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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()  OF THE SECURITIES EXCHANGE ACT OF 1934

|For the Quarter Ended September 30, 2000 |  | Commission File No. 0-22361
|---------------------------------------- |  | ---------------------------

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

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Georgia(State of incorporation)

58-2224352(IRS Employer Identification No.)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

Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15() 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 November 10, 2000
|---------------------------- |  | ---------------------------------------
|Common Stock, par value $.01 |  | 29,631,640                             

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NETBANK, INC.       INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

|                                                                                                                 |  | Page
|---------------------------------------------------------------------------------------------------------------- |  | ----
|Condensed consolidated balance sheets as of September 30, 2000 and as of December 31, 1999.                      |  | 3   
|Condensed consolidated statements of operations for the three and nine months ended September 30, 2000 and 1999. |  | 4   
|Condensed consolidated statement of shareholders' equity from December 31, 1999 to September 30, 2000.           |  | 5   
|Condensed consolidated statements of cash flows for the nine months ended September 30, 2000 and 1999.           |  | 6   
|Notes to condensed consolidated financial statements.                                                            |  | 7   

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

|                                                                                                               |                                                                                                                               | September 30,
2000 |           | December 31,
1999 |  
|-------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------- | ------------------ | --------- | ----------------- | -
|ASSETS                                                                                                         |                                                                                                                              
|Cash and cash equivalents:                                                                                     |                                                                                                                               |                    |           |                   |  
|                                                                                                               | Cash and due from banks                                                                                                       |                    | $         | 5,491             |  
|                                                                                                               | Federal funds sold                                                                                                            |                    |           |                  |  
|                                                                                                               |                                                                                                                               |                    |           |                   |  
|                                                                                                               | Total cash and cash equivalents                                                                                               |                    |           | 5,491             |  
|Investment securities available for saleAt fair value (amortized cost of $408,772 and $421,670, respectively) |                                                                                                                               |                    | 404,024   |                   |  
|Stock of Federal Home Loan Bank of AtlantaAt cost                                                             |                                                                                                                               |                    | 22,950    |                   |  
|Loans receivableNet of allowance for loan losses of $12,540 and $7,597                                        |                                                                                                                               |                    | 1,215,564 |                   |  
|Accrued interest receivable                                                                                    |                                                                                                                               |                    | 9,375     |                   |  
|Furniture and equipmentNet                                                                                    |                                                                                                                               |                    | 7,940     |                   |  
|Deferred income taxes                                                                                          |                                                                                                                               |                    | 2,843     |                   |  
|Loan sales proceeds receivable                                                                                 |                                                                                                                               |                    | 4,542     |                   |  
|Other assets                                                                                                   |                                                                                                                               |                    | 28,394    |                   |  
|                                                                                                               |                                                                                                                               |                    |           |                   |  
|                                                                                                               | Total assets                                                                                                                  |                    | $         | 1,701,123         |  
|                                                                                                               |                                                                                                                               |                    |           |                   |  
|LIABILITIES AND SHAREHOLDERS' EQUITY                                                                           |                                                                                                                              
|Liabilities:                                                                                                   |                                                                                                                               |                    |           |                   |  
|                                                                                                               | Deposits                                                                                                                      |                    | $         | 909,261           |  
|                                                                                                               | Other borrowed funds                                                                                                          |                    |           | 461,141           |  
|                                                                                                               | Convertible subordinated debt                                                                                                 |                    |           | 56,643            |  
|                                                                                                               | Accrued interest payable                                                                                                      |                    |           | 18,002            |  
|                                                                                                               | Accounts payable and accrued liabilities                                                                                      |                    |           | 5,059             |  
|                                                                                                               |                                                                                                                               |                    |           |                   |  
|                                                                                                               | Total liabilities                                                                                                             |                    |           | 1,450,106         |  
|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, 30,012,440 and 29,413,121 shares issued and outstanding, respectively) |                    |           | 300               |  
|                                                                                                               | Additional paid-in capital                                                                                                    |                    |           | 251,578           |  
|                                                                                                               | Retained earnings (deficit)                                                                                                   |                    |           | 5,648             |  
|                                                                                                               | Accumulated other comprehensive loss, net of tax                                                                              |                    |           | (3,136            | )
|                                                                                                               | Treasury stock, at cost (336,800 shares)                                                                                      |                    |           | (3,373            | )
|                                                                                                               |                                                                                                                               |                    |           |                   |  
|                                                                                                               | Total shareholders' equity                                                                                                    |                    |           | 251,017           |  
|                                                                                                               |                                                                                                                               |                    |           |                   |  
|                                                                                                               | Total liabilities and shareholders' equity                                                                                    |                    | $         | 1,701,123         |  
|                                                                                                               |                                                                                                                               |                    |           |                   |  

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
September 30, |       | Nine Months Ended
September 30, |  
|------------------------------------------------------------------------------------------ | ----------------------------- | -------------------------------- | ----- | ------------------------------- | -
|
|Interest income:                                                                           |                               |                                  |       |                                 |  
|                                                                                           | Loans                         |                                  | $     | 22,268                          |  
|                                                                                           | Investment securities         |                                  |       | 8,304                           |  
|                                                                                           | Short-term investments        |                                  |       | 176                             |  
|                                                                                           |                               |                                  |       |                                 |  
|                                                                                           | Total interest income:        |                                  |       | 30,748                          |  
|Interest expense:                                                                          |                               |                                  |       |                                 |  
|                                                                                           | Deposits                      |                                  |       | 13,428                          |  
|                                                                                           | Other borrowed funds          |                                  |       | 8,211                           |  
|                                                                                           |                               |                                  |       |                                 |  
|                                                                                           | Total interest expense        |                                  |       | 21,639                          |  
|                                                                                           |                               |                                  |       |                                 |  
|Net interest income                                                                        |                               |                                  | 9,109 |                                 |  
|Provision for (recovery of) loan losses                                                    |                               |                                  | (11   | )                               |  
|                                                                                           |                               |                                  |       |                                 |  
|Net interest income after provision for loan losses                                        |                               |                                  | 9,120 |                                 |  
|Non-interest income-Service charges and fees                                               |                               |                                  | 1,044 |                                 |  
|Non-interest expense:                                                                      |                               |                                  |       |                                 |  
|                                                                                           | Salaries and benefits         |                                  |       | 1,588                           |  
|                                                                                           | Customer service              |                                  |       | 3,088                           |  
|                                                                                           | Marketing                     |                                  |       | 3,187                           |  
|                                                                                           | Data processing               |                                  |       | 868                             |  
|                                                                                           | Depreciation and amortization |                                  |       | 695                             |  
|                                                                                           | Office expenses               |                                  |       | 255                             |  
|                                                                                           | Occupancy                     |                                  |       | 172                             |  
|                                                                                           | Travel and entertainment      |                                  |       | 249                             |  
|                                                                                           | Other                         |                                  |       | 624                             |  
|                                                                                           |                               |                                  |       |                                 |  
|                                                                                           | Total non-interest expense    |                                  |       | 10,726                          |  
|                                                                                           |                               |                                  |       |                                 |  
|Income (loss) before income taxes and extraordinary gain                                   |                               |                                  | (562  | )                               |  
|Income tax (expense) benefit                                                               |                               |                                  | 192   |                                 |  
|                                                                                           |                               |                                  |       |                                 |  
|Income (loss) before extraordinary gain                                                    |                               |                                  | (370  | )                               |  
|Extraordinary gain on early extinguishment of debt, net of tax                             |                               |                                  | 1,091 |                                 |  
|                                                                                           |                               |                                  |       |                                 |  
|                                                                                           | Net income                    |                                  | $     | 721                             |  
|                                                                                           |                               |                                  |       |                                 |  
|Income (loss) before extraordinary gain per common and potential common share outstanding: |                               |                                  |       |                                 |  
|                                                                                           | Basic                         |                                  | $     | (0.01                           | )
|                                                                                           | Diluted                       |                                  | $     | (0.01                           | )
|Net income per common and potential common share outstanding:                              |                               |                                  |       |                                 |  
|                                                                                           | Basic                         |                                  | $     | 0.02                            |  
|                                                                                           | Diluted                       |                                  | $     | 0.02                            |  
|Weighted average common and potential common shares outstanding:                           |                               |                                  |       |                                 |  
|                                                                                           | Basic                         |                                  |       | 29,672                          |  
|                                                                                           | Diluted                       |                                  |       | 30,526                          |  

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 |   | Retained
Earnings
(Deficit) |       | Accumulated
Other
Comprehensive
Loss |        | Treasury
Stock at
Cost |       | Total  |  
|-------------------------- | ---------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------- | --- | ----------------------- | --- | -------------------------- | - | --------------------------- | ----- | ------------------------------------ | ------ | ---------------------- | ----- | ------ | -
|BalanceDecember 31, 1999  |                                                                                          | 29,413                                                                        |     | $                       | 294 |                            | $ | 243,236                     |       | $                                    | (1,905 | )                      | $     | (3,204 | )
|                           | Comprehensive income:                                                                    |                                                                               |     |                         |     |                            |   |                             |       |                                      |        |                        |       |        |  
|                           |                                                                                          | Net income for nine months ended September 30, 2000                           |     |                        |     |                            |  |                             |       |                                     |        |                        | 7,553 |        |  
|                           |                                                                                          | Unrealized losses on securities, net of taxes and reclassification adjustment |     |                        |     |                            |  |                             |       |                                     |        |                        |      |        |  
|                           |                                                                                          |                                                                               |     |                         |     |                            |   |                             |       |                                      |        |                        |       |        |  
|                           | Comprehensive income                                                                     |                                                                               |     |                         |     |                            |   |                             |       |                                      |        |                        |       |        |  
|                           | Issuance of common stock in connection with repurchase of convertible subordinated notes |                                                                               | 595 |                         |     | 6                          |   |                             | 8,336 |                                      |        |                       |       |        | 
|                           | Purchase of 336,800 shares of common stock                                               |                                                                               |    |                         |     |                           |   |                             |      |                                      |        |                       |       |        | 
|                           | Issuance of stock options                                                                |                                                                               | 4   |                         |     |                            |   |                             | 6     |                                      |        |                        |       |        |  
|                           |                                                                                          |                                                                               |     |                         |     |                            |   |                             |       |                                      |        |                        |       |        |  
|BalanceSeptember 30, 2000 |                                                                                          | 30,012                                                                        |     | $                       | 300 |                            | $ | 251,578                     |       | $                                    | 5,648  |                        | $     | (3,136 | )
|                           |                                                                                          |                                                                               |     |                         |     |                            |   |                             |       |                                      |        |                        |       |        |  

See notes to condensed consolidated financial statements.

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

|                                                                              |                                                     | Nine Months Ended
September 30,                                           |                                                     
|----------------------------------------------------------------------------- | --------------------------------------------------- | ------------------------------------------------------------------------- | ----------------------------------------------------
|
|Operating activities:                                                         |                                                     |                                                                           |                                                     
|Net income                                                                    |                                                     | $                                                                         | 7,553                                               
|Adjustments to reconcile net income to net cash used in operating activities: |                                                     |                                                                           |                                                     
|                                                                              | Net accretion of discounts on investment securities |                                                                           |                                                     
|                                                                              | Amortization of premiums on purchased loans         |                                                                           |                                                     
|                                                                              | Provision for loan losses                           |                                                                           |                                                     
|                                                                              | Depreciation and amortization                       |                                                                           |                                                     
|                                                                              | Extraordinary gain on debt extinguishment           |                                                                           |                                                     
|                                                                              | 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 operating activities           |                                                                           |                                                     
|                                                                              |                                                     |                                                                           |                                                     
|Investing activities:                                                         |                                                     |                                                                           |                                                     
|                                                                              | Purchases of securities available for sale          |                                                                           |                                                     
|                                                                              | Sales and calls of securities                       |                                                                           |                                                     
|                                                                              | 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                  |                                                                           |                                                     
|                                                                              | Issuance of convertible subordinated notes          |                                                                           |                                                     
|                                                                              | Repurchase of convertible subordinated notes        |                                                                           |                                                     
|                                                                              | Purchase of treasury stock at cost                  |                                                                           |                                                     
|                                                                              |                                                     |                                                                           |                                                     
|                                                                              | Net cash provided by financing activities           |                                                                           |                                                     
|                                                                              |                                                     |                                                                           |                                                     
|Net decrease in cash and cash equivalents                                     |                                                     |                                                                           | (8,152                                              
|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 |                                                     

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. is a holding company that wholly owns "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, 1999 and NetBank's Form 10-Qs for the
quarters ended March 31, 2000 and June 30, 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 1999 amounts have been reclassified for comparability with 2000 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, 1999. The Company has followed those policies in preparing this report.

In
June 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities" and in June 2000, the FASB issued SFAS No. 138, which amends certain provisions of SFAS 133 to clarify four areas causing difficulties in
implementation. The amendment included expanding the normal purchase and sale exemption for supply contracts, permitting the offsetting of certain intercompany foreign currency derivatives and thus
reducing the number of third party derivatives, permitting hedge accounting for foreign-currency denominated assets and liabilities, and redefining interest rate risk to reduce sources of
ineffectiveness. We will adopt SFAS 133 and the corresponding amendments under SFAS 138 on January 1, 2001. SFAS 133, as amended by SFAS 138, is not expected to have
a material impact on NetBank's consolidated results of operations, financial position or cash flows.

3. LOANS

During the three months ended September 30, 2000, NetBank purchased the following loan pools (in 000's):

Types of Loans Purchased

Principal Amount

Premium
Amount

Range of Stated
Interest RatesHome equity line of credits

$
109,402

$
6,222

8.3
%Fixed second mortgages


69,031


2,582

10.7
%Commercial participations


40,162




9.1-9.3
%Leases


20,744




11.2
%Total

$
239,339

$
8,804


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An analysis of the allowance for loan losses for the three months ended September 30, 2000 follows (in 000's):

Balancebeginning of period

$
10,164Allowance recorded in connection with purchase of loan pools


2,729Provision for (recovery of) loan losses


(11
)Loans charged off, net of recoveries


(342
)Balanceend of period

$
12,540


4. BORROWINGS

During the three months ended September 30, 2000, NetBank obtained seven new advances from the Federal Home Loan Bank ("FHLB") totaling $265,000,000 and
paid off three FHLB advances totaling $145,000,000. Of the new advances obtained during the quarter, five totaling $145,000,000 were still outstanding as of September 30, 2000 at fixed rates
ranging from 6.6% to 6.7%. Also during the three months ended September 30, 2000, NetBank entered into reverse repurchase agreements totalling $207,000,000 and repaid agreements totaling
$266,000,000 by September 30, 2000. No reverse repurchase agreements remained outstanding as of September 30, 2000. In addition, during the three months ended September 30, 2000,
NetBank repurchased $8,405,000 of its convertible subordinated notes outstanding for $6,565,000 in cash and recorded an extraordinary gain on early extinguishment of debt of $1,091,000, net of tax. A
summary of borrowings, grouped by year of maturity, as of September 30, 2000 follows (in 000's):

Type of Borrowing

Year of Maturity

Range of Stated
Interest Rates

Principal AmountFederal Funds Purchased

Overnight



$
2,141FHLB Advances

2000

6.67-6.68%


70,000FHLB Advances

2001

6.47-6.74%


94,000FHLB Advances

2003

4.43-7.17%


80,000Convertible Subordinated Notes

2004

4.75%


57,922FHLB Advances

2004

5.92-6.03%


105,000FHLB Advances

2005

6.58-7.41%


60,000FHLB Advances

2007

7.50%


25,000FHLB Advances

2009

4.64%


25,000Total


519,063Less unamortized discount


(1,279
)Total debt

$
517,784


All
of these borrowings are secured by NetBank's investment securities or mortgage loans except for the convertible subordinated notes, which are unsecured.

5. 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 both the three and nine months ended September 30, 2000 and 1999.

|                                                                |  | 2000
|--------------------------------------------------------------- |  | ----
|
|Three Months Ended September 30:                                |  |     
|Basic EPS                                                       |  | $   
|Effect of dilutive securitiesoptions to purchase common shares |  |     
|                                                                |  |     
|Diluted EPS                                                     |  | $   
|                                                                |  |     
|Nine Months Ended September 30:                                 |  |     
|Basic EPS                                                       |  | $   
|Effect of dilutive securitiesoptions to purchase common shares |  |     
|                                                                |  |     
|Diluted EPS                                                     |  | $   
|                                                                |  |     

|                                                                |  | 1999
|--------------------------------------------------------------- |  | ----
|
|Three Months Ended September 30:                                |  |     
|Basic EPS                                                       |  | $   
|Effect of dilutive securitiesoptions to purchase common shares |  |     
|                                                                |  |     
|Diluted EPS                                                     |  | $   
|                                                                |  |     
|Nine Months Ended September 30:                                 |  |     
|Basic EPS                                                       |  | $   
|Effect of dilutive securitiesoptions to purchase common shares |  |     
|                                                                |  |     
|Diluted EPS                                                     |  | $   
|                                                                |  |     

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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, the evolving nature of the market for internet banking, 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 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 prospectus or otherwise.

GeneralNetBank, Inc. is a holding company that wholly owns NetBank, a federal savings bank and NetBank Partners,
LLC, a partnership involved in strategic partnering opportunities. NetBank, Inc. was incorporated as a Georgia corporation on February 20, 1996. As of September 30, 2000, we had
133,000 deposit accounts and approximately $909.3 million in deposits.

Financial ConditionOur assets were $1.7 billion at September 30, 2000 compared to $1.3 billion at
December 31, 1999. The increase of $443.2 million from December 31, 1999 to September 30, 2000 was primarily the result of the investment of funds received from an increase
in customer deposits of approximately $255.4 million and an increase in other borrowed funds of $217.1 million. Both the increase in customer deposits and the increase in other borrowed
funds were invested in loan receivables that increased $435.8 million. The resulting interest income on these receivables and investments is being used to fund increased infrastructure and
operating costs resulting from growth, as well as marketing expenditures to increase public awareness of the "NetBank®" brand name and our products and services.

Total
liabilities increased $430.6 million to $1.5 billion at September 30, 2000 from $1.0 billion at December 31, 1999 primarily due to the rapid
growth of our deposit portfolio of $255.4 million as well as a $217.1 million increase in other borrowed funds. During the three months ended September 30, 2000, NetBank obtained
seven new advances from the Federal Home Loan Bank ("FHLB") totaling $265 million and paid off three FHLB advances totaling $145 million. Of the new advances obtained during the quarter,
five totaling $145 million were still outstanding as of September 30, 2000 at fixed rates ranging from 6.6% to 6.7%. Also during the three months ended September 30, 2000, NetBank
entered into reverse repurchase agreements totalling $207 million and repaid agreements totaling $266 million by September 30, 2000. No reverse repurchase agreements remained
outstanding as of September 30, 2000. In addition, during the three months ended September 30, 2000, NetBank repurchased $8.4 million of its convertible subordinated notes
outstanding for $6.6 million in cash and recorded an extraordinary gain on early extinguishment of debt of $1.1 million, net of tax.

Total
shareholders' equity increased $12.6 million from December 31, 1999 to September 30, 2000 primarily due to the issuance of $8.3 million of additional
shares of common stock in conjunction with the repurchase of some of our convertible subordinated notes and the addition of earnings for the nine months ended September 30, 2000 which included
a $8.2 million gain on early extinguishment of debt net of tax, offset by the purchase of approximately 337,000 shares of common stock to be held in treasury at a cost of $3.4 million.

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

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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 $188.0 million at September 30, 2000.

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 3.0% 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 total risk-based capital ratios of at least 6%, 5%, and 10%, respectively. NetBank exceeded such requirements with tangible, Tier I, core, and total
risk-based capital ratios of 12.97%, 20.08%, 12.97%, and 21.22%, respectively, at September 30, 2000.

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 September 30, 2000 (in 000's):

|                                                                          |                                    | Term to Repricing, Repayment, or Maturity |        
|------------------------------------------------------------------------- | ---------------------------------- | ----------------------------------------- | -------
|
|Interest-Earning Assets:                                                  |                                    |                                           |        
|Cash and cash equivalents                                                 |                                    | $                                         | 5,491  
|Federal funds sold                                                        |                                    |                                           |       
|Investment securities                                                     |                                    |                                           | 72,105 
|Stock of Federal Home Loan Bank of Atlanta                                |                                    |                                           | 22,950 
|Loan sale proceeds receivable                                             |                                    |                                           | 4,542  
|Loans receivable                                                          |                                    |                                           | 404,111
|                                                                          | Total interest-earning assets      |                                           |        
|Non interest-earning assets                                               |                                    |                                           |       
|                                                                          |                                    |                                           |        
|Total assets                                                              |                                    | $                                         | 509,199
|                                                                          |                                    |                                           |        
|Interest-Bearing Liabilities:                                             |                                    |                                           |        
|Interest-bearing deposits                                                 |                                    | $                                         | 319,759
|Convertible subordinated debt                                             |                                    |                                           |       
|Other borrowed funds                                                      |                                    |                                           | 117,141
|                                                                          | Total interest-bearing liabilities |                                           |        
|Interest-free deposits                                                    |                                    |                                           |       
|Other interest-free liabilities and equity                                |                                    |                                           |       
|                                                                          |                                    |                                           |        
|Total liabilities and equity                                              |                                    | $                                         | 436,900
|                                                                          |                                    |                                           |        
|Net interest rate sensitivity gap                                         |                                    | $                                         | 72,298 
|Cumulative gap                                                            |                                    | $                                         | 72,298 
|Net interest rate sensitivity gap as a percent of interest-earning assets |                                    |                                           | 14.20  
|Cumulative gap as a percent of cumulative interest- earning assets        |                                    |                                           |        

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 September 30, 2000, NetBank's estimated NPV ratios were well within these board

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approved limits. The following table sets forth the estimated percentage change in NetBank's NPV ratio as of September 30, 2000 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
September 30, 2000
NPV Ratios+300

6.00
%
8.96
%+200

8.00
%
10.36
%+100

9.00
%
11.59
%Flat

10.00
%
12.49
%-100

10.00
%
13.02
%-200

10.00
%
13.20
%-300

10.00
%
13.26
%


Computation
of prospective effects of hypothetical rate changes are 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 September 30, 2000 and December 31, 1999 (in 000's):

September 30, 2000Amortized
Cost

Unrealized
Gains

Unrealized
Losses

Estimated Fair
ValueGrossMortgage backed securities

$
261,090

$
351

$
3,637

$
257,804U.S. government agencies


137,366





1,451


135,915Corporate bonds


9,649





11


9,638Habitat bonds and other


667








667Total

$
408,772

$
351

$
5,099

$
404,024


December 31, 1999Amortized
Cost

Unrealized
Gains

Unrealized
Losses

Estimated Fair
ValueGrossCollateralized mortgage obligations

$
249,436

$


$
3,399

$
246,037Unites States government agencies


162,356


29


1,485


160,900Corporate bonds


9,639





1


9,638Habitat bonds and other


239








239Total

$
421,670

$
29

$
4,885

$
416,814


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Loan Portfolio Composition.The following table sets forth the composition of our loan portfolio by type of loan as of
September 30, 2000 and December 31, 1999 (in 000's):

September 30, 2000

December 31, 1999Residential mortgages

$
728,149

59.3
%
$
480,470

61.0
%Home equity lines


258,314

21.0


177,670

22.6Commercial participations


134,749

11.0


48,783

6.2Leases


101,118

8.2


62,295

7.9Consumer


3,083

0.3


4,183

0.5Construction


1,298

0.1


10,723

1.4Auto


1,393

0.1


3,211

0.4Total


1,228,104

100.0
%

787,335

100.0
%Less allowance for loan losses


12,540




7,597Total

$
1,215,564



$
779,738


Asset Quality and Non-performing AssetsDuring the three months ended September 30, 2000 and 1999,
NetBank did not have any significant loans on non-accrual status, significant loans past due 90 days or more, or 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 September 30, 2000 and December 31, 1999 (in 000's):

September 30, 2000

December 31, 1999Amount

Percentage

Weighted
Average
Interest Rate

Amount

Percentage

Weighted
Average
Interest RateDemand checking accounts

$
3,134

0.3
%
N/A

$
3,739

0.6
%
N/AInterest bearing:NOW accounts


61,912

6.8

3.05
%

38,590

5.9

3.05
%Money market


246,151

27.1

6.00
%

219,898

33.6

5.26
%Certificate of deposit under $100,000


546,864

60.1

7.10
%

351,074

53.7

6.51
%Certificate of deposit over $100,000


51,200

5.6

7.00
%

40,600

6.2

6.51
%Total deposits

$
909,261

100.0
%


$
653,901

100.0
%


Results of Operations

Three Months Ended September 30, 2000 Compared to Three Months Ended September 30, 1999

General.Net income for the three months ended September 30, 2000 amounted to $0.7 million, a decrease of
$0.4 million compared to net income of $1.1 million for the three months ended September 30, 1999. The decrease in net income was primarily the result of a planned increase in
operating expenses associated with building the infrastructure to support the almost three-fold increase in our deposit accounts since September 30, 1999 as well as a decrease in
interest margin associated with increased deposit and borrowing rates, offset by a $1.1 million extraordinary gain on the early extinguishment of $8.4 million of our convertible
subordinated notes.

Interest Income.Interest income related to our loan and investment portfolio for the three months ended
September 30, 2000 was $30.7 million compared to $16.3 million for the three months ended September 30, 1999. The increase in interest income was a result of the growth of
our loan portfolio of $573.3 million from September 30, 1999 to September 30, 2000 offset by a slight decrease

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in the average yield on loans from 7.9% for the three months ended September 30, 1999 to 7.8% for the three months ended September 30, 2000. In addition, the investment portfolio grew
from $326.6 million at September 30, 1999 to $404.0 million at September 30, 2000. The yield on the investment portfolio was 6.4% for the three months ended
September 30, 1999 as compared with 7.3% for the three months ended September 30, 2000.

Interest Expense.For the three months ended September 30, 2000, $13.4 million in interest expense on
deposits was recorded compared to $6.1 million for the three months ended September 30, 1999 as a result of our increase in customer deposits from $486.2 million at
September 30, 1999 to $909.3 million at September 30, 2000. In addition, the average interest rate paid on deposits increased from 5.4% for the three months ended
September 30, 1999 to 6.2% for the three months ended September 30, 2000. Interest expense associated with other borrowed funds increased $5.5 million from $2.8 million for
the three months ended September 30, 1999 to $8.2 million for the three months ended September 30, 2000 due to the addition of new advances from the FHLB and borrowings under
reverse repurchase agreements, offset by a reduction in interest expense associated with our convertible subordinated notes due to the repurchase of $57.1 million of the notes during the first
nine months of 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 $9.1 million for the three months ended September 30,
2000 compared to $7.5 million for the three months ended September 30, 1999. The increase in net interest income resulted from the increase in the amount of loans and deposits from
September 30, 1999 to September 30, 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 September 30, 2000, we recorded $2.7 million as an
addition to premiums related to allowance for loan losses for loans purchased during the quarter. In addition, we also recorded an $11,000 net recovery as compared with a $2,000 provision for loan
losses during the three months ended September 30, 1999 due several large recoveries on loans previously charged off during the quarter. 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 September 30, 2000, we recorded approximately
$1.0 million in non interest income primarily related to loan and deposit service charges and fees compared to $0.3 million recorded during the three months ended September 30,
1999. The increase in non-interest income stems from the increase in both our loan and deposit portfolios.

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 76.9%, or
$4.7 million, for the three months ended September 30, 2000 as compared with the three months ended September 30, 1999 as the number of customer accounts increased almost
three-fold from 50,000 at September 30, 1999 to 133,000 at September 30, 2000. This increase in non-interest expense was primarily the result of increased
salaries and benefits, customer service, and data processing expense as additional employees and operational activities were added to support additional customers, as well as increased marketing
activities as we expanded our marketing programs to build public awareness of the NetBank® name and our products and services.

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Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30, 1999

General.Net income for the nine months ended September 30, 2000 amounted to $7.6 million, an increase of
$5.0 million compared to net income of $2.6 million for the nine months ended September 30, 1999. The increase in net income was primarily the result of a $8.2 million
extraordinary gain on the early extinguishment of $57.1 million of our convertible subordinated notes. A portion of this gain was reinvested in increased marketing and infrastructure expenses
during the nine months ended September 30, 2000 to continue to fuel the growth of our deposit base and the recognition of our brand name.

Interest Income.Interest income related to our loan and investment portfolio for the nine months ended
September 30, 2000 was $81.4 million compared to $34.3 million for the nine months ended September 30, 1999. The increase in interest income was a result of the growth of
our loan portfolio of $573.3 million from September 30, 1999 to September 30, 2000. The average yield on loans remained constant at 7.2% for both the nine months ended
September 30, 1999 and 2000. In addition, the investment portfolio grew from $326.6 million at September 30, 1999 to $404.0 million at September 30, 2000. The yield
on the investment portfolio was 5.0% for the nine months ended September 30, 1999 as compared with 7.2% for the nine months ended September 30, 2000.

Interest Expense.For the nine months ended September 30, 2000, $33.9 million in interest expense on
deposits was recorded compared to $15.0 million for the nine months ended September 30, 1999 as a result of our increase in customer deposits from $486.2 million at
September 30, 1999 to $909.3 million at September 30, 2000. In addition, the average interest rate paid on deposits increased 11.0% from 5.3% for the nine months ended
September 30, 1999 to 5.9% for the nine months ended September 30, 2000. Interest expense associated with other borrowed funds increased $16.4 million, from $4.2 million
for the nine months ended September 30, 1999 to $20.6 million for the nine months ended September 30, 2000 due to the addition of several new advances from the FHLB as well as
interest expense paid on our convertible subordinated notes issued during June 1999 and interest paid on reverse repurchase agreements.

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 $26.9 million for the nine months ended September 30, 2000 compared to $15.1 million for the nine months ended September 30, 1999. The increase in net interest
income resulted from the increase in the amount of loans and deposits from September 30, 1999 to September 30, 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 nine months ended September 30, 2000, we recorded $6.2 million as an
addition to premiums related to allowance for loan losses for loans purchased during the period. In addition, we also recorded a provision for loan losses of $0.3 million as compared with
$0.1 million recorded during the nine months ended September 30, 1999 due to an increase in our originated loan portfolio. 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 nine months ended September 30, 2000, we recorded approximately
$1.9 million in loan and deposit service charges and fees compared to $0.8 million recorded during the

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nine months ended September 30, 1999. The increase in non-interest income stems from the increase in both our loan and deposit portfolios.

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 148.1%, or
$17.6 million, for the nine months ended September 30, 2000 as compared with the nine months ended September 30, 1999 as the number of customer accounts increased almost
three-fold from 54,000 at September 30, 1999 to 133,000 at September 30, 2000. This increase in non-interest expense was primarily the result of increased
marketing activities as we expanded our marketing programs to build public awareness of the NetBank® name and our products and services, as well as increased salaries and benefits,
customer service, and data processing expense as additional employees and operational activities were added to support additional customers.

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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:
November 14, 2000

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