U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD
ENDED JUNE 30, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM
__________ TO __________
Commission file number - 33-53596
EXCHANGE BANCSHARES, INC.
---------------------------
(Exact name of small business issuer as specified in its charter)
OHIO 34-1721453
- ------------------------------ -------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
237 Main Street
P.O.Box 177, Luckey, Ohio 43443
- ------------------------------ --------
(Address of principal executive offices) (Zip Code)
(419) 833-3401
------------------
(Issuer's telephone number)
N/A
-------
(Former name, former address and former fiscal year, if
changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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 . . .
---
As of August 10, 1998, 517,963 shares of Common Stock of the Registrant were
outstanding. There were no preferred shares outstanding.
<PAGE>
EXCHANGE BANCSHARES, INC.
LUCKEY, OHIO
FORM 10-QSB
INDEX
================================================================================
Page Number
PART I FINANCIAL INFORMATION
Item. 1. Financial Statements (Unaudited)
Condensed consolidated balance sheets -- 3
June 30, 1998, and December 31, 1997
Condensed consolidated statements of income
and comprehensive income -- Three and six months 4
ended June 30, 1998 and 1997
Condensed consolidated statements of cash flows -- 5
Six months ended June 30, 1998 and 1997
Notes to condensed consolidated financial 6
statements -- June 30, 1998, 1997 and December 31, 1997
Item 2. Management's Discussion and Analysis of Financial 12
Condition and Results of Operations
PART II OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 19
<PAGE>
<TABLE>
<CAPTION>
EXCHANGE BANCSHARES, INC.
Luckey, Ohio
CONSOLIDATED BALANCE SHEETS
===============================================================================================
(Dollars in thousands)
(Unaudited) (Unaudited)
June 30, December 31,
1998 1997
---- ----
<S> <C> <C>
Assets
Cash and cash equivalents:
Cash and amounts due from depository institutions $ 2,998 $ 2,224
Interest-bearing demand deposits in banks 29 42
Federal funds sold 4,919 3,926
------- -------
Total cash and cash equivalents 7,946 6,192
Investment securities:
Securities being held-to-maturity 1,371 2,406
(Fair value of $1,377 in 1998 and $2,405 in 1997)
Securities available-for-sale, at fair value 16,527 16,362
------- -------
Total investment securities 17,898 18,768
Loans 61,825 46,872
Allowance for loan losses (1,544) (624)
------- -------
Net loans 60,281 46,248
Premises and equipment, net 3,492 844
Accrued interest receivable 823 625
Deferred income taxes 12 10
Goodwill 359 0
Other assets 489 108
------- -------
Total assets $91,300 $72,795
======= =======
Liabilities
Deposits
Non-interest-bearing $ 9,327 $ 6,371
Now & MMDA accounts 13,009 9,756
Savings passbook accounts 15,979 14,591
Time deposits of $100,000 or more 7,430 5,091
Other interest-bearing 36,146 28,119
------- -------
Total deposits 81,891 63,928
Borrowed funds 175 198
Accrued interest payable 166 149
Accrued federal income taxes (39) 28
Other liabilities 356 49
------- -------
Total liabilities 82,549 64,352
------- -------
Shareholders' Equity
Preferred shares ($25.00 par value) 750 shares
authorized, no shares issued 0 0
Common shares ($ 5.00 par value) 750,000 shares authorized;
517,963 and 513,936 shares issued 2,622 2,622
Additional paid-in capita l3,758 3,745
Retained earnings 2,392 2,217
Treasury stock at cost, 6,547 and 8,961 shares (93) (126)
Accumulated other comprehensive income 72 75
------- -------
Total shareholders' equity 8,751 8,443
------- -------
Total liabilities and shareholders' equity $91,300 $72,795
======= =======
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
EXCHANGE BANCSHARES, INC.
Luckey, Ohio
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
===================================================================================================
(Dollars in thousands, except per share data)
(Unaudited) (Unaudited)
3 Months Ended 6 Months Ended
June 30, June 30,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest and dividend income
Interest and fees on loans $ 1,153 $ 1,040 $ 2,263 $ 2,015
Interest on investment securities:
Taxable 238 284 488 577
Exempt from federal income tax 9 16 21 33
Dividend income 4 5 8 5
Interest on federal funds sold 98 35 158 64
Interest on deposits with banks 1 0 1 0
------- ------- ------- -------
Total interest income 1,503 1,380 2,939 2,694
Interest expense
Interest on interest-bearing checking accounts 82 75 146 143
Interest on savings deposits 104 98 203 195
Interest on time deposit 470 403 930 790
Interest on FHLB advances 3 1 7 1
Interest on federal funds purchased and securities sold
under agreement 1 0 1 0
------- ------- ------- -------
Total interest expense 660 577 1,287 1,129
------- ------- ------- -------
Net interest income 843 803 1,652 1,565
Provision for loan losses 0 0 0 0
------- ------- ------- -------
Net interest income after provision for loan loss 843 803 1,652 1,565
Non-interest income
Service charges on deposit accounts 67 48 129 96
Gain on sale of other assets 0 0 0 2
Other income 17 37 35 61
------- ------- ------- -------
Total noninterest income 84 85 164 159
------- ------- ------- -------
Non-interest expense
Salaries and employee benefits 305 289 581 543
Net occupancy expense 40 34 79 73
Equipment expense 45 36 88 70
FDIC deposit insurance assessment 3 2 5 3
State and other taxes 31 29 63 58
Other expense 288 216 482 396
------- ------- ------- -------
Total non-interest expense 712 606 1,298 1,143
------- ------- ------- -------
Income before income taxes 215 282 518 581
Federal income tax expense 60 86 155 178
------- ------- ------- -------
Net income 155 196 363 403
Other comprehensive income (10) 58 (3) (15)
------- ------- ------- -------
Total comprehensive income $ 145 $ 254 $ 360 $ 388
======= ======= ======= =======
Per common share data:
Basic net income 0.30 0.40 0.70 0.82
Diluted net income 0.30 0.40 0.70 0.82
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
<TABLE>
<CAPTION>
EXCHANGE BANCSHARES, INC.
Luckey, Ohio
CONSOLIDATED STATEMENTS OF CASH FLOWS
=================================================================================================
(Dollars in thousands)
(Unaudited) (Unaudited)
6 Months Ended 6 Months Ended
June 30, June 30,
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income $ 363 $ 403
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 63 60
Provision for loan losses 0 0
Deferred income taxes 0 (3)
Net loss on sale of other assets 0 (2)
Amortization/Accretion - net 44 54
Changes in operating assets and liabilities:
Increase in accrued income receivable (198) (1)
Increase in other assets (740) (20)
Increase in accrued interest payable 17 9
Increase (decrease) in other liabilities 306 (1)
Decrease in taxes payable (67) (54)
------- -------
Total adjustments (575) 42
------- -------
Net cash provided by operations (212) 445
Cash flows from investing activities:
Purchase of held-to-maturity securities 0 0
Purchase of available-for-sale securities (2,753) (3,234)
Payments on maturities on held-to-maturity securities 1,019 214
Proceeds from maturities on available-for-sale securities 2,555 4,000
Net increase in loans (14,318) (2,897)
Capital purchases (2,711) (47)
Proceeds from sale of other real estate 285 0
Proceeds from sale of other assets 0 2
------- -------
Net cash used in investing activities (15,923) (1,962)
Cash flows from financing activities:
Net increase in deposits 17,963 1,273
Decrease in short-term borrowings (23) 0
Sale of treasury stock 46 22
Purchase of treasury stock 0 (43)
Dividends paid (98) (93)
------- -------
Net cash provided by financing activities 17,888 1,159
------- -------
Net increase (decrease) in cash and cash equivalents 1,753 (358)
Cash and cash equivalents at beginning of period 6,192 4,694
------- -------
Cash and cash equivalents at end of period $ 7,945 $ 4,336
======= =======
Supplemental information:
Cash paid for:
Interest $ 1,270 $ 1,120
Net income taxes 223 236
</TABLE>
- --------------------------------------------------------------------------------
The accompanying notes are an integral part of these financial statements.
<PAGE>
EXCHANGE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1998, 1997 and December 31, 1997
(Unaudited)
================================================================================
NOTE 1. BASIS OF PRESENTATION
In the opinion of Management, the accompanying unaudited consolidated
financial statements contain all adjustments necessary for a fair presentation
of Exchange Bancshares, Inc.'s ("Company") financial condition as of June 30,
1998, and December 31, 1997, and the results of operations for the three and
six months ended June 30, 1998 and 1997, and the cash flows for the six months
ended June 30, 1998 and 1997. Certain information and note disclosures
normally included in financial statements prepared in accordance with
generally accepted accounting principles have been omitted pursuant to the
rules and regulations of the Securities and Exchange Commission. It is
suggested that these consolidated financial statements be read in conjunction
with the consolidated financial statements and notes thereto included in the
Company's Annual Report on Form 10-KSB. The results of operations for the
three and six months ended June 30, 1998, are not necessarily indicative of
the results which may be expected for the entire fiscal year.
NOTE 2. ALLOWANCE FOR LOAN LOSSES
Activity in the allowance for loan losses is summarized as follows:
(Dollars in thousands)
Six months ended Year ended
June 30, December 31,
1998 1997
---- ----
Balance, beginning of period $ 624 $ 508
Balance - acquired bank 950 0
Provision for loan losses 0 0
Charge-offs (43) (69)
Recoveries 13 185
------ ------
Balance, end of period $1,544 $ 624
====== ======
NOTE 3. ADVANCES FROM FEDERAL HOME LOAN BANK
Borrowings at June 30, 1998, consisted of one long-term advance totaling
$175,000 and from the Federal Home Loan Bank of Cincinnati ("FHLB"). The
advance is collateralized by all shares of FHLB stock owned by The Exchange
Bank, Luckey, Ohio, ("Bank") and by the Bank's qualified mortgage loan
portfolio.
6
<PAGE>
Scheduled maturity of the advance from the FHLB is as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
At June 30, 1998 At December 31, 1997
---------------------------------- -----------------------------------
Range of Weighted- Range of Weighted-
interest average interest average
Amount rates interest rate Amount rates interest rate
------ ----- ------------- ------ ----- -------------
<S> <C> <C> <C> <C> <C> <C>
After five years $ 175 6.85% 6.85% $ 198 6.85% 6.85%
</TABLE>
The aggregate minimum future annual principal payments on borrowings are
$3,000 in 1998, $5,000 in 1999, $6,000 in 2000, $6,000 in 2001, and $155,000
after 2001.
NOTE 4. REGULATORY CAPITAL
The following table illustrates the compliance by the Bank with currently
applicable regulatory capital requirements at June 30, 1998.
<TABLE>
<CAPTION>
(Dollars in thousands)
Categorized as "Well
Capitalized" Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
---------------- ----------------- -----------------
Amount Ratio Amount Ratio Amount Ratio
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Total Risk-Based Capital $ 9,071 15.00% $ 4,839 8.0% $ 6,049 10.0%
(to Risk-Weighted Assets)
Tier I Capital 8,296 13.71% N/A N/A 3,629 6.0%
(to Risk-Weighted Assets)
Tier I Capital 8,296 9.12% 3,639 4.0% 4,549 5.0%
(to Total Assets)
Tier I Capital 8,296 9.12% 2,729 3.0% N/A N/A
(to Total Assets)
</TABLE>
NOTE 5. EARNINGS PER SHARE
Earnings per share ("EPS") is computed in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 128, "Earnings per Share," which
was adopted by the Company as of December 31, 1997. Common stock equivalents
would include shares held by the company's Employee Stock Ownership Plan
("ESOP") that are committed for release, shares awarded but not released under
the company's Recognition and Retention Plan ("RRP"), and stock options
granted under the company's Stock Option Plan ("SOP"). Currently the Company
has no such plans in existence.
7
<PAGE>
Following is a reconciliation of the numerators and denominators of the basic
and diluted EPS calculations.
For the Quarter Ended June 30, 1998
---------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic EPS
Income available to
common shareholders $155,089 516,056 $0.30
=====
Effect of dilutive securities:
None 0 0
-------- -------
Diluted EPS
Income available to
common shareholders +
assumed conversions $155,089 516,056 $0.30
======== ======= =====
For the Quarter Ended June 30, 1997
---------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ---Basic EPS
Income available to
common shareholders $195,820 512,897 $0.38
=====
Effect of dilutive securities:
None 0 0
-------- -------
Diluted EPS
Income available to
common shareholders +
assumed conversions $195,820 512,897 $0.38
======== ======= =====
For the Six Months Ended June 30, 1998
---------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic EPS
Income available to
common shareholders $362,871 515,853 $0.70
=====
Effect of dilutive securities:
None 0 0
-------- -------
Diluted EPS
Income available to
common shareholders +
assumed conversions $362,871 515,853 $0.70
======== ======= =====
8
<PAGE>
For the Six Months Ended June 30, 1997
---------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
----------- ------------- ------
Basic EPS
Income available to
common shareholders $402,718 513,081 $0.78
=====
Effect of dilutive securities:
None 0 0
-------- -------
Diluted EPS
Income available to
common shareholders +
assumed conversions $402,718 513,081 $0.78
======== ======= =====
NOTE 6. COMPREHENSIVE INCOME
The Company adopted SFAS No. 130, "Reporting Comprehensive Income", effective Ja
nuary 1, 1998, which establishes standards for reporting comprehensive income
and its components (revenues, expenses, gains and losses). Components of
comprehensive income are net income and all other non-owner changes in
equity. SFAS No. 130 requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement
of financial position. Reclassification of financial statements for earlier
periods provided for comparative purposes is required.
The Company has chosen to disclose comprehensive income. Components of
comprehensive income are displayed net of income taxes. The following table
sets forth the related tax effects allocated to each element of comprehensive
income for the three and six months ended June 30, 1998 and 1997:
(Dollars in thousands)
Three months ended June 30, 1998
----------------------------------
Tax
Before-Tax (Expense) Net-of-Tax
Amount or Benefit Amount
------ ---------- ------
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during period $ (15) $ 5 $ (10)
Less: reclassification adjustment
for (gains) losses realized in
net income 0 0 (10)
------ ------ ------
Net unrealized gains (losses) (15) 5 (10)
------ ------ ------
Other comprehensive income $ (15) $ 5 $ (10)
====== ====== ======
9
<PAGE>
(Dollars in thousands)
Three months ended June 30, 1997
-----------------------------------
Tax
Before-Tax (Expense) Net-of-Tax
Amount or Benefit Amount
------ ---------- ------
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during period $ 88 $ (30) $ 58
Less: reclassification adjustment
for (gains) losses realized in
net income 0 0 0
------ ------ ------
Net unrealized gains (losses) 88 (30) 58
------ ------ ------
Other comprehensive income $ 88 $ (30) $ 58
====== ====== ======
(Dollars in thousands)
Six months ended June 30, 1998
-----------------------------------
Tax
Before-Tax (Expense) Net-of-Tax
Amount or Benefit Amount
------ ---------- ------
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during period $ (4) $ 1 $ (3)
Less: reclassification adjustment
for (gains) losses realized in
net income 0 0 0
------ ------ ------
Net unrealized gains (losses) (4) 1 (3)
------ ------ ------
Other comprehensive income $ (4) $ 1 $ (3)
====== ====== ======
10
<PAGE>
(Dollars in thousands)
Six months ended June 30, 1997
-------------------------------------
Tax
Before-Tax (Expense) Net-of-Tax
Amount or Benefit Amount
------ --------- ------
Unrealized gains (losses) on securities:
Unrealized holding gains (losses)
arising during period $ (22) $ 7 $ (15)
Less: reclassification adjustment
for (gains) losses realized in
net income 0 0 0
------ ------ ------
Net unrealized gains (losses) (22) 7 (15)
------ ------ ------
Other comprehensive income $ (22) $ 7 $ (15)
====== ====== ======
The following table sets forth the components of accumulated other
comprehensive income for the three and six months ended June 30, 1998 and
1997:
<TABLE>
<CAPTION>
(Dollars in thousands)
Three months ended Six months ended
June 30, June 30,
-------- --------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Beginning balance $ 82 $ (13) $ 75 $ 60
Unrealized gains (losses) on securities, net (10) 58 (3) (15)
------ ------ ------ ------
Ending balance $ 72 $ 45 $ 72 $ 45
====== ====== ====== ======
</TABLE>
NOTE 7. RECLASSIFICATIONS
Certain amounts in the prior period's financial statements have been
reclassified to be consistent with the current period's presentation. The
reclassifications have no effect on net income.
11
<PAGE>
EXCHANGE BANCSHARES, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
================================================================================
Safe Harbor Clause
This report contains certain "forward-looking statements." The Company
desires to take advantage of the "safe harbor" provisions of the Private
Securities Litigation Reform Act of 1995 and is including this statement for
the express purpose of availing itself of the protection of such safe harbor
with respect to all such forward-looking statements. These forward-looking
statements, which are included in Management's Discussion and Analysis,
describe future plans or strategies and include the Company's expectations of
future financial results. The words "believe," "expect," "anticipate,"
"estimate," "project," and similar expressions identify forward-looking
statements. The Company's ability to predict results or the effect of future
plans or strategies is inherently uncertain. Factors which could affect
actual results include interest rate trends, the general economic climate in
the Company's market area and the country as a whole, loan delinquency rates,
and changes in federal and state regulations. These factors should be
considered in evaluating the forward-looking statements, and undue reliance
should not be placed on such statements.
General
The Company is a bank holding company whose activities are primarily
limited to holding the stock of The Exchange Bank, Luckey, Ohio, ("Bank").
The Bank conducts a general banking business in northwest Ohio which consists
of attracting deposits from the general public and applying those funds to the
origination of loans for residential, consumer and non-residential purposes.
The Bank's profitability is significantly dependent on net interest income
which is the difference between interest income generated from
interest-earning assets (i.e., loans and investments) and the interest expense
paid on interest-bearing liabilities (i.e., customer deposits and borrowed
funds). Net interest income is affected by the relative amount of
interest-earning assets and interest-bearing liabilities and interest received
or paid on these balances. The level of interest rates paid or received by
the Company can be significantly influenced by a number of environmental
factors, such as governmental monetary policy, that are outside of management
control.
Earnings per common share were computed by dividing net income by the
weighted-average number of shares outstanding for the three-and six-month
period ended June 30, 1998.
The consolidated financial information presented herein has been prepared
in accordance with generally accepted accounting principles ("GAAP") and
general accounting practices within the financial services industry. In
preparing consolidated financial statements in accordance with GAAP,
management is required to make estimates and assumptions that affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and revenues
and expenses during the reporting period. Actual results could differ from
such estimates.
The Company is subject to regulation by the Board of Governors of the
Federal Reserve System which limits the activities in which the Company and
the Bank may engage. The Bank is supervised by the State of Ohio, Division of
Financial Institutions and its deposits are insured up to applicable limits
under the Bank Insurance Fund ("BIF") of the Federal Deposit Insurance
Corporation ("FDIC"). The Bank is a member of the Federal Reserve System and
is subject to its supervision. The Company and the Bank must file with the
U.S. Securities and Exchange Commission, the Federal Reserve Board and Ohio
Division of Financial Institutions the prescribed periodic reports containing
full and accurate statements of its affairs.
The Bank conducts its business through its five offices located in Wood
and Lucas Counties, Ohio. The primary market area of the Bank is Wood and
Lucas and contiguous counties in northwest Ohio.
12
<PAGE>
Recently Issued Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board ("FASB") also
issued SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information." SFAS No. 131 redefines how operating segments are determined
and requires disclosure of certain financial and descriptive information about
the Company's operating segments. This statement supercedes SFAS No. 14,
"Financial Reporting for Segments of Business Enterprises." The new standard
becomes effective for years beginning after December 15, 1997, and requires
that comparative information from earlier periods be restated to conform to
the requirements of this standard. The adoption of this statement is not
expected to be material to the Company.
Acquisition or Disposition of Assets
On June 11, 1998, the Company entered into a definitive agreement with
Towne Bancorp, Inc., an Ohio corporation located in Perrysburg, Ohio ("Towne
Bancorp"), and Towne Bank, a wholly-owned subsidiary of Towne Bancorp,
pursuant to which the Company agreed to purchase 1,000,000 shares of original
issue common stock of Towne Bank for an aggregated purchase price of
$2,000,000 ("Agreement"). On June 19, 1998, the parties entered into a Merger
Agreement whereby Towne Bank would merge with and into The Exchange Bank, the
wholly-owned subsidiary bank of the Company, with The Exchange Bank being the
surviving bank in the merger ("Merger"). Cash consideration for the Merger
was paid to Towne Bancorp in exchange for the remaining common stock of Towne
Bank held by Towne Bancorp. The cash consideration paid to Towne Bancorp
pursuant to the Merger Agreement consisted of $1.5 million to be adjusted
upward or downward on a dollar for dollar basis based upon the amount of
capital in Towne Bank's capital account that was greater than or less than
$1,000,000 at the Closing of the transaction, with a minimum purchase price of
$1,000,000. The actual cash consideration paid to Towne Bancorp at the
Closing was $1,100,560 of which 25% was held back by the Company in an escrow
account for a period of six months from Closing against which the Company may
collect for any breaches of the representations, warranties and covenants
given by Towne Bancorp and Towne Bank in the Agreement. The transactions
contemplated by both the Agreement and by the Merger were consummated on June
19, 1998.
Concurrently, on June 18, 1998, the Bank purchased the two parcels of
real estate that contained the main office and the one branch of Towne Bank in
Perrysburg and Sylvania, Ohio, respectively. Exchange Bancshares, Inc. and
Ms. Carol Haas entered into a real estate purchase agreement on May 19, 1998
whereby the Company or its subsidiary would purchase the two parcels for
$2,550,000, contingent upon the consummation of the transactions contemplated
by the Agreement and the Merger Agreement. The purchase was closed into
escrow on June 18, 1998, and the funds were released on June 19, 1998 upon the
consummation of the Agreement and Merger Agreement.
The Exchange Bank is an Ohio state-chartered bank which, prior to the
transaction described herein, operated from its main office in Luckey, Ohio
and through two branches located in Holland and Walbridge, Ohio.
Changes in Financial Condition
At June 30, 1998, the consolidated assets of the Company totaled $91.3
million, an increase of $18.5 million, or 25.41%, from $72.8 million at
December 31, 1997. The acquisition and merger of Towne Bank accounted for
approximately $17.0 million of the increase. The remainder of the asset
increase was in the loan portfolio which was supported by an increase of
approximately $2.3 increase in deposits.
Net loans receivable increased by $14.0 million, or 30.34%, to $60.3
million at June 30, 1998, compared to $46.2 million at December 31, 1997. The
increase was primarily as a result of the previously mentioned bank
acquisition, $11.8 million, and in the real estate and commercial loan
portfolios where the new loan demand continued to exceed loan repayments.
Investment securities decreased a net of $870,000, or 4.64%, from $18.8
million at December 31, 1997, to $17.9 million at June 30, 1998. The decrease
was primarily the result of scheduled maturities of short-term investment
being rolled into higher earning real estate and commercial loan production as
a part of the Company's strategy to expand their loan product base.
13
<PAGE>
Funds received from the deposit increases and the investment decreases
were temporally invested in federal funds which increased $1.0 million, or
25.29%, from $3.9 million at December 31, 1997, to $4.9 million at June 30,
1998.
Deposit liabilities increased $2.3 million in addition to the $15.7
million related to the bank merger. This is an increase of $18.0 million,
28.10%, from $63.9 million at December 31, 1997, to $81.9 million at June 30,
1998. Management attributes the increase to the maintaining of competitive
rates in our market area. Interest credited on accounts also contributed to
the increase.
Total shareholders' equity increased $308,000, or 3.65%, from $8.4
million at December 31, 1997, to $8.7 million at June 30, 1998. This increase
was primarily the result of $363,000 in earnings for the first six months in
the fiscal year 1998, and a $35,000 decrease in common shares held as treasury
stock being offset by $98,000 in cash dividend payments. Additional shares
were sold through the Dividend Reinvestment Plan (the "DRIP") which accounted
for a $36,000 capital increase.
The Bank's liquidity, primarily represented by cash and cash equivalents,
is a result of its operating, investing and financing activities. Principal
sources of funds are deposits, loan and mortgage-backed security repayments,
maturities of securities and other funds provided by operations. The Bank
also has the ability to borrow from the FHLB. While scheduled loan repayments
and maturing investments are relatively predictable, deposit flows and early
loan and mortgage-backed security prepayments are more influenced by interest
rates, general economic conditions and competition. The Bank maintains
investments in liquid assets based upon management's assessment of (i) the
need for funds, (ii) expected deposit flows, (iii) the yields available on
short-term liquid assets and (iv) the objectives of the asset/liability
management program. In the ordinary course of business, part of such liquid
investments portfolio is composed of deposits at correspondent banks.
Although the amount on deposit at such banks often exceeds the $100,000 limit
covered by FDIC insurance, the Bank monitors the capital of such institutions
to ensure that such deposits do not expose the Bank to undue risk of loss.
The Asset/Liability Management Committee of the Bank is responsible for
liquidity management. This committee, which is comprised of various managers,
has an Asset/Liability Policy that covers all assets and liabilities, as well
as off-balance sheet items that are potential sources and uses of liquidity.
The Bank's liquidity management objective is to maintain the ability to meet
commitments to fund loans and to purchase securities, as well as to repay
deposits and other liabilities in accordance with their terms. The Bank's
overall approach to liquidity management is to ensure that sources of
liquidity are sufficient in amounts and diversity to accommodate changes in
loan demand and deposit fluctuations without a material adverse impact on net
income. The Committee monitors the Bank's liquidity needs on an ongoing
basis. Currently the Bank has several sources available for both short- and
long-term liquidity needs. These include, but are not restricted to advances
from the FHLB, Federal Funds and borrowings from the Federal Reserve Bank and
other correspondent banking arrangements.
The Bank is subject to various regulatory capital requirements
administered by its primary federal regulator, the Federal Reserve Bank
("FRB"). Failure to meet minimum capital requirements can initiate certain
mandatory, and possible additional discretionary actions by regulators that,
if undertaken, could have a material affect on the Company and the
consolidated financial statements. Under the regulatory capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of
the Bank's assets, liabilities, and certain off-balance-sheet items as
calculated under regulatory accounting practices. The Bank's capital amounts
and classification under the prompt corrective action guidelines are also
subject to qualitative judgements by the regulators about components, risk
weightings, and other factors.
Qualitative measures established by the regulation to ensure capital
adequacy requires the Bank to maintain minimum amounts and ratios of: total
risk-based capital and Tier I capital to risk-weighted assets (as defined by
the regulations), and Tier I capital to average assets (as defined).
Management believes, as of June 30, 1998, that the Bank meets all of the
capital adequacy requirements to which it is subject.
As of December 31, 1997, the most recent notification from the FDIC, the
Bank was categorized as well capitalized under the regulatory framework for
prompt corrective action. To remain categorized as well capitalized, the Bank
will have to maintain minimum total risk-based, Tier I risk-based, and Tier I
14
<PAGE>
leverage ratios as disclosed in Note 4 - Regulatory Capital. There are no
conditions or events since the most recent notification that management
believes have changed the Bank's prompt corrective action category.
At June 30, 1998, Exchange Bancshares had no material commitments for
capital expenditures.
Results of Operations
Comparison of Three Months Ended June 30, 1998 and 1997
General. Net income decreased for the three months ended June 30, 1998,
to $155,000, as compared to the three months ended June 30, 1997, $196,000, a
decrease of $41,000. This decrease was primarily attributed to an increase in
other non-interest expense.
Interest Income. Average earning assets have continued to increase
during the second quarter of 1998 which has contributed to an increase in
interest income of $123,000, or 8.91%, for the three months ended June 30,
1998 compared to 1997. The increase was attributed to the additional loan
income of $113,000 resulting from an increase in loans receivable and $63,000
increase in federal funds sold which was offset by a decrease of $53,000 in
investment income as a result of the decrease in all other categories of
earning assets except for deposits with banks which show an increase of
$1,000.
Interest Expense. Interest expense on deposit liabilities increased
$80,000 for the three months ended June 30, 1998, as compared to the same
period in 1997. Total deposits increased by approximately $2.3 million
(exclusive of the deposit liabilities assumed in conjunction with the bank
acquisition) comparing June 30, 1998 to 1997, the average interest paid on
interest-bearing deposits increased by 50 basis points from 3.74% for the
three months ended June 30, 1997, to 4.24% for the same period ended June 30,
1998. The FHLB advance outstanding during the three-month period ended June
30, 1998, resulted in an increase in interest expense to $3,000 in 1998
compared to $1,000 for the same period ended June 30, 1997.
Provision for Loan Losses. There were no provisions for loan losses and
there were net charge-offs of $19,000 during the three months ended June 30,
1998, compared to no provisions and net charge-offs of $13,000 during the
three months ended June 30, 1997. The absence of a provision was based upon
the results of the ongoing loan reviews and composition of the loan portfolio,
primarily loans secured by one-to four-family residential properties and other
forms of collateral, which are considered to have less risk.
Non-Interest Income. Non-interest income decreased $1,000, or 1.19%, to
$84,000 for the three months ended June 30, 1998, from $85,000 for the three
months ended June 30, 1997.
Non-Interest Expense. Non-interest expense increased $106,000, or
17.49%, to $712,000 for the three months ended June 30, 1998, from $606,000 in
the comparable period in 1997. Of this increase, $16,000 was attributable to
an increase in compensation and benefit expense in 1998, reflecting normal
salary benefit adjustments. Legal, accounting and examination expenses
remained relatively constant with the remainder of the general expenses
increasing slightly over the levels experienced during the first quarter of
1997. The ratio of non-interest expense to average total assets was 3.76% and
3.45% for the three months ended June 30, 1998 and 1997, respectively.
Income Taxes. The provision for income taxes decreased $26,000 for the
three months ended June 30, 1998, compared with the prior year, primarily as a
result of lower taxable income for the quarter.
Comparison of Six Months Ended June 30, 1998 and 1997
General. Net income remained relatively constant for the six months
ended June 30, 1998, $363,000, as compared to the six months ended June 30,
1997, $403,000, an decrease of $40,000. This decrease was primarily
attributed to an increase in non-interest expense being off-set by an
increases in net interest income and non-interest income.
15
<PAGE>
Interest Income. The increase in average earning assets contributed to
an increase in interest income of $245,000, or 9.09%, for the six months ended
June 30, 1998 compared to 1997. The increase was attributed to the additional
loan income of $248,000 resulting from an increase in loans receivable and
$94,000 increase in federal funds sold which was offset by a decrease of
$101,000 in interest income in the investment categories.
Interest Expense. Interest expense on deposit liabilities increased
$151,000 for the six months ended June 30, 1998, as compared to the same
period in 1997. Total deposits increased significantly in 1998 compared to
1997, the average interest paid on interest-bearing deposits increased by 19
basis points from 3.69% for the six months ended June 30, 1997, to 3.88% for
the same period ended June 30, 1998. The FHLB advance outstanding during the
six-month period ended June 30, 1998, resulted in an increase in interest
expense of $6,000 in 1998 compared to $1,000 interest expense for the same
period ended June 30, 1997.
Provision for Loan Losses. There were no provisions for loan losses and
there were net charge-offs of $30,000 during the six months ended June 30,
1998, compared to no provisions and net recoveries of $103,000 during the six
months ended June 30, 1997. The absence of a provision was based upon the
results of the ongoing loan reviews and composition of the loan portfolio,
primarily loans secured by one-to four-family residential properties and other
forms of collateral, which are considered to have less risk.
Non-Interest Income. Non-interest income increased $5,000, or 3.14%, to
$164,000 for the six months ended June 30, 1998, from $159,000 for the six
months ended June 30, 1997. The increase was primarily attributable to a
$33,000 increase in service charges on deposit accounts being off-set by a
decrease in other income of $26,000 and a $2,000 loss recognized on the sale
of fixed assets in the six months ended June 30, 1997.
Non-Interest Expense. Non-interest expense increased $155,000, or
13.56%, to $1.3 million for the six months ended June 30, 1998, from $1.1
million in the comparable period in 1997. Of this increase, $38,000 was
attributable to an increase in compensation and benefit expense in 1998,
reflecting normal salary benefit adjustments. Legal, accounting and
examination expenses remained relatively constant with the remainder of the
general expenses increasing 21.72% over the levels experienced during the
first two quarters of 1997. The ratio of non-interest expense to average
total assets was 3.43% and 3.28% for the six months ended June 30, 1998 and
1997, respectively.
Income Taxes. The provision for income taxes decreased $23,000 for the
six months ended June 30, 1998, compared with the prior year, primarily as a
result of lower taxable income for the quarter.
16
<PAGE>
EXCHANGE BANCSHARES, INC.
PART II - OTHER INFORMATION
================================================================================
ITEM 1 - LEGAL PROCEEDINGS
Not Applicable
ITEM 2 - CHANGES IN SECURITIES
Not Applicable
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
John Moore and Sharon Hoffman duly appointed Judges of Election of
the Company do hereby certify that:
The Annual Meeting of Shareholders ("Annual Meeting") of the
Company will be held at the Eastwood High School, 4900
Sugar Ridge Road, Pemberville, Ohio on May 20, 1998
following the shareholders' dinner at 6:30 p.m..
According to the certified list of shareholders which was
presented at the Annual Meeting, there were 491,095 votes
entitled to be cast at the Annual Meeting, of which 245,548
represented a majority. There were present at the Annual
Meeting, in person or by proxy, 389,410 shares, at least a
majority of the outstanding votes entitled to vote.
John Moore and Sharon Hoffman inspected the signed proxies
and ballots used at the Annual Meeting and found the same to
be in proper form and accepted the tabulation of votes cast
by proxy. The following is a record of the votes cast in
connection with the various propositions presented at the
Annual Meeting:
Proposal No. 1:
RESOLVED, that Joseph R. Hirzel, Rolland I. Huss, and
Marion Layman be elected to the Board of Directors of
the Company for three year terms expiring in 2000.
Joseph R. Hirzel Number of Votes For 388,515
Percentage 79.1%
Number of Votes Withheld 895
Percentage 0.2%
Rolland I. Huss Number of Votes For 385,332
Percentage 78.5%
Number of Votes Withheld 4,078
Percentage 0.8%
17
<PAGE>
Marion Layman Number of Votes For 388,503
Percentage 79.1%
Number of Votes Withheld 907
Percentage 0.2%
Proposal No. 2:
RESOLVED, that the appointment by the Board of Directors
of the firm of Robb, Dixon, Francis, Davis, Oneson and
Company as independent accountants of the Company for
the fiscal year ending December 31, 1998 be ratified and
approved in all respects.
FOR AGAINST ABSTAIN
Number of Votes 385,483 1,146 2,781
Percentage 78.5% 0.2% 0.6%
ITEM 5 - OTHER INFORMATION
The Securities and Exchange Commission has recently amended
Rule 14a-4 to provide that with respect to a shareholder proposal
to be presented at an annual shareholders' meeting other than
pursuant to Rule 14a-8 (i.e., which is not to be included in the
registrant's proxy statement), the registrant's management may
exercise discretionary voting authority under proxies solicited
by it for the meeting, without mention of the proposal in the
proxy materials, if it receives notice of the proposed non-Rule
14a-8 shareholder action less than 45 days prior to the calendar
date its proxy materials were mailed for the prior year's annual
meeting.
As this new provision applies to the Company, in the event
notice of a non-Rule 14a-8 shareholder proposal to be presented at
the Company's 1999 Annual Meeting of Shareholders is received by
the Company after March 1, 1999, the Company will be permitted to
exercise discretionary voting authority under proxies solicited by
it with respect to the 1999 Annual Meeting.
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibit 27: Financial Data Schedule
b. Report on Form 8-K was filed during the quarter ended
June 30, 1998.
18
<PAGE>
SIGNATURES
In accordance with 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.
EXCHANGE BANCSHARES, INC.
Date /s/ August 14, 1998 /s/ Marion Layman
------------------- ----------------------------
Marion Layman
Chairman, President, and Chief Executive
Officer
Date /s/ August 14, 1998 /s/ Marion Layman
------------------- ---------------------------
Marion Layman
Principal Accounting and Financial Officer
19
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
The schedule contains summary financial information extracted from the
Consolidated Balance Sheets as of June 30, 1998 and December 31, 1997 and the
related Consolidated Statements of Income and Comprehensive Income for the three
and six months ended June 30, 1998 and 1997, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<CIK> 0000720912
<NAME> EXCHANGE BANCSHARES, INC.
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> APR-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 2,998
<INT-BEARING-DEPOSITS> 29
<FED-FUNDS-SOLD> 4,919
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 16,527
<INVESTMENTS-CARRYING> 1,371
<INVESTMENTS-MARKET> 1,377
<LOANS> 61,825
<ALLOWANCE> 1,544
<TOTAL-ASSETS> 91,300
<DEPOSITS> 81,891
<SHORT-TERM> 0
<LIABILITIES-OTHER> 483
<LONG-TERM> 175
0
0
<COMMON> 2,622
<OTHER-SE> 6,129
<TOTAL-LIABILITIES-AND-EQUITY> 91,300
<INTEREST-LOAN> 1,153
<INTEREST-INVEST> 251
<INTEREST-OTHER> 99
<INTEREST-TOTAL> 1,503
<INTEREST-DEPOSIT> 656
<INTEREST-EXPENSE> 660
<INTEREST-INCOME-NET> 843
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 712
<INCOME-PRETAX> 215
<INCOME-PRE-EXTRAORDINARY> 155
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 155
<EPS-PRIMARY> 0.30
<EPS-DILUTED> 0.30
<YIELD-ACTUAL> 4.94
<LOANS-NON> 216
<LOANS-PAST> 1,176
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 613
<CHARGE-OFFS> 26
<RECOVERIES> 1
<ALLOWANCE-CLOSE> 1,544
<ALLOWANCE-DOMESTIC> 1,544
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 830
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
The schedule contains summary financial information extracted from the
Consolidated Balance Sheets as of March 31, 1998 and December 31, 1997, and the
related Consolidated Statements of Income and Comprehensive Income for the three
months ended March 31, 1998 and 1997, and is qualified in its entirety by
reference to such financial statements.
</LEGEND>
<RESTATED>
<CIK> 0000720912
<NAME> EXCHANGE BANCSHARES, INC.
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<EXCHANGE-RATE> 1
<CASH> 2,132
<INT-BEARING-DEPOSITS> 38
<FED-FUNDS-SOLD> 5,667
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 15,977
<INVESTMENTS-CARRYING> 1,757
<INVESTMENTS-MARKET> 1,760
<LOANS> 48,457
<ALLOWANCE> 613
<TOTAL-ASSETS> 75,070
<DEPOSITS> 65,917
<SHORT-TERM> 0
<LIABILITIES-OTHER> 299
<LONG-TERM> 196
2,622
0
<COMMON> 0
<OTHER-SE> 6,036
<TOTAL-LIABILITIES-AND-EQUITY> 75,070
<INTEREST-LOAN> 1,110
<INTEREST-INVEST> 266
<INTEREST-OTHER> 60
<INTEREST-TOTAL> 1,436
<INTEREST-DEPOSIT> 623
<INTEREST-EXPENSE> 3
<INTEREST-INCOME-NET> 810
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 587
<INCOME-PRETAX> 304
<INCOME-PRE-EXTRAORDINARY> 208
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 208
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.40
<YIELD-ACTUAL> 4.64
<LOANS-NON> 16
<LOANS-PAST> 10
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 624
<CHARGE-OFFS> 16
<RECOVERIES> 5
<ALLOWANCE-CLOSE> 613
<ALLOWANCE-DOMESTIC> 613
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 230
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
The schedule contains summary financial information extracted from the
Consolidated Balance Sheets as of December 31, 1997 and 1996, and the related
Consolidated Statements of Income for the twelve months ended December 31, 1997
and 1996, and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<RESTATED>
<CIK> 0000720912
<NAME> EXCHANGE BANCSHARES, INC.
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<EXCHANGE-RATE> 1
<CASH> 2,224
<INT-BEARING-DEPOSITS> 42
<FED-FUNDS-SOLD> 3,926
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 16,362
<INVESTMENTS-CARRYING> 2,406
<INVESTMENTS-MARKET> 2,405
<LOANS> 46,872
<ALLOWANCE> 624
<TOTAL-ASSETS> 72,795
<DEPOSITS> 63,928
<SHORT-TERM> 0
<LIABILITIES-OTHER> 266
<LONG-TERM> 198
0
0
<COMMON> 2,622
<OTHER-SE> 5,821
<TOTAL-LIABILITIES-AND-EQUITY> 72,795
<INTEREST-LOAN> 4,159
<INTEREST-INVEST> 1,212
<INTEREST-OTHER> 194
<INTEREST-TOTAL> 5,565
<INTEREST-DEPOSIT> 2,379
<INTEREST-EXPENSE> 2,387
<INTEREST-INCOME-NET> 3,178
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,288
<INCOME-PRETAX> 1,210
<INCOME-PRE-EXTRAORDINARY> 835
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 835
<EPS-PRIMARY> 1.11
<EPS-DILUTED> 1.11
<YIELD-ACTUAL> 4.75
<LOANS-NON> 75
<LOANS-PAST> 10
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 17
<ALLOWANCE-OPEN> 508
<CHARGE-OFFS> 69
<RECOVERIES> 185
<ALLOWANCE-CLOSE> 624
<ALLOWANCE-DOMESTIC> 624
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 234
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
The schedule contains summary financial information extracted from the
Consolidated Balance Sheets as of September 30, 1997 and December 31, 1996, and
the related Consolidated Statements of Income for the three and nine months
ended September 30, 1997 and 1996, and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<RESTATED>
<CIK> 0000720912
<NAME> EXCHANGE BANCSHARES, INC.
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JUL-01-1997
<PERIOD-END> SEP-30-1997
<EXCHANGE-RATE> 1
<CASH> 2,227
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 3,997
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 17,374
<INVESTMENTS-CARRYING> 2,612
<INVESTMENTS-MARKET> 2,604
<LOANS> 45,398
<ALLOWANCE> 635
<TOTAL-ASSETS> 72,759
<DEPOSITS> 63,961
<SHORT-TERM> 0
<LIABILITIES-OTHER> 251
<LONG-TERM> 199
0
0
<COMMON> 2,622
<OTHER-SE> 5,726
<TOTAL-LIABILITIES-AND-EQUITY> 72,759
<INTEREST-LOAN> 1,050
<INTEREST-INVEST> 299
<INTEREST-OTHER> 55
<INTEREST-TOTAL> 1,404
<INTEREST-DEPOSIT> 612
<INTEREST-EXPENSE> 615
<INTEREST-INCOME-NET> 789
<LOAN-LOSSES> 0
<SECURITIES-GAINS> (1)
<EXPENSE-OTHER> 535
<INCOME-PRETAX> 334
<INCOME-PRE-EXTRAORDINARY> 229
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 229
<EPS-PRIMARY> 0.45
<EPS-DILUTED> 0.45
<YIELD-ACTUAL> 4.29
<LOANS-NON> 75
<LOANS-PAST> 127
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 648
<CHARGE-OFFS> 16
<RECOVERIES> 3
<ALLOWANCE-CLOSE> 635
<ALLOWANCE-DOMESTIC> 635
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 489
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
The schedule contains summary financial information extracted from the Consoli-
dated Balance Sheets as of June 30,1997 & December 31,1996,& the related Consoli
- -dated Statements of Income for the 3 and 6 months ending June 30,1997 & 1996,
& the Consolidated Statements of Cash Flow for the periods ended June 30,1997 &
1996, and is qualified in its entirety by reference to such financial statements
</LEGEND>
<RESTATED>
<CIK> 0000720912
<NAME> EXCHANGE BANCSHARES, INC.
<MULTIPLIER> 1,000
<CURRENCY> US DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> APR-01-1997
<PERIOD-END> JUN-30-1997
<EXCHANGE-RATE> 1
<CASH> 2,668
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,668
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 16,841
<INVESTMENTS-CARRYING> 2,950
<INVESTMENTS-MARKET> 2,631
<LOANS> 44,686
<ALLOWANCE> (648)
<TOTAL-ASSETS> 69,906
<DEPOSITS> 61,432
<SHORT-TERM> 0
<LIABILITIES-OTHER> 184
<LONG-TERM> 200
0
0
<COMMON> 2,622
<OTHER-SE> 5,468
<TOTAL-LIABILITIES-AND-EQUITY> 69,906
<INTEREST-LOAN> 1,040
<INTEREST-INVEST> 305
<INTEREST-OTHER> 35
<INTEREST-TOTAL> 1,380
<INTEREST-DEPOSIT> 576
<INTEREST-EXPENSE> 1
<INTEREST-INCOME-NET> 803
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 2
<EXPENSE-OTHER> 606
<INCOME-PRETAX> 282
<INCOME-PRE-EXTRAORDINARY> 196
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 196
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.40
<YIELD-ACTUAL> 4.70
<LOANS-NON> 77
<LOANS-PAST> 499
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> (646)
<CHARGE-OFFS> 7
<RECOVERIES> (9)
<ALLOWANCE-CLOSE> (648)
<ALLOWANCE-DOMESTIC> (648)
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> (360)
</TABLE>
