U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-QSB
(Mark One)
X Quarterly report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended June 30, 2000
___ Transition report under Section 13 or 15(d) of the Exchange Act
For the transition period from _______________ to ________________
Commission File No. 333-41545
ebank.com, Inc.
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(Exact Name of Small Business Issuer as Specified in its Charter)
Georgia 58-2349097
------- ----------
(State of Incorporation) (I.R.S. Employer Identification No.)
2410 Paces Ferry Road, Atlanta, Georgia 30339
---------------------------------------------
(Address of Principal Executive Offices)
(770) 863-9229
--------------
(Issuer's Telephone Number, Including Area Code)
Not Applicable
(Former Name, Former Address and Former Fiscal Year, if Changed Since Last
Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
-- --
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
1,469,250 shares of common stock, par value $.01 per share, were issued
and outstanding as of August 7, 2000.
Transitional Small Business Disclosure Format (check one): Yes No X
-- --
<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.
<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,
-------- --------
Interest income 2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
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 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.
<PAGE>
<TABLE>
<CAPTION>
ebank.com, Inc.
Consolidated Statements of Comprehensive 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>
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.
<PAGE>
<TABLE>
<CAPTION>
ebank.com, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the six months ended
June 30,
2000 1999
---- ----
Cash Flows from operating activities:
<S> <C> <C>
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:
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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.
<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
<PAGE>
and resulting designation. The adoption of SFAS 133 is not expected to have a
significant impact on the consolidated financial condition or results of
operations of the Company.
NOTE 4 - ACCUMULATED OTHER COMPREHENSIVE LOSS
Accumulated other comprehensive loss is as follows:
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.
<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.
-------------- --------------------- -------------- -------------------
ASSETS
<S> <C> <C> <C> <C>
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 2,566,058 (2,566,058) 0
0
Other liabilities 219,459 610,936 830,395
0
-------------- --------------------- -------------- -------------------
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>
<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>
<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 the Company 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 $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, the Company's 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. The Company's 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. The Company's shareholders' equity
totaled $6,161,414 at June 30, 2000. The transaction with Talisman Technologies,
Inc. was terminated on July 14, 2000. For further discussion, see Note 5 and
Item 5.
<PAGE>
Results of Operations
From the Bank's opening date on August 17, 1998 through June 30, 2000,
the Bank has attracted approximately $62.3 million in deposits and made net
loans of $54.2 million. Net interest income for the three month period ending
June 30, 2000 totaled $662,269 compared to net interest income of $445,275 for
the three-month period ending June 30, 1999. This increase in net interest
income in the 2nd quarter of 2000 over the 2nd quarter of 1999 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.
Our provision for loan losses for the three months ended June 30, 2000
and 1999 was $56,000 and $58,000, respectively. This was offset somewhat by
other income of $24,597 and $7,214 respectively.
On an annualized basis, other income represents less than .08% 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 June 30, 2000
totaled $3,475,618, including salaries and other compensation of $809,440,
employee benefits expenses of $214,670, occupancy and equipment expenses of
$324,032, professional and other outside services of $1,977,926, and other
expenses of $149,550. On an annualized basis, other expenses represents .90% of
total assets. Operating expenses for the three-month period ending June 30, 1999
totaled $808,815.
The Company incurred significant increases in operating expenses in the
three-month period ending 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 the projected growth of the
Company, marketing expenses to promote the Company's products and services, and
other general operating expenses. In July 2000, the Company announced the
reevaluation of this business strategy and the restructuring of management,
which included the elimination of some senior level positions, to reduce costs
at the holding company level. For further discussion, see Item 5.
As a result of this reevaluation of its business strategies, at June
30, 2000, the Company 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 and has
not yet been resumed. Additionally, unamortized prepaid marketing related costs
of $125,000 were written off related to certain suspended business strategies.
The Company 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.
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.
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
<PAGE>
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. By June 30, 2000, the allowance had grown to $844,000. The allowance
for loan losses, as a percentage of total gross loans, is 1.53% as of the
three-month period ended 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 three-month period
ending June 30, 2000.
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 six months
ended June 30, 2000:
Interest Interest
Earning Assets/ Average Income/ Yield/
Bearing Liabilities Balance Cost Cost
------------------- ------- --------- ------
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 $ 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%
===========
The following represents, in a tabular form, the main components of
interest-earning assets and interest-bearing liabilities for the three months
ended June 30, 2000:
<PAGE>
Interest Interest
Earning Assets/ Average Income/ Yield/
Bearing Liabilities Balance Cost Cost
------------------- ------- ------- ------
Federal funds sold $ 2,900,347 $ 42,987 5.93%
Investment securities 65,553 1,281 7.82%
Loans 53,087,587 1,316,261 9.92%
------------ ----------- --------
Total $ 56,053,487 $ 1,360,529 9.71%
============ =========== ========
Deposits $ 52,291,099 $ 698,260 5.34%
============ =========== ========
Net interest income $ 662,269 4.37%
=========== ========
Net yield on earning assets 4.73%
========
Liquidity and Sources of Capital
Liquidity is the Company's ability to meet all deposit withdrawals
immediately, while also providing for the credit needs of customers. The June
30, 2000 financial statements evidence a satisfactory liquidity position as
total cash, cash equivalents, and federal funds sold amounted to approximately
$11.4 million, or 16% of total assets. Note that the Company's ability to
maintain and expand its deposit base and borrowing capabilities are a source of
liquidity. For the three-month period ended June 30, 2000, total deposits
increased from $49.0 million to $62.3 million, representing an increase of 27%.
The Company closely monitors and attempts to maintain appropriate levels of
interest-earning assets and interest-bearing liabilities so that maturities of
assets are such that adequate funds are available to meet customer withdrawals
and loan demand.
As noted above, the Company commenced a private offering to fund
expenses related to its new business strategy that it launched in the first
quarter of 2000. Due to adverse market conditions, the Company suspended this
offering and it has not yet been resumed. In July 2000, the Company 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. In addition, the Company is considering
additional funding alternatives, including selling additional equity or
borrowing additional funds from third parties. On August 8, 2000, the Company
closed on a $2,500,000 loan to repay amounts due to its bank subsidiary. The
Company expects to be able to meet all current and future obligations at both
the holding company and bank levels through these sources of funds and from the
operations of the Bank.
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
Capital ratios at June 30, 2000 Ratio Ratio Requirement
----- ----- -----------
Tier 1 capital 11.1% 10.4% 4.0%
Tier 2 capital 1.2% 1.3%
--------- --------
Total risk-based capital ratio 12.3% 11.7% 8.0%
========= ======== =======
Leverage ratio 9.6% 8.9% 4.0%
========= ======== =======
The OTS has established a 3.0% minimum leverage
<PAGE>
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 June 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 the Company monitors
and controls the mix and maturities of its assets and liabilities. The essential
purposes of asset/liability management are to ensure adequate liquidity and to
maintain an appropriate balance between interest sensitive assets and
liabilities to minimize potentially adverse impacts on earnings from changes in
market interest rates.
The Company measures interest rate sensitivity as the difference
between amounts of interest-earning assets and interest-bearing liabilities
which either reprice or mature within a given period of time. The difference, or
the interest rate repricing "gap," provides an indication of the extent to which
an institution's interest rate spread will be affected by changes in interest
rates. A gap is considered positive when the amount of interest-rate sensitive
assets exceeds the amount of interest-sensitive liabilities, and is considered
negative when the amount of interest-rate sensitive liabilities exceeds the
amount of interest-sensitive assets. Generally, during a period of rising
interest rates, a negative gap within shorter maturities would adversely affect
net interest income, while a positive gap within shorter maturities would result
in an increase in net interest income, and during a period of falling interest
rates, a negative gap within shorter maturities would result in an increase in
net interest income while a positive gap within shorter maturities would have
the opposite effect.
<PAGE>
The table below shows the interest rate sensitivity of the Company's
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)
Interest-earning assets:
<S> <C> <C> <C> <C> <C>
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, the Company is cumulatively
liability-sensitive at one year. However, the Company's gap analysis is not a
precise indicator of its interest sensitivity position. The analysis presents
only a static view of the timing of maturities and repricing opportunities,
without taking into consideration that changes in interest rates do not affect
all assets and liabilities equally. Net interest income may be impacted by other
significant factors in a given interest rate environment, including changes in
the volume and mix of earning assets and interest-bearing liabilities.
<PAGE>
Loan Portfolio
Since loans typically provide higher interest yields than do other
types of earning assets, the Company's intent is to channel a substantial
percentage of its earning assets into the loans category. Average loans, on an
annualized basis, were approximately $50,936,006 for the six-month period ended
June 30, 2000. Total gross loans outstanding at June 30, 2000 were $55,064,430.
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 the Company's 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. The Company will
attempt to maintain a relatively diversified loan portfolio to help reduce the
risk inherent in concentration of collateral.
Other Matters
On November 4, 1999, the U.S. Senate and House of Representatives each
passed the Gramm-Leach-Bliley Act, previously known as the Financial Services
Modernization Act of 1999. The Act was signed into law by President Clinton on
November 12, 1999. Among other things, the Act repeals the restrictions on banks
affiliating with securities firms contained in sections 20 and 32 of the
Glass-Steagall Act. The Act also permits bank holding companies to engage in a
statutorily provided list of financial activities, including insurance and
securities underwriting and agency activities, merchant banking, and insurance
company portfolio investment activities. The Act also authorizes activities that
are "complementary" to financial activities.
The Act contains a number of provisions specifically applicable to
federal thrifts. For example, the Act repeals the Savings Association Insurance
Fund special reserve; modernizes the Federal Home Loan Bank System; provides
regulatory relief for community banks with satisfactory or outstanding Community
Reinvestment Act ratings in the form of less frequent compliance examinations;
and creates privacy provisions that address consumer needs without disrupting
necessary information sharing between community banks and their financial
services partners.
The Act also prohibits new unitary thrift holding companies from
engaging in nonfinancial activities or affiliating with nonfinancial entities.
The prohibition applies to a company that becomes a unitary thrift holding
company pursuant to an application filed with the OTS after May 4, 1999.
However, a grandfathered unitary thrift holding company, such as our Company,
retains its authority to engage in nonfinancial activities.
The Act is intended to grant to community banks certain powers as a
matter of right that larger institutions have accumulated on an ad hoc basis.
Nevertheless, the Act may have the result of increasing the amount of
competition that we face from larger institutions and other types of companies.
In fact, it is not
<PAGE>
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, the Company is not aware
of any current recommendation by the regulatory authorities which, if
implemented, would have a material effect on the Company's liquidity, capital
resources, or results of operations.
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. Currently, there are substantive and
procedural motions to dismiss Huntington's claims against us in Ohio. These
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 pay damages, change
our name, and choose a new domain name from which to host our Internet
operations, and the amount of damages could even include the actual amount of
damages sustained by Huntington, multiplied by three, plus all profits we
realize through the use of the name "ebank," and even punitive damages.
There are no other material legal proceedings to which the Company or
any of its properties are subject.
Item 2. Changes in Securities.
None.
Item 3. Defaults Upon Senior Securities.
None.
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
In July 2000, James L. Box replaced Richard A. Parlontieri as the
Company's Chief Executive Officer. Mr. Box also replaced Mark D. Little as the
Company's Chief Financial Officer. In addition, Frank Perisino resigned from the
Company's board of directors and Gary M. Bremer was named Chairman of the Board,
replacing Mr. Parlontieri. Although the Company will continue to pursue
opportunities to grow its core business by focusing on small business customers
and the Internet as a delivery channel, the Company eliminated some senior level
positions and is reevaluating certain business strategies to reduce costs.
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.
On August 8, 2000, the Company closed on a $2,500,000 loan. The Company
is considering additional funding alternatives, including selling additional
equity or borrowing additional funds from third parties.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits.
27.1. Financial Data Schedule (for electronic filing purposes)
---------------------
(b) Reports on Form 8-K.
None.
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: August 14, 2000 By: /s/ James L. Box
--------------------- ------------------------------
James L. Box
Chief Executive Officer
By: /s/ Gary M. Bremer
------------------------------
Gary M. Bremer
Chairman of the Board
