<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 June 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 August 9, 1999.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<PAGE> 2
EBANK.COM, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JUNE 30,
1999 DECEMBER 31, 1998
(UNAUDITED) (AUDITED)
------------ -----------------
<S> <C> <C>
Cash and due from banks $ 1,011,842 $ 603,677
Federal funds sold 8,520,000 9,320,000
Investment securities available for sale 3,982,210 3,986,491
Other securities 63,000 25,500
Loans, net of allowance for loan losses of $293,000, and 27,811,663 10,240,557
$165,000,respectively
Premises and equipment, net 996,223 865,587
Accrued interest receivable 122,582 49,740
Investment in joint venture 12,534 162,091
Other assets 489,198 246,193
------------ ------------
Total assets $ 43,009,252 $ 25,499,836
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 31,013,410 $ 12,801,123
Accrued interest payable 55,718 26,552
Other liabilities 36,263 51,413
------------ ------------
Total liabilities $ 31,105,391 $ 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 (1,828,530) (1,115,778)
Accumulated other comprehensive income (loss) (4,374) (239)
------------ ------------
Total shareholders' equity 11,903,861 12,620,748
------------ ------------
Total liabilities and shareholders' equity $ 43,009,252 $ 25,499,836
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements
2
<PAGE> 3
EBANK.COM, INC.
CONSOLIDATED STATEMENT OF LOSS
FOR THE MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
FOR THE THREE FOR THE THREE FOR THE SIX FOR THE SIX
MONTHS ENDED MONTHS ENDED MONTHS ENDED MONTHS ENDED
JUNE 30, 1999 JUNE 30, 1998 JUNE 30, 1999 JUNE 30, 1998
------------- ------------- ------------- -------------
(Parent Company (Parent
Only) Company Only)
<S> <C> <C> <C> <C>
Interest income
Loans, including fees ........................ $ 612,058 $ -- $ 963,174 $ --
Investment securities:
U.S. Government agencies and
corporations ............................. 47,164 -- 93,849 --
Other investments ............................ 1,363 -- 1,850 --
Federal funds sold ........................... 95,147 41,741 186,447 41,741
------------ ------------ ------------ ------------
Total interest income ........................ 755,732 41,741 1,245,320 41,741
------------ ------------ ------------ ------------
Interest expense
Interest bearing demand and money market ..... 178,594 -- 239,410 --
Savings ...................................... 130 -- 238 --
Time deposits of $100,000 or more ............ 57,594 -- 108,115 --
Other time deposits .......................... 74,103 -- 136,248 --
Other borrowings ............................. 36 6,224 36 12,113
------------ ------------ ------------ ------------
Total interest expense ....................... 310,457 6,224 484,047 12,113
------------ ------------ ------------ ------------
Net interest income ................................... 445,275 35,517 761,273 29,628
------------ ------------
Provision for possible loan losses .................... 58,000 -- 128,000 --
------------ ------------ ------------ ------------
Net interest income after provision
for possible loan losses ..................... 387,275 35,517 633,273 0
------------ ------------ ------------ ------------
Other income ................................. 7,214 -- 8,939 --
Loss on joint venture ........................ (68,464) -- (149,557) --
------------ ------------ ------------ ------------
Total other income ........................... (61,250) -- (140,618) --
------------ ------------ ------------ ------------
Other expense
Salaries and other compensation .............. 282,609 62,987 510,231 125,337
Employee benefits ............................ 59,356 7,411 104,530 18,057
Net occupancy and equipment expense .......... 121,205 2,428 217,393 7,986
Professional and other outside services ...... 213,761 60,570 270,625 72,338
Other expense ................................ 63,420 97,412 102,628 105,515
------------ ------------ ------------ ------------
Total other expenses ......................... 740,351 230,808 1,205,407 329,233
------------ ------------ ------------ ------------
Loss before income tax benefit ........................ (414,326) (195,291) (712,752) (299,605)
Income tax benefit .................................... -- -- -- --
------------ ------------ ------------ ------------
Net loss ..................................... $ (414,326) $ (195,291) $ (712,752) $ (299,605)
============ ============ ============ ============
Basic and diluted loss per common share ............... $ (.28) $ (.15) $ (0.49) $ (.24)
</TABLE>
The accompanying notes are an integral part of these financial statements.
3
<PAGE> 4
EBANK.COM, INC.
CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS
FOR THE MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
---------------------------- ---------------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net loss $ (414,326) $ (195,291) $ (712,752) $ (299,605)
------------- ---------- ---------- ----------
Other comprehensive loss, net of tax:
Unrealized loss on securities
available for sale (3,756) 0 (4,135) 0
------------- ---------- ---------- ----------
Comprehensive loss $ (418,082) $ (195,291) $ (716,887) $ (299,605)
------------- ---------- ---------- ----------
</TABLE>
4
<PAGE> 5
EBANK.COM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
For the six months ended
June 30,
----------------------------
CASH FLOWS FROM OPERATING ACTIVITIES 1999 1998
---- ----
<S> <C> <C>
Net loss $ (712,752) $ (299,605)
Adjustment to reconcile net loss to net cash (used by) provided by
operating activities:
Net accretion of investment securities (91,092) --
Depreciation and amortization of premises and equipment 78,984 --
Provision for possible loan losses 128,000 --
Loss on joint venture 149,557 --
Amortization of organizational costs -- 84,926
Increase in other assets (243,005) 5,595
Increase in accrued interest receivable (72,842) --
Increase in accrued interest payable 29,166 --
(Decrease) Increase in other liabilities (15,150) 290,792
------------ ------------
Net cash (used by) provided by operating activities (749,134) 81,708
------------ ------------
Cash flows from investing activities:
Purchase of investment securities available for sale and other
investments (8,946,262) --
Maturities of investment securities available for sale 9,000,000 --
Loans originated, net of principal repayments (17,699,106) --
Purchases of premises and equipment (209,620) (169,640)
------------ ------------
Net cash used by investing activities (17,854,988) (169,640)
------------ ------------
Cash flows from financing activities: --
Proceeds from loans 272,000
Repayment of loans (442,000)
Net proceeds from sale of common stock 11,898,212
Net increase in deposits 18,212,287 --
------------ ------------
Net cash provided from financing activities 18,212,287 11,728,212
------------ ------------
Net increase (decrease) in cash and cash equivalents (391,835) 11,640,280
Cash and Cash Equivalents:
Beginning of period 9,923,677 0
------------ ------------
End of period $ 9,531,842 $ 11,640,280
------------ ------------
</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 June 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 and the Bank. All significant
intercompany accounts and transactions have been eliminated in consolidation.
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 June 30, 1999. There were 183,575 potential
weighted common shares outstanding at June 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
Reporting Comprehensive Income
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130 (SFAS 130), "Reporting Comprehensive Income."
Under SFAS 130, a company is required to show changes in assets and liabilities
in a new comprehensive income statement or alternative presentation, as opposed
to showing some of the items as transactions in shareholders' equity accounts.
Since SFAS 130 solely relates to display and disclosure requirements, it had no
effect on the Company's financial results.
6
<PAGE> 7
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.
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 - March 31, 1999 $ (618)
Current - period change $6,260, net of tax
of $(2,504) (3,756)
-------
Ending balance - June 30, 1999 $(4,374)
-------
</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 implementation of 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, general economic conditions,
competition, interest rate sensitivity, and exposure to regulatory and
legislative changes. Additional risks are discussed in detail in our 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 April 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. We are currently seeking regulatory approval
from the OTS for our revised strategy. Although we expect to receive approval
for our revised plan, there is always a risk that we may not. Further, we have
received a notice from the OTS stating that it believes we have already
commenced business activities that are material changes from our original
business plan and that it has determined that it is appropriate to assess a
civil money penalty against the bank. The OTS has informed us that this
assessment will not have a bearing on its review of our revised business plan,
except that the penalty must be paid before the OTS will approve any changes to
our current business plan. The OTS has asked us to submit information to it
relating to the appropriate amount of the penalty to be assessed, and we are
currently
8
<PAGE> 9
in discussions with the OTS regarding this matter. We expect to resolve these
issues with the OTS, as well as to receive approval of a revised business plan.
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 June 30, 1999, before implementation of our
Internet strategy. In addition, because we did not commence operations until
August 17, 1998, comparative information for the second 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 $17,509,416 to $43,009,252
during the six-month period ended June 30, 1999. The increase was generated
primarily through a net increase in deposits of $18,212,287.
At June 30, 1999, the Company had total assets of $43,009,252,
consisting of federal funds sold of $8,520,000, investments of $4,045,210, net
loans of $27,811,663, property, at cost less accumulated depreciation, of
$996,223, cash and cash equivalents of $1,011,842, and other assets totaling
$624,314. The Company's liabilities at June 30, 1999, were $31,105,391,
consisting of deposits of $31,103,410 and accrued expenses and other
liabilities of $91,981. The Company's shareholders' equity of totaled
$11,903,861 at June 30, 1999.
Results of Operations
From the Bank's opening date on August 17, 1998 through June 30, 1999,
the Bank has attracted $31 million in deposits and made net loans of $27.8
million. Net interest income for the three-month period ending June 30, 1999
totaled $387,275, after a provision for loan losses of $58,000, compared to net
interest income of $245,998 after a provision for loan losses of $70,000 for
the three-month period ending March 31, 1999. This increase in net interest
income in the 2nd quarter over the 1st quarter is primarily due to an increase
in earning assets, including increased loans and federal funds sold of $9.0
million and $4.0 million respectively.
Operating expenses for the three-month period ending June 30, 1999
totaled $740,351, including salaries and other compensation of $282,609,
employee benefits expenses of $59,356, occupancy and equipment expenses of
$121,205, professional and other outside services of $213,761, and other
expenses of $63,420. Operating expense for the three-month period ending March
31, 1999 totaled $465,056. The significant increases in operating expenses in
the three-month period ending June 30, 1999 over the prior quarter include
additional staffing to support the continued growth of the Company, as well as
professional expenses to promote the Company's services.
The Company had a net loss of $414,326 for the three-month period
ending June 30, 1999, compared to a net loss of $298,426 for the three-month
period ending March 31, 1999 .
A major key to long-term earnings growth is the maintenance of a
high-quality loan portfolio. The Bank's directive in this regard is carried out
through its policies and procedures for extending credit to the Bank's
customers. The goal and result of these policies and procedures is to provide a
sound basis for new credit extensions and an early recognition of problem
assets to allow the most flexibility in their timely disposition.
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<PAGE> 10
Additions to the allowance for loan losses will be made periodically
to maintain the allowance at an appropriate level based upon management's
analysis of potential risk in the loan portfolio. The amount of the loan loss
provision is determined by an evaluation of the level of loans outstanding, the
level of non-performing loans, historical loan loss experience, delinquency
trends, the amount of actual loan losses charged to the reserve in a given
period, and assessment of present and anticipated economic conditions.
At December 31, 1998, the allowance for loan losses amounted to
$165,000. By June 30, 1999, the allowance had grown to $293,000. The allowance
for loan losses, as a percentage of total gross loans, decreased from 1.23% to
1.04% during the three-month period ended June 30,1999. Management considers
the allowance for loan losses to be adequate and sufficient to absorb possible
future losses; however, there can be no assurance that charge-offs in future
periods will not exceed the allowance for loan losses or that additional
provisions to the allowance will not be required. The Company had no
non-performing loans at June 30, 1999 and had no charge-offs for the
three-month period ending June 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 June 30, 1999.
<TABLE>
<CAPTION>
Interest Interest
Earning Assets/ Average Income/ Yield/
Bearing Liabilities Balance Cost Cost
------------------- ----------- ----------- ------
<S> <C> <C> <C>
Federal funds sold $ 7,935,275 $ 95,147 4.86%
Investment securities 4,047,069 48,527 4.86%
Loans 25,265,150 612,058 9.82%
----------- ----------- ----
Total $37,247,494 $ 755,732 8.23%
=========== =========== ====
Deposits $26,933,139 $ 310,457 4.67%
----------- ----------- ----
Net interest income $ 445,275 3.56%
----------- ----
Net yield on earning assets 4.79%
----
</TABLE>
Other Income
Other income for the three-month period ended June 30, 1999 amounted
to $7,214. On an annualized basis, this represents less than .07% 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.
We entered into a joint venture in August 1998 to form Commerce
Mortgage Company, LLC. We established Commerce Mortgage to serve as a mortgage
originator focusing on the subprime market. We contributed $250,000 capital to
Commerce Mortgage for a 50% ownership interest, and the other 50% interest was
held by the mortgage company's management team. Due to start-up costs and a
reduced demand for this mortgage product in the fourth quarter of 1998,
Commerce Mortgage suffered a loss of approximately $88,000 in 1998. In early
1999, we changed management of the mortgage company, replacing three of the
four original employees and revamping the mortgage
10
<PAGE> 11
company to offer products such as our prime asset home account. We also
restructured the ownership of the mortgage company so that we now have a
majority interest in the company. Commerce Mortgage recognized a loss of
$68,464 for the three-month period ended June 30, 1999. Because the Company
contributed 100% of the initial capital for Commerce Mortgage, the Company
recognized 100% of the net loss, or $68,464, for the three-month period ended
June 30, 1999.
Other Expense
Operating expenses for the three-month period ended June 30, 1999
amounted to $740,351. On an annualized basis, this represents 7.0% 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 June
30, 1999 financial statements evidence a satisfactory liquidity position as
total cash, cash equivalents, and federal funds sold amounted to approximately
$9.5 million, representing 22% of total assets. Investment securities amounted
to $4.0 million, representing 9% 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 June 30, 1999, total
deposits increased from $16.8 million to $31.0 million, representing an
increase of 85%. 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.
<TABLE>
<CAPTION>
Bank Company Minimum
Capital Capital Regulatory
Capital Ratios at June 30, 1999 Ratio Ratio Requirement
------------------------------- ------- ------- -----------
<S> <C> <C> <C>
Tier 1 capital 24.5% 38.4% 4.0%
Tier 2 capital 0.9% 0.9%
---- ----
Total risk-based capital ratio 25.4% 39.3% 8.0%
==== ==== ===
Leverage ratio 18.9% 27.4% 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
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<PAGE> 12
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 June 30, 1999:
<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 $ 8,520 $ -- $ -- $ -- $ 8,520
Investment securities 3,982 -- -- 63 4,045
Loans 12,262 2,672 9,387 3,784 28,105
-------- -------- -------- -------- --------
Total earning assets $ 24,764 $ 2,672 $ 9,387 $ 3,784 $ 40,670
======== ======== ======== ======== ========
Interest-bearing liabilities:
Money market, savings and NOW $ 18,627 $ -- $ -- $ -- $ 18,627
Time deposits 2,194 7,632 283 -- 10,109
-------- -------- -------- -------- --------
Total interest-bearing liabilities $ 20,821 $ 7,632 $ 283 $ -- $ 28,736
======== ======== ======== ======== ========
Interest-sensitivity gap $ 3,936 $ (4,960) $ 9,104 $ 3,847 $ 11,927
Cumulative interest-sensitivity gap $ 3,936 $ (1,024) $ 8,080 $ 11,927 $ 11,927
Ratio of interest-sensitivity gap to
total earning assets 9.68% (12.20)% 22.38% 9.46%
Ratio of cumulative
interest-sensitivity gap to total
earning assets 9.68% (2.52)% 19.87% 29.33% 29.33%
</TABLE>
As evidenced by the table above, the Company is cumulatively slightly
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 $25,265,150 for the three-month period ended June 30,
1999. Total gross loans outstanding at June 30, 1999 were $28,104,663.
12
<PAGE> 13
The following table summarizes the composition of the loan portfolio
at June 30, 1999:
<TABLE>
<CAPTION>
Percent
Amount of total
------------- -----------
<S> <C> <C>
Commercial $ 7,011,278 24.94%
Real estate - individual 4,582,142 16.30%
Real estate - commercial 14,405,532 51.24%
Installment loans to individuals 2,113,040 7.52%
--------- ------
Total loans 28,111,992 100.00%
======
Less: Net deferred loan fees (7,329)
Allowance for loan loss (293,000)
------------
Total net loans $ 27,811,663
============
</TABLE>
The principal components of the Company's loan portfolio at June 30, 1999 were
mortgage loans and commercial loans, which represented 92.48% 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
In recent years, Congress has considered legislation that would
eliminate the federal savings association charter. If this legislation is
enacted, Commerce Bank may be required to convert its federal savings bank
charter either to a national bank charter or to a state depository institution
charter, and ebank.com, Inc. would become a bank holding company subject to
regulation by the Federal Reserve Board and the Georgia Department of Banking
and Finance.
Various legislative proposals may also result in the restructuring of
federal regulatory oversight, including, for example, consolidation of the OTS
into another agency, or creation of a new federal banking agency to replace the
various agencies which presently exist. We cannot predict whether this
legislation will be enacted or what the effect of this legislation might be.
From time to time, various bills are introduced in the United States
Congress with respect to the regulation of financial institutions. Certain of
these proposals, if adopted, could significantly change the regulation of banks
and the financial services industry. We cannot predict whether any of these
proposals will be adopted or, if adopted, how these proposals would affect
ebank.com, Inc. or Commerce Bank.
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.
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
13
<PAGE> 14
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 have incurred approximately $15,000 in
expenses year-to-date to implement our Year 2000 plan. We expect to spend an
additional $55,000 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. Under the plan, we will investigate
the Year 2000 readiness of each vendor, review Year 2000 testing completed by
each vendor, test our own systems, if necessary and reasonable, and seek
comprehensive Year 2000 warranties from each of our primary vendors. Our
investigation of each vendor will primarily consist of requesting and reviewing
its Year 2000 test results.
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.
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.
14
<PAGE> 15
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.
We have recently 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 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. Although we intend to vigorously defend our rights to the name
"ebank.com," we cannot predict the outcome of this litigation.
There are no other material legal proceedings to which we or any of
our properties are subject.
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.
Several matters were voted upon at the Annual Meeting of Shareholders held on
May 3, 1999.
1. The Company's Bylaws provide that the Board of Directors
shall be divided into three classes with each class to be
nearly equal in number as possible. The Bylaws also provide
that the three classes of directors are to have staggered
terms, so that the terms of only approximately one-third of
the board members will expire at each annual meeting of
shareholders. The current Class I directors are Terry L.
Ferrero and G. Webb Howell. (Donnie Russell, previously a
Class I director, resigned from the Board in April 1999 due
to time constraints with his other business interests.) The
current Class II directors are
15
<PAGE> 16
Gary M. Bremer, Richard C.Carter, and Louis J. Douglass, III.
The current Class III directors are Frank E. Perisino,
Richard A. Parlontieri, and Stephen R. Gross. The current
terms of the Class I directors expired at the Annual Meeting.
In addition, the term of Stephen R.Gross, a Class III
director, expired at the Annual Meeting because he was
appointed by the Board of Directors in September 1998 to
serve until the 1999 Annual Shareholders Meeting. Each of the
two current Class I was nominated for reelection and stood
for election at the Annual Meeting on May 3, 1999 for a three
year term. Mr. Gross was nominated for reelection and stood
for election as a Class III director at the Annual Meeting on
May 3, 1999 for a two year term. The number of votes for the
election of the directors was as follows: For Mr. Ferrero -
1,287,750; for Mr. Howell - 1,287,750; for Mr. Gross -
1,287,750; withhold authority for Mr. Ferrero - 5,500;
withhold authority for Mr. Howell - 5,500; withhold authority
for Mr. Gross - 5,500. The terms of the Class II directors
will expire at the 2000 Annual Meeting of Shareholders, and
the terms of the Class III directors will expire at the 2001
Annual Meeting of Shareholders.
2. The shareholders of the Company approved the Company's 1998
Stock Option Plan. The Plan provides that stock options may
be granted with respect to an aggregate of no more than
220,000 shares, subject to adjustment upon changes in
capitalization. The number of votes for the approval of the
Plan was 456,376. The number of votes against the Plan was
45,625, and 12,400 abstained from voting.
ITEM 5. OTHER INFORMATION.
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(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*
10.6 Letter of Intent dated February 20, 1998 between the Company
and Banc Stock Financial Services, Inc.*
16
<PAGE> 17
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)
- ------------------------
* 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 two reports on Form 8-K filed by the Company during the
quarter ended June 30, 1999, referenced in exhibits 99.1(b) and 99.2.
17
<PAGE> 18
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.
<TABLE>
<S> <C>
Date: August 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
</TABLE>
18
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,011,842
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 8,520,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 4,045,210
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 28,104,663
<ALLOWANCE> (293,000)
<TOTAL-ASSETS> 43,009,252
<DEPOSITS> 31,013,410
<SHORT-TERM> 0
<LIABILITIES-OTHER> 91,981
<LONG-TERM> 0
0
0
<COMMON> 13,736,765
<OTHER-SE> (1,832,904)
<TOTAL-LIABILITIES-AND-EQUITY> 43,009,252
<INTEREST-LOAN> 963,174
<INTEREST-INVEST> 282,146
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 1,245,320
<INTEREST-DEPOSIT> 484,011
<INTEREST-EXPENSE> 484,047
<INTEREST-INCOME-NET> 761,273
<LOAN-LOSSES> 128,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,346,025
<INCOME-PRETAX> (712,752)
<INCOME-PRE-EXTRAORDINARY> (712,752)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (712,752)
<EPS-BASIC> (.49)
<EPS-DILUTED> (.49)
<YIELD-ACTUAL> 8.23
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 235,000
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 293,000
<ALLOWANCE-DOMESTIC> 293,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
