[GRAPHIC OMITTED]
EBANK.COM, INC.
1999 ANNUAL REPORT
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LETTER TO OUR STOCKHOLDERS:
On behalf of your board of directors, I am pleased to have this
opportunity to report to you the performance of your company for the year ended
1999, as well as for the first half of 2000. As you know, we formed ebank.com to
serve as a holding company for our federal savings bank subsidiary, which opened
in August 1998. We spent the rest of 1998 and most of 1999 developing the bank
under the principles on which traditional community banks are built, emphasizing
personalized service and the banking needs of individuals and small businesses.
We believe we have been successful in developing a solid, healthy bank, and that
this success is reflected in our growth. By December 31, 1999, we had total
assets of $52,063,370 and total deposits of $41,611,122. As of June 30, 2000, we
had grown to $69,429,227 in total assets and $62,306,579 in total deposits.
From the outset, however, we intended to enhance our delivery of our
banking services through the use of state-of-the-art technology. In 1999 we took
a number of steps in this regard. In April 1999, we announced our plans to
launch our new Internet banking services. We also acquired the Internet domain
name ebank.com and, to reflect the focus we were placing in our new strategies,
we changed our corporate name to ebank.com, Inc. We launched our Internet
banking services on June 30, 1999. On December 15, 1999, we also changed our
bank's name from Commerce Bank to EBANK. By the end of 1999, we had developed a
strong Internet banking platform from which to grow. Unfortunately, not all of
the steps have been successful.
In January 2000, we launched a comprehensive new business strategy,
which included strategic alliances with several third parties and contemplated a
rapid expansion of our Internet operations. Our strategy included an alliance
with Talisman, Inc., the development of a points of presence network to provide
financial services through our Web site, Internet-enabled ATMs, and "smart chip
cards," and the formation of partnerships with community banks. Under our
agreement with Talisman, Talisman granted us a license to use its Internet ATM
technology in the United States, we granted Talisman a license to use our
banking know-how, trademarks, business plans, and marketing materials outside
the United States, and we exchanged equity interests in each other. We also
agreed to enter into an outsourcing agreement pursuant to which Talisman would
provide our core data processing services. Talisman reserved the right to
rescind our entire transaction if we failed to enter into this outsourcing
agreement.
Like many other companies with significant Internet operations, we
expected to grow rapidly, and we incurred a substantial amount of expenses in
preparing and positioning ourselves for this growth. To fund our growth plans,
we commenced a private offering in the first quarter of 2000. As many other
companies also discovered, market conditions turned adverse for raising capital
for Internet-related companies, and we were forced to terminate our offering
without raising any capital. Consequently, we did not have the capital necessary
to execute our comprehensive new business strategy, and we began to terminate
the agreements and relationships we had entered into in connection with this
strategy. In July 2000, Talisman exercised its right to terminate its agreements
with us, including the license transfers and the share issuances. In July 2000,
we restructured our senior management team, which included the elimination of
some senior level positions to reduce costs at the holding company level.
We are disappointed we were not able to execute our comprehensive new
business strategy. However, we were never a dot.com company with an
Internet-only strategy. We started by establishing a healthy traditional banking
business with strong asset and deposit growth. We believe we made the right, and
realistic, decision to restructure and reposition the company when the capital
market conditions turned adverse. We plan to continue building our core banking
business at the regional level, while developing strategies to cost-efficiently
attract those customers nationwide who prefer to do their banking on the
Internet. We have now eliminated most of the ongoing expenses related to our
former business strategy by terminating many of our strategic alliances,
canceling advertising and other contracts related to our former strategy, and
laying off a number of employees, including members of senior management.
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In August 2000, we obtained a $2.5 million line of credit, guaranteed
by our directors, to pay expenses related to our former business strategy and to
support the development of a new strategy. We are in the process of revising our
business strategy to emphasize our traditional banking business and continue our
focus on small businesses, including through the establishment of ebank.com
centers. We also intend to develop cost-effective strategies that use the
Internet as one of our delivery channels. To do this, we must continue to be
innovative and focused on our long-term vision and the right business
strategies, while maintaining strong operational and financial controls.
Implementing effective cost reduction measures will allow us to allocate
resources to the areas with the greatest potential for achieving our objective
to provide quality banking products and services to existing and potential
customers, whether its through our brick and mortar facilities or the Internet.
We have also appointed James L. Box, an experienced financial services
executive, as our new Chief Executive Officer and Chief Financial Officer.
During his 30 years in the financial services industry, Mr. Box has also held
several senior level banking positions at Georgia Federal Bank, First Union
National Bank and First Georgia Bank, where his career was centered in finance
and operations. Most recently, Mr. Box served as President of Ashford Investment
Group, a financial services consulting firm he founded in 1997, where he
provided corporate development services to such clients as Vestcom
International, Novus Systems, Inc., Bell & Howell, Lason and F.Y.I Inc.
As we position the bank for the future, we have several strengths to
build upon. The bank remains on a solid course and continues to be run by its
president, Lou Douglass. We are extremely pleased with the growth and the
quality of our assets. We have outstanding employees who are dedicated to the
success and growth of the bank. Our customer base continues to expand and we
have had excellent growth in deposits. Our on-line bank is state-of-the-art and
has been a great success. We continue to attract customers nationwide.
We want to thank you our shareholders, as well as our employees, our
loyal customers, associates and Board of Directors for your support and
confidence over the past year.
Gary M. Bremer James L. Box Louis J. Douglass, III
Chairman of the Board Chief Executive Officer President
ebank.com, Inc. ebank.com, Inc. ebank
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TABLE OF CONTENTS
PAGE
Strategy and Business........................................................4
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................8
Management...................................................................26
Price Range of Common Stock..................................................27
Dividend Policy..............................................................28
Financial Statements.........................................................F-1
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STRATEGY AND BUSINESS
Ebank.com, Inc., a Georgia corporation, is the holding company for
Ebank, a federal savings bank. We provide banking and other financial services
to small business and retail customers via the Internet and through our offices
in Atlanta, Georgia and Charlotte, North Carolina. We opened for business in
August 1998 in one location in suburban Atlanta, Georgia as a traditional
community bank. In April 1999, we acquired the Internet domain name Ebank.com,
and on June 30, 1999, we commenced Internet banking services. We are in the
process of revising our business strategy to emphasize our traditional banking
business and to develop cost-effective strategies utilizing the Internet as one
of our delivery channels. Our new strategy will also include the establishment
of ebank.com centers.
STRATEGY
EXPANSION OF THE INTERNET PRESENCE OF OUR WEB SITE
Our Internet strategy is designed to increase awareness and use of our
fully functional financial services Web site located at www.ebank.com. In
addition to focusing on the retail customer, we are focusing on the underserved
small business customer by offering many small business and retail financial
products and services. Some of the products and services we currently offer
include sweep accounts, electronic bill payment, payroll services, and money
market and other deposit products.
Customers can access Ebank.com through any Internet service provider by
means of an acceptable secure Web browser. In doing so, customers can apply for
loans, review account activity, enter transactions into an online account, pay
bills electronically, receive statements by mail, and print bank statement
reports from any personal computer with a secure Web browser, regardless of its
location. To open a new account, the customer completes the online enrollment
form on our Web site, prints the signature card, signs it, and mails it to us.
Customers can make deposits into an open account at Ebank through direct deposit
programs, by transferring funds between Ebank accounts, by wire transfer, or by
mail. Customers can also make withdrawals and have access to their accounts at
ATMs that are affiliated with the Cirrus, Honor, and Avail networks.
ESTABLISHMENT OF EBANK.COM CENTERS
We believe that we can meet the needs of small businesses efficiently
and effectively by establishing low cost Ebank.com centers in selected markets
and providing locally oriented personalized banking services to small businesses
through these centers. There are three parts of our Ebank.com center strategy:
o We will specialize in lending to small businesses, including
professionals, such as physicians and attorneys, service
companies, manufacturing companies, and commercial real estate
developers. We believe the consolidation in the banking industry
has disrupted small business customer relationships because the
larger financial institutions increasingly focus on larger
corporate customers, standardized loans, and standardized deposit
products and services. Generally, these products and services are
offered through less personalized delivery channels. We believe we
have an opportunity to fill the need for higher quality and more
personalized services to small businesses.
o Our Ebank.com centers will serve as low cost loan production
offices rather than as branches accepting deposits, so we will
avoid the high cost of operating typical "bricks and mortar"
branches. We will attempt to locate our Ebank.com centers in
leased space in office parks, and we will equip each center with
state-of-the-art communication devices. Our centers will not
require in-house teller equipment, large vaults, back office
operations, or other capital-intensive equipment required for
branches accepting deposits. Each center will benefit from the
operational support provided by our Atlanta headquarters to
perform account processing, loan accounting, loan support, network
administration, and other functions.
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o We will recruit high volume, customer relationship-oriented
commercial lenders to serve as the city executives of our
Ebank.com centers. We intend to provide these lenders with an
opportunity to move their loan portfolios to Ebank.com, where they
will be able to provide their customers with the personalized
banking services that community banks are known to offer to small
businesses.
In July 2000, we opened our first ebank.com center in Charlotte, North
Carolina. We plan to open two additional ebank.com centers in Atlanta in 2001.
We also intend to open additional ebank.com centers during 2001, but we have not
yet determined the locations.
OPERATIONS
PRODUCTS AND SERVICES
We provide a broad array of financial products and services to our
small business and retail customers, including checking accounts, money markets,
CDs, sweep accounts, ATM cards, home loans, commercial loans, credit cards, bill
payment services, and human resource services. We provide small businesses with
the same types of products and services that large banks have traditionally
offered only to their biggest customers. Some of our signature products and
services include the following:
CURRENT PRODUCTS & SERVICES
o ESWEEP ACCOUNT - A sophisticated money management tool, our ESweep
(sm) account links a commercial checking account with an
investment account, optimizing returns on working capital by
investing idle funds until the moment needed to cover
disbursements.
o HUMAN RESOURCE SERVICES - We offer human resource services through
ADP, including Internet payroll processing, tax filing services,
and 401(k) and IRA services.
o EQUIPMENT LEASING - We have an agreement to offer competitive
business equipment leasing on a nationwide basis through
GoRate.com. Through this service, our customers have access to
GoRate.com's online lease quote and application system.
o ATM CARDS - Each customer automatically receives a free ATM card
when he or she opens an account. Customers can access their
accounts at ATMs affiliated with the Cirrus, Honor, and Avail
networks. We currently do not charge any ATM fees. In addition,
although the operator of the ATM generally imposes fees, we
currently reimburse these fees to our customers for their first
six ATM usages each month.
o ONLINE ACCOUNT STATEMENTS - Customers can track the activity in
their accounts directly through the Internet at any time,
obtaining account balances and transaction history, transferring
funds between various accounts, and even downloading account
statements.
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SECURITY
The security of our Internet banking applications is of utmost
importance, and we are committed to providing the highest precautions
appropriate to ensure that our customer information is safeguarded. We regularly
evaluate the latest changes in Internet banking system security to ensure that
our security measures meet the highest standards of security.
We address our system security at three levels. First, our primary
concern is to ensure the security of customer information as it is sent from the
customer's personal computer to our Web server. Second, we have taken steps to
ensure the security of the environment in which our Internet banking server and
customer information database reside. Third, we have implemented Internet
security measures to prevent unauthorized users from logging in to the online
banking section of our Web site.
We use a combination of proprietary and industry standard security
measures to protect customers' assets. Customers are assigned unique account
numbers, user identifications, and passwords that must be used each time they
log on to the system. We rely on encryption and authentication technology,
including public key cryptography technology, to provide the security and
authentication necessary to effect the secure exchange of information. Telephone
transactions are secured through a personal identification number -- the same
technology used in ATMs.
To ensure reliable access to Ebank.com, we have implemented a redundant
network and a server "mirroring" to reduce any service outage due to hardware
failures or software bugs to no more than a few minutes. "Mirroring" creates a
continuous backup of all data and is stored in two physical locations for
assurance of customer access reliability. In the event of an interrupted access
over the Internet, a customer will continue to have access to their funds
through several means, including ATM/debit cards, our Ebank.com centers, and
paper checks. We monitor all Internet and network traffic to our Web site and
have the ability to detect and disarm unwanted entries. We also retain records
of and review this traffic history, as well as a transactional log of our
customer transactions, to assist us in maintaining a proactive approach to our
security needs.
We restrict access to our computer operations areas to only those
employees with proper identification, and we have installed dual password
protection to the computer consoles. We contracted the services of an
independent security consulting company to provide vulnerability testing on both
our internal and external network structure, as well as enhanced Internet
penetration testing. The effectiveness of the results from these audits have
been substantiated through the use of the leading Internet/network vulnerability
detection tools available from Internet Security Systems.
INTELLECTUAL PROPERTY
Our corporate name is "ebank.com, Inc.," and we operate our subsidiary
bank, "ebank," under a thrift charter granted to us by the Office of Thrift
Supervision. We own the domain name "ebank.com," which is registered with
Network Solutions. We also own approximately 102 top level domain names and
country-code level domain names, and we have filed trademark applications for
the name "ebank.com" or "ebank" in approximately 90 countries. However, we do
not have a federal trademark to the name "ebank" in the United States. Further,
we have received notice from Huntington Bancshares Incorporated asserting that
it has superior trademark rights in the name "E - BANK."
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 federal registration of the term "E - BANK." 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. On March 29, 2000, the
district court in the Georgia action granted
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Huntington's motion to dismiss on the grounds that the court did not have
jurisdiction over Huntington. Currently, there are substantive and procedural
motions to dismiss Huntington's claims against us in Ohio. Those motions to
dismiss are fully briefed and are ripe for ruling. Discovery is underway in the
Ohio action and the parties have produced documents and responded to written
interrogatories.
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 change our name,
change our subsidiary bank name, and choose a new domain name from which to host
our Internet operations. We also could be required to pay damages, which 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.
EMPLOYEES
As of September 5, 2000, we had 38 full-time employees. None of our
employees are covered by a collective bargaining agreement. We consider our
relationship with our employees to be good.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
We were incorporated in August 1997 for the purpose of forming and
operating Ebank, originally known as Commerce Bank, a federal savings bank. We
completed our initial public offering in July 1998, raising $14.7 million, with
net proceeds after offering expenses of $13.7 million, and we obtained final
FDIC and Office of Thrift Supervision approvals to open Ebank in August 1998.
Ebank opened for business on August 17, 1998. Initially, we operated Ebank as a
traditional community bank, emphasizing personalized service and the banking
needs of individuals and small businesses. From the outset, however, we intended
to enhance our delivery of these services through the use of state-of-the-art
technology. We also planned to capitalize on the flexibility provided by our
thrift charter to pursue strategic opportunities in related areas of commerce.
We incurred significant operating and marketing expenses launching our
initial business strategy, which focused on becoming a leading Internet-based
provider of and portal for financial products and services. To fund our
aggressive plans for growth, we commenced a private offering in the first
quarter of 2000. However, due to adverse market conditions, we were forced to
suspend the offering and reevaluate certain business strategies. One strategy
that we were forced to reevaluate was our intended alliance with Talisman, Inc.
Under our agreement with Talisman, Talisman granted us a license to use its
Internet ATM technology in the United States, we granted Talisman a license to
use our banking know-how, trademarks, business plans, and marketing materials
outside the United States, and we exchanged equity interests in each other. We
also agreed to enter into an outsourcing agreement pursuant to which Talisman
would provide our core data processing services. Talisman reserved the right to
rescind our entire transaction if we failed to enter into this outsourcing
agreement. Due to the impact of our suspended offering, we did not enter into
the outsourcing agreement and, in July 2000, Talisman exercised its right to
terminate its agreements with us, including the license transfers and the share
issuances.
In July 2000, we announced the restructuring of management, which
included the elimination of some senior level positions to reduce costs at the
holding company level. Although we will continue to pursue opportunities to grow
our core business by utilizing the Internet as a delivery channel, we have
revised our business strategy to emphasize our traditional banking business and
to focus on the small business customer. The following discussion focuses
primarily on our operations through December 31, 1999. However, due to the
timing of this report, we have also included a discussion of our financial
condition and results for the six months ended June 30, 2000. We have omitted
information from our discussion for the period from our inception, August 22,
1997 through December 31, 1997, because we did not commence operations until
August 17, 1998, and this information would not be meaningful. The following
discussion should be read with these points in mind.
ANALYSIS OF THE FISCAL YEARS ENDED DECEMBER 31, 1998 AND 1999 AND THE SIX MONTHS
ENDED JUNE 30, 2000
During the year ended December 31, 1999, our assets grew from
$25,499,836 to $52,063,370. Primarily due to our increased asset base, our
interest income, net of interest expense, grew from $467,545 for the year ended
December 31, 1998 to $1,909,209 for the year ended December 31, 1999. Our
provision for loan losses increased from $165,000 for the year ended December
31, 1998 to $565,000 for the year ended December 31, 1999. Thus, after
deductions for interest expense and provision for loan losses, our net interest
income grew from $302,545 for the year ended December 31, 1998 to $1,344,209 for
the year ended December 31, 1999. Additionally, noninterest income grew from
less than $1,000 for the year ended December 31, 1998 to $279,994 for the year
ended December 31, 1999. These gains were offset by an increase in noninterest
expense from $1,259,299 for the year ended December 31, 1998 to $4,301,897 for
the year ended December 31, 1999, which resulted in a net loss of $2,677,694, a
loss of $1.82 per share, for the year ended December 31, 1999, as opposed to a
net loss of $1,041,018, a loss of $1.48 per share, for the year ended December
31, 1998.
At December 31, 1999, our assets consisted primarily of federal funds
sold of $620,000, other investments of $213,000, net loans of $47,867,286,
property at cost less accumulated depreciation of $1,498,568, cash and due from
banks of $152,889, accrued interest receivable of $185,572, and other assets
totaling $531,345. Our liabilities at December 31, 1999 were $42,121,727,
consisting of deposits of $41,611,122 and
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accrued expenses and other liabilities of $510,605. Our shareholders' equity
totaled $9,941,643 at December 31, 1999.
During the six months ended June 30, 2000, our assets grew from
$52,063,000 to $69,429,000. Our interest income, net of interest expense, for
the six months ended June 30, 2000 was $1,352,131 and our provision for loan
losses during the same period was $114,000. Thus, after deductions for interest
expense and provision for loan losses, our net interest income for the six
months ended June 30, 2000 was $1,238,131. Our income was offset by noninterest
expense of $5,681,649, which resulted in a net loss of $4,395,312, a loss of
$2.81 per share, for the six months ended June 30, 2000.
At June 30, 2000, our assets consisted primarily of federal funds sold
of $9,220,000, other investments of $163,053, net loans of $54,220,430, property
at cost less accumulated depreciation of $2,246,855, cash and due from banks of
$2,171,789, investment in Talisman Technologies, Inc. of $665,932, and other
assets totaling $268,193. Our liabilities at June 30, 2000, were $63,267,813,
consisting of deposits of $62,306,579 and accrued expenses and other liabilities
of $961,234. Our shareholders' equity totaled $6,161,414 at June 30, 2000. As
noted above, in July 2000 our transactions with Talisman were rescheduled,
including our investments in each other.
RESULTS OF OPERATIONS
NET INCOME. We completed our first full year of operations in 1999. We
incurred a loss of $2,678,000, or $1.82 per share for the year ended December
31, 1999. We earned $1,909,000 in net interest income and $280,000 in
noninterest income for the year, but these amounts were offset by noninterest
expense of $4,302,000, and a provision for possible loan losses of $565,000.
Our net loss for the year ended December 31, 1998 was $(1,041,000), or
$(1.48) per share. We earned net interest income of $467,000 for the period, but
this amount was offset by noninterest expense of $1,259,000, and a provision for
possible loan losses of $165,000. Our net loss included approximately $503,000
in pre-opening expenses we incurred in preparing the bank for opening. The
pre-opening expenses also included $85,000 in organizational costs we expensed
due to a change in an accounting principle for organizational costs. We had
deferred these costs at December 31, 1997. The loss also includes $646,000 in
salaries and employee benefit expenses, as we became fully staffed in early
August 1998 for training in preparation of the bank's opening on August 17,
1998.
We had a net loss of $2,844,752 or $1.74 per share for the three-month
period ending June 30, 2000, compared to a net loss of $414,326 or $.28 per
share for the three-month period ending June 30, 1999.
NET INTEREST INCOME. Our primary source of revenue is net interest
income, which is the difference between income on interest-earning assets and
expense on interest-bearing liabilities. Our net interest income was $1,909,000
for the year ended December 31, 1999. Net interest spread, the difference
between the yield we earn on interest-earning assets and the rate we pay on
interest-bearing liabilities, was 3.09% for the year ended December 31, 1999.
Our net interest margin, which is net interest income divided by average
interest-earning assets, was 4.63% for the year ended December 31, 1999. Average
loans comprised 72.0% of our average earning assets in 1999.
Our net interest income totaled $467,000 for the year ended December
31, 1998, which included operations beginning on August 17, 1998, the date we
opened the bank. Our net interest spread was 1.05% and our net interest margin
was 5.09% for the year ended December 31, 1998.
Net interest income for the three month period ending June 30, 2000
totaled $662,269. This income is primarily due to an increase in earning assets,
including primarily the increase in average loans of $26.4 million, offset
somewhat by the reduction in average investment securities of $3.5 million,
respectively.
Since loans often provide a higher yield than other types of earning
assets, in the long term we intend to increase our loan portfolio as a
percentage of our total earning assets. In the short term, however, we
anticipate
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that the amount of deposits we generate through our Internet strategy
will exceed the amount of loans we will originate through our Ebank.com centers.
In this event, we would invest the excess funds in investment securities or
loans we purchase from other banks.
AVERAGE BALANCES, INCOME AND EXPENSES, AND RATES. The following table
depicts, for the periods indicated, information related to our average balance
sheet. The average yields on assets and average costs of liabilities represent
the annualized rates for December 31, 1999 and 1998. We derived these yields by
dividing income or expense by the average balance of the corresponding assets or
liabilities. We derived average balances from daily averages. We had only one
nonaccrual loan totaling $93,000 during these periods.
<TABLE>
<CAPTION>
AVERAGE BALANCES, INCOME AND EXPENSES, AND RATES
YEAR ENDED DECEMBER 31, YEAR ENDED DECEMBER 31,
1999 1998
---------------------------------------- -----------------------------------
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
BALANCE EXPENSE RATE BALANCE EXPENSE RATE
---------------------------------------- -----------------------------------
ASSETS (DOLLARS IN THOUSANDS)
Interest Earning assets:
<S> <C> <C> <C> <C> <C> <C>
Loans.................................. $ 29,713 $ 2,823 9.50% $ 2,114 $ 207 9.82%
Investment securities.................. 5,000 249 4.97 923 47 5.04
Federal funds sold..................... 6,551 318 4.85 6,140 323 5.27
------------- ----------- --------- ----------- --------- -------
Total interest earning assets 41,264 3,390 8.22 9,177 577 6.29
Other assets........................... 2,080 624
------------- -----------
Total assets......................... $ 43,344 $ 9,801
============= ===========
LIABILITIES
Interest-bearing liabilities:
Interest-bearing transaction accounts.. $ 1,225 34 2.81% $ 1,963 99 4.99%
Money market accounts.................. 14,326 724 5.05 -- -- --
Savings deposits....................... 24 1 2.36 -- -- --
Time deposits.......................... 13,030 701 5.38 -- -- --
Other short-term borrowing............. 246 21 8.39 140 12 8.67
------------- ----------- --------- ----------- --------- -------
Total interest-bearing liabilities..... 28,851 1,481 5.13 2,103 110 5.24
Noninterest-bearing deposits........... 3,048 337
Other liabilities...................... 398 170
Shareholders' equity................... 11,047 7,191
------------- -----------
Total liabilities and shareholders'equity $ 43,344 $ 9,801
============= ===========
----------
Net interest spread.................... 3.09% 1.05%
----------- ========== --------- ========
Net interest income/margin............. $ 1,909 4.63% $ 467 5.09%
=========== ========== ========= ========
</TABLE>
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The following represents, in a tabular form, the main components of
interest-earning assets and interest-bearing liabilities for the six months
ended June 30, 2000:
<TABLE>
<CAPTION>
Average
Balance Expenses Rate
------- -------- ----
<S> <C> <C> <C>
Interest Earning Assets:
Federal funds sold $ 2,659,020 $ 77,020 5.79%
Investment securities 154,595 5,001 6.47%
Loans 50,936,006 2,551,072 10.02%
--------------- -------------- -----------
Total interest earning assets $ 53,749,621 $ 2,633,093 9.80%
=============== ============== ===========
Deposits $ 49,015,676 $ 1,280,962 5.23%
=============== ============== ===========
Net interest income $ 1,352,131 4.57%
============== ===========
Net yield on earning assets 5.03%
===========
</TABLE>
INTEREST RATE SENSITIVITY. A significant portion of our assets and
liabilities are monetary in nature, and consequently they are very sensitive to
changes in interest rates. This interest rate risk is our primary market risk
exposure, and it can have a significant effect on our net interest income and
cash flows. We review our exposure to market risk on a regular basis, and we
manage the pricing and maturity of our assets and liabilities to diminish the
potential adverse impact that changes in interest rates could have on our net
interest income.
One monitoring technique we employ is the measurement of our interest
rate sensitivity "gap," which is the difference between the amount of
interest-earning assets and interest-bearing liabilities that mature or may
reprice within a given period of time. A gap is considered positive when the
amount of interest-rate sensitive assets exceeds the amount of interest-rate
sensitive liabilities, and it is considered negative when the amount of
interest-rate sensitive liabilities exceeds the amount of interest-rate
sensitive assets. We generally would benefit from increasing market interest
rates when we have an asset-sensitive, or a positive, interest rate gap and we
would generally benefit from decreasing market interest rates when we have
liability-sensitive, or a negative, interest rate gap. When measured on a "gap"
basis, we are liability-sensitive over the cumulative one-year time frame as of
December 31, 1999. However, gap analysis is not a precise indicator of our
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. For example, rates paid on a substantial portion of core
deposits may change contractually within a relatively short time frame, but we
believe those rates are significantly less interest-sensitive than market-based
rates such as those paid on non-core deposits.
Net interest income is also affected by other significant factors,
including changes in the volume and mix of interest-earning assets and
interest-bearing liabilities. We perform asset/liability modeling to assess the
impact of varying interest rates and the impact that balance sheet mix
assumptions will have on net interest income. We attempt to manage interest rate
sensitivity by repricing assets or liabilities, selling securities
available-for-sale, replacing an asset or liability at maturity, or adjusting
the interest rate during the life of an asset or liability. Managing the amount
of assets and liabilities that reprice in the same time interval helps us to
hedge risks and minimize the impact on net interest income of rising or falling
interest rates. We evaluate interest sensitivity risk and then formulate
guidelines regarding asset generation and repricing, funding sources and
pricing, and off-balance sheet commitments in order to decrease interest rate
sensitivity risk.
We anticipate that a large portion of our deposits will be obtained
over the Internet, and that these deposits will be generally more susceptible to
withdrawal by depositors who are particularly rate-sensitive. To manage the
interest rate risk associated with these deposits, we have implemented the
following strategies:
11
<PAGE>
o We will attempt to minimize the amount of long-term, fixed rate residential
mortgages that we hold in our loan portfolio;
o We will price our loans to encourage borrowing at variable interest rates
and, when necessary, we will price fixed rate commercial loans so that we
obtain favorable pricing on the loans in exchange for providing a fixed
rate; and
o We will maintain a short duration in our investment portfolio to lower the
average maturity of our assets to more closely match the average maturity
of our liabilities.
The following tables summarize the amounts of interest-earning assets
and interest-bearing liabilities outstanding at December 31, 1999 and 1998 that
are expected to mature, prepay, or reprice in each of the future time periods
shown. Except as stated in the following tables, the amount of assets or
liabilities that mature or reprice during a particular period was determined in
accordance with the contractual terms of the asset or liability. Adjustable rate
loans are included in the period in which interest rates are next scheduled
adjust rather than in the period in which they are due, and fixed rate loans are
included in the periods in which they are anticipated to be repaid based on
scheduled maturities. The bank's savings accounts and interest-bearing demand
accounts (NOW and money market deposit accounts), which are generally subject to
immediate withdrawal, are included in the "Three Months or Less" category,
although historical experience has proven these deposits to be more stable over
the course of a year.
<TABLE>
<CAPTION>
INTEREST RATE SENSITIVITY ANALYSIS
DECEMBER 31, 1999
-----------------------------------------------------------------------------------
AFTER THREE BUT AFTER ONE AFTER FIVE
WITHIN WITHIN TWELVE BUT WITHIN YEARS OR
THREE MONTHS MONTHS FIVE YEARS NONSENSITIVE TOTAL
-------------- ------------------ ------------ -------------- -----------
(DOLLARS IN THOUSANDS)
ASSETS
<S> <C> <C> <C> <C> <C>
Interest-earning assets:
Loans............................ $ 25,790 $ 2,971 $ 14,018 $ 5,885 $ 48,664
Investment securities............ 995 -- -- 213 1,208
Federal funds sold .............. 620 -- -- -- 620
------------ ------------ ---------- --------- ---------
Total interest-earning assets.. $ 27,405 $ 2,971 $ 14,018 $ 6,098 $ 50,492
============ ============ ========== ========= =========
LIABILITIES
Interest-bearing liabilities:
Interest-bearing deposits
Money market and NOW
accounts....................... $ 14,154 $ -- $ -- $ -- $ 14,154
Savings deposits.................
21 -- -- -- 21
Time deposits.................... 425 20,731 2,361 -- 23,517
------------ ------------ ---------- --------- ---------
Total interest-bearing deposits 14,600 20,731 2,361 37,692
Other short-term borrowings...... 240 -- -- -- 240
------------ ------------ ---------- --------- ---------
Total interest-bearing liabilities $ 14,840 $ 20,731 $ 2,361 $ $ 37,932
============ ============ ========== ========= =========
Interest rate sensitivity gap per
Period........................... $ 12,565 $ (17,760) $ 11,657 $ 6,098 $ 12,560
============ ============= ========== ========= =========
Cumulative interest rate sensitivity
Gap.............................. $ 12,565 $ (5,195) $ 6,462 $ 12,560 $ 12,560
============ ============= ========== ========= =========
Ratio of interest sensitivity gap to
total earning assets............. 24.88% (35.17)% 23.09% 12.08%
Ratio of cumulative gap to total
earning assets.................... 24.88% (10.29)% 12.80% 24.88%
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
-----------------------------------------------------------------------------------
AFTER THREE BUT AFTER ONE AFTER FIVE
WITHIN WITHIN BUT WITHIN YEARS OR
THREE MONTHS TWELVE MONTHS FIVE YEARS NONSENSITIVE TOTAL
--------------- ------------------ ------------ ---------------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets
Loans............................ $ 5,122 $ 763 $ 2,822 $ 1,699 $ 10,406
Investment securities............ 3,986 -- -- 176 4,162
Federal funds sold .............. 9,320 -- -- -- 9,320
------------ ------------ ---------- --------- ---------
Total interest-earning assets.. $ 18,428 $ 763 $ 2,822 $ 1,875 $ 23,888
============ ============ ========== ========= =========
LIABILITIES
Interest-bearing liabilities
Interest-bearing deposits
Money market and NOW
accounts....................... $ 5,210 $ -- $ -- $ -- $ 5,210
Savings deposits................. 19 -- -- -- 19
Time deposits.................... 50 6,318 178 -- 6,546
------------ ------------ ---------- --------- ---------
Total interest-bearing deposits 5,279 6,318 178 -- 11,775
Other short-term borrowings -- -- -- -- --
------------ ------------ ---------- --------- ---------
Total interest-bearing liabilities $ 5,279 $ 6,318 $ 178 $ -- $ 11,775
============ ============ ========== ========= =========
Interest rate sensitivity gap per
period........................... $ 13,149 $ (5,555) $ 2,644 $ 1,875 $ 12,113
============ ============= ========== ========= =========
Cumulative interest rate sensitivity
gap.............................. $ 13,149 $ 7,594 $ 10,238 $ 12,113 $ 12,113
============ ============ ========== ========= =========
Ratio of interest sensitivity gap to
total earning assets............. 55.04% (23.25)% 11.07% 7.85%
Ratio of cumulative gap to total
earning assets................... 55.04% 31.79% 42.86% 50.71%
</TABLE>
13
<PAGE>
The table below shows the interest rate sensitivity of our assets and
liabilities as of June 30, 2000:
<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 $ 9,220 $ -- $ -- $ -- $ 9,220
Other securities 66 -- -- -- 66
Loans 27,842 5,827 17,846 3,550 55,065
---------- ---------- ----------- ----------- -----------
Total earning assets $ 37,128 $ 5,827 $ 17,846 $ 3,550 $ 64,351
========== ========== =========== ========== ===========
Interest-bearing liabilities:
Money market, savings and NOW $ 13,143 $ -- $ -- $ -- $ 13,143
time deposits 6,962 34,187 2,412 -- 43,561
---------- ---------- ----------- ----------- -----------
Total interest-bearing liabilities $ 20,105 $ 34,187 $ 2,412 $ -- $ 56,704
========== ========== =========== ========== ===========
Interest-sensitivity gap $ 17,023 $ (28,360) $ 15,434 $ 3,550 $ 7,647
========== =========== =========== ========== ===========
Cumulative interest-sensitivity gap $ 17,023 $ (11,337) $ 4,097 $ 7,647 $ 7,647
========== =========== =========== ========== ===========
Ratio of interest-sensitivity gap to
total earning assets 26.45% (44.07)% 23.98% 5.52%
Ratio of cumulative
interest-sensitivity gap to total
earning assets 26.45% (17.62)% 6.37% 11.88%
</TABLE>
As evidenced by the table above, at June 30, 2000 we were cumulatively
liability-sensitive at one year. However, our gap analysis is not a precise
indicator of our 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 affected by other
significant factors in a given interest rate environment, including changes in
the volume and mix of earning assets and interest-bearing liabilities.
RATE/VOLUME ANALYSIS OF NET INTEREST INCOME. The following table
reflects the effect on interest income, interest expense, and net interest
income, in the periods indicated, of changes in average balance and rate from
the corresponding prior period. We have determined the effect of a change in
average balance by applying the average rate in the earlier period to the change
in average balance in the later period, as compared with the earlier period. We
have included changes resulting from average balance/rate variances in changes
resulting from rate. The balance of the change in interest income or expense and
net interest income is attributed to a change in average rate.
14
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
AS COMPARED TO THE YEAR ENDED DECEMBER 1998
----------------------------------------------------
NET INCREASE INCREASE INCREASE
(DECREASE) (DECREASE) (DECREASE)
DUE TO RATE DUE TO VOLUME
----------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
ASSETS
Interest earning assets
Loans...................................... $ 2,616 $ (93) $ 2,709
Investment securities...................... (75) (15) (60)
Federal funds sold......................... 271 (12) 283
------------- ------------ ------------
Total interest income................... 2,812 (120) 2,932
------------- ------------ ------------
Interest-bearing liabilities--deposits......... 1,362 (32) 1,330
Short-term borrowing.......................... 9 -- 9
------------- ----------- ------------
Total interest expense................... 1,371 (32) 1,339
------------- ------------ ------------
Change in net interest income................. $ 1,441 $ (152) $ 1,593
============= ============ ============
</TABLE>
PROVISION AND ALLOWANCE FOR LOAN LOSSES. We have established an
allowance for loan losses through a provision for loan losses charged to
expense. The allowance represents an amount which we believe will be adequate to
absorb probable losses on existing loans that may become uncollectible. Our
judgment in determining the adequacy of the allowance is based on evaluations of
the collectibility of loans, including consideration of such factors as the
balance of impaired loans, changes in the nature and volume of the loan
portfolio, current economic conditions that may affect the borrower's ability to
pay, overall portfolio quality, and a review of specific problem loans. We
adjust the amount of the allowance periodically based on changing circumstances.
Recognized losses are charged to the allowance for loan losses, while subsequent
recoveries are added to the allowance. A loan is impaired when it is probable
that we will be unable to collect all principal and interest payments due in
accordance with the terms of the loan agreement. Individually identified
impaired loans are measured based on the present value of expected payments,
using the contractual loan rate as the discount rate. Alternatively, measurement
may be based on observable market prices, or, for loans that are solely
dependent on the collateral for repayment, the fair value of the collateral. If
the recorded investment in the impaired loan exceeds the measure of fair value,
a valuation allowance is established as a component of the allowance for loan
losses. Changes to the valuation allowance are recorded as a component of the
provision for loan losses.
In addition, regulatory agencies, as an integral part of their
examination process, periodically review our allowance for loan losses, and they
may require us to record additions to the allowance based on their review of
information available to them at the time of their examinations.
At December 31, 1999, our allowance for loan losses amounted to
$730,000, or 1.50% of outstanding loans. At December 31, 1998, our allowance for
loan losses amounted to $165,000, representing 1.59% of outstanding loans. Our
provision for loan losses for the years ended December 31, 1999 and 1998 was
$565,000 and $165,000, respectively.
Our provision for loan losses for the three and six months ended June
30, 2000 was $56,000 and $114,000, respectively. Consequently, at June 30, 2000,
the allowance had grown to $844,000, representing 1.53% of outstanding loans.
We discontinue accrual of interest on a loan when we conclude it is
doubtful that we will be able to collect interest from the borrower. We reach
this conclusion based on the borrower's financial condition, economic and
business conditions, and the results of our previous collection efforts.
Generally, we will place a delinquent loan in nonaccrual status when the loan
becomes 90 days or more past due. When we place a loan in
15
<PAGE>
nonaccrual status, we reverse all interest which has been accrued on the loan
but remains unpaid and we deduct this interest from earnings as a reduction of
reported interest income. We do not accrue any additional interest on the loan
balance until we conclude the collection of both principal and interest is
reasonably certain. We had one non-performing loan totaling $93,000 at December
31, 1999 and no non-accrual, restructured, or non-performing loans at December
31, 1998. At December 31, 1999, we had four loans totaling $1,960,000 that were
delinquent by more than 30 days. At December 31, 1998, we did not have any other
loans that were delinquent by more than 30 days.
At June 30, 2000, we had one non-performing loan totaling $74,586,
which was subsequently sold in July 2000. We had no significantly past due loans
at June 30, 2000 and had no charge-offs for the six-month period ending June 30,
2000.
We do not include loans that are current as to principal and interest
in our nonperforming assets categories. However, we will still classify a
current loan as a potential problem loan if we develop serious doubts about the
borrower's future performance under the terms of the loan contract. We consider
the level of potential problem loans in our determination of the adequacy of the
allowance for loan losses. As noted above, on December 31, 1999 we only had one
loan totaling $93,000 which we considered to be a potential problem loan. At
December 31, 1998 we did not have any loans we considered to be potential
problem loans.
At June 30, 2000 we did not have any loans we considered to be
potential problem loans.
ALLOWANCE FOR LOAN LOSSES
The following table sets forth an analysis of our allowance for loan
losses for the periods indicated.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
------------------- -----------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Average loans outstanding............................ $ 29,713 $ 2,114
============= ==============
Loans outstanding at period end...................... $ 48,664 $ 10,425
============= ==============
Total nonperforming loans............................ $ 93 $ --
============= ==============
Beginning balance of allowance....................... $ 165 $ --
Loans charged off.................................... -- --
Recoveries of previous charge-offs................... -- --
Net loans charged-off................................ -- --
Provision for loan losses............................ 565 165
------------- --------------
Balance at period end................................ $ 730 $ 165
============= ==============
Net charge-offs to average loans..................... -- --
Allowance as percent of total loans.................. 1.50% 1.59%
Nonperforming loans as a percentage of total loans... .19% --%
Allowance as a percent of nonperforming loans........ 784.9% N/A
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
At December 31, 1999 and 1998, the allowance was allocated as follows:
PERCENTAGE OF PERCENTAGE OF
YEAR ENDED LOANS IN EACH YEAR ENDED LOANS IN EACH
DECEMBER 31, CATEGORY TO DECEMBER 31, CATEGORY TO
1999 TOTAL LOANS 1998 TOTAL LOANS
---------- --------------- ------------ -----------
<S> <C> <C> <C> <C>
Commercial $ 181,860 24.91% $181,860 33.47%
Real Estate - individual 43,400 5.95% 32,116 19.46%
Real Estate - commercial 425,950 58.35% 56,420 34.19%
Installment loans to individuals 48,790 6.68% 11,238 6.81%
Unallocated 30,000 4.11% 10,000 6.06%
------------- ------------- ---------- ---------
Total $ 730,000 100.00% $165,000 100.00%
============= ============= ========== =========
</TABLE>
NONINTEREST INCOME. Currently, our primary sources of noninterest
income are mortgage origination fees and service charges on deposit accounts. We
generated $209,450 and $33,829 in mortgage origination fees and deposit service
charges, respectively, during the year ended December 31, 1999, which
represented 74.8% and 12.1%, respectively, of the total noninterest income of
$279,994 we earned during the year. On an annualized basis, our noninterest
income represented only 0.53% of our total assets at December 31, 1999. At June
30, 2000, other income represented less than .08% of total assets on an
annualized basis. The ratio of noninterest income to assets is relatively low
because in order to attract new banking relationships, we have charged lower
fees than most other banks. Our other sources of noninterest income included
loan maintenance fees, bankcard fees, commissions on check sales, safe deposit
box rent, ATM fees, wire transfer fees, and official check fees. Our noninterest
income for the year ended December 31, 1998 was $662.
NONINTEREST EXPENSE. Our noninterest expense for the years ended
December 31, 1999 and 1998 totaled $4,302,000 and $1,259,000, respectively. We
incurred significant professional and other outside services expenses in 1999,
including legal, advertising, and public relations expenses to establish,
promote, and implement our revised Internet business strategy. Additionally, the
Office of Thrift Supervision assessed a $100,000 civil money penalty against us
because it concluded that we began to implement our new business strategy in
June 1999 prior to obtaining its approval. While neither admitting nor denying
the Office of Thrift Supervision's assertions, in September 1999 we consented to
and paid this penalty. As we commenced banking operations on August 17, 1998,
the expenses for the year ended December 31, 1998 include approximately $503,000
in pre-opening expenses. The following table sets forth the primary components
of noninterest expense for these periods.
NONINTEREST EXPENSE
YEAR ENDED YEAR ENDED
DECEMBER 31, DECEMBER 31,
1999 1998
------------------- ---------------
(DOLLARS IN THOUSANDS)
Salaries and other compensation......... $ 1,495 $ 556
Employee benefits....................... 435 89
Net occupancy and equipment expense..... 592 156
Professional and other outside services. 1,086 224
Other expense........................... 694 234
--------- -----------
Total................................... $ 4,302 $ 1,259
========= ===========
Operating expenses for the six-months ended June 30, 2000 totaled
$5,681,649, including salaries and other compensation of $1,436,585, employee
benefits expenses of $412,172, occupancy and equipment expenses of $607,286,
professional and other outside services of $2,961,900, and other expenses of
$263,706.
17
<PAGE>
We incurred significant increases in operating expenses in the
six-months ended June 30, 2000 over the same period in 1999 in connection with
the launch of a new business strategy in the first quarter of 2000. The primary
components of these expenses included additional staffing, occupancy, and
professional expenses to support our projected growth, marketing expenses to
promote our products and services, and other general operating expenses. As
described above, we announced the reevaluation of this business strategy and the
restructuring of management in July 2000, which included the elimination of some
senior level positions, to reduce costs at the holding company level.
As a result of this reevaluation of our business strategies, at June
30, 2000, we wrote off certain costs which had previously been capitalized.
These write-offs included $693,173 related to a private stock placement
offering, which was suspended due to adverse market conditions. Additionally,
unamortized prepaid marketing related costs of $125,000 were written off related
to certain suspended business strategies.
INCOME TAX EXPENSE. As of December 31, 1999, our cumulative net
operating loss was approximately $3,794,000. We had a cumulative net operating
loss carryforward of approximately $1,034,000 for financial reporting purposes
and $678,000 for income tax purposes for the year ended December 31, 1998. Our
ability to realize a deferred tax benefit as a result of net operating losses
will depend upon whether we have sufficient taxable income of an appropriate
character in the carryforward periods. We recognize deferred tax assets for
future deductible amounts resulting from differences in the financial statement
and tax bases of assets and liabilities and operating loss carryforwards. We
then establish a valuation allowance to reduce the deferred tax asset to the
level that it is "more likely than not" that we will realize the tax benefit. We
have fully offset the deferred tax assets resulting primarily from the provision
for loan losses and the operating loss carry forwards by a valuation allowance
in the same amount.
ANALYSIS OF FINANCIAL CONDITION
Total consolidated assets increased by $17,365,857, or 33.4%, to
$69,429,227 during the six-month period ended June 30, 2000. The increase was
generated primarily through a net increase in deposits of $20,695,457, or 49.7%.
At June 30, 2000, our assets consisted primarily of federal funds sold
of $9,220,000, other investments of $163,053, net loans of $54,220,430, property
at cost less accumulated depreciation of $2,246,855, cash due from banks of
$2,171,789, investment in Talisman Technologies, Inc. of $665,932, and other
assets totaling $268,193. Our liabilities at June 30, 2000, were $63,267,813,
consisting of deposits of $62,306,579 and accrued expenses and other liabilities
of $961,234. Our shareholders' equity totaled $6,161,414 at June 30, 2000. The
transaction with Talisman Technologies, Inc. was terminated and rescinded on
July 14, 2000.
LOANS. Loans often provide higher yields than the other types of
earning assets, and thus one of our goals is for loans to be the largest
category of our earning assets. At December 31, 1999 and 1998, loans accounted
for 97% and 44%, respectively of our earning assets. Loans averaged $29.7
million and $2.1 million for the years ended December 31, 1999 and 1998,
respectively.
For the six-month period ended June 30, 2000, average loans, on an
annualized basis, were approximately $50,936,006. Total gross loans outstanding
at June 30, 2000 were $55,064,430.
18
<PAGE>
The following tables show the composition of our loan portfolio by
category for the periods indicated:
<TABLE>
<CAPTION>
COMPOSITION OF LOAN PORTFOLIO
DECEMBER 31, DECEMBER 31,
1999 1998
---------------------------- ----------------------------
PERCENT PERCENT
AMOUNT OF TOTAL AMOUNT OF TOTAL
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial, financial and
agricultural................. $ 12,644 25.98% $ 3,714 35.63%
Real estate-commercial.......... 29,613 60.85% 3,795 36.40%
Real estate-individual.......... 3,019 6.20% 2,160 20.72%
Consumer and other.............. 3,388 6.97% 756 7.25%
------------- --------- ------------- -------
Total loans................ 48,664 100.00% 10,425 100.00%
========= =======
Less:
Net deferred loan fees....... (67) (19)
Allowance for loan losses.... (730) (165)
------------- -------------
Total net loans............ $ 47,867 $ 10,241
============= =============
</TABLE>
The following table summarizes the composition of the loan portfolio at
June 30, 2000:
PERCENT
AMOUNT OF TOTAL
--------------- -----------
Commercial $11,726,060 21.22%
Real estate - individual 2,292,505 4.15%
Real estate - commercial 38,621,253 69.90%
Installment loans to individuals 2,613,722 4.73%
--------------- -----------
Total loans 55,253,540 100.00%
===========
Less: Net deferred loan fees (189,110)
Allowance for loan loss (844,000)
---------------
Total net loans 54,220,430
===============
The principal components of our loan portfolio at June 30, 2000 were
mortgage loans and commercial loans, which represented 95.3% 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. We will attempt to maintain a
relatively diversified loan portfolio to help reduce the risk inherent in
concentration of collateral.
In the context of this discussion, we define a "real estate loan" as
any loan, other than loans for construction purposes, secured by real estate,
regardless of the purpose of the loan. We follow the common practice of
financial institutions in our market area of obtaining a security interest in
real estate whenever possible, in addition to any other available collateral. We
take this collateral to reinforce the likelihood of the ultimate repayment of
the loan; however, this tends to increase the magnitude of our real estate loan
portfolio component. Generally, we limit our loan-to-value ratio to 80%. Our
largest category of loans, commercial real estate loans, totaled $29.6 million
and represented 61% of the loan portfolio at December 31, 1999, compared to $3.8
million and 36% at December 31, 1998. A significant portion of our commercial
loans provide working
19
<PAGE>
capital to small businesses. Due to the short amount of time this loan portfolio
has existed, the current ratios and amounts may not be indicative of the ongoing
portfolio mix.
The repayment of loans in the loan portfolio as they mature is one of
our sources of liquidity. The following table sets forth our loans maturing
within specified intervals at December 31, 1999 and 1998. This information is
based on the contractual maturities of individual loans, including loans that
may be subject to renewal at their contractual maturity. Of course, loan
renewals are subject to our review and credit approval, as well as modification
of the original loan terms.
<TABLE>
<CAPTION>
LOAN MATURITY SCHEDULE AND SENSITIVITY TO CHANGES IN INTEREST RATES
DECEMBER 31, 1999
----------------------------------------------------------------------------
OVER ONE YEAR
ONE YEAR THROUGH OVER FIVE
OR LESS FIVE YEARS YEARS TOTAL
------------- ------------------- --------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial, financial and agricultural..... $ 6,278 $ 5,542 $ 824 $ 12,644
Real estate-commercial..................... 9,500 13,286 6,827 29,613
Real estate-individual..................... 459 928 1,632 3,019
All other loans............................ 1,826 1,180 382 3,388
---------- --------------- ----------- -----------
$ 18,063 $ 20,936 $ 9,665 $ 48,664
========== =============== =========== ===========
Loans maturing after one year with:
Fixed interest rates.................................................................................... $ 20,981
Floating interest rates................................................................................. 9,620
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
----------------------------------------------------------------------------
OVER ONE YEAR
ONE YEAR THROUGH OVER FIVE
OR LESS FIVE YEARS YEARS TOTAL
------------- ------------------- --------------- --------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial, financial and agricultural..... $ 1,762 $ 1,144 $ 808 $ 3,714
Real estate-commercial..................... 1,536 1,516 743 3,795
Real estate-individual..................... 435 482 1,243 2,160
All other loans............................ 481 275 -- 756
---------- --------------- ----------- -----------
$ 4,214 $ 3,417 $ 2,794 $ 10,425
========== =============== =========== ===========
Loans maturing after one year with:
Fixed interest rates.................................................................................... $ 3,420
Floating interest rates................................................................................. 2,791
</TABLE>
INVESTMENT SECURITIES. Our investment securities portfolio represented
15% and 10% of our average earning assets for the years ended December 31, 1999
and 1998, respectively. We attempt to maintain a portfolio of high quality,
highly liquid investments with returns competitive with short term U.S. Treasury
or agency obligations. This objective will be particularly important as we
continue to emphasize increasing the percentage of our loan portfolio to total
earning assets. We have made most of our investments in securities of U.S.
Government agencies with maturities less than one year. Other investments at
December 31, 1999 consisted of investments in common stock in the Federal Home
Loan Bank of Atlanta and in The Godfrey Bank.
20
<PAGE>
The following table summarizes the book value of securities for the
dates indicated.
SECURITIES PORTFOLIO
DECEMBER 31, DECEMBER 31,
1999 1998
-------------- --------------
(DOLLARS IN THOUSANDS)
Available-for-sale
U.S. Government agencies......... $ 995 $ 3,986
Common stock..................... 150 150
Other stock...................... 63 26
----------- ------------
Total............................ $ 1,208 $ 4,162
=========== ============
The following table shows, at carrying value, the scheduled maturities
and average yields of securities held at December 31, 1999 and 1998.
INVESTMENT SECURITIES MATURITY DISTRIBUTION AND YIELDS
<TABLE>
<CAPTION>
DECEMBER 31, 1999
AFTER ONE
BUT WITHIN AFTER
WITHIN ONE YEAR FIVE YEARS FIVE YEARS
------------------------- ------------------------ ------------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------------- -------- ------------ --------- ----------- ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Available-for-sale:
U.S. government
agencies.............. $ 995 5.43% $ -- % $ -- --%
Common stock (1) ....... -- -- -- -- 150 --
Other stock............. -- -- -- 63 7.75
---------- ----- -------- ------------ --------- --------
Total investment
securities......... $ 995 5.43% $ -- % $ 213 7.75%
========== ===== ======== ============ ========= ========
</TABLE>
DECEMBER 31, 1998
<TABLE>
<CAPTION>
AFTER ONE
BUT WITHIN AFTER
WITHIN ONE YEAR FIVE YEARS FIVE YEARS
------------------------- ------------------------ -----------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
------------- -------- ------------ --------- ----------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Available-for-sale:
U.S. government
agencies.............. $ 3,986 5.00% $ -- % $ -- %
Common stock (1) ....... -- -- -- -- 150 --
Other stock............. -- -- -- -- 26 7.50
---------- ---- -------- ------ --------- ------
Total investment
securities......... $ 3,986 5.00% $ -- % $ 176 7.50%
========== ===== ======== ======= ========= =======
</TABLE>
(1) Yield based on dividends paid.
SHORT-TERM INVESTMENTS. Our short-term investments, which consist of
federal funds sold, averaged $6.6 million and $6.1 million for the years ended
December 31, 1999 and 1998. These funds are a primary source of our liquidity
and are generally invested in an earning capacity on an overnight basis.
21
<PAGE>
DEPOSITS AND OTHER INTEREST-BEARING LIABILITIES. Average
interest-bearing liabilities totaled $2.1 million, or 21.5% of average assets in
1998. Interest-bearing liabilities averaged $28.9 million, or 66.6% of average
assets, for the year ended December 31, 1999, reflecting our general growth
during our first full year of operations.
DEPOSITS. Average interest-bearing deposits totaled $28.6 million and
$2.0 million for the years ended December 31, 1999 and 1998. At December 31,
1999, total deposits were $41.6 million and averaged $31.9 million for the year
then ended. The following table sets forth our deposits by category for the
periods indicated.
<TABLE>
<CAPTION>
DEPOSITS
DECEMBER 31, DECEMBER 31,
1999 1998
------------------------------ ---------------------------------
PERCENT OF PERCENT OF
AMOUNT DEPOSITS AMOUNT DEPOSITS
------------- -------------- ------------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Demand deposit accounts...... $ 3,918 9.42% $ 1,025 8.01%
NOW accounts................. 1,175 2.82% 653 5.10%
Money market accounts........ 12,980 31.19% 4,558 35.60%
Savings accounts............. 21 0.05% 19 0.15%
Time deposits
less than $100,000......... 14,290 34.34% 3,612 28.21%
Time deposits
of $100,000 or over........ 9,227 22.18% 2,935 22.93%
------- ------------ -------
Total deposits............. $ 41,611 100.00% $ 12,801 100.00%
=========== ======= ============ =======
</TABLE>
The following table reflects the maturity distribution of our
certificates of deposit of $100,000 or more at December 31, 1999 and 1998.
<TABLE>
<CAPTION>
MATURITIES OF CERTIFICATES OF DEPOSITS OF $100,000 OR MORE
AFTER SIX
WITHIN AFTER THREE THROUGH
THREE THROUGH TWELVE AFTER TWELVE
MONTHS SIX MONTHS MONTHS MONTHS TOTAL
----------- --------------- ------------ ---------------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
December 31, 1998.............. $ -- $ -- $ 2,833 $ 102 $ 2,935
========= ========== ========= ========== =========
December 31, 1999.............. $ 317 $ 1,276 $ 6,683 $ 951 $ 9,227
========= ========== ========= ========== =========
</TABLE>
BORROWED FUNDS. At December 31, 1999 and 1998, we had outstanding
balances of $240,000 (consisting of federal funds purchased) and $0,
respectively. During 1997 and 1998, we had a line of credit with a bank that was
used to finance the purchase of leasehold improvements and furniture, fixtures,
and equipment and to pay operating expenses we incurred while still in
organization. The maximum amount of borrowings outstanding at any month end was
$377,000. The average rate we paid on short-term borrowings for the years ended
December 31, 1999 and 1998 was 6.31% and 8.50%, respectively. We repaid the
pre-opening line of credit in full once we were capitalized in 1998. We did not
have any other outstanding balances in borrowed funds as of December 31, 1998.
In August, 2000, we obtained a $2.5 million line of credit, guaranteed by our
directors, to pay expenses related to our former business strategy and to
support the development of a new strategy.
22
<PAGE>
CAPITAL
Total shareholders' equity at December 31, 1999 and 1998 was $9.9
million, compared with shareholders' equity $12.6 million, as of December 31,
1998. This decrease was attributable to a net loss for the year ended December
31, 1999 of $(2,677,694) and a $1,411 decrease in the market value of investment
securities available-for-sale.
We are subject to various regulatory capital requirements administered
by the federal banking agencies. Our failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on our consolidated financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, we must
meet specific capital guidelines that involve quantitative measures of our
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. Our capital amounts and classifications are
also subject to qualitative judgments by the regulators about components, risk
weightings, and other factors. In addition, under regulatory guidelines, Ebank,
our banking subsidiary, may not pay a dividend to Ebank.com, Inc., if doing so
would cause Ebank to be less than adequately capitalized.
Quantitative measures established by regulation to ensure capital
adequacy require Ebank to maintain minimum amounts and ratios. The primary
regulatory agency for Ebank, the Office of Thrift Supervision, requires ebank to
maintain minimum ratios of tangible capital to tangible assets of 1.5%, core
capital to tangible assets of 3.0%, and total risk-based capital to
risk-weighted assets of 8.0%. At December 31, 1999, Ebank had total, core,
tangible, and Tier 1 capital to risk weighted assets ratios of 15.7%, 13.8%,
13.8% and 14.4%, respectively.
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.
We believe that, as of June 30, 2000, we meet all capital requirements
to which we are subject.
LIQUIDITY MANAGEMENT
Liquidity management involves monitoring our sources and uses of funds
in order to meet our day-to-day cash flow requirements while maximizing profits.
Liquidity represents the ability of a company to convert assets into cash or
cash equivalents without significant loss and to raise additional funds by
increasing liabilities. Liquidity management is made more complicated because
different balance sheet components are subject to varying degrees of management
control. For example, the timing of maturities of the investment portfolio is
very predictable and subject to a high degree of control at the time investment
decisions are made. However, net deposit inflows and outflows are far less
predictable and are not subject to the same degree of control. Asset liquidity
is provided by cash and assets which are readily marketable, which can be
pledged, or which will mature in the near future. Liability liquidity is
provided by access to core funding sources, principally the ability to generate
customer deposits in our market area. In addition, liability liquidity is
provided through the ability to borrow against approved lines of credit (federal
funds purchased) from correspondent banks and to borrow on a secured basis
through securities sold under agreements to repurchase.
We sold 1,469,250 shares during our initial public offering in 1998,
with net proceeds after offering expenses of $13.7 million. We used
approximately $8.5 million of the proceeds of the offering to capitalize ebank,
and we retained the remaining offering proceeds to provide working capital for
Ebank.com, Inc. Our funds sold position, which is usually our primary source of
liquidity, averaged $5.0 million and $6.1 million for the years ended December
31, 1999 and 1998, respectively. The actual funds sold position was $.6 million
and $9.3 million on December 31, 1999 and 1998, respectively.
We believe at June 30, 2000 we had a satisfactory liquidity position at
the bank level as total cash, cash equivalents, and federal funds sold amounted
to approximately $11.4 million, or 16% of total assets. We also
23
<PAGE>
consider our ability to maintain and expand our deposit base and borrowing
capabilities to be a source of liquidity. For the six-months ended June 30,
2000, total deposits increased from $41.6 million to $62.3 million, representing
an increase of 27%.
We regularly review our liquidity position and have implemented
internal policies which establish guidelines for sources of asset-based
liquidity and limit the total amount of purchased funds used to support the
balance sheet and funding from non-core sources.
As noted above, we commenced a private offering to fund expenses
related to our new business strategy that we launched in the first quarter of
2000. Due to adverse market conditions, we suspended this offering. We incurred
a substantial amount of expenditures at the holding company level and, as a
result of the failed offering, lacked sufficient liquidity at the holding
company level to pursue our business strategy. Consequently, in July 2000, we
announced the restructuring of management, which included the elimination of
some senior level positions, and the reevaluation of certain business strategies
to reduce costs at the holding company level. On August 8, 2000, we closed on a
$2,500,000 loan to repay amounts due to our bank subsidiary and provide working
capital for the holding company.
24
<PAGE>
ACCOUNTING MATTERS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities." Under SFAS 133, which is effective for
fiscal years beginning after June 15, 2000, a company will recognize all
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 must 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. We do not expect the adoption of SFAS 133
to have a significant effect on our financial condition or results of
operations.
CHANGES IN OUR CERTIFYING ACCOUNTANT
On August 22, 2000, we replaced the firm of BDO Seidman, LLP with
Mauldin & Jenkins, LLC as our auditors effective as of that date. The decision
to change accountants was approved by our audit committee.
The reports of BDO Seidman on our financial statements for the past two
fiscal years did not contain an adverse opinion or a disclaimer of opinion and
were not qualified or modified as to uncertainty, audit scope, or accounting
principles.
In connection with the audits of our financial statements for the
fiscal year ended December 31, 1999 and in the subsequent interim period, there
were no disagreements with BDO Seidman on any matters of accounting principles
or practices, financial statement disclosure, or auditing scope and procedures
which, if not resolved to the satisfaction of BDO Seidman, would have caused BDO
Seidman to make reference to the matter in their report. During the fiscal year
ended December 31, 1999 and in the subsequent interim period, there were no
"reportable events" to describe as specified in Item 304(a)(1)(iv)(B) of
Regulation S-B.
A copy of the letter from BDO Seidman stating whether it agrees with
the above statements dated August 24, 2000, is filed as Exhibit 16.1 to our Form
8-K filed on August 25, 2000.
On August 22, 2000, we engaged Mauldin & Jenkins as our independent
auditors for the fiscal year ending December 31, 2000. During our most recent
fiscal year and the subsequent interim period preceding the engagement of
Mauldin & Jenkins, we did not consult Mauldin & Jenkins on any matter requiring
disclosure under Item 304(a)(2) of Regulation S-B.
25
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
Our executive officers, key employees, and directors are as follows:
JAMES L. BOX is our chief executive officer and chief operating
officer. Mr. Box is also the chief financial officer of Ebank.
LOUIS J. DOUGLASS, III is the president and chief executive officer of
Ebank. Mr. Douglass was also an organizer and is a director of Ebank.
LAWRENCE W. BOURNE is the senior vice president and senior credit
officer of Ebank.
GARY M. BREMER is one of our directors and is also a director of Ebank.
Now retired, Mr. Bremer was the chairman and the chief executive officer of
Simione Central Holdings, Inc., a publicly traded information systems and
management services company in the home health industry.
RICHARD C. CARTER has been one of our directors since our formation in
August 1997. Mr. Carter serves as a health care development manager with State
Farm Life Insurance. Mr. Carter was also an organizer and is a director of
Ebank.
TERRY L. FERRERO has been one of our directors since our formation in
August 1997. Mr. Ferrero serves as president and chief executive officer of
American Wholesale Building Supply Company, a wholesale distributor of building
supplies. Mr. Ferrero was also an organizer and is a director of Ebank.
STEPHEN R. GROSS is one of our directors and is a co-founder of HLB
Gross Collins, P.C., a full-service CPA firm in Atlanta, Georgia. Mr. Gross was
also an organizer and is a director of Ebank.
G. WEBB HOWELL has been one of our directors since our formation in
August 1997. Mr. Howell is an agency field executive for State Farm Insurance.
Mr. Howell was also an organizer and is a director of Ebank.
FORWARD LOOKING STATEMENTS
This annual report contains "forward-looking statements" concerning
Ebank.com, Inc. and its strategies, operations, performance, financial
conditions, and likelihood of success. These statements are based on many
assumptions and estimates, many of which are beyond our control. The words
"may," "would," "could," "will," "expect," "anticipate," "believe," "intend,"
"plan," and "estimate," as well as similar expressions, identify such
forward-looking statements.
26
<PAGE>
PRICE RANGE OF COMMON STOCK
Since our initial public offering on August 6, 1998, our common stock
has been quoted on the OTC Bulletin Board, originally under the symbol "STCH"
and, since May 3, 1999, under the symbol "EBDC." The following table sets forth
for the periods indicated the high and low sales prices per share of common
stock as reported on the OTC Bulletin Board.
HIGH LOW
---- ---
1998
----
Third quarter (commencing August 6, 1998)..... $ 12.38 $ 8.25
Fourth quarter................................ $ 9.75 $ 7.75
1999
----
First quarter................................. $ 9.50 $ 8.00
Second quarter................................ $ 17.88 $ 12.88
Third quarter................................. $ 18.50 $ 9.75
Fourth quarter................................ $ 13.88 $ 8.00
2000
----
First quarter ................................ $ 11.06 $ 6.00
Second quarter................................ $ 5.94 $ 3.06
Third quarter (through September 5, 2000)..... $ 3.75 $ 2.56
The transfer agent and registrar for the common stock is Continental
Stock Transfer & Trust Company.
27
<PAGE>
DIVIDEND POLICY
We have not declared or paid any cash dividends on our common stock,
and for the foreseeable future we do not intend to declare cash dividends on
common stock. We intend to retain earnings to grow our business and strengthen
our capital base.
Our principal source of income is dividend income from our subsidiary,
Ebank. The Office of Thrift Supervision regulates the amount of dividends that
Ebank may pay. All dividends may be paid only from the bank's currently
available profits less expenses, including losses and bad debts; Ebank may not
pay dividends from its capital and must notify the Office of Thrift Supervision
prior to the payment of any dividends. In addition, under the FDIC Improvement
Act, the bank may not pay a dividend if it would cause the bank to become
undercapitalized.
Our board of directors has the authority under our articles of
incorporation, without the approval of or any action by our shareholders, to
issue up to 10,000,000 shares of preferred stock. Our board of directors also
has the authority to designate the series and any preferences, powers,
limitations, and relative rights of each issuance of preferred stock and these
rights may be more favorable than those granted to holders of our common stock.
These rights could include payment of dividends, whether in cash or in
additional shares of our common stock.
FINANCIAL INFORMATION AND CORPORATE REPORTS
OUR ANNUAL REPORT ON FORM 10-KSB AND OUR QUARTERLY REPORT ON FORM
10-QSB ARE AVAILABLE WITHOUT CHARGE UPON WRITTEN REQUEST. Analysts and investors
seeking these reports or other information about Ebank.com, Inc. may contact:
James L. Box
Ebank.com, Inc.
2410 Paces Ferry Road
Atlanta, Georgia 30339
This Annual Report serves as the ANNUAL FINANCIAL DISCLOSURE STATEMENT
FURNISHED PURSUANT TO Part 250 of the Federal Deposit Insurance Corporation
Rules and Regulations. THIS STATEMENT HAS NOT BEEN REVIEWED OR CONFIRMED FOR
ACCURACY OR RELEVANCY BY THE FDIC.
28
<PAGE>
<TABLE>
<CAPTION>
INDEX TO FINANCIAL STATEMENTS
EBANK.COM, INC. AND SUBSIDIARY
<S> <C>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS .......................................................F-2
CONSOLIDATED AND PARENT-ONLY FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998,
AND THE PERIOD FROM INCEPTION TO DECEMBER 31, 1997
Balance Sheets...................................................................................F-3
Statements of Loss...............................................................................F-4
Statements of Changes in Shareholders' Equity....................................................F-6
Statements of Cash Flows ........................................................................F-7
Notes to Consolidated Financial Statements.......................................................F-8
CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED JUNE 30, 2000
Balance Sheets..................................................................................F-27
Statements of Loss..............................................................................F-28
Statements of Comprehensive Loss................................................................F-29
Statements of Cash Flows........................................................................F-30
Notes to Consolidated Financial Statements......................................................F-31
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
The Board of Directors and Stockholders
ebank.com, Inc.
Atlanta, Georgia
We have audited the accompanying consolidated balance sheets of ebank.com, Inc.
(formerly Southeast Commerce Holding Company) and subsidiaries as of December
31, 1999 and 1998, and the related consolidated statements of loss, changes in
shareholders' equity and cash flows for the years then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits. The financial statements of ebank.com, Inc.
(formerly known as Southeast Commerce Holding Company, a Development Stage
Corporation) for the period from inception (August 22, 1997) to December 31,
1997, were audited by Bricker & Melton, P.A., whose practice has been combined
with our Firm and whose report dated February 28, 1998, expressed an unqualified
opinion on those statements; such report contained an explanatory paragraph
relating to the Company's ability to continue as a going concern.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 1999 and 1998 consolidated financial statements referred to
above present fairly, in all material respects, the consolidated financial
position of ebank.com, Inc. and subsidiaries as of December 31, 1999 and 1998,
and the results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
As discussed in Note 16 to the consolidated financial statements, subsequent to
December 31, 1999, the Company entered into certain agreements related to its
plan to develop an Internet banking platform.
/s/ BDO Seidman, LLP
Atlanta, Georgia
April 6, 2000
F-2
<PAGE>
<TABLE>
<CAPTION>
EBANK.COM, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 1998
----------------------------------------------------------------------------- -------------------- -----------------------
ASSETS
<S> <C> <C>
Cash and due from banks (Note 2) $ 152,899 $ 603,677
Federal funds sold 620,000 9,320,000
Investment securities available for sale (Note 3) 994,700 3,986,491
Other investments (Note 3) 213,000 175,500
Loans, net of allowance for loan losses of $730,000 in 1999 and $165,000 in
1998 (Notes 4 and 9) 47,867,286 10,240,557
Premises and equipment, net (Note 5) 1,498,568 865,587
Accrued interest receivable 185,572 49,740
Other assets 531,345 258,284
----------------------------------------------------------------------------- -------------------- -----------------------
TOTAL ASSETS $52,063,370 $25,499,836
----------------------------------------------------------------------------- -------------------- -----------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing demand $ 3,918,038 $ 1,025,162
Interest-bearing demand and money market 14,154,490 5,210,318
Savings 21,391 19,295
Time deposits of $100,000 or more (Note 8) 9,226,715 2,934,726
Other time deposits (Note 8) 14,290,488 3,611,622
----------------------------------------------------------------------------- -------------------- -----------------------
Total deposits 41,611,122 12,801,123
Accrued interest payable 86,422 26,552
Other liabilities 424,183 51,413
----------------------------------------------------------------------------- -------------------- -----------------------
Total liabilities 42,121,727 12,879,088
----------------------------------------------------------------------------- -------------------- -----------------------
COMMITMENTS AND CONTINGENT LIABILITIES (Notes 5, 6, 11 and 12)
SHAREHOLDERS' EQUITY (Note 10)
Common stock, par value $.01; 10,000,000 shares authorized, 1,469,250
shares issued and outstanding, respectively 14,693 14,693
Capital surplus 13,722,072 13,722,072
Accumulated deficit (3,793,472) (1,115,778)
Accumulated other comprehensive income - market valuation reserve on
investment securities available for sale (Note 3) (1,650) (239)
----------------------------------------------------------------------------- -------------------- -----------------------
Total shareholders' equity 9,941,643 12,620,748
----------------------------------------------------------------------------- -------------------- -----------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $52,063,370 $25,499,836
----------------------------------------------------------------------------- -------------------- -----------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED AND PARENT-ONLY FINANCIAL STATEMENTS.
F-3
<PAGE>
<TABLE>
<CAPTION>
EBANK.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF LOSS
FOR THE PERIOD
FOR THE YEAR ENDED FOR THE YEAR ENDED FROM INCEPTION TO
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------------------------------------ ----------------------- --------------------- ---------------------
(PARENT ONLY)
<S> <C> <C> <C>
INTEREST INCOME
Loans, including fees $2,823,590 $ 207,468 $ -
Investment securities:
U.S. Government agencies and corporations 244,572 45,862 -
Other investments 4,135 650 -
Federal funds sold 317,969 323,689 -
------------------------------------------------------ ----------------------- --------------------- ---------------------
Total interest income 3,390,266 577,669 -
------------------------------------------------------ ----------------------- --------------------- ---------------------
INTEREST EXPENSE
Interest-bearing demand and money market 758,543 36,736 -
Savings 572 20 -
Time deposits of $100,000 or more 296,663 24,733 -
Other time deposits 404,625 36,522 -
Other borrowings (Note 6) 20,654 12,113 2,909
------------------------------------------------------ ----------------------- --------------------- ---------------------
Total interest expense 1,481,057 110,124 2,909
------------------------------------------------------ ----------------------- --------------------- ---------------------
Net interest income (loss) 1,909,209 467,545 (2,909)
PROVISION FOR LOAN LOSSES (Note 4) 565,000 165,000 -
------------------------------------------------------ ----------------------- --------------------- ---------------------
Net interest income (loss) after provision for loan
losses 1,344,209 302,545 (2,909)
------------------------------------------------------ ----------------------- --------------------- ---------------------
OTHER INCOME
Mortgage origination fees 209,450 - -
Service charges and other fees 70,544 662 -
------------------------------------------------------ ----------------------- --------------------- ---------------------
Total other income 279,994 662 -
------------------------------------------------------ ----------------------- --------------------- ---------------------
OTHER EXPENSE
Salaries and other compensation 1,494,772 556,038 51,780
Employee benefits 434,840 89,500 -
Net occupancy and equipment expense 591,783 156,415 8,351
Professional and other outside services (Note 13) 1,086,090 223,898 -
Other expense (Note 13) 694,412 233,448 11,720
------------------------------------------------------ ----------------------- --------------------- ---------------------
Total other expense 4,301,897 1,259,299 71,851
------------------------------------------------------ ----------------------- --------------------- ---------------------
LOSS BEFORE INCOME TAX BENEFIT AND CUMULATIVE EFFECT
OF CHANGE IN ACCOUNTING PRINCIPLE (2,677,694) (956,092) (74,760)
INCOME TAX BENEFIT (Note 7) - - -
------------------------------------------------------ ----------------------- --------------------- ---------------------
LOSS BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE (2,677,694) (956,092) (74,760)
CUMULATIVE EFFECT ON PRIOR YEARS OF CHANGE IN
ACCOUNTING PRINCIPLE FOR DEFERRED ORGANIZATION
COSTS, NET OF TAX (Note 15) - (84,926) -
------------------------------------------------------ ----------------------- --------------------- ---------------------
NET LOSS $(2,677,694) $(1,041,018) $(74,760)
------------------------------------------------------ ----------------------- --------------------- ---------------------
</TABLE>
SEE ACCOMPANYING NOTES TOCONSOLIDATED AND PARENT-ONLY FINANCIAL STATEMENTS.
(CONTINUED)
F-4
<PAGE>
<TABLE>
<CAPTION>
EBANK.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF LOSS (CONTINUED)
FOR THE PERIOD
FOR THE YEAR ENDED FOR THE YEAR ENDED FROM INCEPTION TO
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
------------------------------------------------------ ----------------------- --------------------- ---------------------
(PARENT ONLY)
<S> <C> <C> <C>
BASIC LOSS PER COMMON SHARE: (Note 1)
LOSS BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE $ (1.82) $ (1.36) $ -
CUMULATIVE EFFECT ON PRIOR YEARS OF CHANGE IN
ACCOUNTING PRINCIPLE FOR DEFERRED ORGANIZATION
COSTS, NET OF TAX (Note 15) - (.12) -
------------------------------------------------------ ----------------------- --------------------- ---------------------
BASIC LOSS PER COMMON SHARE $ (1.82) $ (1.48) $ -
--------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED AND PARENT-ONLY FINANCIAL STATEMENTS.
F-5
<PAGE>
<TABLE>
<CAPTION>
EBANK.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
ACCUMULATED OTHER
COMPREHENSIVE
COMPREHENSIVE ACCUMULATED (LOSS)-MARKET COMMON
TOTAL (LOSS) DEFICIT VALUATION RESERVE STOCK SURPLUS
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT INCEPTION $ - - $ - $ - $ -
(Parent Only)
Capital contribution 100 - - - 100
Comprehensive (loss):
Net loss (74,760) $ (74,760) (74,760) - - -
------------------
Comprehensive (loss) $ (74,760)
==================
---------------------------------------------------------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1997
(Parent Only) (74,660) (74,760) - - 100
Proceeds from sale of
capital stock, net of
expenses 13,736,665 - - 14,693 13,721,972
Comprehensive (loss):
Net loss (1,041,018) $(1,041,018) (1,041,018) - - -
Other comprehensive
(loss), net of tax:
Market valuation
adjustment on
securities
available for sale (239) (239) - (239) - -
------------------
Comprehensive (loss) $(1,041,257)
==================
---------------------------------------------------------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1998 12,620,748 (1,115,778) (239) 14,693 13,722,072
Comprehensive (loss):
Net loss (2,677,694) $(2,677,694) (2,677,694) - - -
Other comprehensive
(loss), net of tax:
Market valuation
adjustment on
securities
available for sale (1,411) (1,411) - (1,411) - -
------------------
Comprehensive (loss) $(2,679,105)
==================
---------------------------------------------------------------------------------------------------------------------------
BALANCE AT
DECEMBER 31, 1999 $9,941,643 $(3,793,472) $(1,650) $14,693 $13,722,072
---------------------------------------------------------------------------------------------------------------------------
SEE ACCOMPANYING NOTES TO CONSOLIDATED AND PARENT-ONLY FINANCIAL STATEMENTS.
</TABLE>
F-6
<PAGE>
<TABLE>
<CAPTION>
EBANK.COM, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE PERIOD
FOR THE YEAR ENDED FOR THE YEAR ENDED FROM INCEPTION TO
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31,1997
------------------------------------------------------- ---------------------- --------------------- ---------------------
(PARENT ONLY)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (2,677,694) $ (1,041,018) $ (74,760)
Adjustments to reconcile net loss to net cash used
by operating activities:
Net accretion of investment securities (243,631) (45,862) -
Depreciation and amortization of premises and
equipment 221,374 59,431 -
Provision for loan losses 565,000 165,000 -
Increase in deferred loan fees 46,741 19,688 -
Cumulative effect of change in accounting for
organization costs - 84,926 -
Increase in other assets (273,059) (238,701) (25,575)
Increase in accrued interest receivable (135,832) (49,740) -
Increase in accrued interest payable 59,871 26,552 -
Increase (decrease) in other liabilities 132,769 (13,748) 65,161
------------------------------------------------------- ---------------------- --------------------- ---------------------
Net cash used by operating activities (2,304,461) (1,033,472) (35,174)
------------------------------------------------------- ---------------------- --------------------- ---------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investment securities available for
sale (23,265,991) (13,941,027) -
Purchases of other investments and assets (37,500) (175,500) -
Maturities of investment securities available for
sale 26,500,000 10,000,000 -
Loans originated, net of principal repayments (38,238,470) (10,425,245) -
Purchases of premises and equipment (854,355) (868,867) (50,000)
Deferred organization costs - - (84,926)
------------------------------------------------------- ---------------------- --------------------- ---------------------
Net cash used by investing activities (35,896,316) (15,410,639) (134,926)
------------------------------------------------------- ---------------------- --------------------- ---------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from sale of capital stock, net of expenses - 13,736,665 -
Net increase in demand, money market and savings
deposits 11,839,144 6,254,775 -
Time deposits accepted, net of repayments 16,970,855 6,546,348 -
Proceeds from other borrowings 3,278,688 272,000 170,000
Repayment of other borrowings (3,038,688) (442,000) -
Proceeds from initial capital contribution - - 100
Proceeds from loans by Organizers - - 8,000
Repayment of loans by Organizers - - (8,000)
------------------------------------------------------- ---------------------- --------------------- ---------------------
Net cash provided by financing activities 29,049,999 26,367,788 170,100
------------------------------------------------------- ---------------------- --------------------- ---------------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (9,150,778) 9,923,677 -
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 9,923,677 - -
------------------------------------------------------- ---------------------- --------------------- ---------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 772,899 $ 9,923,677 $ -
------------------------------------------------------- ---------------------- --------------------- ---------------------
SUPPLEMENTAL DISCLOSURES OF CASH PAID
Interest $ 1,421,187 $ 83,573 $ -
------------------------------------------------------- ---------------------- --------------------- ---------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED AND PARENT-ONLY FINANCIAL STATEMENTS.
F-7
<PAGE>
EBANK.COM, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED AND PARENT-ONLY FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ebank.com, Inc. (formerly known as Southeastern Commerce Holding Company)
provides a full range of banking and bank-related services to individual and
corporate customers through its bank subsidiary, located in north Atlanta,
Georgia. Shortly after the opening of the bank subsidiary, plans were developed
to offer Internet banking services, and regulatory approval for such services
was obtained in December 1998. Effective April 20, 1999, the corporate name was
changed to "ebank.com, Inc." and the Internet domain name "ebank.com" was
acquired. Internet banking services began on June 30, 1999. ebank.com, Inc. and
subsidiaries are subject to intense competition for all banking services,
including Internet banking, from other financial institutions and nonbank
financial service companies. The Company is also subject to the regulations of
certain government agencies and, therefore, undergo periodic examinations by
those regulatory authorities.
The accounting and reporting policies of ebank.com, Inc. and subsidiaries
conform to generally accepted accounting principles and to general practices
within the banking industry. The following is a summary of the more significant
of these policies.
BASIS OF PRESENTATION
ebank.com, Inc. (the "Parent Company") was incorporated, under the laws of the
State of Georgia on August 22, 1997, to operate as a bank holding company with
the Office of Thrift Supervision. ebank (the "Bank") began as a general banking
business on August 17, 1998, as a wholly-owned subsidiary of the Parent Company.
The Parent Company also owns 100 percent of the capital stock of Commerce
Mortgage Company, LLC ("Commerce Mortgage"). The 1999 consolidated financial
statements include the accounts of the Parent Company and its wholly-owned
subsidiaries, the Bank and Commerce Mortgage, collectively known as the
"Company." All significant intercompany accounts and transactions have been
eliminated in consolidation. The financial statements for the period from
inception (August 22, 1997) to December 31, 1997, are for ebank.com, Inc.
(formerly known as Southeast Commerce Holding Company, a Development Stage
Corporation), the Parent Company only.
USE OF ESTIMATES
In preparing the consolidated financial statements, management is required to
make estimates and assumptions that affect the reported amounts of assets and
liabilities as of the date of the balance sheet and revenues and expenses for
the period. Actual results could differ significantly from those estimates.
CASH AND CASH EQUIVALENTS
For purposes of reporting cash flows, cash and cash equivalents include cash on
hand, amounts due from banks and federal funds sold. Generally, federal funds
are purchased and sold for one-day periods.
INVESTMENT SECURITIES
Investment securities available for sale are reported at market value, with
unrealized gains and losses reported as a separate component of shareholders'
equity. Other investments are reported at cost and, accordingly, earnings are
reported when interest is accrued or when dividends are received.
Premium and discount on all investment securities are amortized (deducted) and
accreted (added), respectively, to interest income on the straight-line and
interest methods over the period to the maturity of the related securities.
Gains or losses on disposition are computed by the specific identification
method for all securities.
F-8
<PAGE>
LOANS
Loans are reported at the gross amount outstanding, less a valuation allowance
for loan losses and net deferred loan fees. Interest income on loans is
recognized over the terms of the loans based on the principal amount
outstanding. If the collectibility of interest appears doubtful, the accrual
thereof is discontinued. Interest income on nonaccrual loans is recognized on a
cash basis, if there is no doubt of future collection of principal. Accrued
interest which appears doubtful of collection is reversed to the interest income
account if accrued in the current year or charged to the allowance for loan
losses if accrued in prior years.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established through a provision for loan losses
charged to expense. The allowance represents an amount which, in management's
judgment, will be adequate to absorb probable losses on existing loans that may
become uncollectible. Management's judgment in determining the adequacy of the
allowance is based on evaluations of the collectibility of loans and takes into
consideration such factors as the balance of impaired loans, changes in the
nature and volume of the loan portfolio, current economic conditions that may
affect the borrower's ability to pay, overall portfolio quality and a review of
specific problem loans. Periodic revisions are made to the allowance when
circumstances which necessitate such revisions become known. Recognized losses
are charged to the allowance for loan losses, while subsequent recoveries are
added to the allowance.
In addition, regulatory agencies, as an integral part of their examination
process, periodically review the Company's allowance for loan losses, and may
require the Company to record additions to the allowance based on their
judgement about information available to them at the time of their examinations.
A loan is impaired when it is probable the Company will be unable to collect all
principal and interest payments due in accordance with the terms of the loan
agreement. Individually identified impaired loans are measured based on the
present value of payments expected to be received, using the contractual loan
rate as the discount rate. Alternatively, measurement may be based on observable
market prices, or for loans that are solely dependent on the collateral for
repayment, measurement may be based on the fair value of the collateral. If the
recorded investment in the impaired loan exceeds the measure of fair value, a
valuation allowance is established as a component of the allowance for loan
losses. Changes to the valuation allowance are recorded as a component of the
provision for loan losses.
The accrual of interest on impaired loans is discontinued when, in management's
opinion, the borrower may be unable to meet payments as they become due.
Interest income is subsequently recognized only to the extent cash payments are
received.
MORTGAGE ORIGINATION FEES
The Company recognizes as income fees paid by residential mortgage borrowers
whenever loans are closed and sold to nonaffiliated lenders.
PREMISES, EQUIPMENT AND PURCHASED SOFTWARE
Bank premises, furniture and equipment, and leasehold improvements are reported
at cost less accumulated depreciation and amortization. For financial reporting
purposes, depreciation and amortization are computed using primarily
straight-line methods over the estimated useful lives of the assets.
Expenditures for maintenance and repairs are charged to operations as incurred,
while major renewals and betterments are capitalized. When property is disposed
of, the related cost and accumulated depreciation are removed from the accounts
and any gain or loss is reflected in income. For federal tax reporting purposes,
depreciation and amortization are computed using primarily accelerated methods.
Purchased software costs are reported at amortized cost, which is less than net
realizable value. These intangible assets are amortized against income based on
the straight-line method over their estimated life, generally 12 to 36 months.
F-9
<PAGE>
INCOME TAXES
The tax effects of transactions are recorded at current tax rates in the periods
the transactions are reported for financial statement purposes. Deferred income
taxes are established for the temporary differences between the financial
reporting basis and the tax basis of the Company's assets and liabilities at
enacted tax rates expected to be in effect when such amounts are realized or
settled. A valuation allowance is recorded for those deferred tax asset items
for which it is more likely than not that realization will not occur in the near
term.
The Company and the Bank file a consolidated income tax return. Each entity
provides for income taxes based on its contribution to income taxes (benefits)
of the consolidated group.
NET LOSS PER COMMON SHARE
Basic loss per common share is computed by dividing net loss available to common
shareholders by the weighted average number of shares outstanding during each
year, which totaled 1,469,250 and 704,435 shares for the years ended December
31, 1999 and 1998, respectively. There were no shares outstanding during the
period from inception to December 31, 1997. As the Company was in a net loss
position at December 31, 1999 and 1998, the inclusion of any common shares that
may be issued under stock option grants (Note 10) would have an antidilutive
effect on the Company's loss per common share.
STOCK-BASED COMPENSATION
The Company accounts for stock options under Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees" (APB 25). Under APB 25,
because the exercise price of the Company's stock options equals the market
price of the underlying stock on the date of grant, no compensation expense is
recognized.
FAIR VALUES OF FINANCIAL INSTRUMENTS
The Company uses the following methods and assumptions in estimating fair values
of financial instruments (see Note 15):
CASH AND CASH EQUIVALENTS - The carrying amount of cash and cash equivalents
approximates fair value.
INVESTMENT SECURITIES - The fair value of investment securities available for
sale is estimated based on bid quotations received from independent pricing
services.
OTHER INVESTMENTS - For other investments, the carrying amount approximates fair
value.
LOANS - For variable rate loans that reprice frequently and have no significant
change in credit risk, fair values are based on carrying values. For all other
loans, fair values are calculated by discounting the contractual cash flows
using estimated market discount rates which reflect the credit and interest rate
risk inherent in the loan, or by using the current rates at which similar loans
would be made to borrowers with similar credit ratings and for the same
remaining maturities.
DEPOSITS - The fair value of deposits with no stated maturity, such as demand,
NOW and money market, and savings accounts, is equal to the amount payable on
demand at year-end. The fair value of certificates of deposit is based on the
discounted value of contractual cash flows using the rates currently offered for
deposits of similar remaining maturities.
ACCRUED INTEREST - The carrying amount of accrued interest receivable and
payable approximates fair value.
OFF-BALANCE-SHEET INSTRUMENTS - The fair value for off-balance-sheet lending
commitments is equal to the amount of commitments outstanding at December 31,
1999. This is based on the fact that the Company generally does not offer
lending commitments or standby letters of credit to its customers for long
periods, and therefore, the underlying rates of the commitments approximate
market rates.
F-10
<PAGE>
RECLASSIFICATIONS
Certain reclassifications have been made in the 1998 financial statements to
conform with the 1999 presentation.
PENDING ACCOUNTING PRONOUNCEMENTS
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.
2. CASH AND DUE FROM BANKS
The Federal Reserve Board requires that banks maintain reserve balances with the
Federal Reserve Bank or in cash on hand, based on the institution's deposit
balances. At December 31, 1999 and 1998, the Bank's reserve requirement had not
been required to be computed or reported to the Federal Reserve Bank.
F-11
<PAGE>
3. INVESTMENT SECURITIES AND OTHER INVESTMENTS
The amortized cost and estimated market value of investment securities
available for sale are as follows:
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED MARKET
DECEMBER 31, 1999 COST GAINS LOSSES VALUE
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. Government agencies and
corporations $997,450 $ - $2,750 $994,700
------------------------------------------------------------------------------------------------------------
AMORTIZED UNREALIZED UNREALIZED MARKET
DECEMBER 31, 1998 COST GAINS LOSSES VALUE
------------------------------------------------------------------------------------------------------------
U.S. Government agencies and
corporations $3,986,889 $ - $398 $3,986,491
------------------------------------------------------------------------------------------------------------
</TABLE>
The amortized cost and estimated market value of investment securities available
for sale, by contractual maturity, are shown as follows. Expected maturities
will differ from contractual maturities because borrowers may have the right to
call or prepay obligations without call or prepayment penalties.
INVESTMENT SECURITIES
AVAILABLE FOR SALE
------------------------------
AMORTIZED MARKET
DECEMBER 31, 1999 COST VALUE
-------------------------------------------------------------------------------
Due in one year or less $997,450 $994,700
-------------------------------------------------------------------------------
There were no sales or calls of investment securities in 1999 or 1998.
Investment securities with amortized costs of $498,725 and $3,986,889 and market
values of $497,350 and $3,986,491 at December 31, 1999 and 1998, respectively,
were pledged to secure repurchase agreements, public funds and certain other
deposits.
At December 31, 1999 and 1998, the Company had no off-balance-sheet derivative
financial instruments, such as swaps, options, futures, or forward contracts.
Other investments, totaling $213,000 and $175,500 at December 31, 1999 and 1998,
respectively, consist of investments in common stock in the Federal Home Loan
Bank of Atlanta and common stock in The Godfrey Bank.
F-12
<PAGE>
4. LOANS
Major classifications of loans are as follows:
DECEMBER 31, 1999 1998
----------------------------------------------------------------------------
Commercial $12,644,137 $ 3,714,416
Real estate--individual 3,019,159 2,159,834
Real estate--commercial 29,612,902 3,794,652
Installment loans to individuals 3,387,518 756,344
----------------------------------------------------------------------------
Total loans 48,663,716 10,425,246
Less: Allowance for loan losses (730,000) (165,000)
Net deferred loan fees (66,430) (19,689)
----------------------------------------------------------------------------
Loans, net $47,867,286 $10,240,557
----------------------------------------------------------------------------
Most of the Bank's business activity is with customers located in the Atlanta,
Georgia, metropolitan area, with market concentration in the Cobb County area.
As of December 31, 1999 and 1998, the Bank had approximately $32,632,000 and
$5,955,000, respectively, of its loan portfolio secured by real estate.
At December 31, 1999 and 1998, the Bank had no loans which are considered
impaired.
The following is a summary of transactions in the allowance for loan losses:
YEAR ENDED DECEMBER 31, 1999 1998
-------------------------------------------------------------------------------
Balance, beginning of year $165,000 $ -
Provision charged to expense 565,000 165,000
Loans charged off - -
Recoveries of loans previously charged off - -
-------------------------------------------------------------------------------
Balance, end of year $730,000 $165,000
-------------------------------------------------------------------------------
5. PREMISES AND EQUIPMENT
Premises and equipment are comprised of the following:
DECEMBER 31, 1999 1998
-------------------------------------------------------------------------------
Leasehold improvements $ 94,764 $ 29,850
Furniture, fixtures and equipment 842,255 497,971
Computer software and Internet technology 842,354 397,197
-------------------------------------------------------------------------------
1,779,373 925,018
Less accumulated depreciation and amortization 280,805 59,431
-------------------------------------------------------------------------------
Premises and equipment, net $1,498,568 $865,587
-------------------------------------------------------------------------------
F-13
<PAGE>
Depreciation and amortization expense totaled $221,374 and $59,431 for 1999 and
1998, respectively. No depreciation was recorded in 1997.
The Company leases its banking facility and offices pursuant to operating
leases. Rental expense incurred under these leases was $158,893, $62,186 and
$9,015 in 1999, 1998 and 1997, respectively.
Future minimum lease payments under the operating leases are as follows:
YEARS ENDING DECEMBER 31,
---------------------------------------------------------------------
2000 $ 344,376
2001 350,612
2002 357,359
2003 284,916
2004 211,939
2005 and thereafter 543,600
---------------------------------------------------------------------
$ 2,092,802
---------------------------------------------------------------------
6. SHORT-TERM AND OTHER BORROWINGS
The Bank utilizes short-term borrowings as needed for liquidity purposes in the
form of federal funds purchased and security repurchase agreements. The Bank has
unsecured lines of credit for federal funds purchased from other banks totaling
$2,000,000 at December 31, 1999 and 1998. Amounts outstanding under these
federal fund lines were $240,000 and $0.00 at December 31, 1999 and 1998,
respectively and are included in other liabilities.
The maximum and daily average amounts of federal funds purchased were
approximately $4,279,000 and $72,000, respectively, in 1999, and no
corresponding activity in 1998. The average interest rate paid on federal funds
purchased in 1999 was 6.02 percent.
The maximum and daily average amounts of security repurchase agreements entered
into were approximately $1,000,000 and $71,233, respectively, in 1999, and no
corresponding activity in 1998. The average interest rate paid on security
repurchase agreements in 1999 was 4.24 percent.
On August 27, 1997, the organizers of the Bank obtained a $500,000 line of
credit from a bank at the adjustable prime rate. The line of credit was
unsecured and required interest-only payments on a quarterly basis with total
principal plus interest due at maturity on August 27, 1998. Personal guarantees
of the organizers, up to $83,333 each, were required by the lender bank. This
line of credit was used to repay (without interest) the organizers' $8,000
initial funding of the Company and to provide additional operating funds until
equity funding was obtained in 1998. Outstanding borrowings were $170,000 at
December 31, 1997. Approximately $442,000 was drawn against this line of credit
in 1998 and all borrowings outstanding were repaid on June 10, 1998. The line of
credit expired in 1998.
Commerce Mortgage maintains a $20,000,000 warehouse line of credit for
conventional mortgage loans and $7,000,000 for nonconventional mortgage loans
with a nonaffiliated bank, which had no outstanding balance at December 31,
1999.
F-14
<PAGE>
7. INCOME TAXES
The following are the components of income tax expense as provided:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED FOR THE YEAR ENDED FROM INCEPTION TO
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
----------------------------------------------------------------------------------------------------
(PARENT ONLY)
<S> <C> <C> <C>
Current income tax provision $ - $ - $ -
Deferred income tax benefit - - -
----------------------------------------------------------------------------------------------------
$ - $ - $ -
----------------------------------------------------------------------------------------------------
</TABLE>
A reconciliation of income taxes computed at the federal statutory income tax
rate to total income taxes is as follows:
<TABLE>
<CAPTION>
FOR THE PERIOD
FOR THE YEAR ENDED FOR THE YEAR ENDED FROM INCEPTION TO
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
---------------------------------------------------------------------------------------------------------------
(PARENT ONLY)
<S> <C> <C> <C>
Pretax income (loss) $ (2,677,694) $(1,041,018) $(74,760)
---------------------------------------------------------------------------------------------------------------
Income tax (benefit) computed at federal
statutory tax rate $ (910,416) $ (353,946) $(25,418)
Increase (decrease) resulting from:
Nondeductible meals, entertainment and dues (8,829) 2,368 850
State income tax benefit, net of federal
tax benefit (106,037) (41,224) (850)
Valuation allowance 1,025,282 392,802 25,418
---------------------------------------------------------------------------------------------------------------
$ - $ - $ -
---------------------------------------------------------------------------------------------------------------
</TABLE>
F-15
<PAGE>
The following summarizes the tax effects of temporary differences which comprise
net deferred tax assets:
DECEMBER 31, 1999 1998
-------------------------------------------------------------------------------
Deferred income tax assets:
Allowance for loan losses $ 262,129 $ 38,497
Net operating loss carryforward 1,078,763 258,285
Deferred organization costs 97,601 130,279
Other, net 18,256 5,118
-------------------------------------------------------------------------------
Total deferred income tax assets 1,456,749 432,179
-------------------------------------------------------------------------------
Deferred income tax liabilities:
Accumulated depreciation (13,247) (13,959)
-------------------------------------------------------------------------------
Total deferred income tax liabilities (13,247) (13,959)
-------------------------------------------------------------------------------
Valuation allowance (1,443,502) (418,220)
-------------------------------------------------------------------------------
Net deferred income tax (liability) asset $ - $ -
-------------------------------------------------------------------------------
As of December 31, 1999 and 1998, the Company had cumulative net operating loss
carryforwards of approximately $3,684,000 and $1,034,000, respectively, for
financial reporting purposes, and $2,823,000 and $678,400, respectively, for
income tax purposes and are subject to carryforward limitations and will expire
in 2018 and 2019.
8. TIME DEPOSITS
The aggregate amount of time deposits with a minimum denomination of $100,000
was approximately $9,227,000 and $2,935,000 at December 31, 1999 and 1998,
respectively.
At December 31, 1999, the scheduled maturities of time deposits of $100,000 or
more and other time deposits are as follows:
YEARS ENDING DECEMBER 31,
-----------------------------------------------------------------------------
2000 $21,156,203
2001 2,361,000
Thereafter -
-----------------------------------------------------------------------------
$23,517,203
-----------------------------------------------------------------------------
9. RELATED PARTY TRANSACTIONS
At December 31, 1999 and 1998, the Bank had direct and indirect loans which
aggregated $2,203,286 and $534,061, respectively, outstanding to or for the
benefit of certain of the Bank's officers, directors and their related
interests. During 1999 and 1998, $2,018,632 and $538,865 of such loans were made
and repayments totaled $349,407 and $4,804, respectively. These loans were made
in the ordinary course of business in conformity with normal credit terms,
including interest rates and collateral requirements prevailing at the time for
comparable transactions with borrowers unaffiliated with the Bank. These
individuals and their related interests also maintain customary demand and time
deposit accounts with the Bank.
F-16
<PAGE>
10. SHAREHOLDERS' EQUITY
The Company and the Bank are subject to various regulatory capital requirements
administered by the federal and state banking agencies. Failure to meet minimum
capital requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Company and the Bank's financial statements. The
regulations require the Company and the Bank to meet specific capital adequacy
guidelines that involve quantitative measures of the Company and the Bank's
assets, liabilities, and certain off-balance-sheet items as calculated under
regulatory accounting practices. The Company and the Bank's capital
classification is also subject to qualitative judgments by the regulators about
components, risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Company and the Bank to maintain minimum amounts and ratios (set
forth in the following tables) of Tier 1 capital (as defined in the regulations)
to average assets (as defined), and minimum ratios of Tier 1 and total capital
(as defined) to risk-weighted assets (as defined).
As of December 31, 1999, the most recent notification from the Office of Thrift
Supervision categorized the Company and Bank as well capitalized under the
regulatory framework for prompt corrective action. There are no conditions or
events since those notifications that management believes has changed the
Company's or Bank's category. To be considered well capitalized and adequately
capitalized (as defined) under the regulatory framework for prompt corrective
action, the Company and Bank must maintain minimum Tier 1 leverage, Tier 1
risk-based, and total risk-based ratios as set forth in the following tables.
The actual capital amounts and ratios are also presented in the following
tables.
<TABLE>
<CAPTION>
ADEQUATELY
WELL CAPITALIZED CAPITALIZED
DECEMBER 31, 1999 REQUIREMENT REQUIREMENT ACTUAL
-----------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Tier 1 Capital (to Average
Assets)
Company =>$2,167 => 5.0% $1,734 4.0% $ 9,943 22.9%
Bank =>$2,012 => 5.0% $1,609 4.0% $ 6,969 17.3%
Tier 1 Capital (to Risk
Weighted Assets)
Company =>$2,962 => 6.0% $1,974 4.0% $ 9,943 20.1%
Bank =>$2,897 => 6.0% $1,931 4.0% $ 6,969 14.4%
Total Capital (to Risk Weighted
Assets)
Company =>$4,936 =>10.0% $3,949 8.0% $10,567 21.4%
Bank =>$4,829 =>10.0% $3,863 8.0% $ 7,573 15.7%
</TABLE>
F-17
<PAGE>
<TABLE>
<CAPTION>
ADEQUATELY
WELL CAPITALIZED CAPITALIZED
DECEMBER 31, 1998 REQUIREMENT REQUIREMENT ACTUAL
-----------------------------------------------------------------------------------------------------------------------
(IN THOUSANDS) AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Tier 1 Capital (to Average
Assets)
Consolidated Company =>$ 1,275 => 5.0% $ 1,020 4.0% $ 12,621 49.5%
Bank =>$ 1,050 => 5.0% $ 840 4.0% $ 7,579 36.1%
Tier 1 Capital (to Risk
Weighted Assets)
Consolidated Company =>$ 820 => 6.0% $ 547 4.0% $ 12,621 92.3%
Bank =>$ 750 => 6.0% $ 500 4.0% $ 7,579 60.6%
Total Capital (to Risk Weighted
Assets)
Consolidated Company =>$ 1,367 => 10.0% $ 1,093 8.0% $ 12,786 93.6%
Bank =>$ 1,250 => 10.0% $ 1,000 8.0% $ 7,744 61.9%
</TABLE>
Management believes that, as of December 31, 1999, the Company and Bank meet all
capital requirements to which they are subject.
Dividends paid by the Bank are the primary source of funds available to the
Company. Banking regulations limit the amount of dividends which the Bank may
pay without obtaining prior regulatory approval. These restrictions are based on
the level of regulatory classified assets, the prior years' net earnings, and
the ratio of equity capital to total assets. At December 31, 1999 and 1998,
total shareholders' equity of the Bank was approximately $6,969,000 and
$7,579,000, respectively, and was not available for dividends.
STOCK OPTIONS
In May 1999, the Company's shareholders approved the 1998 ebank.com, Inc. Stock
Incentive Plan ("Plan"), which authorizes the grant of stock options to eligible
employees, officers and directors. The Company initially reserved a maximum of
220,000 shares for issuance under the Plan. However, in September 1999, the Plan
was amended to provide that the amount of stock subject to the Plan
automatically adjusts so that at all times it equals 15 percent of the
outstanding shares of stock.
Under the Plan, the Company may grant either incentive stock options or
nonqualified stock options. The total number of shares issuable as incentive
stock options may not exceed 220,000 without shareholder approval.
F-18
<PAGE>
The exercise price for the common stock granted as either an incentive stock
option or as a nonqualified stock option must be equal to at least 100 percent
of the fair market value per share of common stock on the date of grant. Options
have a three-year vesting term, beginning September 1, 1998, and expiring ten
years after the date of grant. Summarized information related to the incentive
stock options is as follows:
<TABLE>
<CAPTION>
EXERCISE PRICE WEIGHTED AVERAGE
DECEMBER 31, 1999 SHARES RANGE EXERCISE PRICE
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at December 31, 1998
Granted 202,125 $10.00 - $12.00 $11.52
Exercised - - -
Expired - - -
-------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 202,125 $10.00 - $12.00 $11.52
-------------------------------------------------------------------------------------------------------------------
Options exercisable at December 31, 1999 42,541 $10.00 - $12.00
Weighted average fair value of options granted during
1999 $5.69
-------------------------------------------------------------------------------------------------------------------
</TABLE>
The Board of Directors may, at its discretion, provide that an option not be
exercisable, in whole or in part, for any period or periods of time, as
specified in the option agreements. No option may be exercised after the
expiration of ten years from the date it was granted. Summarized information
regarding outstanding stock options is as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1999
-----------------------------------------------------------------------------------------------------------------------
OUTSTANDING OPTIONS OPTIONS EXERCISABLE
--------------------------------------------------------- ------------------------------------
WEIGHTED WEIGHTED WEIGHTED
RANGE OF NUMBER AVERAGE AVERAGE NUMBER AVERAGE
EXERCISE OUTSTANDING AT REMAINING EXERCISE EXERCISABLE AT EXERCISE
PRICE DECEMBER 31, 1999 CONTRACTUAL LIFE PRICE DECEMBER 31, 1999 PRICE
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$10.00 - $12.00 202,125 10 $11.52 42,541 $11.52
-----------------------------------------------------------------------------------------------------------------------
202,125 10 $11.52 42,541 $11.52
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions used for grants in 1999: dividend yield of 0 percent, expected
volatility of 25 percent, risk-free interest rates of 6.29 percent to 6.31
percent, and expected lives of nine to ten years.
The Company implemented Statement of Financial Accounting Standards No. 123
(SFAS 123), "Accounting for Stock-Based Compensation," in 1998. As permitted by
SFAS 123, the Company accounts for stock-based compensation by applying the
provisions of Accounting Principles Board Opinion No. 25 (APB 25), "Accounting
for Stock Issued to Employees." If the accounting provisions of SFAS 123 had
been adopted, net loss and net loss per share would have been $(3,058,426) and
$(2.02), respectively.
F-19
<PAGE>
11. OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS
The Bank is a party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing needs of its customers. These
financial instruments include commitments to extend credit. These instruments
involve, to varying degrees, elements of credit and interest rate risk in excess
of the amount recognized in the balance sheet. The contract amounts of these
instruments reflect the extent of involvement the Bank has in particular classes
of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit is
represented by the contractual amounts of these instruments. The Bank uses the
same credit policies in making commitments and conditional obligations as it
does for on-balance-sheet instruments.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since some of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. At December 31, 1999 and 1998, commitments
to extend credit totaled approximately $19,976,000 and $9,457,000, respectively.
The Bank's experience has been that approximately 70 percent of loan commitments
are drawn upon by customers.
The Bank evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the Bank, upon extension
of credit is based on management's credit evaluation of the other party.
Collateral held varies but may include accounts receivable; inventory; property,
plant and equipment; and income-producing commercial properties on those
commitments for which collateral is deemed necessary.
12. COMMITMENTS AND CONTINGENT LIABILITIES
COMMITMENTS
In 2000, the Company entered into an employment agreement with its chairman and
chief executive officer. The employment agreement continues for three years,
which is extended automatically for additional one-year periods upon written
notice of either party, and provides for an annual base salary, and such other
benefits which are generally made available to other senior executives of the
Company and the Bank.
In 1997, the Company entered into an employment agreement with the president and
chief executive officer of the Bank. The employment agreement expires in
November, 2000 and provides for an annual base salary, plus medical insurance
premiums, and such other benefits which are generally made available to other
senior executives of the Company and the Bank. The letter of employment also
provides for granting stock options to purchase 10,000 shares of Parent Company
common stock at a purchase price of $10.00 per share.
In December 1999, the Company entered into an agreement with Office.com to
develop an Internet based, co-branded business center with Office.com on the
Company's web site. This business center, which will be developed by Office.com,
will offer small business customers and others the opportunity to purchase an
array of business products and services. The terms of the agreement require a
total of $1,000,000 to be paid by the Company over 12 months. $500,000 has been
paid to date.
F-20
<PAGE>
CONTINGENT LIABILITIES
In May 1999, the Company received a notice from Huntington Bancshares
Incorporated ("Huntington") asserting that Huntington has superior trademark
rights in the name "Ebank." On June 30, 1999, the Company filed an action in the
United States District Court for the Northern District of Georgia, asking for a
declaratory judgment that it has the right to use "ebank.com" as a trademark for
Internet banking services despite Huntington's registration. Rather than
answering the Company's complaint, Huntington filed suit against the Company on
August 10, 1999, in the United States District Court for the Eastern District of
Ohio, alleging trademark infringement over the Company's use of the name
"ebank.com." In the Ohio action, Huntington is seeking an injunction against the
Company's use of the name "ebank.com" and "ebank," as well as treble damages and
all profits realized by the Company by reason of its use of the name "ebank."
Huntington has submitted a motion to dismiss the Georgia action, and the Company
has submitted a motion to dismiss the Ohio action, in each case on the grounds
of lack of jurisdiction. On March 29, 2000, the district court in the Georgia
action granted Huntington's motion to dismiss on the grounds that the court did
not have jurisdiction over Huntington. Although the Company intends to
vigorously defend its rights to the name "ebank.com," it cannot predict the
outcome of this litigation. In the worst case, however, the Company could be
required to pay damages, change its name, and choose a new domain name from
which to host its Internet operation, and the amount of damages could include
the actual amount of damages sustained by Huntington, multiplied by three, plus
all profits the Company realizes through the use of the name "ebank," and even
punitive damages. In the opinion of management, the resolution of these matters
will not materially affect the Company's financial position, results of
operations, or liquidity.
There are no other material legal proceedings to which the Company or any of its
properties are subject.
13. SUPPLEMENTAL FINANCIAL DATA
Components of professional and outside services, and other expense in excess of
1 percent of total income are as follows:
YEAR ENDED DECEMBER 31, 1999 1998
----------------------------------------------------------------------------
Professional and outside services:
Advertising $398,325 $102,487
Legal 327,770 103,025
Public relations 240,227 2,737
Other professional 219,768 15,649
Other expense:
Supplies and printed forms 62,186 43,011
Loan expenses - 10,531
Telecommunications 155,467 17,874
Business licenses - 10,000
Travel and entertainment - 28,060
Insurance 60,560 -
OTS penalty assessment(1) 100,000 -
Operating charge-offs 57,911 -
(1) The Office of Thrift Supervision assessed a $100,000 civil money penalty
against the Company because it concluded that the Company began to implement
a new Internet business strategy in June 1999 prior to obtaining its
approval. While neither admitting nor denying the Office of Thrift
Supervision's assertions, in September 1999, the Company consented to and
paid this penalty.
F-21
<PAGE>
14. FAIR VALUES OF FINANCIAL INSTRUMENTS
The estimated fair values of the Company's financial instruments are as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------------- -------------------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
DECEMBER 31, VALUE FAIR VALUE VALUE FAIR VALUE
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial assets:
Cash and cash equivalents $ 772,899 $ 772,899 $ 9,923,677 $ 9,923,677
Investment securities available
for sale 994,700 994,700 3,986,491 3,986,491
Other investments 213,000 213,000 337,591 337,591
Loans 47,867,286 47,519,520 10,240,557 10,159,287
Accrued interest receivable 185,572 185,572 49,740 49,740
Financial liabilities:
Noncontractual deposits $18,093,919 $18,093,919 $ 6,254,775 $ 6,254,775
Contractual deposits 23,517,203 23,695,034 6,546,348 6,537,428
Accrued interest payable 86,422 86,422 26,552 26,552
Off-balance-sheet instruments:
Undisbursed credit lines $19,976,000 $ 9,457,000
</TABLE>
15. CHANGE IN ACCOUNTING PRINCIPLE--DEFERRED ORGANIZATION COSTS
Effective January 1, 1998, the Company changed its method of accounting for
organization costs in order to expense these costs in the period incurred. Prior
to 1998, the Company capitalized organization costs and amortized them to
expense over a five-year period. This change in accounting method was made in
order for the Company to be in compliance with AICPA Statement of Position 98-5
(SOP 98-5), which states that the costs of start-up activities, which include
organization costs, be expensed as incurred. SOP 98-5 is effective for fiscal
years beginning after December 15, 1998; however the Company elected early
adoption, which is encouraged. The Company recorded a pretax charge of
approximately $85,000, or $.12 per share, in 1998 as the cumulative effect of
this accounting change. Of this amount, approximately $64,000 was related to the
Bank and $21,000 was related to the Parent Company. This change also increased
1998 costs and expenses by approximately $343,000, or $.49 per share.
16. SUBSEQUENT EVENTS
On March 16, 2000, the Company closed a Stock Exchange and Rights Agreement
("Agreement") with Talisman, Inc. ("Talisman").
Subject to certain conditions of the Agreement, the Company issued shares of its
common stock to Talisman, which represent 9.9 percent of its common stock on a
fully diluted basis. The Agreement also provides that Talisman will be issued
additional shares to maintain a 9.9 percent equity interest, if certain future
events occur. Also subject to certain conditions of the Agreement, Talisman
agrees to issue to the Company shares of its common stock such that the Company
will own 9.9 percent of Talisman. At closing, 161,438 shares of the Company were
issued.
The Company has extended a license to Talisman to use the Company's name and
related trademark material outside the United States in exchange for a license
to use Talisman's ATM network technology. Each respective
F-22
<PAGE>
agreement has initial five-year terms with options to renew for two five-year
periods. Management has not yet determined the value of the intangible assets
exchanged.
Subject to approval by the Office of Thrift Supervision, the Company and
Talisman must execute a services outsourcing agreement for the Company's core
data processing services within 180 days from the closing date of the Agreement.
If such agreement is not executed, Talisman may rescind all previously executed
arrangements. The execution of these agreements will require the Company to
significantly expand and upgrade its existing information technology hardware
and software infrastructure. The Company and Talisman contemplate the designated
data processing services will be provided at a data center Talisman will build.
Management is currently evaluating the nature, extent, and costs associated with
these changes.
In connection with the above transaction, the Company retained Sutro & Co.
Incorporated ("Sutro") (i) to act as its exclusive financial advisor, and (ii)
to act as its exclusive placement agent with respect to future financing, as
defined, that are arranged by Sutro.
Sutro's compensation for its role as financial advisor in the transaction with
Talisman was as follows:
o An advisory fee of $300,000 payable in cash upon consummation of the
transaction.
o Fully paid and nonassessable common stock of Talisman equal to 7.5 percent
of the Talisman common stock received by the Company as a result of the
transaction.
Sutro's compensation for its role arranging any financing will be as follows:
o A nonrefundable retainer of $25,000 payable upon execution of the
agreement. This retainer shall be credited against any fees earned in the
event a financing occurs.
o A placement fee (the "Placement Fee") payable in cash equal to the sum of
(i) 7 percent of the principal amount of any preferred stock or common
stock raised, (ii) 5 percent of the principal amount of subordinated notes
and/or convertible notes issued and (iii) 1.5 percent of the principal
amount of any secured revolving credit facility or other senior secured
debt.
o Warrants to purchase 3 percent of the common shares or common share
equivalents sold in a financing (the "Warrants"). The Warrants shall be
granted upon the closing of the financing and shall be exercisable for a
seven-year period commencing one year from their date of issuance at an
aggregate exercise price equal to 125 percent of the price of the equity
raised in the financing.
In addition to the foregoing fees, and regardless of whether the Financing
contemplated is consummated, the Company agrees to reimburse Sutro for all
reasonable out-of-pocket expenses, not to exceed $100,000.
F-23
<PAGE>
<TABLE>
<CAPTION>
17. CONDENSED FINANCIAL INFORMATION OF EBANK.COM, INC.
CONDENSED BALANCE SHEETS
(PARENT ONLY)
DECEMBER 31, 1999 1998
-----------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Cash on hand or at other financial institutions $ 44,451 $ 84,901
Federal funds sold 620,000 4,090,000
Interest-bearing deposit with bank subsidiary 1,015,000 540,111
Investment in bank subsidiary 6,969,337 7,578,502
Investment in nonbank subsidiary (300,512) 162,091
Investment in Godfrey Bank 150,000 150,000
Loans, net of allowance for loan losses of $20,000 in 1999 223,012 -
Premises and equipment, net 596,440 -
Accrued interest receivable 5,514 -
Other assets 772,714 15,143
-----------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $10,095,956 $12,620,748
-----------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Other liabilities $ 154,313 $ -
-----------------------------------------------------------------------------------------------------------------------
Total liabilities 154,313 -
-----------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common stock 14,693 14,693
Capital surplus 13,722,072 13,722,072
Accumulated deficit (3,793,472) (1,115,778)
Accumulated other comprehensive income - market valuation reserve
on investment securities available for sale (1,650) (239)
-----------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 9,941,643 12,620,748
-----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $10,095,956 $12,620,748
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
F-24
<PAGE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF LOSS
(PARENT ONLY)
FOR THE PERIOD
FOR THE YEAR ENDED FOR THE YEAR ENDED FROM INCEPTION TO
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
OPERATING INCOME
Interest income $ 192,193 $ 213,733 $ -
-----------------------------------------------------------------------------------------------------------------------
Total operating income 192,193 213,733 -
-----------------------------------------------------------------------------------------------------------------------
OPERATING EXPENSE
Salaries and benefits 494,892 107,887 51,780
Occupancy expense 102,511 9,919 8,351
Interest expense on other borrowings - 12,113 2,909
Professional fees and outside services 1,038,131 68,945 -
Other expense 163,994 113,443 11,720
-----------------------------------------------------------------------------------------------------------------------
Total operating expense 1,799,528 312,307 74,760
-----------------------------------------------------------------------------------------------------------------------
LOSS BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE, INCOME TAX BENEFIT,
AND EQUITY IN UNDISTRIBUTED LOSS OF
SUBSIDIARIES (1,607,335) (98,574) (74,760)
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE - (21,185) -
-----------------------------------------------------------------------------------------------------------------------
LOSS BEFORE INCOME TAX BENEFIT AND EQUITY IN
UNDISTRIBUTED LOSS OF SUBSIDIARIES (1,607,335) (119,759) (74,760)
INCOME TAX BENEFIT - - -
-----------------------------------------------------------------------------------------------------------------------
LOSS BEFORE EQUITY IN UNDISTRIBUTED LOSS OF
SUBSIDIARIES (1,607,335) (119,759) (74,760)
EQUITY IN UNDISTRIBUTED LOSS OF SUBSIDIARIES (1,070,359) (921,259) -
-----------------------------------------------------------------------------------------------------------------------
NET LOSS $(2,677,694) $(1,041,018) $(74,760)
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
F-25
<PAGE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS
(PARENT ONLY)
FOR THE PERIOD
FOR THE YEAR ENDED FOR THE YEAR ENDED FROM INCEPTION TO
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
-----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net loss $ (2,677,694) $ (1,041,018) $ (74,760)
Equity in undistributed loss of subsidiaries 1,070,359 921,259 -
Cumulative effect of change in accounting for
organization costs - 21,185 -
Write-off of deferred organization costs - 63,741 -
Increase in interest receivable (5,514) - -
(Increase) decrease in other assets (757,573) 98,341 (25,575)
Increase (decrease) in other liabilities 154,313 (65,161) 65,161
-----------------------------------------------------------------------------------------------------------------------
Net cash (used) provided by operating activities (2,216,109) (1,653) (35,174)
-----------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Contribution of capital to bank subsidiary - (8,500,000) -
Investment in Commerce Mortgage - (250,000) -
Purchase of interest-bearing deposits with
bank subsidiary (474,889) (540,111) -
Purchase of other investments - (150,000) -
Loans originated (223,012) - -
Deferred organization costs - - (84,926)
Purchase of fixed assets (596,440) - (50,000)
Sale of premises and equipment - 50,000 -
-----------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (1,294,341) (9,390,111) (134,926)
-----------------------------------------------------------------------------------------------------------------------
NET CASH FROM FINANCING ACTIVITIES
Proceeds from sales of capital stock, net of
expenses - 13,736,665 -
Initial capital contribution - - 100
Proceeds from loans by organizers - - 8,000
Repayment of loans by organizers - - (8,000)
Proceeds from other borrowings - 272,000 170,000
Repayment of other borrowings - (442,000) -
-----------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities - 13,566,665 170,100
-----------------------------------------------------------------------------------------------------------------------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS (3,510,450) 4,174,901 -
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 4,174,901 - -
-----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 664,451 $ 4,174,901 $ -
-----------------------------------------------------------------------------------------------------------------------
</TABLE>
F-26
<PAGE>
<TABLE>
<CAPTION>
EBANK.COM, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
June 30, December 31,
2000 1999
---- ---------
(Unaudited) (Audited)
<S> <C> <C>
Cash and due from banks $ 2,171,789 $ 152,899
Federal funds sold 9,220,000 620,000
Investment securities available for sale - 994,700
Other investments 163,053 213,000
Loans, net of allowance for loan losses of $844,000 and $730,000, 54,220,430 47,867,286
respectively
Premises and equipment, net 2,246,855 1,498,568
Accrued interest receivable 472,975 185,572
Investment in Talisman Technologies, Inc. 665,932 -
Other assets 268,193 531,345
--------------- ---------------
Total assets $ 69,429,227 $ 52,063,370
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 62,306,579 $ 41,611,122
Accrued interest payable 130,839 86,422
Other liabilities 830,395 424,183
--------------- ----------------
Total liabilities 63,267,813 42,121,727
--------------- ----------------
SHAREHOLDERS' EQUITY
Common stock, $.01 par value, 10,000,000 shares authorized, 1,630,688
and 1,469,250 shares issued and outstanding, respectively 16,307 14,693
Surplus 14,386,390 13,722,072
Accumulated deficit (8,188,783) (3,793,472)
Accumulated other comprehensive loss (52,500) (1,650)
---------------- ----------------
Total shareholders' equity 6,161,414 9,941,643
--------------- ---------------
Total liabilities and shareholders' equity $ 69,429,227 $ 52,063,370
=============== ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-27
<PAGE>
<TABLE>
<CAPTION>
EBANK.COM, INC.
CONSOLIDATED STATEMENTS OF LOSS
(UNAUDITED)
For the three months ended For the six months ended
-------------------------- -------------------------
June 30, June 30,
-------- --------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income
Loans, including fees......................... $ 1,316,261 612,058 $ 2,551,072 963,174
Investment securities:
U.S. Government agencies and
Corporations.............................. 0 47,164 2,503 93,849
Other investments............................. 1,281 1,363 2,498 1,850
Federal funds sold............................ 42,987 95,147 77,020 186,447
-------------- -------------- -------------- --------------
Total interest income......................... 1,360,529 755,732 2,633,093 1,245,320
-------------- -------------- -------------- --------------
Interest expense
Interest bearing demand and money market 176,558 178,594 356,526 239,410
Savings....................................... 272 130 408 238
Time deposits of $100,000 or more............. 151,756 57,594 284,524 108,115
Other time deposits........................... 369,100 74,103 635,956 136,248
Other borrowings.............................. 574 36 3,548 36
-------------- -------------- -------------- --------------
Total interest expense........................ 698,260 310,457 1,280,962 484,047
-------------- -------------- -------------- --------------
Net interest income.................................... 662,269 445,275 1,352,131 761,273
Provision for possible loan losses..................... 56,000 58,000 114,000 128,000
-------------- -------------- -------------- --------------
Net inte Net interest income after provision
for possible loan losses...................... 606,269 387,275 1,238,131 633,273
-------------- -------------- -------------- --------------
Other income........................................... 24,597 7,214 48,206 8,939
-------------- -------------- -------------- --------------
Total other income 24,597 7,214 48,206 8,939
-------------- -------------- -------------- --------------
Other expense
Salaries and other compensation............... 809,440 282,609 1,436,585 510,231
Employee benefits............................. 214,670 59,356 412,172 104,530
Net occupancy and equipment expense........... 324,032 121,205 607,286 217,393
Professional and other outside services....... 1,977,926 213,761 2,961,900 270,625
Other expense................................. 149,550 131,884 263,706 252,185
-------------- -------------- -------------- --------------
Total other expenses.......................... 3,475,618 808,815 5,681,649 1,354,964
-------------- -------------- -------------- --------------
Loss before income tax benefit......................... (2,844,752) (414,326) (4,395,312) (712,752)
Income tax benefit..................................... -- -- -- --
-------------- -------------- -------------- --------------
Net loss...................................... $ (2,844,752) $ (414,326) $ (4,395,312) $ (712,752)
=============== =============== =============== ==============
Basic and diluted loss per common share................ $ (1.74) $ (.28) $ (2.81) $ (.49)
============== ============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-28
<PAGE>
EBANK.COM, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
--------------------------- ------------------------
June 30, June 30,
-------- --------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net loss $ (2,844,752) $ (414,326) $ (4,395,312) $ (712,752)
Other comprehensive loss:
Unrealized loss on securities
available for sale (52,500) (3,756) (50,850) (4,135)
------------- ------------- ------------- -------------
Comprehensive loss $ (2,897,252) $ (418,082) $ (4,446,162) $ (716,887)
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
F-29
<PAGE>
<TABLE>
<CAPTION>
EBANK.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the six months ended
June 30,
2000 1999
---- ----
<S> <C> <C>
Cash Flows from operating activities:
Net loss $ (4,395,312) $ (712,752)
Adjustment to reconcile net loss to net cash used
by operating activities:
Net accretion of investment securities (3,601) (91,092)
Depreciation and amortization of premises and equipment 286,610 78,984
Provision for possible loan losses 114,000 128,000
Decrease (increase) in other assets 263,152 (93,448)
(Increase) in accrued interest receivable (287,403) (72,842)
Increase in accrued interest payable 44,417 29,166
Increase (decrease) in other liabilities 406,211 (15,150)
--------------- ----------------
Net cash used by operating activities (3,571,926) (749,134)
---------------- ----------------
Cash flows from investing activities:
Purchase of investment securities available for sale 0 (8,946,262)
Purchase of other investments (2,600) 0
Maturities of investment securities available for sale 1,000,000 9,000,000
Loans originated, net of principal repayments (6,467,144) (17,699,106)
Purchases of premises and equipment (1,034,897) (209,620)
---------------- ----------------
Net cash used by investing activities (6,504,641) (17,854,988)
---------------- ----------------
Cash flows from financing activities:
Net increase in deposits 20,695,457 18,212,287
--------------- ---------------
Net cash provided by financing activities 20,695,457 18,212,287
--------------- ---------------
Net increase (decrease) in cash and cash equivalents 10,618,890 (391,835)
Cash and Cash Equivalents:
Beginning of period 772,899 9,923,677
--------------- ---------------
End of period $ 11,391,789 $ 9,531,842
=============== ===============
</TABLE>
Supplemental Disclosure of Noncash Investing and Financing Activities:
---------------------------------------------------------------------
On March 16, 2000, the Company issued 161,438 shares of common stock (9.9% of
its common stock outstanding on the closing date) valued at $665,932 in exchange
for 9.9% of the common stock of Talisman Technologies, Inc. (See Note 5)
The accompanying notes are an integral part of these consolidated financial
statements.
F-30
<PAGE>
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, 2000
are not necessarily indicative of the results that may be expected for the year
ending December 31, 2000. For further information, refer to the Company's
consolidated financial statements and footnotes included in the Company's annual
report on Form 10-KSB.
ebank.com, Inc. (formerly known as Southeastern Commerce Holding
Company) provides a full range of banking and bank-related services to
individual and corporate customers through its bank subsidiary, located in north
Atlanta, Georgia. Shortly after the opening of the bank subsidiary, plans were
developed to offer Internet banking services, and regulatory approval for such
services was obtained in December 1998. Effective April 20, 1999, the corporate
name was changed to "ebank.com, Inc." and the Internet domain name "ebank.com"
was acquired. Internet banking services began on June 30, 1999. ebank.com, Inc.
and its subsidiaries are subject to intense competition for all banking
services, including Internet banking, from other financial institutions and
nonbank financial service companies.
ebank.com, Inc. (the "Parent Company") was incorporated, under the laws
of the State of Georgia on August 22, 1997, to operate as a unitary thrift
holding company under the supervision of the Office of Thrift Supervision. ebank
(the "Bank") began as a general banking business on August 17, 1998, as a
wholly-owned subsidiary of the Parent Company. The consolidated financial
statements include the accounts of the Parent Company and its wholly-owned
subsidiary, the Bank, collectively known as the "Company." 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 1,630,688 and 1,564,161
weighted average shares outstanding for the three and six months ended June 30,
2000, respectively. There were 218,026 potential common shares outstanding at
June 30, 2000, 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
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
F-31
<PAGE>
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:
Unrealized
Gains (Losses)
On Securities
-------------
Beginning balance - December 31, 1999 $ (1,650)
Current - period change ( 50,850)
-------------
Ending balance - June 30, 2000 $ ( 52,500)
=============
NOTE 5 - INVESTMENT IN TALISMAN TECHNOLOGIES, INC.
On March 16, 2000, the Company entered into an exclusive 15-year
license agreement with Talisman Technologies, Inc. ("Talisman") an affiliate of
Talisman Entertainment, Inc., to use its Internet ATM technology in its
installation and operation of ATMs within the United States, and granted
Talisman a 15-year license to use its banking knowledge and know-how,
trademarks, business plans, and marketing materials outside the United States.
As consideration for these licenses, the Company issued 161,438 shares of its
common stock to Talisman, which represented 9.9% of its common stock on the
closing date, and was committed to issue additional shares to maintain
Talisman's 9.9% interest if certain events occur. In return, Talisman issued the
Company 9.9% of the then outstanding shares of its common stock on a fully
diluted basis. In addition, the Company agreed to enter into an outsourcing
agreement with Talisman within 180 days after the closing, pursuant to which
Talisman will provide our core data processing services.
On July 14, 2000, the Company and Talisman agreed not to proceed with
an outsourcing agreement and, pursuant to the terms of the agreement, the entire
transaction between the parties, including the license transfers and share
issuances, was rescinded. As a result, the 161,438 shares of common stock issued
to Talisman have been redeemed, the licenses granted to Talisman and the Company
have been cancelled, and the related agreements have been terminated.
NOTE 6 - EVENT SUBSEQUENT TO JUNE 30, 2000
On August 8, 2000, the Company entered into a $2,500,000 loan agreement
with a nonaffiliated financial institution. Proceeds from the loan will be used
by the Company to repay amounts payable to its bank subsidiary. The loan matures
on July 31, 2001 and has an annual interest rate of the lender's prime rate less
0.50%. The loan is collateralized by a pledge of 100% of the outstanding common
stock of the bank subsidiary owned by the Company and by guarantees provided by
the directors, the former Chairman of the Board of Directors, and the President
of the Company. The loan provides that additional collateral will be provided to
the lender if the book value of the Bank stock pledged is less than $6,000,000.
The Company must also maintain certain financial ratios, primarily related to
capital adequacy.
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<PAGE>
NOTE 7 - SUPPLEMENTAL CONSOLIDATING BALANCE SHEETS AND STATEMENTS OF LOSS
<TABLE>
<CAPTION>
EBANK.COM, INC.
CONSOLIDATING BALANCE SHEET
FOR THE PERIOD ENDING JUNE 30, 2000
(UNAUDITED)
EBANK.COM, INC. ELIMINATIONS CONSOLIDATED
EBANK HOLDING COMPANY EBANK.COM, INC.
-------------- --------------------- -------------- -------------------
<S> <C> <C> <C> <C>
ASSETS
CASH AND DUE FROM BANKS $1,978,010 $193,779 $0 $2,171,789
FEDERAL FUNDS SOLD 9,200,000 20,000 0 9,220,000
OTHER INVESTMENTS 65,553 763,432 0 828,985
LOANS RECEIVABLE
(NET OF ALLOWANCE FOR LOAN LOSSES) 54,118,321 102,109 0 54,220,430
PREMISES AND EQUIPMENT
(NET OF ACCUMULATED DEPRECIATION) 802,855 1,444,000 0 2,246,855
INVESTMENT IN SUBSIDIARY 0 6,668,519 (6,668,519) 0
INTEREST RECEIVABLE 467,418 5,557 0 472,975
OTHER ASSETS 2,693,239 141,012 (2,566,058) 268,193
-------------- --------------------- -------------- -------------------
TOTAL ASSETS 69,325,396 9,338,408 (9,234,577) 69,429,227
========== ========= =========== ==========
LIABILITIES
DEPOSITS 62,306,579 0 0 62,306,579
ACCRUED INTEREST PAYABLE 130,839 0 0 130,839
PAYABLE TO EBANK 0 2,566,058 (2,566,058) 0
OTHER LIABILITIES 219,459 610,936 0 830,395
-------------- --------------------- -------------- -------------------
TOTAL LIABILITIES 62,656,877 3,176,994 (2,566,058) 63,267,813
SHAREHOLDERS' EQUITY
COMMON STOCK 8,500 16,307 (8,500) 16,307
SURPLUS 8,491,500 14,386,390 (8,491,500) 14,386,390
ACCUMULATED DEFICIT (1,831,481) (8,188,783) 1,831,481 (8,188,783)
ACCUMULATED OTHER COMPREHENSIVE LOSS 0 (52,500) 0 (52,500)
-------------- --------------------- -------------- -------------------
TOTAL SHAREHOLDERS' EQUITY 6,668,519 6,161,414 (6,668,519) 6,161,414
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY 69,325,396 9,338,408 (9,234,577) 69,429,227
========== ========= =========== ==========
</TABLE>
F-33
<PAGE>
<TABLE>
<CAPTION>
EBANK.COM, INC.
CONSOLIDATING STATEMENT OF LOSS
FOR SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
EBANK.COM, INC. CONSOLIDATED
EBANK HOLDING COMPANY ELIMINATIONS EBANK.COM,INC
------------- --------------------- --------------- ------------------
INCOME
<S> <C> <C> <C> <C>
INTEREST INCOME $2,611,221 $21,872 $0 $2,633,093
------------- --------------------- --------------- ------------------
TOTAL INTEREST INCOME 2,611,221 21,872 0 2,633,093
INTEREST EXPENSE 1,280,962 0 0 1,280,962
------------- --------------------- --------------- ------------------
TOTAL INTEREST EXPENSE 1,280,962 0 0 1,280,962
NET INTEREST INCOME 1,330,259 21,872 0 1,352,131
PROVISION FOR LOAN LOSS RESERVE 114,000 0 0 114,000
------------- --------------------- --------------- ------------------
NET INTEREST INCOME AFTER PROVISION 1,216,259 21,872 0 1,238,131
OTHER INCOME 36,935 11,271 0 48,206
------------- --------------------- --------------- ------------------
TOTAL OTHER INCOME 36,935 11,271 0 48,206
OTHER EXPENSE
SALARIES AND OTHER COMPENSATION 717,577 719,008 0 1,436,585
EMPLOYEE BENEFITS 155,336 256,836 0 412,172
NET OCCUPANCY AND EQUIPMENT 246,102 361,184 0 607,286
PROFESSIONAL AND OTHER OUTSIDE
SERVICES 304,977 2,656,923 0 2,961,900
OTHER 130,022 133,684 0 263,706
------------- --------------------- --------------- ------------------
TOTAL OPERATING EXPENSES 1,554,014 4,127,635 0 5,681,649
LOSS FROM SUBSIDIARY-EBANK 0 (300,820) 300,820 0
LOSS BEFORE TAXES (300,820) (4,395,312) 300,820 (4,395,312)
INCOME TAXES BENEFIT 0 0 0 0
------------- --------------------- --------------- ------------------
NET LOSS (300,820) (4,395,312) 300,820 (4,395,312)
============= ===================== =============== ==================
</TABLE>
F-34
