**SECURITIESAND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

**FORM 10–Q**
| **QUARTERLY REPORT PURSUANT TO SECTION  13 OR 15() OF THE SECURITIES EXCHANGE ACT OF 1934** |
|---------------------------------------------------------------------------------------------|

 
| **For the Quarter Ended September 30,  2001** |
|-----------------------------------------------|
|                                          |
| **Commission File No. 0–22361**          |

**NETBANK, INC.**(Exact name ofregistrant 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: |

             Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15() of the Securities Exchange Act of 1934 duringthe preceding 12 months (or for such shorter period that the registrantwas required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days. YES ý  NO o

             Indicatethe number of shares outstanding of each of the issuer's classes of common stock,as of the latest practicable date:
| **Class**                     | **Shares Outstanding At November 7, 2001** |
|-------------------------------|--------------------------------------------|
| Common  Stock, par value $.01 | 31,759,264                                 |

** **

**Item 1.**

**NETBANK, INC.****INDEX TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS**
| Condensed  consolidated balance sheets as of September 30, 2001 and as of December 31,  2000                 | 3 |
|------------------------------------------------------------------------------------------------------------------------|---|
| Condensed  consolidated statements of operations for the three and nine months ended  September 30, 2001 and 2000 | 4 |
| Condensed  consolidated statement of shareholders' equity from December 31, 2000 to September 30, 2001       | 5 |
| Condensed  consolidated statements of cash flows for the nine months ended  September 30, 2001and 2000            | 6 |
| Notes  to condensed consolidated financial statements                                                                  | 7 |

 

**NETBANK, INC.CONDENSED CONSOLIDATED BALANCESHEETS(in 000's except share amounts)**
|                                                                                                                               |   | **September 30,** |      | **December 31,** |   |
|------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------|-----------|-----------------------|--------|
|                                                                                                                               |   | **2001**          |      | **2000**              |   |
| **ASSETS**                                                                                                                         |   |              |      |                  |   |
| Cash and cash  equivalents:                                                                                                        |   |              |      |                  |   |
| Cash and due from banks                                                                                                            |   | $                 | 10,092    |                  | $      | 4,733 |   |
| Federal funds sold                                                                                                                 |   | 31,499            |      | 7,225                 |   |
| Total cash and cash  equivalents                                                                                                   |   | 41,591            |      | 11,958                |   |
| Investment securities  available for sale-At fair value (amortized cost of $698,498, and $389,443,  respectively)                  |   | 707,669           |      | 388,910               |   |
| Stock of Federal Home  Loan Bank of Atlanta-At cost                                                                                |   | 36,141            |      | 26,450                |   |
| Loans receivable held for  sale-Net of allowance for loan losses of $10                                                            |   | 232,633           |      | -                     |   |
| Loans receivable-Net of  allowance for loan losses of $17,879 and $13,421, respectively                                            |   | 1,349,770         |      | 1,363,784             |   |
| Accrued interest  receivable                                                                                                       |   | 9,569             |      | 6,952                 |   |
| Furniture, equipment and  capitalized software-Net                                                                                 |   | 12,238            |      | 8,755                 |   |
| Goodwill — Net                                                                                                                |   | 19,287            |      | -                     |   |
| Due from servicers                                                                                                                 |   | 51,391            |      | 27,367                |   |
| Other assets                                                                                                                       |   | 24,155            |      | 8,514                 |   |
| Total assets                                                                                                                       |   | $                 | 2,484,444 |                  | $      | 1,842,690 |   |
| **LIABILITIES AND SHAREHOLDERS' EQUITY**                                                                                           |   |              |      |                  |   |
|                                                                                                                               |   |              |      |                  |   |
| Liabilities:                                                                                                                       |   |              |      |                  |   |
| Deposits                                                                                                                           |   | $                 | 1,342,539 |                  | $      | 980,752 |   |
| Other borrowed funds                                                                                                               |   | 752,817           |      | 564,171               |   |
| Convertible subordinated  debt                                                                                                     |   | 26,881            |      | 26,755                |   |
| Accrued interest payable                                                                                                           |   | 20,423            |      | 17,154                |   |
| Derivatives                                                                                                                        |   | 4,265             |      | -                     |   |
| Loans in process                                                                                                                   |   | 55,189            |      | -                     |   |
| Accounts payable and  accrued liabilities                                                                                          |   | 18,486            |      | 3,251                 |   |
|                                                                                                                               |   |              |      |                  |   |
| Total liabilities                                                                                                                  |   | 2,220,600         |      | 1,592,083             |   |
| 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, 31,751,369, and 30,012,680 shares issued, respectively) |   | 318               |      | 300                   |   |
| Additional paid–in  capital                                                                                                   |   | 267,023           |      | 251,579               |   |
| Retained earnings                                                                                                                  |   | 10,413            |      | 6,688                 |   |
| Accumulated other  comprehensive income (loss), net of tax                                                                         |   | 4,310             |      | (352                  | )      |
| Treasury stock,  at cost (2,317,765 and 926,500 shares, respectively)                                                              |   | (18,220           | )         | (7,608                | )      |
| Total shareholders'  equity                                                                                                        |   | 263,844           |      | 250,607               |   |
| Total liabilities and  shareholders' equity                                                                                        |   | $                 | 2,484,444 |                  | $      | 1,842,690 |   |
|                                                                                                                                    |        |                   |           |                       |        |  |  |  |  |

Seenotes to condensed consolidated financial statements.

 

**NETBANK, INC.****CONDENSEDCONSOLIDATED STATEMENTS OF OPERATIONS****(in 000's except per share amounts)**
|                                                                                                              |              | **Three months Ended** |   | **Nine months Ended** |   |
|-------------------------------------------------------------------------------------------------------------------|-------------------|------------------------|--------|-----------------------|--------|
| **September 30,**                                                                                                 | **September 30,** |                   |
| Interest income:                                                                                                  |              | **2001**               |   | **2000**              |   | **2001** |   | **2000** |   |
| Loans                                                                                                             |              | $                      | 28,908 |                  | $      | 22,268 |   | $ | 83,188 |   | $ | 57,361 |   |
| Investment securities                                                                                             |              | 9,374                  |   | 8,304                 |   | 24,156 |   | 23,505 |   |
| Short–term  investments                                                                                      |              | 663                    |   | 176                   |   | 2,120 |   | 543 |   |
| Total interest income:                                                                                            |              | 38,945                 |   | 30,748                |   | 109,464 |   | 81,409 |   |
|                                                                                                              |              |                   |   |                  |   |   |   |   |   |
| Interest expense:                                                                                                 |              |                   |   |                  |   |   |   |   |   |
| Deposits                                                                                                          |              | 15,194                 |   | 13,428                |   | 45,796 |   | 33,931 |   |
| Other borrowed funds                                                                                              |              | 10,970                 |   | 8,211                 |   | 29,314 |   | 20,592 |   |
| Total interest expense                                                                                            |              | 26,164                 |   | 21,639                |   | 75,110 |   | 54,523 |   |
|                                                                                                              |              |                   |   |                  |   |   |   |   |   |
| Net interest income                                                                                               |              | 12,781                 |   | 9,109                 |   | 34,354 |   | 26,886 |   |
|                                                                                                              |              |                   |   |                  |   |   |   |   |   |
| Provision for loan losses                                                                                         |              | 83                     |   | (11                   | )      | 253 |   | 267 |   |
|                                                                                                              |              |                   |   |                  |   |   |   |   |   |
| Net interest income after  provision for loan losses                                                              |              | 12,698                 |   | 9,120                 |   | 34,101 |   | 26,619 |   |
|                                                                                                              |              |                   |   |                  |   |   |   |   |   |
| Non–interest  income:                                                                                        |              |                   |   |                  |   |   |   |   |   |
| Fee income                                                                                                        |              | 13,367                 |   | 864                   |   | 16,841 |   | 1,550 |   |
| Gain on sales of mortgage  loans and servicing rights                                                             |              | 3,931                  |   | -                     |   | 3,931 |   | - |   |
| Gain on sales of  securities                                                                                      |              | 1,034                  |   | 180                   |   | 3,557 |   | 366 |   |
| Total non-interest income                                                                                         |              | 18,332                 |   | 1,044                 |   | 24,329 |   | 1,916 |   |
|                                                                                                              |              |                   |   |                  |   |   |   |   |   |
| Non–interest  expense:                                                                                       |              |                   |   |                  |   |   |   |   |   |
| Salaries and benefits                                                                                             |              | 12,377                 |   | 1,588                 |   | 16,547 |   | 4,596 |   |
| Customer service                                                                                                  |              | 3,259                  |   | 2,022                 |   | 10,329 |   | 4,784 |   |
| Loan servicing                                                                                                    |              | 1,350                  |   | 1,066                 |   | 4,077 |   | 2,728 |   |
| Marketing                                                                                                         |              | 1,488                  |   | 3,187                 |   | 4,143 |   | 10,041 |   |
| Data processing                                                                                                   |              | 2,188                  |   | 868                   |   | 5,221 |   | 2,050 |   |
| Depreciation and  amortization                                                                                    |              | 1,755                  |   | 695                   |   | 4,231 |   | 1,784 |   |
| Office expenses                                                                                                   |              | 1,294                  |   | 255                   |   | 1,999 |   | 584 |   |
| Occupancy                                                                                                         |              | 986                    |   | 172                   |   | 1,383 |   | 529 |   |
| Travel and entertainment                                                                                          |              | 152                    |   | 249                   |   | 344 |   | 593 |   |
| Other                                                                                                             |              | 2,717                  |   | 624                   |   | 4,148 |   | 1,875 |   |
| Total non–interest  expense                                                                                  |              | 27,566                 |   | 10,726                |   | 52,422 |   | 29,564 |   |
| Income (loss) before  income taxes and extraordinary gain                                                         |              | 3,464                  |   | (562                  | )      | 6,008 |   | (1,029 | )  |
| Income tax (expense)  benefit                                                                                     |              | (1,316                 | )      | 192                   |   | (2,283 | ) | 350 |   |
| Income (loss) before extraordinary  gain                                                                          |              | 2,148                  |   | (370                  | )      | 3,725 |   | (679 | )  |
| Extraordinary gain on  early extinguishment of debt, net of tax                                                   |              | -                      |   | 1,091                 |   | - |   | 8,232 |   |
|                                                                                                                   |              |                   |   |                  |   |   |   |   |   |
| Net income                                                                                                        |              | $                      | 2,148  |                  | $      | 721 |   | $ | 3,725 |   | $ | 7,553 |   |
|                                                                                                                   |              |                   |   |                  |   |   |   |   |   |
| Basic and diluted net  income (loss) before extraordinary gain per common and potential common share  outstanding |              | $                      | 0.07   |                  | $      | (0.01 | ) | $ | 0.13 |   | $ | (0.02 | )  |
| Extraordinary gain per  common and potential common share outstanding:                                            |              | $                      | -      |                  | $      | 0.03 |   | $ | - |   | $ | 0.27 |   |
| Net income per common and  potential common share outstanding:                                                    |              |                   |   |                  |   |   |   |   |   |
| Basic                                                                                                             |              | $                      | 0.07   |                  | $      | 0.02 |   | $ | 0.13 |   | $ | 0.25 |   |
| Diluted                                                                                                           |              | $                      | 0.07   |                  | $      | 0.02 |   | $ | 0.13 |   | $ | 0.25 |   |
| Weighted average common  and potential common shares outstanding:                                                 |              |                   |   |                  |   |   |   |   |   |
| Basic                                                                                                             |              | 30,182                 |   | 29,672                |   | 29,214 |   | 29,706 |   |
| Diluted                                                                                                           |              | 30,711                 |   | 30,526                |   | 29,777 |   | 30,652 |   |

Seenotes to condensed consolidated financial statements.

 

**NETBANK, INC.****CONDENSEDCONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY****(in 000's)**
|                            | **Common  Shares**                                                                                               |   | **Common  Stock  ($.01 par)** |   | **Additional  Paid-in  Capital** |   | **Retained****Earnings** |   | **Accumulated  Other  Comprehensive  Income  (Loss)** |   | **Treasury  Stock at  Cost** |    | **Total** |    |
|---------------------------------|------------------------------------------------------------------------------------------------------------------|--------|-------------------------------|--------|----------------------------------|--------|--------------------------|--------|-------------------------------------------------------|--------|------------------------------|---------|-----------|---------|
| Balance-December 31,  2000 | 30,013                                                                                                           |   | $                             | 300    |                             | $      | 251,579                  |   | $                                                     | 6,688  |                         | $       | (352)     |    | $ | (7,608) |   | $ | 250,607 |   |
|                            | Comprehensive income:                                                                                            |   |                          |   |                             |   |                     |   |                                                  |   |                         |    |      |    |   |
|                            | Net income for nine  months ended September 30, 2001                                                        | -      |                          | -      |                             | -      |                     | 3,725  |                                                  | -      |                         | -       |      | 3,725   |   |
|                            | Unrealized gain on  securities, net of taxes and reclassification adjustment                                     | -      |                          | -      |                             | -      |                     | -      |                                                  | 4,662  |                         | -       |      | 4,662   |   |
|                            | Comprehensive income                                                                                             |   |                          |   |                             |   |                     |   |                                                  |   |                         |    |      | 8,387   |   |
|                            | Purchase of shares of common  stock for treasury (2,317,765 shares held in treasury at September 30,  2001) | -      |                          | -      |                             | -      |                     | -      |                                                  | -      |                         | (10,612 | )         | (10,612 | ) |
|                            | Issuance of stock in  conjunction with acquisition                                                               | 1,689  |                          | 17     |                             | 15,115 |                     | -      |                                                  | -      |                         | -       |      | 15,132  |   |
|                            | Exercise of stock options                                                                                        | 49     |                          | 1      |                             | 329    |                     | -      |                                                  | -      |                         | -       |      | 330     |   |
| Balance-September 30,  2001     | 31,751                                                                                                           |   | $                             | 318    |                             | $      | 267,023                  |   | $                                                     | 10,413 |                         | $       | 4,310     |    | $ | (18,220 | ) | $ | 263,844 |   |

Seenotes to condensed consolidated financial statements.

 

**NETBANK, INC.CONDENSED CONSOLIDATED STATEMENTSOF CASH FLOWS(in 000's)**
|                                                                                         | **Nine months Ended   September 30,**                         |     |
|----------------------------------------------------------------------------------------------|---------------------------------------------------------------|----------|
|                                                                                         | **2001**                                                      |     | **2000** |   |
| **Operating  activities:**                                                                   |                                                          |     |   |   |
| Net income                                                                                   | $                                                             | 3,725    |   | $ | 7,553 |   |
| Adjustments to reconcile  net income to net cash provided by (used in) operating activities: |                                                          |     |   |   |
|                                                                                         | Extraordinary gain on  debt extinguishment                    | -        |   | (12,473 | ) |
|                                                                                         | Gain on sales of mortgage  servicing rights                   | (607     | ) | - |   |
|                                                                                         | Gain on sales of  securities available for sale               | (2,523   | ) | (180 | ) |
|                                                                                         | Amortization of premiums  and discounts on investments        | 8,290    |   | 5,866 |   |
|                                                                                         | Amortization of mortgage  servicing rights                    | 42       |   | - |   |
|                                                                                         | Provision for loan losses                                     | 253      |   | 267 |   |
|                                                                                         | Depreciation and  amortization                                | 4,028    |   | 1,784 |   |
|                                                                                         | Origination of mortgage  loans held for sale                  | (586,049 | ) | (61,438 | ) |
|                                                                                         | Proceeds from sale of  loans held for sale                    | 576,535  |   | 63,061 |   |
|                                                                                         | Capitalization of  mortgage servicing rights                  | (10,512  | ) | - |   |
|                                                                                         | Change in assets and  liabilities:                            |     |   |   |   |
|                                                                                         | Increase in accrued  interest receivable                      | (2,012   | ) | (2,026 | ) |
|                                                                                         | Increase in prepaid  expenses and other assets                | (24,102  | ) | (14,763 | ) |
|                                                                                         | Increase in accrued  interest payable                         | 3,269    |   | 9,485 |   |
|                                                                                         | (Decrease) increase in  accrued expense and other liabilities | (3,903   | ) | 3,948 |   |
| Net cash provided by  (used in) operating activities                                         | (33,566                                                       | )        | 1,084 |   |
|                                                                                         |                                                          |     |   |   |
| **Investing  activities:**                                                                   |                                                          |     |   |   |
|                                                                                         | Purchase of securities  available for sale                    | (634,412 | ) | (97,234 | ) |
|                                                                                         | Principal repayments on  investment securities                | 75,427   |   | 62,281 |   |
|                                                                                         | Proceeds from sale of  servicing rights                       | 11,734   |   | - |   |
|                                                                                         | Sales and maturities of  securities                           | 220,622  |   | 48,716 |   |
|                                                                                         | Net cash acquired in  business combination                    | 9,595    |   | - |   |
|                                                                                         | Origination and purchase  of loans                            | (688,603 | ) | (611,994 | ) |
|                                                                                         | Principal repayments on  loans                                | 696,443  |   | 169,310 |   |
|                                                                                         | Capital expenditures                                          | (5,273   | )  | (4,222 | ) |
|                                                                                         | Net cash used in  investing activities                        | (314,467 | ) | (433,143 | ) |
|                                                                                         |                                                          |     |   |   |
| **Financing  activities:**                                                                   |                                                          |     |   |   |
|                                                                                         | Increase in Deposits                                          | 361,788  |   | 255,360 |   |
|                                                                                         | Proceeds from borrowed  funds                                 | 441,460  |   | 994,091 |   |
|                                                                                         | Repayments of borrowed  funds                                 | (415,300 | ) | (785,914 | ) |
|                                                                                         | Net Proceeds from  issuance of common stock                   | 330      |   | 8,348 |   |
|                                                                                         | Repurchase of treasury  stock                                 | (10,612  | )  | (3,373 | ) |
|                                                                                         | Repurchase of convertible  subordinated notes                 | -        |   | (44,605 | ) |
|                                                                                         | Net cash provided by  (used in) financing activities          | 377,666  |   | (423,907 | ) |
|                                                                                         |                                                          |     |   |   |   |
| Net increase (decrease)  in cash                                                             | 29,633                                                        |     | (8,152) |   |
|                                                                                         |                                                          |     |   |   |
| Cash at beginning of  period                                                                 | 11,958                                                        |     | 13,643 |   |
|                                                                                         |                                                          |     |   |   |   |
| Cash at end of period                                                                        | $                                                             | 41,591   |   | $ | 5,491 |   |
| Supplemental disclosures  of cash flow information:                                          |                                                          |     |   |   |
| Cash paid during the  period for interest                                                    | $                                                             | 71,841   |   | $ | 45,037 |   |
| Cash paid during the  period for income taxes                                                | $                                                             | 1,460    |   | $ | 1,378 |   |
|                                                                                         |                                                          |     |   |   |   |   |
| Non-cash investing and  financing activities:                                                |                                                          |     |   |   |
|                                                                                         |                                                          |     |   |   |
| Issuance of common stock  for repurchase of convertible subordinated notes                   | -                                                             |     | $ | 8,342 |   |
| Fair value of assets  acquired                                                               | $                                                             | 267,124  |   | - |   |
| Liabilities assumed                                                                          | (247,157                                                      | )        | - |   |
| Less stock issued in  transaction                                                            | 15,132                                                        |     | - |   |
| Cash paid for business                                                                       | $                                                             | 4,835    |   | - |   |
|                                                                                              |                                                               |          |  |  |  |  |  |  |  |

Seenotes to condensed consolidated financial statements.

 

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

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

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

             NetBank, Inc.is a bank holding company that wholly owns the outstanding stock of NetBank,FSB, a federal savings bank and its wholly owned subsidiary Market StreetMortgage Corporation (“Market Street”), a mortgage company, as well as NBPartners, Inc. (“NB Partners”) and its subsidiary NetBank Partners, LLC(“NetBank Partners”), both partnerships involved in strategic partneringopportunities, jointly (“NetBank”).

             In theopinion of management, the unaudited condensed consolidated financialstatements included herein reflect all adjustments, consisting only of normalrecurring accruals, which are necessary for the fair statement of the resultsfor the interim periods presented. Certain information and footnote disclosuresnormally included in financial statements have been condensed or omitted pursuantto applicable rules and regulations of the Securities and Exchange Commission("SEC"). The financial statements included herein should be read inconjunction with the financial statements and notes thereto, included inNetBank's Form 10-K filed with the SEC for the year endedDecember 31, 2000 and NetBank's Form 10-Qs for the quarters endedMarch 31, 2001and June 30, 2001. The results of operations for the interimperiods reported herein are not necessarily indicative of results to beexpected for the full year. Certain 2000 amounts have been reclassified forcomparability with 2001 amounts.

**2.          ACQUISITION**

             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 paid, whichwas finalized during the three months ended September 30, 2001, consisted of1,689,000 shares of NetBank common stock valued at $8.96 per share and cash of$3.8 million.  The acquisition wasaccounted for as a purchase and approximately $20.0 million in goodwill,including transaction costs, was recorded. Amortization for 2001 is based on a25 year life. Amortization of goodwill will discontinue January 1, 2002 withNetBank’s adoption of SFAS No. 142, "Goodwill and Other IntangibleAssets" (see Note 3).  Pro-formafinancial information assuming the transaction had occurred as of January 1,2000 and January 1, 2001 follows:
|                                                                                               |   | **Nine  Months Ended   September 30,  2001** |   | **Nine  Months  Ended   September 30,  2000** |   |
|----------------------------------------------------------------------------------------------------|--------|---------------------------------------------------|--------|-----------------------------------------------|--------|
| Net  interest income                                                                               |   | $                                                 | 36,716 |                                          | $      | 24,338 |   |
| Income  (loss) before extraordinary gain                                                           |   | $                                                 | 8,581  |                                          | $      | (380 | ) |
| Net  income                                                                                        |   | $                                                 | 6,785  |                                          | $      | 6,376 |   |
| Basic  and diluted income (loss) before extraordinary gain per common and common  equivalent share |   | $                                                 | 0.27   |                                          | $      | (0.01 | ) |
| Basic  and diluted net income per common and common equivalent share                               |   | $                                                 | 0.22   |                                          | $      | 0.20 |   |

The shares of NetBank common stock issuedin the acquisition were registered for public resale effective October 17,2001. Under the terms of the Agreement, Republic is entitled to sell thatportion of its shares exceeding 5% of NetBank’s outstanding common stock and isprecluded from selling any shares in excess of this permitted amount until June29, 2002.

**3.          ACCOUNTING POLICIES**

             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, 2000 and Form 10-Qs for the quarters ended March 31, 2001 andJune 30, 2001. The Company has followed those policies in preparing thisreport.  In addition, the followingaccounting policies were adopted during the three months ended September 30,2001:

**Mortgage Loans Held for Sale**

Mortgage loans held for sale are carried at the lowerof aggregate cost or market. Commitments to either purchase or sell loans are included in determiningmarket value.  Gains or losses resultingfrom loan sales are recognized based on the difference between the net saleproceeds and the net book value of the loans sold.  Losses, if any, related to aggregate commitments to purchase ororiginate loans are recorded if the estimated market value of the loans upontheir ultimate sale is below the cost of the related loans.  Mortgage servicing fees are calculated basedon the outstanding principal balance of the loans serviced and recognized inthe period in which they are received.

#### **Hedging Activities**

MarketStreet uses mandatory forward delivery commitments to manage interest rate riskin its production pipeline.  Gains andlosses on those forward commitments, which are used to manage ratelocked fixedrate mortgage commitments, are included in the cost basis used to calculate thegain (loss) on the sale of mortgages.

#### **Mortgage Servicing Rights**

Mortgageservicing rights include certain costs incurred in the origination andacquisition of mortgage servicing rights (“originated and purchased servicing”)which are deferred and amortized over the expected life of the loan.  The total cost of acquiring mortgage loans,either through origination activities or purchase transactions, is allocatedbetween the mortgage servicing rights and the loans based on their relativefair values.  The fair values ofmortgage servicing rights are estimated by calculating the present value of theexpected future cash flows associated with such rights, incorporatingassumptions that market participants would use in their estimates of futureservicing rights is measured on a disaggregated basis by stratifying themortgage servicing rights based on one or more predominant risk characteristicsof the underlying loans, including interest rate and loan type.  Impairment is recognized through a valuationallowance for each individual stratum.

Gainsor losses resulting from the sale of servicing rights are recognized when thetitle and substantially all risks and rewards are irrevocably passed to thebuyer.

*New accounting pronouncements-*

In July 2001, the FASB issued SFAS No.142, "Goodwill and Other Intangible Assets" (“SFAS 142”). SFAS 142changes the accounting for goodwill from an amortization method to an annualimpairment test. Amortization of goodwill, including goodwill recorded in pastbusiness combinations, will cease upon adoption of this statement. NetBank willimplement SFAS 142 on January 1, 2002.

**4.          LOANS**

             Duringthe three months ended September 30, 2001, NetBank purchased the following loanpools (in 000's):
| **Types of Loans Purchased** |   | **Principal Amount** |    | **Premium****Amount** |   | **Range of Stated  Interest Rates** |   |
|------------------------------|--------|----------------------|---------|-----------------------|--------|-------------------------------------|--------|
| First mortgages              |   | $                    | 22,014  |                  | $      | 167                                 |   | 6.94 | % |
| Second mortgages             |   | 86,558               |    | 2,895                 |   | 9.17                                | %      |
| Commercial participations    |   | 66,023               |    | -                     |   | 7.76-7.86                           | %      |
| Total                        |   | $                    | 174,595 |                  | $      | 3,062                               |   |   |   |

 

             Ananalysis of the allowance for loan losses for the three and nine months endedSeptember 30, 2001 follows (in 000's):
|                                                          |   | **For the  Three Months  Ended  September 30,  2001** |         | **For the  Nine Months  Ended  September 30,  2001** |   |
|---------------------------------------------------------------|--------|------------------------------------------------------------|--------------|-----------------------------------------------------------|--------|
| Balance-beginning of  period                                  |   | $                                                          |  16,069 |                                                      | $      |  13,421 |   |
| Allowance recorded in  connection with purchase of loan pools |   | 2,462                                                      |         | 6,090                                                     |   |
| Provision for loan losses                                     |   | 83                                                         |         | 253                                                       |   |
| Loans charged off, net of  recoveries                         |   | (725                                                       | )            | (1,875                                                    | )      |
|                                                          |   |                                                       |         |                                                      |   |
| Balance-end of period                                         |   | $                                                          |  17,889 |                                                      | $      |  17,889 |   |

 

**5.          BORROWINGS**

             AtSeptember 30, 2001, NetBank’s borrowings consisted of various advances from theFederal Home Loan Bank (“FHLB”), a warehouse line from the FHLB related toMarket Street, a reverse repurchase agreement and the remaining principaloutstanding from our convertible subordinated notes (the “Notes”).   All of the FHLB advances are fixed rate;however, six advances totaling $180,000,000 may be converted to adjustable ratebased on the three month floating LIBOR. The FHLB warehouse line is a $250,000,000 adjustable line of credit witha floating rate based on the federal funds rate plus 50 basis points used tofund mortgages originated by Market Street. Allof NetBank’s borrowings are secured by NetBank's investment securities ormortgage loans except for the Notes, which are unsecured.

A summary of borrowings, grouped by yearof maturity, as of September 30, 2001 follows (in 000’s):
| **Type of Borrowing**                   |   | **Year of Maturity** |   | **Range of Stated****Interest Rates** |   | **Principal Amount** |    |
|-----------------------------------------|--------|----------------------|--------|---------------------------------------|--------|----------------------|---------|
| Overnight reverse  repurchase agreement |   | 2001                 |   | 3.96                                  | %      | $                    | 50,000  |   |
| FHLB advances                           |   | 2001                 |   | 6.47                                  | %      | 44,000               |    |
| FHLB advances                           |   | 2003                 |   | 6.88-7.17                             | %      | 60,000               |    |
| Convertible subordinated  notes         |   | 2004                 |   | 4.75                                  | %      | 27,316               |    |
| FHLB advances                           |   | 2004                 |   | 5.92-6.03                             | %      | 105,000              |    |
| FHLB advances                           |   | 2005                 |   | 6.02-7.41                             | %      | 150,000              |    |
| FHLB advances                           |   | 2006                 |   | 5.63                                  | %      | 100,000              |    |
| FHLB advances                           |   | 2007                 |   | 7.50                                  | %      | 25,000               |    |
| FHLB advances                           |   | 2009                 |   | 4.64                                  | %      | 25,000               |    |
| FHLB advances                           |   | 2003                 |   | 4.67                                  | %      | 50,000               |    |
| FHLB advances                           |   | 2004                 |   | 5.11-5.12                             | %      | 50,000               |    |
| FHLB warehouse line                     |   | Various              |   | 3.5                                   | %      | 93,817               |    |
|                                    |   |                 |   | Total                                 |   | 780,133              |    |
|                                    |   |                 |   | Less unamortized discount             |   | 435                  |    |
|                                    |   |                 |   | Total debt                            |   | $                    | 779,698 |   |

**6.          NET INCOME PER COMMON AND COMMONEQUIVALENT SHARE**

             Basicand diluted net income per common and potential common share have beencalculated based on the weighted average number of shares outstanding. Thefollowing schedule reconciles the numerator and denominator of the basic anddiluted net income per common and potential common shares (in 000's except pershare amounts). The effect of convertible debt securities outstanding has notbeen included as the assumed conversion of such securities would be anti–dilutiveto earnings per share for the three and nine months ended September 30, 2000and 2001.
|                                                                  |   | **Net****Income(Numerator)** |   | **Shares****(Denominator)** |   | **Per Share  Amount** |   |
|-----------------------------------------------------------------------|--------|------------------------------|--------|-----------------------------|--------|-----------------------|--------|
|                                                                  |   |                         |   | **2001**                    |   |                  |   |
| Three Months Ended  September 30:                                     |   |                         |   |                        |   |                  |   |
| Basic EPS                                                             |   | $                            | 2,148  |                        | 30,182 |                  | $      | 0.07 |   |
| Effect of dilutive  securities–options to purchase common shares |   |                         |   | 529                         |   |                  |   |
| Diluted EPS                                                           |   | $                            | 2,148  |                        | 30,711 |                  | $      | 0.07 |   |
|                                                                  |   |                         |   |                        |   |                  |   |
| Nine Months Ended  September 30:                                      |   |                         |   |                        |   |                  |   |
| Basic EPS                                                             |   | $                            | 3,725  |                        | 29,214 |                  | $      | 0.13 |   |
| Effect of dilutive  securities–options to purchase common shares |   |                         |   | 563                         |   |                  |   |
| Diluted EPS                                                           |   | $                            | 3,725  |                        | 29,777 |                  | $      | 0.13 |   |

 
|                                                                  |   | **Net  Income  (Numerator)** |   | **Shares  (Denominator)** |   | **Per Share****Amount** |   |
|-----------------------------------------------------------------------|--------|------------------------------|--------|---------------------------|--------|-------------------------|--------|
|                                                                  |   |                         |   | **2000**                  |   |                    |   |
| Three Months Ended  September 30:                                     |   |                         |   |                      |   |                    |   |
| Basic EPS                                                             |   | $                            | 721    |                      | 29,672 |                    | $      | 0.02 |   |
| Effect of dilutive  securities–options to purchase common shares |   |                         |   | 854                       |   |                    |   |
| Diluted EPS                                                           |   | $                            | 721    |                      | 30,526 |                    | $      | 0.02 |   |
| Nine Months Ended  September 30:                                      |   |                         |   |                      |   |                    |   |
| Basic EPS                                                             |   | $                            | 7,553  |                      | 29,706 |                    | $      | 0.25 |   |
| Effect of dilutive  securities–options to purchase common shares |   |                         |   | 946                       |   |                    |   |
| Diluted EPS                                                           |   | $                            | 7,553  |                      | 30,652 |                    | $      | 0.25 |   |

**7.          SHAREHOLDERS' EQUITY**

             Inconjunction with a stock repurchase program announced during the year endedDecember 31, 2000, NetBank continued acquiring shares of its common stockduring the three months ended September 30, 2001. NetBank purchased 827,700 and1,391,265 shares of its common stock during the three and nine months endedSeptember 30, 2001, respectively, at an aggregate cost of $6,178,000 and$10,612,000, respectively, bringing the total number of shares held in treasuryto 2,317,765, at an aggregate cost of $18,220,000.

**8.          DERIVATIVES**

             NetBankenters into forward delivery commitments through its wholly-owned subsidiary,Market Street, to protect against changes in the fair value of Market Street’sshort-term commitments to fund mortgage loan applications in process (“thepipeline”) and mortgage loans held for sale (“the warehouse”) due tofluctuations in interest rates.  Theseforward commitments are designated as fair value hedges under SFAS No. 133,“Accounting for Derivative Instruments and Hedging Activities”.  As such, these forward commitments arerecorded at fair value on the balance sheet. NetBank is generally not exposed to significant losses nor does itexpect to realize significant gains related to the pipeline or warehouse due tochanges in interest rates, net of gains or losses on related hedge positions.

**9.          BUSINESSSEGMENTS**

             NetBank,Inc. principal 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 mortgage lending segment, which was acquired on June 29, 2001,primarily originates first mortgage loans and packaged pools of such loans forsale into the secondary market.  Thefinancial information for each business segment reflects specific identifiabletransactions or allocated transactions based on an internal allocation method.The measurement of the performance of the business segments is based on themanagement structure of NetBank, Inc. and is not necessarily comparable withsimilar information from any other financial institution. The informationpresented is also not necessarily indicative of the segment’s operations ifthey were independent entities.
|                                         |   | **Banking**             |            | **Mortgage**            |   | **Eliminations** |   | **Consolidated** |     | **Banking** |   | **Mortgage** |         |
|----------------------------------------------|--------|-------------------------|-----------------|-------------------------|--------|------------------|--------|------------------|----------|-------------|--------|--------------|--------------|
|                                         |   | **Three months Ended**  |            | **Nine months Ended**   |   |
|                                         |   | **September  30, 2001** |            | **September  30, 2001** |   |
| Net interest income                          |   | $                       |  11,362    |                    | $      |  1,419      |   |             |     |        |   | $            |  32,935 |   | $ |  1,419 |   |
| Non-interest income                          |   | $                       |  4,179     |                    | $      |  14,153     |   |             |     |        |   | $            |  10,176 |   | $ |  14,153 |   |
| Non-interest expense                         |   | $                       |  12,597    |                    | $      |  14,969     |   |             |     |        |   | $            |  37,455 |   | $ |  14,969 |   |
| Provision for loan losses                    |   | $                       |  76        |                    | $      |  7          |   |             |     |        |   | $            |  246    |   | $ |  7 |   |
| Income before taxes and  extraordinary items |   | $                       |  2,867     |                    | $      |  597        |   |             |     |        |   | $            |  5,411  |   | $ |  597 |   |
| Total assets                                 |   | $                       |  2,321,226 |                    | $      |  278,125    |   | $                | (114,907 | )           | $      | 2,484,444    |         |   |   |   |   |
|                                              |        |                         |                 |                         |        |                  |        |                  |          |             |        |              |              |  |  |  |  |  |  |

 

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

             *Some of thestatements in this report are forward–looking statements. Forward–lookingstatements include statements regarding the intent, belief or currentexpectations of NetBank or its officers and directors  and can be identified by the use of forward–looking termssuch 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 our prospectus dated June 3, 1999 contains additional details on theseand other 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 that wholly owns the outstandingstock of NetBank, FSB, its wholly owned subsidiary, Market Street MortgageCorporation (“Market Street”), and NB Partners, Inc. (“NB Partners”) and itswholly owned subsidiary NetBank Partners, LLC (“NetBank Partners”), jointly (“NetBank”).  NetBank, FSB is a federal savings bank andits subsidiary, Market Street is a mortgage company which was acquired on June29, 2001.  NB Partners and NetBankPartners are both involved in strategic partnering opportunities.  As ofSeptember 30, 2001, NetBank had 232,000 accounts and $1.3 billion in deposits.

             *FinancialCondition-*Our assets were $ 2.5 billion at September 30, 2001compared to $1.8 billion at December 31, 2000. The increase of$641.8 million from December 31, 2000 to September 30, 2001 wasprimarily the result of the acquisition of Market Street which added loans heldfor sale of $232.6 million and the net change in securities available for saleof $318.8 million offset by a decrease in NetBank’s loan portfolio of $14.0million.  During the second quarter of2001, management postponed regularly scheduled acquisitions of loan pools toaccumulate cash for Market Street’s funding needs.  Since the acquisition of Market Street on June 29, 2001, NetBankhas supplied an average of $107.9 million of Market Street’s funding needs inthe form of an intercompany line of credit. The remaining portion of Market Street’s funding is provided by a $250million warehouse line of credit with the Federal Home Loan Bank ofAtlanta.  During the three months endedSeptember 30, 2001, NetBank’s deposits grew $119.0 million and other borrowedfunds increased approximately $143.0 million which allowed us to resume anormal schedule of bulk loan pool purchases for the quarter.  However, due to scheduled paydowns as wellas higher prepayment activity as a result of refinancing activity related tothe declining rate environment, overall loan balances have decreased $14.0million compared to December 31, 2000. Conversely, Market Street’s originations have been stronger thananticipated due to the increased refinancing activity during the three monthsended September 30, 2001.

             Inaddition, during the nine months ended September 30, 2001, goodwill of $20.0million, including transaction costs, was recorded as a result of acquiringMarket Street.  Other assets increased$15.6 million primarily due to the addition of Market Street’s other assets aswell as  $6.9 million in core depositintangible and related conversion costs recorded in conjunction with theCompubank transaction.  Due fromservicers increased $24.0 million due to timing differences in remittances  from outside servicers of our loanportfolio.  Customer deposits increased$286.1 million from internal growth which remains strong due to competitiverates offered on our deposit products as well as focused cross-sell effortsaimed at increasing average balances combined with focused marketing campaignseither on-line or through affinity programs. In addition, deposits increased by $75.7 million during the three months ended March 31, 2001 due to thepurchase of 50,000 customer deposit accounts from Compubank.

             Totalliabilities increased $628.5 million to $2.2 billion at September 30, 2001 from$1.6 billion at December 31, 2000 primarily due to the growth of ourdeposit portfolio internally of $286.1 million and an additional  $75.7 million increase due to 50,000accounts acquired from Compubank.  Otherborrowed funds increased $188.6 million due to the addition of Market Street’swarehouse line with the FHLB and the addition of five new advances to NetBankfrom the FHLB totaling $200 million, offset by the repayment of four advancestotaling $120 million to the FHLB. During the nine months ended September 30, 2001, NetBank entered intoreverse repurchase agreements totaling $984.9 million and repaid reverserepurchase agreements totaling $ 934.9 million.   In addition the liability related to Market Street’s loans inprocess at period end totaled $55.2 million at September 30, 2001.

             Totalshareholders' equity increased $13.2 million from December 31, 2000to September 30, 2001 primarily due to $15.1 million of capital paid in as aresult of 1,689,000 shares of stock issued in conjunction with the MarketStreet transaction offset by the repurchase of 1,391,265 shares of our commonstock for treasury at an aggregate cost of $10.6 million.  The repurchases were part of a program begunduring 2000 that authorized NetBank to purchase up to 1,000,000 common sharesfrom time to time on the open market at price levels NetBank deems attractive.During the nine months ended September 30, 2001, NetBank’s Board of Directorsauthorized an additional 2,000,000 common shares for repurchase under theprogram.  In addition, shareholders’equity further increased due to the addition of earnings for the nine monthsended September 30, 2001 of $3.7 million and an increase in unrealized gains onour securities portfolio of $4.7 million, net of tax.

             *Liquidity and Capital Resources *NetBank'sliquidity, represented by cash and cash equivalents, is a product of itsoperating, investing, and financial activities. NetBank's primary sources offunds are deposits, borrowings, prepayments and maturities of outstandingloans, sales of loans, maturities of investment securities and other short-terminvestments, and funds provided from operations. While scheduled loan paymentsand maturing investment securities and short-term investments are relativelypredictable sources of funds, deposit flows and loan prepayments are greatlyinfluenced by general interest rates, economic conditions, and competition.NetBank invests excess funds in overnight deposits and other short-terminterest–earning assets. NetBank can use cash generated through theretail deposit market, its traditional funding source, to offset the cashutilized in investing activities. NetBank's available for sale securities andshort-term interest–earning assets can also be used to provide liquidityfor lending and other operational requirements. As an additional source offunds, NetBank had availability under existing line of credit agreementstotaling $587 million at September 30, 2001.

             NetBankis required by Office of Thrift Supervision regulations to maintain tangiblecapital equal to at least 1.5% of tangible assets, core capital equal to atleast 3.0% of tangible assets, and total capital equal to at least 8.0% ofrisk-weighted assets. To be categorized as "well capitalized" under aprompt corrective action plan, NetBank must maintain minimum Tier I, core, andtotal capital ratios of at least 6%, 5%, and 10%, respectively. NetBankexceeded such requirements with Tier I, core and total capital ratios of   14.7%, 8.69%, and 15.84%,  respectively, at September 30, 2001.

**InterestRate 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'sinterest rate spread will be affected by changes in interest rates. A gap isconsidered positive when the amount of interest-rate sensitive assets exceedsthe amount of interest-rate sensitive liabilities and is considered negative whenthe amount of interest-rate sensitive liabilities exceeds the amount ofinterest-rate sensitive assets. In a rising interest rate environment, aninstitution with a positive gap would be in a better position than aninstitution with a negative gap to invest in higher yielding assets or have itsasset yields adjusted upward, which would result in the yield on its assetsincreasing at a faster pace than the cost of its interest–bearingliabilities. During a period of falling interest rates, however, an institutionwith a positive gap would tend to have its assets maturing at a faster ratethan one with a negative gap, which would tend to reduce or restrain the growthof its net interest income.

             The following table sets forth the interest ratesensitivity of our assets and liabilities as of September 30, 2001 (in 000's):
|                                                                            |   | **Less Than****ThreeMonths**                   |    | **Over Three****MonthsThrough  One Year** |   | **Over One  Year****ThroughFive Years** |   | **Over Five  Years And****Insensitive** |    | **Total** |   |
|---------------------------------------------------------------------------------|--------|------------------------------------------------|---------|-------------------------------------------|--------|-----------------------------------------|--------|-----------------------------------------|---------|-----------|--------|
|                                                                            |   | **Term to Repricing, Repayment, or  Maturity** |    |
| Interest–Earning  Assets:                                                  |   |                                           |    |                                      |   |                                    |   |                                    |    |      |   |
| Cash and cash equivalents                                                       |   | $                                              | 10,092  |                                      | $      | -                                       |   | $                                       | -       |      | $      | - |   | $ | 10,092 |   |
| Federal funds sold                                                              |   |                                           | 31,499  |                                      | -      |                                    | -      |                                    | -       |      |   | 31,499 |   |
| Investment securities                                                           |   |                                           | 122,571 |                                      |   | 121,036                                 |   |                                    | 372,116 |      |   | 91,946 |   |   | 707,669 |   |
| Stock of Federal Home  Loan Bank of Atlanta                                     |   |                                           | 36,141  |                                      | -      |                                    | -      |                                    | -       |      |   | 36,141 |   |
| Loans held for sale                                                             |   |                                           | 232,633 |                                      | -      |                                    | -      |                                    | -       |      |   | 232,633 |   |
| Loans receivable                                                                |   |                                           | 371,637 |                                      |   | 346,572                                 |   |                                    | 551,131 |      |   | 80,430 |   |   | 1,349,770 |   |
| Total interest–earning  assets:                                            |   |                                           | 804,573 |                                      |   | 467,608                                 |   |                                    | 923,247 |      |   | 172,376 |   |   | 2,367,804 |   |
| Non interest–earning  assets                                               |   | -                                              |    | -                                         |   | -                                       |   |                                    | 116,640 |      |   | 116,640 |   |
|                                                                            |   |                                           |    |                                      |   |                                    |   |                                    |    |      |   |
| Total assets                                                                    |   | $                                              | 804,573 |                                      | $      | 467,608                                 |   | $                                       | 923,247 |      | $      | 289,016 |   | $ | 2,484,444 |   |
|                                                                            |   |                                           |    |                                      |   |                                    |   |                                    |    |      |   |
| Interest–Bearing  Liabilities:                                             |   |                                           |    |                                      |   |                                    |   |                                    |    |      |   |
| Interest–bearing  deposits                                                 |   | $                                              | 337,947 |                                      | $      | 774,070                                 |   | $                                       | 68,994  |      | $      | 123,969 |   | $ | 1,304,980 |   |
| Convertible subordinated  debt                                                  |   |                                           | -       | -                                         |   |                                    | 26,881 |                                    | -       |      |   | 26,881 |   |
| Other borrowed funds                                                            |   |                                           | 187,817 |                                      |   | 20,000                                  |   |                                    | 495,000 |      |   | 50,000 |   |   | 752,817 |   |
| Total interest–bearing  liabilities:                                       |   |                                           | 525,765 |                                      |   | 794,070                                 |   |                                    | 590,875 |      |   | 173,969 |   |   | 2,084,676 |   |
| Interest–free  deposits                                                    |   | -                                              |    | -                                         |   | -                                       |   |                                    | 37,559  |      |   | 37,559 |   |
| Other interest–free  liabilities and equity                                |   | -                                              |    | -                                         |   | -                                       |   |                                    | 362,207 |      |   | 362,207 |   |
| Total liabilities and  equity                                                   |   | $                                              | 525,764 |                                      | $      | 794,070                                 |   | $                                       | 590,875 |      | $      | 573,735 |   | $ | 2,484,444 |   |
|                                                                            |   |                                           |    |                                      |   |                                    |   |                                    |    |      |   |
| Net interest rate  sensitivity gap                                              |   | $                                              | 278,809 |                                      | $      | (326,462                                | )      | $                                       | 332,372 |      | $      | (1,593 | ) | $ | 283,126 |   |
| Cumulative gap                                                                  |   | $                                              | 278,809 |                                      | $      | (47,653                                 | )      | $                                       | 284,719 |      | $      | 283,126 |   | - |   |
| Net interest rate  sensitivity gap as a percent of interest–earning assets |   | 34.65                                          | %       | -69.82                                    | %      | 36.00                                   | %      | -0.92                                   | %       | 11.96     | %      |
| Cumulative gap as a  percent of cumulative interest–earning assets         |   | 34.65                                          | %       | -3.75                                     | %      | 12.97                                   | %      | 11.96                                   | %       | 0.00      | %      |
|                                                                                 |        |                                                |         |                                           |        |                                         |        |                                         |         |           |        |  |  |  |  |  |  |  |

**MarketRisk**

             Ourprincipal business is the originating and purchasing of loans funded bycustomer deposits and, to the extent necessary, other borrowed funds.Consequently, a significant portion of our assets and liabilities are monetaryin nature and fluctuations in interest rates, specifically the prime rate, willaffect our future net interest income and cash flows. This interest rate riskis our primary market risk exposure. The only derivative financial instrumentsthat we enter into are short-term forward commitments related to loanoriginations at our mortgage origination subsidiary, Market Street . We have nomarket risk-sensitive instruments held for trading purposes. Our exposure tomarket risk is reviewed on a regular basis by our management.

             NetBank,FSB measures interest rate risk based on Net Portfolio Value ("NPV")analysis. NPV equals the present value of expected net cash flows from existingassets minus the present value of expected net cash flows from existingliabilities. An NPV ratio is determined by dividing NPV by the present value ofassets. The board of directors manages NetBank FSB's interest rate risk byestablishing limits for the minimum acceptable NPV ratio over a series ofhypothetical interest rate scenarios or "rate shocks". As ofSeptember 30, 2001, NetBank FSB's estimated NPV ratios were within theseboard-approved limits. The following table sets forth the estimated percentagechange in NetBank FSB's NPV ratio as of September 30, 2001 assuming rate shocksof +300 to -300 basis points:

**Limits and Current NPV Ratios**

| **Rate Shock****(in basis points)** |   | **Board Limits****(MinimumNPV Ratios)** |   | **Estimated****9/30/01NPV Ratios** |   |
|-------------------------------------|--------|-----------------------------------------|--------|------------------------------------|--------|
| +300                                |   | 4.0                                     | %      | 7.34                               | %      |
| +200                                |   | 6.0                                     | %      | 8.34                               | %      |
| +100                                |   | 6.0                                     | %      | 9.21                               | %      |
| Flat                                |   | 6.0                                     | %      | 9.98                               | %      |
| -100                                |   | 6.0                                     | %      | 9.65                               | %      |
| -200                                |   | 6.0                                     | %      | 9.11                               | %      |
| -300                                |   | 6.0                                     | %      | 8.78                               | %      |

             Computationof prospective effects of hypothetical rate changes is based on manyassumptions, including relative levels of market interest rates, loanprepayments and deposit decay. They should not be relied upon as indicative ofactual results. Further, the computations do not contemplate certain actionsmanagement could undertake in response to changes in interest rates.

*InvestmentSecurities.*  The following tables set forth certaininformation relating to our available-for-sale securities at September 30,2001 and December 31, 2000:
|                                 |   | **Amortized****Cost**  |    | **Unrealized****Gains** |   | **Unrealized  Losses** |   | **Estimated  Fair****Value** |   |
|--------------------------------------|--------|------------------------|---------|-------------------------|--------|------------------------|--------|------------------------------|--------|
|                                 |   | **Gross**              |    |
|                                 |   | **September 30, 2001** |    |
| Mortgage pool securities             |   | $                      | 374,223 |                    | $      | 4,023                  |   | $                            | -      |   | $ | 378,246 |   |
| Collateralized mortgage  obligations |   | 203,263                |    | 2,065                   |   | 195                    |   | 205,133                      |   |
| U.S. government agencies             |   | 107,380                |    | 1,312                   |   | 46                     |   | 108,646                      |   |
| Corporate bonds                      |   | 9,662                  |    | -                       |   | 387                    |   | 9,275                        |   |
| Habitat bonds and other              |   | 6,229                  |    | 140                     |   | -                      |   | 6,369                        |   |
|                                 |   |                   |    |                    |   |                   |   |                         |   |
| Total                                |   | $                      | 700,757 |                    | $      | 7,540                  |   | $                            | 628    |   | $ | 707,669 |   |
|                                      |        |                        |         |                         |        |                        |        |                              |        |  |  |  |  |  |

 
|                                 |   | **Amortized****Cost** |    | **Unrealized****Gains** |   | **Unrealized****Losses** |   | **Estimated  Fair****Value** |   |
|--------------------------------------|--------|-----------------------|---------|-------------------------|--------|--------------------------|--------|------------------------------|--------|
|                                 |   | **Gross**             |    |
|                                 |   | **December 31, 2000** |    |
| Mortgage pool securities             |   | $                     | 1,221   |                    | $      | 12                       |   | $                            | -      |   | $ | 1,233 |   |
| Collateralized mortgage  obligations |   | 212,487               |    | 1,298                   |   | 1,579                    |   | 212,206                      |   |
| Unites States government  agencies   |   | 162,370               |    | -                       |   | 284                      |   | 162,086                      |   |
| Corporate bonds                      |   | 9,652                 |    | 26                      |   | 6                        |   | 9,672                        |   |
| Habitat bonds and other              |   | 3,713                 |    | -                       |   | -                        |   | 3,713                        |   |
|                                 |   |                  |    |                    |   |                     |   |                         |   |
|                                 |   | $                     | 389,443 |                    | $      | 1,336                    |   | $                            | 1,869  |   | $ | 388,910 |   |

*LoanPortfolio Composition.*  The following table sets forth thecomposition of our loan portfolio, including loans receivable held for sale, bytype of loan as of June 30, 2001 and December 31, 2000:
|                                 |   | **September 30,****2001** |      | **December 31,****2000** |   |
|--------------------------------------|--------|---------------------------|-----------|--------------------------|--------|
| Residential mortgages                |   | $                         | 874,106   |                     | 54.6   | % | $ | 863,340 |   | 62.7 | % |
| Commercial mortgages                 |   | 236,624                   |      | 14.8                     |   | 160,510 |   | 11.7 |   |
| Residential mortgages  held for sale |   | 188,553                   |      | 11.8                     |   | - |   | - |   |
| Home equity lines                    |   | 164,253                   |      | 10.3                     |   | 243,657 |   | 17.7 |   |
| Leases                               |   | 88,125                    |      | 5.5                      |   | 104,743 |   | 7.6 |   |
| Construction held for  sale          |   | 44,090                    |      | 2.8                      |   | - |   | - |   |
| Consumer                             |   | 4,062                     |      | 0.2                      |   | 2,404 |   | 0.1 |   |
| Construction                         |   | 168                       |      | -                        |   | 1,533 |   | 0.1 |   |
| Auto                                 |   | 311                       |      | -                        |   | 1,018 |   | 0.1 |   |
| Total                                |   | 1,600,292                 |      | 100.0                    | %      | 1,377,205 |   | 100.0 | % |
|                                 |   |                      |      |                     |   |   |   |   |   |
| Less allowance for loan  losses      |   | 17,889                    |      |                     |   | 13,421 |   |   |   |
| Total                                |   | $                         | 1,582,403 |                     |   |   | $ | 1,363,784 |   |   |   |

             *AssetQuality and Non-performing Assets-*As of September 30, 2001 andDecember 31, 2000 NetBank had $3.3 million and $1.0 million loans onnon-accrual status, which includes all loans past due 90 days ormore.  During the three months endedSeptember 30, 2001 and 2000, we had no restructured loans.  As of September 30, 2001 and December 31,2000, NetBank had $0.4 million and $0 in other real estate owned.

*Deposits.*  The followingtable sets forth the dollar amount of deposits and weighted average interestrates in the various types of deposit programs offered by us at September 30,2001 and December 31, 2000:
|                                    |   | **Amount**             |     | **Percentage**        |   | **Weighted  Average****InterestRate** |   | **Amount** |   | **Percentage** |   | **Weighted****Average  Interest  Rate** |   |
|-----------------------------------------|--------|------------------------|----------|-----------------------|--------|---------------------------------------|--------|------------|--------|----------------|--------|-----------------------------------------|--------|
|                                    |   | **September 30, 2001** |     | **December 31, 2000** |   |
| Non-interest bearing  checking accounts |   | $                      | 37,559   |                  | 2.8    | %                                     | N/A    |       | $      | 15,123         |   | 1.5                                     | %      | N/A |   |
| Interest bearing:                       |   |                   |     |                  |   |                                  |   |       |   |           |   |                                    |   |
| Checking accounts                       |   | 122,871                |     | 9.2                   |   | 2.1                                   | %      | 69,013     |   | 7.0            |   | 3.1                                     | %      |
| Money market                            |   | 422,035                |     | 31.4                  |   | 3.8                                   | %      | 268,005    |   | 27.3           |   | 6.0                                     | %      |
| Certificate of deposit  under $100,000  |   | 653,677                |     | 48.7                  |   | 5.4                                   | %      | 528,618    |   | 53.9           |   | 6.8                                     | %      |
| Certificate of deposit  over $100,000   |   | 106,397                |     | 7.9                   |   | 5.4                                   | %      | 99,993     |   | 10.3           |   | 6.8                                     | %      |
| Total deposits                          |   | $                      | 1,342539 |                  | 100.0  | %                                     |   |       | $      | 980,752        |   | 100.0                                   | %      |   |   |

 

**Results ofOperations**

*AsNetBank Partners had no operations during the six months ended June 30, 2001,the following discussion relates to the operations of NetBank,Market Street,NetBank Inc. and NB Partners collectively, unless the context indicatesotherwise.*

***Three Months EndedSeptember 30, 2001 Compared to Three Months Ended September 30, 2000***

*General.*  Income beforeincome taxes and extraordinary gain for the three months ended September 30,2001 amounted to $3.5 million, an increase of    $4.0 million compared to a $0.6 million loss for the threemonths ended September 30, 2000. The primary reasons for the increase were dueto higher net interest income of $3.7 million; higher non-interest income of$17.3 million; lower marketing expenditures of $1.7 million; and carefulmanagement of non-interest expenses. During the three months ended September 30, 2000, NetBank realized $1.1million in extraordinary gains in conjunction with a program to repurchase someof our convertible subordinated notes outstanding.  Those gains were “reinvested” in marketing programs, acceleratedproduct offerings, and related infrastructure. During the three months ended September 30, 2001, we spent less onmarketing and continued to carefully manage non-interest expense, while at thesame time supporting almost twice as many accounts as compared with the threemonths ended September 30, 2000.   Theincrease in accounts from 133,000 at September 30, 2000 to 232,000 at September30, 2001 was due to internal growth as well as the conversion of approximately50,000 former Compubank accounts during the three months ended June 30, 2001.The $17.3 million increase in non-interest income was partly driven by ouracquisition of Market Street on June 29, 2001 as well as new fee initiativesintroduced over the last twelve months.  As a result, overall net income also increased from $0.7 million to$2.1million for the three months ended September 30, 2001 as compared to thethree months ended September 30, 2000.

*InterestIncome.*  Interest income related to our loan andinvestment portfolio for the three months ended September 30, 2001 was $38.9million compared to $30.7 million for the three months ended September 30,2000. The increase in interest income was a result of the growth of our loanportfolio of $134 million from September 30, 2000 to September 30, 2001, offsetby an decrease in the average yield on loans from   7.8% for the three months ended September 30, 2000 to 7.5% forthe three months ended September 30, 2001 as rates on our adjustable portfoliorepriced downward and prepayments accelerated in the declining rateenvironment.  In addition, theinvestment portfolio increased from $427.0 million at September 30, 2000to $743.8 million as of September 30, 2001. The yield on the investment portfolio also declined from 7.3% for thethree months ended September 30, 2000 to 6.4% for the three months endedSeptember 30, 2001 due to a declining rate environment.

*InterestExpense.*  For the three months ended September 30,2001, $15.2 million in interest expense on deposits was recorded compared to$13.4 million for the three months ended September 30, 2000 as a result ofour increase in customer deposits from $909.3 million at September 30,2000 to $1.3 billion at September 30, 2001. That increase was offset by adecrease in the average interest rate paid on deposits from 6.1% for the threemonths ended September 30, 2000 to 4.7% for the three months ended September30, 2001. Interest expense associated with other borrowed funds increased $2.8million from $8.2 million for the three months ended September 30, 2000 to$11.0 million for the three months ended September 30, 2001 due to the additionof several new advances from the FHLB including the Market Street warehouseline, offset by a decrease in interest expense related to our convertiblesubordinated notes which we began repurchasing during the three months endedMarch 31, 2000 and lower rates on our FHLB advances.

*NetInterest 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 $12.8 million, or2.1% of average interest earning assets for the three months ended September30, 2001 compared to $9.1 million, or 2.3% of average interest earning assets for the three months endedSeptember 30, 2000. The increase in net interest income resulted from theincrease in the amount of loans and deposits from September 30, 2000 toSeptember 30, 2001. The decrease in interest margin was the result of lowerloan and investment yields as rates continued to fall during the three monthsended September 30, 2001.

*Provisionfor Loan Losses.*  In connection with the purchase of loanportfolios, we assess the inherent loss in the portfolios and record thenecessary allowance by adjusting the premium associated with each portfolio.During the three months ended September 30, 2001, we recorded $2.5 million asan addition to premiums related to allowance for loan losses for loanspurchased during the quarter. In addition, we also recorded a provision forloan losses of $0.1 million primarily related to a decline in credit qualityassociated with two specific pools of high loan-to-value fixed secondmortgages. This compares to a net recovery of $11,000 recorded during the threemonths ended September 30, 2000. We periodically review the performance of ourloan portfolio by reviewing chargeoffs, delinquency statistics, and industrystatistics on a pool-by-pool basis for our purchased portfolio and aloan-by-loan basis for our originated loans. If a decline in credit quality fora specific pool or a loan is noted, we record an additional allowance through acharge to the provision for loan losses. The allowance for loan losses ismaintained at a level estimated to be adequate to provide for probable lossesin the loan portfolio. We determine the adequacy of the allowance based uponreviews of individual loans, recent loss experience, current economicconditions, the risk characteristics of the various categories of loans andother pertinent factors.

*Non-interestIncome.*  For the three months ended September 30,2001, we recorded approximately $18.3 million in non-interest income comparedto $1.0 million recorded during the three months ended September 30, 2000.   Deposit and loan fees accounted for $13.4million, or 73% of the $18.3 million in non-interest income recorded during thethree months ended September 30, 2000. Of the $13.4 million in fee income recognized during the quarter, $3.2million was the result of the introduction of new fees on customer depositaccounts over the last twelve months. In addition, Market Street contributed approximately $10.2 million infee income related to loan origination and other fees.  Market Street also recognized $3.9 millionas gain on sale of mortgage loans and servicing rights and NetBank recognized$1.0 million on gains of sales of securities during the three months endedSeptember 30, 2001.  NB Partners, asubsidiary of NetBank, Inc. recognized $0.1 million inlicensing fee revenue.

*Non-interestExpenses.*  Non-interest expenses include all operatingexpenses including salaries and benefits, marketing, general and administrativeexpenses (excluding interest expense, provision for loan losses and incometaxes). Non-interest expense increased $16.8 million for the three months endedSeptember 30, 2001 as compared with the three months ended September 30, 2000as Market Street’s non-interest expense was reflected for the first time sincethey were acquired on June 29, 2001. This increase accounted for $15.0 million of the $16.8 million increasein non interest expense for the three months ended September 30, 2001 ascompared with the three months ended September 30, 2000.  The remaining $1.8 million increase was dueto the increased costs of supporting almost twice as many customers as thenumber of accounts increased from 133,000 at September 30, 2000 to 232,000 atSeptember 30, 2001. Non-interest expense as a percentage of average assets forNetBank exclusive of Market Street was 2.29%, the lowest since September1999.  Salaries and benefits, officeexpenses, occupancy, and other increased primarily due to the addition ofMarket Street.  Customer service anddata processing increased due to variable expenses associated with the additionof new customer accounts. Customer service was also impacted by larger cashitem losses during the three months ended September 30, 2001 than thoseincurred during the three months ended September 30, 2000 due to the increasedsize of the deposit portfolio. Depreciation and amortization increased due to larger amortizationexpense associated with larger capitalized software costs as compared with thebalance at September 30, 2000. Marketing expenditures returned to a more normalized amount as comparedwith the same period last year when we had substantially increased ourmarketing expenditures in conjunction with the recognition of an extraordinarygain on the early extinguishment of debt.

***Nine Months EndedSeptember 30, 2001 Compared to Nine Months Ended September 30, 2000***

*General.* Income before income taxes and extraordinary gain forthe nine months ended September 30, 2001 amounted to $6.0 million, an increaseof $7.0 million compared to a $1.0 million loss for the nine months endedSeptember 30, 2000. The primary reason for the increase was due to higher netinterest income of $7.5 million; higher non-interest income of $22.4 million,partly driven by our acquisition of Market Street on June 29, 2001 as well asnew fee initiatives introduced over the last twelve months; lower marketingexpenditures of $5.9 million; and careful management of non-interestexpenses.  During the nine months endedSeptember 30, 2000, NetBank realized $8.2 million in extraordinary gains inconjunction with a program to repurchase some of our convertible subordinatednotes outstanding.  Those gains were“reinvested” in marketing programs, accelerated product offerings, and relatedinfrastructure.  During the nine monthsended September 30, 2001, we spent less on marketing and continued to carefullymanage non-interest expense, while at the same time supporting almost twice asmany accounts as compared with the nine months ended September 30, 2000. Theincrease in accounts from 133,000 at September 30, 2000 to 232,000 at September30, 2001 was due to internal growth as well as the conversion of approximately50,000 former Compubank accounts during the three months ended March 31,2001.  Net income decreased from $7.6 millionto $3.7 million for the nine months ended September 30, 2001 as compared to thenine months ended September 30, 2000 because of the non-recurring extraordinarygains recognized during 2000.

*InterestIncome.*  Interest income related to our loan andinvestment portfolio for the nine months ended September 30, 2001 was$109.5   million compared to$81.4 million for the nine months ended September 30, 2000. Theincrease in interest income was a result of the growth of our loan portfolio of$366.8 million from September 30, 2000 to September 30, 2001,compounded by an increase in the average yield on loans from 7.2% for the ninemonths ended September 30, 2000 to 8.0% for the nine months endedSeptember 30, 2001 as the allowance for loan losses was adjusted due tothe accleration of loan prepayments in a declining rate environment. Inaddition, the investment portfolio increased from $404.0 million atSeptember 30, 2000 to $707.7 million at September 30, 2001.  The yield on the investment portfolio was7.2% for both the nine months ended September 30, 2001 and the nine monthsended September 30, 2000.

*InterestExpense.*  For the nine months ended September 30,2001, $45.8 million in interest expense on deposits was recorded compared to$33.9 million for the nine months ended September 30, 2000 as aresult of our increase in customer deposits from $909.3 million atSeptember 30, 2000 to $1.3 billion at September 30, 2001. The averageinterest rate paid on deposits decreased from 5.9% for the nine months endedSeptember 30, 2000 to 5.3% for the nine months ended September 30,2001. Interest expense associated with other borrowed funds increased$8.7 million from $20.6 million for the nine months endedSeptember 30, 2000 to $29.3 million for the nine months endedSeptember 30, 2001 due to the addition of several new advances from theFHLB offset by a decrease in interest expense related to our convertiblesubordinated notes which we began repurchasing during the three months endedMarch 31, 2000 and lower rates on our FHLB advances.

*NetInterest 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 $34.4 million,or 2.3% of average interest earning assets for the nine months ended September30, 2001 compared to $26.9 million, or 2.5% of average interest earningassets for the nine months ended September 30, 2000. The increase in netinterest income resulted from the increase in the amount of loans and depositsfrom September 30, 2000 to September 30, 2001. The decrease in interest marginwas the result of the continued leveraging of capital and a change in the mixof interest-earning assets from 25% securities and 75% loans at September 30,2000 to 31% securities and 69% loans at September 30, 2001.

*Provisionfor Loan Losses.*  In connection with the purchase of loanportfolios, we assess the inherent loss in the portfolios and record thenecessary allowance by adjusting the premium associated with each portfolio.During the nine months ended September 30, 2001, we recorded $ 6.1 millionas an addition to premiums related to allowance for loan losses for loanspurchased during the period. In addition, we also recorded a provision for loanlosses of $0.3 million, comparable with the $0.3 million recordedduring the nine months ended September 30, 2000 related primarily tooriginated loans and declines in credit quality associated with two specificpools of fixed second mortgages and one specific pool of automobile loans. Weperiodically review the performance of our loan portfolio by reviewingchargeoffs, delinquency statistics, and industry statistics on a pool by poolbasis for our purchased portfolio and a loan by loan basis for our originatedloans. If a decline in credit quality for a specific pool or a loan is noted,we record an additional allowance through a charge to the provision for loanlosses. The allowance for loan losses is maintained at a level estimated to beadequate to provide for probable losses in the loan portfolio. We determine theadequacy of the allowance based upon reviews of individual loans, recent lossexperience, current economic conditions, the risk characteristics of thevarious categories of loans and other pertinent factors.

*Non–interestIncome.* For the nine months ended September 30, 2001,we recorded approximately $24.3 million in non-interest income compared to $1.9million recorded during the nine months ended September 30, 2000.   Deposit and loan fees accounted for $16.8million, or 69% of the $24.3 million in non-interest income recorded during thenine months ended September 30, 2000. Of the $16.8 million in fee income recognized during the quarter, $6.6million was the result of the introduction of new fees on customer depositaccounts over the last twelve months. In addition, Market Street contributed approximately $10.2 million infee income related to loan origination and other fees.  Market Street also recognized $3.9 millionas gain on sale of mortgage loans and servicing rights and NetBank recognized$1.9 million on gains of sales of securities during the three months endedSeptember 30, 2001.  NB Partners, asubsidiary of NetBank, Inc. recognized $0.2 millionin licensing fee revenue.

*Non–interestExpenses. *Non-interest expenses include all operating expensesincluding salaries and benefits, marketing, general and administrative expenses(excluding interest expense, provision for loan losses and income taxes).Non-interest expense increased $22.9 million for the nine months endedSeptember 30, 2001 as compared with the nine months ended September 30, 2000 asMarket Street’s non-interest expense was reflected for the first time sincethey were acquired on June 29, 2001. This increase accounted for $15.0 million of the $22.9 million increasein non-interest expense for the nine months ended September 30, 2001 as comparedwith the nine months ended September 30, 2000. The remaining $7.9 million increase was due to the increased costs ofsupporting almost twice as many customers as the number of accounts increasedfrom 133,000 at September 30, 2000 to 232,000 at September 30, 2001 as well asconverting 50,000 former Compubank customers during the three months ended June30, 2001.   Salaries and benefits,office expenses, occupancy, and other increased primarily due to the additionof Market Street.  Customer service anddata processing increased due to variable expenses associated with the additionof new customer accounts. Customer service was also impacted by larger cashitem losses during the nine months ended September 30, 2001 than those incurredduring the nine months ended September 30, 2000 due to the increased size ofthe deposit portfolio.  Depreciation andamortization increased due to larger amortization expense associated withlarger capitalized software costs as compared with the balance at September 30,2000.  Marketing expenditures returnedto a more normalized amount as compared with the same period last year when wehad substantially increased our marketing expenditures in conjunction with therecognition of an extraordinary gain on the early extinguishment of debt.

**EXHIBITS AND REPORTS ON FORM 8-K**

(a)         Exhibits

             None

(b)        Reports on Form 8-K

             (i)          Wefiled a Current Report on Form 8-K on July 13, 2001 reporting our acquisitionof Market Street.

             (ii)         An amendment to Current Report on Form8-K originally filed on July 13, 2001 was filed on September 13, 2001 whichincluded certain financial information related to our acquisition of MarketStreet.

**Part II. Item 2:**

On June 29, 2001, NetBank, Inc. paid $3.8 million in cashand issued 1,689,000 shares of common stock valued at $8.96 per share inconnection with its acquisition of Market Street as described in Note 2 to theNotes to Condensed Consolidated Financial Statements contained in this Reporton Form 10-Q and as more specifically described in its Current Reports on Form8-K filed on July 13, 2001 and September 13, 2001. The common stock was issuedto Republic Bancorp, Inc. in a private placement exempt from registrationpursuant to Rule 506 under Regulation D promulgated under the Securities Act of1933, as amended.

**SIGNATURE**

             Pursuantto the requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.
|   | NETBANK, INC. |
|--------|---------------|
|   | By:           | /s/ Laura P. Moon |
|   |          |   |
|   |          | Laura  P. Moon |
|   |          | *Chief Accounting Officer* |

Dated: November 14, 2001