##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, DC 20549
 FORM 10-QSB
  þ
    
    QUARTERLY REPORT UNDER SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For
the quarterly period ended June 30, 2006
 o
    
    TRANSITION REPORT UNDER SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission File No. 000-24043
 ebank Financial Services, Inc.
  Georgia
    
    58-2349097(State of Incorporation)
    
    (I.R.S. Employer Identification No.)
 2410 Paces Ferry Road, Suite 190, Atlanta, Georgia 30339
 (770) 863-9225
 Not Applicable
 þ o
 o þ
   o þ




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##### Table of Contents



ebank Financial Services, Inc. and Subsidiaries
CONDENSED CONSOLIDATED BALANCE SHEETS
 June 30,
    
    
    December 31,2006
    
    
    2005(Unaudited)
    
    
    (Audited)ASSETSCash and due from banks
    
    $
    1,124,183
    
    
    $
    660,307Interest-bearing deposits in banks
    
    
    567,422
    
    
    
    529,467Federal funds sold
    
    
    1,836,000
    
    
    
    5,189,000Cash and cash equivalents
    
    
    3,527,605
    
    
    
    6,378,774Securities available for sale
    
    
    28,073,430
    
    
    
    21,789,026Other securities
    
    
    433,800
    
    
    
    621,400Loans, net of allowance for loan losses of $550,209 and
$805,461, respectively
    
    
    90,232,170
    
    
    
    94,600,789Premises and equipment, net
    
    
    670,439
    
    
    
    406,495Accrued interest receivable and other assets
    
    
    2,942,680
    
    
    
    3,392,370Total assets
    
    $
    125,880,124
    
    
    $
    127,188,854LIABILITIES AND SHAREHOLDERS EQUITYLiabilities:Deposits
    
    $
    110,344,371
    
    
    $
    106,784,000Other borrowings
    
    
    4,000,000
    
    
    
    9,000,000Accrued interest payable and other liabilities
    
    
    290,701
    
    
    
    385,104Total liabilities
    
    
    114,635,072
    
    
    
    116,169,104Minority interest
    
    
    611,047
    
    
    
    Shareholders equity:Series A preferred stock, $.01 par value, 8% cumulative,
convertible into one share of common stock; 10,000,000
shares authorized;
2,300,912 and 2,316,912 issued and outstanding;
accumulated undeclared dividends of $1,535,622 and
$1,316,514 (liquidation preference of $5,752,280 and
$5,792,280 plus accumulated unpaid dividends)
    
    
    23,009
    
    
    
    23,169Common stock, $.01 par value, 10,000,000 shares authorized,
6,463,679 and 6,440,991 shares issued and outstanding
    
    
    64,637
    
    
    
    64,410Capital surplus
    
    
    23,366,922
    
    
    
    23,360,285Accumulated deficit
    
    
    (12,015,026
    )
    
    
    (11,963,855
    )Accumulated other comprehensive loss
    
    
    (805,537
    )
    
    
    (464,259
    )Total shareholders equity
    
    
    10,634,005
    
    
    
    11,019,750Total liabilities and shareholders equity
    
    $
    125,880,124
    
    
    $
    127,188,854
  2




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ebank Financial Services, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 For the three months ended
    
    
    For the six months endedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Interest income:Loans, including fees
    
    $
    1,931,429
    
    
    $
    1,833,847
    
    
    $
    3,867,267
    
    
    $
    3,352,769Interest-bearing deposits
    
    
    6,509
    
    
    
    679
    
    
    
    12,996
    
    
    
    1,064Investment securities
    
    
    412,895
    
    
    
    245,776
    
    
    
    757,498
    
    
    
    483,303Other investments
    
    
    6,885
    
    
    
    9,695
    
    
    
    18,746
    
    
    
    20,120Federal funds sold
    
    
    143,028
    
    
    
    101,458
    
    
    
    210,224
    
    
    
    127,548Total interest income
    
    
    2,500,746
    
    
    
    2,191,455
    
    
    
    4,866,731
    
    
    
    3,984,804Interest expense:Deposits
    
    
    1,201,767
    
    
    
    747,213
    
    
    
    2,219,619
    
    
    
    1,220,333Other borrowings
    
    
    48,444
    
    
    
    121,943
    
    
    
    122,639
    
    
    
    288,865Total interest expense
    
    
    1,250,211
    
    
    
    869,156
    
    
    
    2,342,258
    
    
    
    1,509,198Net interest income
    
    
    1,250,535
    
    
    
    1,322,299
    
    
    
    2,524,473
    
    
    
    2,475,606Provision for loan losses
    
    
    166,000
    
    
    
    38,000
    
    
    
    218,000
    
    
    
    65,000Net interest income after provision for loan losses
    
    
    1,084,535
    
    
    
    1,284,299
    
    
    
    2,306,473
    
    
    
    2,410,606Other income:Deposit fees
    
    
    22,587
    
    
    
    27,140
    
    
    
    58,384
    
    
    
    55,886Miscellaneous fees
    
    
    17,966
    
    
    
    22,896
    
    
    
    46,700
    
    
    
    27,932Total other income
    
    
    40,553
    
    
    
    50,036
    
    
    
    105,084
    
    
    
    83,818Other expense:Salaries and other compensation
    
    
    591,660
    
    
    
    471,886
    
    
    
    1,063,063
    
    
    
    895,810Employee benefits
    
    
    108,424
    
    
    
    99,618
    
    
    
    213,031
    
    
    
    185,558Net occupancy and equipment expense
    
    
    256,253
    
    
    
    185,814
    
    
    
    462,184
    
    
    
    365,005Professional and other outside services
    
    
    315,683
    
    
    
    176,480
    
    
    
    452,419
    
    
    
    302,963Other expense
    
    
    213,690
    
    
    
    134,723
    
    
    
    395,983
    
    
    
    263,694Total other expenses
    
    
    1,485,710
    
    
    
    1,068,521
    
    
    
    2,586,680
    
    
    
    2,013,030Minority interest
    
    
    123,953
    
    
    
    
    
    
    
    123,953
    
    
    
    Net earnings (loss)
    
    
    (236,669
    )
    
    
    265,814
    
    
    
    (51,170
    )
    
    
    481,394Preferred stock dividends paid during the
period upon conversion of shares of preferred
stock
    
    
    
    
    
    
    
    
    
    
    (9,696
    )
    
    
    (2,036
    )Preferred stock dividends
    
    
    (114,730
    )
    
    
    (118,141
    )
    
    
    (228,200
    )
    
    
    (234,984
    )Net earnings (loss) attributable to common
stockholders
    
    $
    (351,399
    )
    
    $
    147,673
    
    
    $
    (289,066
    )
    
    $
    244,374Basic and fully diluted earnings (loss) per common
share
    
    $
    (.05
    )
    
    $
    .02
    
    
    $
    (.04
    )
    
    $
    .04
  3




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ebank Financial Services, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
 For the six months endedJune 30,2006
    
    
    2005Net earnings (loss)
    
    $
    (51,170
    )
    
    $
    481,394Other comprehensive income:Unrealized (losses) gains on securities
available for sale:Holding gains (losses) arising during the period,
net of taxes of $(208,816) and $6,144, respectively.
    
    
    (341,278
    )
    
    
    10,041Comprehensive income (loss)
    
    $
    (392,448
    )
    
    $
    491,435
  4




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ebank Financial Services, Inc. and Subsidiaries
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 For the six months endedJune 30,2006
    
    
    2005Cash flows from operating activities:Net earnings (loss)
    
    $
    (51,170
    )
    
    $
    481,394Adjustments to reconcile net earnings (loss)
to net cash provided by operating activities:Minority interest
    
    
    (123,953
    )
    
    
    Loss on sale of real estate owned
    
    
    50,413
    
    
    
    Compensation expense related to stock options
    
    
    6,704
    
    
    
    Net amortization (accretion) of securities available for sale
    
    
    3,488
    
    
    
    4,448Depreciation expense
    
    
    92,423
    
    
    
    87,971Provision for loan losses
    
    
    218,000
    
    
    
    65,000Change in deferred loan fees and costs
    
    
    4,300
    
    
    
    41,075Change in other assets
    
    
    116,387
    
    
    
    7,299Change in accrued interest receivable
    
    
    (114,212
    )
    
    
    (104,060
    )Change in accrued interest payable
    
    
    13,499
    
    
    
    89,011Change in other liabilities
    
    
    (107,902
    )
    
    
    (15,541
    )Other operating activities
    
    
    (54,367
    )
    
    
    Net cash provided by operating activities
    
    
    53,610
    
    
    
    656,597Cash flows from investing activities:Maturities of securities available for sale
    
    
    179,391
    
    
    
    1,000,000Purchase of securities available for sale
    
    
    (7,017,378
    )
    
    
    (1,038,595
    )Purchase of other securities
    
    
    (37,400
    )
    
    
    Proceeds from sale of other securities
    
    
    225,000
    
    
    
    5,800Loans (repaid) originated, net of principal repayments
    
    
    3,317,248
    
    
    
    (10,503,847
    )Proceeds from sale of other real estate owned
    
    
    1,489,357
    
    
    
    Purchases of premises and equipment
    
    
    (356,368
    )
    
    
    (66,850
    )Net cash used by investing activities
    
    
    (2,200,150
    )
    
    
    (10,603,492
    )Cash flows from financing activities:Net increase in deposits
    
    
    3,560,371
    
    
    
    49,679,426Repayments on other borrowings
    
    
    (5,000,000
    )
    
    
    (11,500,000
    )Net proceeds from minority LLC owner
    
    
    735,000
    
    
    
    Stock offering costs
    
    
    
    
    
    
    (2,600
    )Net cash (used) provided by financing activities
    
    
    (704,629
    )
    
    
    38,176,826Net increase (decrease) in cash and cash equivalents
    
    
    (2,851,169
    )
    
    
    28,229,931Cash and cash equivalents:Beginning of period
    
    
    6,378,774
    
    
    
    1,924,266End of period
    
    $
    3,527,605
    
    
    $
    30,154,197
  5




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ebank Financial Services, Inc. and Subsidiaries
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 NOTE 1  BASIS OF PRESENTATION
    Significant Accounting Policies
   6




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Use of Estimates
  Stock Compensation Plans
 Accounting for Stock
Issued to Employees Accounting for Stock-Based Compensation Accounting for Stock-Based
Compensation Transition and Disclosure Share-Based Payment ,
   Weighted-Number of
    
    
    Range of Per
    
    
    Aggregate Per
    
    
    AggregateShares
    
    
    Option Price
    
    
    Share Price
    
    
    Option PriceOutstanding at
December 31, 2005
and June 30, 2006
    
    
    150,000
    
    
    $
    1.25
    
    
    
    1.25
    
    
    
    0.43
 7




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Weighted-Weighted-
    
    
    AverageAverage
    
    
    Remaining
    
    
    AggregateExercise
    
    
    Contractual
    
    
    IntrinsicOptions
    
    Shares
    
    
    Price
    
    
    Term
    
    
    ValueOutstanding at December 31,
2005
    
    
    468,917
    
    
    $
    2.08Granted
    
    
    90,000
    
    
    
    1.44Exercised
    
    
    0
    
    
    
    0Forfeited
    
    
    (38,417
    )
    
    
    2.98Expired
    
    
    0
    
    
    
    0Outstanding at June 30, 2006
    
    
    520,500
    
    
    $
    1.90
    
    
    
    7.3
    
    
    $
    41,700Exercisable at June 30, 2006
    
    
    425,500
    
    
    $
    2.01
    
    
    
    6.8
    
    
    $
    40,200
  For the six monthsendedJune 30, 2006Expected volatility
    
    
    66.33
    %Expected dividend yield
    
    
    0
    %Expected life (in years)
    
    
    10.0Risk-free rate
    
    4.38% to 4.99%
    8




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For the sixmonths endedJune 30, 2005Net earnings attributable to common stockholders
    
    As reported
    
    $
    244,374Effect of stock
options grants
    
    
    (6,115
    )Pro forma
    
    $
    238,259Basic earnings per share
    
    As reported
    
    $
    .04Pro forma
    
    $
    .04
 NOTE 2  EARNINGS (LOSS) PER COMMON SHARE
  For
the three months ended June 30,2006
    
    
    2005Earnings (loss) per common share:Weighted average common shares outstanding
    
    
    6,463,679
    
    
    
    6,371,458Net earnings (loss)
    
    $
    (236,669
    )
    
    $
    265,814Preferred stock dividend paid upon conversion
of shares of preferred stock
    
    
    
    
    
    
    Preferred stock dividend accrued
    
    
    (114,730
    )
    
    
    (118,141
    )Net earnings (loss) attributable to common
stockholders
    
    $
    (351,399
    )
    
    $
    147,673Basic and fully diluted earnings (loss) per
common share
    
    $
    (.05
    )
    
    $
    .02
 For the six months endedJune 30,2006
    
    
    2005Earnings (loss) per common share:Weighted average common shares outstanding
    
    
    6,454,278
    
    
    
    6,368,737Net earnings (loss)
    
    $
    (51,170
    )
    
    $
    481,394Preferred stock dividend paid upon conversion
of shares of preferred stock
    
    
    (9,696
    )
    
    
    (2,036
    )Preferred stock dividend accrued
    
    
    (228,200
    )
    
    
    (234,984
    )Net earnings (loss) attributable to common
stockholders
    
    $
    (289,066
    )
    
    $
    244,374Basic and fully diluted earnings (loss) per
common share
    
    $
    (.04
    )
    
    $
    .04
  9




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NOTE 3  DIVIDENDS ON PREFERRED STOCK
  NOTE 4  FORMATION OF NEW SUBSIDIARY
      10




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
    
    maintain at all times ebank Mortgages members equity of at least $1 million;
    
    maintain a maximum ratio of indebtedness to ebank Mortgages members equity of 15.00
to 1.00; and
    
    maintain net income of ebank Mortgage at $5,000 or more per fiscal quarter beginning
with the fiscal quarter ending December 31, 2006.
  
    
    grant liens on the assets of ebank Mortgage;
    
    incur additional future indebtedness other than:
 o
    
    current liabilities for taxes and assessments incurred in the ordinary course of business;o
    
    accounts payable incurred in the ordinary course of business; ando
    
    indebtedness for the acquisition of fixed assets, not to exceed
$100,000 in the aggregate at any time; and
 
    
    pay any dividend or distribution (including any repurchase or redemption of membership
interests), except to the extent necessary to pay an amount equal to the combined federal
and state tax liability (if any) of the members arising from their respective allocable
share of the earning and profits of ebank Mortgage as long as any such payment does not
result in a Default or an Event of Default;
     11




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TABLE OF CONTENTS  PART I  FINANCIAL INFORMATIONItem 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Controls and ProceduresPART II OTHER INFORMATIONItem 1. Legal ProceedingsItem 2. Unregistered Sales of Equity Securities and Use of ProceedsItem 3. Defaults Upon Senior SecuritiesItem 4. Submission of Matters to a Vote of Security HoldersItem 5. Other InformationItem 6. ExhibitsSIGNATURESEX-10.4 ASSIGNMENT AND ASSUMPTION AGREEMENTEX-10.5 LEASE AGREEMENTEX-31.1 CERTIFICATION PURSUANT TO SECTION 302EX-31.2 CERTIFICATION PURSUANT TO SECTION 302EX-32.1 CERTIFICATION PURSUANT TO SECTION 906EX-32.2 CERTIFICATION PURSUANT TO SECTION 906    Table of Contents  
 PART I  FINANCIAL INFORMATION
 
 Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
  
    
    significant increases in competitive pressure in the banking and financial services
industries;
    
    changes in the interest rate environment which could reduce anticipated or actual
margins;
    
    the evolving nature of the market for Internet banking and financial services generally;
    
    changes in political conditions or the legislative or regulatory environment;
    
    general economic conditions, either nationally or regionally and especially in our
primary service area, becoming less favorable than expected resulting in, among other
things, a deterioration in credit quality;
    
    changes occurring in business conditions and inflation;
    
    changes in technology;
    
    the adverse effects of any failure to satisfy regulatory capital requirements;
    
    changes in monetary and tax policies;
    
    reductions in earnings if we experience an increase in delinquencies and defaults of
mortgage loans;
    
    changes in the securities markets;
    
    the potential economic effects of terrorist attacks, such as those that occurred on
September 11, 2001, as well as other acts of violence or war, including the ongoing
military actions in Iraq and Afghanistan; and
    
    other risks and uncertainties detailed from time to time in our filings with the
Securities and Exchange Commission.
  12




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General
   Financial Condition
   Results of Operations
   13




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Results of Operations
     14




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Allowance for Loan Losses
   15




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16




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Total
    
    
    
    
    
    
    
    
    
    
    Potential
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-Classified
    
    
    
    
    
    
    Allocated
    
    
    Problem
    
    
    
    
    
    
    Allocated
    
    
    Impaired
    
    
    
    
    
    
    Allocated
    
    
    performing
    
    
    
    
    
    
    AllocatedLoans
    
    
    No.
    
    
    Provision
    
    
    Loans
    
    
    No.
    
    
    Provision
    
    
    Loans
    
    
    No.
    
    
    Provision
    
    
    Loans
    
    
    No.
    
    
    ProvisionCommercial
    
    $
    134,750
    
    
    
    1
    
    
    $
    6,737
    
    
    $
    134,750
    
    
    
    1
    
    
    $
    6,737
    
    
    $
    
    
    
    
    
    
    
    $
    
    
    
    $
    
    
    
    
    
    
    
    $
    Real Estate 
Commercial
    
    
    1,887,234
    
    
    
    5
    
    
    
    20,497
    
    
    
    369,842
    
    
    
    1
    
    
    
    2,219
    
    
    
    1,517,392
    
    
    
    4
    
    
    
    18,278
    
    
    
    1,517,392
    
    
    
    4
    
    
    
    18,278Real Estate 
Individual
    
    
    904,342
    
    
    
    4
    
    
    
    12,578
    
    
    
    789,142
    
    
    
    3
    
    
    
    6,818
    
    
    
    115,200
    
    
    
    1
    
    
    
    5,760
    
    
    
    115,200
    
    
    
    1
    
    
    
    5,760Installment 
Individual
    
    
    138,444
    
    
    
    4
    
    
    
    33,957
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    138,444
    
    
    
    4
    
    
    
    33,957
    
    
    
    138,444
    
    
    
    4
    
    
    
    33,957Totals
    
    $
    3,064,770
    
    
    
    14
    
    
    $
    73,769
    
    
    $
    1,293,734
    
    
    
    5
    
    
    $
    15,774
    
    
    $
    1,771,036
    
    
    
    9
    
    
    $
    57,995
    
    
    $
    1,771,036
    
    
    
    9
    
    
    $
    57,995
   Total
    
    
    
    
    
    
    
    
    
    
    Potential
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Non-Classified
    
    
    
    
    
    
    Allocated
    
    
    Problem
    
    
    
    
    
    
    Allocated
    
    
    Impaired
    
    
    
    
    
    
    Allocated
    
    
    performing
    
    
    
    
    
    
    AllocatedLoans
    
    
    No.
    
    
    Provision
    
    
    Loans
    
    
    No.
    
    
    Provision
    
    
    Loans
    
    
    No.
    
    
    Provision
    
    
    Loans
    
    
    No.
    
    
    ProvisionCommercial
    
    $
    293,981
    
    
    
    2
    
    
    $
    146,990
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    293,981
    
    
    
    2
    
    
    $
    146,990
    
    
    $
    293,981
    
    
    
    2
    
    
    $
    146,990Real Estate 
Commercial
    
    
    2,271,671
    
    
    
    6
    
    
    
    21,215
    
    
    
    378,613
    
    
    
    1
    
    
    
    2,272
    
    
    
    1,893,058
    
    
    
    5
    
    
    
    18,943
    
    
    
    1,893,058
    
    
    
    5
    
    
    
    18,943Real Estate 
Individual
    
    
    1,064,780
    
    
    
    6
    
    
    
    75,637
    
    
    
    866,153
    
    
    
    4
    
    
    
    51,004
    
    
    
    198,627
    
    
    
    2
    
    
    
    24,633
    
    
    
    198,627
    
    
    
    2
    
    
    
    24,633Installment 
Individual
    
    
    162,321
    
    
    
    4
    
    
    
    15,110
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    162,321
    
    
    
    4
    
    
    
    15,110
    
    
    
    162,321
    
    
    
    4
    
    
    
    15,110Totals
    
    $
    3,792,753
    
    
    
    18
    
    
    $
    258,952
    
    
    $
    1,244,766
    
    
    
    5
    
    
    $
    53,276
    
    
    $
    2,547,987
    
    
    
    13
    
    
    $
    205,676
    
    
    $
    2,547,987
    
    
    
    13
    
    
    $
    205,676
  17




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##### Table of Contents



Allowance for Loan Losses
  For the Six
    
    
    For theMonths Ended
    
    
    Year EndedJune 30,
    
    
    December 31,2006
    
    
    2005(Dollars in thousands)Average loans outstanding
    
    $
    92,566
    
    
    $
    94,583Loans outstanding at period end
    
    $
    90,782
    
    
    $
    95,406Total nonperforming loans
    
    $
    1,771
    
    
    $
    2,548Beginning balance of allowance
    
    $
    805
    
    
    $
    1,013Loans charged off:Commercial
    
    
    (57
    )
    
    
    (410
    )Real estate  commercial
    
    
    (223
    )
    
    
    Real estate  individual
    
    
    (177
    )
    
    
    (64
    )Installment loans to individuals
    
    
    (20
    )
    
    
    (44
    )Total charge-offs
    
    
    (477
    )
    
    
    (518
    )Recoveries of previous charge-offs:Commercial
    
    
    4
    
    
    
    10Total recoveries
    
    
    4
    
    
    
    10Net loans charged-off
    
    
    (473
    )
    
    
    (508
    )Provision for loan losses
    
    
    218
    
    
    
    300Balance at period end
    
    $
    550
    
    
    $
    805Net charge-offs to average loans
    
    
    0.51
    %
    
    
    0.54
    %Allowance as percent of total loans
    
    
    0.61
    %
    
    
    0.84
    %Nonperforming loans as a percentage of total
loans
    
    
    1.95
    %
    
    
    2.67
    %Allowance as a percent of nonperforming loans
    
    
    31.06
    %
    
    
    31.59
    %
 18




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##### Table of Contents



Percentage of
    
    
    
    
    
    
    Percentage ofSix Months
    
    
    loans in
    
    
    Year ended
    
    
    loans inEnded
    
    
    each category
    
    
    December 31,
    
    
    each categoryJune 30, 2006
    
    
    to total loans
    
    
    2005
    
    
    to total loansCommercial
    
    $
    227,177
    
    
    
    10.36
    %
    
    $
    367,990
    
    
    
    9.94
    %Real estate  individual
    
    
    103,578
    
    
    
    58.55
    %
    
    
    102,110
    
    
    
    59.14
    %Real estate  commercial
    
    
    160,497
    
    
    
    24.28
    %
    
    
    169,215
    
    
    
    23.10
    %Installment loans to individuals
    
    
    58,957
    
    
    
    6.81
    %
    
    
    111,637
    
    
    
    7.82
    %Unallocated
    
    
    
    
    
    
    
    
    
    
    54,509
    
    
    
    Total
    
    $
    550,209
    
    
    
    100.00
    %
    
    $
    805,461
    
    
    
    100.00
    %
   Average Balances, Income and Expense, and Rates
  Interest-
    
    
    
    
    
    InterestEarning Assets/
    
    Average
    
    
    Income/
    
    
    Yield/Bearing Liabilities
    
    Balance
    
    
    Cost
    
    
    CostFederal funds sold
    
    $
    9,160,917
    
    
    $
    210,224
    
    
    
    4.59
    %Interest-bearing deposits
    
    
    567,616
    
    
    
    12,996
    
    
    
    4.58
    %Investment securities
    
    
    27,407,031
    
    
    
    776,244
    
    
    
    5.66
    %Loans
    
    
    92,566,113
    
    
    
    3,867,267
    
    
    
    8.36
    %Total
    
    $
    129,701,677
    
    
    $
    4,866,731
    
    
    
    7.50
    %Deposits
    
    $
    108,519,634
    
    
    $
    2,219,619
    
    
    
    4.09
    %Other borrowings
    
    
    7,214,133
    
    
    
    122,639
    
    
    
    3.40
    %Total
    
    $
    115,733,767
    
    
    $
    2,342,258
    
    
    
    4.05
    %Net interest income/spread
    
    
    
    
    
    $
    2,524,473
    
    
    
    3.45
    %Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.89
    %
 19




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##### Table of Contents



Deposits
  Deposit CompositionJune 30,
    
    
    December 31,2006
    
    
    2005Percent
    
    
    
    
    
    
    Percentof
    
    
    
    
    
    
    ofAmount
    
    
    Deposits
    
    
    Amount
    
    
    Deposits(Dollar in thousands)Demand deposits
    
    $
    6,364
    
    
    
    5.77
    %
    
    $
    7,040
    
    
    
    6.59
    %Escrow deposits
    
    
    13
    
    
    
    0.01
    %
    
    
    2
    
    
    
    0
    %Total non-interesting-bearing.
    
    
    6,377
    
    
    
    5.78
    %
    
    
    7,042
    
    
    
    6.59
    %Now accounts
    
    
    7,557
    
    
    
    6.85
    %
    
    
    8,573
    
    
    
    8.03
    %MMDA
    
    
    66,982
    
    
    
    60.70
    %
    
    
    54,892
    
    
    
    51.40
    %Savings
    
    
    1,598
    
    
    
    1.45
    %
    
    
    1,191
    
    
    
    1.11
    %Certificates of deposits of
$100K or more
    
    
    9,579
    
    
    
    8.68
    %
    
    
    11,490
    
    
    
    10.76
    %Brokered deposits of $100K or
more
    
    
    0
    
    
    
    0.00
    %
    
    
    4,496
    
    
    
    4.21
    %Total certificates of deposit
of $100K or more
    
    
    9,579
    
    
    
    8.68
    %
    
    
    15,986
    
    
    
    14.97
    %Certificate of deposits less
than $100K
    
    
    17,954
    
    
    
    16.27
    %
    
    
    18,209
    
    
    
    17.05
    %Brokered deposits less than $100K
    
    
    297
    
    
    
    0.27
    %
    
    
    891
    
    
    
    0.83
    %Total certificates of deposit
less than $100K
    
    
    18,251
    
    
    
    16.54
    %
    
    
    19,100
    
    
    
    17.89
    %Total
    
    $
    110,344
    
    
    
    100.00
    %
    
    $
    106,784
    
    
    
    100.00
    %Total brokered deposits
    
    $
    297
    
    
    
    
    
    
    $
    5,387
 Liquidity and Sources of Capital
  20




---



##### Table of Contents



Bank
    
    MinimumCapital
    
    RegulatoryRatio
    
    RequirementCapital ratios at June 30, 2006Tier 1 capital
    
    
    14.08
    %
    
    
    4.0
    %Tier 2 capital
    
    
    0.65
    %Total risk-based capital ratio
    
    
    14.73
    %
    
    
    8.0
    %Leverage ratio
    
    
    9.38
    %
    
    
    4.0
    %
  i.e.
  Liquidity And Rate Sensitivity
   21




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##### Table of Contents



After threeWithin
    
    
    but within
    
    
    After one
    
    
    Afterthree
    
    
    twelve
    
    
    but within
    
    
    fivemonths
    
    
    months
    
    
    five years
    
    
    years
    
    
    Total(Dollars in Thousands)Interest-earning assets:Interest-earning deposits
    
    $
    567
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    567Loans
    
    
    61,520
    
    
    
    3,680
    
    
    
    11,005
    
    
    
    14,720
    
    
    
    90,925Investment securities
    
    
    434
    
    
    
    993
    
    
    
    926
    
    
    
    26,155
    
    
    
    28,507Federal funds sold
    
    
    1,836
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,836Total earning assets
    
    
    64,357
    
    
    
    4,673
    
    
    
    11,931
    
    
    
    40,875
    
    
    
    121,835Interest-bearing liabilities:Money market and NOW
    
    
    74,539
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    74,539Savings deposits
    
    
    1,598
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,598Time deposits
    
    
    7,998
    
    
    
    17,841
    
    
    
    1,991
    
    
    
    
    
    
    
    27,830Other liabilities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4,000
    
    
    
    4,000Total interest-bearing liabilities
    
    
    84,135
    
    
    
    17,841
    
    
    
    1,991
    
    
    
    4,000
    
    
    
    107,967Interest-sensitivity gap
    
    $
    (19,778
    )
    
    $
    (13,168
    )
    
    $
    9,940
    
    
    $
    36,875
    
    
    $
    13,868Cumulative interest-sensitivity gap
    
    $
    (19,778
    )
    
    $
    (32,946
    )
    
    $
    (23,007
    )
    
    $
    13,868
    
    
    $
    13,868Ratio of interest-sensitivity gap
to total earning assets
    
    
    (16.23
    %)
    
    
    (10.81
    %)
    
    
    8.16
    %
    
    
    30.27
    %
    
    
    11.38
    %Ratio of cumulative interest-
sensitivity gap to total earning
assets
    
    
    (16.23
    %)
    
    
    (27.04
    %)
    
    
    (18.88
    %)
    
    
    11.38
    %
  Loan Portfolio
  22




---



##### Table of Contents



PercentAmount
    
    
    of totalCommercial
    
    $
    9,417,404
    
    
    
    10.36
    %Real estate  individual
    
    
    53,239,580
    
    
    
    58.55
    %Real estate  commercial
    
    
    22,078,839
    
    
    
    24.28
    %Installment loans to individuals
    
    
    6,189,304
    
    
    
    6.81
    %Gross loans
    
    
    90,925,127
    
    
    
    100.00
    %Less: Net deferred loan fees
    
    
    (142,748
    )Allowance for loan loss
    
    
    (550,209
    )Total net loans
    
    $
    90,232,170
  Regulatory Matters
    
 Item 3. Controls and Procedures.
  23




---



##### Table of Contents



PART II
OTHER INFORMATION
 
 Item 1. Legal Proceedings.
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
        
 Item 3. Defaults Upon Senior Securities.
  
 Item 4. Submission of Matters to a Vote of Security Holders.
   24




---



##### Table of Contents



CLASS II
    
    FOR
    
    WITHHELDGary M. Bremer
    
    
    5,186,397
    
    
    
    163,171Don B. Stout
    
    
    5,178,874
    
    
    
    170,694Gregory J. Corona
    
    
    5,186,397
    
    
    
    163,171
  CLASS I
    
    FOR
    
    WITHHELDEdward L. Terry
    
    
    5,186,914
    
    
    
    162,654
  
 Item 5. Other Information.
  
 Item 6. Exhibits.
 10.1
    
    *Summary Description of the 2006 Executive Cash Bonus Plan. (Incorporated by reference to the
information contained in Item 1.01 under the heading Approval of 2006 Executive Cash Bonus
Opportunities of the Companys Form 8-K filed on April 21, 2006, File No. 000-24043.)10.2
    
    Operating Agreement of ebank Mortgage, LLC. (Incorporated by reference to Exhibit 10.1 of the
Companys Form 8-K filed on April 21, 2006, File No. 000-24043.)10.3
    
    Secondary Marketing and Servicing Agreement by and between ebank Mortgage, LLC and Sunshine
Mortgage Corporation. (Incorporated by reference to Exhibit 10.2 of the Companys Form 8-K
filed on April 21, 2006, File No. 000-24043.)10.4
    
    Assignment and Assumption Agreement of the Lease Agreement for the office space located at
2401 Lake Park Drive, Smyrna, Georgia, 30080.10.5
    
    Lease Agreement for the office space located at 2401 Lake Park Drive, Smyrna, Georgia, 30080.10.6
    
    Warehousing Credit Agreement by and between ebank Mortgage, LLC and U.S. Bank. (Incorporated
by reference to Exhibit 10.1 of the Companys Form 8-K filed on April 28, 2006, File No.
000-24043.)10.7
    
    Pledge and Security Agreement by and between ebank Mortgage, LLC and U.S. Bank. (Incorporated
by reference to Exhibit 10.2 of the Companys Form 8-K filed on April 28, 2006, File No.
000-24043.)10.8
    
    Warehousing Promissory Note of ebank Mortgage, LLC. (Incorporated by reference to Exhibit
10.3 of the Companys Form 8-K filed on April 28, 2006, File No. 000-24043.)10.9
    
    Joint and Several Guaranty of ebank Financial Services, Inc. and Madison Mortgage
Corporation. (Incorporated by reference to Exhibit 10.4 of the Companys Form 8-K filed on
April 28, 2006, File No. 000-24043.)
 25




---



##### Table of Contents



31.1
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.32.2
    
    Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 
 *
    Denotes management contract or compensatory plan or arrangement. 26




---



##### Table of Contents



SIGNATURES
  ebank Financial Services, Inc.Date: August 9, 2006
    By:
    /s/ James L. BoxJames L. BoxPresident and Chief Executive Officer By:
    /s/ Wayne W. ByersWayne W. ByersChief Financial Officer 27