark of Net.B@nk, Inc. This prospectus also contains
product names and trademarks of other organizations.

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<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA

The summary historical financial information presented below is derived from
Net.B@nk's audited consolidated financial statements as of December 31, 1996,
1997 and 1998 and for the period from February 20, 1996 to December 31, 1996 and
for the years ended December 31, 1997 and 1998 and from Net.B@nk's unaudited
consolidated financial statements as of and for the three months ended March 31,
1998 and 1999. The summary historical financial information should be read in
conjunction with Net.B@nk's consolidated financial statements and related notes,
which are included elsewhere in this prospectus.

<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 20,
1996 (DATE OF YEAR ENDED THREE MONTHS ENDED MARCH 31,
INCORPORATION) TO DECEMBER 31,
DECEMBER 31, --------------------------- -----------------------------
1996 1997 1998 1998 1999
------------------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income.............................. $ 7,709 $ 2,223,165 $ 18,088,044 $ 2,206,614 $ 7,557,850
Interest expense............................. -- 1,259,743 11,424,432 1,303,628 4,559,707
------------------- ------------- ------------ ------------ ------------
Net interest income........................ 7,709 963,422 6,663,612 902,986 2,998,143
Provision for loan losses.................... -- 471,706 20,132 3,661 49,806
------------------- ------------- ------------ ------------ ------------
Net interest income after provision for loan
losses..................................... 7,709 491,716 6,643,480 899,325 2,948,337
Noninterest income........................... 60,000 62,607 683,092 122,495 245,715
Noninterest expense.......................... 3,906,891 6,131,762 5,187,390 1,173,267 2,147,536
------------------- ------------- ------------ ------------ ------------
Income (loss) before income taxes.......... (3,839,182) (5,577,439) 2,139,182 (151,447) 1,046,516
Income tax benefit (expense)................. -- -- 2,324,830 -- (355,000)
------------------- ------------- ------------ ------------ ------------
Net income (loss).......................... $(3,839,182) $ (5,577,439) $ 4,464,012 $ (151,447) $ 691,516
------------------- ------------- ------------ ------------ ------------
------------------- ------------- ------------ ------------ ------------
Net income (loss) per common
share--basic(1).......................... $ (1.44) $ (0.55) $ 0.24(2) $ (0.01) $ 0.03
------------------- ------------- ------------ ------------ ------------
------------------- ------------- ------------ ------------ ------------
Net income (loss) per common and potential
common share--diluted(1)................. $ (1.44) $ (0.55) $ 0.23(2) $ (0.01) $ 0.03
------------------- ------------- ------------ ------------ ------------
------------------- ------------- ------------ ------------ ------------
Weighted average shares
outstanding--basic(1)...................... 2,658,000 10,062,000 18,447,000 18,431,000 22,536,000
Weighted average shares
outstanding--diluted(1).................... 2,658,000 10,062,000 19,152,000 18,431,000 23,424,000

BALANCE SHEET DATA--AT PERIOD END:
Total assets................................. $ 1,246,449 $ 93,219,809 $388,436,736 $163,463,431 $526,463,208
Total deposits............................... -- 58,726,763 283,589,151 128,681,669 332,678,334
Shareholders' equity (deficit)............... (386,073) 34,117,397 38,754,888 34,100,461 143,748,122
Book value per share(1)...................... (0.10) 1.85 2.10 1.85 5.57

FINANCIAL RATIOS AND ACCOUNT DATA:
Percentage of average shareholders' equity
(deficit) to average total assets.......... (30.97)% 35.71% 15.13% 26.58% 19.95%
Percentage of allowance for loan losses to
total loans................................ -- 1.01% 1.24% 0.43% 1.18%
Percentage of charge-offs to average loans... -- 0.08% 0.36% 0.05% 0.12%
Percentage of nonperforming loans to total
loans...................................... -- -- -- -- --
Number of accounts at period end............. -- 4,755 17,408 8,416 24,634
</TABLE>

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(1) On April 13, 1999, we declared a 3 for 1 split of our common stock to be
effected in the form of a stock dividend payable on May 14, 1999 to
shareholders of record as of the close of business on April 23, 1999. All
references to share and per share amounts have been retroactively adjusted
to reflect this split.

(2) Assuming no income tax benefit and a statutory income tax rate of 34% for
the year, pro forma net income per common and potential common share for the
year ended December 31, 1998 would have been $0.08 per share, basic, and
$0.07 per share, diluted.

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RISK FACTORS

AN INVESTMENT IN OUR COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD
CAREFULLY CONSIDER THE SPECIFIC FACTORS LISTED BELOW, TOGETHER WITH THE
CAUTIONARY STATEMENT THAT FOLLOWS THIS SECTION AND THE OTHER INFORMATION
INCLUDED IN THIS PROSPECTUS BEFORE PURCHASING OUR COMMON STOCK.

THE SHARES OF OUR COMMON STOCK ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER
OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE NOT INSURED BY THE FDIC OR
ANY OTHER GOVERNMENTAL AGENCY.

WE COULD SUSTAIN LOSSES IF THE QUALITY OF OUR LOAN PORTFOLIO DETERIORATES

If the quality of our loan portfolio deteriorates due to economic downturns
or our inaccurate assessment of borrower creditworthiness, our interest income
and net interest margin could decrease and our loan loss provision could
increase. This could result in losses that materially adversely affect our
business, financial condition, results of operations and cash flows. A
significant portion of our net income is derived from our loan portfolio. If an
economic downturn occurs either generally or in the Western or Southeastern
United States, the regions collectively representing the greatest concentration
of loans in our loan portfolio, borrowers may be less likely to repay their
loans as scheduled.

OUR SUCCESS DEPENDS ON THE CONTINUED GROWTH IN USE AND COMMERCIAL VIABILITY OF
THE INTERNET

Our future success depends substantially on continued growth in use of the
internet. The internet is, however, a relatively new commercial marketplace and
may not continue to grow. If internet use does not continue to grow, our
business, financial condition, results of operations and cash flows could be
materially adversely affected.

Additionally, to the extent the internet's technical infrastructure or
security concerns adversely affect its growth, our business, financial
condition, results of operations and cash flows could be materially adversely
affected. If the number of internet users and the level of use continues to
grow, the internet's technical infrastructure may become unable to support the
demands placed upon it. Furthermore, third-party vendors might not be able to
timely and adequately develop the necessary technical infrastructure for
significant increases in electronic commerce, such as a reliable network
backbone, or to introduce performance improvements, such as high-speed modems.
The internet could also lose its commercial viability due to delays in the
development or adoption of new standards and protocols required to handle
increased levels of activity or due to increased governmental regulation.
Changes in or insufficient availability of telecommunication services could
produce slower response times and adversely affect use of the internet.
Furthermore, the general public's security concerns regarding the transmittal of
confidential information, such as credit card numbers, over the internet might
persist or even worsen. These security concerns could lead to resistance against
widespread acceptance of the internet as a viable commercial marketplace.

OUR OPERATIONS COULD BE INTERRUPTED IF OUR NETWORK OR COMPUTER SYSTEMS FAIL OR
EXPERIENCE A SECURITY BREACH

Interruptions in our operations resulting from damage or failure of our
network or computer system could materially adversely affect our business,
financial condition, results of operations and cash flows. Because we conduct
our business over the internet and outsource several critical functions to third
parties, our operations depend on our ability, as well as that of our
third-party service providers, to protect our computer systems and network
infrastructure against damage from fire, power loss, telecommunications failure,
physical break-ins or similar catastrophic events. Our computer systems and
network infrastructure could be vulnerable to unforeseen problems.

In addition, any compromise or breach of our network or computer system
security could have a material adverse effect on our business, financial
condition, results of operations and cash flows. A

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significant barrier to on-line financial transactions is the secure transmission
of confidential information over public networks. We rely on encryption and
authentication technology to provide the security and authentication necessary
for secure transmission of confidential information. Advances in computer
capabilities, new discoveries in the field of cryptography or other developments
could result in a compromise or breach of the algorithms Net.B@nk and its
third-party service providers use to protect customer transaction data. See
"Business--Security."

We are part of a rapidly evolving electronic commerce market. Market
acceptance of internet banking depends substantially on widespread adoption of
the internet for general commercial and financial services transactions. If
another provider of commercial services through the internet were to suffer
damage from a physical break-in, security breach or other disruptive problem
caused by the internet or other users, the growth and public acceptance of the
internet for commercial transactions could suffer. Such an event could deter
potential customers or cause customers to leave us and thereby materially
adversely affect our business, financial condition, results of operations and
cash flows.

INDUSTRY COMPETITION MAY ADVERSELY AFFECT OUR SUCCESS

The banking industry is highly competitive in general, and the market for
internet banking in particular has experienced a recent surge in new entrants.
Our future profitability depends on our ability to compete successfully. We
believe our ability to compete successfully depends on a number of factors,
including:

- Market presence;

- Customer service and satisfaction;

- The capacity, reliability and security of our network infrastructure;

- Ease of access to and navigation of the internet;

- Our competitors' interest rates and service fees;

- The scope of our products and services and the rate at which we and our
competitors introduce them; and

- Industry and general economic trends.

If we experience difficulty in any of these areas, our business, financial
condition, results of operations and cash flows could be materially adversely
affected.

In addition, many of our principal competitors, traditional banks and
thrifts, other internet banks and other financial service providers, such as
brokerage and insurance companies, have greater financial and other resources
than we do. Because there are few barriers to on-line market entry for existing
chartered financial institutions, our competitors could implement internet
banking operations with relative ease. Furthermore, brokerage companies and
other financial service providers may not be subject to the same degree of
regulation as we are. See "Business--Competition."

FAILURE TO IMPLEMENT OUR BUSINESS STRATEGY OR MANAGE OUR GROWTH EFFECTIVELY MAY
ADVERSELY AFFECT OUR FINANCIAL PERFORMANCE

We may not succeed in implementing our business strategy and, even if we do
succeed, our strategy may not have the favorable impact on operations that we
anticipate. Our success depends on our ability to execute our marketing plan,
leverage our low cost structure, offer a broad array of products and services,
provide convenient, high-quality customer service and employ other elements of
our business strategy. We may not be able to manage effectively the expansion of
our operations or achieve the rapid execution necessary to exploit fully the
market for our services. If we are unable to manage growth effectively, or to
otherwise adequately implement our business strategy, our business,

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financial condition, results of operations and cash flows could be materially
adversely affected. See "Business--Growth Strategy."

FAILURE TO INTRODUCE NEW PRODUCTS AND SERVICES SUCCESSFULLY MAY CAUSE US TO LOSE
MARKET SHARE

If we are unable to develop and bring additional products and services to
market in a timely manner, we could lose market share to competitors who are
able to offer these additional products and services, which could materially
adversely affect our business, financial condition, results of operations and
cash flows. Our success depends in part upon our ability to offer new products
and services that meet changing customer requirements. See "Business--Industry
Background," "--The Net.B@nk Solution" and "--Products and Services."

OUR PROFITABILITY AND GROWTH MAY BE ADVERSELY AFFECTED IF INTERNET BANKING DOES
NOT BECOME WIDELY ACCEPTED

If the internet banking market does not continue to develop, our business,
financial condition, results of operations and cash flows could be materially
adversely affected. The market for internet banking services is rapidly evolving
and the ultimate demand for and market acceptance of internet banking remains
uncertain. Market acceptance of internet banking depends on consumer willingness
to use the internet for general commercial and financial services transactions.
Other critical issues concerning the commercial use of the internet, including
reliability, cost, ease of use and access and quality of service, may also
impact the growth of internet use. Consequently, internet banking may not become
as widely accepted as traditional methods of banking and our profitability and
growth could be adversely affected. See "Business--Industry Background" and
"--The Net.B@nk Solution."

OUR COMPETITIVE POSITION DEPENDS ON OUR ABILITY TO ATTRACT AND RETAIN KEY
PERSONNEL

Our success depends upon the continued service of our senior management team
and key technical personnel and upon our ability to attract and retain qualified
personnel. If we lose the services of our key personnel, or are unable to
attract additional qualified personnel, our business, financial condition,
results of operations and cash flows could be materially adversely affected. On
April 30, 1999, Donald S. Shapleigh, Jr. resigned as our President. We have not
yet hired anyone to replace him and cannot predict when this position will be
filled. To date, this vacancy has not adversely affected our operations;
however, we cannot predict the effect a continued vacancy in this position will
have on our operations. Our employees do not have employment agreements and may
voluntarily terminate their employment at any time. In the current market,
competition for qualified employees, particularly in technical fields, is
intense. In our experience, it can take a significant period of time to identify
and hire personnel with the combination of skills and attributes required to
carry out our strategy. We do not carry key person life insurance on any of our
executives. See "Management."

CHANGES IN INTEREST RATES MAY DECREASE OUR NET INTEREST INCOME

An increase or decrease in interest rates could have a material adverse
effect on our net interest income, capital and liquidity. Our operations depend
substantially on our net interest income, which is the difference between the
interest income earned on our interest-earning assets, such as loans and
investments, and the interest expense paid on our interest-bearing liabilities,
such as deposits and other borrowings. Like most depository institutions, our
earnings are affected by changes in market interest rates and other economic
factors beyond our control. While we intend to continue to take measures to
decrease interest rate risk, these measures may not be effective in minimizing
the exposure to interest rate risk. The difference between the amount of
interest-earning assets and interest-bearing liabilities that mature within a
given period of time, or the interest rate sensitivity "gap," indicates the
extent to which an institution's interest rate spread will be affected by
changes in interest rates. A gap is considered positive when the amount of
interest rate-sensitive assets exceeds the amount of interest

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rate-sensitive liabilities and is considered negative when the amount of
interest rate-sensitive liabilities exceeds the amount of interest
rate-sensitive assets. In a rising interest rate environment, an institution
with a positive gap would be in a better position than an institution with a
negative gap to invest in higher yielding assets or have its asset yields
adjusted upward, which would result in the yield on its assets increasing at a
faster pace than the cost of its interest-bearing liabilities. During a period
of falling interest rates, however, an institution with a positive gap would
tend to have its assets maturing at a faster rate than one with a negative gap,
which would tend to reduce or restrain the growth of its net interest income. If
we are unsuccessful in managing interest rate fluctuations, our business,
financial condition, results of operations and cash flows could be materially
adversely affected. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Market Risk."

OUR OPERATIONS COULD BE INTERRUPTED IF OUR THIRD-PARTY SERVICE PROVIDERS
EXPERIENCE DIFFICULTY OR TERMINATE THEIR SERVICES

If our third-party service providers experience difficulties or terminate
their services and we are unable to replace them with another service provider,
our operations could be interrupted. If an interruption were to continue for a
significant period of time, our business, financial condition, results of
operations and cash flows could be materially adversely affected. We depend, and
will continue to depend, significantly on a number of relationships with
third-party service providers. Specifically, we receive essential Web hosting,
electronic bill payment and core systems processing services on an outsourced
basis from NCR Corporation, CheckFree Corporation and BISYS Group, Inc.,
respectively. See "Business--Operations."

OUR COMPUTER SYSTEMS, AND THOSE OF OTHERS ON WHOM WE RELY, MAY NOT OPERATE
PROPERLY ON YEAR 2000-SENSITIVE DATES

The year 2000 issue common to most corporations, including Net.B@nk,
concerns the inability of some computer software programs and databases to
recognize the year 2000 and other year 2000-sensitive dates. Computer programs
we or our service providers use that recognize a date using "00" as the year
1900 rather than the year 2000 could result in errors or system failures that
could ultimately cause us or our service providers to be unable to process
customer transactions. This would require us to cease operations pending
resolution of the problem. We believe our principal risk lies in the potential
inability of our outside vendors and service providers to process date-sensitive
information involving the year 2000. We also face risks relating to the
potential year 2000 noncompliance of other institutions that service our loans,
merchants receiving electronic transfers of funds from our customers, the
FedWire system governing electronic funds transfers, the ATM networks with which
we are is affiliated and the Federal Reserve system itself. Additionally, if any
of our borrowers encounter year 2000 computer malfunctions they may become
unable to repay their loans.

Furthermore, if we are unable to achieve year 2000 readiness, our regulators
could suspend our operations. Although we are working to resolve the potential
impact of the year 2000 on the ability of the computerized information systems
we use to accurately process information that may be date-sensitive, if we or
any of our service providers or other entities cannot achieve year 2000
readiness, our business, financial condition, results of operations and cash
flows could be materially adversely affected. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Year 2000."

THE MARKET PRICE OF OUR COMMON STOCK HAS FLUCTUATED, AND COULD FLUCTUATE
SIGNIFICANTLY IN THE FUTURE

The market price of our common stock has been highly volatile since our
initial public offering, with closing prices ranging from a low of $2.92 per
share to a high of $78.34 per share. The market price of the common stock will
continue to fluctuate, and could fluctuate significantly, in response to

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various factors and events, including the liquidity of the market for the common
stock, differences between our actual financial or operating results and those
expected by investors and analysts, changes in analysts' recommendations or
projections, new statutes or regulations or changes in the interpretation of
existing statutes and regulations affecting our business, changes in general
economic or market conditions and broad market fluctuations. See "Price Range of
Common Stock."

WE RELY ON INTELLECTUAL PROPERTY RIGHTS

We regard the form and substance of our name as proprietary and attempt to
protect it by relying on intellectual property laws. We have submitted a United
States trademark registration for the Net.B@nk name and take active measures to
safeguard this name. Policing unauthorized use of proprietary information is
difficult, however, and we cannot assure you about the continued viability or
value of any of the intellectual property rights that we now have or may have in
the future. Litigation may be necessary in the future to enforce our
intellectual property rights.

In addition, our business activities could infringe upon the proprietary
rights of others, and other parties could assert infringement claims against us.
Any litigation claims or counterclaims we might make could impair our business
because they could be time-consuming, result in costly litigation or divert
management's attention.

We own the internet domain name "netbank.com". The regulation of domain
names in the United States and in foreign countries may change. Regulatory
bodies could establish additional top-level domains, appoint additional domain
name registrars or modify the requirements for holding domain names, any or all
of which may dilute the strength of our name. We may not acquire or maintain our
domain names in all of the countries in which our Web site may be accessed or
for any or all of the top-level domain names that may be introduced. The
relationship between regulations governing domain names and laws protecting
intellectual property rights is unclear. Therefore, we may not be able to
prevent third parties from acquiring domain names that infringe or otherwise
decrease the value of our trademarks and other intellectual property rights.

GOVERNMENT REGULATION MAY ADVERSELY AFFECT OUR ABILITY TO CONDUCT BUSINESS

BANK REGULATION. Revisions to existing or adoption of new laws or
regulations could subject us to more demanding regulatory compliance
requirements and could adversely affect our ability to conduct, or our cost of
conducting, business. Net.B@nk, Inc., the parent company, is regulated by the
Office of Thrift Supervision and the Georgia Department of Banking and Finance
and subject to certain restrictions imposed by the Board of Governors of the
Federal Reserve System. Net.B@nk, our banking subsidiary, is regulated by the
Office of Thrift Supervision and the FDIC. We are also subject to various laws
and regulations relating to commercial and consumer transactions generally, such
as the Uniform Commercial Code, as well as the electronic funds transfer rules
which are contained in Regulation E, issued by the Federal Reserve Board. Any of
these agencies, or other governmental or regulatory authorities, could revise
existing regulations or adopt new regulations at any time. Legislation and
regulatory initiatives containing wide-ranging proposals for altering the
structure, regulation and competitive relationships of financial institutions
are introduced regularly. We cannot predict whether or in what form a proposed
statute or regulation will be adopted or the extent to which it may affect our
business.

Furthermore, given the rapid expansion of the electronic commerce market,
many regulatory bodies are adopting measures to ensure that their regulations
are keeping pace. For example, Congress has held hearings on whether to regulate
the electronic commerce market, while numerous states are considering adopting
their own laws to regulate internet banking. Furthermore, bank regulators are
considering proposing new laws relating to customer privacy. If enacted, these
laws, rules and regulations could force us to comply with more complex and
perhaps more burdensome regulatory

11
<PAGE>
requirements, which could materially adversely affect our business, financial
condition, results of operations and cash flows. See "Business--Supervision and
Regulation."

INTERNET REGULATION. Our ability to conduct, and/or our cost of conducting,
business may also be adversely affected by a number of legislative and
regulatory proposals concerning other aspects of the internet, which are
currently under consideration by federal, state, local and foreign governmental
organizations. These proposals include, but are not limited to the following
matters: on-line content, user privacy, taxation, access charges, liability of
third-party activities and jurisdiction. Moreover, we do not know how existing
laws relating to these issues will be applied to the internet. The adoption of
new laws or the application of existing laws could decrease the growth in the
use of the internet, which could in turn decrease the demand for our products
and services, increase our cost of doing business or otherwise have a material
adverse effect on our business, financial condition, results of operations and
cash flows. Furthermore, government restrictions on internet content could slow
the growth of internet use and decrease acceptance of the internet as a
communications and commercial medium and thereby have a material adverse effect
on our business, financial condition and results of operations.

Some local telephone carriers have asserted that the growing popularity and
use of the internet has burdened the existing telecommunications infrastructure
and caused interruptions in telephone service in areas with high internet use.
These carriers have petitioned the Federal Communications Commission to impose
access fees on internet service providers and commercial on-line service
providers. If the Federal Communications Commission imposes access fees, the
costs of transacting business over the internet could increase substantially,
potentially slowing the growth in use of the internet. This could in turn
decrease demand for our services or increase our cost of doing business, and
thus have a material adverse effect on our business, financial condition,
results of operations and cash flows.

INTERNET PRIVACY. Internet user privacy has become an issue both in the
United States and abroad. The Federal Trade Commission has proposed model
legislation that would force companies to comply with specified core information
practices. It is possible that Congress could adopt either legislation similar
to that proposed by the Federal Trade Commission or other privacy legislation
that could have a material adverse effect on the way in which we are allowed to
conduct our business, especially those aspects that involve the collection or
use of personal information. At the international level, the European Union has
adopted a directive that permits European Union member countries to impose
restrictions on the collection and use of personal data. This directive could,
among other things, affect United States companies that collect information over
the internet from individuals in European Union member countries and may impose
restrictions that are more stringent than current internet privacy standards in
the United States. In response to this directive, on November 4, 1998, the
United States Department of Commerce published for comment a set of safe harbor
principles regarding privacy protection for personally identifiable data. These
principles were revised on April 19, 1999.

OUR DIRECTORS AND EXECUTIVE OFFICERS OWN A SIGNIFICANT PORTION OF OUR
OUTSTANDING COMMON STOCK AND COULD EXERCISE SIGNIFICANT INFLUENCE OVER
NET.B@NK

As of April 30, 1999, our directors and executive officers beneficially
owned 5,384,096 shares, representing approximately 20.0%, of the outstanding
common stock of Net.B@nk. As a result, our directors and executive officers
could exercise significant influence over matters requiring shareholder
approval, including the election of directors or a change in control of
Net.B@nk. See "Management" and "Principal Shareholders."

12
<PAGE>
OUR ARTICLES OF INCORPORATION AND BYLAWS COULD DETER A CHANGE IN CONTROL AND
DEPRIVE YOU OF AN OPPORTUNITY TO SELL YOUR COMMON STOCK AT A PREMIUM OVER
MARKET PRICES

Our Articles of Incorporation and Bylaws contain provisions that may deter
an attempt to change or gain control of Net.B@nk. As a result, you may be
deprived of opportunities to sell some or all of your shares at prices that
represent a premium over market prices. These provisions include the existence
of blank check preferred stock, staggered terms for the directors, restrictions
on the ability to change the number of directors or to remove a director and
supermajority voting requirements. See "Description of Capital Stock."

WE DO NOT INTEND TO PAY CASH DIVIDENDS

We do not intend to pay cash dividends in the foreseeable future, as we
expect to apply any earnings to developing and expanding our business. See
"Dividend Policy."

THE MARKET PRICE OF THE COMMON STOCK MAY DECLINE DUE TO SHARES ELIGIBLE FOR
FUTURE SALE

Future sales of substantial amounts of common stock in the public market or
the perception that such sales could occur could adversely affect the market
price of the common stock. Certain directors and executive officers of Net.B@nk,
who collectively hold 5,172,096 restricted shares of common stock, are precluded
under Office of Thrift Supervision requirements from selling any of these shares
of common stock without prior Office of Thrift Supervision approval until July
28, 2000. If all of these shares are sold when they first become eligible for
resale, the increase in the number of shares available for sale could adversely
affect the market price of the common stock.

WE HAVE BROAD DISCRETION IN ALLOCATING THE NET PROCEEDS FROM THIS OFFERING

Our management will have broad discretion in allocating the net proceeds
from this offering. We have not yet determined the allocation of these funds to
the various purposes described in this prospectus. See "Use of Proceeds."

13
<PAGE>
CAUTIONARY STATEMENT REGARDING
FORWARD-LOOKING STATEMENTS

Some of the statements in this prospectus are forward-looking statements.
These forward-looking statements include statements in the "Business-Industry
Background" and "The Net.B@nk Solution" sections of this prospectus relating to
trends in internet use and electronic commerce. These forward-looking statements
also include statements relating to our performance in the "Management's
Discussion and Analysis of Financial Condition and Results of Operations," "Use
of Proceeds" and "Business" sections of this prospectus. In addition, we may
make forward-looking statements in future filings with the Securities and
Exchange Commission and in written materials, press releases and oral statements
issued by us or on our behalf. Forward-looking statements include statements
regarding the intent, belief or current expectations of Net.B@nk or its officers
and can be identified by the use of forward-looking terms such as "may," "will,"
"should," "believe," "expect," "anticipate," "estimate," "continue" or the
negative of these words or comparable terminology. Forward-looking statements
relating to the following involve inherent risks and uncertainties:

- The growth in the use of the internet;

- Our business strategy;

- Competitiveness in the banking industry;

- Potential regulatory obligations; and

- Other statements that are not historical facts.

Our actual results could differ materially from those anticipated from the
forward-looking statements, depending on various important factors. These
factors include:

- A possible decline in asset quality;

- The evolving nature of the market for internet banking;

- The possible adverse effects of unexpected changes in the interest rate
environment; and

- Increasing competition and regulatory changes.

In addition, please note that matters set forth under the caption "Risk
Factors" constitute cautionary statements identifying important factors with
respect to the forward-looking statements, including risks and uncertainties,
that could cause actual results to differ materially from those in the
forward-looking statements.

All forward-looking statements in this prospectus are based on information
available to us as of the date of this prospectus. We do not undertake to update
any forward-looking statements that may be made by us or on our behalf in this
prospectus or otherwise.

14
<PAGE>
USE OF PROCEEDS

We estimate that the net proceeds to us from our sale of 3,000,000 shares of
common stock in this offering, after payment of underwriting discounts and
commissions and estimated expenses of the offering, will be $82,150,000. If the
underwriters exercise their over-allotment option in full, we estimate that the
net proceeds to us will be $94,547,500 after payment of underwriting discounts
and commissions and estimated expenses of the offering. We intend to invest the
majority of the net proceeds from this offering in earning assets, including
purchased loan portfolios, new loans that we originate and investment
securities. We intend to use the earnings from these assets and the balance of
the net proceeds from this offering for general corporate purposes, including
increasing our budgeted marketing efforts to $11.0 million for the next twelve
months. We also intend to hire additional personnel, to fund other costs related
to our accelerated deposit growth and to pursue strategic partnerships and
investments. We have not yet allocated the net proceeds to each of the proposed
purposes. Although we continually evaluate opportunities for strategic
partnerships and investments, we do not presently have an understanding or
agreement relating to any such arrangement that is material to our business or
that we have not otherwise disclosed in this prospectus.

Concurrent with this offering and by means of a separate prospectus, we are
offering $100,000,000 aggregate principal amount of 4 3/4% Convertible
Subordinated Notes Due 2004, plus an additional $15,000,000 aggregate principal
amount of notes, solely to cover the underwriters' over-allotment option. The
notes are convertible, at the option of the holder, into shares of common stock
at a conversion price of $35.67 per share, which is equivalent to 28.0348 shares
per $1,000 principal amount of the notes, subject to anti-dilution adjustments.
The notes rank junior in right of payment to substantially all of our senior
indebtedness in existence at the time of the issuance of the notes or incurred
by us in the future. In addition, the notes are subordinate to all existing and
future liabilities of our subsidiaries, including our obligations to depositors
and trade and other creditors. The completion of the notes offering and this
common stock offering do not depend upon one another. We intend to use the
proceeds from the notes offering for the same purposes as for the common stock
offering.

15
<PAGE>
CAPITALIZATION

The following table sets forth our consolidated capitalization at March 31,
1999, the pro forma consolidated capitalization as adjusted to reflect the
completion of this offering and as further adjusted to reflect the concurrent
sale of the notes. This table should be read together with "Selected
Consolidated Financial Data", "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our consolidated financial statements
and related notes, which are included elsewhere in this prospectus.

<TABLE>
<CAPTION>
MARCH 31, 1999
----------------------------------------------
AS AS
ADJUSTED FURTHER
TO REFLECT ADJUSTED
THIS TO REFLECT THE
ACTUAL OFFERING NOTES OFFERING
-------------- -------------- --------------
<S> <C> <C> <C>
Indebtedness:
Other borrowed funds............................................ $ 45,000,000 $ 45,000,000 $ 45,000,000
4 3/4% Convertible Subordinated Notes Due 2004.................. -- -- 100,000,000
-------------- -------------- --------------
Total indebtedness............................................ 45,000,000 45,000,000 145,000,000
-------------- -------------- --------------
Shareholders' Equity:
Preferred stock, no par value, 10,000,000 shares authorized; no
shares outstanding............................................ -- -- --
Common stock, $0.01 par value, 100,000,000 shares authorized;
25,795,485 shares outstanding, actual and 28,795,485 shares
outstanding, as adjusted and as further adjusted.............. 85,985 115,985 115,985
Additional paid-in capital...................................... 148,604,108 230,724,108 230,724,108
Unamortized stock plan expense.................................. (15,709) (15,709) (15,709)
Accumulated deficit............................................. (4,261,093) (4,261,093) (4,261,093)
Accumulated other comprehensive loss, net of tax................ (665,169) (665,169) (665,169)
-------------- -------------- --------------
Total shareholders' equity.................................... 143,748,122 225,898,122 225,898,122
-------------- -------------- --------------
Total capitalization...................................... $ 188,748,122 $ 270,898,122 $ 370,898,122
-------------- -------------- --------------
-------------- -------------- --------------

Book value per share............................................ $ 5.57 $ 7.84 $ 7.84
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>

The pro forma capitalization as adjusted to reflect this offering assumes
that the net proceeds to us, after deducting the underwriting discount and
estimated offering expenses payable by us, are $82,150,000. If the underwriters
exercise their over-allotment option in full, 3,450,000 shares of common stock
would be sold by us, resulting in total net proceeds of $94,547,500.

The pro forma capitalization as further adjusted to reflect the notes
offering again assumes $82,150,000 of net proceeds from this common stock
offering and in addition assumes the offering of $100,000,000 aggregate
principal amount of notes and that there is no conversion of the notes. The
underwriting discount and other estimated fees and expenses related to the notes
are expected to total $3,290,000. If the underwriters exercise their
over-allotment option in full, $115,000,000 aggregate principal amount of the
notes would be sold by us, resulting in total net proceeds of $111,260,000.

16
<PAGE>
PRICE RANGE OF COMMON STOCK

Net.B@nk common stock was listed on the Nasdaq SmallCap Market under the
symbol "NTBK" from July 28, 1997 until February 5, 1999. Since February 5, 1999
Net.B@nk's common stock has been listed on the Nasdaq National Market. The
following table sets forth for the periods indicated the high and low sales
prices per share of common stock as reported on the Nasdaq SmallCap Market and
Nasdaq National Market. The market price has been adjusted for the 3 for 1 stock
split effected on May 14, 1999 in the form of a stock dividend to the
shareholders of record as of April 23, 1999. See note 14 of the notes to the
consolidated financial statements.

<TABLE>
<CAPTION>
HIGH LOW
--------- ---------
<S> <C> <C>
NASDAQ SMALLCAP MARKET:
1997
Third quarter (commencing July 28)................................................. $ 4.42 $ 2.88
Fourth quarter..................................................................... $ 4.13 $ 3.04

1998
First quarter...................................................................... $ 8.42 $ 3.75
Second quarter..................................................................... $ 10.54 $ 7.33
Third quarter...................................................................... $ 12.13 $ 5.25
Fourth quarter..................................................................... $ 11.81 $ 3.58

1999
First quarter (through February 4)................................................. $ 22.75 $ 8.67

NASDAQ NATIONAL MARKET:
1999
First quarter (from February 5).................................................... $ 25.00 $ 11.67
Second quarter (through June 3).................................................... $ 83.00 $ 22.75
</TABLE>

On June 3, 1999, there were approximately 175 holders of record of our
common stock. On June 3, 1999, the closing sales price of the common stock on
the Nasdaq National Market was $32.00 per share.

DIVIDEND POLICY

We have not declared or paid any cash dividends on the common stock. On May
14, 1999, we effected a 3 for 1 stock split in the form of a stock dividend to
the shareholders of record as of April 23, 1999. See note 14 of the notes to the
consolidated financial statements. For the foreseeable future we do not intend
to declare cash dividends. We intend to retain earnings to grow our business and
strengthen our capital base. In addition, the Office of Thrift Supervision
regulates the dividends payable by our subsidiary, Net.B@nk. See
"Business--Supervision and Regulation--Capital Distributions."

17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA

The selected financial data set forth below as of December 31, 1996, 1997
and 1998 and with respect to the period from February 20, 1996 to December 31,
1996 and the years ended December 31, 1997 and 1998 is derived from the audited
consolidated financial statements of Net.B@nk. The selected financial data set
forth below as of and for the three months ended March 31, 1998 and 1999 is
derived from the unaudited consolidated financial statements of Net.B@nk, which
in our management's opinion, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
information set forth in the financial statements. The results as of and for the
three months ended March 31, 1999 are not necessarily indicative of the results
for the full year ending December 31, 1999. The following selected historical
financial information should be read in conjunction with Net.B@nk's consolidated
financial statements and the related notes thereto included elsewhere in this
prospectus and with "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 20,
1996 (DATE OF YEAR ENDED
INCORPORATION) TO DECEMBER 31,
DECEMBER 31, -------------------------
1996 1997 1998
------------------- ----------- ------------
<S> <C> <C> <C>
INCOME STATEMENT DATA:
Interest income........................................ $ 7,709 $ 2,223,165 $ 18,088,044
Interest expense....................................... -- 1,259,743 11,424,432
------------------- ----------- ------------
Net interest income.................................. 7,709 963,422 6,663,612
Provision for loan losses.............................. -- 471,706 20,132
------------------- ----------- ------------
Net interest income after provision for loan
losses............................................. 7,709 491,716 6,643,480
Noninterest income..................................... 60,000 62,607 683,092
Noninterest expense.................................... 3,906,891 6,131,762 5,187,390
------------------- ----------- ------------
Income (loss) before income taxes.................... (3,839,182) (5,577,439) 2,139,182
Income tax benefit (expense)........................... -- -- 2,324,830
------------------- ----------- ------------
Net income (loss).................................... $(3,839,182) $(5,577,439) $ 4,464,012
------------------- ----------- ------------
------------------- ----------- ------------
Net income (loss) per common share--basic(1)......... $ (1.44) $ (0.55) $ 0.24(2)
------------------- ----------- ------------
------------------- ----------- ------------
Net income (loss) per common and potential common
share--diluted(1).................................. $ (1.44) $ (0.55) $ 0.23(2)
------------------- ----------- ------------
------------------- ----------- ------------
Weighted average shares outstanding--basic(1).......... 2,658,000 10,062,000 18,447,000
Weighted average shares outstanding--diluted(1)........ 2,658,000 10,062,000 19,152,000

BALANCE SHEET DATA--AT PERIOD END:
Total assets........................................... $ 1,246,449 $93,219,809 $388,436,736
Total deposits......................................... -- 58,726,763 283,589,151
Other borrowed funds................................... -- -- 60,000,000
Shareholders' equity (deficit)......................... (386,073) 34,117,397 38,754,888
Book value per share(1)................................ (0.10) 1.85 2.10

FINANCIAL RATIOS AND ACCOUNT DATA:
Return on average total assets (ROA)................... N/M (11.81)% 1.85%(3)
Return on average shareholders' equity (ROE)........... N/M (33.07)% 12.25%(3)
Percentage of average shareholders' equity (deficit) to
average total assets................................. (30.97)% 35.71% 15.13%
Percentage of allowance for loan losses to total
loans................................................ -- 1.01% 1.24%
Percentage of charge-offs to average loans............. -- 0.08% 0.36%
Percentage of nonperforming loans to total loans....... -- -- --
Number of accounts at period end....................... -- 4,755 17,408

THREE MONTHS ENDED
MARCH 31,
--------------------------
1998 1999
------------ ------------
<S> <C> <C>
INCOME STATEMENT DATA:
Interest income........................................ $ 2,206,614 $ 7,557,850
Interest expense....................................... 1,303,628 4,559,707
------------ ------------
Net interest income.................................. 902,986 2,998,143
Provision for loan losses.............................. 3,661 49,806
------------ ------------
Net interest income after provision for loan
losses............................................. 899,325 2,948,337
Noninterest income..................................... 122,495 245,715
Noninterest expense.................................... 1,173,267 2,147,536
------------ ------------
Income (loss) before income taxes.................... (151,447) 1,046,516
Income tax benefit (expense)........................... -- (355,000)
------------ ------------
Net income (loss).................................... $ (151,447) $ 691,516
------------ ------------
------------ ------------
Net income (loss) per common share--basic(1)......... $ (0.01) $ 0.03
------------ ------------
------------ ------------
Net income (loss) per common and potential common
share--diluted(1).................................. $ (0.01) $ 0.03
------------ ------------
------------ ------------
Weighted average shares outstanding--basic(1).......... 18,431,000 22,536,000
Weighted average shares outstanding--diluted(1)........ 18,431,000 23,424,000
BALANCE SHEET DATA--AT PERIOD END:
Total assets........................................... $163,463,431 $526,463,208
Total deposits......................................... 128,681,669 332,678,334
Other borrowed funds................................... -- 45,000,000
Shareholders' equity (deficit)......................... 34,100,461 143,748,122
Book value per share(1)................................ 1.85 5.57
FINANCIAL RATIOS AND ACCOUNT DATA:
Return on average total assets (ROA)................... (0.48 (4) 0.60%(4)
Return on average shareholders' equity (ROE)........... (1.76 (4) 3.04%(4)
Percentage of average shareholders' equity (deficit) to
average total assets................................. 26.58% 19.95%
Percentage of allowance for loan losses to total
loans................................................ 0.43% 1.18%
Percentage of charge-offs to average loans............. 0.05% 0.12%
Percentage of nonperforming loans to total loans....... -- --
Number of accounts at period end....................... 8,416 24,634
</TABLE>

- ------------------------------
(1) On April 13, 1999, we declared a 3 for 1 split of our common stock to be
effected in the form of a stock dividend payable on May 14, 1999 to
shareholders of record as of the close of business on April 23, 1999. All
references to share and per share amounts have been retroactively adjusted
to reflect this split.
(2) Assuming no income tax benefit and assuming a statutory income tax rate of
34% for the year, pro forma net income per common and potential common share
for the year ended December 31, 1998 would have been $0.08 per share, basic,
and $0.07 per share, diluted.
(3) Assuming no income tax benefit and assuming a statutory income tax rate of
34% for the year, pro forma return on average total assets and average
shareholders' equity for the year ended December 31, 1998 would have been
0.59% and 4.04%, respectively.
(4) As adjusted to reflect an annualized rate of return.

18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

GENERAL

Net.B@nk, Inc. is a holding company that wholly owns Net.B@nk, a federal
savings bank. Net.B@nk, Inc. was incorporated as a Georgia corporation on
February 20, 1996, for the purpose of forming and, ultimately, operating a
wholly owned federal savings bank subsidiary. During the period from February
20, 1996 to July 31, 1997, pending regulatory approval and the acquisition of a
bank charter, we operated as a development stage enterprise under an agreement
with Carolina First Bank, a wholly owned subsidiary of Carolina First
Corporation. Carolina First Bank agreed to hold and service the deposit accounts
we generated in exchange for 3,975,000 shares of common stock, which were valued
at $3.8 million. In addition, during the period from February 20, 1996 to July
31, 1997, we were a party to an agreement with First Alliance/Premier
Bancshares, Inc. pursuant to which we agreed to purchase the charter of First
Alliance's subsidiary, Premier Bank, $5.0 million in loans, $5.0 million in
certificates of deposit and $2.0 million in unimpaired capital in exchange for
$2.2 million in cash, 124,218 shares of the common stock valued at $125,000 and
$75,000 in additional cash for reimbursement of direct out-of-pocket expenses.
On July 11, 1997, we received final regulatory approval from the Office of
Thrift Supervision to purchase the bank charter from First Alliance. On July 31,
1997, we received approximately $38.4 million in net proceeds from the sale of
10,500,000 shares of our common stock in our initial public offering and
consummated our agreements with both First Alliance and Carolina First Bank. As
a result, Net.B@nk became a wholly owned subsidiary of Net.B@nk, Inc. As of
March 31, 1999, we had 24,634 accounts and approximately $332.7 million in
deposits.

On April 13, 1999, we declared a 3 for 1 split of our common stock effected
in the form of a stock dividend paid on May 14, 1999 to shareholders of record
as of the close of business on April 23, 1999. All references to share and per
share amounts have been retroactively adjusted to reflect this split.

FINANCIAL CONDITION

Our assets were $526.5 million at March 31, 1999 compared to $388.4 million
and $93.2 million at December 31, 1998 and 1997, respectively. The increase of
$138.1 million from December 31, 1998 to March 31, 1999 was primarily the result
of approximately $105.0 million of net proceeds we received from an offering of
common stock in February 1999, as well as an increase in customer deposits of
approximately $49.1 million. We are using the proceeds from both the February
1999 offering of common stock and the increase in customer deposits for our
widespread marketing campaign to increase public awareness of the Net.B@nk name
and our products and services, and investing the excess in federal funds sold,
investment securities and loans.

The increase in assets of $295.2 million from December 31, 1997 to December
31, 1998 was primarily due to growth in our loan portfolio resulting from our
purchase of approximately $257.5 million in home equity loans and first and
second mortgage loans and the purchase of approximately $41.4 million in
investment securities during the year ended December 31, 1998. In addition, we
recorded a $2.3 million deferred tax asset related primarily to previous net
operating loss carryforwards that we expect to realize for tax purposes. Because
we achieved profitability in 1998, we believe that it is more likely than not
that our deferred tax assets will be realized. We also had loan sale proceeds
receivable of $23.2 million related to loan origination agreements with third
parties at December 31, 1998.

Total liabilities increased $33.0 million from $349.7 million at December
31, 1998 to $382.7 million at March 31, 1999. This increase was primarily due to
the rapid growth in our deposit portfolio of $49.1 million as a result of our
marketing campaign, offset by a $15.0 million decrease in other borrowed funds.
Total liabilities increased $290.6 million from $59.1 million at December 31,
1997 to

19
<PAGE>
$349.7 million at December 31, 1998. This increase was primarily due to the
rapid growth of our deposit portfolio as a result of marketing programs we
introduced in the fourth quarter of 1997.

Total shareholders' equity increased $105.0 million from December 31, 1998
to March 31, 1999 primarily due to our receipt of approximately $105.0 million
from the sale of 7,290,000 shares of our common stock in a public offering.
Total shareholders' equity increased $4.6 million from December 31, 1997 to
December 31, 1998 as a result of net income of $4.5 million and comprehensive
income of $82,000.

AVERAGE BALANCES, NET INTEREST INCOME AND YIELDS EARNED AND RATES PAID. The
following table sets forth, for the periods subsequent to our formation,
information regarding our average balance sheet. The average yields and rates
represent the annualized rates. Information is based on average monthly balances
during the five months ended December 31, 1997 and the year ended December 31,
1998.

<TABLE>
<CAPTION>
FIVE MONTHS ENDED
DECEMBER 31, 1997
----------------------------------
<S> <C> <C> <C>
INTEREST AVERAGE
AVERAGE EARNED/ YIELD/
BALANCE PAID RATE
----------- ----------- -------
Interest-earning assets:
Short-term investments.......................... $43,800,000 $ 944,743 5.34%
Investment securities(1)........................ 8,900,000 183,184 7.06%
Loans receivable(2)............................. 30,200,000 1,095,238 8.70%
----------- -----------
Total interest-earning assets............... 82,900,000 2,223,165 6.44%
Noninterest-earning assets........................ 2,000,000
-----------
Total assets................................ $84,900,000
-----------
-----------
Interest-bearing liabilities--deposits............ $48,700,000 1,259,743 5.17%
Noninterest-bearing liabilities................... 1,000,000
-----------
Total liabilities........................... 49,700,000
Shareholders' equity.............................. 35,200,000
----------- -----------
Total liabilities and shareholders'
equity.................................... $84,900,000
-----------
-----------
Net interest earnings............................. $ 963,422
-----------
-----------
Net yield on interest-earning assets(3)........... 2.79%
-------
-------
</TABLE>

- ------------------------

(1) Based on amortized cost; changes in fair value are not considered.

(2) No separate treatment has been made for non-accrual loans.

(3) Net interest income divided by average interest-earning assets.

20
<PAGE>

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31, 1998
----------------------------------
<S> <C> <C> <C>
INTEREST AVERAGE
AVERAGE EARNED/ YIELD/
BALANCE PAID RATE
------------ ----------- -------
Interest-earning assets:
Short-term investments.......................... $ 11,000,000 $ 633,893 5.76%
Investment securities(1)........................ 48,300,000 2,905,404 6.01%
Loans receivable(2)............................. 182,500,000 14,548,747 7.97%
------------ ----------- -------
Total interest-earning assets............... 241,800,000 18,088,044 7.48%
Noninterest-earning assets........................ 2,500,000
------------
Total assets................................ $244,300,000
------------
------------
Interest-bearing liabilities:
Deposits........................................ $177,600,000 $10,249,533 5.77%
Other borrowed funds............................ 25,000,000 1,174,899 4.71%
------------ ----------- -------
Total interest-bearing liabilities.......... 202,600,000 11,424,432 5.64%
Noninterest-bearing liabilities................... 5,700,000
------------
Total liabilities........................... 208,300,000
Shareholders' equity.............................. 36,000,000
------------ -----------
Total liabilities and shareholders'
equity.................................... $244,300,000
------------
------------
Net interest earnings............................. $ 6,663,612
-----------
-----------
Net yield on interest-earning assets(3)........... 2.76%
-------
-------
</TABLE>

- ------------------------

(1) Based on amortized cost; changes in fair value are not considered.

(2) No separate treatment has been made for non-accrual loans.

(3) Net interest income divided by average interest-earning assets.

The following table sets forth a summary of the changes in interest income
and interest expense resulting from changes in volume and rates for the periods
indicated:

<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
COMPARED TO THE FIVE MONTHS ENDED
DECEMBER 31, 1997
-----------------------------------------
<S> <C> <C> <C>
INCREASE (DECREASE)
NET DUE TO
INCREASE --------------------------
(DECREASE) RATE(1) VOLUME(1)
------------- ----------- -------------
Interest-bearing assets:
Short-term investments.............................................. $ (310,850) $ (58,427) $ (252,423)
Investment securities............................................... 2,722,220 (50,100) 2,772,320
Loans, gross........................................................ 13,453,509 (266,230) 13,719,739
------------- ----------- -------------
Total interest income........................................... 15,864,879 (374,757) 16,239,636
Interest-bearing liabilities:
NOW accounts........................................................ 91,787 2,478 89,309
Money market........................................................ 757,639 (104,125) 861,764
Certificates of deposit............................................. 8,140,364 (73,172) 8,213,536
Other borrowed funds................................................ 1,174,899 -- 1,174,899
------------- ----------- -------------
Total interest expense.......................................... 10,164,689 (174,819) 10,339,508
------------- ----------- -------------
Net interest income............................................. $ 5,700,190 $ (199,938) $ 5,900,128
------------- ----------- -------------
------------- ----------- -------------
</TABLE>

- ------------------------

(1) The changes in interest income and/or expense not due solely to rate or
volume have been allocated to the rate component.

21
<PAGE>
RESULTS OF OPERATIONS

THREE MONTHS ENDED MARCH 31, 1999 COMPARED TO THREE MONTHS ENDED MARCH 31, 1998

GENERAL. Net income for the three months ended March 31, 1999 amounted to
$692,000, an increase of $843,000 compared to a $151,000 loss for the three
months ended March 31, 1998. The increase in net income was the result of the
growth of our operations from 1998 to 1999.

INTEREST INCOME. Interest income related to our loan and investment
portfolio for the three months ended March 31, 1999 was $7.6 million compared to
$2.2 million for the three months ended March 31, 1998. The increase in interest
income was a result of the growth of our loan portfolio of $258.3 million from
March 31, 1998 to March 31, 1999, offset partially by a decrease in the average
yield on loans from 7.28% for the three months ended March 31, 1998 to 7.55% for
the three months ended March 31, 1999. In addition, the investment portfolio
grew from $46.3 million at March 31, 1998 to $80.3 million at March 31, 1999.
The yield on the investment portfolio was 5.63% for the three months ended March
31, 1998 compared to 6.95% for the three months ended March 31, 1999.

INTEREST EXPENSE. For the three months ended March 31, 1999, we recorded
$4.0 million in interest expense on deposits compared to $1.3 million for the
three months ended March 31, 1998 as a result of our increase in customer
deposits from $128.7 million at March 31, 1998 to $332.7 million at March 31,
1999. In addition, interest paid on deposits decreased from 5.54% for the three
months ended March 31, 1998 to 5.29% for the three months ended March 31, 1999.
Also, during the three months ended March 31, 1999, we recorded approximately
$500,000 in interest expense associated with short-term borrowings under our
line of credit agreements and advances from the Federal Home Loan Bank.

NET INTEREST INCOME. Net interest income is determined by our interest rate
spread, which is the difference between the yields earned on our
interest-earning assets and the rates paid on our interest-bearing liabilities,
and the relative amounts of interest-earning assets and interest-bearing
liabilities. Net interest income was $3.0 million for the three months ended
March 31, 1999 compared to $903,000 for the three months ended March 31, 1998.
The increase in net interest income resulted from the increase in the amount of
loans and deposits from March 31, 1998 to March 31, 1999.

PROVISION FOR LOAN LOSSES. In connection with the purchase of loan
portfolios, we assess the inherent loss in the portfolios and record the
necessary allowance by adjusting the premium associated with each portfolio.
During the three months ended March 31, 1999, we recorded $1.2 million as an
addition to premiums related to allowance for loan losses for loans purchased
during the quarter. In addition, we also recorded a provision for loan losses of
$49,800 related primarily to a decline in credit quality of a specific pool of
automobile loans. This compared to a provision of $4,000 recorded during the
three months ended March 31, 1998. We periodically review the performance of our
loan portfolio by reviewing charge-offs, delinquency statistics and industry
statistics on a pool by pool basis for our purchased portfolio and a loan by
loan basis for our originated loans. If we note a decline in credit quality for
a specific pool or loan, we record an additional allowance through a charge to
the provision for loan losses. We maintain the allowance for loan losses at a
level that we estimate to be adequate to provide for probable losses in the loan
portfolio. We determine the adequacy of the allowance based upon reviews of
individual loans, recent loss experience, current economic conditions, the risk
characteristics of the various categories of loans and other pertinent factors.

NONINTEREST INCOME. For the three months ended March 31, 1999, we recorded
approximately $246,000 in loan and deposit service charges and fees compared to
$123,000 recorded during the three months ended March 31, 1998. The significant
increase in service charges was a result of a significant increase in both the
loan and deposit portfolios.

22
<PAGE>
NONINTEREST EXPENSES. Noninterest expenses include all operating expenses,
including salaries and benefits, marketing, general and administrative expenses
(excluding interest expense, provision for loan losses and income taxes).
Noninterest expense increased 83%, or $1.0 million, for the three months ended
March 31, 1999 compared to the three months ended March 31, 1998. This increase
was primarily the result of increases in salaries and benefits, customer service
and data processing as we added additional employees and operational activities
to support additional customers, and an increase in marketing expense as we
expanded our marketing programs to build public awareness of the Net.B@nk name
and our products and services.

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

GENERAL. Net income for the year ended December 31, 1998 amounted to $4.5
million, an increase of $10.1 million compared to the $5.6 million loss for the
year ended December 31, 1997. The statement of operations for the year ended
December 31, 1997 reflects our operations before and immediately following the
acquisition of our bank charter. Because we did not acquire the charter until
July 31, 1997, we had no earning assets prior to that date. A substantial
portion of the income for the year ended December 31, 1998 resulted from the
recognition of $2.3 million in tax benefits. The benefits resulted from the
reversal of a valuation allowance of $3.3 million previously associated with our
deferred tax assets offset by income tax expense for the year ended December 31,
1998. Because we achieved profitability during 1998, we now believe it is more
likely than not that the deferred tax assets will be realized.

INTEREST INCOME. Interest income related to our loan and investment
portfolio for the year ended December 31, 1998 was $18.1 million compared to
$2.2 million for the year ended December 31, 1997. The increase is a result of
the growth of our loan portfolio from $44.9 million at December 31, 1997 to
$280.4 million at December 31, 1998 offset by a decrease in average yield from
8.70% for the year ended December 31, 1997 to 7.97% for the year ended December
31, 1998. In addition, the investment security portfolio grew from $18.1 million
at December 31, 1997 to $59.5 million at December 31, 1998 as we invested cash
received from customer deposits. The yield on the investment portfolio was 7.06%
for the year ended December 31, 1997 compared to 6.01% for the year ended
December 31, 1998.

INTEREST EXPENSE. For the year ended December 31, 1998, we recorded $10.2
million in interest expense on deposits as a result of our increase in customer
deposits from $58.7 million at December 31, 1997 to $283.6 million at December
31, 1998. In addition, the average interest rate paid on deposits increased from
5.17% for the year ended December 31, 1997 to 5.77% for the year ended December
31, 1998. We recorded interest expense on deposits of $1.3 million during the
year ended December 31, 1997 as we transferred our deposits to our banking
subsidiary from Carolina First Bank and began paying interest on those deposits.
In addition, during the year ended December 31, 1998, we recorded approximately
$1.2 million of interest expense associated with other borrowed funds under our
line of credit agreements and Federal Home Loan Bank advances.

PROVISION FOR LOAN LOSSES. During 1998, we recorded $3.6 million as an
addition to premium related to allowance for loan losses for purchased loans. In
addition, we recorded a $20,000 provision for loan losses for the year ended
December 31, 1998, compared to $472,000 recorded during the year ended December
31, 1997 for declines in credit quality on a specific pool of automobile loans
and additional allowance related to originated loans.

23
<PAGE>
NONINTEREST INCOME. For the year ended December 31, 1998, we recorded
approximately $683,000 in loan and deposit service charges and fees compared to
$63,000 recorded during the year ended December 31, 1997. The significant
increase in service charges was driven by the significant increase in both the
loan and deposit portfolios.

NONINTEREST EXPENSES. Noninterest expenses decreased approximately $944,000
for the year ended December 31, 1998 compared to the year ended December 31,
1997. The primary component of the decrease during the year ended December 31,
1998 was a $1.4 million decrease in the amortization of the service contract
with Carolina First Bank as the service contract was fully amortized during the
second quarter of 1997. In addition, salaries and benefits decreased $1.0
million as we outsourced certain services and paid $450,000 of bonuses to our
employees upon completion of our initial public offering in July 1997. These
decreases were partially offset by increases in marketing, customer service,
data processing, occupancy and other expenses as we moved to our new offices and
began soliciting and serving new deposit customers.

YEAR ENDED DECEMBER 31, 1997 COMPARED TO THE PERIOD FROM FEBRUARY 20, 1996 TO
DECEMBER 31, 1996

GENERAL. We did not have any earning assets until July 31, 1997, when we
acquired our bank charter. The net loss for the year ended December 31, 1997 was
$5.6 million, an increase of $1.8 million when compared to the period from
February 20, 1996 to December 31, 1996. The statement of operations for the
period from February 20, 1996 to December 31, 1996 reflects the initial phase of
our operations, including the acquisition, testing and implementation of the
internet banking platform, marketing expenses and the accrual of Carolina First
Bank's expense reimbursements. Under the servicing agreement with Carolina First
Bank, customer deposits and the related assets resulting from our marketing
efforts, which began in August 1996, were included in Carolina First Bank's
financial operations.

INTEREST INCOME. Interest income for the year ended December 31, 1997 was
$2.2 million. We did not record a significant amount of interest income for the
period from February 20, 1996 to December 31, 1996 because we had no investments
or loans during that period. On July 31, 1997, we received the net proceeds from
our initial public offering and customer deposits held by Carolina First Bank
and invested those funds in federal funds, mortgage-backed securities and loans
purchased from Carolina First Bank and an independent third party.

INTEREST EXPENSE. Because we did not begin soliciting deposit accounts
until October 1996, we did not record any interest expense for the period from
February 20, 1996 to December 31, 1996. On July 31, 1997, based on the terms of
the servicing agreement with Carolina First Bank and the charter purchase
agreement, Carolina First Bank and First Alliance transferred approximately
$47.8 million in customer deposits and related assets to Net.B@nk. We recorded
approximately $1.3 million of interest expense during the year ended December
31, 1997. This amount includes $163,479 of net interest expense, which
represents the difference between interest expense paid to customers and
interest income paid to Net.B@nk by Carolina First Bank at the contractual rates
in the servicing agreement prior to July 31, 1997.

NET INTEREST INCOME. Net interest income is determined by our interest rate
spread, which is the difference between the yields earned on our
interest-earning assets and the rates paid on our interest-bearing liabilities,
and the relative amounts of interest-earning assets and interest-bearing
liabilities. Net
interest income was $963,000 for the year ended December 31, 1997. Because we
did not receive our bank charter until July 31, 1997, we were not allowed to
hold investments, loans or customer deposits during the period from February 20,
1996 to December 31, 1996, and therefore, no significant amount of net interest
income was recorded for the period from February 20, 1996 to December 31, 1996.

24
<PAGE>
PROVISION FOR LOAN LOSSES. We purchased our first loans during the period
from July 31, 1997 to December 31, 1997. During this period, we recorded a
provision for loan losses of $472,000 for a decline in credit quality related to
a specific pool of automobile loans and an additional allowance related to
originated loans.

NONINTEREST INCOME. For the period from July 31, 1997 to December 31, 1997,
we recorded approximately $63,000 in loan and deposit service charges and fees.
We recorded only miscellaneous management fees received of $60,000 during the
period from February 20, 1996 to December 31, 1996.

NONINTEREST EXPENSES. Noninterest expenses increased $2.2 million from $3.9
million during the period from February 20, 1996 to December 31, 1996 to $6.1
million for the year ended December 31, 1997. The primary components of the
increase were an increase of $1.6 million in salaries and benefits, which
reflects the payment of approximately $450,000 in bonuses to employees; the
amortization of approximately $343,000 in stock plan expense; increases of
$305,000, $391,000 and $236,000 in customer service, data processing and
marketing, respectively, reflecting the growth of our deposit base and related
support functions; and an increase of approximately $260,000 in other operating
expenses consisting primarily of legal and accounting fees. These increases were
offset by a $960,000 decrease in the amortization of the service contract with
Carolina First Bank as the service contract was fully amortized during the
second quarter of 1997. The expenses for the period from February 20, 1996 to
December 31, 1996 reflect only the initial phase of our operations, including
the acquisition, testing and implementation of our internet banking platform,
marketing expenses and the accrual of Carolina First Bank's expense
reimbursements.

STOCK OPTIONS

Our 1996 Stock Incentive Plan authorizes us to grant to our key employees,
officers, directors and consultants nonqualified and incentive stock options to
purchase shares of our common stock, derivative securities related to the value
of our common stock or cash awards. The total number of shares reserved for
issuance under the Stock Incentive Plan, as amended, is 3,750,000. Generally,
the options expire ten years from the date of the grant. A summary of the status
of the options granted under the Stock Incentive Plan as of December 31, 1996,
1997 and 1998 and the activity during such periods follows:

<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1997 DECEMBER 31, 1998
-------------------------- ----------------------------- -----------------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
NUMBER PRICE NUMBER PRICE NUMBER PRICE
--------- --------------- ------------ --------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period.... -- $ -- 49,686 $ 0.40 1,099,368 $ 1.99
Granted............................... 49,686 0.40 1,058,625 1.94 573,000 6.50
Exercised............................. -- -- -- -- (33,588) 1.21
Terminated............................ -- -- (8,943) 1.21 (41,628) 2.19
--------- ------------ ------------
Outstanding at end of period.......... 49,686 $ 0.40 1,099,368 $ 1.99 1,597,152 $ 3.63
--------- ------------ ------------
--------- ------------ ------------
</TABLE>

In connection with the issuance of some of the options during the year ended
December 31, 1997, we will recognize $390,484 of compensation expense over the
vesting period. Certain of those options vested immediately on July 28, 1997,
upon completion of the initial public offering, and we recognized $319,704 of
unamortized compensation expense. The other options vest one-third on the first
anniversary of the date of issuance, one-third on the second anniversary of the
date of issuance and one-third on the third anniversary of the date of issuance.
Of the vested options, 708,423 cannot be exercised and sold until July 28, 2000
in accordance with an agreement signed with the Office of Thrift Supervision. Of
the 1,597,152 options outstanding as of December 31, 1998, 837,063 were
exercisable.

25
<PAGE>
During the three months ended March 31, 1999, we granted 21,000 incentive
stock options at an exercise price of $11.67 per share on January 15, 1999,
30,000 incentive stock options at an exercise price of $13.00 per share on
February 25, 1999 and 30,000 incentive stock options at an exercise price of
$23.33 per share on March 29, 1999. Grant prices approximated fair value of the
stock at the grant date.

During the three months ended March 31, 1999, 35,211 incentive stock options
were exercised at a price of $1.21. Also, 16,200 incentive stock options with an
exercise price of $5.25 and 3,366 incentive stock options with an exercise price
of $1.21 were terminated.

In addition, effective April 22, 1999, we granted 177,000 nonqualified stock
options at an exercise price of $53.33 per share. Grant prices approximated the
fair value of the stock at the grant date. Also, during April 1999, 6,000 and
1,500 incentive stock options with an exercise price of $5.25 and $1.21,
respectively were exercised.

MARKET RISK

ASSET AND LIABILITY MANAGEMENT. Our principal business is the originating
and purchasing of loans, funded by customer deposits and, to the extent
necessary, other borrowed funds. Consequently, a significant portion of our
assets and liabilities are monetary in nature and fluctuations in interest
rates, specifically the prime rate, will affect our future net interest income
and cash flows. This interest rate risk is our primary market risk exposure. We
do not enter into derivative financial instruments such as futures, forwards,
swaps and options. Also, we have no market risk-sensitive instruments held for
trading purposes. Our exposure to market risk is reviewed on a regular basis by
our management.

The following table sets forth the interest rate risk of our assets and
liabilities as of December 31, 1997.
<TABLE>
<CAPTION>
TERM TO MATURITY
---------------------------------------------------------------------------------------------------------
YEAR OVER FIVE
--------------------------------------------------------------------------------------- YEARS AND
ONE TWO THREE FOUR FIVE INSENSITIVE
--------------- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning
Assets:
Cash and cash
equivalents..... $ 250,535
Federal funds
sold............ 28,853,057
Investment
securities...... 9,926,283 $ 8,127,863
Stock of Federal
Home Loan Bank
of Atlanta...... 225,000
Loans
receivable...... 16,407,989 $ 6,369,393 $ 2,924,749 $ 1,462,375 17,768,901
--------------- --------------- --------------- --------------- ---------------
Total interest-
earning
assets........ 55,662,864 6,369,393 2,924,749 1,462,375 25,896,764
Noninterest-earning
assets............ 903,664
--------------- --------------- --------------- --------------- --------------- ---------------
Total assets........ $ 55,662,864 $ 6,369,393 $ 2,924,749 $ 1,462,375 $ -- $ 26,800,428
--------------- --------------- --------------- --------------- --------------- ---------------
--------------- --------------- --------------- --------------- --------------- ---------------
Interest-Bearing
Liabilities:
Interest-bearing
deposits........ $ 56,200,270 $ 2,233,439
Interest-free
deposits.......... 293,054
Other interest-free
liabilities and
equity............ 375,649 $ 34,117,397
--------------- --------------- --------------- --------------- --------------- ---------------
Total liabilities
and equity........ $ 56,868,973 $ -- $ 2,233,439 $ -- $ -- $ 34,117,397
--------------- --------------- --------------- --------------- --------------- ---------------
--------------- --------------- --------------- --------------- --------------- ---------------
Net interest rate
sensitivity gap... $ (537,406) $ 6,369,393 $ 691,310 $ 1,462,375 $ 25,896,764
Cumulative gap...... (537,406) 5,831,987 6,523,297 7,985,672 $ 7,985,672 33,882,436
Net interest rate
sensitivity gap as
a
percent of
interest-
earning assets.... (.97)% 100.0% 23.64% 100.0% 100.0%
Cumulative gap as a
percent of
cumulative
interest-earning
assets............ (.97)% 9.40% 10.04% 12.02% 11.02% 36.70%

<CAPTION>
WEIGHTED
AVERAGE
INTEREST
TOTAL FAIR VALUE RATE
--------------- --------------- -----------
<S> <C> <C> <C>
Interest-Earning
Assets:
Cash and cash
equivalents..... $ 250,535 $ 250,535
Federal funds
sold............ 28,853,057 28,853,057 5.50%
Investment
securities...... 18,054,146 18,054,146 7.0%
Stock of Federal
Home Loan Bank
of Atlanta...... 225,000 225,000
Loans
receivable...... 44,933,407 46,109,296 8.70%
--------------- ---------------
Total interest-
earning
assets........ 92,316,145 93,492,034
Noninterest-earning
assets............ 903,664 903,664
--------------- ---------------
Total assets........ $ 93,219,809 $ 94,395,698
--------------- ---------------
--------------- ---------------
Interest-Bearing
Liabilities:
Interest-bearing
deposits........ $ 58,433,709 $ 58,586,263 5.17%
Interest-free
deposits.......... 293,054 293,054
Other interest-free
liabilities and
equity............ 34,493,046 34,493,046
--------------- ---------------
Total liabilities
and equity........ $ 93,219,809 $ 93,372,363
--------------- ---------------
--------------- ---------------
Net interest rate
sensitivity gap...
Cumulative gap......
Net interest rate
sensitivity gap as
a
percent of
interest-
earning assets....
Cumulative gap as a
percent of
cumulative
interest-earning
assets............
</TABLE>

26
<PAGE>
The following table sets forth the interest rate risk of our assets and
liabilities as of December 31, 1998:
<TABLE>
<CAPTION>
TERM TO MATURITY
---------------------------------------------------------------------------------------------------------
YEAR OVER FIVE
--------------------------------------------------------------------------------------- YEARS AND
ONE TWO THREE FOUR FIVE INSENSITIVE
--------------- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning
Assets:
Cash and cash
equivalents..... $ 446,940
Federal funds
sold............ 12,013,243
Investment
securities...... -- $ 59,465,062
Stock of Federal
Home Loan Bank
of Atlanta...... 2,000,000
Loan sale proceeds
receivable...... 23,202,679
Loans
receivable...... 42,561,397 $ 2,225,802 $ 1,483,868 $ 741,934 233,414,601
--------------- --------------- --------------- --------------- ---------------
Total interest-
earning
assets........ 78,224,259 2,225,802 1,483,868 741,934 294,879,663
Noninterest-earning
assets............ 10,881,210
--------------- --------------- --------------- --------------- --------------- ---------------
Total assets........ $ 78,224,259 $ 2,225,802 $ 1,483,868 $ 741,934 $ -- $ 305,760,873
--------------- --------------- --------------- --------------- --------------- ---------------
--------------- --------------- --------------- --------------- --------------- ---------------
Interest-Bearing
Liabilities:
Interest-bearing
deposits........ $ 267,925,399 $ 1,128,734 $ 5,189,478 $ 60,000
Other borrowed
funds........... 20,000,000 $ 20,000,000 $ 20,000,000
--------------- --------------- --------------- --------------- --------------- ---------------
Total
interest-bearing
liabilities... 287,925,399 1,128,734 5,189,478 60,000 20,000,000 20,000,000
Interest-free
deposits.......... 9,285,540
Other interest-free
liabilities and
equity............ 44,847,585
--------------- --------------- --------------- --------------- --------------- ---------------
Total liabilities
and
equity............ $ 297,210,939 $ 1,128,734 $ 5,189,478 $ 60,000 $ 20,000,000 $ 64,847,585
--------------- --------------- --------------- --------------- --------------- ---------------
--------------- --------------- --------------- --------------- --------------- ---------------
Net interest rate
sensitivity gap... $ (209,701,140) $ 1,097,068 $ 3,705,610) $ 681,934 $ (20,000,000) $ 274,879,663
Cumulative gap...... (209,701,140) (208,604,072) (212,309,682) (211,627,748) (231,627,748) 43,251,915
Net interest rate
sensitivity gap as
a
percent of
interest-
earning assets.... (268.08)% 49.29% (249.73)% 91.9% N/M 93.22%
Cumulative gap as a
percent of
cumulative
interest-earning
assets............ (268.08)% (259.30)% (259.12)% (255.97)% (280.16)% 11.46%

<CAPTION>
WEIGHTED
AVERAGE
INTEREST
TOTAL FAIR VALUE RATE
--------------- --------------- -----------
<S> <C> <C> <C>
Interest-Earning
Assets:
Cash and cash
equivalents..... $ 446,940 $ 446,940
Federal funds
sold............ 12,013,243 12,013,243 5.00%
Investment
securities...... 59,465,062 59,465,062 6.71%
Stock of Federal
Home Loan Bank
of Atlanta...... 2,000,000 2,000,000
Loan sale proceeds
receivable...... 23,202,679 23,202,679 6.70%
Loans
receivable...... 280,427,602 278,607,376 7.54%
--------------- ---------------
Total interest-
earning
assets........ 377,555,526 375,735,300
Noninterest-earning
assets............ 10,881,210 10,881,210
--------------- ---------------
Total assets........ $ 388,436,736 $ 386,616,510
--------------- ---------------
--------------- ---------------
Interest-Bearing
Liabilities:
Interest-bearing
deposits........ $ 274,303,611 $ 274,709,385 5.54%
Other borrowed
funds........... 60,000,000 59,924,400 5.01%
--------------- ---------------
Total
interest-bearing
liabilities... 334,303,611 334,633,785
Interest-free
deposits.......... 9,285,540 9,285,540
Other interest-free
liabilities and
equity............ 44,847,585 44,847,585
--------------- ---------------
Total liabilities
and
equity............ $ 388,436,736 $ 388,766,910
--------------- ---------------
--------------- ---------------
Net interest rate
sensitivity gap...
Cumulative gap......
Net interest rate
sensitivity gap as
a
percent of
interest-
earning assets....
Cumulative gap as a
percent of
cumulative
interest-earning
assets............
</TABLE>

27
<PAGE>
The following table sets forth the interest rate risk of our assets and
liabilities as of March 31, 1999:
<TABLE>
<CAPTION>
TERM TO MATURITY
---------------------------------------------------------------------------------------------------------
YEAR OVER FIVE
--------------------------------------------------------------------------------------- YEARS AND
ONE TWO THREE FOUR FIVE INSENSITIVE
--------------- --------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning
Assets:
Cash and cash
equivalents..... $ 1,576,102
Federal fund
sold............ 33,416,433
Investment
securities...... $ 80,310,559
Stock of Federal
Home Loan Bank
of Atlanta...... 2,569,700
Loan sale proceeds
receivable...... 35,003,385
Loans
receivable...... 79,190,699 $ 19,867,529 $ 12,885,672 $ 5,903,752 246,204,980
--------------- --------------- --------------- --------------- ---------------
Total
interest-earning
assets........ 149,186,619 19,867,529 12,885,672 5,903,752 329,085,239
Noninterest-earning
assets............ 9,534,397
--------------- --------------- --------------- --------------- --------------- ---------------
Total assets........ $ 149,186,619 $ 19,867,529 $ 12,885,672 $ 5,903,752 $ -- $ 338,619,636
--------------- --------------- --------------- --------------- --------------- ---------------
--------------- --------------- --------------- --------------- --------------- ---------------
Interest-Bearing
Liabilities:
Interest-bearing
deposits........ $ 313,127,941 $ 3,830,466 $ 5,392,607
Other borrowed
funds........... $ 20,000,000 $ 25,000,000
--------------- --------------- --------------- --------------- --------------- ---------------
Total
interest-bearing
liabilities 313,127,941 3,830,466 5,392,607 20,000,000 25,000,000
Interest-free
deposits.......... 10,327,320
Other interest-free
liabilities and
equity............ 148,784,874
--------------- --------------- --------------- --------------- --------------- ---------------
Total liabilities
and equity........ $ 323,455,261 $ 3,830,466 $ 5,392,607 $ -- $ 20,000,000 $ 173,784,874
--------------- --------------- --------------- --------------- --------------- ---------------
--------------- --------------- --------------- --------------- --------------- ---------------
Net interest rate
sensitivity gap... $ (163,941,322) $ 16,037,063 $ 7,493,065 $ 5,903,752 $ (20,000,000) $ 304,085,239
Cumulative gap...... (163,941,322) (147,904,259) (140,411,194) (134,507,442) (154,507,442) 149,577,797
Net interest rate
sensitivity gap as
a percent of
interest-earning
assets............ (109.89)% 80.72% 58.15% 100.00% N/M 92.40%
Cumulative gap as a
percent of
cumulative
interest-earning
assets............ (109.89)% (87.49)% (77.17)% (71.61)% (82.25)% 28.94%

<CAPTION>
WEIGHTED
AVERAGE
INTEREST
TOTAL FAIR VALUE RATE
--------------- --------------- -----------
<S> <C> <C> <C>
Interest-Earning
Assets:
Cash and cash
equivalents..... $ 1,576,102 $ 1,576,102
Federal fund
sold............ 33,416,433 33,416,433 5.15%
Investment
securities...... 80,310,559 80,310,559 6.20%
Stock of Federal
Home Loan Bank
of Atlanta...... 2,569,700 2,569,700
Loan sale proceeds
receivable...... 35,003,385 35,003,385 6.50%
Loans
receivable...... 364,052,632 364,052,632 7.55%
--------------- ---------------
Total
interest-earning
assets........ 516,928,811 516,928,811
Noninterest-earning
assets............ 9,534,397 9,534,397
--------------- ---------------
Total assets........ $ 526,463,208 $ 526,463,208
--------------- ---------------
--------------- ---------------
Interest-Bearing
Liabilities:
Interest-bearing
deposits........ $ 322,351,014 $ 322,351,014 5.29%
Other borrowed
funds........... 45,000,000 $ 44,838,280 4.55%
--------------- ---------------
Total
interest-bearing
liabilities 367,351,014 367,189,294
Interest-free
deposits.......... 10,327,320 10,327,320
Other interest-free
liabilities and
equity............ 148,784,874 148,784,874
--------------- ---------------
Total liabilities
and equity........ $ 526,463,208 $ 526,301,488
--------------- ---------------
--------------- ---------------
Net interest rate
sensitivity gap...
Cumulative gap......
Net interest rate
sensitivity gap as
a percent of
interest-earning
assets............
Cumulative gap as a
percent of
cumulative
interest-earning
assets............
</TABLE>

We measure interest rate sensitivity as the difference between the amount of
interest-earning assets and interest-bearing liabilities that mature within a
given period of time. The difference, or the interest rate sensitivity "gap,"
provides an indication of the extent to which an institution's interest rate
spread will be affected by changes in interest rates. The above table does not
consider interest rate adjustments on our adjustable rate loans. A gap is
considered positive when the amount of interest-rate sensitive assets exceeds
the amount of interest-rate sensitive liabilities and is considered negative
when the amount of interest-rate sensitive liabilities exceeds the amount of
interest-rate sensitive assets. In a rising interest rate environment, an
institution with a positive gap would be in a better position than an
institution with a negative gap to invest in higher yielding assets or have its
asset yields adjusted upward, which would result in the yield on its assets
increasing at a faster pace than the cost of its interest-bearing liabilities.
During a period of falling interest rates, however, an institution with a
positive gap would tend to have its assets maturing at a faster rate than one
with a negative gap, which would tend to reduce or restrain the growth of its
net interest income.

LENDING ACTIVITIES

GENERAL. At March 31, 1999, our loans receivable portfolio totaled $364.1
million or 69.2% of total assets. At December 31, 1998 and 1997, our loans
receivable portfolio totaled $280.4 million and $44.9 million, or 72.2% and
48.2% of total assets, respectively. The majority of our loans were purchased
from other originating institutions. We have concentrated our purchasing
activities on one-

28
<PAGE>
and three-year adjustable rate mortgage loans, home equity lines of credit,
fixed residential mortgages and auto loans. We also participate in construction
loans with other institutions.

LOAN PORTFOLIO COMPOSITION. The following table sets forth the composition
of our loan portfolio by type of loan as of December 31, 1997 and 1998 and March
31, 1999:

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
--------------------------------------------------- -------------------------
1997 1998 1999
------------------------ ------------------------- -------------------------
AMOUNT % AMOUNT % AMOUNT %
------------- --------- -------------- --------- -------------- ---------
<S> <C> <C> <C> <C> <C> <C>
Residential mortgages................... $ 13,953,501 31.0% $ 144,361,069 51.4% $ 146,247,811 40.2%
Construction............................ 5,399,624 12.0 27,996,691 10.0 25,750,375 7.1
Commercial.............................. 4,478,053 10.0 8,556,264 3.1 77,736,501 21.4
Home equity lines....................... 4,412,013 9.8 89,053,532 31.8 103,483,066 28.5
Auto.................................... 14,623,745 32.6 7,803,648 2.8 6,468,885 1.8
Personal and other...................... 2,066,471 4.6 2,656,399 0.9 3,865,994 1.0
------------- --------- -------------- --------- -------------- ---------
Total loans......................... $ 44,933,407 100.0% $ 280,427,603 100.0% $ 363,552,632 100.0%
------------- --------- -------------- --------- -------------- ---------
------------- --------- -------------- --------- -------------- ---------
</TABLE>

CONTRACTUAL PRINCIPAL REPAYMENTS. The following table sets forth certain
information at December 31, 1998 regarding the dollar amount of loans maturing
in our total loan portfolio, based on the contractual terms to maturity. Loans
having no stated schedule of repayments and no stated maturity are reported as
due in one year or less.

<TABLE>
<CAPTION>
DUE 1 DUE WEIGHTED
YEAR OR DUE 1-5 AFTER 5 AVERAGE
LESS YEARS YEARS TOTAL YIELD
------------- ------------ -------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Residential mortgages................... $ -- $ -- $ 144,361,069 $ 144,361,069 7.25%
Construction............................ 27,996,691 -- -- 27,996,691 7.75%
Commercial.............................. 8,556,264 -- -- 8,556,264 8.33%
Home equity loans....................... -- -- 89,053,532 89,053,532 7.75%
Auto and other loans.................... 6,008,442 4,451,605 -- 10,460,047 8.50%
------------- ------------ -------------- -------------- ---
Total............................... $ 42,561,397 $ 4,451,605 $ 233,414,601 $ 280,427,603 7.54%
------------- ------------ -------------- -------------- ---
------------- ------------ -------------- -------------- ---
</TABLE>

The following table sets forth the dollar amount of total loans due after
one year from December 31, 1998, as shown in the preceding table, which have
fixed interest rates or which have floating or adjustable interest rates.

<TABLE>
<CAPTION>
FLOATING OR
ADJUSTABLE
FIXED RATE RATE TOTAL
------------- -------------- --------------
<S> <C> <C> <C>
Residential mortgages............................................ $ 58,193,633 $ 86,167,436 $ 144,361,069
Home equity lines................................................ -- 89,053,532 89,053,532
Other loans...................................................... 4,451,605 -- 4,451,605
------------- -------------- --------------
Total........................................................ $ 62,645,238 $175,220,968 $ 237,866,206
------------- -------------- --------------
------------- -------------- --------------
</TABLE>

A savings institution generally may not make loans to one borrower and
related entities in an amount which exceeds 15% of its unimpaired capital and
surplus, although loans in an amount equal to an additional 10% of unimpaired
capital and surplus may be made to a borrower and its related entities if the
loans are fully secured by readily marketable securities. At March 31, 1999, our
limit on loans to one borrower was approximately $21.6 million (15% unimpaired
capital and surplus). At March 31, 1999, we had not made any loans to any one
borrower, including persons or entities related to the borrower, exceeding the
limitation.

29
<PAGE>
ASSET QUALITY AND NONPERFORMING ASSETS. During the years ended December 31,
1998 and 1997 and the three months ended March 31, 1999, we did not have any
significant loans on nonaccrual status, significant loans past due 90 days or
more or restructured loans.

CONCENTRATIONS OF CREDIT RISK. At December 31, 1998, a majority of our
loans were with customers residing in the Western and Southeastern United
States. At December 31, 1997, all of our loans were with customers residing in
the Southeastern United States.

ALLOWANCE FOR LOAN LOSSES. The allowance for loan losses is maintained at a
level management considers adequate to provide for probable losses in the loan
portfolio. As the majority of our portfolio is purchased, we make an estimate of
the loss inherent in the purchased portfolio based on industry statistics and
record an allowance for loan losses by adjusting the premium associated with the
purchased loans. We periodically review the adequacy of the allowance based upon
reviews of individual loans and loan pools, recent loss experience, current
economic conditions, the risk characteristics of the various pools of loans, or
individual loans, industry statistics and other pertinent factors. If we note a
decline in credit quality for a specific loan pool or a loan, we record an
additional allowance through a charge to the provision for loan losses. Loans
that we deem uncollectible are charged to the allowance. We also add provisions
for loan losses and recoveries on loans previously charged off to the allowance.

Although we use the best information available to make determinations with
respect to the provisions for loan losses, additional provisions for loan losses
may be necessary in the future should economic or other conditions change
substantially. In addition, the Office of Thrift Supervision, as an integral
part of the examination process, periodically reviews our allowance for loan
losses. The agency may require us to recognize additions to the allowance based
on their judgments about the information available to them at the time of their
examination.

The following table sets forth an analysis of our allowance for loan losses
during the years ended December 31, 1997 and 1998:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Balance--Beginning of year........................................... $ -- $ 453,444
--------- ---------
Allowances recorded in connection with the purchase of loan
pools............................................................ -- 3,585,926
Provision for loan losses.......................................... 471,706 20,132
--------- ---------
Loans charged off:
Residential mortgages............................................ -- (326,852)
Equipment leases................................................. (8,477) (31,492)
Auto............................................................. -- (171,006)
Home equity lines................................................ -- (44,230)
Other............................................................ (9,785) (13,558)
--------- ---------
Total loans charged off.......................................... (18,262) (587,138)
--------- ---------
Balance--End of year................................................. $ 453,444 $3,472,364
--------- ---------
--------- ---------
Allowances for loan losses as a percent of total loans outstanding... 1.01% 1.24%
--------- ---------
--------- ---------
</TABLE>

30
<PAGE>
The following table sets forth information concerning the allocation of our
allowance for loan losses by loan category at December 31, 1997 and 1998:

<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1998
--------------------------- -----------------------------
<S> <C> <C> <C> <C>
PERCENT OF PERCENT OF
LOANS IN EACH LOANS IN EACH
CATEGORY TO CATEGORY TO
AMOUNT TOTAL LOANS AMOUNT TOTAL LOANS
---------- --------------- ------------ ---------------
Residential mortgages................................... $ 46,425 31.0% $ 1,844,473 51.4%
Construction............................................ 52,400 12.0 38,000 10.0
Commercial.............................................. 112,887 10.0 81,395 3.1
Home equity lines....................................... 48,951 9.8 1,484,221 31.8
Auto.................................................... 179,984 32.6 8,978 2.8
Other................................................... 12,797 4.6 15,297 0.9
---------- ----- ------------ -----
$ 453,444 100.0% $ 3,472,364 100.0%
---------- ----- ------------ -----
---------- ----- ------------ -----
</TABLE>

INVESTMENT SECURITIES. Our investment policy, as established by the Board
of Directors, is designed primarily to provide and maintain liquidity and to
generate a favorable return on investments without incurring undue interest rate
risk, credit risk and investment portfolio asset concentrations. Our investment
policy is currently implemented by the investment committee within the
parameters set by the Board of Directors.

We are authorized to invest in obligations issued or fully guaranteed by the
United States government, certain federal agency obligations, certain time
deposits, negotiable certificates of deposit issued by commercial banks and
other insured financial institutions, investment grade corporate debt securities
and other specified investments.

Securities classified as available for sale are reported at fair value, with
unrealized gains and losses, net of tax, excluded from earnings and reported in
other comprehensive income. At March 31, 1999 and December 31, 1998 and 1997,
all of our investment securities were classified as available for sale. At March
31, 1999 and December 31, 1998 and 1997, investments in the debt and/or equity
securities of any one issuer did not exceed more than 10% of our shareholders'
equity.

The following tables set forth certain information relating to our
available-for-sale securities at December 31, 1997 and 1998 and March 31, 1999:
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------------------------------
<S> <C> <C> <C> <C>
GROSS
---------------------------------------

31
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------------------------------------
<S> <C> <C> <C> <C>
GROSS
---------------------------------------

<CAPTION>
ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
Collateralized mortgage obligations........................ $ 58,330,285 $ -- $ 2,045 $ 58,328,240
U.S. government agencies obligations....................... 882,442 -- 264 882,178
Habitat bonds and other.................................... 254,644 -- -- 254,644
------------- ----------- ----------- -------------
$ 59,467,371 $ -- $ 2,309 $ 59,465,062
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, 1999
-------------------------------------------------------
<S> <C> <C> <C> <C>
GROSS
----------------------------------------

<CAPTION>
ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Collateralized mortgage obligations...................... $ 80,400,316 $ -- $ 1,010,503 $ 79,389,813
U.S. government agencies obligations..................... 668,004 -- 1,956 666,048
Habitat bonds and other.................................. 254,698 -- -- 254,698
------------- ----------- ------------ -------------
$ 81,323,018 $ -- $ 1,012,459 $ 80,310,559
------------- ----------- ------------ -------------
------------- ----------- ------------ -------------
</TABLE>

The following table sets forth the amount of our investment securities,
which mature during each of the periods indicated, and the weighted average
yields for each range of maturities at December 31, 1998. The actual maturity of
our investment securities may differ from contractual maturity as certain of our
investment securities are subject to call provisions, which allow the issuer to
accelerate the maturity date of the security:

<TABLE>
<CAPTION>
CONTRACTUALLY MATURING
---------------------------------------------------
<S> <C> <C> <C> <C>
WEIGHTED GREATER WEIGHTED
5-10 AVERAGE THAN AVERAGE
YEARS YIELD 10 YEARS YIELD
------------ --------- ------------- -----------
Collateralized mortgage obligations............................ $ 5,986,729 6.96% $ 52,341,511 6.82%
U.S. government agencies obligations........................... -- -- 882,178 7.54
Habitat bonds and other........................................ -- -- 254,644 3.50
------------ --------- ------------- -----------
$ 5,986,729 6.96% $ 53,478,333 6.71%
------------ --------- ------------- -----------
------------ --------- ------------- -----------
</TABLE>

SOURCES OF FUNDS

GENERAL. Our primary sources of funds are deposits, borrowings, prepayments
and maturities of outstanding loans, sales of loans, maturities of investment
securities and other short-term investments and funds provided from operations.
While scheduled loan payments and maturing investment securities and short-term
investments are relatively predictable sources of funds, deposit flows and loan
prepayments are greatly influenced by general interest rates, economic
conditions and competition. We invest excess funds in overnight deposits and
other short-term interest-earning assets. We can use cash generated through the
retail deposit market, our traditional funding source, to offset the cash
utilized in investing activities. Our available-for-sale securities and
short-term interest-earning assets can also be used to provide liquidity for
lending and other operational requirements. As an additional source of funds, we
had $40.0 million of availability under existing line of credit agreements at
March 31, 1999. See note 8 of the notes to our consolidated financial
statements.

DEPOSITS. Our deposit products include a broad selection of deposit
instruments, including commercial checking accounts, negotiable order of
withdrawal accounts, money market accounts and

32
<PAGE>
term certificate accounts. Deposit account terms vary, with the principal
differences being the minimum balance required, the time periods the funds must
remain on deposit and the interest rate.

We utilize nontraditional marketing methods to attract new customers and
savings deposits. Our target market includes internet users, on-line shoppers
and special niche customers. We market our products and services by placing
banner advertisements on portals and Web sites that we believe will attract our
target customers. We also derive a marketing benefit from media coverage.
Additionally, we continually seek to form product and marketing alliances with
other financial services providers to broaden our product and service offerings
and appeal to a broader customer base.

We are competitive in the types of accounts and range of interest rates we
offer on our deposit products. Our deposit levels have increased during the
years ended December 31, 1998 and 1997, primarily as a result of competitive
rates we offer and internet advertising. The weighted average interest rate paid
during the years ended December 31, 1998 and 1997 was 5.77% and 5.17%,
respectively. Although market demand generally dictates which deposit maturities
and rates will be accepted by the public, we intend to continue to promote
checking and negotiable order of withdrawal accounts as well as longer term
certificates of deposit to the extent possible and consistent with asset and
liability management goals.

The following table sets forth the dollar amount of deposits and weighted
average interest rates in the various types of deposit programs offered by us at
December 31, 1997 and 1998 and March 31, 1999, respectively:
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, 1997 DECEMBER 31, 1998 1999
---------------------------------------- ----------------------------------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
WEIGHTED WEIGHTED
AVERAGE AVERAGE
INTEREST INTEREST
AMOUNT PERCENTAGE RATE AMOUNT PERCENTAGE RATE AMOUNT
------------ ------------- ----------- ------------- ------------- ----------- -------------
Demand checking accounts... $ 293,054 0.5% N/A $ 9,285,540 3.3% N/A $ 10,327,320
Interest bearing:
NOW accounts............. 1,573,283 2.7 3.28% 6,090,704 2.1 3.49% 9,201,428
Money market............. 36,534,967 62.2 5.51% 65,325,880 23.0 5.13% 98,162,882
Certificate of deposit
under $100,000........... 16,662,365 28.4 6.22% 197,162,916 69.5 5.74% 199,370,410
Certificate of deposit over
$100,000................. 3,663,094 6.2 6.22% 5,724,111 2.1 5.74% $ 15,616,294
------------ ----- ------------- ----- -------------
Total deposits......... $ 58,726,763 100.0% $ 283,589,151 100.0% $ 332,678,334

<S> <C> <C>
WEIGHTED
AVERAGE
INTEREST
PERCENTAGE RATE
------------- -----------
Demand checking accounts... 3.1% N/A
Interest bearing:
NOW accounts............. 2.8 3.38%
Money market............. 29.5 5.12%
Certificate of deposit
under $100,000........... 59.9 5.44%
Certificate of deposit over
$100,000................. 4.7 5.44%
-----
Total deposits......... 100.0%
</TABLE>

The following table presents the average balance of each deposit type and
the average rate paid on each deposit type for the years ended December 31, 1997
and 1998, respectively:

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1997 1998
-------------------------- ---------------------------
<S> <C> <C> <C> <C>
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE RATE PAID BALANCE RATE PAID
------------- ----------- -------------- -----------
Demand checking accounts................................... $ 300,000 N/A $ 2,730,769 N/A
NOW accounts............................................... 1,728,571 3.28% 5,423,077 1.96%
Money market............................................... 33,328,571 5.51% 46,015,385 5.48%
Certificates of deposit under $100,000..................... 11,433,435 6.22% 122,354,337 6.04%
Certificates of deposit over $100,000...................... 2,209,423 6.22% 3,814,894 6.04%
</TABLE>

33
<PAGE>
The following table shows maturity information for our certificates of
deposit at December 31, 1998:

<TABLE>
<CAPTION>
MATURITY DATE
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
ONE YEAR 1 TO 2 2 TO 3 3 TO 4
OR LESS YEARS YEARS YEARS TOTAL
-------------- ------------ ------------ --------- --------------
4.01--6.00%.............................. $ 169,227,411 $ 1,128,734 $ 5,189,478 $ 60,000 $ 175,605,623
6.01--8.00%.............................. 27,281,404 -- -- -- 27,281,404
-------------- ------------ ------------ --------- --------------
Total................................ $ 196,508,815 $ 1,128,734 $ 5,189,478 $ 60,000 $ 202,887,027
-------------- ------------ ------------ --------- --------------
-------------- ------------ ------------ --------- --------------
</TABLE>

The following table sets forth the maturities of our certificates of deposit
having principal amounts of $100,000 or more at December 31, 1998:

<TABLE>
<S> <C>
Within three months............................................. $3,011,146
Over three months through six months............................ 421,451
Over six months through one year................................ 1,782,206
Over one year................................................... 509,308
---------
Total certificates of deposit with balance of $100,000 or
more...................................................... $5,724,111
---------
---------
</TABLE>

CAPITAL RESOURCES. We are subject to various regulatory capital
requirements administered by the federal banking agencies. Our failure to meet
minimum capital requirements can initiate certain mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct material effect on our consolidated financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
we must meet specific capital guidelines that involve quantitative measures of
our assets, liabilities and certain off-balance-sheet items as calculated under
regulatory accounting practices. Our capital amounts and classifications are
also subject to qualitative judgments by the regulators about components, risk
weightings and other factors. In addition, under regulatory guidelines,
Net.B@nk, our banking subsidiary, may not pay a dividend to Net.B@nk, Inc., if
doing so would cause Net.B@nk to be less than adequately capitalized, as defined
below.

Quantitative measures established by regulation to ensure capital adequacy
require Net.B@nk to maintain minimum amounts and ratios, as set forth in the
table below. Net.B@nk's primary regulatory agency, the Office of Thrift
Supervision, requires Net.B@nk to maintain minimum ratios of tangible capital to
tangible assets of 1.5%, core capital to tangible assets of 3.0% and total
risk-based capital to risk-weighted assets of 8.0%. We believe that as of
December 31, 1998 Net.B@nk met all the capital adequacy requirements to which it
was subject.

As of December 31, 1998, the most recent notification from the Office of
Thrift Supervision categorized Net.B@nk as well capitalized under the regulatory
framework for prompt corrective action. To be well capitalized Net.B@nk must
maintain minimum total risk-based, Tier I risk-based and Tier I leverage ratios
as set forth in the table. No conditions or events have occurred since that
notification that we believe would change Net.B@nk's category.

On February 10, 1999, we received net proceeds of approximately $105.0
million from the sale of 7,290,000 shares of our common stock in a public
offering.

34
<PAGE>
Net.B@nk's actual capital amounts and ratios as of December 31, 1997 and
1998, are as follows (dollars in thousands):

<TABLE>
<CAPTION>
TO BE
CATEGORIZED AS
FOR CAPITAL "WELL CAPITALIZED"
ACTUAL ADEQUACY PURPOSES BY THE OTS
-------------------- -------------------- --------------------
<S> <C> <C> <C> <C> <C> <C>
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
--------- --------- --------- --------- --------- ---------
DECEMBER 31, 1997:
Total capital (to risk-weighted assets)......... $ 23,652 47.8% $ 3,956 8.0% $ 4,948 10.0%
Core capital (to tangible assets)............... $ 23,735 28.3% $ 2,517 3.0% $ 4,196 5.0%
Tangible capital (to tangible assets)........... $ 23,735 28.3% $ 1,259 1.5% N/A N/A
Tier I capital (to risk-weighted assets)........ $ 23,735 48.0% N/A N/A $ 2,969 6.0%

DECEMBER 31, 1998:
Total capital (to risk-weighted assets)......... $ 38,297 15.36% $ 19,947 8.0% $ 24,934 10.0%
Core capital (to tangible assets)............... $ 35,996 9.31% $ 11,595 3.0% $ 19,325 5.0%
Tangible capital (to tangible assets)........... $ 35,996 9.31% $ 5,798 1.5% N/A N/A
Tier I capital (to risk-weighted assets)........ $ 35,996 14.44% N/A N/A $ 14,960 6.0%
</TABLE>

At March 31, 1999, Net.B@nk had total, core, tangible and Tier I capital
ratios of 35.81%, 24.64%, 24.64% and 35.24%, respectively.

Under current Office of Thrift Supervision regulations, Net.B@nk may pay
dividends and make other capital distributions after giving notice to the Office
of Thrift Supervision.

During the year ended December 31, 1998, Net.B@nk, Inc. and its sole
subsidiary, Net.B@nk, entered into line of credit agreements with The Bankers
Bank. Net.B@nk, Inc. is a party to one such agreement and its sole subsidiary,
Net.B@nk, is a party to two such agreements. Under the terms of our agreement
that expired on October 20, 1998, Net.B@nk, Inc. could borrow 50.0% of the
tangible equity of Net.B@nk, up to $17.0 million, using the stock of Net.B@nk as
collateral. Any amounts borrowed under this line had interest at a fixed rate of
8.0% per annum. During the year ended December 31, 1998, Net.B@nk borrowed and
repaid $12.0 million under the line. Under the terms of the other two
agreements, Net.B@nk may borrow $5.0 million under an unsecured general purpose
line and 99.0% of the value of its investment securities under another line.
Both of the lines bear interest at 25 basis points above the Federal Funds rate,
or 5.0%, at December 31, 1998. Under these agreements at December 31, 1998,
Net.B@nk had an outstanding borrowing of $20.0 million with no stated maturity
secured by investment securities.

During the three months ended March 31, 1999, Net.B@nk repaid $20.0 million
of borrowings outstanding under its line of credit agreement with The Bankers
Bank and $20.0 million under one of its line of credit agreements with the
Federal Home Loan Bank.

As of March 31, 1999, Net.B@nk had borrowed $20.0 million from the Federal
Home Loan Bank at a fixed rate of 4.43%. The borrowing is callable at the second
anniversary date. If not called at the second anniversary date, the borrowing
extends for an additional three years at 4.43%. Also, Net.B@nk has borrowed
$25.0 million from the Federal Home Loan Bank at a fixed rate of 4.64%. The
borrowing is callable at the second anniversary date. If not called at the
second anniversary date, the borrowing extends for an additional eight years at
4.64%. These borrowings are secured by Net.B@nk's investment securities.

NEW ACCOUNTING PRONOUNCEMENTS

As of January 1, 1998, we adopted Statement of Financial Accounting
Standards 130, REPORTING COMPREHENSIVE INCOME, and restated prior periods to
conform to the presentation required by

35
<PAGE>
SFAS 130. SFAS 130 establishes new rules for the reporting and display of
comprehensive income and its components. SFAS 130 requires unrealized gains or
losses, net of tax, on our available-for-sale securities, which prior to
adoption were reported separately in shareholders' equity, to be included in
other comprehensive income. The adoption of SFAS 130 had no impact on our net
income or shareholders' equity.

As of April 1, 1998, our adopted Statement of Position 98-1, ACCOUNTING FOR
THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE. SOP 98-1
allows for the capitalization of costs related to the development and
implementation of software obtained for internal use including materials,
payroll and interest costs once the criteria of the SOP have been met. As of
December 31, 1998, $592,402 of these related costs had been capitalized.

As of December 31, 1998, we adopted Statement of Financial Accounting
Standards 131, DISCLOSURES ABOUT SEGMENTS OF AN ENTERPRISE AND RELATED
INFORMATION. SFAS 131 establishes annual and interim reporting standards for an
enterprise's business segments and related disclosures about its products,
services, geographic areas and major customers. The adoption of SFAS 131 had no
effect on our financial statements for the year ended December 31, 1998 because
we only had one reportable segment.

In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards 133, ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND
HEDGING ACTIVITIES. SFAS 133 establishes standards for derivative instruments
and hedging activities and requires that an entity recognize all derivatives as
either assets or liabilities in the statement of financial position and measure
those instruments at fair value. SFAS 133 is effective for all fiscal quarters
of fiscal years beginning after June 15, 1999. The adoption of SFAS 133 is not
expected to have a significant effect on our financial statements.

YEAR 2000

We are working to resolve the potential impact of the year 2000 on the
ability of the computerized information systems we use to accurately process
information that may be date sensitive. Any of the programs we or our service
providers use that recognize a date using "00" as the year 1900 rather than the
year 2000 could result in errors or system failures that could ultimately cause
us or our service providers to become unable to process customer transactions.
This would require us to cease operations pending resolution of the problem.
Such an eventuality would materially adversely affect our business, financial
condition and results of operations. Accordingly, we are devoting significant
attention to identifying year 2000 issues and testing our in-house and external
systems for year 2000 compliance. To date, we have incurred year 2000
remediation costs of approximately $21,000 and have budgeted approximately
$35,000 for total remediation costs. We have been utilizing working capital to
fund our year 2000 compliance program and anticipate that we will continue to do
so.

We began testing our in-house information technology systems during the
second quarter of 1998 and completed this testing during the third quarter of
1998. We have not identified, and do not anticipate, any significant risks or
issues relating to non-information technology systems.

We are also assessing the year 2000 compliance of our outside vendors and
service providers. Because we primarily contract with outside vendors for our
computer application programs, we believe our principal risk relating to year
2000 issues lies in the potential inability of those vendors to process date
sensitive information involving the year 2000. We began testing the systems
provided by these vendors for year 2000 compliance in the third quarter of 1998
and have an Office of Thrift Supervision-mandated completion date of June 30,
1999. In addition, we are contacting each of our vendors to obtain a commitment
that they are or will timely be year 2000 compliant. If such assurances are not
forthcoming, or if we believe for any reason that any of our vendors will not be
year 2000 compliant when required, we plan to contract with other vendors that
would be able to provide similar services at

36
<PAGE>
similar costs. Although we cannot offer any assurances, we believe that such
vendors are and will be available. Alternatively, we could bring the outsourced
services in-house by licensing the applicable software and converting it to run
on our platforms or form a correspondent relationship with an unaffiliated year
2000 compliant bank that could service our customers and accounts until we could
provide such services on a year 2000 compliant basis. We believe we could
implement any of the foregoing contingency plans without a material interruption
in our business and without a material adverse effect on our financial
condition, results of operations or cash flows.

QUARTERLY FINANCIAL DATA (UNAUDITED)

Quarterly financial data for the years ended December 31, 1997 and 1998 and
the three months ended March 31, 1999 is summarized as follows (in thousands,
except per share amounts):

<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
--------- --------- --------- -----------
<S> <C> <C> <C> <C>
1997
Interest income......................................................... $ 6 $ -- $ 902 $ 1,315
Interest expense........................................................ 103 37 465 655
--------- --------- --------- -----------
Net interest income (loss)............................................ (97) (37) 437 660
--------- --------- --------- -----------
Provision for loan losses............................................... -- -- 392 80
--------- --------- --------- -----------
Net interest income (loss) after provision for loan losses............ (97) (37) 45 580
Noninterest income...................................................... -- -- 30 33
Noninterest expense..................................................... 1,703 1,383 1,593 1,452
--------- --------- --------- -----------
Net loss.............................................................. $ (1,800) $ (1,420) $ (1,518) $ (839)
--------- --------- --------- -----------
--------- --------- --------- -----------
Basic and diluted net loss per common and common equivalent share
outstanding........................................................... $ (0.48) $ (0.37) $ (0.11) $ (0.05)
--------- --------- --------- -----------
--------- --------- --------- -----------

1998
Interest income......................................................... $ 2,207 $ 4,253 $ 5,284 $ 6,343
Interest expense........................................................ 1,304 2,714 3,220 4,186
--------- --------- --------- -----------
Net interest income................................................... 903 1,539 2,064 2,157
--------- --------- --------- -----------
Provision for loan losses............................................... 4 6 6 4
--------- --------- --------- -----------
Net interest income after provision for loan losses................... 899 1,533 2,058 2,153
Noninterest income...................................................... 123 104 190 266
Noninterest expense..................................................... 1,173 1,397 1,290 1,327
--------- --------- --------- -----------
Income (loss) before income taxes..................................... (151) 240 958 1,092
--------- --------- --------- -----------
Income tax benefit (expense)............................................ -- 3,029 (345) (359)
--------- --------- --------- -----------
Net income (loss)..................................................... $ (151) $ 3,269 $ 613 $ 733
--------- --------- --------- -----------
--------- --------- --------- -----------
Basic net income (loss) per common and common equivalent share
outstanding........................................................... $ (0.01) $ 0.18 $ 0.03 $ 0.04
--------- --------- --------- -----------
--------- --------- --------- -----------
Diluted net income (loss) per common and common equivalent share
outstanding........................................................... $ (0.01) $ 0.17 $ 0.03 $ 0.04
--------- --------- --------- -----------
--------- --------- --------- -----------
</TABLE>

37
<PAGE>

<TABLE>
<CAPTION>
FIRST
QUARTER
---------
<S> <C> <C> <C> <C>

1999
Interest income......................................................... $ 7,558
Interest expense........................................................ 4,560
---------
Net interest income................................................... 2,998
---------
Provision for loan losses............................................... 50
---------
Net interest income after provision for loan losses................... 2,948
Noninterest income...................................................... 246
Noninterest expense..................................................... 2,147
---------
Income before income taxes............................................ $ 1,046
Income tax expense...................................................... (355)
---------
Net income............................................................ $ 692
---------
---------
Basic and diluted net income per common and common equivalent share
outstanding........................................................... $ 0.03
---------
---------
</TABLE>

Basic and diluted net income (loss) per common and common equivalent share
have been calculated based on the weighted average number of shares outstanding
during the quarter in accordance with SFAS 128. Potential common shares have not
been included in the calculation related to those quarters with a net loss
because they were antidilutive. All previously reported per share amounts have
been restated to conform to SFAS 128. The total for the quarters differs from
the net loss per share as shown on the statement of operations because of the
issuance of common shares during the year of 1997. On April 13, 1999, we
declared a 3 for 1 split of our common stock effected in the form of a stock
dividend paid on May 14, 1999 to shareholders of record as of the close of
business on April 23, 1999. All references to share and per share amounts have
been retroactively adjusted to reflect the split.

38
<PAGE>
BUSINESS

OVERVIEW

Net.B@nk, our sole subsidiary, is the largest federally-insured bank
operating exclusively on the internet. Our mission is to profitably provide a
broad range of banking and financial services to the growing number of internet
users. Our low cost branchless business model allowed us to attain profitability
within a year of acquiring our bank charter and to continue to maintain
profitability while passing along our operating cost savings to customers in the
form of attractive interest rates and low fees. We strive to maintain high asset
quality by employing conservative credit policies. We plan to attract new
accounts through national awareness of the Net.B@nk brand name and to capitalize
on increasing consumer use of the internet.

During 1998, our customer accounts grew from 4,755 to 17,408, deposits grew
from $58.7 million to $283.6 million and total assets grew from $93.2 million to
$388.4 million. During 1998, we added an average of 1,054 net customer accounts
per month. At March 31, 1999, we had 24,634 customer accounts, $332.7 million in
deposits and $526.5 million in total assets. During the four months ended April
30, 1999, we added an average of over 2,900 net customer accounts per month with
4,865 added in April alone. We believe our growth is attributable to our
expanded marketing program, increasing consumer use of the internet and our
ability to offer a broad array of convenient, cost-effective, secure banking
services to this growing customer base.

The following charts demonstrate the growth in our total customer accounts,
checking accounts, deposits and assets:

<TABLE>
<CAPTION>
EDGAR REPRESENTATION OF DATA POINTS USED IN
PRINTED GRAPHIC
NUMBER OF CUSTOMER ACCOUNTS
<S> <C>

12/31/97 TO 3/31/99 GROWTH: 418%
12/97 4,755
3/98 8,416
6/98 11,823
9/98 14,634
12/98 17,408
3/99 24,634
</TABLE>

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
NUMBER OF CHECKING ACCOUNTS

<S> <C>
12/31/97 tO 3/31/99 GROWTH: 403%
Date Accounts
12/97 1,236
3/98 1,613
6/98 1,971
9/98 2,284
12/98 3,293
3/99 6,219
</TABLE>

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
DEPOSITS

<S> <C>
(IN MILLIONS)
12/31/97 TO 3/31/99 GROWTH: 464%
12/97 $59
3/98 $129
6/98 $187
9/98 $241
12/98 $284
3/99 $333
</TABLE>

EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC

<TABLE>
<CAPTION>
TOTAL ASSETS

<S> <C>
(IN MILLIONS)
12/31/97 TO 3/31/99 GROWTH: 467%
12/97 $93
3/98 $164
6/98 $247
9/98 $283
12/98 $388
3/99 $527
</TABLE>

- EXPANDED MARKETING PROGRAM. We embarked on a new marketing program that
has been highly successful in reaching our targeted audience and has
resulted in a significant increase in checking accounts. We believe this
growth in our checking account base indicates growing customer willingness
to move their everyday banking activities to Net.B@nk and will result in
long-term customer relationships. Furthermore, we believe that our
checking account customers

39
<PAGE>
will visit our Web site more frequently and spend more time on our Web
site, allowing us to cross-sell a variety of other products and services.

- IMPROVED CUSTOMER SERVICE. We increased our customer support staff by over
70% in order to maintain high-quality customer service. We have also
invested in advanced technology and implemented new procedures in order to
continually improve the quality and responsiveness of our customer
service.

- STRENGTHENED LENDING AND FINANCIAL OPERATIONS. We expanded our mortgage
lending capabilities through a mortgage loan origination partnership with
Virtuallender.com. We strengthened our lending and financial operations by
adding several individuals to our professional staff. Additionally, we
have significantly increased our loan portfolio while continuing to
maintain a conservative lending and investment strategy.

INDUSTRY BACKGROUND

THE INTERNET. The internet enables millions of people worldwide to access
news and information, communicate with each other and conduct business
electronically. According to International Data Corporation, the number of
worldwide internet users is projected to grow from an estimated 159.3 million in
1998 to an estimated 410.4 million by 2002. Additionally, Jupiter Communications
estimates that 37.6 million United States households were on-line in 1998 and
that an estimated 62.6 million households are expected to be on-line in 2002.
On-line households are those that have access to the Web, use a consumer on-line
service or send e-mail.

The internet has become a significant marketplace for buying and selling
goods and services. International Data Corporation forecasts that total
worldwide commerce on the internet will grow from an estimated $50.4 billion in
1998 to an estimated $733.6 billion in 2002. With the emergence of the internet
as a globally accessible, fully interactive medium, many companies that have
traditionally conducted business in person, through the mail or over the
telephone are increasingly conducting business electronically. Many consumers
are showing strong preferences for transacting certain types of business, such
as paying bills, booking airline tickets, trading securities and purchasing
consumer products, electronically rather than in person or over the telephone.
Individuals can now conduct these transactions virtually anywhere at any time.
Many consumers have embraced self-directed on-line transactions because such
transactions can be faster, less expensive and more convenient than transactions
conducted through a teller or an ATM.

In addition to its use as a general commercial medium, the internet has
rapidly emerged as an innovative means of providing financial services. As
finance-related Web sites continue to grow in popularity, many companies are
increasingly offering a variety of financial services, including credit cards,
brokerage services, insurance products and banking services, via the internet.

ELECTRONIC BANKING. The growth in internet commerce has prompted the
development of electronic banking delivery systems. These forms of electronic
delivery systems provide convenience for customers and allow financial
institutions to lower their overhead costs. The two types of electronic banking
currently available, PC-based home banking and internet banking, are very
different. The characteristics of each are as follows:

- PC-BASED HOME BANKING. PC-based home banking requires PC-based financial
services software products such as Intuit's QUICKEN, Microsoft's MONEY or
a bank's proprietary software. Each

40
<PAGE>
product carries its own set of instructions that the customer must learn
before commencing any banking transactions. The software resides on the
customer's PC along with his or her account data and requires a dial-up
modem and manual downloading. Consequently, customers must conduct
PC-based home banking from the PC containing the customer's software and
account data. Customers generally must back up their account data at
frequent intervals to counteract the risk of losing data. Because the
customer must connect with the financial institution via modem and
download his or her account data, real-time transactions are not generally
possible.

- INTERNET BANKING. Unlike PC-based home banking, internet banking requires
only a secure Web browser for access to the internet and the financial
institution. Internet banking requires no particular software and does not
restrict the customer's operations to the location of his or her PC.
Instead, the customer accesses the financial institution through the
internet and deposits or transfers funds, pays bills or transacts other
business on a real-time basis. In contrast, account data remains stored on
Net.B@nk's secure server at all times, protected by technology designed
specifically to safeguard such information. No downloading or back-up is
required, as our server backs up all data and transactions on a continuous
basis. With internet banking, the information presented to the customer
remains current at all times.

The use of electronic banking delivery systems, and particularly internet
banking, is growing as consumers find that electronic banking is both convenient
and cost-effective. According to Jupiter Communications, the number of on-line
banking households in the United States is projected to grow from an estimated
6.6 million in 1998 to an estimated 17.1 million in 2002.

INTERNET DEMOGRAPHICS. Demographic surveys indicate that internet users
represent an ideal target market for internet banking. Recent studies by Jupiter
Communications revealed that, in the United States, approximately 47% of on-line
users are college graduates and that approximately 37% are engaged in
professional or managerial occupations. The survey also indicated that the
largest group on-line is adults aged 19 to 34, that approximately 86% of on-line
users are under the age of 50 and that 43% of the on-line audience earns over
$60,000 per year. The attractive demographics of internet users facilitate the
growth of internet banking. Internet users tend to be young and mobile and thus
more inclined to be comfortable with and receptive to the convenience of on-line
commercial transactions. We believe that as internet users enter their prime
earnings and savings years, there will be an increased demand for high-yielding
savings products. Additionally, internet users tend to be professionals with
limited amounts of discretionary time and are attracted to the convenience of
"one-stop shopping" for a full range of financial services.

THE NET.B@NK SOLUTION

As the first federally-insured bank to operate solely on the internet, we
believe we have a first mover advantage relative to on-line banks with less
extensive market presence and less established operating histories. In addition,
we have a competitive cost advantage over traditional banks. We also believe our
established position in the marketplace provides us with a competitive advantage
in view of the lead time required for new competitors to obtain a charter and
start an internet bank. We intend to continue to capitalize on this advantage by
aggressively seeking new customers in order to further build market share.

Our customer demographics parallel those of the general internet population
and illustrate Net.B@nk's appeal to households with relatively high incomes.
According to John H. Harland Company, as of September 1998, our customers had an
average age of 44 and a median annual household income in excess of $50,000. We
are ideally positioned to participate in the rapid growth of the internet and
on-line banking based on our:

- ATTRACTIVE INTEREST RATES AND LOW FEES. Our operating costs are generally
lower than those of traditional "bricks and mortar" banks because we do
not require a traditional branch network to

41
<PAGE>
generate deposits and conduct operations. We pass our savings in operating
costs on to customers by offering attractive interest rates and low fees
in order to generate deposits without sacrificing profit margins. We
believe our unique business model differentiates Net.B@nk from traditional
banks offering internet banking services because traditional banks
frequently offset the incremental expense of their internet banking
services by charging additional fees or imposing minimum account balances.

- CONVENIENCE AND EASE OF ACCESS. We believe we provide 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, our Web site is designed to be user-friendly and to expedite
customer transactions with Net.B@nk.

- BROAD SELECTION OF PRODUCTS AND SERVICES. We offer a broad array of
products and services that customers would typically expect from a
traditional bank. These products and services include checking and money
market accounts, certificates of deposit, electronic bill payment, debit
cards, credit cards, mortgage loans, business equipment leases and
securities brokerage services. We plan to offer consumer loans, including
home equity and automobile loans, beginning in the third quarter of 1999.
We intend to continue to develop additional products and services such as
insurance products, electronic bill presentment and electronic document
and image storage in a virtual safe deposit box.

- HIGH-QUALITY SERVICE AND CUSTOMER SATISFACTION. We continually seek ways
to enhance customer satisfaction. In an effort to serve the needs of our
customers, we offer services such as electronic bill payment and ATM cards
without service charges. We also emphasize responsive, courteous customer
service and utilize a fully-trained dedicated staff who respond to
inquiries from existing and potential customers and process new accounts.
Our customers can access account data and information regarding products
and services 24 hours a day and can currently reach our customer service
representatives by telephone or e-mail. We strive for the highest level of
customer satisfaction and believe the significant growth in our customer
base illustrates our ability to meet our customers' needs.

- ADVANCED SECURITY. A significant barrier to on-line financial transactions
has been the secure transmission of confidential information over public
networks. We use sophisticated technology to provide what we believe 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 Net.B@nk server. Our 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. See "--Security."

GROWTH STRATEGY

Our objective is to become the leading provider of a full range of on-line
financial services. We intend to accomplish this objective by implementing the
following strategies:

- BUILD NATIONAL BRAND AWARENESS THROUGH INCREASED MARKETING EFFORTS. We
have significantly expanded our marketing program and are working with
nationally known advertising and public relations agencies to build
national awareness of the Net.B@nk name through a variety of marketing
initiatives. These initiatives include expanding our advertising media to
include print and direct mail campaigns; continued advertisement on
targeted portals such as Yahoo!, Alta Vista, Infoseek, Lycos, AOL and
Excite and Web sites such as Bank Rate Monitor, iVillage and Motley Fool;
and the pursuit of strategic alliances with other internet financial
service providers.

42
<PAGE>
To fund these initiatives, we have increased our marketing expenditures
from approximately $695,000 for 1998 to a budgeted $6.6 million for 1999.
During the first quarter of 1999, we applied approximately $400,000 to our
marketing program and added 7,226 new accounts. We plan to increase our
print and on-line advertising and continue to explore opportunities in
broadcast advertising during the course of the year. Our experience
indicates that by expanding our marketing efforts further, we can heighten
brand awareness of Net.B@nk on a national scale and significantly increase
our customer base. See "--Marketing."

- LEVERAGE LOW COST STRUCTURE. Our operating costs are generally lower than
those of traditional "bricks and mortar" banks because we do not require a
traditional branch network to generate deposits and conduct operations.
This is demonstrated by our low ratio of annualized fourth quarter 1998
noninterest expenses to average earning assets of 1.7% compared to 4.2%
for commercial banks with $300 million to $500 million in assets, as
calculated by the FDIC Institution Directory by multiplying the
noninterest expenses for the quarter divided by the average earning assets
for the quarter by four. Additionally, our ratio of total assets per
full-time equivalent employee was $13.9 million as of December 31, 1998
compared to $2.6 million for commercial banks with $300 million to $500
million in assets, based on data provided by the FDIC Institution
directory. We pass our operating cost savings on to customers by offering
more attractive interest rates on deposit accounts and lower fees than
those offered generally by traditional banks. We believe this strategy
attracts deposits without sacrificing profit margins. We intend to
continue to leverage the fixed-cost aspect of our branchless business
model to enhance profitability.

- OFFER A BROAD ARRAY OF PRODUCTS AND SERVICES. Our objective is to attract
customers seeking to combine the convenience of internet banking with the
broad array of products and services typically offered by traditional
banks. Toward this end, our product and service offerings include checking
and money market accounts, certificates of deposit, electronic bill
payment, debit cards, credit cards, mortgage loans, business equipment
leases and securities brokerage services. We plan to offer consumer loans,
including home equity and automobile loans, beginning in the third quarter
of 1999. We also intend to continue to develop additional products and
services such as insurance products, electronic bill presentment and
electronic document and image storage in a virtual safe deposit box. See
"--Products and Services."

- MAINTAIN HIGH ASSET QUALITY. Our loan portfolio strategy is to maintain a
conservative loan mix consisting of home mortgage, home equity, consumer,
commercial and construction loans with an emphasis on high credit quality.
At our current stage of development, it is more cost-effective for us to
purchase most of our loans or act as a participating lender with other
banks rather than originate our own loans. This strategy decreases our
expenses and allows us to reduce our loan loss exposure by diversifying
our portfolio. We also emphasize a conservative securities investment
strategy by investing in fixed income securities such as United States
Treasury obligations, collateralized mortgage obligations and
mortgage-backed securities issued by agencies such as Federal National
Mortgage Association and Federal Home Loan Mortgage Corporation. See
"--Lending and Investment Activities."

- OUTSOURCE OPERATIONAL FUNCTIONS. To enhance the flexibility and
scalability of our operations, we outsource certain principal operational
functions to leading service providers such as NCR, BISYS and CheckFree.
NCR provides a secure server for the electronic banking software licensed
to us by Edify Corporation. CheckFree provides electronic bill payment
systems for us and BISYS processes our transactions and interfaces with
NCR's secure server. In each of these relationships, we benefit from the
service provider's expertise and economies of scale while retaining the
flexibility to take advantage of changes in available technology without
affecting customer service. We can also respond easily to growth because
these third-party service

43
<PAGE>
providers have the capacity to process a high volume of transactions. See
"--Operations-- Service Providers."

- GENERATE NONINTEREST INCOME THROUGH CROSS-MARKETING INITIATIVES. To
generate additional noninterest income and enhance customer loyalty, we
cross-market a variety of non-deposit products. We offer credit cards,
mortgage loans, business equipment leases, securities brokerage services
and other noninterest income-generating products. We offer these products
to existing and potential depositors through various marketing techniques,
such as our Web site, e-mail, on-line advertising and direct mailings.
This strategy enables us to generate additional earning assets and fee
income from a growing customer base.

PRODUCTS AND SERVICES

DEPOSIT PRODUCTS AND SERVICES. In order to build our customer base, we
offer a variety of deposit products at attractive interest rates. We are able to
offer attractive interest rates as a result of our low operating costs. We also
attract customers by offering convenient services such as free electronic bill
payment, overdraft protection and ATM cards. Our deposit products and services
include:

- DEPOSIT PRODUCTS. We offer two types of interest-bearing checking
accounts, a money market account and 6-, 12- and 30-month certificates of
deposit. We have consistently offered interest rates on our deposit
accounts that are higher than the national average.

- 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. We do not charge a fee for this
service.

- OVERDRAFT PROTECTION. Overdraft protection is available to all interest
checking customers who qualify. Customers with interest checking accounts
may apply for overdraft protection on-line for amounts up to $5,000. If a
customer has both a money market and an interest checking account, we
automatically establish overdraft protection between those accounts.

- ATM CARDS. Each customer automatically receives a free ATM card when he or
she opens an account. Customers can access their accounts at ATMs
affiliated with the Cirrus, Honor and Avail networks. We do not charge our
own fee for ATM usage, but the operator of the ATM generally imposes fees.

LENDING PROGRAMS. To generate fee income and provide a convenient service
to our customers, we offer on-line loans and credit cards as described below.

- MORTGAGE LOANS. Our Web site enables customers to obtain interest rate
quotes and apply for mortgage loans on-line. We have an agreement with
mortgage.com (formerly known as First Mortgage Network), under which we
act as a loan originator on their behalf. We have similar agreements with
E-loan, Inc., Virtuallender.com and Fidelity Mortgage Services, Inc. under
which they forward mortgage applications to us. Applications received
directly through our Web site are processed and closed by mortgage.com.
Applications received indirectly from mortgage.com, E-loan,
Virtuallender.com or Fidelity Mortgage Services are processed by the
respective lender, which in turn receives funding from us and closes the
loans. We fund each loan that meets our underwriting criteria and sell the
loans received directly through our Web site to mortgage.com or, in the
case of loans received indirectly, to the lender from which it was
received, in each case with the servicing rights released. The loans are
presold to the same sources at the time of closing so that we do not bear
any material risk of loss. We generally carry loans receivable on our
books for an average of approximately 30 days while we await receipt of
sale proceeds. During this time, we receive interest income on the
outstanding balance at the rate stated in the mortgage note. We also
receive a portion of the loan origination fee for providing these funding
services. We plan to expand our loan offerings to include home equity

44
<PAGE>
loans, home equity lines of credit and automobile loans. We also originate
and retain a small number of home mortgage loans for our own portfolio.
See "--Lending and Investment Activities."

- CREDIT CARDS. We offer our customers Visa and MasterCard credit cards
issued by The Bankers Bank for no annual fee. The Bankers Bank carries the
credit card loans on its books and we have an income-sharing arrangement
with The Bankers Bank. Customers can apply for these credit cards on-line.
The cards prominently display the Net.B@nk logo with the Visa or
MasterCard emblem appearing in the lower right corner of the card.

NON-BANKING FINANCIAL SERVICES. To serve as a sole source for the financial
services needs of internet users and to generate additional noninterest income,
we offer a full range of non-banking financial services designed to attract and
retain customers. These services currently include securities brokerage and
business equipment leasing services and in the future will include several new
services such as insurance products.

- SECURITIES BROKERAGE SERVICES. We have contracted with UVEST Investment
Services, a discount broker, to provide our customers with access to a
full line of financial services and investment products. We have a
fee-sharing agreement with UVEST Investment Services. Customers can
purchase securities without writing checks to their brokers, as trading
fees are automatically deducted from their Net.B@nk checking or money
market accounts. Investment proceeds are automatically deposited into the
customer's Net.B@nk deposit account. Customers enjoy 24-hour on-line
access, real-time quotes, low commissions and a professional brokerage
staff.

- BUSINESS EQUIPMENT LEASING. In October 1998, we entered into an agreement
with Republic Leasing Company that allows our customers, many of whom are
independent business owners or managers, to lease small business equipment
through Republic Leasing. We have a fee-sharing agreement with Republic
Leasing. Lease amounts range from $5,000 to $500,000 and cover virtually
all types of business equipment. Republic Leasing provides advice,
comparison quotes and immediate equipment lease financing and holds and
services all of its leases.

FUTURE PRODUCTS AND SERVICES. To generate additional interest and fee
income and enhance customer convenience, Net.B@nk plans to introduce a variety
of new products and services. We plan to offer consumer loans, including home
equity and automobile loans, beginning in the third quarter of 1999. Other
future products and services may include insurance products, electronic bill
presentment and electronic document and image storage in a virtual safe deposit
box.

LENDING AND INVESTMENT ACTIVITIES

Our loan portfolio strategy is to maintain a conservative loan mix
consisting of home mortgage, home equity, consumer and construction loans with
an emphasis on high credit quality. At our current stage of development, it is
more cost-effective for us to purchase most of our loans or act as a
participating lender with other banks rather than originating our own loans.
This strategy decreases our expenses and allows us to diversify our portfolio.
As we grow, we will continue to develop our portfolio through purchases,
participations and direct originations.

We build our loan portfolio in the following ways:

- PURCHASES. We acquire most of our loans by purchasing packages of specific
types of loans, such as mortgage, home equity and consumer loans, with
each package consisting of loans with similar principal amounts, interest
rates and asset quality. We also purchase portions of commercial loan
pools, with the seller retaining a portion of the loans to decrease our
risk. As of March 31, 1999, purchased loans accounted for approximately
$259.6 million, or 71.3%, of our loan portfolio.

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- PARTICIPATIONS. We act as a participating lender in commercial and large
construction loans with varying banks in the Southeast, including The
Bankers Bank. We anticipate expanding our participations in construction
loans to include loans originated nationwide in order to take advantage of
lower prices for these loans in less competitive geographic areas. As of
March 31, 1999, participations accounted for approximately $81.2 million,
or 22.3%, of our loan portfolio.

- DIRECT ORIGINATION. We originate a small number of loans directly with our
customers. As of March 31, 1999, these loans accounted for approximately
$23.3 million, or 6.4%, of our loan portfolio.

In addition, as described in "--Products and Services," "-- Lending
Programs" and "--Mortgage Loans," we have agreements with each of mortgage.com,
E-loan, Virtuallender.com, BancMortgage and Fidelity Mortgage Services that
provide that we act as a loan originator on their behalf. From May 1998, when we
began providing services under the first of these agreements, to March 31, 1999,
we funded $258.2 million of loans for third parties. As of March 31, 1999, we
had $35.0 million in loan sale proceeds receivable relating to these agreements.
In the future, we may retain a portion of such loans for our own portfolio.

Our loan committee establishes underwriting standards and criteria for our
loan portfolio and monitors the portfolio on an ongoing basis. The loan
committee applies the same underwriting standards to all of our loans,
regardless of how they are originated. We have also retained an outside
consulting firm to assist the loan committee in its review of the loan portfolio
and to conduct due diligence on purchased loans.

In addition to loans, we invest deposit funds in various fixed income
securities. Our philosophy of high credit quality also guides our investment
decisions. Our fixed income securities portfolio is comprised primarily of
United States Treasury obligations, collateralized mortgage obligations and
mortgage-backed securities issued by agencies such as Federal National Mortgage
Association and Federal Home Loan Mortgage Corporation.

CUSTOMER SATISFACTION

We continually seek ways to enhance customer satisfaction. Offering our
customers a high-level of customer service is a top priority of ours and we
believe that it is critical to our success. In an effort to serve the needs of
our customers, we offer services such as electronic bill payment and ATM cards
without service charges. Our customers can access account data and information
regarding products and services 24 hours a day and can currently reach our
customer service representatives by telephone and e-mail.

We are committed to investing in customer service. We recently created a
managerial position dedicated to customer service and hired an individual with
approximately 20 years of experience in customer service and call center
management. We have also expanded our customer support staff by over 70% in
order to maintain high-quality customer service. We have also invested in
technology and implemented new procedures in order to continually improve the
quality and responsiveness of our customer service. To optimize our customer
service resources, we have designed a user-friendly Web site with a goal of
achieving customer self-support. For example, customers can find answers to
their "frequently asked questions" and intuitively navigate our Web site.

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MARKETING

The goal of our marketing strategy is to make Net.B@nk the leading brand in
the internet financial services market. Our marketing strategy is designed to
grow our customer base and includes targeted advertising on the internet and
other media, developing strategic partnerships that will enhance our product and
service offerings, cross-marketing initiatives to existing customers and
fostering public relations. Our marketing campaign launched after our February
1999 offering has been highly successful, and we plan to significantly increase
our marketing expenses from $695,000 in 1998 to a budgeted $6.6 million for
1999.

During the first quarter of 1999, we applied approximately $400,000 to our
marketing program and added 7,226 new accounts. We plan to increase our print
and on-line advertising and continue to explore opportunities in broadcast
advertising during the course of the year. We have recently hired additional
marketing support staff and believe that a significant increase in our marketing
initiatives will enable us to increase our name recognition and grow our
customer and deposit base on a national scale.

ADVERTISING STRATEGIES. We have allocated the majority of our advertising
budget to on-line advertising because we believe it is a rapidly growing medium
that best reaches our target audience. We currently market our products and
services by placing banner ads on portals such as Yahoo!, Alta Vista, Infoseek,
Lycos, AOL and Excite and Web sites such as Bank Rate Monitor, iVillage and
Motley Fool that our experience indicates will attract our target customers. We
have enhanced our ability to monitor the audience that we reach as well as the
results of our on-line advertising campaign. For example, we track the number of
hits on our Web site that result from a particular advertisement and incorporate
our findings into our subsequent marketing efforts.

We also utilize traditional advertisement media. We have a national print
media campaign aimed at increasing brand awareness. Our print media campaign has
included a series of advertisements in national newspaper and magazines such as
THE WALL STREET JOURNAL, FORBES, PC WORLD, and INTERNET LIFE. We added direct
mail marketing to our marketing activities and we are evaluating opportunities
in broadcast advertising.

STRATEGIC PARTNERSHIPS. We continually seek to form product and marketing
alliances with other internet financial services providers such as
Virtuallender.com and E-loan to broaden our product and service offerings and
attract a broader customer base. We plan to pursue other marketing alliances
such as co-branded credit cards. We believe these alliances provide us with the
opportunity to cross-market our products and services to the customers of these
financial service providers and to our existing customers.

PUBLIC RELATIONS. We also derive a marketing benefit from media coverage
that we generate through our public relations campaign. We believe this coverage
increases the general public's awareness of Net.B@nk and attracts new customers.

COMPETITION

We believe that the principal competitive factors in the banking industry
are market presence, customer service, convenience, product offerings and
deposit and loan rates and associated account fees. While the banking industry
is highly competitive, we believe we compete effectively with our principal
competitors, which are traditional banks, internet banks and other financial
services providers. We believe our low cost structure, which allows us to offer
attractive interest rates and low fees, gives us a competitive advantage over
traditional banks, which must support a physical branch structure. We also
believe our operating history and name recognition give us an advantage over
other independent internet banks, most of which are still in a relatively early
stage of operation. Furthermore, we are able to offer a broader array of
products and services than many non-bank financial services providers. However,
many of our competitors have larger customer bases, greater name recognition and
brand awareness, greater financial and other resources and longer operating
histories. Additionally, new

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competitors and competitive factors are likely to emerge, particularly in view
of the rapid development of internet commerce. See "Risk Factors--Industry
competition may adversely affect our success."

OPERATIONS

ACCOUNT ACTIVITY. Customers can access Net.B@nk 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 by mail and print bank statement reports from
any PC with a secure Web browser, regardless of its location. To open a new
account, the customer completes the on-line enrollment form on our Web site,
prints the signature card, signs it and mails it to us. Customers can make
deposits into an open account at Net.B@nk via direct deposit programs, by
transferring funds between Net.B@nk accounts, by wire transfer, by mail or in
person at our principal executive offices. No teller line is maintained,
however, and we do not have or intend to establish a physical branch system.
Customers can also make withdrawals and have access to their accounts at ATMs
that are affiliated with the Cirrus, Honor and Avail networks, which provides
added customer convenience.

SERVICE PROVIDERS. We have negotiated relationships with a select group of
service providers who not only provide us with significant quality, security,
reliability, performance and marketing capabilities, but also play an integral
role in implementing our full financial services strategy. Because we outsource
our principal operational functions to experienced third-party service providers
that have the capacity to process a high volume of transactions, we can respond
easily to growth. Moreover, we have preserved a degree of flexibility that
enables us to assess and evaluate our product offerings and delivery structure
on an ongoing basis and to incorporate other alliance opportunities as they
present themselves. Should any of these relationships terminate, however, we
believe we could secure the required services from an alternative source without
material interruption of our operations. Our principal service providers are
described below:

- NCR. NCR provides operational support for our internet banking and bill
payment applications. Specifically, NCR provides a secure Web site,
software that performs services relating to our infrastructure and other
electronic banking services. NCR also hosts Edify's electronic banking
software on its secure server and provides the interface necessary to link
our servers with those used by BISYS and CheckFree.

- BISYS. We receive core systems processing services, such as deposit
account, loan and year-end processing services, from BISYS. The BISYS
server interfaces with NCR's secure server and verifies customer passwords
and identification. BISYS also operates our ATM and debit card systems.

- EDIFY. Edify licenses its Electronic Banking System and Electronic
Workforce software, a suite of internet banking applications, to us. Edify
also maintains the software and provides consulting services as needed.

- CHECKFREE. CheckFree provides electronic bill paying services to our
customers. Customers can pay their bills on-line through electronic funds
transfer or a written draft prepared and sent to the creditor.

- UVEST INVESTMENT SERVICES. UVEST Investment Services provides discount
brokerage services to our customers. UVEST Investment Services executes
the trades and receives a commission that is automatically deducted from
our customer's deposit account.

- MORTGAGE.COM. mortgage.com processes mortgage loan applications submitted
through our Web site. It reviews the application, contacts the customer
and closes the loan for us.

- PNC BANK CORP. We plan to offer consumer loans, including home equity and
automobile loans, in the third quarter of 1999. PNC will originate and
service these loans and will service other consumer loans on a servicing
released basis.

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As part of our outsourcing strategy, we will continue to explore the
outsourcing of a variety of our operations, including customer service, new
product offerings and certain lending and portfolio management activities.

SECURITY

Our ability to provide our customers with secure financial services over the
internet is of paramount importance. We continually evaluate the internet
systems, services and software used in our operations to ensure that they meet
the highest standards of security. The following are among the security measures
that are in place:

ENCRYPTED TRANSACTIONS. All banking transactions and internet
communications are encrypted so that sensitive information is not transmitted
over the internet in a form that can be read or easily deciphered. Encryption of
internet communications is accomplished through the use of the Netscape Secure
Sockets Layer technology. This technology is the standard for encryption on the
internet and is currently used by Netscape's NAVIGATOR (Version 2.0 or higher)
and Microsoft's INTERNET EXPLORER (Version 3.0 or higher). Messages between our
server and BISYS are encrypted using DES encryption, which is described in
"--Isolated Bank Server" below.

SECURE LOGON. To eliminate the possibility that a third party may download
Net.B@nk's or a customer's password file, user identification and passwords are
not stored on the internet or the Web server. Furthermore, passwords are strings
of six to eight alpha-numeric characters, which makes the chance that a password
can be randomly guessed less than one in one trillion.

ISOLATED BANK SERVER. The computer used to provide our services cannot be
accessed directly through the internet. It is on a private connection, or
intranet, that provides two-way communication between the isolated bank server
and the NCR internet server. Consequently, an internet user cannot directly
access the computer that actually provides our services.

All banking services are routed from the NCR server through a firewall. The
firewall is a combined software and hardware product that precisely defines,
controls and limits the access to "internal" computers from "outside" computers
across a network. Use of this firewall means that only authenticated bank
customers or administrators may send or receive transactions through it, and the
firewall itself is immune to penetration from the network. In other words, the
firewall is a mechanism used to protect our server from the freely accessible
internet.

Furthermore, all messages sent or received between the NCR server and our
server are encrypted using DES encryption. This is a symmetric key algorithm and
is highly secure because it is not susceptible to standard ciphertext attacks.
Thus, even if a perpetrator were able to route a message to our server through
the firewall, the message could not be encrypted in a way that would be
considered valid by the server. As a result, our server would reject the
message.

AUTHENTICATED SESSION INTEGRITY. An authenticated user is any user who
signs onto our Web site with a valid user ID and password. Although the vast
majority of authenticated users are legitimate bank customers, our server is
programmed to limit exposure to an authenticated user who is attempting to
defraud Net.B@nk. If the authenticated user alters the URL, which is the command
or request that is sent from the browser to the server, in any way in an attempt
to gain access to other users' accounts, our server immediately detects that the
session integrity variables have been violated. Our server will immediately stop
the session and record the attempt in a log so that our staff can investigate.

PHYSICAL SECURITY. All servers and network computers reside in secure NCR
facilities. Currently, computer operations supporting our internet access are
based in Columbia, Maryland with backup facilities in Dayton, Ohio. Only
employees with proper photographic identification may enter the primary
building. The computer operations are located in a secure area, with admission
only by key card. Access to our server console requires further password
identification.

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SECURE MODEM ACCESS. A private line that is not accessible from the public
network connects our server and BISYS. Our server is connected to CheckFree by a
similar private connection. A dial-up maintenance port also permits access to
our server. The modem that provides the only access to this port is specially
protected and is only enabled on an as-needed basis.

SERVICE CONTINUITY. NCR and BISYS each provide a fully redundant network
with no single point of failure. Our server is also "mirrored" so that hardware
failures or software bugs should cause no more than a few minutes of service
outage. "Mirroring" means that our server is backed up continuously so that all
data is stored in two physical locations. This network and server redundancy
ensures that access to Net.B@nk will be reliable. However, if customers are not
able to access Net.B@nk over the internet, customers retain access to their
funds through several means, including paper checks, ATM cards, customer service
and an automated telephone response system.

MONITORING. All customer transactions on our server using services provided
by BISYS and CheckFree produce one or more entries into transactional logs. We
and NCR recognize that it is critical to monitor these logs for unusual or
fraudulent activity. As mentioned previously, any attempt by an authenticated
user to modify the command or request that is sent from the browser to the
server is logged. Additionally, all financial transactions are logged. Bank
personnel review these logs regularly, and we or NCR will note any abnormal or
unusual activity and take appropriate action. Ultimately, vigilant monitoring is
the best defense against fraud.

The preceding security measures are designed to ensure that Net.B@nk is set
up in a secure manner. However, over the long term, our security depends upon
the procedures and standards used for administration of the internet site. Both
NCR and BISYS are required to obtain SAS 70 certification from a national
accounting firm. This is a certification by independent auditors that the NCR
and BISYS computer systems are being managed and operated in a manner consistent
with accepted practices. Both BISYS and NCR have received this certification.

We believe the risk of fraud presented by internet banking is not materially
different from the risk of fraud inherent in any banking relationship. We
believe the three principal reasons for a breach in bank security are:

- Misappropriation from the user of the user's account number or password;

- Penetration of our server by an outside "hacker"; and

- Fraud committed by one of our employees or an employee of one of our
service providers.

Both traditional banks and internet banks are vulnerable to these types of
fraud. By establishing the security measures described above, we believe we have
reduced our vulnerability to the first two types of fraud. To counteract fraud
by employees, associates and consultants, we have established internal
procedures and policies designed to ensure that, as in any bank, proper control
and supervision is exercised over employees, associates and consultants. We also
counteract all types of fraud through daily examination of our transactional
logs.

INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS

We regard the form and substance of our name and other intellectual property
we have developed as proprietary and attempt to protect them by relying on
intellectual property laws. We have submitted a United States trademark
registration for the Net.B@nk name and take active measures to safeguard our
name and other proprietary intellectual property. Policing unauthorized use of
proprietary information is difficult, however, and litigation may be necessary
to enforce our intellectual property rights.

We own the internet domain name "netbank.com." Domain names in the United
States and in foreign countries are regulated, by the laws and regulations
governing the internet are continually evolving. Additionally, the relationship
between regulations governing domain names and laws protecting intellectual
property rights is unclear. As a result, we may not be able to prevent third

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parties from acquiring domain names that infringe or otherwise decrease the
value of our trademark and other intellectual property rights.

SUPERVISION AND REGULATION

References to "we," "us," "our" and "Net.B@nk" generally refer to Net.B@nk,
Inc. and its sole subsidiary, Net.B@nk, on a consolidated basis, except where we
indicate that Net.B@nk, Inc. means only the parent entity and Net.B@nk refers
only to the banking subsidiary.

BACKGROUND. In connection with its approval of the July 31, 1997
acquisition of our bank charter, the Office of Thrift Supervision required us to
make certain commitments with respect to our ongoing operations. These
commitments included:

- Until July 28, 2000, receiving prior approval from the Office of Thrift
Supervision before making any changes to our senior management team or
board of directors;

- Operating within the parameters of our business plan as submitted to the
Office of Thrift Supervision;

- Obtaining from an independent computer security specialist an independent
review of, and written report regarding, the internet banking security
measures we employ;

- Complying with the Office of Thrift Supervision policy statement regarding
on-line banking;

- Ensuring that our directors and certain executive officers and
shareholders refrain from disposing of their restricted shares of common
stock without the prior consent of the Office of Thrift Supervision until
July 28, 2000;

- Obtaining the approval of the Regional Director of the Office of Thrift
Supervision with respect to any changes in our stock benefit plans
effected on or before July 28, 2000;

- Complying with Office of Thrift Supervision directives, if any, that
require the exercise or forfeiture of participants' rights under our stock
benefit plans in the event our capital falls below minimum Office of
Thrift Supervision requirements; and

- Submitting to the Office of Thrift Supervision a structured project plan
describing the steps and timing required to replace the Web hosting
services that were previously provided by AT&T Corp. and are now provided
by NCR.

We and our directors, executive officers and shareholders have complied with
these conditions to date.

On January 8, 1999, the Office of Thrift Supervision granted Carolina First
Corporation permission to sell a portion of its shares of common stock in
Net.B@nk's February 1999 public offering. As a condition to its approval, the
Office of Thrift Supervision required that two of the four directors initially
nominated by Carolina First Corporation resign following completion of the
offering and that those directors be replaced with two outside directors within
six months of the resignations. The Office of Thrift Supervision also required
Carolina First Corporation to refrain from disposing of its remaining shares of
common stock without the prior consent of the Office of Thrift Supervision. We
do not believe that these commitments have or will materially affect our
operations.

Carolina First Corporation currently owns more than five percent of our
outstanding common stock. As a result, Carolina First Corporation is subject to
certain Federal Reserve Board regulations regarding its relationship with
Net.B@nk. Until Carolina First Corporation owns less than five percent of our
outstanding common stock, we will not engage in any activities that are not
permissible under applicable Federal Reserve Board regulations.

SAVINGS AND LOAN HOLDING COMPANY REGULATION. Savings and loan holding
companies and federal savings banks are extensively regulated under both federal
and state law. The following is a brief summary of certain statutes, rules and
regulations that affect Net.B@nk, Inc. and its banking subsidiary. This summary
is qualified in its entirety by reference to the particular statutory and

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regulatory provisions referred to below. This summary is not intended to be an
exhaustive description of the statutes or regulations applicable to our
business. Supervision, regulation and examination of Net.B@nk by regulatory
agencies is intended primarily for the protection of our depositors rather than
our shareholders. The terms bank, savings institution, savings association,
federal savings bank and thrift are used interchangeably in this section to
refer to savings associations such as Net.B@nk, Inc.'s banking subsidiary that
are subject to supervision and regulation by the Office of Thrift Supervision.
The terms savings and loan holding company and holding company are used
interchangeably to refer to holding companies, such as Net.B@nk, Inc., that are
subject to supervision and regulation by the Office of Thrift Supervision.

Net.B@nk, Inc. is registered as a holding company under both the Savings and
Loan Holding Company Act set forth in Section 10 of the Home Owners Loan Act and
the Financial Institutions Code of Georgia. Net.B@nk, Inc. is currently
regulated under these acts by the Office of Thrift Supervision and by the
Georgia Department of Banking and Finance. As a savings and loan holding
company, Net.B@nk, Inc. is required to file with the Office of Thrift
Supervision an annual report and any additional information that the Office of
Thrift Supervision may require under the Savings and Loan Holding Company Act.
The Office of Thrift Supervision also conducts examinations of Net.B@nk, Inc.
and its banking subsidiary.

Generally, savings and loan holding companies and their subsidiaries may not
engage in activities or render any services for or on behalf of their savings
institution subsidiaries for the purpose or with the effect of evading any law
or regulation applicable to the institution. This restriction is designed to
prevent savings and loan holding companies and their affiliates from evading
requirements of the Savings and Loan Holding Company Act that were enacted to
protect a holding company's savings institution subsidiaries. A unitary thrift
holding company, that is, a holding company that owns only one insured
institution whose subsidiary institution satisfies the qualified thrift lender
test (discussed below), however, is not restricted to any statutorily prescribed
list of permissible activities, and the Savings and Loan Holding Company Act and
the Financial Institutions Code of Georgia impose no limits on direct or
indirect non-savings institution subsidiary operations. Net.B@nk, Inc. is a
unitary thrift holding company and qualifies for this exception. However, as
discussed above, we have committed that Net.B@nk, Inc. will not engage in any
activity that is impermissible for bank holding companies under Federal Reserve
Board regulations.

The Savings and Loan Holding Company Act and the Financial Institutions Code
of Georgia make it unlawful for any savings and loan holding company to acquire
control of another savings association or savings and loan holding company
without prior approval from the Office of Thrift Supervision and the Georgia
Department of Banking and Finance. These statutes also prohibit a savings
institution or holding company from merging with, consolidating with or
purchasing all or substantially all of the assets of another institution or
holding company without prior approval. The Office of Thrift Supervision and the
Georgia Department of Banking and Finance take into consideration the financial
and managerial resources and future prospects of the institutions involved when
considering an application for these transactions. This includes consideration
of the competence, experience and integrity of the officers, directors and
principal shareholders of the companies. In addition, the agencies consider the
effect of the transaction on the institution, the insurance risk to the Savings
Association Insurance Fund and the convenience and needs of the community to be
served.

The Office of Thrift Supervision may not approve an acquisition that would
result in the formation of certain types of interstate banking networks. The
Office of Thrift Supervision is precluded from approving an acquisition that
would result in the formation of a holding company that controls savings
institutions in more than one state. If, however, the acquiring company or one
of its savings institution subsidiaries is authorized to acquire control of an
institution or to operate an office in the additional state under a supervisory
acquisition authorized under Section 13(k) of the Federal Deposit Insurance Act
or the statutes of the state in which the institution to be acquired is located
permits the acquisition, then the acquisition may be approved.

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Savings and loan holding companies are generally allowed to acquire or to
retain as much as 5% of the voting shares of a savings institution or savings
and loan holding company without regulatory approval.

SAVINGS BANK REGULATION

GENERAL. Net.B@nk is chartered by the Office of Thrift Supervision, a
bureau of the United States Treasury, and is subject to examination by the
Office of Thrift Supervision and the FDIC. The Office of Thrift Supervision
regulates all areas of our banking operations including reserves, lending,
mergers, payment of dividends, interest rates, establishment of branches and
other aspects of our operations. Federal savings banks with assets greater than
or equal to $250 million, like Net.B@nk, must be examined no less frequently
than every 12 months. Federal savings banks with assets less than $250 million
may be examined no less frequently than 18 months, if they are well capitalized
and meet other regulatory requirements. Additionally, the Office of Thrift
Supervision may assess the federal savings bank with the cost of the
examination.

The FDIC insures Net.B@nk's deposits to the maximum extent provided by law.
The major functions of the FDIC with respect to insured federal savings banks
include:

- Paying depositors to the extent provided by law in the event an insured
federal savings bank is closed without adequately providing for payment of
depositors' claims; and

- Preventing the continuance or development of unsound and unsafe banking
practices.

CAPITAL REQUIREMENTS. Net.B@nk is required to comply with the capital
adequacy standards established by the Office of Thrift Supervision. The Office
of Thrift Supervision has established three basic measures of capital adequacy
for federal savings banks--a risk-based measure, a leverage measure and a
tangible capital measure.

The risk-based capital standards are designed to make regulatory capital
requirements more sensitive to differences in risk profiles among savings
associations, to account for off-balance-sheet exposure, and to minimize
disincentives for holding liquid assets. Assets and off-balance-sheet items are
assigned to broad risk categories, each with appropriate weights. The resulting
capital ratios represent capital as a percentage of total risk-weighted assets
and off-balance-sheet items.

Under risk-based capital standards, the minimum guideline for the ratio of
total capital to risk-weighted assets is 8%. Net.B@nk's risk-based capital ratio
at December 31, 1998 was 15.36%.

Under leverage-based capital standards, the minimum guideline for the ratio
of core capital to tangible assets is 3%. Net.B@nk's leverage ratio at December
31, 1998 was 9.31%. This leverage-based capital guideline, however, is the
minimum requirement. The guidelines provide that federal savings banks which are
not granted the highest regulatory rating shall maintain a core capital to total
adjusted assets ratio of 4%. A higher ratio may be required if warranted by the
risk profile of the federal savings bank.

Under Office of Thrift Supervision regulations, core capital generally
includes:

- Common stockholders' equity;

- Noncumulative perpetual preferred stock and related surplus; and

- Minority interests in the equity accounts of consolidated subsidiaries,

LESS:

- Unidentifiable intangible assets, other than certain amounts of
supervisory goodwill; and

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- Certain investments in certain subsidiaries plus 90% of the fair market
value of readily marketable purchased mortgage servicing rights and
purchased credit card relationships, subject to certain conditions.

Total capital, for purposes of the risk-based capital requirement equals the
sum of core capital plus supplementary capital. Supplementary capital includes
the sum of, among other items, perpetual preferred stock not counted as core
capital, limited life preferred stock, subordinated debt and general loan and
lease loss allowances up to 1.25% of risk-weighted assets less certain
deductions. The amount of supplementary capital that may be counted towards
satisfaction of the total capital requirement may not exceed 100% of core
capital, and Office of Thrift Supervision regulations require the maintenance of
a minimum ratio of core capital to total risk-weighted assets of 4%.

Under tangible capital standards, the minimum guideline for the ratio of
tangible capital to tangible assets is 1.5%. Net.B@nk's tangible capital ratio
at December 31, 1998 was 9.31%. Generally, tangible capital is defined as core
capital minus intangible assets and investments in certain subsidiaries and does
not include purchased mortgage servicing rights.

Office of Thrift Supervision regulations have been amended to include an
interest-rate risk component to the risk-based capital requirement. This new
requirement is not expected to have any material effect on our ability to meet
the risk-based capital requirement. The Office of Thrift Supervision also
revised its risk-based capital standards to ensure that its standards provide
adequately for concentration of credit risk, risk from nontraditional activities
and actual performance and expected risk of loss on multi-family mortgages.

Capital requirements higher than the generally applicable minimum
requirement may be established for a particular savings association if the
Office of Thrift Supervision determines that the institution's capital was or
may become inadequate in view of its particular circumstances.

Additionally, the Georgia Department of Banking and Finance requires savings
and loan holding companies, such as Net.B@nk, Inc., to maintain a 5% Tier 1
capital ratio on a consolidated basis. Tier 1 capital is substantially the same
as core capital. As of December 31, 1998, Net.B@nk's Tier 1 capital ratio was
14.44%.

PROMPT CORRECTIVE ACTION. The Federal Deposit Insurance Corporation
Improvement Act of 1991 established a system of prompt corrective action to
resolve the problems of undercapitalized institutions. Under this system, the
federal banking regulators, which include the Office of Thrift Supervision, the
FDIC, the Office of the Comptroller of the Currency and the Federal Reserve
Board, established five capital categories (well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized and critically
undercapitalized), and are required to take certain mandatory supervisory
actions, and are authorized to take other discretionary actions, relating to
institutions in the three undercapitalized categories. The severity of the
action depends upon the capital category in which the institution is placed.
Generally, subject to a narrow exception, the federal banking regulator must
appoint a receiver or conservator for an institution that is critically
undercapitalized. The federal banking agencies have specified by regulation the
relevant capital levels for each category.

An institution that is categorized as undercapitalized, significantly
undercapitalized or critically undercapitalized is required to submit an
acceptable capital restoration plan to its appropriate federal banking agency. A
savings and loan holding company must guarantee that a subsidiary depository
institution meets its capital restoration plan, subject to certain limitations.
The controlling holding company's obligation to fund a capital restoration plan
is limited to the lesser of 5% of an undercapitalized subsidiary's assets or the
amount required to meet regulatory capital requirements. An undercapitalized
institution is also generally prohibited from increasing its average total
assets, making acquisitions, establishing any branches or engaging in any new
line of business, except under an accepted capital restoration plan or with FDIC
approval. In addition, the appropriate federal banking

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agency may treat an undercapitalized institution in the same manner as it treats
a significantly undercapitalized institution, if it determines that those
actions are necessary. The appropriate federal banking agency may also treat an
institution in the well capitalized, adequately capitalized or undercapitalized
categories as if it was in the next lower category based on safety and soundness
considerations relating to factors other than capital levels.

At December 31, 1998, our capital level placed us in the well capitalized
category.

CAPITAL DISTRIBUTIONS. Office of Thrift Supervision regulations govern the
payment of dividends and other capital distributions of savings associations
such as Net.B@nk. Under new regulations effective April 1, 1999, savings
associations that meet specified criteria must file a notice or an application
with the Office of Thrift Supervision before making a "capital distribution,"
which is defined to include dividends as well as stock repurchases and cash-out
mergers. Savings associations that do not meet these criteria are permitted to
make distributions without prior notice or application. The Office of Thrift
Supervision may deny distribution notices or applications under specified
circumstances.

A savings association must file an application with the Office of Thrift
Supervision and receive the Office of Thrift Supervision's approval of the
application before making the distribution if:

- The association is not eligible for expedited treatment under the agency's
application processing guidelines;

- The total amount of all of the association's capital distributions,
including the proposed capital distribution, for the applicable calendar
year exceeds the association's net income for that year to date plus the
association's retained net income for the preceding two years;

- The association would not be at least adequately capitalized under the
Office of Thrift Supervision's prompt corrective action regulations,
following the distribution; or

- The proposed capital distribution would violate a prohibition contained in
any applicable statute, regulation or agreement between the association
and the Office of Thrift Supervision or the FDIC, or violate a condition
imposed on the association in an application or notice approved by the
Office of Thrift Supervision.

A savings association is not eligible for expedited treatment if the
association does not have a composite rating of 1 or 2, does not have a
Community Reinvestment Act rating of satisfactory or better, does not have a
compliance rating of 1 or 2, does not meet its minimum capital requirements or
has been notified by Office of Thrift Supervision personnel that it is a problem
or troubled association.

A savings association must file a notice 30 days before a capital
distribution if the association is not required to file an application but:

- The association would not be well capitalized under the prompt corrective
action regulations following the distribution;

- The proposed capital distribution would reduce the amount of or retire any
part of the association's common or preferred stock or retire any part of
debt instruments such as notes or debentures included in capital under the
Office of Thrift Supervision's capital regulations (other than regular
payments required under certain debt instruments); or

- The association is a subsidiary of a savings and loan holding company.

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The Office of Thrift Supervision may disapprove a notice or deny an
application, in whole or in part, if the Office of Thrift Supervision determines
that:

- The association will be undercapitalized, significantly undercapitalized
or critically undercapitalized as set forth in the prompt corrective
action regulations, following the distribution;

- The proposed distribution raises safety or soundness concerns; or

- The proposed distribution violates a prohibition contained in any statute,
regulation, agreement between the association and the Office of Thrift
Supervision or the FDIC or a condition imposed in an application or notice
approved by the Office of Thrift Supervision, unless the Office of Thrift
Supervision decides to permit the proposed distribution notwithstanding
the prohibition or condition.

Net.B@nk does not currently meet the criteria for an application. However,
because Net.B@nk is a subsidiary of a savings and loan holding company, it must
file a notice with the Office of Thrift Supervision at least 30 days before it
makes any capital distribution.

LIQUIDITY. Under Office of Thrift Supervision regulations, savings
associations must maintain an average daily balance of liquid assets in each
calendar quarter of not less than 4% of: (1) the amount of its liquidity base at
the end of the preceding calendar quarter or (2) the average daily balance of
its liquidity base during the preceding quarter. Liquid assets include cash,
certain time deposits, certain bankers' acceptances, certain corporate debt
securities and highly rated commercial paper, securities of certain mutual funds
and specified United States government, state or federal agency obligations. The
liquidity base is the amount of the savings association's net withdrawable
accounts plus its short-term borrowings.

The Office of Thrift Supervision may, to the extent and under conditions it
may prescribe, permit a savings association to reduce its liquid assets below
the minimum amount to meet withdrawals or pay obligations. In addition, the
Office of Thrift Supervision may suspend part or all of the minimum liquidity
requirements whenever it determines that conditions of national emergency or
unusual economic stress exist. Savings institutions also are required to
maintain short-term liquid assets to satisfy Federal Reserve Board requirements.

QUALIFIED THRIFT LENDER REQUIREMENT. A federal savings bank is deemed to be
a qualified thrift lender if: (1) the savings association qualifies as a
domestic building and loan association, as defined in section 7701(a)(19) of the
Internal Revenue Code of 1986 or (2) the savings association's qualified thrift
investments equal or exceed 65% of its portfolio assets on a monthly average
basis in nine out of every 12 months.

Qualified thrift investments generally consist of (1) various
housing-related loans and investments such as residential construction and
mortgage loans, home improvement loans, mobile home loans, home equity loans and
mortgage-backed securities, (2) certain obligations of the FDIC and (3) shares
of stock issued by any Federal Home Loan Bank, the Federal Home Loan Mortgage
Corporation or the Federal National Mortgage Association.

In addition, the following assets may be categorized as qualified thrift
investments in an amount not to exceed 20% in the aggregate of portfolio assets:

- 50% of the dollar amount of residential mortgage loans originated and sold
within 90 days of origination;

- Investments in securities of a service corporation that derives at least
80% of its income from residential housing finance;

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- 200% of loans and investments made to acquire, develop or construct
starter homes or homes in credit needy areas (subject to certain
conditions);

- Loans for the purchase or construction of churches, schools, nursing homes
and hospitals; and

- Consumer loans.

The term portfolio assets means the savings institution's total assets minus
goodwill and other intangible assets, the value of property used by the savings
institution to conduct its business and liquid assets held by the savings
institution in an amount up to 20% of its total assets.

A savings association that fails to meet the definition of a qualified
thrift lender must either convert to a national bank charter or limit its future
investments and activities, including branching and payments of dividends, to
those permitted for both savings associations and national banks. Further,
within one year of the loss of qualified thrift lender status, a holding company
of a savings association that does not convert to a bank charter must register
as a bank holding company and will be subject to all statutes applicable to bank
holding companies. In order to exercise the powers granted to federally
chartered savings associations and maintain full access to Federal Home Loan
Bank advances, Net.B@nk must continue to meet the definition of a qualified
thrift lender. In addition, Net.B@nk must continue to meet this definition for
Net.B@nk, Inc. to maintain its status as a unitary savings and loan holding
company.

LOANS TO ONE BORROWER LIMITATIONS. The Home Owners Loan Act generally
requires savings associations to comply with the loans to one borrower
limitations applicable to national banks. National banks generally may make
loans to a single borrower in amounts up to 15% of their unimpaired capital and
surplus, plus an additional 10% of capital and surplus for loans secured by
readily marketable collateral. The Home Owners Loan Act provides exceptions
under which a savings association may make loans to one borrower in excess of
the generally applicable national bank limits. A savings association may make
loans to one borrower in excess of the limits under the following circumstances:
(1) for any purpose, in any amount not to exceed $500,000 or (2) to develop
domestic residential housing units, in an amount not to exceed the lesser of $30
million or 30% of the savings association's unimpaired capital and unimpaired
surplus, provided other conditions are satisfied.

The Federal Institutions Reform, Recovery, and Enforcement Act of 1989
provided that a savings association could make loans to one borrower to finance
the sale of real property which the savings association acquired in satisfaction
of debts previously contracted in good faith, in amounts up to 50% of the
savings association's unimpaired capital and unimpaired surplus. The Office of
Thrift Supervision, however, has modified this standard by limiting loans to one
borrower to finance the sale of real property acquired in satisfaction of debts
to 15% of unimpaired capital and surplus. That rule provides, however, that
purchase money mortgages received by a savings association to finance those
sales that do not constitute "loans" if no new funds are advanced and the
savings association is not placed in a more detrimental position holding the
note than holding the real estate. Therefore, these purchase money mortgages are
not subject to the loans to one borrower limitations.

COMMERCIAL REAL PROPERTY LOANS. The Home Owners Loan Act limits the
aggregate amount of commercial real estate loans that a federal savings
association may make to an amount not in excess of 20% of the savings
association's assets. Also, the amount in excess of 10% of total assets must be
devoted to small business real property loans.

COMMUNITY REINVESTMENT. Under the Community Reinvestment Act and the
implementing Office of Thrift Supervision regulations, federal savings banks
have a continuing and affirmative obligation to help meet the credit needs of
their local communities, including low and moderate-income neighborhoods,
consistent with the safe and sound operation of the institution. The Community
Reinvestment Act requires the boards of directors of financial institutions to
adopt a Community

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Reinvestment Act statement for each assessment area that, among other things,
describes its efforts to help meet community credit needs and the specific types
of credit that the institution is willing to extend. The Office of Thrift
Supervision has established the following three tests to evaluate a federal
savings bank's compliance with the Community Reinvestment Act:

- A lending test which will compare the institution's market share of loans
in low- and moderate-income areas to its market share of loans in its
entire service area and the percentage of a bank's outstanding loans to
low- and moderate-income areas or individuals;

- A services test which will evaluate the provision of services that promote
the availability of credit to low- and moderate-income areas; and

- An investment test, which will evaluate an institution's record of
investments in organizations designed to foster community development,
small- and minority-owned businesses and affordable housing lending,
including state and local government housing or revenue bonds.

FAIR LENDING. Congress and various federal agencies, including bank
regulatory agencies, the Department of Housing and Urban Development, the
Federal Trade Commission and the Department of Justice, which are responsible
for implementing fair lending laws in the United States, have been increasingly
concerned that prospective home buyers and other borrowers are experiencing
discrimination in their efforts to obtain loans. In recent years, the Department
of Justice has filed suit against financial institutions that it determined had
discriminated, seeking fines and restitution for borrowers who allegedly
suffered from discriminatory practices. Most, if not all, of these suits have
been settled, some for substantial sums, without a full adjudication on the
merits.

On March 8, 1994, these federal agencies, in an effort to clarify what
constitutes lending discrimination and to specify the factors the agencies will
consider in determining if lending discrimination exists, announced a joint
policy statement detailing specific discriminatory practices prohibited under
the Equal Credit Opportunity Act and the Fair Housing Act. In the policy
statement, three methods of proving lending discrimination were identified:

- Overt evidence of discrimination, when a lender blatantly discriminates on
a prohibited basis;

- Evidence of disparate treatment, when a lender treats applicants
differently based on a prohibited factor even where there is no showing
that the treatment was motivated by prejudice or a conscious intention to
discriminate against a person; and

- Evidence of disparate impact, when a lender applies a practice uniformly
to all applicants, but the practice has a discriminatory effect, even
where the practices are neutral on their face and are applied equally,
unless the practice can be justified on the basis of business necessity.

FDIC INSURANCE ASSESSMENTS. Federal deposit insurance is required for all
federally chartered savings associations. Net.B@nk's deposits are insured to a
maximum of $100,000 for each depositor by the Savings Association Insurance Fund
of the FDIC. Net.B@nk is therefore subject to regulation and supervision by the
FDIC to the extent deemed necessary by the FDIC to ensure the safety and
soundness of the Savings Association Insurance Fund. The FDIC is entitled to
have access to reports of examination of Net.B@nk made by the Office of Thrift
Supervision and all reports of condition filed by Net.B@nk with the Office of
Thrift Supervision. The FDIC also may require Net.B@nk to file additional
reports that determines to be advisable for insurance purposes. Additionally,
the FDIC may determine by regulation or order that a specific activity poses a
threat to the Savings Association Insurance Fund and that no Savings Association
Insurance Fund member may engage in the activity directly.

Insurance premiums are paid in semiannual assessments. Under a risk-based
assessment system, the FDIC is required to calculate on a semi-annual basis a
savings association's semiannual assessment based on (1) the probability that
the insurance fund will incur a loss with respect to the institution,

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taking into account the institution's asset and liability concentration, (2) the
potential magnitude of any such loss and (3) the revenue and reserve needs of
the insurance fund. The semiannual assessment imposed on the Net.B@nk may
increase depending on the Savings Association Insurance Fund revenue and expense
levels, and the risk classification applied to Net.B@nk.

The FDIC has adopted a risk-based assessment system for insured depository
institutions that takes into account the risks attributable to different
categories and concentrations of assets and liabilities. The system assigns an
institution to one of three capital categories: (1) well capitalized; (2)
adequately capitalized; and (3) undercapitalized. These three categories are
substantially similar to the prompt corrective action categories described
above, with the "undercapitalized" category including institutions that are
undercapitalized, significantly undercapitalized, and critically
undercapitalized for prompt corrective action purposes. The FDIC also assigns an
institution to one of three supervisory subgroups within each capital group. The
supervisory subgroup to which an institution is assigned is based on a
supervisory evaluation that the Office of Thrift Supervision provides to the
FDIC and information that the FDIC determines to be relevant to the
institution's financial condition and the risk posed to the deposit insurance
funds. The FDIC determines an institution's insurance assessment rate based on
the institution's capital category and supervisory category.

Since January 1, 1997, Savings Association Insurance Fund members and Bank
Insurance Fund members have the same risk-based assessment schedule which is
$0.00 to $0.27 per $100 of deposits. Beginning January 1, 1997, financing
corporate bond debt service assessments of $0.013 for Bank Insurance Fund
deposits and $0.064 per $100 of deposits for Savings Association Insurance Fund
deposits were added to the Bank Insurance Fund assessable base and Savings
Association Insurance Fund assessable base, respectively. These rates will be in
effect until December 31, 1999. Thereafter, approximately $0.024 per $100 of
deposits will be added to each regular assessment for all insured depositors.

The Deposit Insurance Funds Act of 1996 provided that the Bank Insurance
Fund and the Savings Association Insurance Fund were to be merged, creating the
"Deposit Insurance Fund," on January 1, 1999, provided that bank and savings
association charters were combined by that date. The Treasury Department has
submitted a report to Congress on the development of a common charter for all
insured depository institutions, but as of January 1, 1999, Congress had not
passed any legislation to combine the charters. See "--Elimination of Federal
Savings Association Charter."

The FDIC may terminate an institution's deposit insurance if it finds that
the institution has engaged in unsafe and unsound practices, is in an unsafe or
unsound condition to continue operation, or has violated any applicable law,
regulation, rule, order or condition imposed by the FDIC.

FEDERAL HOME LOAN BANK SYSTEM. The Federal Home Loan Bank System consists
of 12 regional Federal Home Loan Banks, each subject to supervision and
regulation by the Federal Housing Finance Board. The Federal Home Loan Banks
provide a central credit facility for member savings associations. Collateral is
required. The maximum amount that the Federal Home Loan Bank of Atlanta will
advance fluctuates from time to time in accordance with changes in policies of
the Federal Housing Finance Board and the Federal Home Loan Banks, and the
maximum amount generally is reduced by borrowings from any other source. In
addition, the amount of advances that a savings association may obtain from the
Federal Home Loan Banks will be restricted in the event the institution fails to
constitute a qualified thrift lender. Net.B@nk is a member of the Federal Home
Loan Bank of Atlanta.

FEDERAL RESERVE SYSTEM. The Federal Reserve Board has adopted regulations
that require savings associations to maintain non-earning reserves against their
transaction accounts, primarily NOW and regular checking accounts. These
reserves may also be used to satisfy liquidity requirements imposed by the
Office of Thrift Supervision. Because required reserves must be maintained in
the form of cash or a non-interest-bearing account at a Federal Reserve Bank,
the effect of this reserve requirement is to reduce the amount of our
interest-earning assets.

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Savings institutions also have the authority to borrow from the Federal
Reserve discount window. Collateral is required. Federal Reserve Board
regulations, however, require savings associations to exhaust all Federal Home
Loan Bank sources before borrowing from a Federal Reserve Bank.

TRANSACTIONS WITH AFFILIATES RESTRICTIONS. Net.B@nk is subject to the
provisions of Section 23A of the Federal Reserve Act and the Office of Thrift
Supervision's implementing regulation. Section 23A places limits on:

- The amount of loans or extensions of credit to affiliates;

- The amount of investment in affiliates;

- The amount of the purchase of assets from affiliates, except for real and
personal property exempted by the Federal Reserve Board;

- The amount of loans or extensions of credit to third parties
collateralized by the securities or obligations of affiliates; and

- The amount of any guarantee, acceptance or letter of credit issued on
behalf of an affiliate.

The aggregate of all of the above transactions is limited in amount, as to
any one affiliate, to 10% of a bank's capital and surplus and, as to all
affiliates combined, to 20% of a bank's capital and surplus. In addition to the
limitation on the amount of these transactions, each transaction must also meet
specified collateral requirements. Net.B@nk must also comply with certain
provisions designed to avoid transactions with affiliates involving low-quality
assets.

Net.B@nk is also subject to the provisions of Section 23B of the Federal
Reserve Act which, among other things, prohibits an institution from engaging in
the above transactions with affiliates unless the transactions are on terms
substantially the same, or at least as favorable to the institution or its
subsidiaries, as those prevailing at the time for comparable transactions with
nonaffiliated companies.

Net.B@nk is also subject to certain restrictions on extensions of credit to
its executive officers, directors, certain principal shareholders and their
related interests. These extensions of credit (1) must be made on substantially
the same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with third parties, and (2) must not
involve more than the normal risk of repayment or present other unfavorable
features.

The Home Owners Loan Act and Office of Thrift Supervision regulations
contain additional restrictions on loans and extension of credit to affiliates,
and the Office of Thrift Supervision is authorized to impose additional
restrictions on transactions with affiliates if it determines restrictions are
necessary to ensure the safety and soundness of any savings association.

FUTURE REQUIREMENTS. Statutes and regulations are regularly introduced
which contain wide-ranging proposals for altering the structures, regulations
and competitive relationships of financial institutions. We cannot predict
whether or what form any proposed statute or regulation will be adopted or the
extent to which our business may be affected by such statute or regulation.

ELIMINATION OF FEDERAL SAVINGS ASSOCIATION CHARTER. In recent years,
Congress has considered legislation that would eliminate the federal savings
association charter. If this legislation is enacted, Net.B@nk likely would be
required to convert its federal savings bank charter to either a national bank
charter or to a state depository institution charter and Net.B@nk, Inc. would
become a bank holding company subject to regulation by the Federal Reserve Board
and the Georgia Department of Banking and Finance. Congress has also considered
various legislative proposals that would result in the restructuring of federal
regulatory oversight, including, for example, consolidation of the Office of

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Thrift Supervision into another agency, or creation of a new Federal banking
agency to replace the various agencies which presently exist.

PROPERTIES

We lease 7,480 square feet of office space for our headquarters at 950 North
Point Parkway, Suite 350, Alpharetta, Georgia 30005. The office space is subject
to a lease that expires on January 31, 2005. We have entered into a lease for
approximately 19,615 square feet of office space for a new headquarters located
at Royal Centre Three, Suite 100, 11475 Great Oaks Way, Alpharetta, Georgia
30022. We plan to move our offices to this location in the summer of 1999.

EMPLOYEES

As of April 30, 1999, we employed 40 persons on a full-time basis and one
person on a part-time basis. None of our employees is covered by a collective
bargaining agreement. We believe our relations with our employees are excellent.

LEGAL PROCEEDINGS

On May 5, 1999, Net.B@nk, Inc. and Net.B@nk filed suit in the United States
District Court for the Southern District of Florida against Net1Bank, N.A.,
f/k/a Boca Raton First National Bank, N.A., First Telebanc Corp., Equitex, Inc.,
Keith Duffy and Henry Fong. The suit is based on the defendants' use and planned
use of the "Net1Bank" name and related domain names and marks in connection with
their Internet banking services and includes claims for false designation of
origin, trademark dilution, false advertising, unfair competition and trademark
infringement. In the lawsuit, we seek a variety of forms of relief, including
declaratory and injunctive relief, damages, a destruction order requiring that
the defendants deliver and destroy all materials bearing the Net1Bank mark and
an order directing defendants to cancel their domain names or to assign those
domain names to us. The defendants have not yet filed a response to the
complaint. Although we cannot state with certainty what the outcome of the
litigation will be, we believe that it is unlikely that the outcome will have a
material adverse effect on our business, financial condition or results of
operations.

None of our properties is subject to a material legal proceeding, and we are
not aware of any material proceeding involving Net.B@nk that may be contemplated
by any governmental authority. We are also unaware of any pending or
contemplated material proceeding in which any Net.B@nk director, officer,
affiliate or principal shareholder is a party or has a direct or indirect
interest adverse to Net.B@nk.

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MANAGEMENT

EXECUTIVE OFFICERS AND DIRECTORS

The following table sets forth certain information concerning each of our
executive officers and directors:

<TABLE>
<CAPTION>
NAME AGE POSITION AND OFFICES HELD
- ----------------------------------------- --- -------------------------------------------
<S> <C> <C>
T. Stephen Johnson....................... 49 Chairman of the Board
D. R. Grimes............................. 52 Vice Chairman, Chief Executive Officer and
Director
Robert E. Bowers......................... 42 Chief Financial Officer and Director
Thomas L. Cable.......................... 42 Chief Technology Officer
Jeffrey B. Watson........................ 39 Chief Lending Officer
Ward H. Clegg............................ 47 Director
J. Stephen Heard......................... 56 Director
Robin C. Kelton.......................... 64 Director
Thomas H. Muller, Jr..................... 57 Director
J. Joe Ricketts.......................... 57 Director
Donald S. Shapleigh, Jr.................. 50 Director
W. James Stokes.......................... 40 Director
Mack I. Whittle, Jr...................... 50 Director
</TABLE>

T. STEPHEN JOHNSON is President of T. Stephen Johnson & Associates, a bank
consulting firm located in Roswell, Georgia. The firm specializes in mergers,
acquisitions and regulatory consulting. T. Stephen Johnson & Associates has
served as advisor and consultant in the formation of approximately 70 banks in
the southeastern United States. Mr. Johnson served in a management capacity for
two large Atlanta banks before forming T. Stephen Johnson & Associates in 1987.
Mr. Johnson also serves as Vice Chairman of Florida Banks, Inc., a bank holding
company. In addition, he is principal owner of Bank Assets Inc., a provider of
benefit programs for directors and officers of banks.

D. R. GRIMES has served as Vice Chairman and Chief Executive Officer of
Net.B@nk, Inc. since January 1997. From March 1996 to January 1997, he was an
independent management consultant, and from 1978 to March 1996, he served in
various capacities with Servantis Systems, Inc., which provides electronic funds
transfer and home banking software to the financial services industry, including
Executive Vice President of Technology and Chief Information Officer
(1995-1996); Executive Vice President of Technology and Marketing (1993-1995);
President, Treasury Products Division (1994); and President, Financial
Productions Division (1988-1993). Prior to joining Servantis Systems, Mr. Grimes
served in various technology positions with Trust Company Bank of Georgia, now
SunTrust Bank.

ROBERT E. BOWERS has served as Chief Financial Officer of Net.B@nk, Inc.
since February 1997. Prior to joining Net.B@nk, Inc., Mr. Bowers, a certified
public accountant, was the Chief Financial Officer of CheckFree Corporation,
which provides electronic bill payment processing for the financial services
industry, from January 1996 through August 1996. From September 1984 until
January 1996, he served as the Chief Financial Officer and a director of
Servantis Systems, which was acquired by CheckFree Corporation in January 1996.
His experience includes initial public offerings, strategic business planning
and investor relations.

THOMAS L. CABLE has served as Chief Technology Officer of Net.B@nk, Inc. and
Net.B@nk since May 1997. From May 1996 to May 1997, he served as Vice President,
Retail Financial Services of CheckFree Corporation, and from February 1996 to
May 1996, he was responsible for CheckFree's Retail Direct Bank Product. From
1985 to February 1996, Mr. Cable served in various capacities with Servantis
Systems, including Senior Vice President and Business Unit Manager for Home
Banking Products and Services, Vice President and Product Manager for Delivery
Systems and Associate and Product Manager for Servantis Systems's licensed bill
payment software product. From 1978 to 1985, he

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was employed by First National Bank, Louisville, Kentucky as a Programmer and
Programming Team Leader responsible for the implementation and support of
Servantis Systems's bill payment product and other bank application systems.

JEFFREY B. WATSON has served as the Net.B@nk's Chief Lending Officer since
November 1997. From 1996 to November 1997, he served as Product
Manager--Internet Financial Software for Security First Technologies, and in the
summer of 1995, he coordinated consultation projects with Fortune 500 companies
for Coopers & Lybrand. Mr. Watson served in various capacities at Tracy Federal
Bank from 1987 to 1994, including Senior Vice President from 1993 to 1994, Loan
Production Manager from 1989 to 1992 and Loan Officer from 1987 to 1988.

WARD H. CLEGG has served as a director of Resource Bancshares Corporation
since September 1986 and has also worked with Net.B@nk, Inc. on a consulting
basis. Resource Bancshares was acquired by Resource Bancshares Mortgage in
December 1997. Mr. Clegg also served as Executive Vice President of Bankers
Trust of South Carolina, where he had responsibility for approximately $1.2
billion in securities processing assets as well as Advanced Systems.

J. STEPHEN HEARD has served as Area Vice President, Hartford Computer Group,
Inc. since August 1998. From October 1997 to August 1998, he served as Product
Sales Executive of Vanstar Corporation, a technology services company and
value-added reseller of computer products to Fortune 1,000 companies, since
October 1997. He has also served as President of Heard Systems, Inc., which
provides information systems consulting services and ATM services to the retail
industry, since January 1, 1994. In 1995 he retired from IBM after a 30-year
career in marketing, sales and systems engineering.

ROBIN C. KELTON is Chairman of Kelton International Ltd., an investment
banking firm formed in January 1996 specializing in the banking and insurance
industries. Mr. Kelton is a founder and former Chairman and Chief Executive
Officer of Fox-Pitt, Kelton Ltd. and the Fox-Pitt, Kelton Group, and President
of Fox-Pitt, Kelton, Inc. These companies were formed in 1970 and comprise an
international investment banking and brokerage group based in London and New
York. See "Underwriting."

THOMAS H. MULLER, JR. has served as the Chief Financial Officer of SpectRx,
Inc., a medical device company, since December 1996. Mr. Muller has also served
as President of Muller & Associates, a firm providing financial management
services to entrepreneurial enterprises, since 1992 and Chief Financial Officer
of Nurse On Call, Inc., a healthcare software company, from 1993 to 1996. From
1993 to 1995, Mr. Muller also served as Chief Financial Officer of Amstel, Inc.,
a beverage manufacturing and marketing company. From 1984 to 1992, Mr. Muller
served as Chief Financial Officer of HBO & Company, a leading healthcare
information systems company.

J. JOE RICKETTS has served as a director and as Chairman and Chief Executive
Officer of Ameritrade Holding Corp. since 1981. From 1975 to 1981, Mr. Ricketts
served in various capacities with predecessors to Ameritrade Holding Corp. Prior
to 1975, Mr. Ricketts was a registered representative with a national brokerage
firm, an investment advisor with Ricketts & Co., and a branch manager with Dun &
Bradstreet. Mr. Ricketts is a director of CSS Management and is on the Advisory
Committee of Roundtable. Mr. Ricketts currently serves as a member of the
District Committee for District 4 of the National Association of Securities
Dealers, Inc. Mr. Ricketts is a member of the Board of Trustees for Father
Flanagan's Boy's Home (Boys Town).

DONALD S. SHAPLEIGH, JR. served as President of Net.B@nk, Inc. and Net.B@nk
from January 1996 through April 1999 and has served as a director of Net.B@nk.
Inc. since its incorporation. He resigned as President of Net.B@nk, Inc. and
Net.B@nk effective April 30, 1999 in order to serve as Executive Vice President
and Director of Sales of Directo, Inc., a debit card marketing and management
organization. Mr. Shapleigh has been involved in banking since 1971, having
spent 23 years in various senior positions with BankSouth, N.A. and SouthTrust
Bank. From November 1994 to December 1995, Mr. Shapleigh served as Director of
Sales for Creative Solutions Group/A BISYS Company, an

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<PAGE>
Atlanta-based company that sells its patented automated voice response
technology to retail financial service companies.

W. JAMES STOKES has served as Senior Vice President of T. Stephen Johnson &
Associates since 1987. He served as Head of Analysis, with a focus on bank
mergers and acquisitions, stock valuations, fairness opinions and regulatory
assistance. Mr. Stokes also serves as the Managing Director for the Southeast
Bank Fund, Inc.

MACK I. WHITTLE, JR. has served as President and Chief Executive Officer of
Carolina First since 1986. Mr. Whittle is also a director of Carolina First and
of Carolina First Bank. Mr. Whittle began his banking career in 1969 with
Bankers Trust of South Carolina. From 1969 to 1986, he served in several
capacities including Trust Officer, Vice President of Commercial Business
Development, City Executive for Myrtle Beach, and Senior Vice President and
Regional Officer. In January 1986, Bankers Trust of South Carolina merged with
NCNB Corp. Mr. Whittle resigned from NCNB Corp. in May 1986 to form Carolina
First.

The Board of Directors is divided into three classes with three directors in
Class I and four directors in Classes II and III. One class of directors is
elected each year for a three-year term and until their successors are selected
and qualified or until their earlier resignation or removal. Messrs. Kelton,
Muller, Ricketts and Shapleigh will serve until our 2000 Annual Meeting of
Shareholders; Messrs. Grimes, Johnson, and Whittle will serve until our 2001
Annual Meeting of Shareholders; and Messrs. Bowers, Clegg, Heard and Stokes will
serve until our 2002 Annual Meeting of Shareholders.

Except for Messrs. Kelton and Ricketts, who are only directors of Net.B@nk,
Inc., all of our directors are directors of both Net.B@nk, Inc. and its banking
subsidiary. Except for Mr. Ricketts, who was elected to fill a vacancy on the
Board of Directors on April 22, 1999, and Messrs. Johnson and Shapleigh, who
were elected as directors in February 1996, all of our directors have served on
our Board of Directors since April 1997.

COMMITTEES OF THE BOARD OF DIRECTORS

The Board of Directors has established a Compensation Committee, which sets
the compensation for officers of Net.B@nk, reviews management organization and
development, reviews significant employee benefit programs and establishes and
administers executive compensation programs. The Compensation Committee consists
of Messrs. Johnson, Heard and Muller.

The Board of Directors has also established an Audit Committee, which
recommends to the Board of Directors the independent public accountants to be
selected to audit Net.B@nk's annual financial statements and approves any
special assignments given to the accountants. The Audit Committee also reviews
the planned scope of the annual audit, any changes in accounting principles and
the effectiveness and efficiency of Net.B@nk's internal accounting staff. The
Audit Committee currently consists of Messrs. Muller, Stokes and Clegg.

The Board of Directors may from time to time establish other committees to
facilitate the management of Net.B@nk.

RELATIONSHIP WITH CAROLINA FIRST CORPORATION

Carolina First Corporation owns more than five percent of our outstanding
common stock. As a result, Carolina First Corporation is subject to Federal
Reserve Board regulations regarding its relationship with Net.B@nk. Therefore,
we have agreed with Carolina First Corporation that until they own less than
five percent of our outstanding common stock, we will not engage in any
activities that are not permissible banking or non-banking activities under
applicable Federal Reserve Board regulations. These regulations limit the
activities of bank holding companies and their affiliates to those that are
determined to be closely related to banking or to the management or control of
banks. We do not believe that these limitations will impose any material
constraints on our activities.

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<PAGE>
PRINCIPAL SHAREHOLDERS

The following table lists, as of April 30, 1999, the number of shares of
common stock beneficially owned by (a) each current director, (b) our chief
executive officer and our next three most highly compensated executive officers
for 1998, (c) each person or entity known to us to be the beneficial owner of
more than five percent of our outstanding common stock and (d) all current
executive officers and directors as a group.

<TABLE>
<CAPTION>
PERCENT OF CLASS
--------------------------------
<S> <C> <C> <C>
NUMBER OF SHARES
BENEFICIALLY BEFORE AFTER
NAME OF BENEFICIAL OWNER OWNED(1) THIS OFFERING THIS OFFERING
- ---------------------------------------------------------------- -------------------- --------------- ---------------
T. Stephen Johnson.............................................. 883,779(2) 3.4% 3.1%
D. R. Grimes.................................................... 537,186 2.0% 1.8%
Robert E. Bowers................................................ 397,814 1.5% 1.4%
Thomas L. Cable................................................. 15,000 * *
Jeffrey B. Watson............................................... 9,000 * *
Ward H. Clegg................................................... 155,064 * *
J. Stephen Heard................................................ 35,814 * *
Robin C. Kelton................................................. 433,314 1.7% 1.5%
Thomas H. Muller, Jr............................................ 35,814 * *
J. Joe Ricketts................................................. 6,000 * *
Donald S. Shapleigh, Jr......................................... 347,811 1.3% 1.2%
W. James Stokes................................................. 106,500 * *
Mack I. Whittle, Jr............................................. 2,421,000(3) 9.4% 8.4%
Carolina First Corporation(4)................................... 2,415,000 9.4% 8.4%
Lord, Abbett & Co.(5)........................................... 1,831,449 7.1% 6.4%
All current Executive Officers and Directors
as a Group (13 persons)....................................... 5,384,096(6) 20.0% 18.0%
</TABLE>

- ------------------------

* Indicates less than one percent of the shares of common stock outstanding as
of April 30, 1999.

(1) Includes the following number of shares subject to options exercisable on or
before June 30, 1999 for the indicated reporting person:

<TABLE>
<S> <C>
Mr. Johnson.......... 6,000
Mr. Grimes........... 537,186
Mr. Bowers........... 397,814
Mr. Cable............ 15,000
Mr. Watson........... 9,000
Mr. Clegg............ 6,000
Mr. Heard............ 6,000
Mr. Kelton........... 6,000
Mr. Muller, Jr....... 6,000
Mr. Ricketts......... 6,000
Mr. Shapleigh, Jr.... 149,061
Mr. Stokes........... 6,000
Mr. Whittle, Jr. .... 6,000
</TABLE>

(2) Includes 438,840 shares owned of record by Mr. Johnson's spouse, Mary E.
Johnson.

(3) Mr. Whittle serves as Chairman of the Board of Carolina First Corporation.
As a result, he may be deemed to beneficially own any shares owned by
Carolina First Corporation.

(4) Carolina First Corporation is located at 102 South Main Street, Greenville,
South Carolina 29601.

(5) Lord, Abbett & Co. is located at 767 Fifth Avenue, New York, New York 10153
and is an investment advisor registered under Section 203 of the Investment
Company Act of 1940, as amended. This information is based on a Report on
Schedule 13G filed by Lord, Abbett & Co. with the Securities and Exchange
Commission on February 12, 1999.

(6) Includes 1,156,061 shares subject to options exercisable on or before June
30, 1999.

65
<PAGE>
DESCRIPTION OF CAPITAL STOCK

Our authorized capital stock consists of 100,000,000 shares of common stock,
$.01 par value, and 10,000,000 shares of preferred stock, no par value. The
following summary is qualified by reference to our Articles of Incorporation and
Bylaws, which are incorporated by reference as exhibits to the Registration
Statement of which this prospectus is a part.

COMMON STOCK

Holders of our common stock are entitled to one vote per share in the
election of directors and on all other matters submitted to a vote of the
holders of common stock and do not have cumulative voting rights. The holders of
common stock are entitled to receive dividends, if any, as may be declared from
time to time by the Board of Directors out of legally available funds, and in
the event of liquidation, dissolution or winding-up of Net.B@nk, to share
ratably in all assets available for distribution.

PREFERRED STOCK

The authorized preferred stock may be issued from time to time in one or
more designated series or classes. The Board of Directors, without approval of
the shareholders, is authorized to establish the voting, dividend, redemption,
conversion, liquidation and other relative provisions as may be provided in a
particular series or class. The issuance of preferred stock, while providing
flexibility in connection with possible acquisitions and other corporate
purposes, could, among other things, adversely affect the voting power of the
holders of common stock and, under certain circumstances, make it more difficult
for a third party to acquire, or discourage a third party from acquiring, a
majority of our outstanding voting stock. We have no present intention to issue
any series or class of preferred stock.

SPECIAL MEETINGS OF SHAREHOLDERS

Our Bylaws provide that special meetings of the shareholders may be called
at any time for any purpose by the Chief Executive Officer or by the presiding
officer of the Board of Directors. Either our Chief Executive Officer or the
Secretary is required to call a special meeting when (1) requested in writing by
any two or more of the directors or (2) requested in writing by shareholders
owning shares representing at least 25% of all the votes entitled to be cast on
any issue proposed to be considered at such meeting.

SUPERMAJORITY APPROVAL OF CERTAIN TRANSACTIONS

Our Articles of Incorporation require the affirmative vote of the holders of
two-thirds of the voting stock to approve certain mergers, share exchanges and
dispositions of our assets unless at least two-thirds of the members of the
Board of Directors approve the proposed transaction. If such approval by the
Board of Directors is obtained, approval by the vote of a majority of the
outstanding shares entitled to vote is required. This provision may tend to
discourage attempts by third parties to acquire Net.B@nk in a hostile takeover
effort. It may also permit a minority of directors and shareholders to prevent a
business combination regardless of the terms of the proposed transaction.

CLASSIFIED BOARD AND REMOVAL OF DIRECTORS

Our Articles of Incorporation also provide that the Board of Directors will
be divided into three classes serving staggered three-year terms and that a
director may only be removed by the vote of two-thirds of the outstanding shares
entitled to vote in an election of directors. These provisions could enable a
minority of our shareholders to prevent the removal of a director sought to be
removed by a

66
<PAGE>
majority of the shareholders and may tend to enhance management's ability to
retain control over our affairs and to preserve the director's present position
on the Board.

INDEMNIFICATION OF DIRECTORS AND OFFICERS

Our Bylaws contain indemnification provisions providing that our directors,
officers and employees or agents will be indemnified against expenses actually
and reasonably incurred by them if they are successful on the merits of a claim
or proceeding.

When a case or dispute is not ultimately determined on its merits (i.e., it
is settled), the indemnification provisions provide that Net.B@nk will indemnify
directors when they meet the applicable standard of conduct. The applicable
standard of conduct is met if the director acted in good faith and in a manner
he or she reasonably believed to be in or not opposed to the best interests of
Net.B@nk, and with respect to an employee benefit plan, for a purpose the
director believed in good faith to be in the interests of the participants and
beneficiaries of the plan. The standard of conduct with respect to any criminal
action or proceeding is met if the director had no reasonable cause to believe
his or her conduct was unlawful. Whether the applicable standard of conduct has
been met is determined by the Board of Directors, the shareholders or
independent legal counsel in each specific case.

We can also provide for greater indemnification than that set forth in our
Bylaws if we choose to do so, subject to approval by our shareholders. We may
not, however, indemnify a director for liability arising out of circumstances
which constitute exceptions to limitation of a director's liability for monetary
damages. See "--Limitation of Liability."

The indemnification provisions of the Bylaws specifically provide that we
may purchase and maintain insurance on behalf of any director against any
liability asserted against such person and incurred by him or her in any such
capacity, whether or not we would have had the power to indemnify against such
liability.

We are not aware of any pending or threatened action, suit or proceeding
involving any of our directors or officers for which indemnification from
Net.B@nk may be sought.

LIMITATION OF LIABILITY

Article X of our Articles of Incorporation, subject to certain exceptions,
eliminates the potential personal liability of a director for monetary damages
to Net.B@nk and to the shareholders of Net.B@nk for breach of a duty as a
director. There is no elimination of liability for:

- A breach of duty involving appropriation of a business opportunity of
Net.B@nk;

- An act or omission not in good faith or involving intentional misconduct
or a knowing violation of law;

- A transaction from which the director derives an improper material
tangible personal benefit; or

- As to any payment of a dividend or approval of a stock repurchase that is
illegal under the Georgia Business Corporation Code, our Articles of
Incorporation do not eliminate or limit the right of Net.B@nk or its
shareholders to seek injunctive or other equitable relief not involving
monetary damages.

We adopted Article X pursuant to the Georgia Business Corporation Code which
allows Georgia corporations, with the approval of their shareholders, to include
in their articles of incorporation a provision eliminating or limiting the
liability of directors, except in the circumstances described above. We included
Article X in our Articles of Incorporation to encourage qualified individuals to
serve and remain as directors of Net.B@nk. Article X was also included to
enhance our ability to secure liability

67
<PAGE>
insurance for its directors at a reasonable cost. We maintain liability
insurance covering actions taken by its directors in their capacities as
directors. The Board of Directors believes that Article X will enable us to
secure such insurance on terms more favorable than if such a provision were not
included in the Articles of Incorporation.

TRANSFER AGENT AND REGISTRAR

The transfer agent and registrar for the common stock is SunTrust Bank,
N.A., 58 Edgewood Avenue, Atlanta, Georgia 30303.

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<PAGE>
UNDERWRITING

Subject to the terms and conditions of an underwriting agreement, dated June
3, 1999, the underwriters named below have severally agreed to purchase from us
the respective number of shares of common stock listed opposite its name below.

<TABLE>
<CAPTION>
NUMBER OF SHARES
NAME OF UNDERWRITER OF COMMON STOCK
- ----------------------------------------------------------------------------------------------- -----------------
<S> <C>
Bear, Stearns & Co. Inc. ...................................................................... 1,350,000
BancBoston Robertson Stephens Inc. ............................................................ 675,000
Raymond James & Associates, Inc. .............................................................. 675,000
Kelton International Ltd. ..................................................................... 300,000
-----------------
Total...................................................................................... 3,000,000
-----------------
-----------------
</TABLE>

The underwriting agreement provides that the obligations of the several
underwriters to purchase and accept delivery of the shares of common stock
offered by this prospectus are subject to approval by their counsel of certain
legal matters and to other conditions customary in a firm commitment public
offering. The underwriters are required to purchase and pay for all the shares
of common stock offered by this prospectus, except for shares covered by the
over-allotment option described below, if any are purchased.

The underwriters propose to offer the shares of common stock to the public
at the offering price listed on the cover page of this prospectus and to
securities dealers, including the underwriters, at the same price less a
concession of not more than $0.87 per share. The underwriters may allow, and the
selected dealers may reallow, a concession not in excess of $0.10 per share to
other brokers and dealers. After the consummation of this offering, the offering
price and other selling terms may be changed by the underwriters. However, no
change shall alter the amount of proceeds, as listed on the cover page of this
prospectus, to be received by us.

We have granted the underwriters an option, exercisable within 30 days after
the date of this prospectus, to purchase from time to time, in whole or in part,
up to an aggregate of 450,000 additional shares of common stock. The
underwriters may exercise the option only to cover over-allotments, if any, made
in connection with this offering. To the extent that the underwriters exercise
the option, each underwriter will become obligated to purchase its pro rata
portion of the additional shares based on the underwriter's percentage
underwriting commitment in the offering, which is indicated in the preceding
table. If purchased, the additional shares will be sold by the underwriters on
the same terms as those on which they are selling the shares.

We have agreed to indemnify the underwriters against certain liabilities,
including liabilities under the Securities Act of 1933, or to contribute to
payments that the underwriters may be required to make in connection with these
liabilities.

Other than in the United States, no action has been taken by us or the
underwriters that would permit a public offering of the shares of common stock
offered by this prospectus in any jurisdiction which requires action for that
purpose. The shares of common stock offered by this prospectus may not be
offered or sold, directly or indirectly, nor may this prospectus or any other
offering material or advertisements be distributed or published in any
jurisdiction, except under circumstances that will ensure compliance with the
applicable rules and regulations of the jurisdiction. Persons holding this
prospectus are advised to inform themselves about and to observe any
restrictions relating to this offering and the distribution of this prospectus.
This prospectus does not constitute an offer to sell or a solicitation of an
offer to buy any shares of common stock offered by this prospectus in any
jurisdiction in which an offer or a solicitation is unlawful.

69
<PAGE>
We and certain of our executive officers, directors and existing
shareholders have agreed that during the period beginning from the date of this
prospectus and continuing to and including the date 90 days after the date of
this prospectus, they will not, directly or indirectly, issue, sell, offer or
agree to sell, grant any option for the sale of, pledge, make any short sale,
establish an open "put equivalent position" within the meaning of Rule 16a-1(h)
under the Securities Exchange Act of 1934 or otherwise dispose of any shares of
Net.B@nk common stock (or securities which are convertible into, exercisable for
or exchangeable for common stock), without the prior written consent of Bear,
Stearns & Co. Inc., except under limited circumstances.

Certain persons participating in this offering may engage in passive market
making transactions in the common stock in accordance with Rule 103 of
Regulation M under the Securities Exchange Act of 1934. Rule 103 permits, upon
the satisfaction of certain conditions, underwriting and selling group members
participating in a distribution that are also registered Nasdaq market makers in
the security being distributed, or a related security, to engage in limited
passive market making transactions during the period when Regulation M would
otherwise prohibit the activity. In general, a passive market maker may not bid
for or purchase a security at a price that exceeds the highest independent bid
for those securities by a person that is not participating in the distribution
and must identify its passive market making bids on the Nasdaq electronic
inter-dealer reporting system. In addition, the net daily purchases made by a
passive market maker generally may not exceed 30% of the market maker's average
daily trading volume in the security for the two full consecutive calendar
months, or any 60 consecutive days ending within 10 days, immediately preceding
the date of filing of the registration statement of which this prospectus is a
part.

In connection with this offering, the underwriters may purchase and sell
common stock in the open market. These transactions may include over-allotment
and stabilizing transactions, and purchases to cover short positions created by
the underwriters in connection with this offering. Stabilizing transactions
consist of certain bids or purchases for the purpose of preventing or retarding
a decline in the market price of the common stock. Short positions involve an
underwriter's sale of a greater number of shares of common stock than it is
required to purchase from us in the offering. These activities may stabilize,
maintain or otherwise affect the market price of the common stock, which may be
higher than the price that might otherwise prevail in the open market. The
underwriter may effect these transactions on the Nasdaq National Market or
otherwise and may discontinue them at any time.

In addition, the underwriters may maintain or stabilize the price of the
common stock by bidding for or purchasing shares of the common stock in the open
markets, and may impose penalty bids, under which selling concessions allowed to
syndicate members or other broker-dealers participating in this offering are
reclaimed if shares previously distributed in this offering are repurchased in
connection with stabilization transactions or otherwise. The imposition of
penalty bid may also affect the price of the common stock to the extent that it
discourages resales of the common stock. The underwriters can make no
representation as to the magnitude, duration or effect of any stabilization or
other transactions.

The notes offered by the concurrent prospectus are a new issue of securities
with no established trading market. We have been advised by the underwriters
that they intend to make a market in the notes but are not obligated to do so
and may discontinue market making at any time without notice. No assurance can
be given as to the liquidity of the trading market for the notes.

Each underwriter has represented and agreed that:

- It has not offered or sold, and for up to six months following the
consummation of this offering, will not offer or sell, any shares of
common stock in the United Kingdom except to persons whose ordinary
activities involve them in acquiring, holding, managing or disposing of
investments (as principal or agent) for the purposes of their businesses
or otherwise in

70
<PAGE>
circumstances which do not constitute an offer to the public in the United
Kingdom for the purposes of the Public Offers of Securities Regulations
1995;

- It has complied and will comply with all applicable provisions of the
Financial Services Act 1986 with respect to anything done by it in
relation to the common stock in, from or otherwise involving the United
Kingdom; and

- It has only issued or passed on and will only issue or pass on, in the
United Kingdom, any document received by it in connection with the issue
or sale of the common stock to a person who is of a kind described in
Article 11(3) of the Financial Services Act 1986 (Investment
Advertisements)(Exemptions) Order 1996 or to a person to whom the document
may otherwise lawfully be issued or passed on.

Kelton International Ltd., one of the underwriters:

- Is a foreign broker-dealer with a principal place of business in the
United Kingdom;

- Is not registered with the Securities and Exchange Commission as a
broker-dealer;

- Is not a member of the National Association of Securities Dealers, Inc.;

- Has agreed not to sell any of the shares of common stock offered by this
prospectus within the United States, its territories or possessions or to
nationals or residents of the United States, other than certain
underwriting syndicate sales; and

- Has agreed to comply with certain rules of the National Association of
Securities Dealers Regulation, Inc. as if it were a member of the National
Association of Securities Dealers.

Certain of the underwriters may from time to time perform investment banking
and other financial services for us for which they may receive advisory or
transaction fees, as applicable, plus out-of-pocket expenses, of the nature and
in amounts customary in the industry for these services. Bear, Stearns & Co.
Inc., Raymond James & Associates, Inc. and Kelton International Ltd.
participated in the public offering of our common stock on February 5, 1999 in
which we sold 7,290,000 shares.

Concurrent with this offering we are offering by means of a separate
prospectus $100,000,000 aggregate principal amount of 4 3/4% Convertible
Subordinated Notes Due 2004, plus an additional $15,000,000 principal amount of
notes to cover over-allotments by the underwriters of that offering. The
completion of this offering and of the notes offering do not depend upon one
another. The underwriters for the notes offering are also the underwriters for
this offering. The underwriters will receive customary compensation in
connection with the notes offering.

LEGAL MATTERS

Certain legal matters in connection with the shares of common stock offered
by this prospectus will be passed upon for Net.B@nk by Powell, Goldstein, Frazer
& Murphy, LLP, Atlanta, Georgia. Certain legal matters in connection with the
offering will be passed upon by Morrison & Foerster LLP, New York, New York,
counsel to the underwriters listed on the cover page of this prospectus.

EXPERTS

The Consolidated Financial Statements as of December 31, 1997 and 1998 and
for the period February 20, 1996 (date of incorporation) to December 31, 1996
and for the years ended December 31, 1997 and 1998 included in this prospectus,
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report, appearing in this prospectus, and are included in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.

71
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION ABOUT NET.B@NK

We file annual, quarterly and special reports, proxy statements and other
information with the Securities and Exchange Commission. You can receive copies
of such reports, proxy and information statements, and other information, at
prescribed rates, from the Securities and Exchange Commission by addressing
written requests to the Public Reference Section of the Securities and Exchange
Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549.
In addition, you can read such reports, proxy and information statements, and
other information at the public reference facilities and at the regional offices
of the Securities and Exchange Commission, Washington, D.C., New York, New York
and Chicago, Illinois. Please call the Securities and Exchange Commission at
1-800-SEC-0330 for further information on the public reference rooms. The
Securities and Exchange Commission also maintains a Web site that contains
reports, proxy and information statements and other information regarding
registrants such as Net.B@nk that file electronically with the Securities and
Exchange Commission. The address of the Securities and Exchange Commission Web
site is http://www.sec.gov.

We have filed with the Securities and Exchange Commission a Registration
Statement on Form S-3 to register the shares that we will issue in this
offering. This prospectus is a part of the Registration Statement. This
prospectus does not include all of the information contained in the Registration
Statement. For further information about us and the securities offered in this
prospectus, you should review the Registration Statement. You can inspect or
copy the Registration Statement, at prescribed rates, at the Securities and
Exchange Commission's public reference facilities at the addresses listed above.

The Securities and Exchange Commission allows us to "incorporate by
reference" information into the prospectus, which means that we can disclose
important information to you by referring you to another document filed
separately with the Securities and Exchange Commission. The information
incorporated by reference is considered part of this prospectus, except for any
information superseded by information contained directly in this prospectus or
in later filed documents incorporated by reference in this prospectus.

This prospectus incorporates by reference the documents listed below that we
previously filed with the Securities and Exchange Commission. These documents
contain important information about us and our finances.

(1) Annual Report on Form 10-K for the fiscal year ended December 31, 1998
(Commission File No. 0-22361) except for Item 8, "Financial Statements
and Supplementary Data," which has been updated and is included elsewhere
in this prospectus;

(2) Quarterly Report on Form 10-Q for the quarter ended March 31, 1999
(Commission File No. 0-22361); and

(3) Registration Statement on Form 8-A filed April 18, 1997 (Commission No.
File 0-22361).

We also incorporate by reference additional documents that it may file with
the Securities and Exchange Commission between the date of this prospectus and
the completion of the offering. These additional documents include periodic
reports, such as Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and
Current Reports on Form 8-K, as well as proxy statements.

You can obtain documents incorporated by reference in this prospectus by
requesting them from:

Net.B@nk, Inc.
950 North Point Parkway
Suite 350
Alpharetta, Georgia 30005
Telephone: (770) 343-6066
www.netbank.com
Attn: Investor Relations

72
<PAGE>
NET.B@NK, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
PAGE
-----

<S> <C>
Independent Auditors' Report............................................................................... F-2

Consolidated Balance Sheets as of December 31, 1997 and 1998 and (unaudited) March 31, 1999................ F-3

Consolidated Statements of Operations for the period from February 20, 1996 (date of incorporation) to
December 31, 1996, the years ended December 31, 1997 and 1998, and (unaudited) the three-month periods
ended March 31, 1998 and 1999.............................................................................. F-4

Consolidated Statements of Shareholders' Equity (Deficit) for the period from February 20, 1996 (date of
incorporation) to December 31, 1996, the years ended December 31, 1997 and 1998, and (unaudited) the
three-month period ended March 31, 1999.................................................................... F-6

Consolidated Statements of Cash Flows for the period from February 20, 1996 (date of incorporation) to
December 31, 1996, the years ended December 31, 1997 and 1998, and (unaudited) the three-month periods
ended March 31, 1998 and 1999.............................................................................. F-7

Notes to Consolidated Financial Statements as of December 31, 1997, 1998, and (unaudited) March 31, 1999,
and for the period from February 20, 1996 (date of incorporation) to December 31, 1996, the years ended
December 31, 1997 and 1998, and (unaudited) the three months ended March 31, 1998 and 1999................. F-8
</TABLE>

F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT

Board of Directors and Shareholders

Net.B@nk, Inc.

We have audited the consolidated balance sheets of Net.B@nk, Inc. and its
subsidiary ("Net.B@nk") as of December 31, 1998 and 1997 and the related
consolidated statements of operations, shareholders' equity (deficit) and cash
flows for the years ended December 31, 1998 and 1997 and the period from
February 20, 1996 (date of incorporation) to December 31, 1996. These financial
statements are the responsibility of Net.B@nk's management. Our responsibility
is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of Net.B@nk as of December 31,
1998 and 1997, and the results of its operations and its cash flows for the
years ended December 31, 1998 and 1997 and the period from February 20, 1996
(date of incorporation) to December 31, 1996 in conformity with generally
accepted accounting principles.

DELOITTE & TOUCHE LLP

Atlanta, Georgia

February 16, 1999
(April 13, 1999 as to
the third paragraph
of Note 14)

F-2
<PAGE>
NET.B@NK, INC.

CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
------------------------------ --------------
1997 1998 1999
-------------- -------------- --------------
<S> <C> <C> <C>
(UNAUDITED)
ASSETS
Cash and cash equivalents:
Cash.......................................................... $ 250,535 $ 446,940 $ 1,576,102
Federal funds sold............................................ 28,853,057 12,013,243 33,416,433
-------------- -------------- --------------
Total cash and cash equivalents............................. 29,103,592 12,460,183 34,992,535
-------------- -------------- --------------
Securities available for sale--At fair value
(amortized cost of $18,137,209, $59,467,371 and $81,323,018,
respectively)................................................. 18,054,146 59,465,062 80,310,559
Stock of Federal Home Loan Bank of Atlanta--At cost............. 225,000 2,000,000 2,569,700
Loans receivable--Net of allowance for loan losses of $453,444,
$3,472,364 and $4,312,285, respectively....................... 44,479,963 276,955,239 359,740,347
Accrued interest receivable..................................... 372,237 2,582,627 3,085,716
Furniture and equipment--Net.................................... 388,508 1,321,918 1,734,680
Bank charter.................................................... 344,167 330,167 326,667
Deferred income taxes........................................... -- 2,297,125 2,643,631
Loan sale proceeds receivable................................... -- 23,202,679 35,003,385
Other assets.................................................... 252,196 7,821,736 6,055,988
-------------- -------------- --------------
$ 93,219,809 $ 388,436,736 $ 526,463,208
-------------- -------------- --------------
-------------- -------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deposits...................................................... $ 58,726,763 $ 283,589,151 $ 332,678,334
Other borrowed funds.......................................... -- 60,000,000 45,000,000
Accounts payable and accrued liabilities...................... 375,649 6,092,697 5,036,752
-------------- -------------- --------------
59,102,412 349,681,848 382,715,086
Commitments and contingencies (Note 18)

Shareholders' Equity:
Preferred stock, no par (10,000,000 shares authorized, none
outstanding).................................................. -- -- --
Common stock, $.01 par (100,000,000 shares authorized,
18,436,686, 18,470,274 and 25,795,485 shares issued and
outstanding, respectively).................................... 61,456 61,568 85,985
Additional paid-in capital.................................... 43,631,314 43,671,732 148,604,108
Unamortized stock plan expense................................ (75,689) (24,279) (15,709)
Accumulated deficit........................................... (9,416,621) (4,952,609) (4,261,093)
Accumulated other comprehensive loss, net of tax.............. (83,063) (1,524) (665,169)
-------------- -------------- --------------
Total shareholders' equity.................................. 34,117,397 38,754,888 143,748,122
-------------- -------------- --------------
$ 93,219,809 $ 388,436,736 $ 526,463,208
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>

See notes to consolidated financial statements.

F-3
<PAGE>
NET.B@NK, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 20,
1996
(DATE OF YEAR ENDED THREE MONTHS
INCORPORATION) DECEMBER 31, ENDED MARCH 31,
TO DECEMBER 31, --------------------------- --------------------------
1996 1997 1998 1998 1999
--------------- ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Interest Income:
Loans................................ $ -- $ 1,095,238 $ 14,548,747 $ 1,358,235 $ 6,011,818
Investment securities................ -- 183,184 2,905,404 453,376 1,214,914
Short-term investments............... 7,709 944,743 633,893 395,003 331,118
--------------- ------------ ------------- ------------ ------------
Total interest income.............. 7,709 2,223,165 18,088,044 2,206,614 7,557,850
--------------- ------------ ------------- ------------ ------------

Interest Expense:
Deposits............................. -- 1,259,743 10,249,533 1,303,628 4,023,760
Other borrowed funds................. -- -- 1,174,899 -- 535,947
--------------- ------------ ------------- ------------ ------------
Total interest expense............. -- 1,259,743 11,424,432 1,303,628 4,559,707
--------------- ------------ ------------- ------------ ------------

Net interest income.................... 7,709 963,422 6,663,612 902,986 2,998,143

Provision for loan losses.............. -- 471,706 20,132 3,661 49,806
--------------- ------------ ------------- ------------ ------------

Net interest income after provision for
loan losses.......................... 7,709 491,716 6,643,480 899,325 2,948,337
--------------- ------------ ------------- ------------ ------------

Noninterest Income:
Service charges and fees............. -- 62,607 683,092 122,495 245,715
Management fees...................... 60,000 -- -- -- --
--------------- ------------ ------------- ------------ ------------
Total noninterest income........... 60,000 62,607 683,092 122,495 245,715
--------------- ------------ ------------- ------------ ------------

Noninterest Expenses:
Salaries and benefits................ 836,427 2,396,347 1,429,675 434,353 506,921
Amortization of service contract with
affiliate.......................... 2,400,000 1,440,000 -- -- --
Customer services.................... 4,951 310,285 1,377,635 191,661 593,897
Marketing............................ 288,584 524,494 694,631 240,018 387,158
Data processing...................... 148,159 539,013 316,590 91,226 228,980
Depreciation and amortization........ 18,934 217,440 272,354 40,037 141,268
Office expenses...................... 56,765 177,054 175,019 47,566 84,424
Occupancy............................ 19,330 107,304 147,169 26,093 39,485
Travel and entertainment............. 38,794 64,759 88,341 15,441 22,092
Other................................ 94,947 355,066 685,976 86,872 143,311
--------------- ------------ ------------- ------------ ------------
Total noninterest expenses......... 3,906,891 6,131,762 5,187,390 1,173,267 2,147,536
--------------- ------------ ------------- ------------ ------------
</TABLE>

(Continued)

F-4
<PAGE>
NET.B@NK, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)

Income tax benefit (expense)....... -- -- 2,324,830 -- (355,000)
--------------- -------------- ------------- ------------- -------------
Net income (loss).................. $ (3,839,182) $ (5,577,439) $ 4,464,012 $ (151,447) $ 691,516
--------------- -------------- ------------- ------------- -------------
--------------- -------------- ------------- ------------- -------------

Net income (loss) per common share
and potential common share:
Basic.......................... $ (1.44) $ (0.55) $ 0.24 $ (0.01) $ 0.03
Diluted........................ $ (1.44) $ (0.55) $ 0.23 $ (0.01) $ 0.03

Weighted average common and
potential common shares
outstanding:
Basic.......................... 2,658,000 10,062,000 18,447,000 18,431,000 22,536,000
Diluted........................ 2,658,000 10,062,000 19,152,000 18,431,000 23,424,000
</TABLE>

See notes to consolidated financial statements.

F-5
<PAGE>
NET.B@NK, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON ADDITIONAL COMMON
COMMON STOCK PAID-IN STOCK
SHARES ($.01 PAR) CAPITAL SUBSCRIBED
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
BALANCE--February 19, 1996
Comprehensive loss--
Net loss, including amortization of service contract for the
period from February 20, 1996 (date of incorporation) to
December 31, 1996............................................... -- $ -- $ -- $ --
Proceeds from issuance of common stock:
Incorporation, February 20, 1996.................................. 2,277,282 7,591 (7,362) --
March 31, 1996.................................................... 149,064 497 (482) --
April 1, 1996..................................................... 427,314 1,424 18,571 --
September 17, 1996................................................ 894,366 2,981 997,129 --
Contribution of services from affiliate............................. 31,232 --
Issuance of 4,064,442 shares of common stock subscriptions.......... -- -- -- 3,844,185
Issuance of 49,686 compensatory stock options....................... -- -- 30,000 --
Amortization of stock plan expense.................................. -- -- -- --
----------- ----------- ------------ -----------
BALANCE--December 31, 1996............................................ 3,748,026 12,493 1,069,088 3,844,185
Comprehensive loss:
Net loss for the year ended December 31, 1997..................... -- -- -- --
Unrealized holding losses on securities arising during the year,
net of taxes of ($42,790)....................................... -- -- -- --
Comprehensive loss.............................................. -- -- -- --
Proceeds from issuance of common stock:
March 31, 1997.................................................... 59,628 199 2,591 (2,790)
April 2, 1997..................................................... 29,814 100 1,295 (1,395)
July 28, 1997..................................................... 10,500,000 35,000 38,216,520 --
July 31, 1997..................................................... 4,099,218 13,664 3,951,336 (3,840,000)
Issuance of 491,910 compensatory stock options...................... -- -- 390,484 --
Amortization of service contract.................................... -- -- -- --
Amortization of stock plan expense.................................. -- -- -- --
----------- ----------- ------------ -----------
BALANCE--December 31, 1997............................................ 18,436,686 61,456 43,631,314 --
Comprehensive income:
Net income for the year ended December 31, 1998................... -- -- -- --
Unrealized holding gains on securities arising during the year,
net of taxes of $45,454......................................... -- -- -- --
Less reclassification adjustment for gains included in net income,
net of taxes of $3450........................................... -- -- -- --
Comprehensive income............................................ -- -- -- --
Exercised stock options............................................. 33,588 112 40,418 --
Amortization of stock plan expense.................................. -- -- -- --
----------- ----------- ------------ -----------
BALANCE--December 31, 1998............................................ 18,470,274 61,568 43,671,732 --
Comprehensive income:
Net income for three months ended March 31, 1999 (unaudited)...... -- -- -- --
Unrealized losses on securities, net of taxes of $348,814
(unaudited)..................................................... -- -- -- --
Comprehensive income (unaudited)................................ -- -- -- --
Proceeds from the issuance of common stock (unaudited).............. 7,290,000 24,300 104,889,977 --
Exercised stock options (unaudited)................................. 35,211 117 42,399 --
Amortization of stock plan expense (unaudited)...................... -- -- -- --
----------- ----------- ------------ -----------
BALANCE--March 31, 1999 (unaudited)................................... 25,795,485 $ 85,985 $148,604,108 $ --
----------- ----------- ------------ -----------
----------- ----------- ------------ -----------

<CAPTION>
UNAMORTIZED
AFFILIATE
SERVICE UNAMORTIZED
STOCK CONTRACT STOCK
SUBSCRIPTIONS EXPENSE PLAN ACCUMULATED
RECEIVABLE NET OF TAX EXPENSE DEFICIT
------------ ------------ ------------ ------------
<S> <C> <C>
BALANCE--February 19, 1996
Comprehensive loss--
Net loss, including amortization of service contract for the
period from February 20, 1996 (date of incorporation) to
December 31, 1996............................................... $ -- $2,400,000 $ -- $(3,839,182)
Proceeds from issuance of common stock:
Incorporation, February 20, 1996.................................. -- -- -- --
March 31, 1996.................................................... -- -- -- --
April 1, 1996..................................................... -- -- -- --
September 17, 1996................................................ -- -- -- --
Contribution of services from affiliate............................. -- -- -- --
Issuance of 4,064,442 shares of common stock subscriptions.......... (4,185) (3,840,000) -- --
Issuance of 49,686 compensatory stock options....................... -- -- (30,000) --
Amortization of stock plan expense.................................. -- -- 1,528 --
------------ ------------ ------------ ------------
BALANCE--December 31, 1996............................................ (4,185) (1,440,000) (28,472) (3,839,182)
Comprehensive loss:
Net loss for the year ended December 31, 1997..................... -- -- -- (5,577,439)
Unrealized holding losses on securities arising during the year,
net of taxes of ($42,790)....................................... -- -- -- --

Comprehensive loss.............................................. -- -- -- --
Proceeds from issuance of common stock:
March 31, 1997.................................................... 2,790 -- -- --
April 2, 1997..................................................... 1,395 -- -- --
July 28, 1997..................................................... -- -- -- --
July 31, 1997..................................................... -- -- -- --
Issuance of 491,910 compensatory stock options...................... -- -- (390,484) --
Amortization of service contract.................................... -- 1,440,000 -- --
Amortization of stock plan expense.................................. -- -- 343,267 --
------------ ------------ ------------ ------------
BALANCE--December 31, 1997............................................ -- -- (75,689) (9,416,621)
Comprehensive income:
Net income for the year ended December 31, 1998................... -- -- -- 4,464,012
Unrealized holding gains on securities arising during the year,
net of taxes of $45,454......................................... -- -- -- --
Less reclassification adjustment for gains included in net income,
net of taxes of $3450........................................... -- -- -- --

Comprehensive income............................................ -- -- -- --
Exercised stock options............................................. -- -- -- --
Amortization of stock plan expense.................................. -- -- 51,410 --
------------ ------------ ------------ ------------
BALANCE--December 31, 1998............................................ -- -- (24,279) (4,952,609)
Comprehensive income:
Net income for three months ended March 31, 1999 (unaudited)...... -- -- -- 691,516
Unrealized losses on securities, net of taxes of $348,814
(unaudited)..................................................... -- -- -- --

Comprehensive income (unaudited)................................ -- -- -- --
Proceeds from the issuance of common stock (unaudited).............. -- -- -- --
Exercised stock options (unaudited)................................. -- -- -- --
Amortization of stock plan expense (unaudited)...................... -- -- 8,570 --
------------ ------------ ------------ ------------
BALANCE--March 31, 1999 (unaudited)................................... $ -- $ -- $ (15,709) $(4,261,093)
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------

<CAPTION>
ACCUMULATED
OTHER
COMPREHENSIVE
INCOME
(LOSS),
NET OF TAX TOTAL
-------------- ------------
BALANCE--February 19, 1996
Comprehensive loss--
Net loss, including amortization of service contract for the
period from February 20, 1996 (date of incorporation) to
December 31, 1996............................................... $ -- $ (1,439,182)
Proceeds from issuance of common stock:
Incorporation, February 20, 1996.................................. -- 229
March 31, 1996.................................................... -- 15
April 1, 1996..................................................... -- 19,995
September 17, 1996................................................ -- 1,000,110
Contribution of services from affiliate............................. -- 31,232
Issuance of 4,064,442 shares of common stock subscriptions.......... -- --
Issuance of 49,686 compensatory stock options....................... -- --
Amortization of stock plan expense.................................. -- 1,528
-------------- ------------
BALANCE--December 31, 1996............................................ -- (386,073)
Comprehensive loss:
Net loss for the year ended December 31, 1997..................... -- (5,577,439)
Unrealized holding losses on securities arising during the year,
net of taxes of ($42,790)....................................... (83,063) (83,063)
------------
Comprehensive loss.............................................. -- (5,660,502)
Proceeds from issuance of common stock:
March 31, 1997.................................................... -- 2,790
April 2, 1997..................................................... -- 1,395
July 28, 1997..................................................... -- 38,251,520
July 31, 1997..................................................... -- 125,000
Issuance of 491,910 compensatory stock options...................... --
Amortization of service contract.................................... -- 1,440,000
Amortization of stock plan expense.................................. -- 343,267
-------------- ------------
BALANCE--December 31, 1997............................................ (83,063) 34,117,397
Comprehensive income:
Net income for the year ended December 31, 1998................... -- 4,464,012
Unrealized holding gains on securities arising during the year,
net of taxes of $45,454......................................... 88,235 88,235
Less reclassification adjustment for gains included in net income,
net of taxes of $3450........................................... (6,696) (6,696)
------------
Comprehensive income............................................ -- 4,545,551
Exercised stock options............................................. -- 40,530
Amortization of stock plan expense.................................. -- 51,410
-------------- ------------
BALANCE--December 31, 1998............................................ (1,524) 38,754,888
Comprehensive income:
Net income for three months ended March 31, 1999 (unaudited)...... -- 691,516
Unrealized losses on securities, net of taxes of $348,814
(unaudited)..................................................... (663,645) (663,645)
------------
Comprehensive income (unaudited)................................ -- 27,871
Proceeds from the issuance of common stock (unaudited).............. -- 104,914,277
Exercised stock options (unaudited)................................. -- 42,516
Amortization of stock plan expense (unaudited)...................... -- 8,570
-------------- ------------
BALANCE--March 31, 1999 (unaudited)................................... $ (665,169) $143,748,122
-------------- ------------
-------------- ------------
</TABLE>

See notes to consolidated financial statements.

F-6
<PAGE>
NET.B@NK, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 20,
1996
(DATE OF YEAR ENDED
INCORPORATION) DECEMBER 31,
TO DECEMBER 31, -------------------------
1996 1997 1998
--------------- ----------- ------------ THREE MONTHS
ENDED
MARCH 31,
--------------------------
1998 1999
------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating Activities:
Net income (loss)............................ $(3,839,182) $(5,577,439) $ 4,464,012 $ (151,447) $ 691,516
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation............................... 17,406 211,607 251,147 36,537 137,768
Amortization of service contract........... 2,400,000 1,440,000 -- -- --
Amortization of stock plan expense......... 1,528 343,267 51,410 23,564 8,570
Amortization of premiums on investment
securities............................... -- 49,331 237,040 73,062 42,768
Amortization of premiums on purchased
loans.................................... -- 116,509 2,541,016 152,038 970,511
Amortization of trademark.................. -- -- 6,417 -- --
Amortization of bank charter............... -- 5,833 14,790 3,500 3,500
Amortization of start-up costs............. -- 2,280 -- -- --
Provision for loan losses.................. -- 471,706 20,132 3,661 49,806
Contribution of services from affiliate.... 31,232 -- -- -- --
Changes in assets and liabilities which
provide (use) cash:
Increase in accrued interest
receivable............................. -- (372,237) (2,210,390) (526,066) (503,089)
Decrease (increase) in other assets...... (311,799) (142,363) (7,569,540) 49,296 1,765,748
Loans originated for sale................ -- -- (142,189,154) -- (95,779,910)
Proceeds from loan sales................. -- -- 118,986,475 -- 83,979,204
Increase (decrease) in payables and
accrued liabilities.................... 748,916 (373,267) 5,717,048 305,652 (1,055,945)
Increase (decrease) in deferred income
taxes.................................. -- -- (2,297,125) 2,308
--------------- ----------- ------------ ------------ ------------
Net cash used in operating
activities........................... (951,899) (3,824,773) (21,976,722) (30,203) (9,687,245)
Investing Activities:
Purchases of securities available for sale... -- (19,347,623) (52,502,591) (30,443,211) (24,852,142)
Purchase of Federal Home Loan Bank stock..... -- (225,000) (1,775,000) (26,500) (569,700)
Principal repayments on investment
securities................................. -- 1,161,085 11,104,635 2,202,455 2,951,418
Purchase of Habitat bonds.................... -- -- (250,000) -- --
Origination and purchase of loans............ -- (52,909,291) (352,665,802) (70,683,033) (123,425,611)
Principal payments on loans.................. -- 7,838,834 117,703,710 10,195,800 39,620,186
Purchase of Premier Bank charter............. -- (350,000) -- -- --
Capital expenditures......................... (183,390) (249,906) (592,065) (178,874) (318,005)
Captitalized software costs.................. -- -- (592,492) -- (232,525)
Proceeds from return of equipment............ -- 17,738 -- -- --
--------------- ----------- ------------ ------------ ------------
Net cash used in investing
activities........................... (183,390) (64,064,163) (279,569,605) (88,933,363) (106,826,379)
Financing Activities:
Assumption of Premier deposits............... -- 5,000,000 -- -- --
Transfer of deposits from affiliate.......... -- 42,977,650 -- -- --
Proceeds from other borrowed funds........... -- -- 72,000,000 -- 25,000,000
Repayments of other borrowed funds........... (12,000,000) (40,000,000)
Increase in deposits......................... -- 10,749,113 224,862,388 69,954,906 49,089,183
Advances from (repayments to) affiliate...... 883,606 (883,606) -- -- --
Net proceeds from the sale of stock.......... 1,020,349 38,380,705 40,530 -- 104,956,793
--------------- ----------- ------------ ------------ ------------
Net cash provided by financing
activities........................... 1,903,955 96,223,862 284,902,918 69,954,906 139,045,976
--------------- ----------- ------------ ------------ ------------
Net Increase (Decrease) in Cash and Cash
Equivalents.................................. 768,666 28,334,926 (16,643,409) (19,008,660) 22,532,352
Cash and Cash Equivalents:
Beginning of period.......................... -- 768,666 29,103,592 29,103,592 12,460,183
--------------- ----------- ------------ ------------ ------------
End of period................................ $ 768,666 $29,103,592 $ 12,460,183 $ 10,094,932 $ 34,992,535
--------------- ----------- ------------ ------------ ------------
--------------- ----------- ------------ ------------ ------------
Supplemental Disclosures of Cash Flow
Information--
Cash paid during the period for interest..... $ -- $ 1,184,549 $ 5,694,481 $ 808,000 $ 5,830,309
--------------- ----------- ------------ ------------ ------------
--------------- ----------- ------------ ------------ ------------
Cash paid during the period for income
taxes...................................... $ 30,000 $ -- $ 12,000
--------------- ----------- ------------ ------------ ------------
--------------- ----------- ------------ ------------ ------------
</TABLE>

See notes to consolidated financial statements.

F-7
<PAGE>
NET.B@NK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

AS OF DECEMBER 31, 1997, 1998, AND (UNAUDITED) MARCH 31, 1999,
AND FOR THE PERIOD FROM FEBRUARY 20, 1996
(DATE OF INCORPORATION) TO DECEMBER 31, 1996,
THE YEARS ENDED DECEMBER 31, 1997 AND 1998, AND (UNAUDITED) THE
THREE MONTHS ENDED MARCH 31, 1998 AND 1999

1. ORGANIZATION AND BASIS OF PRESENTATION

Net.B@nk, Inc. ("Net.B@nk") is a bank holding company that wholly owns the
outstanding stock of Net.B@nk, formerly Atlanta Internet Bank, a federal savings
bank. Net.B@nk, Inc. was incorporated as a Georgia corporation on February 20,
1996, for the primary purpose of forming and, ultimately, operating Net.B@nk.
During the period from February 20, 1996 to July 31,1997, pending regulatory
approval and the acquisition of a bank charter, Net.B@nk was operating as a
development stage enterprise under an agreement with Carolina First Bank
("CFB"), a wholly owned subsidiary of Carolina First Corporation ("CFC"),
whereby CFB agreed to hold and service the deposit accounts generated by the
Internet banking operations of Net.B@nk in exchange for 3,975,000 shares of
Net.B@nk's common stock valued at $3,840,000. In addition, during the period
from February 20, 1996 to July 31, 1997, Net.B@nk was a party to an agreement
with First Alliance/Premier Bancshares, Inc. ("First Alliance") pursuant to
which Net.B@nk had agreed to purchase the charter of First Alliance's
subsidiary, Premier Bank, $5 million of loans, $5 million of certificates of
deposit and $2 million in unimpaired capital for $2,150,000 in cash, 124,218
shares of Net.B@nk's common stock valued at $125,000 and $75,000 in additional
cash for reimbursement of direct out-of-pocket expenses.

On July 11, 1997, the final regulatory approval from the Office of Thrift
Supervision ("OTS") was received. On July 31, 1997, Net.B@nk received
approximately $38.4 million in net proceeds from the sale of 10,500,000 shares
of its common stock in an Initial Public Offering (the "IPO") and consummated
its agreements with both First Alliance and CFB. As a result, Net.B@nk, a
federal savings bank, became a wholly owned subsidiary of Net.B@nk, Inc. On
February 10, 1999, Net.B@nk received net proceeds of approximately $105,000,000
from the sale of an additional 7,290,000 shares of its common stock in a public
offering.

2. ACCOUNTING POLICIES

The accounting and reporting policies of Net.B@nk conform with generally
accepted accounting principles and with general practice within the banking
industry. The following is a summary of the more significant policies:

CONSOLIDATION--The consolidated financial statements of Net.B@nk, Inc.
include the financial statements of Net.B@nk, Net.B@nk, Inc.'s wholly owned
subsidiary. All intercompany balances and transactions have been eliminated in
consolidation.

USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS--The preparation
of financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period. Actual results could
differ from those estimates.

INTEREST RATE RISK--Net.B@nk's assets and liabilities are generally monetary
in nature and interest rate changes have an impact on Net.B@nk's performance.
Net.B@nk decreases the effect of interest rate changes on its performance by
striving to match maturities and interest sensitivity between loans,

F-8
<PAGE>
NET.B@NK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. ACCOUNTING POLICIES (CONTINUED)
investment securities, deposits, and other borrowings. However, a significant
change in interest rates, specifically the prime rate, could have a material
effect on Net.B@nk's results of operations.

CASH AND CASH EQUIVALENTS--For purposes of reporting cash flows, cash and
cash equivalents include cash on hand, demand deposits due from banks, and
federal funds sold to banks.

INVESTMENT SECURITIES AVAILABLE FOR SALE--Investment securities classified
as available-for-sale are carried at fair value. Unrealized holding gains or
losses, net of tax, on available-for-sale securities are reported as a net
amount in other comprehensive income. Gains and losses from dispositions are
based on the net proceeds and the adjusted carrying amounts of the securities
sold using the specific identification method. Any decreases in investment value
other than temporary declines would be recognized in operations. Premiums and
discounts are recognized in interest income using the interest method over the
period to maturity.

DEFERRED FEES AND COSTS--Loan origination fees and certain direct
origination costs are capitalized and recognized as an adjustment of the yield
of the related loans.

ALLOWANCE FOR LOAN LOSSES--The allowance for loan losses is maintained at a
level estimated to be adequate to provide for probable losses in the loan
portfolio. As the majority of Net.B@nk's portfolio is purchased, an estimate of
the loss inherent in the purchased portfolio is made and an allowance for loan
losses is recorded by adjusting the premium associated with the purchased loans.
Management determines the adequacy of the allowance based upon reviews of
individual loans, recent loss experience, current economic conditions, the risk
characteristics of the various categories of loans and other pertinent factors.
Loans deemed uncollectible are charged to the allowance. Provisions for loan
losses and recoveries on loans previously charged off are added to the
allowance.

FURNITURE AND EQUIPMENT--Furniture and equipment are stated at cost less
accumulated depreciation. Depreciation is computed using the straight-line
method over the estimated useful life of each asset. Net.B@nk evaluates the
estimated useful lives of assets on a periodic basis to determine whether events
or circumstances warrant revised estimated useful lives or whether any
impairment exists. Management believes no impairment existed at December 31,
1998.

BANK CHARTER--The value of the charter is being amortized on a straight-line
basis over 25 years. The carrying value of the charter is periodically reviewed
to assess recoverability based on expected undiscounted cash flows and operating
income of Net.B@nk. Impairment would be recognized in operating results if a
permanent diminution in value was expected. Net.B@nk also evaluates the
amortization period of the bank charter to determine whether events or
circumstances warrant revised estimates of the useful life. Management believes
that no impairment of the bank charter existed at December 31, 1998.

INTEREST INCOME ON LOANS--Interest on loans is generally recorded over the
term of the loan based on the unpaid principal balance. Accrual of interest is
discontinued when either principal or interest becomes 90 days past due or when,
in management's opinion, collectibility of such interest is doubtful. In
addition, any previously accrued interest is reversed when the loan becomes 90
days past due.

PREMIUM ON LOANS PURCHASED--Premiums on loans purchased from third parties
are capitalized and amortized over the average life of the loan as an adjustment
to yield. Such premiums are classified with the loan balance to which they
relate for financial reporting purposes.

F-9
<PAGE>
NET.B@NK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. ACCOUNTING POLICIES (CONTINUED)
INCOME TAXES--Provisions for income taxes are based upon amounts reported in
the statements of income and include deferred taxes for net operating loss
carryforwards and temporary differences between financial statement and tax
bases of assets and liabilities using enacted tax rates for the year in which
the temporary differences are expected to reverse. Net.B@nk records a valuation
allowance when management believes it is more likely than not that deferred tax
assets will not be realized.

NET INCOME (LOSS) PER SHARE--In February 1997, Statement of Financial
Accounting Standards 128, EARNINGS PER SHARE ("SFAS 128") was issued. SFAS 128
establishes standards for computing and presenting earnings per share
information for entities with publicly held common stock. In accordance with
SFAS 128, basic net income per share is computed based on the weighted average
number of common shares outstanding during the period. Diluted net income per
share is computed based on the weighted average number of common and potential
dilutive common shares outstanding during the period. All previously reported
per share amounts have been restated to conform to SFAS 128.

RECLASSIFICATIONS--Certain reclassifications have been made to the 1996 and
1997 financial statements to conform to the 1998 presentation.

UNAUDITED INTERIM FINANCIAL STATEMENTS--The financial statements as of March
31, 1998 and 1999 and for the three months ended March 31, 1998 and 1999, were
prepared on the same basis as the audited consolidated financial statements and,
in the opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the financial
position and results of operations for these periods. Certain information and
note disclosures normally included in the consolidated financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to the rules and regulations relating to interim
financial statements. Operating results for the interim periods included herein
are not necessarily indicative of the results that may be expected for the
entire year.

NEW ACCOUNTING PRONOUNCEMENTS--As of January 1, 1998, Net.B@nk adopted
Statement of Financial Accounting Standards 130, REPORTING COMPREHENSIVE INCOME
("SFAS 130"), and restated prior periods to conform to the presentation required
by SFAS 130. SFAS 130 establishes new rules for the reporting and display of
comprehensive income and its components. SFAS 130 requires unrealized gains or
losses, net of tax, on Net.B@nk's available-for-sale securities, which prior to
adoption were reported separately in shareholders' equity, to be included in
other comprehensive income. The adoption of SFAS 130 had no impact on Net.B@nk's
net income or shareholders' equity.

As of April 1, 1998, Net.B@nk adopted Statement of Position 98-1, ACCOUNTING
FOR THE COSTS OF COMPUTER SOFTWARE DEVELOPED OR OBTAINED FOR INTERNAL USE ("SOP
98-1"). SOP 98-1 allows for the capitalization of costs related to the
development and implementation of software obtained for internal use including
materials, payroll, and interest costs once the criteria of the SOP have been
met. As of December 31, 1998, $592,402 of these related costs had been
capitalized.

As of December 31, 1998, Net.B@nk adopted SFAS 131, DISCLOSURES ABOUT
SEGMENTS OF AN ENTERPRISE AND RELATED INFORMATION. SFAS 131 establishes annual
and interim reporting standards for an enterprise's business segments and
related disclosures about its products, services, geographic areas, and major
customers. The adoption of SFAS 131 had no effect on Net.B@nk's financial
statements for the year ended December 31, 1998 because Net.B@nk only has one
reportable segment-banking.

F-10
<PAGE>
NET.B@NK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

2. ACCOUNTING POLICIES (CONTINUED)
In June 1998, Statement of Financial Accounting Standards 133, ACCOUNTING
FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES ("SFAS 133"), was issued. SFAS
133 establishes standards for derivative instruments and hedging activities and
requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. SFAS 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 1999. The adoption of SFAS 133 is not expected to have
a significant effect on Net.B@nk's financial statements.

3. ACQUISITION

Effective July 31, 1997, Net.B@nk acquired all of the outstanding stock of
Premier Bank, FSB for $2,150,000 in cash, 124,218 shares of Net.B@nk's common
stock valued at $125,000 and $75,000 in additional cash for reimbursement of
direct out-of-pocket expenses. The acquisition was accounted for as a purchase
and the bank charter was recorded at $350,000. This amount is being amortized
over 25 years. Revenues, net loss, and basic and diluted net loss per common
share and potential dilutive common share for Net.B@nk for the period from
February 20, 1996 to December 31, 1996 or for the year ended December 31, 1997
would not have been materially affected assuming the transaction had occurred on
February 20, 1996 and January 1, 1997, respectively.

4. INVESTMENT SECURITIES AVAILABLE FOR SALE

The amortized cost, estimated fair value and gross unrealized gains and
losses of investment securities available for sale are as follows:

<TABLE>
<CAPTION>
GROSS
----------------------------------------- ESTIMATED
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
------------- ----------- ------------- -------------
<S> <C> <C> <C> <C>
AT DECEMBER 31, 1997
Collateralized mortgage obligations..................... $ 8,127,863 $ -- $ -- $ 8,127,863
Unites States government agencies....................... 10,009,346 -- 83,063 9,926,283
------------- ----------- ------------- -------------
$ 18,137,209 $ -- $ 83,063 $ 18,054,146
------------- ----------- ------------- -------------
------------- ----------- ------------- -------------
AT DECEMBER 31, 1998
Collateralized mortgage obligations..................... $ 58,330,285 $ -- $ 2,045 $ 58,328,240
United States government agencies....................... 882,442 -- 264 882,178
Habitat bonds and other................................. 254,644 -- -- 254,644
------------- ----------- ------------- -------------
$ 59,467,371 $ -- $ 2,309 $ 59,465,062
------------- ----------- ------------- -------------
------------- ----------- ------------- -------------
</TABLE>

F-11
<PAGE>
NET.B@NK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

4. INVESTMENT SECURITIES AVAILABLE FOR SALE (CONTINUED)
The amortized cost and estimated fair value of these securities at December
31, 1998, by contractual maturity, are shown below. Actual maturities may differ
from contractual maturities because the borrower may have the right to call or
prepay obligations with or without call or prepayment penalties.

<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
------------- -------------
<S> <C> <C>
AT DECEMBER 31, 1998
Due after five years through ten years......................... $ 5,983,682 $ 5,986,729
Due after ten years............................................ 53,483,689 53,478,333
------------- -------------
$ 59,467,371 $ 59,465,062
------------- -------------
------------- -------------
</TABLE>

There were no significant sales, or calls of securities, for the period from
February 20, 1996 (date of incorporation) to December 31, 1996, or for the years
ended December 31, 1997 and 1998.

5. LOANS

Net.B@nk's primary loan strategy is to originate or purchase high credit
quality packages of loans from other financial institutions. The servicing on
all loan purchases is retained by the selling institutions. As of December 31,
1998, fees paid for servicing range from .25% to 3.75%. A summary of loans
purchased during the years ended December 31, 1997 and 1998 follows:
<TABLE>
<CAPTION>
TYPES OF LOANS PRINCIPAL PREMIUM RANGE OF STATED
PURCHASED AMOUNT AMOUNT INTEREST RATES
------------------------------------ -------------- ------------- ---------------
<S> <C> <C> <C> <C>
1997 First and second mortgages, auto and
unsecured loans $ 36,804,000 $ 808,832 6.0--12%
Automobile leases................... 6,100,000 -- 11.5%
-------------- -------------
$ 42,904,000 $ 808,832
-------------- -------------
-------------- -------------

TYPES OF LOANS PRINCIPAL PREMIUM RANGE OF STATED
PURCHASED AMOUNT AMOUNT INTEREST RATES
------------------------------------ -------------- ------------- ---------------
<S> <C> <C> <C> <C>
1998 First and second mortgages $ 134,789,041 $ 5,002,363 6.12--16.99%
Home equity lines 122,746,433 7,247,263 7.25--13.00%
-------------- -------------
$ 257,535,474 $ 12,249,626
-------------- -------------
-------------- -------------
</TABLE>

There were no loans purchased during the year ended December 31, 1996.

F-12
<PAGE>
NET.B@NK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

5. LOANS (CONTINUED)
Loans are summarized as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------
<S> <C> <C>
1997 1998
------------- --------------
Residential mortgages......................................... $ 13,953,501 $ 144,361,069
Construction.................................................. 5,399,624 27,996,691
Commercial.................................................... 4,478,053 8,556,264
Home equity lines............................................. 4,412,013 89,053,532
Auto.......................................................... 14,623,745 7,803,648
Personal and other............................................ 2,066,471 2,656,399
------------- --------------
44,933,407 280,427,603
Less allowance for loan losses................................ 453,444 3,472,364
------------- --------------
Total................................................... $ 44,479,963 $ 276,955,239
------------- --------------
------------- --------------
</TABLE>

Net.B@nk provides lines of credit and overdraft protection to its banking
customers on a nationwide basis. At December 31, 1997 and 1998, outstanding
lines of credit totaled $29,000 and $200,000, respectively, and unused
commitments totaled $353,000 and $937,000, respectively. Net.B@nk's home equity
lines are secured by residential property. At December 31, 1997, all of
Net.B@nk's loans were with customers residing in the Southeastern United States.
At December 31, 1998, a majority of Net.B@nk's loans were with customers
residing in the Western and Southeastern United States.

Net.B@nk had unearned income of $351,202 and $29,776, at December 31, 1997
and 1998, respectively.

F-13
<PAGE>
NET.B@NK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

6. ALLOWANCE FOR LOAN LOSS

An analysis of the allowance for loan losses for the years ended December
31, 1997 and 1998 follows:

<TABLE>
<CAPTION>
1997 1998
---------- ------------
<S> <C> <C>
Balance--Beginning of year.......................................... $ -- $ 453,444
Allowance recorded in connection with the purchase of loan pools.... -- 3,585,926
Provision for loan losses........................................... 471,706 20,132
Loans charged off................................................... (18,262) (587,138)
---------- ------------
Balance--End of year................................................ $ 453,444 $ 3,472,364
---------- ------------
---------- ------------
</TABLE>

Net.B@nk considers a loan to be impaired when it is probable that it will be
unable to collect all amounts due according to the original terms of the loan
agreement. Net.B@nk measures impairment of a loan on a loan by loan basis.
Amounts of impaired loans that are not probable of collection are charged off
immediately. During the years ended December 31, 1997 and 1998, Net.B@nk had no
significant amount of impaired loans or nonaccrual loans. The amount of impaired
loans written off during the years ended December 31, 1997 and 1998 was $18,262
and $587,138, respectively. Net.B@nk had no restructured loans as of either
December 31, 1997 or 1998.

Net.B@nk is a party to financial instruments with off-balance-sheet risk in
the normal course of its lending activities to meet the financing needs of its
customers. These financial instruments include commitments to extend credit and
lines of credit. Net.B@nk's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument for commitments to
extend credit and standby letters of credit is represented by the contractual
amount of those instruments. Net.B@nk uses the same credit policies in making
these commitments as it does for on-balance-sheet instruments and evaluates each
customer's creditworthiness on a case-by-case basis. At December 31, 1997 and
1998, Net.B@nk had outstanding loan commitments of $8,332,568 and $47,617,700,
respectively.

The amount of collateral obtained by Net.B@nk, if deemed necessary, for
these commitments, upon extension of credit, is based on management's credit
evaluation of the customer. Collateral held, if any, varies but may include
inventory, equipment, real estate, or other property. The accounting loss
Net.B@nk would incur if the borrower failed completely to perform according to
the terms of the contract and the collateral proved to be of no value is equal
to the face amount of the commitment.

7. LOAN ORIGINATION AGREEMENTS

During the year ended December 31, 1998, Net.B@nk entered into separate
agreements with three unrelated third parties whereby Net.B@nk acts as a loan
originator on behalf of the third parties. Under the terms of the agreements,
the third parties are required to purchase all loans, including the related
servicing of these loans, originated by Net.B@nk, unless Net.B@nk elects to
retain the loans. As a result of the agreements, loans originated for the third
parties for which the purchase price has not yet been received are accounted for
as receivables.

F-14
<PAGE>
NET.B@NK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

8. DEPOSITS AND OTHER BORROWINGS

The following table sets forth the dollar amount of deposits in the various
types of deposit programs offered by Net.B@nk:

<TABLE>
<CAPTION>
1997 1998
---------------------------- ---------------------------
<S> <C> <C> <C> <C>
AMOUNT PERCENTAGE AMOUNT PERCENTAGE
------------- ------------- -------------- -----------
Demand checking accounts............. $ 293,054 0.5% $ 9,285,540 3.3%
Interest bearing:
NOW accounts....................... 1,573,283 2.7% 6,090,704 2.1%
Money markets...................... 36,534,967 62.2% 65,325,880 23.0%
Certificates of deposit under
$100,000......................... 16,662,365 28.4% 197,162,916 69.5%
Certificates of deposit over
$100,000......................... 3,663,094 6.2% 5,724,111 2.1%
------------- --- -------------- -----
Total deposits................... $ 58,726,763 100% $ 283,589,151 100.0%
------------- --- -------------- -----
------------- --- -------------- -----
</TABLE>

At December 31, 1998, the scheduled maturities of certificates of deposit
were as follows:

<TABLE>
<S> <C>
Within three months........................................... $76,566,728
Over three months through six months.......................... 48,393,173
Over six months through one year.............................. 71,548,914
Over one year................................................. 6,378,212
-----------
Total..................................................... $202,887,027
-----------
-----------
</TABLE>

During the year ended December 31, 1998, Net.B@nk, Inc. and its subsidiary,
Net.B@nk, entered into line of credit agreements with The Bankers Bank.
Net.B@nk, Inc. is a party to one such agreement and its subsidiary, Net.B@nk, is
a party to two such agreements. Under the terms of Net.B@nk, Inc.'s agreement
which expired on October 20, 1998, Net.B@nk, Inc. could borrow 50% of the
tangible equity of Net.B@nk, up to $17 million, using the stock of Net.B@nk as
collateral. Any amounts borrowed under this line had interest at a fixed rate of
8.00% per annum. During the year ended December 31, 1998, Net.B@nk, Inc.
borrowed and repaid $12 million under the line. Under the terms of the other two
agreements, the subsidiary, Net.B@nk, may borrow $5 million under an unsecured
general purpose line and 99% of the value of its investment securities under
another line. Both of the lines bear interest at 25 basis points above the
Federal Funds rate (5.00% at December 31, 1998). Under these agreements at
December 31, 1998, the subsidiary, Net.B@nk, had an outstanding borrowing of $20
million with no stated maturity secured by investment securities.

As of March 31, 1999, the subsidiary, Net.B@nk, has borrowed $20 million
from the Federal Home Loan Bank ("FHLB") at a fixed rate of 4.43%. The borrowing
is callable at the two-year anniversary date. If not called at the two-year
date, the borrowing extends for an additional three years at 4.435%. Also, the
subsidiary, Net.B@nk, has borrowed $25 million from the Federal Home Loan Bank
at a fixed rate of 4.64%. The borrowing is callable at the two-year anniversary
date. If not called at the two-year date, the borrowing extends for an
additional eight years at 4.64%. These borrowings are secured by Net.B@nk's
investment securities.

F-15
<PAGE>
NET.B@NK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

9. FURNITURE AND EQUIPMENT

Furniture and equipment as of December 31, 1997 and 1998, are summarized as
follows:

<TABLE>
<CAPTION>
DECEMBER 31,
------------------------
<S> <C> <C>
1997 1998
---------- ------------
Furniture and fixtures.............................................. $ 56,145 $ 234,440
Equipment........................................................... 190,483 284,388
Software............................................................ 428,306 1,340,663
---------- ------------
Total............................................................. 674,934 1,859,491
Less accumulated depreciation....................................... 286,426 537,573
---------- ------------
Furniture and equipment, net.................................... $ 388,508 $ 1,321,918
---------- ------------
---------- ------------
</TABLE>

10. LEASES

Net.B@nk leases its facilities and certain other equipment under operating
lease agreements. Future minimum payments as of December 31, 1998 under these
leases follow:

<TABLE>
<S> <C>
1999.............................................................. $ 128,028
2000.............................................................. 130,872
2001.............................................................. 133,788
2002.............................................................. 136,788
2003 and beyond................................................... 295,156
</TABLE>

Rent expense for the period from February 20, 1996 (date of incorporation)
to December 31, 1996, and for the years ended December 31, 1997 and 1998, was
$17,850, $91,868, and $110,011, respectively.

11. INCOME TAXES

Net.B@nk provides deferred income taxes for net operating loss carryforwards
and for temporary differences between financial statement and tax bases of
assets and liabilities using enacted tax rates in effect for the year in which
the temporary differences are expected to reverse. As of December 31, 1998,
Net.B@nk had state and federal net operating loss carryforwards of $6,182,993
which will expire in 2012 and 2011, if not utilized.

Net.B@nk did not incur any income taxes during 1996 and 1997. For the year
ended December 31, 1998, Net.B@nk's income tax benefit results from the reversal
of the valuation allowance as of December 31, 1997, relating to net operating
loss carryforwards offset by taxable income for the period. As Net.B@nk achieved
profitability in 1998, management now believes that it is more likely than not
that such assets will be realized, and thus, reversed the valuation allowance in
accordance with SFAS 109, ACCOUNTING OF INCOME TAXES.

F-16
<PAGE>
NET.B@NK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

11. INCOME TAXES (CONTINUED)
As of December 31, 1997 and 1998, Net.B@nk had deferred tax assets and
deferred tax liabilities as follows:

<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
<S> <C> <C>
1997 1998
------------ ------------
Net operating loss carryforwards.................................. $ 2,962,303 $ 2,102,218
Allowance for loan losses......................................... 165,369 (244,089)
Start-up costs.................................................... 170,761 112,043
Loan premium amortization......................................... -- 357,348
Other, net........................................................ (38,402) (30,395)
------------ ------------
3,260,031 2,297,125
Less valuation allowance.......................................... 3,260,031 --
------------ ------------
Net deferred tax asset............................................ $ -- $ 2,297,125
------------ ------------
------------ ------------
</TABLE>

Net.B@nk's income tax benefit consists of current and deferred income tax
benefit as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1998
-------------
<S> <C>
Current........................................................................ $ (58,490)
Deferred....................................................................... (2,266,340)
-------------
Income tax benefit........................................................... $ (2,324,830)
-------------
-------------
</TABLE>

The benefit for income taxes is reconciled to the tax computed by applying
the federal statutory rate of 34% to income before income taxes as follows:

<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
1998
-------------
<S> <C>
Income tax at statutory rate................................................... $ 727,322
Reversal of valuation allowance................................................ (3,260,031)
Other.......................................................................... 207,879
-------------
Income tax benefit........................................................... $ (2,324,830)
-------------
-------------
</TABLE>

F-17
<PAGE>
NET.B@NK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

12. OTHER EXPENSE

Items comprising other expense:

<TABLE>
<CAPTION>
FEBRUARY 20,
1996 TO YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1998
------------ ------------ ------------
<S> <C> <C> <C>
Accounting, legal and professional services........................... $ 84,183 $ 238,650 $ 423,290
Consultants........................................................... -- 52,739 --
Annual report......................................................... -- -- 93,395
Investor relations.................................................... -- 6,946 40,011
Other................................................................. 10,764 56,731 129,280
------------ ------------ ------------
$ 94,947 $ 355,066 $ 685,976
------------ ------------ ------------
------------ ------------ ------------
</TABLE>

13. EMPLOYEE BENEFIT PLAN

Effective December 31, 1997, Net.B@nk adopted a 401(k) plan (the "Plan")
which covers substantially all of its employees. Net.B@nk, at its discretion,
matches 25% of employee contributions to the Plan, up to a maximum Company
contribution of 1% of an employee's compensation. Net.B@nk expensed $10,100
during 1998 related to the plan.

14. SHAREHOLDERS' EQUITY

On March 17, 1997, Net.B@nk declared a 33.125 for one split of its common
stock effected in the form of a stock dividend payable on the effective date of
the initial public offering. All references to share and per share amounts
reflect the split. Also, additional paid-in capital has been charged and common
stock has been credited retroactively with $12,116 to reflect the stock split.

On February 10, 1999, Net.B@nk received net proceeds of approximately
$105,000,000 from the sale of 7,290,000 shares of its common stock in a public
offering.

On April 13, 1999, Net.B@nk declared a three-for-one split of its common
stock effected in the form of a stock dividend payable on May 14, 1999 to
shareholders of record as of the close of business on April 23, 1999. All
references to share and per share amounts have been retroactively adjusted to
reflect the split.

Under current OTS regulations, Net.B@nk may pay dividends and make other
capital distributions after giving notice to the Office of Thrift Supervision.

15. STOCK OPTIONS

Net.B@nk has a 1996 Stock Incentive Plan (the "Plan"), which provides that
key employees, officers, directors, and consultants of Net.B@nk may be granted
nonqualified and incentive stock options to purchase shares of common stock of
Net.B@nk, derivative securities related to the value of the common stock, or
cash awards. Previously, the Plan limited the number of shares which could be
awarded to 1,800,000. Effective with shareholder approval on April 22, 1999, the
Plan was amended to increase the total number of shares reserved for the Plan to
3,750,000. Generally, the options expire ten years from the date of the grant.

F-18
<PAGE>
NET.B@NK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

15. STOCK OPTIONS (CONTINUED)
A summary of the status of the Plan and activity follows:

<TABLE>
<CAPTION>
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
DECEMBER 31, EXERCISE DECEMBER 31, EXERCISE DECEMBER 31, EXERCISE
1996 PRICE 1997 PRICE 1998 PRICE
------------- ----------- ------------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of period............ -- $ -- 49,686 $ 0.40 1,099,368 $ 1.99
Granted..................................... 49,686 $ 0.40 1,058,625 1.94 573,000 6.50
Exercised................................... -- -- (33,588) 1.21
Terminated.................................. -- -- (8,943) 1.21 (41,628) 2.19
------ ------------ ------------
Outstanding at end of period.................. 49,686 0.40 1,099,368 1.99 1,597,152 3.63
------ ------------ ------------
------ ------------ ------------
</TABLE>

In connection with the issuance of some of the options during the year ended
December 31, 1997, $390,484 of compensation expense will be recognized over the
vesting period. Certain of those options vested immediately on July 28, 1997,
upon completion of the Initial Public Offering, and $319,704 of unamortized
compensation expense was recognized. The other options vest one-third on the
first anniversary of the date of issuance, one-third on the second anniversary
of the date of issuance, and one-third on the third anniversary of the date of
issuance. Of the vested options, 708,423 cannot be exercised and sold until July
28, 2000 in accordance with an agreement signed with the OTS. As such, of the
1,597,152 options outstanding as of December 31, 1998, 837,063 are exercisable.

During the three-month period ended March 31, 1999, Net.B@nk awarded 21,000
incentive stock options at an exercise price of $11.67 per share on January 15,
1999, 30,000 incentive stock options at an exercise price of $13.00 per share on
February 25, 1999 and 30,000 incentive stock options at an exercise price of
$23.33 per share on March 29, 1999. Grant prices approximated the fair value of
the stock at the grant date. Additionally, during the three-month period ended
March 31, 1999, 35,211 incentive stock options were exercised at a price of
$1.21 per share, and 16,200 and 3,366 incentive stock options with an exercise
price of $5.25 and $1.21, respectively, were terminated.

In addition, effective April 22, 1999, 177,000 nonqualified stock options
were granted at an exercise price of $53.33 per share. Grant prices approximated
the fair value of the stock at the grant date. Also, during April 1999, 6,000
and 1,500 incentive stock options with an exercise price of $5.25 and $1.21,
respectively, were exercised.

F-19
<PAGE>
NET.B@NK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

15. STOCK OPTIONS (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1998:

<TABLE>
<CAPTION>
NUMBER WEIGHTED
OUTSTANDING AVERAGE EXERCISABLE
AT REMAINING AT
EXERCISE DECEMBER 31, CONTRACTUAL DECEMBER 31,
PRICE 1998 LIFE 1998
- ----------- ------------ --------------- ------------
<S> <C> <C> <C>
$ .40 422,343 8.0 422,343
1.21 48,591 8.2 21,870
3.33 521,718 8.2 260,850
3.67 45,000 8.6 15,000
3.75 60,000 9.0 --
5.58 9,000 9.1 --
5.25 187,500 9.7 27,000
7.94 303,000 10.0 90,000
</TABLE>

Net.B@nk accounts for its stock-based compensation plan under Accounting
Principles Board 25. Net.B@nk has adopted SFAS 123 ACCOUNTING FOR STOCK-BASED
COMPENSATION ("SFAS 123"), for disclosure purposes. For SFAS 123 purposes, the
fair value of each option granted under Net.B@nk's stock option plan during the
period from February 20, 1996 to December 31, 1996 and during the years ended
December 31, 1997 and 1998, was estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted average
assumptions used:

<TABLE>
<CAPTION>
OPTIONS OPTIONS
GRANTED GRANTED
FEBRUARY 20, AS OF
1996 TO JULY 30, 1997 YEAR ENDED
JULY 29, (IPO DECEMBER 31,
1997 DATE) 1998
------------- ------------- ---------------
<S> <C> <C> <C>
Fair value............................................................. $ 0.32 $ 2.51 $ 4.02
Expected life (years).................................................. 5 5 5
Risk-free interest rate................................................ 6.2% 5.95% 4.96%
Dividend rate.......................................................... 0.0% 0.0% 0.0%
Expected volatility.................................................... 0.0% 75.0% 70.0%
Forfeiture rate........................................................ 0.0% 1.0% 1.0%
</TABLE>

Had compensation cost for Net.B@nk's stock options granted been determined
based on the fair value at the grant dates for awards under the plan consistent
with a method prescribed in SFAS 123 utilizing the assumptions described above,
Net.B@nk's net income (loss) and net income (loss) per common share and
potential dilutive common share for the period from February 20, 1996 to

F-20
<PAGE>
NET.B@NK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

15. STOCK OPTIONS (CONTINUED)
December 31, 1996, and the years ended December 31, 1997 and 1998, would have
changed to the proforma amounts indicated below:

<TABLE>
<CAPTION>
PERIOD FROM
FEBRUARY 20,
1996
TO YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1996 1997 1998
------------- ---------------- -------------
<S> <C> <C> <C>
Net income (loss):
As reported...................................................... $ (3,839,182) $ (5,577,439) $ 4,464,012
------------- ---------------- -------------
------------- ---------------- -------------
Pro forma........................................................ $ (4,012,534) $ (5,504,245) $ 3,959,813
------------- ---------------- -------------
------------- ---------------- -------------
Net income (loss) per share:
As reported:
Basic............................................................ $ (1.44) $ (0.55) $ 0.24
------------- ---------------- -------------
------------- ---------------- -------------
Diluted.......................................................... $ (1.44) $ (0.55) $ 0.23
------------- ---------------- -------------
------------- ---------------- -------------
Pro forma:
Basic............................................................ $ (1.51) $ (0.55) $ 0.21
------------- ---------------- -------------
------------- ---------------- -------------
Diluted.......................................................... $ (1.51) $ (0.55) $ 0.21
------------- ---------------- -------------
------------- ---------------- -------------
</TABLE>

16. EARNINGS PER SHARE

Basic and diluted net income (loss) per common and potential common share
have been calculated based on the weighted average number of shares outstanding
in accordance with SFAS 128. In accordance with SFAS 128, the following schedule
reconciles the numerators and denominators of the basic and diluted net income
per common and potential common share. The only periods presented relate to
those with net income as diluted securities would be anti-dilutive to periods
with a net loss. Net.B@nk had options to purchase common stock outstanding of
49,686 and 1,099,368 at December 31, 1996 and 1997, respectively.

<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31, 1998
----------------------------------------
<S> <C> <C> <C>
INCOME SHARES PER SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------ ------------- -----------
Net income............................................................... $ 4,464,012
Basic EPS................................................................ 4,464,012 18,446,652 $ 0.24
-----
-----
Effect of Dilutive Securities-Options to purchase common shares.......... 704,466
------------ -------------
Diluted EPS.............................................................. $ 4,464,012 19,151,118 $ 0.23
------------ ------------- -----
------------ ------------- -----
</TABLE>

F-21
<PAGE>
NET.B@NK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

17. CAPITAL ADEQUACY

Net.B@nk is subject to various regulatory capital requirements administered
by the federal banking agencies. Failure of Net.B@nk to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on Net.B@nk's consolidated financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
Net.B@nk must meet specific capital guidelines that involve quantitative
measures of Net.B@nk's assets, liabilities, and certain off-balance-sheet items
as calculated under regulatory accounting practices. Net.B@nk's capital amounts
and classifications are also subject to qualitative judgments by the regulators
about components, risk weightings, and other factors. In addition, under
regulatory guidelines, Net.B@nk may not pay a dividend to Net.B@nk, Inc. if
doing so would cause Net.B@nk to be less than adequately capitalized, as defined
below.

Quantitative measures established by regulation to ensure capital adequacy
require Net.B@nk to maintain minimum amounts and ratios set forth in the table
below. Net.B@nk's regulatory agency, the OTS, requires Net.B@nk to maintain
minimum ratios of tangible capital to tangible assets of 1.5%, core capital to
tangible assets of 3.0%, and total risk-based capital to risk-weighted assets of
8.0%. Management believes, as of December 31, 1998, that Net.B@nk meets all the
capital adequacy requirements to which it is subject.

As of December 31, 1998, the most recent notification from the OTS
categorized Net.B@nk as well capitalized under the regulatory framework for
prompt corrective action. To be well capitalized Net.B@nk must maintain minimum
total risk-based, Tier I risk-based, and Tier I leverage ratios as set forth in
the table. There are no conditions or events since that notification that
management believes would have changed the institution's category.

Net.B@nk's actual capital amounts and ratios as of December 31, 1997 and
1998, are as follows (dollars in thousands):

<TABLE>
<CAPTION>
TO BE
CATEGORIZED
AS WELL
CAPITALIZED
FOR CAPITAL UNDER PROMPT
ADEQUACY PURPOSES CORRECTIVE
ACTUAL ACTION PLAN
-------------------- -------------------- --------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>

DECEMBER 31, 1997
Total capital (to risk-weighted assets)..................... $ 23,652 47.8% $ 3,956 8.0% $ 4,948 10.0%
Core capital (to tangible assets)........................... 23,735 28.3% 2,517 3.0% 4,196 5.0%
Tangible capital (to tangible assets)....................... 23,735 28.3% 1,259 1.5% N/A N/A
Tier I capital (to risk-weighted assets).................... 23,735 48.0% N/A N/A 2,969 6.0%
DECEMBER 31, 1998
Total capital (to risk-weighted assets)..................... $ 38,297 15.36% $ 19,947 8.0% $ 24,934 10.0%
Core capital (to tangible assets)........................... 35,996 9.31% 11,595 3.0% 19,325 5.0%
Tangible capital (to tangible assets)....................... 35,996 9.31% 5,798 1.5% N/A N/A
Tier I capital (to risk-weighted assets).................... 35,996 14.44% N/A N/A 14,960 6.0%
</TABLE>

As of March 31, 1999, Net.Bank had total, core, tangible and tier I capital
ratios of 35.81%, 24.64%, 24.64% and 35.24%, respectively.

F-22
<PAGE>
NET.B@NK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

18. COMMITMENTS AND CONTINGENCIES

As of December 31, 1998, Net.B@nk was a party to a three year agreement with
BISYS Corporation ("BISYS") who provides Net.B@nk with core bank processing
services. Net.B@nk also receives professional programming services from Edify
Corporation, item processing services from Intercept (formerly NOVA Financial
Corporation), and electronic bill payment processing services from CheckFree
Corporation. Under the terms of the agreements, Net.B@nk pays ongoing monthly
payments for customer support and processing services.

During the three months ended March 31, 1999, Net.B@nk entered into an
agreement effective June 1, 1999 and extending to May 31, 2004 with an unrelated
third party to act as a loan originator and servicer on behalf of Net.B@nk.
Under the terms of the agreement, loans originated through Net.B@nk's website
which meet Net.B@nk's pre-established credit criteria will be retained by
Net.B@nk with the third party receiving a portion of the origination fee charged
to the customer. Loans which do not meet Net.B@nk's pre-established credit
criteria may be retained by the third party, who in turn will pay Net.B@nk a
flat fee per loan originated. The third party will also perform servicing on
Net.B@nk's portfolio for a monthly fee. In addition, Net.B@nk will also pay the
third party a $300,000 setup fee for reimbursement of out-of-pocket expenses
incurred by the third party in conjunction with certain setup services, as
defined in the agreement.

19. RELATED PARTY TRANSACTIONS

TRANSACTIONS WITH CFB--Certain of Net.B@nk's cash accounts and time deposits
were on deposit with CFB until July 31, 1997. Net.B@nk received $7,709 and $0 in
interest income related to these accounts during the period from February 20,
1996 to December 31, 1996 and the year ended December 31, 1997, respectively.
For the period from February 20, 1996 to December 31, 1996, Net.B@nk received
$60,000 in management fees from CFB. Net.B@nk expensed $883,606, $1,217,459, and
$0 for the period from February 20, 1996 (date of incorporation) to December 31,
1996, and for the years ended December 31, 1997 and 1998, respectively, for fees
paid to CFB for various advisory, consulting, custodial services, and net
interest expense. Net.B@nk recorded $31,232 in consulting expense and
contributed capital for consulting services contributed by CFB during the period
from February 20, 1996 to December 31, 1996. In addition, during the year ended
December 31, 1997, Net.B@nk purchased $36.8 million in loans from CFB. The
purchase price included a premium of $808,832. CFB continues to service these
loans for a fee ranging from .375% to 2% of the loan balance. During the year
ended December 31, 1998, Net.B@nk was included in a loan participation with CFB
in the amount of $246,600. This loan is serviced by CFB.

OTHER TRANSACTIONS--Net.B@nk paid $67,032, $104,958, and $60,000 for the
period from February 20, 1996 (date of incorporation) to December 31, 1996, and
for the years ended December 31, 1997 and 1998, respectively, in consulting fees
to a director. In addition, Net.B@nk expensed $278,418 and $246,265 for amounts
paid to a company owned by the Chairman of the Board of Net.B@nk for accounting
and management services provided to Net.B@nk during the period from February 20,
1996 to December 31, 1996 and for the year ended December 31, 1997,
respectively.

20. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS 107, DISCLOSURES
ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS. The estimated fair value amounts have
been determined by Net.B@nk using available market information and

F-23
<PAGE>
NET.B@NK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

20. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)
appropriate valuation methodologies. However, considerable judgment is
necessarily required to interpret market data to develop the estimates of fair
value. Accordingly, the estimates presented herein are not necessarily
indicative of the amounts Net.B@nk could realize in a current market exchange.
The use of different market assumptions and/or estimation methodologies may have
a material effect on the estimated fair value amounts.

<TABLE>
<CAPTION>
DECEMBER 31, 1997
--------------------
CARRYING FAIR
AMOUNT VALUE
--------- ---------
<S> <C> <C>
Assets:
Cash............................................................... $ 250,535 $ 250,535
Federal funds sold................................................. 28,853,057 28,853,057
Securities available for sale...................................... 18,054,146 18,054,146
Loans.............................................................. 44,933,407 46,109,296
Liabilities:
Noninterest bearing deposits....................................... 293,054 293,054
Interest bearing deposits--certificates of deposit................. 20,325,459 20,478,013
Interest bearing deposits--other................................... 38,108,250 38,108,250
</TABLE>

<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------
CARRYING FAIR
AMOUNT VALUE
---------- ----------
<S> <C> <C>
Assets:
Cash............................................................. $ 446,940 $ 446,940
Federal funds sold............................................... 12,013,243 12,013,243
Securities available for sale.................................... 59,465,062 59,465,062
Loans............................................................ 280,427,603 278,607,376
Loan sale proceeds receivable.................................... 23,202,679 23,202,679
Liabilities:
Noninterest bearing deposits..................................... 9,285,540 9,285,540
Interest bearing deposits--certificates of deposit............... 202,887,027 203,292,801
Interest bearing deposits--other................................. 71,416,584 71,416,584
Other borrowed funds............................................. 60,000,000 59,924,400
</TABLE>

The carrying amounts of cash and due from banks and federal funds sold are a
reasonable estimate of their fair value due to the short-term nature of these
financial instruments. The fair value of investment securities and loans is
based on quoted market prices and dealer quotes. The fair value of time deposits
and other borrowed funds is estimated by discounting the future cash flows using
Net.B@nk's current interest rates for such financial instruments.

As required by SFAS 107, demand deposits are shown at their face value. No
additional value has been ascribed to core deposits, which generally bear a low
rate of or no interest and do not fluctuate in response to changes in interest
rates.

F-24
<PAGE>
NET.B@NK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

20. FAIR VALUE OF FINANCIAL INSTRUMENTS (CONTINUED)

The fair value estimates presented herein are based on pertinent information
available to management at December 31, 1998 and 1997. Although management is
not aware of any factors that would significantly affect the estimated fair
value amounts, such amounts have not been comprehensively revalued for purposes
of these financial statements since that date and, therefore, current estimates
of fair value may differ significantly from the amounts presented herein.

21. CONDENSED FINANCIAL STATEMENTS OF NET.B@NK, INC. (PARENT ONLY)

As of December 31, 1996, Net.B@nk was not a subsidiary of Net.B@nk, Inc.
Therefore, Net.B@nk, Inc.'s financial statements as of December 31, 1996 include
only parent company amounts.

The condensed balance sheets of Net.B@nk, Inc. (parent only) as of December
31, 1997 and 1998 follow:

<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
CONDENSED BALANCE SHEET 1997 1998
------------- -------------
<S> <C> <C>
Assets:
Cash........................................................................... $ 10,122,666 $ 44,398
Investment in subsidiary....................................................... 23,734,818 38,426,644
Other assets................................................................... 269,357 283,846
------------- -------------
Total assets............................................................... $ 34,126,841 $ 38,754,888
------------- -------------
------------- -------------

Liabilities........................................................................ $ 9,444 $ --

Shareholders' equity:
Common stock................................................................... 61,456 61,568
Additional paid-in capital..................................................... 43,631,314 43,671,732
Unamortized stock plan expense................................................. (75,689) (24,279)
Accumulated deficit............................................................ (9,416,621) (4,952,609)
Accumulated other comprehensive loss, net of tax............................... (83,063) (1,524)
------------- -------------
Total shareholders' equity................................................. 34,117,397 38,754,888
------------- -------------
$ 34,126,841 $ 38,754,888
------------- -------------
------------- -------------
</TABLE>

F-25
<PAGE>
NET.B@NK, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)

21. CONDENSED FINANCIAL STATEMENTS OF NET.B@NK, INC. (PARENT ONLY) (CONTINUED)
The condensed statements of operations and comprehensive income and cash
flows for years ended December 31, 1997 and 1998 follow:

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
CONDENSED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) 1997 1998
------------- -------------
<S> <C> <C>
Net interest income................................................................. $ 87,984 $ 162,006
Expenses............................................................................ (4,150,859) (58,281)
------------- -------------
Income (loss) before income (loss) of subsidiary.................................... (4,062,875) 103,725
Income (loss) of subsidiary......................................................... (1,514,564) 4,360,287
------------- -------------
Net income (loss)................................................................... $ (5,577,439) $ 4,464,012
------------- -------------
Other comprehensive income (loss) of subsidiary..................................... (83,063) 81,539
------------- -------------
Comprehensive income (loss)......................................................... $ (5,660,502) $ 4,545,551
------------- -------------
------------- -------------
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
CONDENSED STATEMENT OF CASH FLOWS 1997 1998
------------- -------------
<S> <C> <C>
Operating activities:
Net income (loss)............................................................... $ (5,577,439) $ 4,464,012
Adjustments to reconcile net income (loss) to net cash used by operating
activities:
Amortization.................................................................... 1,783,266 51,410
(Income) loss of subsidiary..................................................... 1,514,564 (4,360,287)
Changes in assets and liabilities:
(Increase) decrease in other assets............................................. 125,363 (14,489)
Decrease in other liabilities................................................... (1,623,078) (9,444)
------------- -------------
Net cash used by operating activities....................................... (3,777,324) 131,202
Investing activities--investment in subsidiary...................................... (25,249,381) (10,250,000)
Financing activities--net proceeds from sale of stock............................... 38,380,705 40,530
------------- -------------
(Decrease) increase in cash and cash equivalents.................................... 9,354,000 (10,078,268)
Cash:
Beginning of year............................................................... 768,666 10,122,666
------------- -------------
End of year..................................................................... $ 10,122,666 $ 44,398
------------- -------------
------------- -------------
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest.................................................................... $ 163,479 $ 23,111
------------- -------------
------------- -------------
Income taxes................................................................ $ -- $ 30,000
------------- -------------
------------- -------------
</TABLE>

F-26
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------

PROSPECTIVE INVESTORS MAY RELY ONLY ON THE INFORMATION CONTAINED IN THIS
PROSPECTUS. NEITHER NET.B@NK, INC. NOR ANY UNDERWRITER HAS AUTHORIZED ANYONE TO
PROVIDE PROSPECTIVE INVESTORS WITH DIFFERENT OR ADDITIONAL INFORMATION. THIS
PROSPECTUS IS NOT AN OFFER TO SELL NOR IS IT SEEKING AN OFFER TO BUY THESE
SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT PERMITTED. THE
INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT ONLY AS OF THE DATE OF THIS
PROSPECTUS, REGARDLESS OF THE TIME OF THE DELIVERY OF THIS PROSPECTUS OR ANY
SALE OF THESE SECURITIES.

NO ACTION IS BEING TAKEN IN ANY JURISDICTION OUTSIDE THE UNITED STATES TO PERMIT
A PUBLIC OFFERING OF THE COMMON STOCK OR POSSESSION OR DISTRIBUTION OF THIS
PROSPECTUS IN ANY SUCH JURISDICTION. PERSONS WHO COME INTO POSSESSION OF THIS
PROSPECTUS IN JURISDICTIONS OUTSIDE THE UNITED STATES AND CANADA ARE REQUIRED TO
INFORM THEMSELVES ABOUT AND TO OBSERVE THE RESTRICTIONS OF THAT JURISDICTION
RELATED TO THIS OFFERING AND THE DISTRIBUTION OF THIS PROSPECTUS.

-----------------------

TABLE OF CONTENTS

-----------------------

<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 7
Cautionary Statement Regarding
Forward-Looking Statements.............................................. 14
Use of Proceeds........................................................... 15
Capitalization............................................................ 16
Price Range of Common Stock............................................... 17
Dividend Policy........................................................... 17
Selected Consolidated Financial Data...................................... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................................................. 19
Business.................................................................. 39
Management................................................................ 62
Relationship with Carolina First Corporation.............................. 64
Principal Shareholders.................................................... 65
Description of Capital Stock.............................................. 66
Underwriting.............................................................. 69
Legal Matters............................................................. 71
Experts................................................................... 71
Where You Can Find More Information About Net.B@nk........................ 72
Index to Consolidated Financial Statements................................ F-1
</TABLE>

3,000,000 SHARES

NET.B@NK, INC.

[LOGO]

COMMON STOCK

--------------

PROSPECTUS

--------------

BEAR, STEARNS & CO. INC.

BANCBOSTON ROBERTSON STEPHENS

RAYMOND JAMES &
ASSOCIATES, INC.

KELTON INTERNATIONAL LTD.

JUNE 3, 1999

- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------