Use these links to rapidly review the documentNETBANK, INC. INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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SECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

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FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)  OF THE SECURITIES EXCHANGE ACT OF 1934

|For the Quarter Ended March 31, 2001 |  | Commission File No. 0-22361
|------------------------------------ |  | ---------------------------

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NETBANK, INC.(Exact name of registrant as specified in its charter)

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Georgia

58-2224352(State of incorporation)

(I.R.S. Employer Identification Number)11475 Great Oaks Way
Suite 100
Alpharetta, Georgia(Address of principal executive offices)

30022(Zip Code)


Registrant's
telephone number, including area code:(770) 343-6006

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Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 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 / /

Indicate
the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date:

|Class                        |  | Shares Outstanding At May 11, 2001
|---------------------------- |  | ----------------------------------
|Common Stock, par value $.01 |  | 28,522,615                        

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NETBANK, INC.    INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS



|                                                                                                    |  | Page
|--------------------------------------------------------------------------------------------------- |  | ----
|Condensed consolidated balance sheets as of March 31, 2001 and as of December 31, 2000.             |  | 3   
|Condensed consolidated statements of operations for the three months ended March 31,
2001 and 2000. |  | 4   
|Condensed consolidated statement of shareholders' equity from December 31, 2000 to
March 31, 2001.  |  | 5   
|Condensed consolidated statements of cash flows for the three months ended March 31, 2001 and 2000. |  | 6   
|Notes to condensed consolidated financial statements.                                               |  | 7   

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NETBANK, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in 000's except share amounts)

|                                                                                                 |                                                                                  | March 31,
2001 |           | December 31,
2000 |  
|------------------------------------------------------------------------------------------------ | -------------------------------------------------------------------------------- | -------------- | --------- | ----------------- | -
|ASSETS                                                                                           |                                                                                 
|Cash and cash equivalents:                                                                       |                                                                                  |                |           |                   |  
|                                                                                                 | Cash and due from banks                                                          |                | $         | 10,394            |  
|                                                                                                 | Federal funds sold                                                               |                |           | 58,829            |  
|                                                                                                 | Total cash and cash equivalents                                                  |                |           | 69,223            |  
|Investment securities available for saleAt fair value (amortized cost of $450,486 and $389,443) |                                                                                  |                | 453,131   |                   |  
|Stock of Federal Home Loan Bank of AtlantaAt cost                                               |                                                                                  |                | 27,700    |                   |  
|Loans receivable-Net of allowance for loan losses of $14,954 and $13,421                         |                                                                                  |                | 1,352,128 |                   |  
|Accrued interest receivable                                                                      |                                                                                  |                | 9,395     |                   |  
|Furniture, equipment and capitalized softwareNet                                                |                                                                                  |                | 8,879     |                   |  
|Other assets                                                                                     |                                                                                  |                | 82,472    |                   |  
|                                                                                                 |                                                                                  |                |           |                   |  
|                                                                                                 | Total assets                                                                     |                | $         | 2,002,928         |  
|                                                                                                 |                                                                                  |                |           |                   |  
|LIABILITIES AND SHAREHOLDERS' EQUITY                                                             |                                                                                 
|Liabilities:                                                                                     |                                                                                  |                |           |                   |  
|                                                                                                 | Deposits                                                                         |                | $         | 1,165,093         |  
|                                                                                                 | Other borrowed funds                                                             |                |           | 534,000           |  
|                                                                                                 | Convertible subordinated debt                                                    |                |           | 26,797            |  
|                                                                                                 | Accrued interest payable                                                         |                |           | 20,237            |  
|                                                                                                 | Accounts payable and accrued liabilities                                         |                |           | 6,840             |  
|                                                                                                 |                                                                                  |                |           |                   |  
|                                                                                                 | Total liabilities                                                                |                |           | 1,752,967         |  
|Commitments and contingencies                                                                    |                                                                                  |                |          |                   |  
|Shareholders' equity:                                                                            |                                                                                  |                |           |                   |  
|                                                                                                 | Preferred stock, no par (10,000,000 shares authorized, none outstanding)         |                |           |                  |  
|                                                                                                 | Common stock, $.01 par (100,000,000 shares authorized, 30,012,680 shares issued) |                |           | 300               |  
|                                                                                                 | Additional paid-in capital                                                       |                |           | 251,579           |  
|                                                                                                 | Retained earnings                                                                |                |           | 7,485             |  
|                                                                                                 | Accumulated other comprehensive income (loss), net of tax                        |                |           | 1,774             |  
|                                                                                                 | Treasury stock, at cost (1,389,565 and 926,500 shares, respectively)             |                |           | (11,177           | )
|                                                                                                 |                                                                                  |                |           |                   |  
|                                                                                                 | Total shareholders' equity                                                       |                |           | 249,961           |  
|                                                                                                 |                                                                                  |                |           |                   |  
|                                                                                                 | Total liabilities and shareholders' equity                                       |                | $         | 2,002,928         |  
|                                                                                                 |                                                                                  |                |           |                   |  

See
notes to condensed consolidated financial statements

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NETBANK, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in 000's except per share amounts)

|                                                                                    |                               | Three Months Ended March 31,
|----------------------------------------------------------------------------------- | ----------------------------- | ----------------------------
|
|Interest income:                                                                    |                               |                             
|                                                                                    | Loans                         |                             
|                                                                                    | Investment securities         |                             
|                                                                                    | Short-term investments        |                             
|                                                                                    |                               |                             
|                                                                                    | Total interest income:        |                             
|Interest expense:                                                                   |                               |                             
|                                                                                    | Deposits                      |                             
|                                                                                    | Other borrowed funds          |                             
|                                                                                    |                               |                             
|                                                                                    | Total interest expense        |                             
|                                                                                    |                               |                             
|Net interest income                                                                 |                               |                             
|Provision for loan losses                                                           |                               |                             
|                                                                                    |                               |                             
|Net interest income after provision for loan losses                                 |                               |                             
|Non-interest income                                                                 |                               |                             
|Non-interest expense:                                                               |                               |                             
|                                                                                    | Salaries and benefits         |                             
|                                                                                    | Customer services             |                             
|                                                                                    | Marketing                     |                             
|                                                                                    | Data processing               |                             
|                                                                                    | Depreciation and amortization |                             
|                                                                                    | Office expenses               |                             
|                                                                                    | Occupancy                     |                             
|                                                                                    | Travel and entertainment      |                             
|                                                                                    | Other                         |                             
|                                                                                    |                               |                             
|                                                                                    | Total non-interest expense    |                             
|                                                                                    |                               |                             
|Income before income taxes and extraordinary gain                                   |                               |                             
|Income tax expense                                                                  |                               |                             
|                                                                                    |                               |                             
|Income before extraordinary gain                                                    |                               |                             
|Extraordinary gain on early extinguishment of debt, net of tax                      |                               |                             
|                                                                                    |                               |                             
|Net income                                                                          |                               | $                           
|                                                                                    |                               |                             
|Income before extraordinary gain per common and potential common share outstanding: |                               |                             
|                                                                                    | Basic                         |                             
|                                                                                    | Diluted                       |                             
|Extraordinary gain per common and potential common share outstanding:               |                               |                             
|                                                                                    | Basic                         |                             
|                                                                                    | Diluted                       |                             
|Net income per common and potential common share outstanding:                       |                               |                             
|                                                                                    | Basic                         |                             
|                                                                                    | Diluted                       |                             
|Weighted average common and potential common shares outstanding:                    |                               |                             
|                                                                                    | Basic                         |                             
|                                                                                    | Diluted                       |                             

See
notes to condensed consolidated financial statements.

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NETBANK, INC.
CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(in 000's)

|                          |                                                                              | Common
Shares |   | Common
Stock
($.01 par) |     | Additional
Paid-in Capital |   | Treasury
Stock |   | Retained
Earnings
(Deficit) |         | Accumulated Other
Comprehensive
Income (Loss) |   | Total |    
|------------------------- | ---------------------------------------------------------------------------- | ------------- | - | ----------------------- | --- | -------------------------- | - | -------------- | - | --------------------------- | ------- | --------------------------------------------- | - | ----- | ---
|BalanceDecember 31, 2000 |                                                                              | 30,013        |   | $                       | 300 |                            | $ | 251,579        |   | $                           | (7,608  | )                                             | $ | 6,688 |    
|                          | Comprehensive income:                                                        |               |   |                         |     |                            |   |                |   |                             |         |                                               |   |       |    
|                          | Net income for three months ended March 31, 2001                             |               |  |                         |     |                           |   |                |  |                             |         |                                              |   |       | 797
|                          | Unrealized gains on securities, net of taxes and reclassification adjustment |               |  |                         |     |                           |   |                |  |                             |         |                                              |   |       |   
|                          |                                                                              |               |   |                         |     |                            |   |                |   |                             |         |                                               |   |       |    
|                          | Comprehensive income                                                         |               |   |                         |     |                            |   |                |   |                             |         |                                               |   |       |    
|                          | Purchase of shares of common stock for treasury                              |               |  |                         |     |                           |   |                |  |                             |         | (3,569                                        | ) |       |   
|                          |                                                                              |               |   |                         |     |                            |   |                |   |                             |         |                                               |   |       |    
|BalanceMarch 31, 2001    |                                                                              | 30,013        |   | $                       | 300 |                            | $ | 251,579        |   | $                           | (11,177 | )                                             | $ | 7,485 |    
|                          |                                                                              |               |   |                         |     |                            |   |                |   |                             |         |                                               |   |       |    

See notes to condensed consolidated financial statements.

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NETBANK, INC.  CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  (in 000's)

|                                                                                            |                                                     | Three Months Ended March 31,                                                           |                                                     
|------------------------------------------------------------------------------------------- | --------------------------------------------------- | -------------------------------------------------------------------------------------- | ----------------------------------------------------
|
|Operating activities:                                                                       |                                                     |                                                                                        |                                                     
|Net income                                                                                  |                                                     | $                                                                                      | 797                                                 
|Adjustments to reconcile net income to net cash provided by (used in) operating activities: |                                                     |                                                                                        |                                                     
|                                                                                            | Gain on sale of securities                          |                                                                                        |                                                     
|                                                                                            | Net accretion of discounts on investment securities |                                                                                        |                                                     
|                                                                                            | Net amortization of premiums on purchased loans     |                                                                                        |                                                     
|                                                                                            | Provision for loan losses                           |                                                                                        |                                                     
|                                                                                            | Depreciation and amortization                       |                                                                                        |                                                     
|                                                                                            | Amortization of debt discount                       |                                                                                        |                                                     
|                                                                                            |                                                     | Changes in assets and liabilities which provide (use) cash:                            |                                                     
|                                                                                            |                                                     |                                                                                        | Increase in accrued interest receivable             
|                                                                                            |                                                     |                                                                                        | Increase in other assets                            
|                                                                                            |                                                     |                                                                                        | Loans originated for sale                           
|                                                                                            |                                                     |                                                                                        | Proceeds from sale of loans                         
|                                                                                            |                                                     |                                                                                        | Increase in accrued interest payable                
|                                                                                            |                                                     |                                                                                        | Increase in accounts payable and accrued liabilities
|                                                                                            |                                                     |                                                                                        |                                                     
|                                                                                            | Net cash provided by (used in) operating activities |                                                                                        |                                                     
|Investing activities:                                                                       |                                                     |                                                                                        |                                                     
|                                                                                            | Purchases of securities available for sale          |                                                                                        |                                                     
|                                                                                            | Sales of securities available for sale              |                                                                                        |                                                     
|                                                                                            | Purchase of Federal Home Loan Bank stock            |                                                                                        |                                                     
|                                                                                            | Principal repayments on investment securities       |                                                                                        |                                                     
|                                                                                            | Origination and purchase of loans                   |                                                                                        |                                                     
|                                                                                            | Principal payments on loans                         |                                                                                        |                                                     
|                                                                                            | Capital expenditures                                |                                                                                        |                                                     
|                                                                                            |                                                     |                                                                                        |                                                     
|                                                                                            | Net cash used in investing activities               |                                                                                        |                                                     
|Financing activities:                                                                       |                                                     |                                                                                        |                                                     
|                                                                                            | Increase in deposits                                |                                                                                        |                                                     
|                                                                                            | Net proceeds from the issuance of common stock      |                                                                                        |                                                     
|                                                                                            | Proceeds from other borrowed funds                  |                                                                                        |                                                     
|                                                                                            | Repayments of other borrowed funds                  |                                                                                        |                                                     
|                                                                                            | Purchase of common stock for treasury               |                                                                                        |                                                     
|                                                                                            | Repurchase of convertible subordinated notes        |                                                                                        |                                                     
|                                                                                            |                                                     |                                                                                        |                                                     
|                                                                                            | Net cash provided by financing activities           |                                                                                        |                                                     
|                                                                                            |                                                     |                                                                                        |                                                     
|Net increase (decrease) in cash and cash equivalents                                        |                                                     |                                                                                        | 57,265                                              
|Cash and cash equivalents:                                                                  |                                                     |                                                                                        |                                                     
|                                                                                            | Beginning of period                                 |                                                                                        |                                                     
|                                                                                            |                                                     |                                                                                        |                                                     
|                                                                                            | End of period                                       |                                                                                        | $                                                   
|                                                                                            |                                                     |                                                                                        |                                                     
|Supplemental disclosures of cash flow information:                                          |                                                     |                                                                                        |                                                     
|                                                                                            |                                                     | Cash paid during the period for interest                                               |                                                     
|                                                                                            |                                                     | Cash paid during the period for income taxes                                           |                                                     
|Non-cash financing activity:                                                                |                                                     |                                                                                        |                                                     
|                                                                                            |                                                     | Issuance of common stock for repurchase of convertible subordinated notes              |                                                     
|                                                                                            |                                                     | Issuance of note receivable in exchange for assumption of customer deposit liabilities |                                                     

See
notes to condensed consolidated financial statements.

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NETBANK, INC.  NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. ORGANIZATION AND BASIS OF PRESENTATION

NetBank, Inc. ("NetBank") is a bank holding company that wholly owns the outstanding stock of NetBank, a federal savings bank and NetBank Partners, LLC,
a partnership involved in strategic partnering opportunities.

In
the opinion of management, the unaudited condensed consolidated financial statements included herein reflect all adjustments, consisting only of normal recurring accruals, which
are necessary for the fair statement of the results for the interim periods presented. Certain information and footnote disclosures normally included in financial statements have been condensed or
omitted pursuant to applicable rules and regulations of the Securities and Exchange Commission ("SEC"). The financial statements included herein should be read in conjunction with the financial
statements and notes thereto, included in NetBank's Form 10-K filed with the SEC for the year ended December 31, 2000. The results of operations for the interim periods
reported herein are not necessarily indicative of results to be expected for the full year. Certain 2000 amounts have been reclassified for comparability with 2001 amounts.

2. ACCOUNTING POLICIES

Reference is made to the accounting policies of NetBank described in the notes to financial statements contained in NetBank's Form 10-K for
the year ended December 31, 2000. The Company has followed those policies in preparing this report.

On
January 1, 2000, NetBank adopted Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities" and the
corresponding amendments under SFAS 138 and it had no impact on NetBank's consolidated results of operations, financial position or cash flows.

3. LOANS

During the three months ended March 31, 2001, NetBank purchased the following loan pools (in 000's):

Types of Loans Purchased

Principal Amount

Premium
Amount

Range of Stated
Interest RatesSecond mortgages

$
94,409

$
1,902

7.72-9.85
%Commercial participations


7,826




8.88
%Total

$
102,235

$
1,902


An
analysis of the allowance for loan losses for the three months ended March 31, 2001 follows (in 000's):

Balancebeginning of period

$
13,421Allowance recorded in connection with purchase of loan pools


1,876Provision for loan losses


44Loans charged off, net of recoveries


(387
)Balanceend of period

$
14,954


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4. DEPOSITS

During the three months ended March 31, 2001, NetBank purchased approximately 57,000 customer deposit accounts and related liabilities totaling
$75,700,000 from Compubank for $4,000,000 in cash, plus related expenses and assumed liabilities. Compubank will continue to service the accounts under the terms of a Service Level Agreement ("SLA")
until the earlier of May 23, 2001 or the Conversion Date, as defined in the SLA. In conjunction with the transaction, as of March 31, 2001, NetBank had recorded the purchase price as a
core deposit intangible to be amortized straight-line over seven years and a $21,643,000 receivable from Compubank for customer deposits in transit. Both of these items are classified as
other assets. In addition, NetBank recorded restricted cash and a related liability of $1,389,000 for funds held on behalf of Compubank to fund Compubank expenses during the term of the SLA.

5. BORROWINGS

At March 31, 2001, NetBank's borrowings consisted of various advances from the Federal Home Loan Bank ("FHLB") and the remaining principal outstanding
from our convertible subordinated notes (the "Notes"). The majority of NetBank's borrowings consist of FHLB advances. Other than one adjustable rate $25,000,000 advance that matures in 2001, all of
the advances are fixed rate; however, eight
advances totaling $255,000,000 may be converted to adjustable rate based on the three month floating LIBOR. All of NetBank's borrowings are secured by NetBank's investment securities or mortgage loans
except for the convertible subordinated notes, which are unsecured.

A
summary of borrowings, grouped by year of maturity, as of March 31, 2001 follows (in 000's):

Type of Borrowing

Year of Maturity

Range of Stated
Interest Rates

Principal AmountFHLB Advances

2001

6.47%

$
44,000Adjustable rate FHLB Advance

2001

5.03%


25,000FHLB Advances

2003

6.88%-7.17%


60,000Convertible Subordinated Notes

2004

4.75%


27,316FHLB Advances

2004

5.92-6.03%


105,000FHLB Advances

2005

6.02%-7.41


150,000FHLB Advances

2006

5.63%


100,000FHLB Advances

2007

7.50%


25,000FHLB Advances

2009

4.64%


25,000Total


561,316Less unamortized discount


519Total debt

$
560,797


6. NET INCOME PER COMMON AND COMMON EQUIVALENT SHARE

Basic and diluted net income per common and potential common share have been calculated based on the weighted average number of shares outstanding. The
following schedule reconciles the numerator and denominator of the basic and diluted net income per common and potential common shares (in 000's except per share amounts). The effect of convertible
debt securities outstanding has not

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been included as the assumed conversion of such securities would be anti-dilutive to earnings per share for the three months ended March 31, 2001 and 2000.

|                                                                |  | Three Months Ended March 31, 2001
|--------------------------------------------------------------- |  | ---------------------------------
|
|Basic EPS                                                       |  | $                                
|Effect of dilutive securitiesoptions to purchase common shares |  |                                  
|                                                                |  |                                  
|Diluted EPS                                                     |  | $                                
|                                                                |  |                                  

|                                                                |  | Three Months Ended March 31, 2000
|--------------------------------------------------------------- |  | ---------------------------------
|
|Basic EPS                                                       |  | $                                
|Effect of dilutive securitiesoptions to purchase common shares |  |                                  
|                                                                |  |                                  
|Diluted EPS                                                     |  | $                                
|                                                                |  |                                  

7. SHAREHOLDERS' EQUITY

During the year ended December 31, 2000, NetBank began acquiring shares of its common stock in connection with a stock repurchase program announced in
April 2000. That program authorized NetBank to purchase up to 1,000,000 common shares from time to time on the open market at price levels NetBank deems attractive. During the three months
ended March 31, 2001, NetBank's Board of Directors authorized an additional 1,000,000 common shares for repurchase under the program. NetBank purchased 463,000 shares of its common stock during
the three months ended March 31, 2001 at an aggregate cost of $3,569,000.

8. SUBSEQUENT EVENT

On April 15, 2001, NetBank, Inc. and its subsidiary, Net Interim, Inc. (a temporary subsidiary of NetBank, Inc.) entered into an agreement
with Republic Bank, Republic Bancorp, Inc. ("Republic") and certain shareholders of Republic providing for the sale by Republic of its subsidiary, Market Street Mortgage Corporation ("Market
Street Mortgage") to NetBank, Inc. The aggregate purchase price is up to $20 million, of which $15 million will be paid in the form of NetBank, Inc. common stock based on
the
closing price as of April 20, 2001, or $8.88 per share, and $5 million will be paid in cash. The purchase price is subject to post-closing adjustment in the event of certain
changes in Market Street Mortgage's financial condition.

The
shares of NetBank, Inc. common stock to be issued in the acquisition will be issued in a private placement. NetBank, Inc. has agreed to register those shares after
the closing of the acquisition, with Republic thereafter being entitled to sell that portion of its shares exceeding 5% of NetBank Inc.'s then outstanding common stock beginning 90 days
after the closing. Republic will be precluded from selling any shares in excess of this permitted amount for a period of one year after the closing of the transaction.

Consummation
of the acquisition is subject to certain conditions, including approval by the Board of Governors of the Federal Reserve System and Republic's disposition of its mortgage
servicing business. NetBank, Inc. expects that the transaction will close during the second quarter of 2001.

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NETBANK, INC.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION  AND RESULTS OF OPERATIONS

Some of the statements in this report are forward-looking statements. Forward-looking statements include statements regarding the
intent, belief or current expectations of NetBank or its officers and can be identified by the use of forward-looking terms such as "may," "will," "should," "believe," "expect," "anticipate,"
"estimate," "continue," or comparable terminology. Our actual results could differ materially from those anticipated from the forward-looking statements, depending on various important factors. These
factors include a possible decline in asset quality, potential difficulties in integrating our operations with those of companies we acquire, the evolving nature of the market for internet banking and
financial services generally, the possible adverse effects of unexpected changes in the interest rate environment, and increasing competition and regulatory changes. The section headed "Risk Factors"
in our prospectus dated June 3, 1999 contains additional details on certain of these and other risks that are material to our operations. All forward-looking statements in this report are based
on information available to us as of the date this report was filed with the SEC. We do not undertake to update any forward-looking statements that may be made by us or on our behalf in this report or
otherwise.

GeneralNetBank, Inc. is a bank holding company that wholly owns the outstanding stock of NetBank, a federal savings
bank and NetBank Partners, LLC, a partnership involved in strategic partnering opportunities. As NetBank Partners, LLC, was recently incorporated and as of March 31, 2001, had incurred only
organizational and startup expenses, the following discussion pertains to NetBank and NetBank, Inc. (jointly, "NetBank") only. As of March 31, 2001, NetBank had 233,000 accounts and
$1.2 billion in deposits.

Financial ConditionOur assets were $2.0 billion at March 31, 2001 compared to $1.8 billion at
December 31, 2000. The increase of $160.2 million from December 31, 2000 to March 31, 2001 was primarily the result of the investment of customer deposits in fed funds sold
and investment securities which increased $51.6 million and $65.5 million, respectively during the three months ended March 31, 2001. In addition, other assets increased
$46.6 million primarily due to the core deposit intangible and receivable due from Compubank recorded in conjunction with the purchase of approximately 50,000 deposit accounts from Compubank on
March 28, 2001. Customer deposits increased $108.6 million from internal growth and an additional $75.7 million due to the purchase of 57,000 customer deposit accounts from
Compubank during the three months ended March 31, 2001. This increase in customer deposits was offset by a decrease in other borrowed funds of $30.2 million as we used proceeds from
customer deposits to pay down various FHLB advances.

Total
liabilities increased $160.9 million to $1.8 billion at March 31, 2001 from $1.6 billion at December 31, 2000 primarily due to the rapid
growth of our deposit portfolio internally of $108.6 million as well as an additional $75.7 million increase due to 57,000 accounts acquired from Compubank. During the three months ended
March 31, 2001, NetBank repaid three advances totaling $95 million and obtained one new advance from the FHLB for $100 million. During the quarter ended March 31, 2001,
NetBank
entered into reverse repurchase agreements totaling $175.1 million and repaid reverse repurchase agreements totaling $210.3 million.

Total
shareholders' equity decreased $0.6 million from December 31, 2000 to March 31, 2001 primarily due to the repurchase of 463,000 shares of our common stock
for treasury at an aggregate cost of $3,569,000. The repurchases were part of a program begun during 2000 that authorized NetBank to purchase up to 1,000,000 common shares from time to time on the
open market at price levels NetBank management deems attractive. During the three months ended March 31, 2001, NetBank's Board of Directors authorized an additional 1,000,000 common shares for
repurchase under the program.

The
decrease in shareholders' equity due to the treasury stock repurchase was offset by the addition of earnings for the quarter ended March 31, 2001 of $0.8 million and
an increase in unrealized gains on our securities portfolio of $2.1 million net of tax.

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Liquidity and Capital ResourcesNetBank's liquidity, represented by cash and cash equivalents, is a product of its
operating, investing, and financial activities. NetBank's primary sources of funds are deposits, borrowings, prepayments and maturities of outstanding loans, sales of loans, maturities of investment
securities and other short-term investments, and funds provided from operations. While scheduled loan payments and maturing investment securities and short-term investments are
relatively predictable sources of funds, deposit flows and loan prepayments are greatly influenced by general interest rates, economic conditions, and competition. NetBank invests excess funds in
overnight deposits and other short-term interest-earning assets. NetBank can use cash generated through the retail deposit market, its traditional funding source, to offset the cash
utilized in investing activities. NetBank's available for sale securities and short-term interest-earning assets can also be used to provide liquidity for lending and other operational
requirements. As an additional source of funds, NetBank had availability under existing line of credit agreements totaling $348 million at March 31, 2001.

NetBank
is required by Office of Thrift Supervision regulations to maintain tangible capital equal to at least 1.5% of tangible assets, core capital equal to at least 4.0% of tangible
assets, and total capital equal to at least 8.0% of risk-weighted assets. To be categorized as "well capitalized" under a prompt corrective action plan, NetBank must maintain minimum Tier
I, core, and risk-based capital ratios of at least 6%, 5%, and 10%, respectively. NetBank exceeded such requirements with tangible, core, total, and Tier I capital ratios of 10.93%,
16.76%, 17.91%, and 10.93%, respectively, at March 31, 2001.

Interest Rate Sensitivity

We measure interest rate sensitivity as the difference between amounts of interest-earning assets and interest-bearing liabilities that mature, reprice, or
repay within a given period of time. The difference, or the interest rate sensitivity "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-rate sensitive liabilities and is
considered negative when the amount of interest-rate sensitive liabilities exceeds the amount of interest-rate sensitive assets. In a rising interest rate environment, an
institution with a positive gap would be in a better position than an institution with a negative gap to invest in higher yielding assets or have its asset yields adjusted upward, which would result
in the yield on its assets increasing at a faster pace than the cost of its interest-bearing liabilities. During a period of falling interest rates, however, an institution with a positive gap would
tend to have its assets maturing at a faster rate than one with a negative gap, which would tend to reduce or restrain the growth of its net interest income.

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The following table sets forth the interest rate sensitivity of our assets and liabilities as of March 31, 2001 (in 000's):

|                                                                          |                                            | Term to Repricing, Repayment, or Maturity |        
|------------------------------------------------------------------------- | ------------------------------------------ | ----------------------------------------- | -------
|
|Interest-Earning Assets:                                                  |                                            |                                           |        
|                                                                          | Cash and cash equivalents                  |                                           | $      
|                                                                          | Federal funds sold                         |                                           |        
|                                                                          | Investment securities                      |                                           |        
|                                                                          | Stock of Federal Home Loan Bank of Atlanta |                                           |        
|                                                                          | Loan sale proceeds receivable              |                                           |        
|                                                                          | Loans receivable                           |                                           |        
|                                                                          |                                            |                                           |        
|                                                                          | Total interest-earning assets:             |                                           |        
|                                                                          | Non interest-earning assets                |                                           |        
|                                                                          |                                            |                                           |        
|                                                                          | Total assets                               |                                           | $      
|                                                                          |                                            |                                           |        
|Interest-Bearing Liabilities:                                             |                                            |                                           |        
|                                                                          | Interest-bearing deposits                  |                                           | $      
|                                                                          | Convertible subordinated debt              |                                           |        
|                                                                          | Other borrowed funds                       |                                           |        
|                                                                          |                                            |                                           |        
|                                                                          | Total interest-bearing liabilities:        |                                           |        
|Interest-free deposits                                                    |                                            |                                           |        
|Other interest-free liabilities and equity                                |                                            |                                           |        
|                                                                          |                                            |                                           |        
|Total liabilities and equity                                              |                                            | $                                         | 393,327
|                                                                          |                                            |                                           |        
|Net interest rate sensitivity gap                                         |                                            | $                                         | 238,585
|Cumulative gap                                                            |                                            | $                                         | 238,585
|Net interest rate sensitivity gap as a percent of interest-earning assets |                                            |                                           | 37.76  
|Cumulative gap as a percent of cumulative interest-earning assets         |                                            |                                           | 37.76  

Market Risk

Our principal business is the originating and purchasing of loans funded by customer deposits and, to the extent necessary, other borrowed funds. Consequently,
a significant portion of our assets and liabilities are monetary in nature and fluctuations in interest rates, specifically the prime rate, will affect our future net interest income and cash flows.
This interest rate risk is our primary market risk exposure. We do not enter into derivative financial instruments such as futures, forwards, swaps or options. Also, we have no market
risk-sensitive instruments held for trading purchases. Our exposure to market risk is reviewed on a regular basis by our management.

NetBank
measures interest rate risk based on Net Portfolio Value ("NPV") analysis. NPV equals the present value of expected net cash flows from existing assets minus the present value
of expected net cash flows from existing liabilities. An NPV ratio is determined by dividing NPV by the present value of assets. The board of directors manages NetBank's interest rate risk by
establishing limits for the minimum acceptable NPV ratio over a series of hypothetical interest rate scenarios or "rate shocks". As of March 31, 2001, NetBank's estimated NPV ratios were within
these board-approved

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limits. The following table sets forth the estimated percentage change in NetBank's NPV ratio as of March 31, 2001 assuming rate shocks of +300 to -300 basis points:

Limits and Current NPV Ratios

Rate Shock (in basis points)

Board Limits
(Minimum
NPV Ratios)

Estimated
3/31/00
NPV Ratios+300

4.00
%
7.18
%+200

6.00
%
8.35
%+100

6.00
%
9.35
%Flat

6.00
%
10.16
%-100

6.00
%
10.65
%-200

6.00
%
10.94
%-300

6.00
%
11.31
%


Computation
of prospective effects of hypothetical rate changes is based on many assumptions, including relative levels of market interest rates, loan prepayments and deposit decay.
They should not be relied upon as indicative of actual results. Further, the computations do not contemplate certain actions management could undertake in response to changes in interest rates.

Investment Securities. The following tables set forth certain information relating to our available-for-sale
securities at March 31, 2001 and December 31, 2000:

Gross
March 31, 2001Amortized
Cost

Unrealized
Gains

Unrealized
Losses

Estimated Fair
ValueMortgage pool securities

$
129,114

$
225

$


$
129,339Collateralized mortgage obligations


185,603


1,796


685


186,714U.S. government agencies


122,373


1,423


130


123,666Corporate bonds


9,656


25


9


9,672Habitat bonds and other


3,740








3,740Total

$
450,486

$
3,469

$
824

$
453,131


Gross
December 31, 2000Amortized
Cost

Unrealized
Gains

Unrealized
Losses

Estimated Fair
ValueMortgage pool securities

$
1,221

$
12

$


$
1,233Collateralized mortgage obligations


212,487


1,298


1,579


212,206Unites States government agencies


162,370





284


162,086Corporate bonds


9,652


26


6


9,672Habitat bonds and other


3,713








3,713$
389,443

$
1,336

$
1,869

$
388,910


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Loan Portfolio Composition.The following table sets forth the composition of our loan portfolio by type of loan as of
March 31, 2001 and December 31, 2000:

March 31,
2001

December 31,
2000Residential mortgages

$
881,200

64.5
%
$
863,340

62.7
%Home equity lines


218,658

16.0


243,657

17.7Leases


99,368

7.3


104,743

7.6Commercial mortgages


163,983

12.0


160,510

11.7Construction


1,005

0.1


1,533

0.1Consumer


2,181

0.1


2,404

0.1Auto


687




1,018

0.1Total


1,367,082

100.0
%

1,377,205

100.0
%Less allowance for loan losses


14,954




13,421Total

$
1,352,128



$
1,363,784


Asset Quality and Non-performing AssetsAs of March 31, 2001 and 2000, NetBank had $3.2 million
and $0.8 million of loans, respectively, on non-accrual status, which includes all loans past due 90 days or more. During the three months ended March 31, 2001 and
2000, we had no restructured loans.

Deposits.The following table sets forth the dollar amount of deposits and weighted average interest rates in the
various types of deposit programs offered by us at March 31, 2001 and December 31, 2000:

March 31, 2001

December 31, 2000Amount

Percentage

Weighted
Average
Interest Rate

Amount

Percentage

Weighted
Average
Interest RateNon-interest bearing checking accounts

$
34,943

3.0
%
N/A

$
15,123

1.5
%
N/AInterest bearing:Checking accounts


118,211

10.1

2.1
%

69,013

7.0

3.1
%Money market


341,824

29.3

4.8
%

268,005

27.3

6.0
%Certificate of deposit under $100,000


569,036

48.8

5.7
%

528,618

53.9

6.8
%Certificate of deposit over $100,000


101,079

8.8

5.7
%

99,993

10.3

6.8
%Total deposits

$
1,165,093

100.0
%


$
980,752

100.0
%


Results of Operations

Three Months Ended March 31, 2001 Compared to Three Months Ended March 31, 2000

General.Income before extraordinary gain for the three months ended March 31, 2001 amounted to
$0.8 million, an increase of $0.7 million compared to net income of $0.1 million for the three months ended March 31, 2000. The increase was primarily due to higher
non-interest income and lower marketing expenses, offset by a decline in our interest margin from 2.9% for the three months ended March 31, 2000 to 2.3% for the three months ended
March 31,2001 due to higher cost of funds. Net income decreased from $4.6 million to $0.8 million due to the fact that net income for the three months ended March 31, 2000
included a $4.5 million extraordinary gain on the early extinguishment of $31 million of our convertible subordinated notes.

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Interest Income.Interest income related to our loan and investment portfolio for the three months ended
March 31, 2001 was $35.9 million compared to $23.7 million for the three months ended March 31, 2000. The increase in interest income was a result of the growth of our loan
portfolio of $403.8 million from March 31, 2000 to March 31, 2001, compounded by an increase in the average yield on loans from 7.6% for the three months ended March 31,
2000 to 8.0% for the three months ended March 31, 2001. In addition, the investment portfolio grew from $397.7 million at March 31, 2000 to $453.1 million at
March 31, 2001 due to the growth in the portfolio offset by a decline in the yield on the investment portfolio from 7.0% for the three months ended March 31, 2000 to 6.7% for the three
months ended March 31, 2001.

Interest Expense.For the three months ended March 31, 2001, $15.4 million in interest expense on
deposits was recorded compared to $9.5 million for the three months ended March 31, 2000 as a result of our increase in customer deposits from $725.1 million at March 31,
2000 to $1.2 billion at March 31, 2001. In addition, the average interest rate paid on deposits increased from 5.6% for the three months ended March 31, 2000 to 6.1% for the three
months ended March 31, 2001. Interest expense associated with other borrowed funds increased $4.4 million from $5.3 million for the three months ended March 31, 2000 to
$9.7 million for the three months ended March 31, 2001 due to the addition of several new
advances from the FHLB, offset by a decrease in interest expense related to our convertible subordinated notes which we began repurchasing during the three months ended March 31, 2000.

Net Interest Income.Net interest income is determined by our interest rate spread, which is the difference between the
yields earned on our interest-earning assets and the rates paid on our interest-bearing liabilities, and the relative amounts of interest-earning assets and interest-bearing liabilities. Net interest
income was $10.8 million, or 2.3% of average interest earning assets for the three months ended March 31, 2001 compared to $8.9 million, or 2.9% of average interest earning assets
for the three months ended March 31, 2000. The increase in net interest income resulted from the increase in the amount of loans and deposits from March 31, 2000 to March 31,
2001. The decrease in interest margin was the result of higher cost of funds during the three months ended March 31, 2001 as compared with the three months ended March 31, 2000.

Provision for Loan Losses.In connection with the purchase of loan portfolios, we assess the inherent loss in the
portfolios and record the necessary allowance by adjusting the premium associated with each portfolio. During the three months ended March 31, 2001, we recorded $1.9 million as an
addition to premiums related to allowance for loan losses for loans purchased during the quarter. In addition, we also recorded a provision for loan losses of $44,000 related primarily to originated
loans. This compares to a provision of $0.2 million recorded during the three months ended March 31, 2000. We periodically review the performance of our loan portfolio by reviewing
chargeoffs, delinquency statistics, and industry statistics on a pool-by-pool basis for our purchased portfolio and a loan-by-loan basis for our
originated loans. If a decline in credit quality for a specific pool or a loan is noted, we record an additional allowance through a charge to the provision for loan losses. The allowance for loan
losses is maintained at a level estimated to be adequate to provide for probable losses in the loan portfolio. We determine the adequacy of the allowance based upon reviews of individual loans, recent
loss experience, current economic conditions, the risk characteristics of the various categories of loans and other pertinent factors.

Non-interest Income.For the three months ended March 31, 2001, we recorded approximately
$2.7 million in non-interest income compared to $0.3 million recorded during the three months ended March 31, 2000. The primary component of this increase was the
introduction of new fees on customer deposit accounts during the fourth quarter of 2000 and continuing through the first quarter of 2001. Deposit and loan fees accounted for $1.7 million, or
63% of the $2.7 million in non-interest income recorded during the three months ended March 31, 2001. The other $1.0 million, or 37% related to gains on securities
sold during the three months ended March 31, 2001 as we disposed of certain securities identified as having a high prepayment risk.

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Non-interest Expenses.Non-interest expenses include all operating expenses including salaries
and benefits, marketing, general and administrative expenses (excluding interest expense, provision for loan losses and income taxes). Non-interest expense increased 35.7%, or
$3.2 million, for the three months ended March 31, 2001 as compared with the three months ended March 31, 2000 as the number of customer
accounts almost tripled from 82,000 at March 31, 2000 to 233,000 at March 31, 2001. This increase in non-interest expense was primarily the result of increases in customer
service ($2.8 million), data processing ($0.8 million) and depreciation and amortization ($0.6 million), offset by a decrease in marketing expenditures ($1.2 million).
Customer service and data processing increased due to variable expenses associated with the addition of new customer accounts. Customer service also increased due to increased loan servicing expenses
associated with the continued expansion of our loan portfolio and due to larger cash item losses during the three months ended March 31, 2001 than those incurred during the three months ended
March 31, 2000. Depreciation and amortization increased due to larger amortization expense associated with larger capitalized software costs as compared with the balance at March 31,
2000.

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EXHIBITS AND REPORTS ON FORM 8-K

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.

| |  | NETBANK, INC.
| |  | -------------
| |  | By:          

Dated: May 14, 2001

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