<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
[X] Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1999
------------------
[ ] Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from to
--------------- ----------------
Commission File No. 333-41545
ebank.com, Inc.
- --------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
Georgia 58-2349097
------- ----------
(State of Incorporation) (I.R.S. Employer Identification No.)
2410 Paces Ferry Road, Atlanta, Georgia 30339
---------------------------------------------
(Address of Principal Executive Offices)
(770) 863-9229
--------------
(Issuer's Telephone Number, Including Area Code)
Not Applicable
--------------
(Former Name, Former Address and Former Fiscal Year, if Changed Since
Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes [X]
No [ ]
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
1,469,250 shares of common stock, par value $.01 per share, were issued
and outstanding as of November 1, 1999.
Transitional Small Business Disclosure Format (check one): Yes [ ]
No [X]
<PAGE> 2
EBANK.COM, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
(UNAUDITED) (AUDITED)
----------- ---------
<S> <C> <C>
Cash and due from banks $ 1,479,268 $ 603,677
Federal funds sold 2,780,000 9,320,000
Investment securities available for sale 7,446,377 3,986,491
Other securities 63,000 25,500
Loans, net of allowance for loan losses of $411,000, and
$165,000, respectively 40,816,912 10,240,557
Premises and equipment, net 1,256,063 865,587
Accrued interest receivable 195,958 49,740
Investment in joint venture -- 162,091
Other assets 586,294 246,193
------------ ------------
Total assets $ 54,623,872 $ 25,499,836
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 43,374,441 $ 12,801,123
Accrued interest payable 69,685 26,552
Other liabilities 102,988 51,413
------------ ------------
Total liabilities $ 43,547,114 $ 12,879,088
------------ ------------
SHAREHOLDERS' EQUITY
Common stock, $.01 par value, 10,000,000 shares authorized,
1,469,250 shares issued and outstanding $ 14,693 $ 14,693
Surplus 13,722,072 13,722,072
Accumulated deficit (2,650,777) (1,115,778)
Accumulated other comprehensive income (loss) (9,230) (239)
------------ ------------
Total shareholders' equity 11,076,758 12,620,748
------------ ------------
Total liabilities and shareholders' equity $ 54,623,872 $ 25,499,836
============ ============
</TABLE>
The accompanying notes are an integral part of these
financial statements
2
<PAGE> 3
EBANK.COM, INC.
CONSOLIDATED STATEMENTS OF LOSS
FOR THE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE FOR THE THREE FOR THE NINE FOR THE NINE
MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
------------- ------------- ------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income
Loans, including fees ..................... $ 838,288 $ 38,958 $ 1,796,173 $ 38,958
Investment securities:
U.S. Government agencies and
corporations .......................... 98,986 1,077 192,835 1,077
Other investments ......................... 1,800 162 3,650 162
Federal funds sold ........................ 74,682 176,821 261,129 218,562
----------- --------- ----------- ---------
Total interest income ..................... 1,013,756 217,018 2,253,787 258,759
----------- --------- ----------- ---------
Interest expense
Interest bearing demand and money market .. 286,216 2,791 525,626 2,791
Savings ................................... 177 1 415 1
Time deposits of $100,000 or more ......... 71,419 1,758 179,534 1,758
Other time deposits ....................... 91,177 1,825 227,425 1,825
Other borrowings .......................... 2,023 -- 10,777 12,113
----------- --------- ----------- ---------
Total interest expense .................... 451,012 6,375 943,777 18,488
----------- --------- ----------- ---------
Net interest income ................................ 562,744 210,643 1,310,010 240,271
Provision for possible loan losses ................. 98,000 45,000 246,000 45,000
----------- --------- ----------- ---------
Net interest income after provision
for possible loan losses .................. 464,744 165,643 1,064,010 195,271
----------- --------- ----------- ---------
Other income .............................. 37,922 -- 194,938 --
----------- --------- ----------- ---------
Total other income ........................ 37,922 -- 194,938 --
----------- --------- ----------- ---------
Other expense
Salaries and other compensation ........... 399,705 193,086 1,030,166 318,423
Employee benefits ......................... 108,638 43,672 256,742 61,729
Net occupancy and equipment expense ....... 162,727 50,491 417,315 58,477
Professional and other outside services ... 382,962 57,980 680,598 130,318
Other expense ............................. 270,881 49,685 409,126 155,100
----------- --------- ----------- ---------
Total other expenses ...................... 1,324,913 394,914 2,793,947 724,047
----------- --------- ----------- ---------
Loss before income tax benefit ..................... (822,247) (252,108) (1,534,999) (551,613)
Income tax benefit ................................. -- -- -- --
----------- --------- ----------- ---------
Net loss .................................. $ (822,247) $(252,108) $(1,534,999) $(551,613)
=========== ========= =========== =========
Basic and diluted loss per common share ............ $ (.56) $ (.17) $ (1.04) $ (.38)
</TABLE>
The accompanying notes are an integral part of these
financial statements.
3
<PAGE> 4
EBANK.COM, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
FOR THE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended Nine months ended
------------------ -----------------
September 30, September 30,
------------- -------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net loss $ (822,247) $ (252,108) $ (1,534,999) (551,613)
------------ ------------ ------------- ----------
Other comprehensive loss, net of tax:
Unrealized loss on securities
Available for sale (4,855) (675) (8,992) (675)
------------ ------------ ------------- ----------
Comprehensive loss $ (827,102) $ (252,783) $ (1,543,991) $ (552,288)
------------ ------------ ------------- ----------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
4
<PAGE> 5
EBANK.COM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
For the nine months ended
September 30,
---------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES 1999 1998
------------ ------------
<S> <C> <C>
Net loss $ (1,534,999) $ (551,613)
Adjustment to reconcile net loss to net cash used
by operating activities:
Net accretion of investment securities (202,901) (1,077)
Depreciation and amortization of premises and equipment 163,496 21,890
Provision for possible loan losses 246,000 45,000
Loss on joint venture 162,091 22,837
Amortization of organizational costs -- 84,926
Increase in other assets (340,101) (103,076)
Increase in accrued interest receivable (146,218) (11,917)
Increase in accrued interest payable 43,134 3,049
Increase in other liabilities 51,574 160,848
------------ ------------
Net cash used by operating activities (1,557,924) (329,133)
------------ ------------
Cash flows from investing activities:
Purchase of investment securities available for sale and other
investments (22,303,476) (4,011,997)
Maturities of investment securities available for sale 19,000,000 --
Loans originated, net of principal repayments (30,822,355) (4,529,612)
Purchases of premises and equipment (553,972) (780,337)
Investment in joint venture -- (250,000)
------------ ------------
Net cash used by investing activities (34,679,803) (9,571,946)
------------ ------------
Cash flows from financing activities:
Proceeds from loans -- 272,000
Repayment of loans -- (442,000)
Proceeds from sale of common stock -- 14,692,794
Costs associated with stock issuance -- 956,129)
Net increase in deposits 30,573,318 4,159,389
------------ ------------
Net cash provided from financing activities 30,573,318 17,726,054
------------ ------------
Net increase (decrease) in cash and cash equivalents (5,664,409) 7,824,975
Cash and Cash Equivalents:
Beginning of period 9,923,677 0
------------ ------------
End of period $ 4,259,268 $ 7,824,975
------------ ------------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
5
<PAGE> 6
EBANK.COM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310 (b)
of Regulation S-B. Accordingly, they do not include all the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three-month period ended September 30,
1999 are not necessarily indicative of the results that may be expected for the
year ending December 31, 1999. For further information, refer to the Company's
consolidated financial statements and footnotes included in the Company's annual
report on Form 10-KSB.
Under the name Southeast Commerce Holding Company, the Company was
incorporated under the laws of the State of Georgia on August 22, 1997, for the
purpose of becoming a bank holding company for a federal savings bank, Commerce
Bank (the "Bank"). On April 21, 1998, the Company commenced an initial public
offering of its common stock at $10.00 per share. Total proceeds at the close of
the offering in July 1998 totaled $13,736,665, net of selling expenses. The
Company injected $8.50 million into the Bank's capital accounts upon opening on
August 17, 1998. In the second quarter of 1999, the Company changed its name to
ebank.com, Inc.
Basis of Presentation and Reclassification. The consolidated financial
statements include the accounts of the Company, the Bank, and Commerce Mortgage
Company, LLC. All significant intercompany accounts and transactions have been
eliminated in consolidation. Certain prior year amounts have been reclassified
to conform with the current year's presentation.
NOTE 2 - SHARES USED IN COMPUTING NET LOSS PER SHARE
Basic and diluted loss per share are based on 1,469,250 weighted average shares
outstanding for the quarter ended September 30, 1999. There were 193,725
potential weighted common shares outstanding at September 30, 1999, related to
common stock options. These shares were not included in the computation of the
diluted loss per share amount because the Company was in a net loss position
and, thus, any potential common shares were anti-dilutive.
NOTE 3 - NEW ACCOUNTING PRONOUNCEMENTS
SEGMENT REPORTING
Effective December 31, 1998, the Company adopted Statement of Financial
Accounting Standards No. 131 (SFAS 131), "Disclosures about Segments of an
Enterprise and Related Information." SFAS 131 establishes standards for the
disclosure of segment information about services, geographic areas, and major
customers. The Company acts as an independent community financial services
provider and offers traditional banking services to individual, commercial, and
government customers. Because management of the Company views and operates the
Bank as one versus multiple segments, no segmentation of bank operations between
services, types of customers, and market areas is provided.
6
<PAGE> 7
ACCOUNTING PRONOUNCEMENT AFFECTING FUTURE PERIODS
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standards No. 133 (SFAS 133) "Accounting for Derivative Instruments
and Hedging Activities." SFAS 133 is effective for fiscal years beginning after
June 15, 2000. Under SFAS 133, a company will recognize all free-standing
derivative instruments in the statement of financial position as either assets
or liabilities and will measure them at fair value. The difference between a
derivative's previous carrying amount and its fair value shall be reported as a
transition adjustment presented in net income or other comprehensive income, as
appropriate, in a manner similar to the cumulative effect of a change in
accounting principle. This statement also determines the accounting for the
changes in fair value of a derivative, depending on the intended use of the
derivative and resulting designation. The adoption of SFAS 133 is not expected
to have a significant impact on the consolidated financial condition or results
of operations of the Company.
NOTE 4 - ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive loss is as follows:
<TABLE>
<CAPTION>
Unrealized
Gains (Losses)
On Securities
-------------
<S> <C>
Beginning balance - June 30, 1999 $ (4,375)
Current - period change $8,092, net of tax
of $(3,237) (4,855)
-------------
Ending balance - September 30, 1999 $ (9,230)
-------------
</TABLE>
7
<PAGE> 8
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
The following discussion contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995, such as
statements relating to financial results and plans for future business
development activities, and are thus prospective. Such forward-looking
statements are subject to risks, uncertainties, and other factors which could
cause actual results to differ materially from future results expressed or
implied by such forward-looking statements. These statements appear in a number
of places in this report and include all statements that are not statements of
historical fact regarding our intent, belief, or expectations. These
forward-looking statements are not guarantees of future performance and actual
results may differ materially from those projected in the forward-looking
statements. Potential risks and uncertainties include, but are not limited to,
our brief operating history and historically low trading volume, our ability to
manage rapid growth and changing operations, including in connection with our
new Internet strategy, the reliability of technologies that we use, our ability
to develop successful Internet products and respond to technological advances
and evolving industry standards and practices, our ability to create brand
awareness and implement strategic business affiliations, the risk that other
companies may succeed in claiming trademark rights in the name "ebank.com"
greater than ours and that we may be required to pay damages relating to our use
of the name, general economic conditions, competition, interest rate
sensitivity, and exposure to regulatory and legislative changes. Additional
risks are discussed in detail in this and our other filings with the Securities
and Exchange Commission, including the "Risk Factors" section in our
Registration Statement on Form SB-2 (Registration Number 333-41545) as filed
with and declared effective by the Securities and Exchange Commission.
The Company was organized on August 22, 1997. The Company's initial
activities related to its organization, the conducting of its initial public
offering, the pursuit of approvals from the Office of Thrift Supervision (the
"OTS") for its application to charter its subsidiary bank, Commerce Bank, and
the pursuit of approvals from the Federal Deposit Insurance Corporation (the
"FDIC") for its application for insurance of the deposits of the Bank. On May
21, 1998, the Company received preliminary approval from the OTS to charter the
Bank, and the Bank opened for business on August 17, 1998.
Initially, we operated Commerce Bank as a traditional community bank,
emphasizing personalized service and the banking needs of individuals and small-
to medium-sized businesses. From the outset, however, we intended to enhance our
delivery of these services through the use of state-of-the-art technology.
Shortly after we opened the bank, we began developing plans to offer Internet
banking services, and we received regulatory approval to offer these services in
December 1998. In March 1999, we hired William W. Klenk as our vice president of
Internet banking services and announced our plans to launch our new Internet
banking services by the end of the second quarter of 1999.
We also acquired the Internet domain name ebank.com and
changed our corporate name to ebank.com, Inc. effective April 20, 1999. We
launched our Internet banking services on June 30, 1999. During the first half
of 1999, we also began to develop a new business strategy, which continues our
focus on small businesses but incorporates our Internet operations and a limited
number of loan production offices, or ebank.com centers. Under the terms of our
charter, we cannot make any material change in the bank's business plan without
the prior approval of the OTS. Although we submitted a draft of our new business
plan for OTS review in June 1999, the OTS concluded that the steps we took to
develop our new strategy prior to this date, including discussions of our new
strategy with the press, constituted material changes from our original business
plan. As a result, the OTS assessed a civil money penalty of $100,000 against
us. The OTS also informed us that it would not approve our revised business plan
until we either paid the penalty or otherwise resolved the issue. We
8
<PAGE> 9
recognized the importance of resolving this issue quickly, and therefore, while
we neither admitted nor denied the OTS's claims, we consented to the issuance of
the civil money penalty and paid this penalty in September 1999. On October 26,
1999, we received approval of our new business plan, subject to compliance with
certain conditions imposed by the OTS. We are now beginning the process of
implementing our new business strategy.
During the first three years of operation, we must also notify the OTS
prior to commencing any new activities at the holding company, and we may not
commence these activities until we receive notice from the OTS that it does not
object. We are in the process of developing a consolidated business plan for the
Company, including activities of the holding company. The approval process takes
time. Although we expect to receive approval for our revised plan for the
holding company, there is always a risk that we may not receive this approval.
As described below, we have grown rapidly since we opened in August
1998. We also expect to grow even more rapidly now since we commenced our
Internet operations on June 30, 1999. However, the following discussion only
reflects our growth through September 30, 1999, before the full implementation
of our Internet strategy. In addition, because we did not commence operations
until August 17, 1998, comparative information for the third quarter of 1998
would not be meaningful and we have omitted it from the following discussion.
The following discussion should be read with these points in mind. The following
discussion should also be read in conjunction with our financial statements and
the other financial data included in this Form 10-QSB.
Financial Condition
Total consolidated assets increased by $29,124,036 to $54,623,872
during the nine-month period ended September 30, 1999. The increase was
generated primarily through a net increase in deposits of $30,573,318.
At September 30, 1999, the Company's assets consisted primarily of
federal funds sold of $2,780,000, investments of $7,509,377, net loans of
$40,816,912, property, at cost less accumulated depreciation, of $1,256,063,
cash and cash equivalents of $1,479,268, and other assets totaling $782,252. The
Company's liabilities at September 30, 1999, were $43,547,114, consisting of
deposits of $43,374,441 and accrued expenses and other liabilities of $172,673.
The Company's shareholders' equity of totaled $11,076,758 at September 30, 1999.
Results of Operations
From the Bank's opening date on August 17, 1998 through June 30, 1999,
the Bank has attracted $43.4 million in deposits and made net loans of $40.8
million. Net interest income for the three-month period ending September 30,
1999 totaled $464,744, after a provision for loan losses of $98,000, compared to
net interest income of $387,275 after a provision for loan losses of $58,000 for
the three-month period ending June 30, 1999. This increase in net interest
income in the 3rd quarter over the 2nd quarter is primarily due to an increase
in earning assets, including increased average loans and investment securities
of $9.2 million and $3.9 million respectively.
Operating expenses for the three-month period ending September 30, 1999
totaled $1,324,913, including salaries and other compensation of $399,705,
employee benefits expenses of $108,638, occupancy and equipment expenses of
$162,727, professional and other outside services of $382,962, and other
expenses of $270,881. Operating expense for the three-month period ending June
30, 1999 totaled $740,351. The significant increases in operating expenses in
the three-month period ending September 30, 1999 over the prior quarter include
additional staffing and occupancy expenses to support the continued growth of
the Company, professional expenses to promote the Company's services, and the
civil money penalty imposed by the OTS, which the Company recognized in the
quarter ending September 30, 1999.
9
<PAGE> 10
The Company had a net loss of $822,247 for the three-month period
ending September 30, 1999, compared to a net loss of $414,326 for the
three-month period ending June 30, 1999.
During the third quarter of 1999, the Company achieved a majority
ownership interest in Commerce Mortgage Company, LLC. As a result, the Company
recognized in the third quarter a loss of $87,925 which represented the LLC's
other partners' portion of the 1998 loss. The balance sheet at September 30,
1999 and the income statement for the three-month and nine-month periods ending
September 30,1999 include the results of Commerce Mortgage Company, LLC.
There are risks inherent in making all loans, including risks with
respect to the period of time over which loans may be repaid, risks resulting
from changes in economic and industry conditions, risks inherent in dealing with
individual borrowers, and, in the case of a collateralized loan, risks resulting
from uncertainties about the future value of the collateral. To address these
risks, we have developed policies and procedures to evaluate the overall quality
of our credit portfolio and the timely identification of potential problem
loans. We maintain an allowance for possible loan losses which we establish
through charges in the form of a provision for loan losses. We charge loan
losses and credit recoveries directly to this allowance.
We attempt to maintain the allowance at a level that will be adequate
to provide for potential losses in our loan portfolio. To maintain the allowance
at an adequate level, we periodically make additions to the allowance by
charging an expense to the provision for loan losses on our statement of
operations. We currently evaluate the allowance for loan losses on an overall
portfolio basis, but we intend to begin allocating the allowance to loan
categories once the loan portfolio becomes large and diversified enough to
support such an allocation system. We consider a number of factors in
determining the level of this allowance, including our total amount of
outstanding loans, our amount of past due loans, our historic loan loss
experience, general economic conditions, and our assessment of potential losses.
Our evaluation is inherently subjective as it requires estimates that are
susceptible to significant change. Our losses will undoubtedly vary from our
estimates, and there is a possibility that charge-offs in future periods will
exceed the allowance for loan losses as estimated at any point in time.
At December 31, 1998, the allowance for loan losses amounted to
$165,000. By September 30, 1999, the allowance had grown to $411,000. The
allowance for loan losses, as a percentage of total gross loans, decreased from
1.04% to 1.00% during the three-month period ended September 30, 1999. We had
one non-performing loan totalling $92,672 at September 30, 1999 and had no
charge-offs for the three-month period ending September 30, 1999.
Net Interest Income
Net interest income represents the difference between interest received
on interest earning assets and interest paid on interest bearing liabilities.
The following represents, in a tabular form, the main components of interest
earning assets and interest-bearing liabilities for the three months ended
September 30, 1999.
10
<PAGE> 11
<TABLE>
<CAPTION>
Interest Interest
Earning Assets/ Average Income/ Yield/
Bearing Liabilities Balance Cost Cost
------------------- ------- ---- ----
<S> <C> <C> <C>
Federal funds sold $ 6,399,130 74,682 4.63%
Investment securities 7,921,240 100,786 5.05%
Loans 34,499,823 838,288 9.64%
----------- --------- -------
Total $48,820,193 1,013,756 8.24%
=========== ========= =======
Deposits $38,422,264 451,012 4.66%
----------- --------- -------
Net interest income 562,744 3.58%
--------- -------
Net yield on earning assets 4.57%
------
Other Income
</TABLE>
Other income for the three-month period ended September 30, 1999
totaled $37,922, including $32,641 in mortgage loan origination fee income and
$5,281 in deposit service charges. On an annualized basis, this represents less
than .28% of total assets. This figure is relatively low because in order to
attract new banking relationships, the Bank's fee structure and charges are low
when compared to other banks. The above fees and charges may increase in the
future.
Other Expenses
Operating expenses for the three-month period ended September 30, 1999
amounted to $1,324,913. On an annualized basis, this represents 9.0% of total
assets.
Liquidity and Sources of Capital
Liquidity is the Company's ability to meet all deposit withdrawals
immediately, while also providing for the credit needs of customers. The
September 30, 1999 financial statements evidence a satisfactory liquidity
position as total cash, cash equivalents, and federal funds sold amounted to
approximately $4.3 million, representing 8% of total assets. Investment
securities available for sale amounted to $7.4 million, representing 13.6% of
total assets. These securities are pledged for deposits payable to governmental
authorities. Note that the Company's ability to maintain and expand its deposit
base and borrowing capabilities are a source of liquidity. For the three-month
period ended September 30, 1999, total deposits increased from $31.0 million to
$43.4 million, representing an increase of 40%. The Company closely monitors and
attempts to maintain appropriate levels of interest earning assets and interest
bearing liabilities so that maturities of assets are such that adequate funds
are available to meet customer withdrawals and loan demand.
The Company and the Bank maintain adequate levels of capitalization as
measured by the following capital ratios and the respective minimum capital
requirements by the OTS, the Bank's primary regulator.
11
<PAGE> 12
<TABLE>
<CAPTION>
Bank Company Minimum
Capital Capital Regulatory
Capital Ratios at September 30, 1999 Ratio Ratio Requirement
------------------------------------ ----- ----- -----------
<S> <C> <C> <C>
Tier 1 capital 16.1% 23.8% 4.0%
Tier 2 capital 0.8% 0.8%
------- ------
Total risk-based capital ratio 16.9% 24.6% 8.0%
======= ====== ======
Leverage ratio 13.7% 19.9% 4.0%
======= ====== ======
</TABLE>
The OTS has established a 3.0% minimum leverage ratio requirement. The
leverage ratio is computed by dividing Tier 1 capital into average assets. For
all except the highest rated banks, the minimum leverage ratio should be 3.0%
plus an additional cushion of at least 1 to 2 percent, depending upon risk
profiles and other factors.
Liquidity And Rate Sensitivity
Asset/liability management is the process by which the Company monitors
and controls the mix and maturities of its assets and liabilities. The essential
purposes of asset/liability management are to ensure adequate liquidity and to
maintain an appropriate balance between interest sensitive assets and
liabilities to minimize potentially adverse impacts on earnings from changes in
market interest rates.
The Company measures interest rate sensitivity as the difference
between amounts of interest-earning assets and interest-bearing liabilities
which either reprice or mature within a given period of time. The difference, or
the interest rate repricing "gap," provides an indication of 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-sensitive liabilities, and is considered
negative when the amount of interest-rate sensitive liabilities exceeds the
amount of interest-sensitive assets. Generally, during a period of rising
interest rates, a negative gap within shorter maturities would adversely affect
net interest income, while a positive gap within shorter maturities would result
in an increase in net interest income, and during a period of falling interest
rates, a negative gap within shorter maturities would result in an increase in
net interest income while a positive gap within shorter maturities would have
the opposite effect.
The table below shows the interest rate sensitivity of the Company's assets and
liabilities as of September 30, 1999:
12
<PAGE> 13
<TABLE>
<CAPTION>
After three
Within but within After one
three twelve but within After five
months months five years Years Total
---------- ----------- ---------- ---------- ----------
(Dollars in Thousands)
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Federal funds sold $ 2,780 $ -- $ -- $ -- $ 2,780
Investment securities 7,446 -- -- 63 7,509
Loans 18,515 4,169 12,505 6,039 41,228
---------- ---------- ----------- ----------- -----------
Total earning assets $ 28,741 $ 4,169 $ 12,505 $ 6,102 $ 51,517
========== ========== =========== ========== ===========
Interest-bearing liabilities:
Money market, savings and NOW $ 24,054 $ -- $ -- $ -- $ 24,054
Time deposits 5,000 9,626 435 -- 15,061
---------- ---------- ----------- ----------- -----------
Total interest-bearing liabilities $ 29,054 $ 9,626 $ 435 $ -- $ 39,115
========== ========== =========== ========== ===========
Interest-sensitivity gap $ (313) $ (5,457) $ 12,070 $ 6,102 $ 12,402
Cumulative interest-sensitivity gap $ (313) $ (5,770) $ 6,300 $ 12,402 $ 12,402
Ratio of interest-sensitivity gap to
total earning assets (0.61)% (10.59)% 23.43% 11.84%
Ratio of cumulative
interest-sensitivity gap to total
earning assets (0.61)% (11.20)% 12.23% 24.07%
</TABLE>
As evidenced by the table above, the Company is cumulatively
liability-sensitive at one year. However, the Company's gap analysis is not a
precise indicator of its interest sensitivity position. The analysis presents
only a static view of the timing of maturities and repricing opportunities,
without taking into consideration that changes in interest rates do not affect
all assets and liabilities equally. Net interest income may be impacted by other
significant factors in a given interest rate environment, including changes in
the volume and mix of earning assets and interest-bearing liabilities.
Loan Portfolio
Since loans typically provide higher interest yields than do other
types of earning assets, the Company's intent is to channel a substantial
percentage of its earning assets into the loans category. Average loans, on an
annualized basis, were $34,499,823 for the three-month period ended September
30, 1999. Total gross loans outstanding at September 30, 1999 were $41,227,912.
The following table summarizes the composition of the loan portfolio at
September 30, 1999:
13
<PAGE> 14
<TABLE>
<CAPTION>
Percent
Amount of total
------------ --------
<S> <C> <C>
Commercial $ 5,219,975 12.64%
Real estate - individual 5,450,380 13.20%
Real estate - commercial 28,470,023 68.92%
Installment loans to individuals 2,164,390 5.24%
------------ ------
Total loans 41,304,768 100.00%
Less: Net deferred loan fees (76,856) ======
Allowance for loan loss (411,000)
============
Total net loans $ 40,816,912
============
</TABLE>
The principal components of the Company's loan portfolio at September
30, 1999 were mortgage loans and commercial loans, which represented 94.76% of
the portfolio. Due to the short time the portfolio has existed, the current mix
of loans may not be indicative of the ongoing portfolio mix. The Company will
attempt to maintain a relatively diversified loan portfolio to help reduce the
risk inherent in concentration of collateral.
Other Matters
On November 4, 1999, the U.S. Senate and House of Representatives each
passed the Gramm-Leach-Bliley Act, previously known as the Financial Services
Modernization Act of 1999. The Act was signed into law by President Clinton on
November 12, 1999. Among other things, the Act repeals the restrictions on banks
affiliating with securities firms contained in sections 20 and 32 of the
Glass-Steagall Act. The Act also permits bank holding companies to engage in a
statutorily provided list of financial activities, including insurance and
securities underwriting and agency activities, merchant banking, and insurance
company portfolio investment activities. The Act also authorizes activities that
are "complementary" to financial activities.
The Act contains a number of provisions specifically applicable to
federal thrifts. For example, the Act repeals the Savings Association Insurance
Fund special reserve; modernizes the Federal Home Loan Bank System; provides
regulatory relief for community banks with satisfactory or outstanding Community
Reinvestment Act ratings in the form of less frequent compliance examinations;
and creates privacy provisions that address consumer needs without disrupting
necessary information sharing between community banks and their financial
services partners.
The Act also prohibits new unitary thrift holding companies from
engaging in nonfinancial activities or affiliating with nonfinancial entities.
The prohibition applies to a company that becomes a unitary thrift holding
company pursuant to an application filed with the OTS after May 4, 1999.
However, a grandfathered unitary thrift holding company, such as our Company,
retains its authority to engage in nonfinancial activities.
The Act is intended to grant to community banks certain powers as a
matter of right that larger institutions have accumulated on an ad hoc basis.
Nevertheless, the Act may have the result of increasing the amount of
competition that the Company faces from larger institutions and other types of
companies. In fact, it is not possible to predict the full effect that the Act
will have on the Company.
Other than as described in this Form 10-QSB, the Company is not aware
of any current recommendation by the regulatory authorities which, if
implemented, would have a material effect on the Company's liquidity, capital
resources, or results of operations.
14
<PAGE> 15
Year 2000 Readiness
Like many financial institutions, we rely on computers to conduct our
business and information systems processing. Industry experts are concerned that
on January 1, 2000, some computers may not be able to interpret the new year
properly, causing computer malfunctions. In June 1996, the Federal Financial
Institutions Examination Council alerted the banking industry that serious
challenges could be encountered with Year 2000 issues. In addition, the Office
of Thrift Supervision has issued guidelines to require compliance with Year 2000
issues. In accordance with these guidelines, we have developed and are executing
a plan to ensure that our computer and telecommunication systems do not have
these Year 2000 problems. We rely on third party vendors to supply our computer
and telecommunication systems and other office equipment, and to process our
data and account information. Because we commenced operations only last year, we
had the ability to choose vendors which we believed to be ready for the Year
2000 and do not anticipate that the Year 2000 issue will materially affect our
business or operations. Our technology and processing vendors work with many
other financial institutions, all of whom, like us, are required by their bank
regulators to be Year 2000 compliant. Because our systems are substantially
similar to those used in many other banks, we believe that the scrutiny imposed
by our regulators and the banking industry in general have significantly reduced
the Year 2000 related risks we might otherwise have faced. Nonetheless, there is
a risk that the Year 2000 issues could negatively affect our business.
We have prepared a comprehensive Year 2000 plan to monitor the Year
2000 compliance of our third party vendors of computer and telecommunication
systems, data processing services, and other office equipment. The plan calls
for us to have all systems in place, be fully Year 2000 compliant, and develop
contingency plans by June 30, 1999. We believe we are in compliance with our
plan. We have incurred approximately $20,000 in expenses year-to-date to
implement our Year 2000 plan. We expect to spend an additional $10,000, for
primarily non-technology expenditures, over the remainder of 1999 to complete
the implementation of the plan. The plan also calls for us to continue to
monitor the situation through the end of the year and beyond. We are executing
this plan under the supervision of our chief financial officer and vice
president of operations, with oversight from our board of directors.
Phoenix International Ltd., Inc. provides our mission critical computer
software and data processing systems. Phoenix is a well-established company and
provides computer systems and data processing services to over 100 financial
institutions throughout the world. Phoenix has tested its systems and its
interfaces to our other systems for Year 2000 issues and tested our database for
Year 2000 compliance. We have reviewed the methods and results of this testing
and are satisfied that the Phoenix system will function as intended on all
critical Year 2000 related dates.
Our Year 2000 plan extends to our other less critical vendors as well,
including our vendors for ATM hardware, account origination software, telephone
systems, and suppliers of office equipment, such as copy and fax machines. Under
our plan, we reviewed the test results, assurances, and warranties of all of
these vendors, and we believe that all these systems are Year 2000 compliant.
Based on our review of our vendor's systems and Year 2000 testing results to
date, we do not believe that any of them will have any significant Year 2000
problems.
Our agreements with each of our vendors, including Phoenix, include
contractual assurances and warranties regarding Year 2000 compliance. Some of
these warranties are limited by disclaimers of liability which specifically
exclude special, incidental, indirect, and consequential damages. These
limitations could limit our ability to obtain recourse against a vendor who is
not Year 2000 compliant by excluding damages for things such as lost profits and
customer lawsuits.
15
<PAGE> 16
We have also evaluated our worst case scenario and developed
contingency plans in case Year 2000 issues do arise. In the worst case, our
systems would be down for a period of time and we would be required to complete
all transactions and keep all records manually. We will have all required forms
and procedures in place for manual processing, and feel we can do this for at
least a week without serious disruption of our business. We do not believe we
will encounter any issues that cannot be resolved within this period. Any
affected systems which cannot be fixed will be replaced with alternatives,
although this is unlikely to be necessary. Based on the information currently
available, we do not believe that we have significant Year 2000 exposure and
believe that we will be able to continue to operate the business if one or more
of our vendors experience unanticipated Year 2000 problems.
Our customers may also have Year 2000 issues. These issues could
disrupt certain businesses with high Year 2000 risk and affect their deposit
balances and their ability to repay their loans. We are reviewing our customers'
exposure and assess Year 2000 readiness through Year 2000 surveys. For those
customers with high credit risk and high potential exposure, we may require more
substantial proof of Year 2000 compliance. Although these surveys will be
helpful, it would be very difficult for us to accurately assess the Year 2000
readiness of any particular borrower or depositor. Additionally, there may be a
higher than usual demand for liquidity immediately prior to the century change
due to deposit withdrawals by customers concerned about Year 2000 issues. To
address this possible demand, we plan to have a higher percentage of our
investment portfolio in readily accessible funds during this time frame.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In late May 1999, we received a notice from Huntington Bancshares
Incorporated asserting that it has superior trademark rights in the name
"ebank." In 1996, Huntington Bancshares Incorporated obtained a federal
trademark registration for the term "E-BANK." Based on our review of materials
Huntington sent us describing its use of the term "E-BANK," we believe that
Huntington's use of the term is limited to a description of a system platform
which Huntington at one time offered or planned to offer on a wholesale basis to
other banks. We do not believe that Huntington has used the term in connection
with offering financial services to the public. Consequently, we do not believe
that our ownership rights in the service mark "ebank" and our use of the mark to
provide financial services on the Internet and elsewhere infringe upon
Huntington's federal trademark. In order to clarify the situation, on June 30,
1999 we filed an action in the United States District Court for the Northern
District of Georgia, asking for a declaratory judgment that we have the right to
use "ebank.com" as a trademark for Internet banking services despite
Huntington's registration. Rather than answering our complaint, Huntington filed
suit against us on August 10, 1999 in the United States District Court for the
Eastern District of Ohio, alleging trademark infringement over our use of the
name "ebank.com." In the Ohio action, Huntington is seeking an injunction
against our use of the name "ebank.com" and "ebank," as well as treble damages
and all profits realized by us by reason of our use of the name "ebank."
Huntington has submitted a motion to dismiss the Georgia action, and we have
submitted a motion to dismiss the Ohio action, in each case on the grounds of
lack of jurisdiction. As of November 12, 1999, neither court had ruled on either
motion. Although we intend to vigorously defend our rights to the name
"ebank.com," we cannot predict the outcome of this litigation. Although we do
not expect this, in the worst case we could be required to pay damages, change
our name, and choose a new domain name from which to host our Internet
operations, and the amount of damages could even include the actual amount of
damages sustained by Huntington, multiplied by three, plus all profits we
realize through the use of the name "ebank," and even punitive damages.
There are no other material legal proceedings to which we or any of our
properties are subject.
16
<PAGE> 17
ITEM 2. CHANGES IN SECURITIES.
(a) Not applicable.
(b) Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
ITEM 5. OTHER INFORMATION.
On November 9, 1999, we entered into a letter of intent with
eWealthUSA, a subsidiary of Argent Capital Corporation, regarding the formation
of a joint venture mortgage company between eWealthUSA, ebank.com, Inc., and
Atlanta National Mortgage, Inc., also of Atlanta, Georgia. The new entity's
mortgage operations will be managed by Atlanta National Mortgage, Inc. The joint
venture is subject to execution of a definitive agreement and, among other
things, OTS approval. Under the terms of the letter of intent, eWealthUSA is to
offer exclusively ebank.com's online banking services and ebank.com is to offer
select eWealthUSA insurance products and services, including the eWealthMortgage
product on an exclusive basis. eWealthUSA is an Internet based financial
services company that plans to offer a variety of financial products and
services, including insurance, annuities, online banking, mortgages, debt
management, estate planning, tax services, domestic and international trust and
wealth creation strategies.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
<TABLE>
<S> <C>
(a) Exhibits.
3.1. Articles of Incorporation*
3.2. Bylaws*
4.1. See Exhibits 3.1 and 3.2 for provisions in the Company's
Articles of Incorporation and Bylaws defining the rights of
holders of the Common Stock*
4.2. Form of Certificate of Common Stock*
10.1. Letter of Employment dated November 18, 1997, between the
Company and Louis J. Douglass, III*
10.2. Line of Credit Agreement dated August 27, 1997, between The
Company and The Bankers Bank*
10.3 Lease Agreement dated October 14, 1997, between the Company,
as lessee, and Regent Paces Ferry Office I, Inc., as lessor*
10.4 Form of Escrow Agreement among the Company, Banc Stock
Financial Services, Inc., and The Bankers Bank*
10.5 Phoenix International Ltd., Inc. Software License Agreement*
</TABLE>
17
<PAGE> 18
<TABLE>
<S> <C>
10.6 Letter of Intent dated February 20, 1998 between the Company
and Banc Stock Financial Services, Inc.*
10.7 Form of Underwriting Agreement among the Company and Banc
Stock Financial Services, Inc.*
27.1. Financial Data Schedule (for electronic filing purposes)
99.1(a) Press Release dated August 17, 1998 to announce Commerce
Mortgage Company, LLC (incorporated by reference in the
Company's Form 10QSB filed for the period ended June 30, 1998)
99.1(b) Press Release dated April 23, 1999 to announce the Company's
name change to ebank.com, Inc. (incorporated by reference in
the Company's Form 8-K filed with the SEC on April 23, 1999)
99.2 Press Release dated May 3, 1999 to announce the Company's new
stock trading symbol (incorporated by reference in the
Company's Form 8-K filed with the SEC on May 5, 1999)
</TABLE>
- ------------------------
* Incorporated by reference in the Company's Registration Statement on Form
SB-2, File No. 333-41545.
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed by the Company during the
quarter ended September 30, 1999.
18
<PAGE> 19
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934 (the "Exchange Act"), the registrant caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ebank.com, Inc.
Date: November 12, 1999 By: /s/ Richard A. Parlontieri
--------------------- ------------------------------------
Richard A. Parlontieri
Chairman and Chief Executive Officer
By: /s/ Mark D. Little
------------------------------------
Mark D. Little
Chief Financial Officer
19
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 1,479,268
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 2,780,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 7,509,377
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 41,227,912
<ALLOWANCE> (411,000)
<TOTAL-ASSETS> 54,623,872
<DEPOSITS> 43,374,441
<SHORT-TERM> 0
<LIABILITIES-OTHER> 172,673
<LONG-TERM> 0
0
0
<COMMON> 13,736,765
<OTHER-SE> (2,660,007)
<TOTAL-LIABILITIES-AND-EQUITY> 54,623,872
<INTEREST-LOAN> 1,796,173
<INTEREST-INVEST> 457,614
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 2,253,787
<INTEREST-DEPOSIT> 933,000
<INTEREST-EXPENSE> 943,777
<INTEREST-INCOME-NET> 1,310,010
<LOAN-LOSSES> 246,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,599,009
<INCOME-PRETAX> (1,534,999)
<INCOME-PRE-EXTRAORDINARY> (1,534,999)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,534,999)
<EPS-BASIC> (1.04)
<EPS-DILUTED> (1.04)
<YIELD-ACTUAL> 8.24
<LOANS-NON> 92,672
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 313,000
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> (411,000)
<ALLOWANCE-DOMESTIC> (411,000)
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
