U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
X Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 2000
___ Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______________ to ________________
Commission File No. 333-41545
ebank.com, Inc.
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(Exact Name of Small Business Issuer as Specified in its Charter)
Georgia 58-2349097
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(State of Incorporation) (I.R.S. Employer Identification No.)
2410 Paces Ferry Road, Atlanta, Georgia 30339
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(Address of Principal Executive Offices)
(770) 863-9229
----------------------------------------
(Issuer's Telephone Number, Including Area Code)
Not Applicable
--------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
-- --
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
1,469,250 shares of common stock, par value $.01 per share, were issued
and outstanding as of November 10, 2000.
Transitional Small Business Disclosure Format: Yes No X
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<PAGE>
<TABLE>
<CAPTION>
EBANK.COM, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, December 31,
2000 1999
---- ----
(Unaudited) (Audited)
<S> <C> <C>
Cash and due from banks $ 872,673 $ 152,899
Federal funds sold 9,700,000 620,000
Investment securities available for sale - 994,700
Other investments 163,100 213,000
Loans, net of allowance for loan losses of $941,262 and 62,128,528 47,867,286
$730,000, respectively
Premises and equipment, net 2,333,550 1,498,568
Accrued interest receivable 552,047 185,572
Other assets 174,307 531,345
--------------- ---------------
Total assets $ 75,924,205 $ 52,063,370
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 67,776,155 $ 41,611,122
Accrued interest payable 165,024 86,422
Other borrowings 2,704,579 -
Other liabilities 866,576 424,183
----------------- ----------------
Total liabilities 71,512,334 42,121,727
----------------- ----------------
SHAREHOLDERS' EQUITY
Common stock, $.01 par value, 10,000,000 shares authorized, 1,469,250
shares issued and outstanding 14,693 14,693
Capital surplus 13,722,072 13,722,072
Accumulated deficit (9,272,394) (3,793,472)
Accumulated other comprehensive loss (52,500) (1,650)
----------------- ----------------
Total shareholders' equity 4,411,871 9,941,643
----------------- ----------------
Total liabilities and shareholders' equity $ 75,924,205 $ 52,063,370
================= ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
<PAGE>
<TABLE>
<CAPTION>
EBANK.COM, INC.
CONSOLIDATED STATEMENTS OF LOSS
(UNAUDITED)
For the three months ended For the nine months ended
-------------------------- -------------------------
September 30, September 30,
------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income
Loans, including fees......................... $ 1,541,481 838,288 $ 4,092,553 1,796,173
Investment securities:
U.S. Government agencies and
corporations.............................. 0 98,986 2,503 192,835
Other investments............................. 1,325 1,800 3,823 3,650
Federal funds sold............................ 199,267 74,682 276,286 261,129
-------------- -------------- -------------- --------------
Total interest income......................... 1,742,073 1,013,756 4,375,165 2,253,787
-------------- -------------- -------------- --------------
Interest expense
Interest bearing demand and money market 170,303 286,216 526,829 525,626
Savings....................................... 520 177 928 415
Time deposits of $100,000 or more............. 242,114 71,419 526,638 179,534
Other time deposits........................... 556,521 91,177 1,192,477 227,425
Other borrowings.............................. 38,403 2,023 41,951 10,777
-------------- -------------- -------------- --------------
Total interest expense........................ 1,007,861 451,012 2,288,823 943,777
-------------- -------------- -------------- --------------
Net interest income.................................... 734,212 562,744 2,086,342 1,310,010
Provision for possible loan losses..................... 122,000 98,000 236,000 246,000
-------------- -------------- -------------- --------------
Net inteInterest income after provision
for possible loan losses...................... 612,212 464,744 1,850,342 1,064,010
-------------- -------------- -------------- --------------
Other income........................................... 24,691 37,922 72,897 194,938
-------------- -------------- -------------- --------------
Other expense
Salaries and other compensation............... 702,324 399,705 2,138,909 1,030,166
Employee benefits............................. 118,280 108,638 530,452 256,742
Net occupancy and equipment expense........... 365,717 162,727 973,003 417,315
Professional and other outside services....... 278,842 382,962 3,240,742 680,598
Other expense................................. 255,350 270,881 519,055 409,126
-------------- -------------- -------------- --------------
Total other expenses.......................... 1,720,513 1,324,913 7,402,161 2,793,947
-------------- -------------- -------------- --------------
Loss before income tax benefit......................... (1,083,610) (822,247) (5,478,922) (1,534,999)
Income tax benefit..................................... -- -- -- --
-------------- -------------- -------------- --------------
Net loss...................................... $ (1,083,610) $ (822,247) $ (5,478,922) $ (1,534,999)
=============== =============== =============== ===============
Basic and diluted loss per common share................ $ (.71) $ (.56) $ (3.71) $ (1.04)
============= ============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
EBANK.COM, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(UNAUDITED)
For the three months ended For the nine months ended
--------------------------- -------------------------
September 30, September 30,
------------- -------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net loss $ (1,083,610) $ (822,247) $ (5,478,922) $ (1,534,999)
Other comprehensive loss:
Unrealized loss on securities
available for sale and other investments 0 (4,855) (52,500) (8,992)
------------ ------------- ------------- -------------
Comprehensive loss $ (1,083,610) $ (827,102) $ (5,531,422) $ (1,543,991)
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
<PAGE>
<TABLE>
<CAPTION>
EBANK.COM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the nine months ended
September 30,
2000 1999
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (5,478,922) $ (1,534,999)
Adjustment to reconcile net loss to net cash used
by operating activities:
Net accretion of investment securities (3,650) (202,901)
Depreciation expense 437,040 163,496
Provision for possible loan losses 236,000 246,000
Decrease (increase) in other assets 357,038 (178,010)
Increase in accrued interest receivable (366,475) (146,218)
Increase in accrued interest payable 78,602 43,134
Increase in other liabilities 442,393 51,574
---------------- ---------------
Net cash used by operating activities (4,297,974) (1,557,924)
--------------- ----------------
Cash flows from investing activities:
Purchase of investment securities available for sale - (22,303,476)
Purchase of other investment securities (2,600) -
Maturities of investment securities available for sale 1,000,000 19,000,000
Loans originated, net of principal repayments (14,497,242 (30,822,355)
Purchases of furniture and equipment (1,272,022) (553,972)
---------------- ----------------
Net cash used by investing activities (14,771,864) (34,679,803)
--------------- ----------------
Cash flows from financing activities:
Proceeds from other borrowings 2,721,981 -
Principal repayments of other borrowings (17,402) -
Net increase in deposits 26,165,033 30,573,318
---------------- ---------------
Net cash provided by financing activities 28,869,612 30,573,318
--------------- ---------------
Net increase (decrease) in cash and cash equivalents 9,799,774 (5,664,409)
Cash and cash equivalents:
Beginning of period 772,899 9,923,677
---------------- ---------------
End of period $ 10,572,673 $ 4,259,268
================ ===============
</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) On July 21,
2000, Talisman rescinded the share transfer agreement with the Company. All of
the shares issued to Talisman have been redeemed.
The accompanying notes are an integral part of these consolidated financial
statements.
<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 adjustments) considered necessary for a fair presentation
have been included. Operating results for the three- and nine-month periods
ended September 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 our consolidated financial statements and footnotes included in our
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. 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 began as a general
banking business on August 17, 1998, as a wholly owned subsidiary of the
company. The consolidated financial statements include the accounts of the
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 1,534,591 and 1,476,092
weighted average shares outstanding for the three and nine months ended
September 30, 2000, respectively. There were 141,767 potential common shares
outstanding at September 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
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
<PAGE>
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 our
results of operations.
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 - September 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 occurred. 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 120 days after the closing, pursuant to which
Talisman would provide core data processing services. Either party had the right
to terminate the transaction upon a written notice to the other party if the
outsourcing agreement was not mutually executed and delivered by July 14, 2000.
As of July 14, 2000, no outsourcing agreement was formalized. On July
21, 2000, Talisman exercised its right to terminate the agreement and delivered
written notice to the Company rescinding the entire transaction between the
parties, including the license transfers and share issuances. As a result, the
161,438 shares of common stock issued to Talisman have been redeemed, the
licenses granted to Talisman and to us have been cancelled, and the related
agreements have been terminated.
NOTE 6 - CAPITALIZED LEASE OBLIGATION
The Company capitalized a lease obligation during the quarter ended
September 30, 2000. The terms of the lease require payments of $7,390 for a term
of 36 months. The Company recognized a capital lease asset and related
obligation under the capital lease in the amount of $221,981. The remaining
obligation was $204,579 as of September 30, 2000.
NOTE 7 - PRIVATE PLACEMENT
We are conducting a private placement in which we are offering units
consisting of four shares of cumulative convertible preferred stock and a
warrant to purchase two shares of common stock. We held our first closing on
October 4, 2000 and raised net proceeds of $538,599. The offering is on-going.
<PAGE>
<TABLE>
<CAPTION>
NOTE 8 - SUPPLEMENTAL CONSOLIDATING BALANCE SHEETS AND STATEMENTS OF LOSS
EBANK.COM, INC.
CONSOLIDATING BALANCE SHEET
FOR THE PERIOD ENDING SEPTEMBER 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 $868,203 $4,470 $0 $872,673
FEDERAL FUNDS SOLD 9,690,000 10,000 0 9,700,000
OTHER INVESTMENTS 65,600 97,500 0 163,100
LOANS RECEIVABLE 62,128,528 0 0 62,128,528
(NET OF ALLOWANCE FOR LOAN LOSSES)
PREMISES AND EQUIPMENT 996,001 1,337,549 0 2,333,550
(NET OF ACCUMULATED DEPRECIATION)
INVESTMENT IN SUBSIDIARY 0 6,169,641 (6,169,641) 0
INTEREST RECEIVABLE 552,047 0 0 552,047
OTHER ASSETS 148,654 25,653 - 174,307
-------------- --------------------- -------------- -------------------
TOTAL ASSETS 74,449,033 7,644,813 (6,169,641) 75,924,205
============== ===================== ============== ===================
LIABILITIES
DEPOSITS 67,776,155 0 0 67,776,155
ACCRUED INTEREST PAYABLE 164,399 625 0 165,024
OTHER BORROWINGS 204,579 2,500,000 2,704,579
OTHER LIABILITIES 134,259 732,317 0 866,576
-------------- --------------------- -------------- -------------------
TOTAL LIABILITIES 68,279,392 3,232,942 0 71,512,334
============== ===================== ============== ===================
SHAREHOLDERS' EQUITY
COMMON STOCK 8,500 14,693 (8,500) 14,693
SURPLUS 8,491,500 13,722,072 (8,491,500) 13,722,072
ACCUMULATED DEFICIT (2,330,359) (9,272,394) 2,330,359 (9,272,394)
ACCUMULATED OTHER COMPREHENSIVE LOSS 0 (52,500) 0 (52,500)
-------------- --------------------- -------------- -------------------
TOTAL SHAREHOLDERS' EQUITY 6,169,641 4,411,871 (6,169,641) 4,411,871
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY 74,449,033 7,644,813 (6,169,641) 75,924,205
============== ===================== ============== ===================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EBANK.COM, INC.
CONSOLIDATING STATEMENT OF LOSS
FOR NINE MONTHS ENDED SEPTEMBER 30, 2000
(UNAUDITED)
EBANK.COM, INC. CONSOLIDATED
EBANK HOLDING COMPANY ELIMINATIONS EBANK.COM, INC
------------- --------------------- --------------- ------------------
<S> <C> <C> <C> <C>
INCOME
INTEREST INCOME $4,359,389 $15,776 $0 $4,375,165
------------- --------------------- --------------- ------------------
TOTAL INTEREST INCOME 4,359,389 15,776 0 4,375,165
INTEREST EXPENSE 2,256,948 31,875 0 2,288,823
------------- --------------------- --------------- ------------------
TOTAL INTEREST EXPENSE 2,256,948 31,875 0 2,288,823
NET INTEREST INCOME 2,102,441 (16,099) 0 2,086,342
PROVISION FOR LOAN LOSS RESERVE 236,000 0 0 236,000
------------- --------------------- --------------- ------------------
NET INTEREST INCOME AFTER PROVISION 1,866,441 (16,099) 0 1,850,342
OTHER INCOME 50,867 22,030 0 72,897
------------- --------------------- --------------- ------------------
TOTAL OTHER INCOME 50,867 22,030 0 72,897
OTHER EXPENSE
SALARIES AND OTHER COMPENSATION 1,201,462 937,447 0 2,138,909
EMPLOYEE BENEFITS 251,330 279,122 0 530,452
NET OCCUPANCY AND EQUIPMENT 465,856 507,148 0 973,004
PROFESSIONAL AND OTHER OUTSIDE 433,872 2,806,869 0 3,240,741
SERVICES
OTHER 364,487 154,568 0 519,055
------------- --------------------- --------------- ------------------
TOTAL OPERATING EXPENSES 2,717,007 4,685,154 0 7,402,161
LOSS FROM SUBSIDIARY-EBANK 0 (799,699) 799,699 0
LOSS BEFORE TAXES (799,699) (5,478,922) 799,699 (5,478,922)
INCOME TAXES BENEFIT 0 0 0 0
------------- --------------------- --------------- ------------------
NET LOSS (799,699) (5,478,922) 799,699 (5,478,922)
============= ===================== =============== ==================
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
This Report contains statements, which constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933 and
the Securities Exchange Act of 1934. These statements are based on many
assumptions and estimates and are not guarantees of future performance. Our
actual results may differ materially from those projected in any forward-looking
statements, as they will depend on many factors about which we are unsure,
including many factors, which are beyond our control. The words "may," "would,"
"could," "will," "expect," "anticipate," "believe," "intend," "plan," and
"estimate," as well as similar expressions, are meant to identify such
forward-looking statements. Other potential risks and uncertainties include, but
are not limited to:
o significant increases in competitive pressure in the banking
and financial services industries, especially the Internet banking
sector;
o whether we can successfully implement new business strategies and
manage projected growth;
o changes in the interest rate environment which could reduce
anticipated or actual margins;
o changes in political conditions or the legislative or regulatory
environment;
o general economic conditions, either nationally or regionally and
especially in primary service area, becoming less favorable than
expected resulting in, among other things, a deterioration in credit
quality;
o changes occurring in business conditions and inflation;
o changes in technology;
o changes in monetary and tax policies;
o changes in the securities markets; and
o other risks and uncertainties detailed from time to time in our filings
with the Securities and Exchange Commission, including our Form 10-KSB
for the year ended December 31, 1999.
Financial Condition
Total consolidated assets increased by $23,860,835 or 45.8% to
$75,924,205 during the nine-month period ended September 30, 2000. The increase
was generated primarily through a net increase in deposits of $26,165,033 or
62.9%.
At September 30, 2000, our assets consisted primarily of federal funds
sold of $9,700,000, other investments of $163,100, net loans of $62,128,528,
property at cost less accumulated depreciation of $2,333,550, cash due from
banks of $872,673, and other assets and accrued interest receivable totaling
$726,354. Our liabilities at September 30, 2000, were $71,512,334, consisting of
deposits of $67,776,155 accrued expenses and other liabilities of $1,031,600 and
other borrowings of $2,704,579. Our shareholders' equity totaled $4,411,871 at
September 30, 2000.
<PAGE>
Results of Operations
From the bank's opening date on August 17, 1998 through September 30,
2000, the bank has attracted approximately $68 million in deposits and made net
loans of $62 million. Net interest income, before provision for loan losses, for
the three-month period ending September 30, 2000 totaled $734,212 compared to
net interest income of $562,744 for the three-month period ending September 30,
1999. This increase in net interest income in the 3rd quarter of 2000 over the
3rd quarter of 1999 is primarily due to an increase in earning assets, including
primarily the increase in average loans of $19.7 million, offset somewhat by the
reduction in average investment securities of $7.5 million.
Our provision for loan losses for the three months ended September 30,
2000 and 1999 was $122,000 and $98,000, respectively. Other income earned for
the three months ended September 30, 2000 and 1999 was $24,691 and $37,922,
respectively.
On an annualized basis, other income represents less than .50% of total
assets. This figure is relatively low because in order to attract new banking
relationships, the bank's fee structure and charges are low when compared to
other banks.
Operating expenses for the three-month period ending September 30, 2000
totaled $1,720,513, including salaries and other compensation of $702,324,
employee benefits expenses of $118,280, occupancy and equipment expenses of
$365,717, professional and other outside services of $278,842, and other
expenses of $255,350. On an annualized basis, other expenses represent 7.55% of
total assets. Operating expenses for the three-month period ending September 30,
1999 totaled $1,324,913. 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. 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 the offering without raising any
capital. Consequently, we did not have the capital necessary to execute our
comprehensive new business strategy. 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. Although we will continue to pursue opportunities to grow our
core business by utilizing the Internet as a delivery channel, we have refocused
our strategy on our traditional community banking business to reduce costs at
the holding company level.
We had a net loss of $1,083,610 or $.71 per share for the three-month
period ending September 30, 2000, compared to a net loss of $822,247 or $.56 per
share for the three-month period ending September 30, 1999.
Allowance for Loan Losses
There are risks inherent in making all loans, including risks with
respect to the period of time over which loans may be repaid, risks resulting
from changes in economic and industry conditions, risks inherent in dealing with
individual borrowers, and, in the case of a collateralized loan, risks resulting
from uncertainties about the future value of the collateral. To address these
risks, we have developed policies and procedures to evaluate the overall quality
of our credit portfolio and the timely identification of potential problem
loans. We maintain an allowance for possible loan losses, which we establish
through charges in the form of a provision for loan losses. We charge loan
losses and credit recoveries directly to this allowance.
<PAGE>
We attempt to maintain the allowance at a level that will be adequate
to provide for potential losses in our loan portfolio. To maintain the allowance
at an adequate level, we periodically make additions to the allowance by
charging an expense to the provision for loan losses on our statement of
operations. We currently evaluate the allowance for loan losses on an overall
portfolio basis, but we intend to begin allocating the allowance to loan
categories once the loan portfolio becomes large and diversified enough to
support such an allocation system. We consider a number of factors in
determining the level of this allowance, including our total amount of
outstanding loans, our amount of past due loans, our historic loan loss
experience, general economic conditions, and our assessment of potential losses.
Our evaluation is inherently subjective as it requires estimates that are
susceptible to significant change. Our losses will undoubtedly vary from our
estimates, and there is a possibility that charge-offs in future periods will
exceed the allowance for loan losses as estimated at any point in time.
At December 31, 1999, the allowance for loan losses amounted to
$730,000. As of September 30, 2000, the allowance had grown to $941,262. The
allowance for loan losses, as a percentage of total gross loans, was 1.49% as of
September 30, 2000. We had past due loans greater than 60 days at September 30,
2000 in the amount of $628,721. We had two installment loan charge-offs for the
three-month period ending September 30, 2000 in the amount of $4,738.
Average Balances, Income and Expense, and Rates
Net interest income represents the difference between interest received
on interest earning assets and interest paid on interest bearing liabilities.
The following represents, in a tabular form, the main components of
interest-earning assets and interest-bearing liabilities for the nine months
ended September 30, 2000:
Interest Interest
Earning Assets/ Average Income/ Yield/
Bearing Liabilities Balance Cost Cost
------------------- ------- -------- ------
Federal funds sold $ 6,323,333 $ 276,286 5.83%
Investment securities 124,935 6,326 6.75%
Loans 54,344,596 4,092,553 10.04%
------------- ------------- -----------
Total $ 60,792,864 $ 4,375,165 9.60%
============= ============== ===========
Deposits 56,556,825 2,246,872 5.30%
Other borrowings 601,663 41,951 9.30%
------------- -------------- -----------
Total $ 57,158,488 $ 2,288,823 5.34%
============= ============== ===========
Net interest income $ 2,086,342 4.26%
============== ===========
Net yield on earning assets 4.58%
===========
<PAGE>
The following represents, in a tabular form, the main components of
interest-earning assets and interest-bearing liabilities for the three months
ended September 30, 2000:
Interest Interest
Earning Assets/ Average Income/ Yield/
Bearing Liabilities Balance Cost Cost
------------------- ------- ------- ------
Federal funds sold $ 11,941,848 $ 199,267 6.67%
Investment securities 64,887 1,325 8.17%
Loans 59,201,950 1,541,481 10.42%
------------- ------------- ------
Total $ 71,208,685 $ 1,742,073 9.79%
============= ============= ======
Deposits 66,960,814 969,458 5.79%
Other borrowings 1,765,688 38,403 8.70%
------------- --------------- ------
Total $ 68,726,502 $ 1,007,861 5.87%
============= =============== ======
Net interest income $ 734,212 3.92%
=============== ======
Net yield on earning assets 4.12%
======
Liquidity and Sources of Capital
Liquidity is our ability to meet all deposit withdrawals immediately,
while also providing for the credit needs of customers. The September 30, 2000
financial statements evidence a satisfactory liquidity position as total cash,
cash equivalents, and federal funds sold amounted to approximately $10.6
million, or 13.9% of total assets. Note that our ability to maintain and expand
our deposit base and borrowing capabilities are a source of liquidity. For the
three-month period ended September 30, 2000, total deposits increased from $62.3
million to $67.8 million, representing an increase of 8.8%. We closely monitor
and attempt to maintain appropriate levels of interest-earning assets and
interest-bearing liabilities so that maturities of assets are such that adequate
funds are available to meet our customer withdrawals and loan demand.
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. 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. We expect to be able to meet all current and future obligations at
both the holding company and bank levels through this source of funds, sales of
additional equity in a private placement, and from the operations of the bank.
<PAGE>
The company and the bank maintain adequate levels of capitalization as
measured by the following capital ratios and the respective minimum capital
requirements by the OTS, the bank's primary regulator.
Bank Company Minimum
Capital Capital Regulatory
Ratio Ratio Requirement
----- ----- -----------
Capital ratios at September 30, 2000
Tier 1 capital 9.4% 6.6% 4.0%
Tier 2 capital 1.2% 1.2%
------ -----
Total risk-based capital ratio 10.6% 7.8% 8.0%
====== ===== =====
Leverage ratio 8.3% 5.8% 4.0%
====== ===== =====
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.
Management believes that, as of September 30, 2000, the company and
bank meet all capital requirements to which they are subject.
Liquidity And Rate Sensitivity
Asset/liability management is the process by which we monitor and
control the mix and maturities of our assets and liabilities. The essential
purposes of asset/liability management are to ensure adequate liquidity and to
maintain an appropriate balance between interest sensitive assets and
liabilities to minimize potentially adverse impacts on earnings from changes in
market interest rates.
We measure interest rate sensitivity as the difference between amounts
of interest-earning assets and interest-bearing liabilities, which either
reprice or mature within a given period of time. The difference, or the interest
rate repricing "gap," provides an indication of the extent to which an
institution's interest rate spread will be affected by changes in interest
rates. A gap is considered positive when the amount of interest-rate sensitive
assets exceeds the amount of interest-sensitive liabilities, and is considered
negative when the amount of interest-rate sensitive liabilities exceeds the
amount of interest-sensitive assets. Generally, during a period of rising
interest rates, a negative gap within shorter maturities would adversely affect
net interest income, while a positive gap within shorter maturities would result
in an increase in net interest income, and during a period of falling interest
rates, a negative gap within shorter maturities would result in an increase in
net interest income while a positive gap within shorter maturities would have
the opposite effect.
<PAGE>
<TABLE>
<CAPTION>
The table below shows the interest rate sensitivity of our assets and
liabilities as of September 30, 2000:
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 $ 9,700 $ -- $ -- $ -- $ 9,700
Other securities 163 -- -- -- 163
Loans 38,020 1,296 17,177 6,577 63,070
---------- ---------- ----------- ----------- -----------
Total earning assets $ 47,883 $ 1,296 $ 17,177 $ 6,577 $ 72,933
========== ========== =========== ========== ===========
Interest-bearing liabilities:
Money market, savings and NOW $ 13,693 $ -- $ -- $ -- $ 13,693
Time deposits 14,964 30,691 3,083 48,738
Other borrowings 18 2,555 131 -- 2,704
---------- ---------- ----------- ----------- -----------
Total interest-bearing liabilities $ 28,675 $ 33,246 $ 3,214 $ -- $ 65,135
========== ========== =========== ========== ===========
Interest-sensitivity gap $ 19,208 $ (31,950) $ 13,963 $ 6,577 $ 7,798
========== =========== =========== ========== ===========
Cumulative interest-sensitivity gap $ 19,208 $ (12,742) $ 1,221 $ 7,798 $ 7,798
========== =========== =========== ========== ===========
Ratio of interest-sensitivity gap to
total earning assets 26.34% (43.81)% 19.14% 9.02%
Ratio of cumulative
interest-sensitivity gap to total
earning assets 26.34% (17.47)% 1.67% 10.69%
</TABLE>
As evidenced by the table above, we are cumulatively
liability-sensitive at one year. However, our gap analysis is not a precise
indicator of its interest sensitivity position. The analysis presents only a
static view of the timing of maturities and repricing opportunities, without
taking into consideration that changes in interest rates do not affect all
assets and liabilities equally. Net interest income may be impacted by other
significant factors in a given interest rate environment, including changes in
the volume and mix of earning assets and interest-bearing liabilities.
<PAGE>
Loan Portfolio
Since loans typically provide higher interest yields than do other
types of earning assets, our intent is to channel a substantial percentage of
its earning assets into the loans category. Average loans were approximately
$54,235,957 for the nine-month period ended September 30, 2000. Total gross
loans outstanding at September 30, 2000 were $63,069,790.
The following table summarizes the composition of the loan portfolio at
September 30, 2000:
Percent
Amount of total
---------------- -----------
Commercial $ 12,160,795 19.19%
Real estate - individual 4,843,598 7.64%
Real estate - commercial 43,194,628 68.17%
Installment loans to individuals 3,166,333 5.00%
---------------- -----------
Total loans 63,365,354 100.00%
===========
Less: Net deferred loan fees (295,564)
Allowance for loan loss (941,262)
----------------
Total net loans $62,128,528
================
The principal components of our loan portfolio at September 30, 2000
were mortgage loans and commercial loans, which represented 95% 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.
Other Matters
On November 4, 1999, the U.S. Senate and House of Representatives each
passed the Gramm-Leach-Bliley Act, previously known as the Financial Services
Modernization Act of 1999. The Act was signed into law by President Clinton on
November 12, 1999. Among other things, the Act repeals the restrictions on banks
affiliating with securities firms contained in sections 20 and 32 of the
Glass-Steagall Act. The Act also permits bank holding companies to engage in a
statutorily provided list of financial activities, including insurance and
securities underwriting and agency activities, merchant banking, and insurance
company portfolio investment activities. The Act also authorizes activities that
are "complementary" to financial activities.
The Act contains a number of provisions specifically applicable to
federal thrifts. For example, the Act repeals the Savings Association Insurance
Fund special reserve; modernizes the Federal Home Loan Bank System; provides
regulatory relief for community banks with satisfactory or outstanding Community
Reinvestment Act ratings in the form of less frequent compliance examinations;
and creates privacy provisions that address consumer needs without disrupting
necessary information sharing between community banks and their financial
services partners.
The Act also prohibits new unitary thrift holding companies from
engaging in nonfinancial activities or affiliating with nonfinancial entities.
The prohibition applies to a company that becomes a unitary thrift holding
company pursuant to an application filed with the OTS after May 4, 1999.
However, a grandfathered unitary thrift holding company, such as our company,
retains its authority to engage in nonfinancial activities.
<PAGE>
The Act is intended to grant to community banks certain powers as a
matter of right that larger institutions have accumulated on an ad hoc basis.
Nevertheless, the Act may have the result of increasing the amount of
competition that we face from larger institutions and other types of companies.
In fact, it is not possible to predict the full effect that the Act will have on
us. From time to time other changes are proposed to laws affecting the banking
industry, and these changes could have a material effect on our business and
prospects. We cannot predict the nature or the extent of the effect on our
business and earnings of fiscal or monetary policies, economic controls, or new
federal or state legislation.
Other than as described in this Form 10-QSB, we are not aware of any
current recommendation by the regulatory authorities, which, if implemented,
would have a material effect on our liquidity, capital resources, or results of
operations.
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
In late May 1999, we received a notice from Huntington Bancshares
Incorporated asserting that it has superior trademark rights in the name
"Ebank." In 1996, Huntington Bancshares Incorporated obtained a federal
trademark registration for the term "E-BANK." Based on our review of materials
Huntington sent us describing its use of the term "E-BANK," we believe that
Huntington's use of the term is limited to a description of a system platform,
which Huntington at one time offered or planned to offer on a wholesale basis to
other banks. We do not believe that Huntington has used the term in connection
with offering financial services to the public. Consequently, we do not believe
that our ownership rights in the service mark "Ebank" and our use of the mark to
provide financial services on the Internet and elsewhere infringe upon
Huntington's federal trademark. In order to clarify the situation, on June 30,
1999 we filed an action in the United States District Court for the Northern
District of Georgia, asking for a declaratory judgment that we have the right to
use "ebank.com" as a trademark for Internet banking services despite
Huntington's registration. Rather than answering our complaint, Huntington filed
suit against us on August 10, 1999 in the United States District Court for the
Eastern District of Ohio, alleging trademark infringement over our use of the
name "ebank.com." In the Ohio action, Huntington is seeking an injunction
against our use of the name "ebank.com" and "ebank," as well as treble damages
and all profits realized by us by reason of our use of the name "ebank."
Huntington has submitted a motion to dismiss the Georgia action, and we have
submitted a motion to dismiss the Ohio action, in each case on the grounds of
lack of jurisdiction. 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. On September 27, 2000, the district court
in the Ohio action granted our motion to dismiss on the grounds of lack of
jurisdiction. Currently, there are no claims pending in either court relating to
this matter.
We cannot predict whether Huntington will re-file and continue to
pursue its claims against us. In the event that Huntington re-files a lawsuit,
we would vigorously defend our rights to the name "ebank.com." Although we do
not expect this, in the worst case we could be required to pay damages, change
our name, and choose a new domain name from which to host our Internet
operations, and the amount of damages could even include the actual amount of
damages sustained by Huntington, multiplied by three, plus all profits we
realize through the use of the name "ebank," and even punitive damages.
There are no material legal proceedings to which we or any of our
properties are subject.
ITEM 2. CHANGES IN SECURITIES.
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
<PAGE>
ITEM 5. OTHER INFORMATION.
Over the past several months, we have restructured our management and
reevaluated certain business strategies in an effort to reduce costs at the
holding company level. In July 2000, James L. Box replaced Richard A.
Parlontieri as our chief executive officer and Mark D. Little as our chief
financial officer. In addition, Frank Perisino resigned from our board of
directors and Gary M. Bremer was appointed chairman of the board on an interim
basis. In November 2000, we announced additional managerial changes as Richard
D. Jackson replaced Mr. Bremer as chairman of the board. Mr. Bremer continues to
serve as vice chairman. We also expanded the role of Mr. Box by appointing him
chairman and chief executive officer of the bank. Finally, Lou Douglass was
moved from president of the Company to president of the bank. We believe that
these changes better utilize our management's strengths and capabilities.
During this period, we also renewed our focus on our traditional
community banking business. Although we will continue to offer Internet banking
to those customers nationwide who prefer to do their banking on-line, we plan to
focus on building our core bank business at the regional level.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
10.1 Agency Agreement between ebank.com, Inc. and Attkisson, Carter
& Akers dated September 11, 2000.
10.2 Loan and Stock Pledge Agreement between ebank.com, Inc. and
The Bankers Bank dated July 31, 2000.
27.1. Financial Data Schedule (for electronic filing purposes)
99.1 Press Release dated August 3, 2000 announcing the appointment
of James L. Box as chief executive officer and chief financial
officer of ebank.com, Inc. and Gary M. Bremer as chairman of
the board (incorporated by reference in our Form 8-K filed
with the SEC on August 3, 2000).
---------------------
(b) Reports on Form 8-K.
The following exhibits were filed on Form 8-K for the period ended
September 30, 2000.
1. Form 8-K referenced in Exhibit 99.1 dated August 3, 2000.
2. Form 8-K filed with the SEC on August 25, 2000 reporting the
replacement of BDO Seidman, LLP, with Mauldin & Jenkins as our
auditors.
3. Form 8-K filed with the SEC on September 27, 2000 reporting
the distribution to shareholders of our proxy statement and
1999 Annual Report for our annual shareholders meeting held on
October 16, 2000.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934 (the "Exchange Act"), the registrant caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
ebank.com, Inc.
Date: November 13, 2000 By: /s/ James L. Box
---------------------- ------------------------------------
James L. Box
President and Chief Executive Officer
By: /s/ Wayne Byers
------------------------------------
Wayne Byers
Vice President and Controller
