<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1998
-------------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Transition period from to
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COMBANC, INC. AND SUBSIDIARY
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Ohio 34-1853493
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
230 E. Second St., P. O. Box 429, Delphos, Ohio 45833
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(Address of principal executive offices) (Zip Code)
(419) 695-1055
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the last practicable date: 2,376,000 shares of the Bank's
common stock (no par value) were outstanding as of September 30, 1998.
Page 1 of 12 Pages
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COMBANC, INC. AND SUBSIDIARY
SEPTEMBER 30, 1998 FORM 10-Q
TABLE OF CONTENTS
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Page
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Statement of Income
Three Months Ended September 30, 1998 and 1997 3
Nine Months Ended September 30, 1998 and 1997 4
Balance Sheet
At September 30, 1998 and December 31, 1997 5
Statement of Cash Flows
Nine Months Ended September 30, 1998 and 1997 6
Notes to Consolidated Financial Statements 7
</TABLE>
In the opinion of management, all material adjustments necessary for a
fair presentation of the financial position and results of operations for the
interim periods presented have been made. All such adjustments were of a normal
recurring nature. The results of operations for the three months and the nine
months ended September 30, 1998 and 1997 are not necessarily indicative of the
results of operations for the full year or any other interim period.
The financial statements included in this Form 10-Q should be read with
reference to The Commercial Bank's 1997 Annual Report.
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Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
</TABLE>
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COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
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STATEMENT OF INCOME
($ in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
For the 3rd Quarter
Ended Sept. 30,
-------------------
Increase
1998 1997 (Decrease)
------ -------- ----------
(see notes)
<S> <C> <C> <C>
Interest Income:
Interest and Fees on Loans $ 2,874 $ 2,833 $ 41
Interest and Dividends on Investments -
Taxable 519 593 (74)
Tax-Exempt 179 171 8
Equity Securities 13 12 1
Interest on Federal Funds Sold 80 54 26
---------- ----------- ---------------
Total Interest Income 3,665 3,663 2
---------- ----------- ---------------
Interest Expense:
Interest on Deposits 1,699 1,801 (102)
---------- ----------- ---------------
Net Interest Income 1,966 1,862 104
Provision for Loan Losses 90 90 --
---------- ----------- ---------------
Net Interest Income after Provision for
Loan Losses 1,876 1,772 104
---------- ----------- ---------------
Other Income:
Service Charges on Deposit Accounts 88 67 21
Securities Gains - - -
Other Operating Income 40 50 (10)
---------- ----------- ---------------
Total Other Income 128 117 11
---------- ----------- ---------------
Other Expenses:
Salaries and Employee Benefits 692 602 90
Net Occupancy 115 131 (16)
Other Operating Expenses 427 403 24
---------- ----------- ---------------
Total Other Expenses 1,234 1,136 98
---------- ----------- -------------
Income - before Federal Income Taxes 753 753 -
Applicable Federal Income Taxes 207 208 (1)
---------- ----------- ---------------
Net Income $ 546 $ 545 $ 1
========== =========== ===============
Earnings Per Share $ 0.23 $ 0.23 $ -
Cash Dividends Per Share $ 0.125 $ 0.075 $ 0.05
</TABLE>
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<PAGE> 4
COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
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STATEMENT OF INCOME
($ in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended September 30,
-------------------
Increase
1998 1997 (Decrease)
------------- ------------- ------------
Interest Income: (see notes)
<S> <C> <C> <C>
Interest and Fees on Loans $ 8,370 8,167 $ 203
Interest and Dividends on Investments -
Taxable 1,672 1,727 (55)
Tax-Exempt 533 515 18
Equity Securities 34 33 1
Interest on Federal Funds Sold 191 196 (5)
------------- ------------- ------------
Total Interest Income 10,800 10,638 162
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Interest Expense:
Interest on Deposits 5,063 5,200 (137)
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Net Interest Income 5,737 5,438 299
Provision for Loan Losses 270 270 --
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Net Interest Income after Provision for
Loan Losses 5,467 5,168 299
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Other Income:
Service Charges on Deposit Accounts 239 192 47
Securities Gains - 13 (13)
Other Operating Income 95 81 14
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Total Other Income 334 286 48
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Other Expenses:
Salaries and Employee Benefits 1,889 1,754 135
Net Occupancy 344 363 (19)
Other Operating Expenses 1,227 1,178 49
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Total Other Expenses 3,460 3,295 165
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Income - before Federal Income Taxes 2,341 2,159 182
Applicable Federal Income Taxes 638 578 60
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Net Income $ 1,703 $ 1,581 $ 122
============= ============= ============
Earnings Per Share $ 0.715 $ 0.665 $ 0.05
Cash Dividends Per Share $ 0.295 $ 0.225 $ 0.07
</TABLE>
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COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
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BALANCE SHEET
($ in thousands, except par value)
(unaudited)
<TABLE>
<CAPTION>
Sept. 30, December 31,
ASSETS 1998 1997
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(see notes)
<S> <C> <C>
Cash and Due from Banks $ 4,304 $ 5,926
Federal Funds Sold 3,300 11,325
Investment Securities -
Available for Sale 49,043 48,523
Loans 131,733 126,041
Allowance for Loan Losses (1,736) (1,639)
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Net Loans 129,997 124,402
Premises and Equipment 2,384 2,351
Other Assets 1,883 2,056
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Total Assets $ 190,911 $ 194,583
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LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits -
Noninterest Bearing $ 14,284 $ 15,335
Interest Bearing 150,681 156,743
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Total Deposits 164,965 172,078
Other Liabilities 3,652 1,418
Federal Funds Purchased -- --
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Total Liabilities 168,617 173,496
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Shareholders' Equity -
Common Stock - No Par Value
2,376,000 Shares Issued
and Outstanding 1,237 1,237
Capital Surplus 1,513 1,513
Retained Earnings 19,026 17,933
Net Unrealized Loss on Securities 518 404
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Total Shareholders' Equity 22,294 21,087
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Total Liabilities and Shareholders' Equity $ 190,911 $ 194,583
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</TABLE>
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<PAGE> 6
COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
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STATEMENT OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
For the Nine Months
Ended Sept. 30,
--------------------------------
1998 1997
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(see notes)
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Cash Flows from Operating Activities:
Net Income $ 1,703 $ 1,581
Adjustments to Reconcile Net Income to
Net Cash from Operating Activities -
Depreciation 207 245
Provision for Loan Loss 270 270
(Increase)/Decrease in Other Assets 218 (360)
Increase/(Decrease) in Other Liabilities 2,189 338
Net Realized Gains on Securities Available for Sale -- 13
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Net Cash Provided by Operating Activities 4,587 2,087
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Cash Flows from Investing Activities:
Purchases of Securities Available for Sale (10,009) (7,571)
Proceeds from Sales of Securities Available for Sale - 2,493
Proceeds from Maturities of Securities
Available for Sale 9,603 4,073
Net (Increase) in Customer Loans (5,692) (5,753)
Net Loans Charged Off (173) (98)
Capital Expenditures (240) (210)
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Net Cash Used in Investing Activities (6,511) (7,066)
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Cash Flows from Financing Activities:
Net Increase/(Decrease) in Deposit Accounts (7,018) 6,021
Dividends Paid (705) (535)
--------------- --------------
Net Cash Provided by Financing Activities (7,723) 5,486
--------------- --------------
Net Change in Cash and Cash Equivalents (9,647) 507
Cash and Cash Equivalents -
Beginning of Year 17,251 7,737
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End of Period $ 7,604 $ 8,244
=============== ==============
</TABLE>
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<PAGE> 7
COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
Note 1, Basis of Presentation
On April 13, 1998, shareholders of The Commercial Bank (the "Bank")
approved a Merger Agreement ("Agreement") pursuant to which ComBanc, Inc. (the
"Company") acquired all of the outstanding stock of the Bank as a result of the
exchange of shares between the shareholders of the Bank and the Company. After
the share exchange which became effective on August 31, 1998, the Bank survived
as a wholly-owned subsidiary of the Company and continues its operations as The
Commercial Bank. Under the terms of the Agreement, each one of the existing
outstanding shares of the Bank's common stock was exchanged for two of the
Company's common shares so that each existing shareholder of the Bank became a
shareholder of the Company, owning the same number and percentage of shares in
the Company as the Bank. The shares of the Company issued in connection with the
transaction were not registered under the Securities Act of 1933, as amended
(the "Act"), in reliance upon the exemption from registration set forth in
Section 3(a) (12) of the Act.
As a result of the transaction described above, the Company is the
successor issuer to the Bank pursuant to Rule 12g-3 promulgated under the
Securities Exchange Act of 1934 (the "Exchange Act"). The Bank is subject to the
informational requirements of the Exchange Act and in accordance with Section
12(I) thereof has timely filed reports and other information with the Board of
Governors of the Federal Reserve System ("FRS"). Such reports and other
information filed by the Bank with the FRS may be examined without charge at, or
copies obtained upon payment of prescribed fees from, the Securities Disclosure
Division, Board of Governors of the Federal Reserve System, Stop 153A,
Washington, D.C. 20551.
Since the only asset of ComBanc is the investment in the Commercial
Bank, these financial statements reflect the consolidated activity for 1998
compared with the Bank only for 1997. A reader of these financial statements
should refer to The Commercial Bank 1997 Form 10K.
Note 2, Earnings for Share
Earning per share on the 1997 income statements have been restated to
reflect the total outstanding shares as of the August 31, 1998 formation of
ComBanc, Inc.
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<PAGE> 8
COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
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PART I - FINANCIAL INFORMATION
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
ENTITY STATUS
On April 13, 1998, The Commercial Bank became a wholly-owned subsidiary of the
newly formed ComBanc, Inc., a one-bank holding company. Since ComBanc's only
significant asset is the investment in The Commercial Bank, the following
discussion will focus solely on the operations of The Commercial Bank.
CURRENT YEAR THIRD QUARTER VERSUS PRIOR YEAR THIRD QUARTER
Net interest income, the difference between interest earned on
interest-earning assets and interest expense incurred on interest-bearing
liabilities, is the most significant component of The Commercial Bank's
earnings. Net interest income is affected by changes in the volume and rates of
interest-earning assets and interest-bearing liabilities and the volume of
interest-earning assets funded with low cost deposits, noninterest-bearing
deposits and shareholders' equity. The Bank's net interest income increased 6%,
to $1,966,000 for the quarter ended September 30, 1998 from $1,862,000 for the
third quarter of 1997. The Bank's net interest income increased 5%, to
$5,737,000 for the nine months ended September 30, 1998 from $5,438,000 for the
nine months ended September 30, 1997. These increases were due principally to
the widening of the yield/cost spread due to a slower increase in the cost of
deposits compared to the increase in earning asset yields during 1998 over that
spread in 1997 and the increase in earning assets.
The provision for loan loss remained at $90,000, for the third quarter
1998 compared to 1997, and remained at $270,000, during the nine months ended
September 30, 1998 and 1997, respectively.
Non-interest income for the three months ended September 30, 1998
increased 9%, to $128,000 from $117,000 in the third quarter of 1997.
Non-interest income increased 17%, to $334,000 from $286,000 for the nine months
ended September 30, 1998. These increases were largely attributable to a
increase in fee income arising from an increase in the deposit earning base.
Non-interest expense for the quarter increased 9%, to $1,234,000 from
$1,136,000 the previous year. Non-interest expense for the nine months ended
September 30, 1998 increased 5%, to $3,460,000 from $3,295,000. Salary and
fringe benefits both increased during the quarter ended September 30, 1998 and
nine months ended September 30, 1998.
Federal income taxes decreased $1,000, to $207,000 from $208,000 for the
quarter. Federal income taxes increased $60,000, to $638,000 from $578,000 for
the nine months ended September 30, 1998. The increase for the nine months ended
September 30, 1998 was due principally to the overall increase in net income.
Earnings per share remained at $.23 for the quarter ended September 30,
1998 and 1997, respectively. Earnings per share increased 8% for the nine months
ended September 30, 1998, to $0.715 from $0.665. Per share earnings are computed
based on 2,376,000 common shares outstanding at both September 30, 1998 and
1997.
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<PAGE> 9
COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
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PART I - FINANCIAL INFORMATION CONTINUED
REGULATORY CAPITAL
The Federal Reserve Board's risk-based capital guidelines addressing the capital
adequacy of bank holding companies and banks (collectively, "banking
organizations") include a definition of capital and a framework for calculating
risk-weighted assets and off-balance sheet items to broad risk categories, as
well as minimum ratios to be maintained by banking organizations. A banking
organization's risk-based capital ratios are calculated by dividing its
qualifying capital by its risk-weighted assets.
Under the risk-based capital guidelines, there are two categories of
capital: core capital ("Tier 1") and supplemental capital ("Tier 2"),
collectively referred to as Total Capital. Tier 1 Capital includes common
stockholders' equity, qualifying perpetual preferred stock and minority interest
in equity accounts of consolidated subsidiaries. Tier 2 capital includes
perpetual preferred stock (to the extent ineligible for Tier 1), hybrid capital
instruments (i.e. perpetual debt and mandatory convertible securities) and
limited amounts of subordinated debt, intermediate-term preferred stock and the
allowance for credit losses.
The Federal Reserve Board's leverage constraint guidelines establish a
minimum ratio of Tier 1 Capital to quarterly average total assets ("Leverage
Ratio").
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") established five capital tiers for banks. Pursuant to that statute
the federal bank regulatory agencies have defined the five capital tiers for
banks. Under these regulations, a bank is defined to be well capitalized, the
highest tier, if it maintains a Tier 1 Capital ratio of at least 6 percent, a
Total Capital ratio of at least 10 percent and a Leverage Ratio of at least 5
percent.
Based on the respective regulatory capital ratios at September 30, 1998,
the Bank is well capitalized, based on the definitions in the regulations issued
by the Federal Reserve Board and the other federal bank regulatory agencies
setting forth the general capital requirements mandated by FDICIA.
LIQUIDITY
The liquidity of a banking institution reflects its ability to provide
funds to meet loan requests, to accommodate possible outflows in deposits and to
take advantage of interest rate market opportunities. Funding of loan requests,
providing for liability outflows, and management of interest rate fluctuations
require continuous analysis in order to match the maturities of specific
categories of short-term loans and investments with specific types of deposits
and borrowings. Bank liquidity is thus normally considered in terms of the
nature and mix of the banking institution's sources and uses of funds.
Liquid assets consist of cash and due from banks, federal funds sold,
and securities available for sale. At September 30, 1998 the Bank's liquid
assets amounted to $56,647,000, or 30% of total assets compared with 34% at
December 31, 1997.
Management considers its liquidity to be adequate to meet its normal
funding requirements.
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<PAGE> 10
COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
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PART I - FINANCIAL INFORMATION CONTINUED
YEAR 2000 SOFTWARE INITIATIVE
Management has initiated a bank-wide assessment, remediation and
conversion program to address the effect of the year 2000 on the Corporation's
information systems and application software. The Corporation's Year 2000
project contains assessment, renovation, validation and implementation phrases.
A substantial majority of the significant application software utilized by the
Corporation is via the use of third party data processors and management is
working with the vendors to ensure that the software will operate properly in
the year 2000. At this time, the estimated cost to remediate the Bank's year
2000 issues is not expected to be material.
A contingency plan has been established for critical business system
application to mitigate potential problems/delays associated with either new
system replacements or established vendor delivery dates.
The corporation, however, continues to bear some risk related to the
Year 2000 issue and could be adversely affected, if other entities (i.e.,
vendors) not affiliated with the Corporation do not appropriately address their
own Year 2000 compliance issues.
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<PAGE> 11
COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
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PART II - OTHER INFORMATION
Item 1 - Legal Proceedings
The Commercial Bank, at any given time, is involved in a number of
lawsuits initiated by The Commercial Bank as a plaintiff, intending to collect
upon delinquent accounts, to foreclose upon real property, or to seize and sell
personal property pledged as security for any such account. Combanc, Inc. is
involved in no legal proceedings.
At September 30, 1998, The Commercial Bank was involved in a number of
such cases as a party-plaintiff, and occasionally, as a party-defendant due to
its joinder as a lien holder, either by mortgage or by judgment lien. In the
ordinary case, The Commercial Bank's security and value of its lien is not
threatened, except through bankruptcy or loss of value of the collateral should
sale result in insufficient proceeds to satisfy the judgment.
Management and the Board are not aware of any additional potential
claims against the Bank which have not been disclosed herein.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibit 11. Statement regarding computation of earnings per share is
contained in Part I, Item 2.
(b) Form 8-K was filed during the quarter ended September 30, 1998,
reflect the formation of ComBanc, Inc. the parent company of The
Commercial Bank.
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<PAGE> 12
COMBANC, INC. AND SUBSIDIARY
DELPHOS, OHIO
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
COMBANC, INC.
Date: November 9, 1998 /s/ Paul G. Wreede
------------------
Paul G. Wreede
President, CEO, and Director
Date: November 9, 1998 /s/ Kathleen A. Miller
----------------------
Kathleen A. Miller
Vice President and CFO
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<PAGE> 13
Exhibit Index
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Exhibit No. Description
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27 Financial Data Schedule
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENT.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 4,304
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,300
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 49,043
<LOANS> 131,733
<ALLOWANCE> 1,736
<TOTAL-ASSETS> 190,911
<DEPOSITS> 164,965
<SHORT-TERM> 0
<LIABILITIES-OTHER> 3,652
<LONG-TERM> 0
0
0
<COMMON> 1,237
<OTHER-SE> 21,057
<TOTAL-LIABILITIES-AND-EQUITY> 190,911
<INTEREST-LOAN> 8,370
<INTEREST-INVEST> 2,239
<INTEREST-OTHER> 191
<INTEREST-TOTAL> 10,800
<INTEREST-DEPOSIT> 5,063
<INTEREST-EXPENSE> 5,063
<INTEREST-INCOME-NET> 5,737
<LOAN-LOSSES> 270
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,460
<INCOME-PRETAX> 2,341
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,703
<EPS-PRIMARY> 0.715
<EPS-DILUTED> 0
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
