**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10–Q**

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

 
| **For the Quarter Ended March 31, 2002** |
|------------------------------------------|
|                                     |
| **Commission File No. 0-22361**          |

**NETBANK, INC.**(Exact name of registrant as specified in its charter)
| **Georgia**                                               |   | **58-2224352**                           |
|-----------------------------------------------------------|--------|------------------------------------------|
| (State of incorporation)                                  |   | (I.R.S. Employer Identification  Number) |
|                                                      |   |                                     |
| **11475 Great Oaks Way**                                  |   |                                     |
| **Suite 100**                                             |   |                                     |
| **Alpharetta, Georgia**                                   |   | **30022**                                |
| (Address of principal executive  offices)                 |   | (Zip Code)                               |
|                                                      |   |                                     |
| **(770) 343-6006**                                        |
| Registrant’s telephone number,  including area code: |

             Indicate by check mark whether theregistrant (1) has filed all reports required to be filed by Section 13 or15() of the Securities Exchange Act of 1934 during the preceding 12 months(or for such shorter period that the registrant was required to file suchreports), and (2) has been subject to such filing requirements for thepast 90 days.  YES ý  NO o

             Indicate the numberof shares outstanding of each of the issuer’s classes of common stock, as ofthe latest practicable date:

| **Class**                    |   | **Shares Outstanding At May 9,  2002** |
|------------------------------|--------|----------------------------------------|
| Common Stock, par value $.01 |   | 48,883,633                             |

 

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**Part I.   FINANCIAL INFORMATION**

**Item 1:  FinancialStatements**

**NETBANK, INC.****INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
| Condensed  consolidated balance sheets as of March 31, 2002 and December 31,  2001                      |   |
|-------------------------------------------------------------------------------------------------------------------|--------|
| Condensed  consolidated statements of operations for the three months ended  March 31, 2002 and 2001         |   |
| Condensed  consolidated statement of shareholders’ equity from December 31, 2001 to March 31, 2002 |   |
| Condensed  consolidated statements of cash flows for the three months ended  March 31, 2002and 2001          |   |
| Notes  to condensed consolidated financial statements                                                             |   |

** **

**2**

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** **

**NETBANK, INC.CONDENSED CONSOLIDATED BALANCESHEETS(in 000’s except share amounts)**
|                                                                                                            |   | **March 31,** |       | **December 31,** |       |
|-----------------------------------------------------------------------------------------------------------------|--------|---------------|------------|-----------------------|------------|
|                                                                                                            |   | **2002**      |       | **2001**              |       |
| **ASSETS**                                                                                                      |   |          | ** ** |                  | ** ** |
| Cash and cash equivalents:                                                                                      |   |          |       |                  |       |
| Cash and due from banks                                                                                         |   | $             | 34,512     |                  | $          | 17,562 |   |
| Federal funds sold                                                                                              |   | 203,623       |       | 4,785                 |       |
| Total cash and cash equivalents                                                                                 |   | 238,135       |       | 22,347                |       |
| Investment securities available for sale-At fair value  (amortized cost of $766,975 and $855,967, respectively) |   | 762,454       |       | 850,079               |       |
| Stock of Federal Home Loan Bank of Atlanta-At cost                                                              |   | 39,625        |       | 55,539                |       |
| Mortgage loans receivable held for sale                                                                         |   | 1,005,247     |       | 295,529               |       |
| Loans and leases receivable-Net of allowance for loan  losses of $30,845 and $22,865, respectively              |   | 1,507,934     |       | 1,489,521             |       |
| Mortgage servicing rights-Net                                                                                   |   | 132,203       |       | 2,271                 |       |
| Accrued interest receivable                                                                                     |   | 9,934         |       | 10,804                |       |
| Furniture, equipment and capitalized software-Net                                                               |   | 44,512        |       | 12,210                |       |
| Goodwill and other intangibles— Net                                                                        |   | 41,652        |       | 26,932                |       |
| Due from servicers and investors                                                                                |   | 131,166       |       | 82,386                |       |
| Other assets                                                                                                    |   | 66,570        |       | 31,915                |       |
| Total assets                                                                                                    |   | $             | 3,979,432  |                  | $          | 2,879,533 |   |
| **LIABILITIES AND SHAREHOLDERS’  EQUITY**                                                                  |   |          |       |                  |       |
|                                                                                                            |   |          |       |                  |       |
| Liabilities:                                                                                                    |   |          |       |                  |       |
| Deposits                                                                                                        |   | $             | 1,732,440  |                  | $          | 1,493,819 |   |
| Other borrowed funds                                                                                            |   | 1,597,168     |       | 1,011,985             |       |
| Convertible subordinated debt                                                                                   |   | 26,965        |       | 26,923                |       |
| Accrued interest payable                                                                                        |   | 18,152        |       | 16,632                |       |
| Loans in process                                                                                                |   | 42,465        |       | 33,632                |       |
| Accounts payable and accrued liabilities                                                                        |   | 156,842       |       | 41,088                |       |
| Total liabilities                                                                                               |   | 3,574,032     |       | 2,624,079             |       |
| 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,  51,468,057 and 31,751,369 shares issued, respectively)  |   | 515           |       | 318                   |       |
| Additional paid-in capital                                                                                      |   | 422,373       |       | 267,004               |       |
| Retained earnings                                                                                               |   | 7,650         |       | 13,289                |       |
| Accumulated other comprehensive loss, net of tax                                                                |   | (3,671        | )          | (3,648                | )          |
| Treasury  stock, at cost (2,731,605 and 2,736,870 shares, respectively)                                         |   | (21,467       | )          | (21,509               | )          |
| Total shareholders’ equity                                                                                 |   | 405,400       |       | 255,454               |       |
| Total liabilities and shareholders’ equity                                                                 |   | $             | 3,979,432  |                  | $          | 2,879,533 |   |

Seenotes to condensed consolidated financial statements.

 

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**NETBANK, INC.****CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS****(in 000’s except per share amounts)**
|                                                                  |   | **Three months Ended** |   |
|-----------------------------------------------------------------------|--------|------------------------|--------|
|                                                                  |   | **March 31,**          |   |
|                                                                  |   | **2002**               |   | **2001** |   |
| Interest income:                                                      |   |                   |   |   |   |
| Loans                                                                 |   | $                      | 27,562 |   | $ | 27,845 |   |
| Investment securities                                                 |   | 8,403                  |   | 7,494 |   |
| Short-term investments                                                |   | 813                    |   | 562 |   |
| Total interest income                                                 |   | 36,778                 |   | 35,901 |   |
|                                                                  |   |                   |   |   |   |
| Interest expense:                                                     |   |                   |   |   |   |
| Deposits                                                              |   | 13,774                 |   | 15,393 |   |
| Other borrowed funds                                                  |   | 10,661                 |   | 9,734 |   |
| Total interest expense                                                |   | 24,435                 |   | 25,127 |   |
|                                                                  |   |                   |   |   |   |
| Net interest income                                                   |   | 12,343                 |   | 10,774 |   |
|                                                                  |   |                   |   |   |   |
| Provision for loan losses                                             |   | 104                    |   | 44 |   |
|                                                                  |   |                   |   |   |   |
| Net interest income after provision for loan losses                   |   | 12,239                 |   | 10,730 |   |
|                                                                  |   |                   |   |   |   |
| Non-interest income:                                                  |   |                   |   |   |   |
| Service charges and fees                                              |   | 3,385                  |   | 1,700 |   |
| Gains on sales of mortgage loans and servicing rights                 |   | 5,673                  |   | — |   |
| Gains (losses) on sales of securities                                 |   | (85                    | )      | 1,008 |   |
| Total non-interest income                                             |   | 8,973                  |   | 2,708 |   |
|                                                                  |   |                   |   |   |   |
| Non-interest expense:                                                 |   |                   |   |   |   |
| Salaries and benefits                                                 |   | 5,630                  |   | 1,934 |   |
| Customer service                                                      |   | 3,238                  |   | 2,149 |   |
| Loan servicing                                                        |   | 2,043                  |   | 2,638 |   |
| Marketing                                                             |   | 1,567                  |   | 1,683 |   |
| Data processing                                                       |   | 2,366                  |   | 1,389 |   |
| Depreciation and amortization                                         |   | 1,915                  |   | 1,087 |   |
| Office expenses                                                       |   | 661                    |   | 322 |   |
| Occupancy                                                             |   | 970                    |   | 182 |   |
| Travel and entertainment                                              |   | 142                    |   | 109 |   |
| Other                                                                 |   | 1,078                  |   | 657 |   |
| Non-recurring acquisition and severance                               |   | 10,085                 |   | — |   |
| Total non-interest expense                                            |   | 29,695                 |   | 12,150 |   |
| Income (loss) before income taxes                                     |   | (8,483                 | )      | 1,288 |   |
| Income tax (expense) benefit                                          |   | 2,845                  |   | (491 | ) |
| Net income (loss)                                                     |   | $                      | (5,638 | ) | $ | 797 |   |
| Net income (loss) per common and potential common share  outstanding: |   |                   |   |   |   |
| Basic                                                                 |   | $                      | (0.19  | ) | $ | 0.03 |   |
| Diluted                                                               |   | $                      | (0.19  | ) | $ | 0.03 |   |
|                                                                  |   |                   |   |   |   |
| Weighted average common and potential common shares  outstanding:     |   |                   |   |   |   |
| Basic                                                                 |   | 29,239                 |   | 28,878 |   |
| Diluted                                                               |   | 29,239                 |   | 29,429 |   |

Seenotes to condensed consolidated financial statements.

 

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**NETBANK, INC.****CONDENSEDCONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY****(in 000’s)**
|                                                                                                              |   | **Common  Shares** |   | **Common  Stock  ($.01 par)** |   | **Additional  Paid-in  Capital** |   | **Treasury  Stock at  Cost** |   | **Retained  Earnings** |    | **Accumulated  Other  Comprehensive  Income  (Loss)** |   | **Total** |   |
|-------------------------------------------------------------------------------------------------------------------|--------|--------------------|--------|-------------------------------|--------|----------------------------------|--------|------------------------------|--------|------------------------|---------|-------------------------------------------------------|--------|-----------|--------|
| Balance-December 31, 2001                                                                                    |   | 31,751             |   | $                             | 318    |                             | $      | 267,004                      |   | $                      | (21,509 | )                                                     | $      | 13,289    |   | $ | (3,648 | ) | $ | 255,454 |   |
| Comprehensive income:                                                                                             |   |               |   |                          |   |                             |   |                         |   |                   |    |                                                  |   |      |   |
| Net loss for three months ended March 31, 2002                                                               |   | —             |   | —                        |   | —                           |   | —                       |   | (5,638                 | )       | —                                                |   | (5,638    | )      |
| Unrealized loss on securities, net of taxes and  reclassification adjustment                                      |   | —             |   | —                        |   | —                           |   | —                       |   | —                 |    | (23                                                   | )      | (23       | )      |
| Comprehensive loss                                                                                                |   |               |   |                          |   |                             |   |                         |   |                   |    |                                                  |   | (5,661    | )      |
| Reissuance of shares of common stock held in treasury  (2,731,605 shares held in treasury at March 31, 2002) |   | —             |   | —                        |   | —                           |   | 42                           |   | —                 |    | —                                                |   | 42        |   |
| Issuance of stock in conjunction with acquisition of  Resource Bancshares Mortgage Group, Inc.                    |   | 19,717             |   | 197                           |   | 155,365                          |   | —                       |   | —                 |    | —                                                |   | 155,562   |   |
| Exercise of stock options                                                                                         |   | —             |   | —                        |   | 3                                |   | —                       |   | —                 |    | —                                                |   | 3         |   |
| Balance-March 31, 2002                                                                                            |   | 51,468             |   | $                             | 515    |                             | $      | 422,372                      |   | $                      | (21,467 | )                                                     | $      | 7,651     |   | $ | (3,671 | ) | $ | 405,400 |   |

Seenotes to condensed consolidated financial statements.

 

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**NETBANK, INC.CONDENSED CONSOLIDATED STATEMENTSOF CASH FLOWS(in 000’s)**
|                                                                                        |   | **Three Months Ended March 31,** |      |
|---------------------------------------------------------------------------------------------|--------|----------------------------------|-----------|
|                                                                                        |   | **2002**                         |      | **2001** |   |
|                                                                                        |   |                             |      |   |   |
| Operating activities:                                                                       |   |                             |      |   |   |
| Net (loss) income                                                                           |   | $                                | (5,638    | ) | $ | 797 |   |
| Adjustments to reconcile net income to net cash providedby (used in) operating  activities: |   |                             |      |   |   |
| Depreciation and amortization                                                               |   | 14,283                           |      | 1,944 |   |
| Loss (gain) on sales of securities available for sale                                       |   | 85                               |      | (1,008 | ) |
| Net amortization (accretion) of premiums and(discounts) on investment  securities           |   | (426                             | )         | 4,445 |   |
| Origination of mortgage loans held for sale                                                 |   | (499,674                         | )         | (39,241 | ) |
| Proceeds from sale of loans held for sale                                                   |   | 546,320                          |      | 36,776 |   |
| Loss on sale of mortgage servicing rights                                                   |   | 173                              |      | — |   |
| Capitalization of mortgage servicing rights                                                 |   | (8,908                           | )         | — |   |
| Proceeds from sale of mortgage servicing rights                                             |   | 9,465                            |      | — |   |
| Provision for loan losses                                                                   |   | 104                              |      | 44 |   |
| Changes in assets and liabilities which provide (use)cash:                                  |   |                             |      |   |   |
| Decrease (increase) in accrued interest receivable                                          |   | 3,062                            |      | (2,443 | ) |
| Decrease (increase) in other assets, due fromservicers, and  intangibles                    |   | 4,554                            |      | (22,483 | ) |
| Increase in accrued interest payable                                                        |   | 249                              |      | 3,083 |   |
| Increase in accounts payable and accrued liabilities                                        |   | 15,063                           |      | 3,589 |   |
| Increase in loans in process                                                                |   | 8,833                            |      | — |   |
| Net cash provided by (used in) operating activities                                         |   |                             | 87,545    |   |   | (14,497 | ) |
|                                                                                        |   |                             |      |   |   |
| Investing activities:                                                                       |   |                             |      |   |   |
| Purchase of securities available for sale                                                   |   | (490,189                         | )         | (179,957 | ) |
| Principal repayments on investment securities                                               |   | 42,671                           |      | 15,738 |   |
| Sales and maturities of available for sale securities                                       |   | 536,332                          |      | 104,234 |   |
| Sale (purchase) of Federal Home Loan Bank stock                                             |   | 15,914                           |      | (1,250 | ) |
| Origination and purchase of loans                                                           |   | (177,047                         | )         | (106,013 | ) |
| Principal repayments on loans                                                               |   | 166,297                          |      | 112,078 |   |
| Capital expenditures                                                                        |   | (1,379                           | )         | (2,026 | ) |
| Net cash acquired in business combination                                                   |   | 29,762                           |      | — |   |
| Net cash used in investing activities                                                       |   | 122,361                          |      | (57,196 | ) |
|                                                                                        |   |                             |      |   |   |
| Financing activities:                                                                       |   |                             |      |   |   |
| Increase in deposits                                                                        |   | 238,621                          |      | 162,698 |   |
| Proceeds from other borrowed funds                                                          |   | —                           |      | 275,129 |   |
| Repayments of other borrowed funds                                                          |   | (232,785                         | )         | (305,300 | ) |
| Net proceeds from the issuance of common stock                                              |   | 4                                |      | — |   |
| Net issuance (purchase) of treasury stock                                                   |   | 42                               |      | (3,569 | ) |
| Net cash provided by financing activities                                                   |   | 5,882                            |      | 128,958 |   |
|                                                                                        |   |                             |      |   |   |
| Net increase in cash and cash equivalents                                                   |   | 215,788                          |      | 57,265 |   |
| Cash and cash equivalents:                                                                  |   |                             |      |   |   |
| Cash, beginning of period                                                                   |   | 22,347                           |      | 11,958 |   |
| Cash, end of period                                                                         |   | $                                | 238,135   |   | $ | 69,223 |   |
|                                                                                        |   |                             |      |   |   |
| Supplemental disclosures of cash flow information:                                          |   |                             |      |   |   |
| Cash paid during the period for interest                                                    |   | $                                | 24,186    |   | $ | 22,044 |   |
| Cash paid during the period for income taxes                                                |   | $                                | 950       |   | $ | 610 |   |
|                                                                                        |   |                             |      |   |   |
| Non-cash investing and financing activities:                                                |   |                             |      |   |   |
| Issuance of note receivable in exchange for assumption of customerdeposit liabilities       |   | $                                | —    |   | $ | 21,643 |   |
|                                                                                        |   |                             |      |   |   |
| Fair value of assets acquired                                                               |   | $                                | 1,074,621 |   | $ | — |   |
| Liabilities assumed                                                                         |   | (919,930                         | )         | — |   |
| Stock issued in transaction                                                                 |   | (154,691                         | )         | — |   |
| Cash paid for business                                                                      |   | $                                | —    |   | $ | — |   |

 

See notes to condensedconsolidated financial statements.

 

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**NETBANK, INC.NOTES TO CONDENSED CONSOLIDATEDFINANCIAL STATEMENTS**

**1.**          **ORGANIZATIONAND BASIS OF PRESENTATION**

             NetBank, Inc. is a bank holding companythat wholly owns the outstanding stock of NetBank, FSB (“NetBank, FSB”), afederal savings bank, Resource Bancshares Mortgage Group, Inc. (“RBMG”), awholesale mortgage banking company which was acquired on March 31, 2002, RBMGInsurance Services, Inc, (“RBMG Insurance”) and NB Partners, Inc., acorporation involved in strategic partnering opportunities.  NetBank, FSB also owns all of theoutstanding stock of Market Street Mortgage Corporation (“Market Street”), aretail mortgage company.  RBMG's significantwholly owned subsidiaries include RBMG, Inc., a wholesale mortgage bankingcompany, Republic Leasing, a commercial leasing company, and Meritage MortgageCorporation, a mortgage company specializing in non-conforming loans.  The entire consolidated company is referredto herein as “NetBank”.

             In the opinion of management, theunaudited condensed consolidated financial statements included herein reflectall adjustments, consisting only of normal recurring accruals, which arenecessary for the fair statement of the results for the interim periodspresented. Certain information and footnote disclosures normally included infinancial statements have been condensed or omitted pursuant to applicablerules and regulations of the Securities and Exchange Commission (“SEC”). Thefinancial statements included herein should be read in conjunction with thefinancial statements and notes thereto, included in NetBank’s Form 10-Kfiled with the SEC for the year ended December 31, 2001. The results ofoperations for the interim periods reported herein are not necessarilyindicative of results to be expected for the full year. Certain 2001 amountshave been reclassified for comparability with 2002 amounts.

**2.          ACCOUNTINGPOLICIES**

             Referenceis made to the accounting policies of NetBank described in the notes tofinancial statements contained in NetBank’s Form 10-K for the year endedDecember 31, 2001. The Company has followed those policies in preparingthis report.  In addition, NetBankadopted the following new pronouncements during the three months ended March31, 2002:

EffectiveJanuary 1, 2002, we adopted SFAS No. 141, “Business Combinations” (“SFAS 141”) andSFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”).SFAS 141 requires all business combinations initiated after June 30,2001 to be accounted for using the purchase method of accounting. SFAS 142changes the accounting for goodwill and other intangible assets. Based on theadoption, goodwill is no longer being amortized and will be subject to an annualimpairment test.  The effect of theadoption on NetBank’s financial statements for the three months ended March 31,2002 was a reduction of amortization expense of $197,000.   We expect to complete a transitionalimpairment test by June 30, 2002; thereafter the impairment test will beperformed annually and if any impairment is indicated, an impairment chargewill be recorded.

Effective January 1,2002, NetBank adopted  SFASNo. 144, *Accounting for the Impairmentof Long-Lived Assets,* which addresses accounting for and reportingof the impairment or disposal of long-lived assets. The adoption of SFASNo. 144 did not have an impact on the Company’s results of operations,financial position, or cash flows.

*Significant Estimates*             In preparing the financialstatements, management is required to make estimates based on availableinformation that can affect the reported amounts of assets, liabilities anddisclosures as of the balance sheet dates and revenues and expenses for therelated periods.  Such estimates relateprincipally to the Company's allowance for foreclosure losses and repurchasedloans, its allowance for lease losses and the allowance for credit losses.  Additionally, estimates concerning the fairvalues of mortgage loans held-for-sale, lease receivables, servicing rights,servicing hedges and the Company's other hedging instruments are all relevantto ensuring that leases and mortgage loans are carried at the lower of cost ormarket, and that potential impairments of servicing rights are recognized ifrequired.  Because of the inherentuncertainties associated with any estimation process and due to possible futurechanges in the market and economic conditions that will affect fair values, itis possible that actual future results in realization of the underlying assetsand liabilities could differ significantly from the amounts reflected as of thebalance sheet date.

In addition, NetBankadopted the following new policies as of March 31, 2002 as a result of itsacquisition of RBMG:

*Interest Rate Lock Commitments            *Interest rate lock commitments aremeasured by the change in value from the date of rate lock to the balance sheetdate and are recorded as assets or liabilities on the balance sheet.

*Lease Receivables            *Lease receivables consist of direct financeequipment leases which are carried at the lower of aggregate cost or marketvalue.  Interest income is recognizedmonthly based on the net lease outstanding balance.  Residuals are recognized monthly based on the estimatedend-of-lease value and are included as an adjustment to interest income.

**3.          ACQUISITIONS**

             On March 31,2002, NetBank consummated its acquisition of RBMG pursuant to an Agreement andPlan of Merger dated November 18, 2001 among NetBank, Palmetto AcquisitionCorp. (“Merger Sub”) and RBMG providing for the merger of Merger Sub with andinto RBMG, with RBMG surviving the merger. In the merger, NetBank issued 1.1382shares of NetBank common stock in exchange for each outstanding share of RBMGcommon stock, equivalent to 19,716,358 shares of common stock plus cash in lieuof fractional shares.   The transactionwas accounted for as a purchase and $14.8 million of goodwill was recorded

OnJune 29, 2001, NetBank, Inc. acquired all of the outstanding stock of MarketStreet pursuant to an agreement (the “Agreement”) dated April 15, 2001 andamended as of June 29, 2001 among NetBank, Net Interim, Inc., RepublicBank, Republic Bancorp, Inc. (“Republic”) and certain shareholders of MarketStreet.  The consideration paidconsisted of 1,689,000 shares of NetBank common stock valued at $8.96 per shareand cash of $6.1 million.  Theacquisition was accounted for as a purchase and approximately $20.1 million ingoodwill, including transaction costs, was recorded.

 

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             Pro-formafinancial information assuming both the acquisition of Market Street and RBMGhad occurred as of January 1, 2002 and January 1, 2001 follows:
|                                                                 |   | **Three  Months  Ended  March 31,  2002** |    | **Three  Months  Ended  March 31,  2001** |   |
|----------------------------------------------------------------------|--------|-------------------------------------------|---------|-------------------------------------------|--------|
| Net interest income                                                  |   | $                                         | 21,650  |                                      | $      | 12,240 |   |
| Net loss                                                             |   | $                                         | (20,288 | )                                         | $      | (11,209 | ) |
| Basic and diluted net  income per common and common equivalent share |   | $                                         | (0.41   | )                                         | $      | (0.22 | ) |

**4.          LOANS**

             During the threemonths ended March 31, 2002, NetBank purchased the following loan pools (in 000’s):
| **Types of Loans Purchased** |   | **Principal Amount** |    | **Premium****Amount** |   | **Range of Stated  Interest Rates** |   |
|------------------------------|--------|----------------------|---------|-----------------------|--------|-------------------------------------|--------|
| First mortgages              |   | $                    | 18,770  |                  | $      | 64                                  |   | 6.2 | % |
| Second mortgages             |   | 11,393               |    | 198                   |   | 8.3-8.5                             | %      |
| Commercial leases            |   | 152,582              |    | —                |   | 7.0                                 | %      |
| Total                        |   | $                    | 182,745 |                  | $      | 262                                 |   |   |   |

 

             An analysis of the allowance forloan losses for the three months ended March 31, 2002 follows (in 000’s):
|                                                           |   | **For the  Three Months  Ended  March 31,  2002** |   |
|----------------------------------------------------------------|--------|--------------------------------------------------------|--------|
| Balance-beginning of period                                    |   | $                                                      | 22,865 |   |
| Allowance recorded in connection with purchase of loan  pools  |   | 7,162                                                  |   |
| Allowance acquired in connection with the acquisition  of RBMG |   | 13,215                                                 |   |
| Provision for loan losses                                      |   | 104                                                    |   |
| Loans charged off, net of recoveries                           |   | (921                                                   | )      |
| Balance-end of period                                          |   | $                                                      | 42,425 |   |

 

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**5.          FAIRVALUE AND IMPAIRMENTS OF MORTGAGE SERVICING RIGHTS**

*            *For purposes ofevaluating its mortgage servicing portfolio for impairment, the Companydisaggregates its portfolio into two primary segments:  available-for-sale and held-for-sale.

             The segment of the portfoliodesignated as available-for-sale is composed of servicing rights that werepurchased in bulk transactions or that were retained out of production pursuantto individual portfolio retention decisions. The available-for-sale portfolio is disaggregated for purposes ofmeasuring potential impairments according to defined risk tranches.  The Company has defined its risk tranchesbased upon interest rate band and product type.  With respect to each such risk tranche, the fair value thereof,which is based upon an internal analysis that considers current marketconditions, prevailing interest, prepayment speed and default rates and otherrelevant factors, is compared to amortized carrying values of the mortgageservicing rights for purposes of measuring potential impairment.  The Company uses Constant Maturity Treasuryrate (CMT) floors, Constant Maturity Swap rate (CMS) floors and forwardpurchase contracts on FNMA mortgage backed securities (FNMA TBA) to protectitself against interest and prepayment risk on its available-for-saleportfolio.  At March 31, 2002 thefollowing amounts related to the available-for-sale portfolio (in 000's):

 

| **Residential  Mortgage Servicing**                               |   | **At March 31, 2002** |      |
|-------------------------------------------------------------------|--------|-----------------------|-----------|
| Underlying unpaid principal balance                               |   | $                     | 4,008,333 |   |
| Fair value of related mortgage servicing rights                   |   | $                     | 70,011    |   |
| Fair value/underlying unpaid principal balance                    |   | 1.75                  | %         |
| Net carrying value of related mortgage servicing rights           |   | $                     | 70,011    |   |
| Net carrying value/underlying unpaid principal balance            |   | 1.75                  | %         |
| Weighted average note rate                                        |   | 7.36                  | %         |
| Weighted average service fee                                      |   | .43                   | %         |
| Net basis expressed as a multiple of weighted average service fee |   | 4.05                  | x    |

*** ***

***            ***The segment ofthe portfolio designated as held-for-sale is composed of recently producedservicing rights that are scheduled for sale and have been allocated tospecific forward servicing sales contracts. The held-for-sale portfolio is disaggregated for purposes of measuringpossible impairments according to the specific forward sales contracts to whichallocated, which the Company has determined to be the appropriate approach todisaggregation by predominant risk characteristic for this portfoliosegment.  For each such risk tranche,the fair value is based upon the allocated forward committed delivery price,which is compared to amortized carrying value for purposes of measuringpotential impairment.  At March 31,2002, the following amounts related to the held-for-sale portfolio (in 000's):

 

| **Residential  Mortgage Servicing**                               |   | **At March 31, 2002** |      |
|-------------------------------------------------------------------|--------|-----------------------|-----------|
| Underlying unpaid principal balance                               |   | $                     | 2,590,086 |   |
| Fair value of related mortgage servicing rights                   |   | $                     | 62,192    |   |
| Fair value/underlying unpaid principal balance                    |   | 2.51                  | %         |
| Net carrying value of related mortgage servicing rights           |   | $                     | 62,192    |   |
| Net carrying value/underlying unpaid principal balance            |   | 2.51                  | %         |
| Weighted average note rate                                        |   | 6.90                  | %         |
| Weighted average service fee                                      |   | .48                   | %         |
| Net basis expressed as a multiple of weighted average service fee |   | 5.23                  | x    |

** **

**6.          BORROWINGS**

A summary of borrowings,grouped by year of maturity, as of March 31, 2002 follows (in 000’s):
| **Type of Borrowing**                                                           |   | **Year of Maturity** |   | **Range of Stated****Interest Rates  at March 31, 2002** |   |   |   | **Principal Amount** |      |
|---------------------------------------------------------------------------------|--------|----------------------|--------|----------------------------------------------------------|--------|--------|--------|----------------------|-----------|
| $326.5 million revolving line of credit                                         |   | 2002                 |   | 3.68                                                     | %      |   |   | $                    | 309,000   |   |
| $75 million warehouse line of credit                                            |   | 2002                 |   | 3.32                                                     | %*     |   |   | 72,762               |      |
| $100 million commercial paper conduit facility                                  |   | 2002                 |   | 1.86                                                     | %*     |   |   | 62,300               |      |
| $300 million master repurchase facility                                         |   | 2002                 |   | 3.09                                                     | %*     |   |   | 118,736              |      |
| $10.0 million unsecured line of credit                                          |   | 2002                 |   | —                                                   | *      |   |   | —               |      |
| FHLB warehouse line                                                             |   | 2003                 |   | 2.44                                                     | %*     |   |   | 134,200              |      |
| FHLB advances                                                                   |   | 2003                 |   | 3.61-7.17                                                | %      |   |   | 160,000              |      |
| $200 million master repurchase facility                                         |   | 2003                 |   | 3.16                                                     | %*     |   |   | 57,655               |      |
| Convertible subordinated notes                                                  |   | 2004                 |   | 4.75                                                     | %      |   |   | 27,316               |      |
| FHLB advances                                                                   |   | 2004                 |   | 4.45-6.03                                                | %      |   |   | 205,000              |      |
| FHLB advances                                                                   |   | 2005                 |   | 6.02-7.41                                                | %      |   |   | 150,000              |      |
| FHLB advances                                                                   |   | 2006                 |   | 5.63                                                     | %      |   |   | 80,000               |      |
| FHLB advances                                                                   |   | 2007                 |   | 7.50                                                     | %      |   |   | 25,000               |      |
| $6.6 million note payable secured by RBMG’s former  corporate headquarters |   | 2007                 |   | 8.07                                                     | %      |   |   | 6,579                |      |
| FHLB advances                                                                   |   | 2009                 |   | 4.64                                                     | %      |   |   | 25,000               |      |
| $325 million master repurchase facility                                         |   | N/A                  |   | 2.90                                                     | %*     |   |   | 56,185               |      |
| $175 million master repurchase facility                                         |   | N/A                  |   | 2.15                                                     | %*     |   |   | 134,751              |      |
|                                                                            |   |                 |   | Total                                                    |   |   |   | 1,624,484            |      |
|                                                                            |   |                 |   | Less un-amortized discount                               |   |   |   | (351                 | )         |
|                                                                            |   |                 |   | Total debt                                               |   |   |   | $                    | 1,624,133 |   |

** **

----

*****Indicates a variable rate

 

             All of the FHLB advances are fixed rate;however, eight advances totaling $255,000,000 may be converted at the FHLB’soption to adjustable rate based on the three month floating LIBOR.  The FHLB warehouse line is a $250,000,000adjustable line of credit with a floating rate based on the federal funds rateplus 50 basis points used to fund mortgages originated by Market Street. All of the FHLB advances and the FHLB warehouseline are secured by investment securities or mortgage loans.  The convertible subordinated notes areunsecured.

 

 

9

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Most of the revolving lines of credit, warehouselines of credit (other than the FHLB warehouse line), the master repurchasefacilities and commercial paper conduit facility are all secured by mortgageloans and are subject to restrictive covenants, such as minimum net worthrequirements; minimum tangible net worth requirements; certain minimum financial ratios, all as defined in theterms of the related debt agreements; maintenance of servicer eligibility forvarious government agencies; a minimum balance in the mortgage servicing rightsportfolio, and certain minimum liquidity requirements.  The covenants also limit dividends distributionsand stock repurchases.  In addition, thecovenants restrict business activities to those related to the mortgage bankingand lending business and the servicing of mortgage loans.  NetBank was in compliance with all debtcovenants in place as of March 31, 2002. Although management anticipates continued compliance with current debtcovenants, there can be no assurance that NetBank or its individualsubsidiaries will be able to continue to comply with the debt covenants.  Failure to comply could result in the lossof the related financing.

**7.          NETINCOME PER COMMON AND COMMON EQUIVALENT SHARE**

             Basic and diluted net income percommon and potential common share have been calculated based on the weightedaverage number of shares outstanding. The following schedule reconciles thenumerator and denominator of the basic and diluted net income per common andpotential common shares (in 000’s except per share amounts) for the threemonths ended March 31, 2001.  For thethree months ended March 31, 2002, there is no difference in basic and diluted sharesas the effect of options outstanding to purchase common shares would beanti-dilutive to the net loss for that period. The effect of convertible debtsecurities outstanding  has not beenincluded for the three months ended March 31, 2001, as the assumed conversionof such securities would be anti–dilutive to earnings per share for thatperiod.
|                                                             |   | **Net Income  (Numerator)** |   | **Shares  (Denominator)** |   | **Per Share****Amount** |   |
|------------------------------------------------------------------|--------|-----------------------------|--------|---------------------------|--------|-------------------------|--------|
|                                                             |   |                        |   | **2001**                  |   |                    |   |
| Three Months Ended March 31, 2001:                               |   |                        |   |                      |   |                    |   |
| Basic EPS                                                        |   | $                           | 797    |                      | 28,878 |                    | $      | 0.03 |   |
| Effect of dilutive securities-options to purchase  common shares |   |                        |   | 551                       |   |                    |   |
| Diluted EPS                                                      |   | $                           | 797    |                      | 29,429 |                    | $      | 0.03 |   |

**8.          DERIVATIVES**

             During the quarter ended March 31,2002, NetBank entered into forward delivery commitments through itswholly-owned subsidiary, Market Street, to protect against changes in the fairvalue of Market Street’s short-term commitments to fund mortgage loanapplications in process (“the pipeline”) and mortgage loans held for sale (“thewarehouse”) due to fluctuations in interest rates.  These forward commitments are designated as fair value hedgesunder SFAS No. 133, “Accounting for Derivative Instruments and HedgingActivities”.  As such, these forwardcommitments are recorded at fair value on the balance sheet with an offset tomortgage loans held for sale for the effective portion of the hedge. Theineffective portion of the hedge is recorded as a gain (loss) in the statementof operations. NetBank is generally not exposed to significant losses nor doesit expect to realize significant gains related to the pipeline or warehouse dueto changes in interest rates, net of gains or losses on related hedgepositions.

 

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**9.          BUSINESS SEGMENTS**

             NetBank, Inc.'sprincipal activities include retail banking and mortgage lending.  The retail banking segment primarilyconsists  of the offering of consumerbanking products such as checking, money market, and certificates of depositand the purchase of bulk loan portfolios. The retail banking segment includes the effect of  certain transactions related to theacquisition of RBMG on March 31, 2002 including the restructuring of theinvestment portfolio in anticipation of the transaction and certain compensationcharges related to changes in management as a result of the transaction.  The mortgage banking segment, eitheroriginates first mortgage loans or purchases first mortgage loans fromcorrespondent brokers and packages pools of such loans either inclusive orexclusive of servicing rights for sale into the secondary market.    The mortgage banking segment does notinclude the results of operations of RBMG which was not acquired until March31, 2002.  The other segment includesthe holding company and NB Partners and reflects the recording of certaincompensation related charges related to management changes as a result of theacquisition of RBMG on March 31, 2002. The financial information for each business segment reflects specificidentifiable transactions or allocated transactions based on an internalallocation method. The measurement of the performance of the business segmentsis based on the management structure of NetBank, Inc. and is not necessarilycomparable with similar information from any other financial institution. Theinformation presented is also not necessarily indicative of the segment’soperations if they were independent entities.
|                              |   | **Retail  Banking**                      |      | **Mortgage  Banking** |   | **Other** |   | **Eliminations** |    | **Consolidated** |   |
|-----------------------------------|--------|------------------------------------------|-----------|-----------------------|--------|-----------|--------|------------------|---------|------------------|--------|
|                              |   | **Three months Ended****March 31, 2002** |      |
| Net interest income               |   | $                                        | 9,761     |                  | $      | 2,541     |   | $                | 41      |             | $      | — |   | $ | 12,343 |   |
| Non-interest income               |   | $                                        | 2,953     |                  | $      | 5,895     |   | $                | 125     |             | $      | — |   | $ | 8,973 |   |
| Non-interest expense              |   | $                                        | 15,654    |                  | $      | 4,475     |   | $                | 9,566   |             | $      | — |   | $ | 29,695 |   |
| Provision for loan losses         |   | $                                        | 103       |                  | $      | 1         |   | $                | —  |             | $      | — |   | $ | 104 |   |
| Income (loss) before income taxes |   | $                                        | (3,043    | )                     | $      | 3,960     |   | $                | (9,400  | )                | $      | — |   | $ | (8,483 | ) |
| Total assets                      |   | $                                        | 2,712,260 |                  | $      | 1,366,927 |   | $                | 425,054 |             | $      | (524,809 | ) | $ | 3,979,432 |   |

** **

**10.        LOSS****CONTINGENCY**

**            **NetBank is involved in litigation with three insurancecompanies who are guarantors on one of NetBank’s commercial leaseportfolios.  NetBank has filed a claimfor $11,500,000 in principal and interest payments that are currently pastdue.  The unpaid principal and unpaid interestbalances total $87,600,000 and $3,800,000 respectively.  The entire portfolio has been placed onnon-accrual status pending outcome of the litigation.  Approximately $797,000 and $1,200,000 of interest was foregoneduring the three months ended December 31, 2001 and March 31, 2002, respectively.  Management believes after consultation withlegal counsel, that NetBank has substantive basis for its claims.

 

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**NETBANK, INC.****Part 1. Item 2:  ****MANAGEMENT’S DISCUSSION ANDANALYSIS OF FINANCIAL CONDITIONAND RESULTS OF OPERATIONS**

             *Some of the statements in this report are forward–lookingstatements. Forward–looking statements include statements regarding theintent, belief or current expectations of NetBank or its officers anddirectors  and can be identified by theuse of forward–looking terms such as “may,” “will,” “should,” “believe,”“expect,” “anticipate,” “estimate,” “continue,” or comparable terminology. Ouractual results could differ materially from those anticipated from the forward–lookingstatements, depending on various important factors. These factors include apossible decline in asset quality, potential difficulties in integrating ouroperations with those of companies we acquire, the cyclical nature of themortgage banking industry generally, the evolving nature of the market forinternet banking and financial services generally, the possible adverse effectsof unexpected changes in the interest rate environment, and increasingcompetition and regulatory changes. The section headed “Risk Factors” in ourprospectus dated January 14, 2002 contains additional details on these andother risks that are material to our operations. All forward–lookingstatements in this report are based on information available to us as of thedate this report was filed with the SEC. We do not undertake to update anyforward–looking statements that may be made by us or on our behalf inthis prospectus or otherwise.*

             *General-* NetBank, Inc. is a bank holding company thatwholly owns the outstanding stock of NetBank, FSB (“NetBank, FSB”), a federalsavings bank, Resource Bancshares Mortgage Group, Inc. (“RBMG”), a wholesalemortgage banking company which was acquired on March 31, 2002, RBMG InsuranceServices, Inc, (“RBMG Insurance”) and NB Partners, Inc., a corporation involvedin strategic partnering opportunities. NetBank, FSB also owns all of the outstanding stock of Market StreetMortgage Corporation (“Market Street”), a retail mortgage company.  RBMG's significant wholly owned subsidiariesinclude RBMG, Inc., a wholesale mortgage banking company, Republic Leasing, acommercial leasing company, and Meritage Mortgage Corporation, a mortgagecompany specializing in non-conforming loans. The entire consolidated company is referred to herein as “NetBank”.  As ofMarch 31, 2002, NetBank had 252,000 accounts and $1.7 billion in deposits.

             *Financial Condition-*Our assets were $4.0billion at March 31, 2002 compared to $2.9 billion at December 31,2001. The increase of $1.1 billion from December 31, 2001 to March 31,2002 was primarily due to the acquisition of RBMG as of March 31, 2002 whichadded $1.1 billion in total assets, including $756.4 million in mortgage loansreceivable held for sale, $20.0 million in lease receivables, $129.3 million inmortgage servicing rights, $30.0 million in cash, and $149.0 million infurniture and equipment, miscellanous receivables, and other assets.  During the three months ended March 31,2002, NetBank began a process of restructuring its balance sheet to reflect thechange in strategy as a result of the anticipated acquisition of RBMG.  The restructuring primarily consisted ofliquidating a large portion of the investment securities portfolio(approximately $511.3 million in total). The resulting proceeds were thenreinvested in securities with a shorter duration such as federal funds sold anddiscount agency notes in anticipation of using the funds to pay down existingRBMG lines of credit during the three months ended June 30, 2002.  The net change to the balance sheet as aresult of this planned restructuring was a $87.6 million decrease to investmentsecurities available for sale and a $215.8 million increase in cash and cashequivalents (including federal funds sold). Our investment in stock of the Federal Home Loan Bank of Atlanta alsodecreased $15.9 million as we redeemed stock related to FHLB advances paid downduring the three months ended March 31, 2002. In addition to the liquidation of a portion of the investment portfolio,bulk loan purchases have also been suspended in anticipation of investing fundsin first mortgages purchased or originated by RBMG or Market Street.  As a result, only loans and leases relatedto pre-existing flow agreements were purchased during the three months endedMarch 31, 2002.  The resulting change inthe loans receivable portfolio was an $18.4 million increase during the threemonths ended March 31, 2002 that resulted from flow agreement purchases, offsetby regularly scheduled principal payments.

Totalliabilities increased $950.0 million during the three months ended March 31,2002 primarily due to the addition of $818.0 million in lines of credit assumedas a result of the acquisition of RBMG on March 31, 2002, offset by the paydownof a $200 million FHLB advance to NetBank, FSB and the maturity of anadditional $20 million FHLB advance to NetBank, FSB.   Customer deposits increased $238.6 million, or 16% during thethree months ended March 31, 2002 and accounts payable and accrued liabilitiesincreased $115.8 million, $100.7 million of which, related to liabilitiesassumed as a result of the acquisition of RBMG.

Shareholders’ equity increased $149.9 million as a result of theissuance of $155.6 million in new equity issued to effect the purchase of RBMG,offset by a $5.6 million decrease in retained earnings as a result of a loss forthe three months ended March 31, 2002 which included $10.1 million innon-recurring transaction costs.

 

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             *Liquidity and Capital Resources *NetBank’s liquidity, representedby cash and cash equivalents, is a product of its operating, investing, andfinancial 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 fundsprovided from operations. While scheduled loan payments and maturing investmentsecurities and short-term investments are relatively predictable sources offunds, deposit flows and loan prepayments are greatly influenced by general interestrates, economic conditions, and competition. NetBank invests excess funds inovernight deposits and other short-term interest–earning assets. NetBankcan use cash generated through the retail deposit market, its traditionalfunding source, to offset the cash utilized in investing activities. NetBank’savailable for sale securities and short-term interest–earning assets canalso be used to provide liquidity for lending and other operationalrequirements. As an additional source of funds, NetBank had availability underexisting line of credit agreements totaling $1.1 billion at March 31,2002.  As of March 31, 2002, anunusually large amount of cash was invested in federal funds sold and othershort-term  discount agency notes inanticipation of paying down some of RBMG’s lines of credit during the threemonths ended June 30, 2002.

             NetBank is required by Office ofThrift Supervision regulations to maintain tangible capital equal to at least1.5% of tangible assets, core capital equal to at least 3.0% of tangibleassets, and total capital equal to at least 8.0% of risk-weighted assets. To becategorized as “well capitalized” under a prompt corrective action plan,NetBank must maintain minimum Tier I, core, and total capital ratios of atleast 6%, 5%, and 10%, respectively. NetBank exceeded such requirements withTier I, core and total capital ratios of 8.45%, 14.24%, and 15.49%, respectively, at March 31, 2002.

###### ***CriticalAccounting Policies***

             NetBank’s consolidated financialstatements have been prepared in accordance with accounting principlesgenerally accepted in the United States of America (“GAAP”), which oftenrequire the judgment of management in the selection and application of certainaccounting principles and methods. Management believes the quality andreasonableness of its most critical policies enable the fair presentation ofits financial position and results of operations. However, investors arecautioned that the sensitivity of financial statements to these methods,assumptions and estimates could create materially different results underdifferent conditions or using different assumptions.

Inresponse to the Securities and Exchange Commission’s (“SEC”) ReleaseNo. 33–8040, Cautionary Advice Regarding Disclosure About CriticalAccounting Policies, NetBank has identified the following as the most criticalaccounting policies upon which its results of operations depends. Thesecritical policies were determined by considering accounting policies thatinvolve the most complex or subjective decisions or assessments. NetBank’s mostcritical accounting policies are those related to:

*             Allowancefor Loan Losses—*The allowance for loan losses is maintained at a levelestimated to be adequate to provide for probable losses in the loan portfolio.As the majority of NetBank’s portfolio is purchased, an estimate of the lossinherent in the purchased portfolio is made and an allowance for loan losses isrecorded by adjusting the premium associated with the purchased loans at thetime of purchase. Management determines the adequacy of the allowance basedupon reviews of individual and pools of loans, recent loss experience, currenteconomic conditions, the risk characteristics of the various categories ofloans, the seller’s reserve, and other pertinent factors. Any deterioration ina loan pool occurring after the date of purchase is charged to the provisionfor loan loss. Loans deemed uncollectible are charged to the allowance.Provisions for loan losses, net of recoveries on loans previously charged offare added to the allowance.

*             Gains onSales of Mortgage Loans and Servicing Rights*—Gains or losses resulting fromloan sales are generally recognized based on the difference between the netsale proceeds and the net book value of the loans sold. Deferred fees and costsare recorded as an adjustment of the book value and are included in the gain orloss on sale when the mortgage loan is sold. Gains or losses on sales ofmortgage loans are affected by the sale of, or the recording of retainedmortgage servicing rights related to the specific pools of loans sold.

*             Premium onLoans Purchased—*Premiums on loans purchased from third parties arecapitalized and amortized over the average life of the loan as an adjustment toyield. Such premiums are classified with the loan balance to which they relatefor financial reporting purposes.

*             Mortgage Servicing Rights—*Mortgage servicing rights include certain costsincurred in the origination of mortgage servicing rights which are deferred andamortized over the expected life of the loan. The total cost of acquiringmortgage loans, either through origination activities or purchase transactions,is allocated between the mortgage servicing rights and the loans based on theirrelative fair values. The fair values of mortgage servicing rights areestimated by calculating the present value of the expected future cash flowsassociated with such rights, incorporating assumptions that market participantswould use in their estimates of future servicing rights. Impairment is measuredon a disaggregated basis by stratifying the mortgage servicing rights based onone or more predominant risk characteristics of the underlying loans, includinginterest rate and loan type. Impairment is recognized through a valuationallowance for each individual stratum. Gains or losses resulting from the saleof servicing rights are recognized when the title and substantially all risksand rewards are irrevocably passed to the buyer.

**Interest Rate Sensitivity**

             Wemeasure interest rate sensitivity as the difference between amounts of interest–earningassets and interest–bearing liabilities that mature, reprice, or repaywithin a given period of time. The difference, or the interest rate sensitivity“gap,” provides an indication of the extent to which an institution’s interestrate spread will be affected by changes in interest rates. A gap is consideredpositive when the amount of interest-rate sensitive assets exceeds the amountof interest-rate sensitive liabilities and is considered negative when theamount of interest-rate sensitive liabilities exceeds the amount ofinterest-rate sensitive assets. In a rising rate environment, an institutionwith a positive gap would see an increase in net interest income, where aninstitution with a negative gap would see a decrease. During a period offalling interest rates the reverse is true.

 

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             The following table sets forth theinterest rate sensitivity of our assets and liabilities as of March 31, 2002(in 000’s):
|                                                                       |   | **Less Than****Three  Months**                 |      | **Over Three  Months****Through  One Year** |   | **Over One  Year****Through  Five Years** |   | **Over Five  Years And****Insensitive** |    | **Total** |   |
|----------------------------------------------------------------------------|--------|------------------------------------------------|-----------|---------------------------------------------|--------|-------------------------------------------|--------|-----------------------------------------|---------|-----------|--------|
|                                                                       |   | **Term to Repricing, Repayment,  or Maturity** |      |
| Interest-Earning Assets:                                                   |   |                                           |      |                                        |   |                                      |   |                                    |    |      |   |
| Cash and cash equivalents                                                  |   | $                                              | 34,512    |                                        | $      | —                                    |   | $                                       | —  |      | $      | — |   | $ | 34,512 |   |
| Federal funds sold                                                         |   | 203,623                                        |      | —                                      |   | —                                    |   | —                                  |    | 203,623   |   |
| Investment securities                                                      |   | 413,463                                        |      | 50,294                                      |   | 184,302                                   |   | 114,395                                 |    | 762,454   |   |
| Stock of Federal Home Loan Bank of Atlanta                                 |   | 39,625                                         |      | —                                      |   | —                                    |   | —                                  |    | 39,625    |   |
| Loans held for sale                                                        |   | 1,005,247                                      |      | —                                      |   | —                                    |   | —                                  |    | 1,005,247 |   |
| Loans receivable                                                           |   | 262,647                                        |      | 313,123                                     |   | 809,469                                   |   | 122,695                                 |    | 1,507,934 |   |
| Total interest-earning assets:                                             |   | 1,959,117                                      |      | 363,417                                     |   | 993,771                                   |   | 237,090                                 |    | 3,553,395 |   |
| Non interest-earning assets                                                |   | —                                         |      | —                                      |   | —                                    |   | 426,037                                 |    | 426,037   |   |
|                                                                       |   |                                           |      |                                        |   |                                      |   |                                    |    |      |   |
| Total assets                                                               |   | $                                              | 1,959,117 |                                        | $      | 363,417                                   |   | $                                       | 993,771 |      | $      | 663,127 |   | $ | 3,979,432 |   |
|                                                                       |   |                                           |      |                                        |   |                                      |   |                                    |    |      |   |
| Interest-Bearing Liabilities:                                              |   |                                           |      |                                        |   |                                      |   |                                    |    |      |   |
| Interest-bearing deposits                                                  |   | $                                              | 368,412   |                                        | $      | 1,083,728                                 |   | $                                       | 100,150 |      | $      | 153,920 |   | $ | 1,706,210 |   |
| Convertible subordinated debt                                              |   | —                                         |      | —                                      |   | 26,965                                    |   | —                                  |    | 26,965    |   |
| Other borrowed funds                                                       |   | 952,168                                        |      | 55,000                                      |   | 540,000                                   |   | 50,000                                  |    | 1,597,168 |   |
| Total interest-bearing liabilities:                                        |   | 1,320,580                                      |      | 1,138,728                                   |   | 667,115                                   |   | 203,920                                 |    | 3,330,343 |   |
| Interest-free deposits                                                     |   | —                                         |      | —                                      |   | —                                    |   | 26,230                                  |    | 26,230    |   |
| Other interest-free liabilities and equity                                 |   | —                                         |      | —                                      |   | —                                    |   | 622,859                                 |    | 622,859   |   |
| Total liabilities and equity                                               |   | $                                              | 1,320,580 |                                        | $      | 1,138,728                                 |   | $                                       | 667,115 |      | $      | 853,009 |   | $ | 3,979,432 |   |
|                                                                       |   |                                           |      |                                        |   |                                      |   |                                    |    |      |   |
| Net interest rate sensitivity gap                                          |   | $                                              | 638,537   |                                        | $      | (775,311                                  | )      | $                                       | 326,656 |      | $      | 33,170 |   | $ | 223,052 |   |
| Cumulative gap                                                             |   | $                                              | 638,537   |                                        | $      | (136,774                                  | )      | $                                       | 189,882 |      | $      | 223,052 |   | — |   |
| Net interest rate sensitivity gap as a percent of  interest-earning assets |   | 32.59                                          | %         | -213.34                                     | %      | 32.87                                     | %      | 13.99                                   | %       | 6.28      | %      |
| Cumulative gap as a percent of cumulative  interest-earning assets         |   | 32.59                                          | %         | -5.89                                       | %      | 5.73                                      | %      | 6.28                                    | %       | 0.00      | %      |

 

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**Market Risk**

             Our principal business is theoriginating and purchasing of loans funded by customer deposits and, to theextent necessary, other borrowed funds. Consequently, a significant portion ofour assets and liabilities are monetary in nature and fluctuations in interestrates, will affect our future net interest income and cash flows. This interestrate risk is our primary market risk exposure. During the three months endedMarch 31, 2002, the only derivative financial instruments that we entered intowere short-term forward commitments related to loan originations at ourmortgage origination subsidiary, Market Street . We have no marketrisk-sensitive instruments held for trading purposes. Our exposure to marketrisk is reviewed on a regular basis by our management.

             NetBank, measures interest raterisk based on Net Portfolio Value (“NPV”) analysis. NPV equals the presentvalue of expected net cash flows from existing assets minus the present valueof expected net cash flows from existing liabilities. An NPV ratio isdetermined by dividing NPV by the present value of assets. The following tablesets forth the estimated percentage change in NetBank, NPV ratio as of March31, 2002 assuming rate shocks of +300 to -200 basis points:

**Limits and Current NPV Ratios**

| **Rate Shock  (in basis points)** |   | **Estimated****3/31/02  NPV Ratios** |   |
|-----------------------------------|--------|--------------------------------------|--------|
| +300                              |   | 7.76                                 | %      |
| +200                              |   | 8.34                                 | %      |
| +100                              |   | 8.97                                 | %      |
| Flat                              |   | 9.49                                 | %      |
| -100                              |   | 9.53                                 | %      |
| -200                              |   | 9.41                                 | %      |

             Computation of prospective effectsof hypothetical rate changes is based on many assumptions, including relativelevels of market interest rates, loan prepayments and deposit decay. Theyshould not be relied upon as indicative of actual results. Further, thecomputations do not contemplate certain actions management could undertake inresponse to changes in interest rates.

*Investment Securities.*  The following tables set forth certaininformation relating to our available-for-sale securities at March 31,2002 and December 31, 2001:
|                                |   | **Amortized****Cost** |    | **Unrealized****Gains** |   | **Unrealized  Losses** |   | **Estimated  Fair  Value** |   |
|-------------------------------------|--------|-----------------------|---------|-------------------------|--------|------------------------|--------|----------------------------|--------|
|                                |   | **Gross**             |    |
|                                |   | **March 31, 2002**    |    |
| Mortgage pool securities            |   | $                     | 153,637 |                    | $      | 16                     |   | $                          | 1,440  |   | $ | 152,213 |   |
| Collateralized mortgage obligations |   | 330,323               |    | 284                     |   | 2,473                  |   | 328,134                    |   |
| U.S. government agencies            |   | 268,805               |    | 61                      |   | 150                    |   | 268,716                    |   |
| Corporate bonds                     |   | 9,669                 |    | —                  |   | 823                    |   | 8,846                      |   |
| Habitat bonds and other             |   | 4,541                 |    | 4                       |   | —                 |   | 4,545                      |   |
|                                |   |                  |    |                    |   |                   |   |                       |   |
| Total                               |   | $                     | 766,975 |                    | $      | 365                    |   | $                          | 4,886  |   | $ | 762,454 |   |
|                                     |        |                       |         |                         |        |                        |        |                            |        |  |  |  |  |  |  |

 

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|                                |   | **Amortized****Cost** |    | **Unrealized****Gains** |   | **Unrealized  Losses** |   | **Estimated  Fair  Value** |   |
|-------------------------------------|--------|-----------------------|---------|-------------------------|--------|------------------------|--------|----------------------------|--------|
|                                |   | **Gross**             |    |
|                                |   | **December 31, 2001** |    |
| Mortgage pool securities            |   | $                     | 596,675 |                    | $      | 345                    |   | $                          | 5,374  |   | $ | 591,646 |   |
| Collateralized mortgage obligations |   | 185,768               |    | 513                     |   | 1,261                  |   | 185,020                    |   |
| Unites States government agencies   |   | 60,000                |    | 834                     |   | —                 |   | 60,834                     |   |
| Corporate bonds                     |   | 9,666                 |    | —                  |   | 1,006                  |   | 8,660                      |   |
| Habitat bonds and other             |   | 3,858                 |    | 61                      |   | —                 |   | 3,919                      |   |
|                                |   |                  |    |                    |   |                   |   |                       |   |
|                                |   | $                     | 855,967 |                    | $      | 1,753                  |   | $                          | 7,641  |   | $ | 850,079 |   |

*Loan Portfolio Composition.*  The following table sets forth thecomposition of our loan and lease portfolio, including loans receivable heldfor sale, by type of loan as of March 31, 2002 and December 31, 2001:
|                                |   | **March 31,****2002** |      | **December 31,****2001** |   |
|-------------------------------------|--------|-----------------------|-----------|--------------------------|--------|
| Residential mortgages               |   | $                     | 877,899   |                     | 34.4   | % | $ | 977,768 |   | 54.1 | % |
| Residential mortgages held for sale |   | 1,017,194             |      | 39.8                     |   | 295,560 |   | 16.3 |   |
| Commercial mortgages                |   | 216,963               |      | 8.5                      |   | 231,739 |   | 12.8 |   |
| Leases                              |   | 318,135               |      | 12.5                     |   | 150,918 |   | 8.3 |   |
| Home equity lines                   |   | 122,929               |      | 4.8                      |   | 140,806 |   | 7.8 |   |
| Consumer                            |   | 2,164                 |      | —                   |   | 10,747 |   | 0.7 |   |
| Construction                        |   | 197                   |      | —                   |   | 197 |   | — |   |
| Auto                                |   | 125                   |      | —                   |   | 211 |   | — |   |
| Total                               |   | 2,555,606             |      | 100.0                    | %      | 1,807,946 |   | 100.0 | % |
|                                |   |                  |      |                     |   |   |   |   |   |
| Less allowance for loan losses      |   | 30,845                |      |                     |   | 22,865 |   |   |   |
| Total                               |   | $                     | 2,524,761 |                     |   |   | $ | 1,785,081 |   |   |   |

 

             *Asset Quality and Non-performingAssets-*As of March 31, 2002 and December 31, 2001 NetBank had$91.7 million and $3.2 million loans on non-accrual status, which includes allloans past due 90 days or more.  Ofthe $91.7 million on non-accrual status at March 31, 2002, $87.6 millionrelates to one portfolio of commercial leases which are guaranteed by threeinsurance companies acting as sureties under the terms of the relating salesand servicing agreements.  NetBank iscurrently involved in litigation with each of those three insurance companiesand is optimistic about the ultimate recovery of amounts due under the terms ofthe sales and servicing agreements; however, until the matter is resolved, managementhas placed the entire balance of the portfolio on a non-accrual status.  During the three months ended March 31, 2002and 2001, we had no restructured loans. As of March 31, 2002 and December 31, 2001, NetBank had $213,000 and$74,000 in other real estate owned.

 

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*Deposits.*  The following table sets forth the dollaramount of deposits and weighted average interest rates in the various types ofdeposit programs offered by us at March 31, 2002 and December 31, 2001:
|                                   |   | **Amount**         |      | **Percentage**        |   | **Weighted  Average****Interest  Rate** |   | **Amount** |   | **Percentage** |   | **Weighted****Average  Interest  Rate** |   |
|----------------------------------------|--------|--------------------|-----------|-----------------------|--------|-----------------------------------------|--------|------------|--------|----------------|--------|-----------------------------------------|--------|
|                                   |   | **March 31, 2002** |      | **December 31, 2001** |   |
| Non-interest bearing checking accounts |   | $                  | 23,038    |                  | 1.3    | %                                       | N/A    |       | $      | 26,858         |   | 1.8                                     | %      | N/A |   |
| Interest bearing:                      |   |               |      |                  |   |                                    |   |       |   |           |   |                                    |   |
| Checking accounts                      |   | 157,240            |      | 9.0                   |   | 1.64                                    | %      | 131,887    |   | 8.8            |   | 1.8                                     | %      |
| Money market                           |   | 614,327            |      | 35.5                  |   | 2.74                                    | %      | 492,424    |   | 33.0           |   | 3.7                                     | %      |
| Certificate of deposit under $100,000  |   | 814,215            |      | 47.0                  |   | 4.04                                    | %      | 724,328    |   | 48.5           |   | 5.8                                     | %      |
| Certificate of deposit over $100,000   |   | 123,620            |      | 7.2                   |   | 4.04                                    | %      | 118,322    |   | 7.9            |   | 5.8                                     | %      |
| Total deposits                         |   | $                  | 1,732,440 |                  | 100    | %                                       |   |       | $      | 1,493,819      |   | 100.0                                   | %      |   |   |

 

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**Results ofOperations**

*As NB Partners, Inc. had no substantiveoperations during the three months ended March 31, 2002, and RBMG was notacquired until March 31, 2002,  thefollowing discussion relates to the operations of NetBank, FSB, Market Street,and NetBank Inc. collectively, unless the context indicates otherwise.*

***Three Months Ended March 31, 2002 Comparedto Three Months Ended March 31, 2001***

*General.*  Net loss for the three months ended March31, 2002 was $5.6 million, or $(0.19) per share, compared with net income of$0.8 million, or $0.03 per share, for the three months ended March 31,2001.  The significant decrease in netincome was due to $10.1 million, pre-tax (or $6.7 million, after-tax) ofnon-recurring compensation-related charges due to payouts under employmentagreements triggered by changes in management as a result of the acquisition ofRBMG. In addition, management began a significant restructuring of the balancesheet in anticipation of the RBMG transaction. The restructuring primarily consisted of the sale of a large portion ofthe investment portfolio and reinvestment of the proceeds into assets with ashorter duration, and consequently lower yield, in anticipation of the fundsbeing used during the three months ended June 30, 2002 to pay down existingRBMG lines of credit. This restructuring negatively impacted NetBank’s resultsof operations for the three months ended March 31, 2002 by approximately $3.7million, pre-tax (or $2.3 million, after-tax). In addition, bulk loan purchases, other than those related to previousflow agreements, have been suspended in anticipation of using all availableresources to fund loans originated by both RBMG and Market Street. Thestatement of operations was also 

 

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negatively impacted by $1.2 million, pre-tax ($0.7 million, after-tax)as a result of placing of one portfolio of commercial leases that is thesubject of litigation (see Note 10 to our Condensed Consolidated FinancialStatements) on non-accrual status during the three months ended March 31, 2002.

 

*InterestIncome.*  Interest income related to ourloan and investment portfolio for the three months ended March 31, 2002 was$36.8 million compared to $35.9 million for the three months ended March31, 2001. The slight increase in interest income was a result of a $309.4million increase in our investment portfolio from March 31, 2001 to March 31,2002, offset by a decrease in the average yield on investments and loans.  Investment yield declined from 6.7% for thethree months ended March 31, 2001 to 5.0% for the three months ended March 31,2002 as management shortened the duration of the investment portfolio inanticipation of the RBMG merger through the sale of higher yielding assets andthe reinvestment of the proceeds in federal funds sold and discount agencynotes. Yield was further negatively impacted by the overall decline in interestrates from period to period.  Loanyields declined from 8.0% for the three months ended March 31, 2001 to  6.7% for the three months ended March 31,2002 as a result of our adjustable portfolio re-pricing downward andprepayments accelerating in a declining rate environment.

*Interest Expense.*  For the three months ended March 31, 2002,$13.8 million in interest expense on deposits was recorded compared to$15.4 million for the three months ended March 31, 2001.  The net decrease in interest expense ondeposits was the result of an increase in customer deposit balances from$1.2 billion at March 31, 2001 to $1.7 billion at March 31, 2002, offsetby a decrease in the average interest rate paid on deposits from 6.1% for thethree months ended March 31, 2001 to 3.5% for the three months ended March 31,2002. Interest expense associated with other borrowed funds increased $0.9million from $9.7 million for the three months ended March 31, 2001 to $10.7million for the three months ended March 31, 2002 due to the addition ofseveral new advances from the FHLB including the Market Street warehouse line,offset by lower rates on our FHLB advances.

*Net Interest Income.*  Net interest income is determined by ourinterest rate spread, which is the difference between the yields earned on ourinterest–earning assets and the rates paid on our interest–bearingliabilities, and the relative amounts of interest–earning assets andinterest–bearing liabilities. Net interest income was $12.3 million, or1.9% of average interest earning assets for the three months ended March 31,2002 compared to $10.8 million, or 2.3% of average interest earning assetsfor the three months ended March 31, 2001. The increase in net interest incomeresulted from the increase in the amount of loans and deposits from March 31,2001 to March 31, 2002. The decrease in interest margin was the result of lowerinvestment and loan yields as management restructured the investment portfolioin anticipation of the RBMG transaction and an overall decline in interestrates from period to period.

*Provision for Loan Losses.*  In connection with the purchase of loanportfolios, we assess the inherent loss in the portfolios and record the necessaryallowance by adjusting the premium associated with each portfolio. During thethree months ended March 31, 2002, we recorded $7.2 million as an addition topremiums related to allowance for loan losses for loans and leases purchasedduring the quarter. In addition, we also recorded a provision for loan lossesof $0.1 million primarily related to the decline in credit quality on a fewspecific consumer loans. This compares to a provision of $43,000 recordedduring the three months ended March 31, 2001. We periodically review theperformance of our loan portfolio by reviewing chargeoffs, delinquencystatistics, and industry statistics on a pool-by-pool basis for our purchasedportfolio and a loan-by-loan basis for our originated loans. If a decline in creditquality for a specific pool or a loan is noted, we record an additionalallowance through a charge to the provision for loan losses. The allowance forloan losses is maintained at a level estimated to be adequate to provide forprobable losses in the loan portfolio. We determine the adequacy of theallowance based upon reviews of individual loans, recent loss experience,current economic conditions, the risk characteristics of the various categoriesof loans and other pertinent factors.

*Non-interest Income.*  For the three months ended March 31, 2002,we recorded approximately $9.0 million in non-interest income compared to $2.7million recorded during the three months ended March 31, 2001.   Deposit and loan fees accounted for $3.4million, or 37.8% of the $9.0 million in non-interest income recorded duringthe three months ended March 31, 2002. Market Street contributed approximately $5.7 million in non-interestincome related to gains on sales of mortgage loans and servicing rights, andNetBank recognized an $85,000 loss on sales of securities during the threemonths ended March 31, 2002 compared with a $1.0 million gain during the threemonths ended March 31, 2001.

*Non-interestExpense.*  Non-interestexpense includes all operating expenses such as salaries and benefits,marketing, general and administrative expenses (excluding interest expense,provision for loan losses and income taxes). In addition, for the three monthsended March 31, 2002, non-interest expense includes $10.1 million of non-recurringcompensation-related charges due to payouts under employment agreementstriggered by changes in management as a result of the acquisition of RBMG. Theone-time charge accounts for 57.7% of the overall $17.5 million increase innon-interest expense for the three months ended March 31, 2002 as compared withthe three months ended March 31, 2001. In addition, $4.5 million of the increase relates to the addition ofMarket Street’s non-interest expense as Market Street was not acquired untilJune 29, 2001.   The remaining $2.9million increase in non-interest expense resulted from a $1.1 million increasein salaries and benefits, a $0.7 million increase in loan servicing related tohigher cost associated in servicing of leases versus loans, and a $0.4 millionincrease in NetBank variable costs associated with supporting additionalcustomers as the number of accounts increased from 233,000 at March 31, 2001 to252,000 at March 31, 2002.

 

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**PartII.  OTHER INFORMATION**

**Part II.Item 1:  LEGAL PROCEEDINGS**

Lindhe et al.v. NetBank, Inc. and CompuBank, N.A., C.A. No. C01-0822R (Western District ofWashington)

             On June 4, 2001,NetBank, Inc. (the “Company”)  wasserved with a class action complaint filed by Per Martin Lindhe and ShellyRaeNorbeck in the United States District Court for the Western District ofWashington.  The complaint allegesviolations of the federal Expedited Funds Availability Act, and state lawclaims of breach of contract, breach of common law duties, and conversionarising from the Company’s acquisition of deposit accounts from CompuBank,N.A.  A settlement is pending Courtapproval, and assuming such approval, the suit would represent a potential lossto or payment by the Company of approximately $200,000.

Illinois Union Insurance Co. v. Commercial MoneyCenter, Inc., et al.,  Case No. CV-01-0685-KJD-RJJ (District Courtof Nevada)

             On December 3,2001,the Company was served with a complaint filed by Illinois Union InsuranceCompany in the United States District Court for the District of Nevada.  The complaint seeks rescission of certaininsurance policies relating to leases purchased by the Company and restitutionand recovery of any benefits paid to the Company.  We have filed a separate action against Illinois Union and threeother surety companies seeking payment under performance bonds guaranteeingpayment under the leases.  At this time,we are unable to express an opinion as to the likelihood of loss, or the amountor range of potential loss, with regard to this matter.

*inter*state NetBank v. NetBank, Inc. andNetBank, Case No.1:01-CV-1324(JBS) (District of New Jersey)

 

On June 27, 2001, theCompany was served with a complaint for a declaratory judgment filed by *inter*StateNetBank in the District of New Jersey challenging the “NETBANK®” servicemark.  The Company answered andcounterclaimed for trademark infringement on July 13, 2001.  Factual discovery had been scheduled throughJanuary 31, 2002, with expert discovery to have been completed byApril 30, 2002.  Discovery wasstayed pending a ruling on *inter*State NetBank’s November 19,2001 motion for summary judgment, which claimed that “NETBANK” is generic forall banking services delivered over the Internet. The Company is awaiting aruling on the motion, which it anticipates will be denied. The Company also isrequesting that the stay of discovery be lifted.

 

             TheCompany intends to vigorously defend against *inter*State NetBank’schallenge of the “NETBANK®” service mark and will pursue its counterclaims fortrademark infringement, cyberpiracy and unfair competition. While there is apossibility of an adverse outcome for the Company, at this stage of the matter,we cannot fairly determine the likelihood of an adverse outcome.  However, in the event of an adverse outcome,it is unlikely that there would be a monetary loss aside from the loss in valueof the intellectual property rights in the NETBANK® registration.

 

NetBank, Inc. and NetBankv. The RiverBank,Case No. 1:00-CV-2154 CC (Northern District of Georgia)

 

             TheCompany will receive a consent judgement as part of the settlement of this casereached in a conference with the magistrate judge in Minnesota on May 6, 2002.

**               **The Company has also sentnumerous letters to other entities that appear to be infringing the Company’srights in the NETBANK® service mark and variations of that mark.  The letters demand that the entities immediately cease and desistfrom any such infringing activities.  If the entities refuse tocease the infringement, the Company intends to file additional lawsuits similarto those that have already been filed. If litigation becomes necessary, it is possible that the entities willrespond by also seeking to cancel the NETBANK® registration.  To date, however, no other entity hasactually threatened or suggested such action.

**Part II. Item 2: CHANGES IN SECURITIES AND USE OF PROCEEDS**

OnMarch 31, 2002, NetBank issued 19,716,000 shares of common stock valued at$7.89 per share in connection with its acquisition of RBMG as described in Note3 to the Notes to Condensed Consolidated Financial Statements contained in thisReport on Form 10-Q and as more specifically described in its Form S-4 filedon   December 17 , 2001 and CurrentReports on Form 8-K filed on November 30, 2001 and April 8, 2002.

**Part II. Item 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

Included in Part I. Item2.

#### **Part II.  Item4:  SUBMISSION OF MATTERS TO A VOTE OFSECURITY HOLDERS**

On February 28, 2002, NetBank held a special meeting of shareholders atwhich the following actions were taken:

Approved and adopted the Agreement and Plan of Merger, Dated as ofNovember 18, 2001, by and among NetBank, Palmetto Acquisition Corp. andResource Bancshares Mortgage Group, Inc.

For:  16,773,582   Against: 96,871  Abstain: 42,854

Approved an amendment to NetBank’s 1996 Stock Incentive Plan, whichwould allow NetBank to increase the number of shares of NetBank common stockavailable for issuance under the plan from 3.750,000 to 7,500,000

For: 11,543,611 Against: 5,299,249 Abstain:  70,446

**Part II.  Item 6: EXHIBITS AND REPORTS ON FORM 8-K**

(a)         Exhibits

             10.1      Employment Agreement dated as of April 1, 2002 between NetBank,Inc and Thomas L. Cable.

             10.2      Employment Agreement dated as of April 1, 2002 between NetBank,Inc. and Laura P. Moon.

(b)        Reports on Form 8-K

(i)                                     We filed a Current Report on Form 8-K onMarch 6, 2002, as amended on March 20, 2002 reporting our dismissal of Deloitte& Touche LLP as our external auditors. Ernst & Young LLP has been appointed our external auditors for 2002.

 

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**SIGNATURE**

             Pursuant to the requirements of theSecurities Exchange Act of 1934, the registrant has duly caused this report tobe signed on its behalf by the undersigned thereunto duly authorized.
|   | NETBANK, INC. |                       |
|--------|---------------|----------------------------|
|   |          |                       |
|   | By:           | /s/  Laura P. Moon         |
|   |          | Laura P. Moon              |
|   |          | *Chief Accounting Officer* |
|        |               |                            |  |

Dated: May 15, 2002

 

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