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 September 30, 1999
[ ] 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 November 3, 1999, 549,110 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
September 30, 1999, and December 31, 1998
Condensed consolidated statements of income --
Three and Nine months ended September 30, 1999 and 1998 4
Condensed consolidated statements of changes
in shareholders equity -- Periods ended 5
September 30, 1999, and December 31, 1998
Condensed consolidated statements of cash flows -- 6
Nine months ended September 30, 1999 and 1998
Notes to condensed consolidated financial statements -- 7
September 30, 1999, and December 31, 1998
Item 2. Management's Discussion and Analysis of Financial 11
Condition and Results of Operations
PART II OTHER INFORMATION
Item 1. Legal Proceedings 16
Item 2. Changes in Securities and Use of Proceeds 16
Item 3. Defaults upon Senior Securities 16
Item 4. Submission of Matters to a Vote of Security Holders 16
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17
Signatures 18
<PAGE>
EXCHANGE BANCSHARES, INC.
LUCKEY, OHIO
CONSOLIDATED BALANCE SHEETS
==============================================================================
<TABLE>
<CAPTION>
(Dollars in thousands)
Unaudited
At At
September 30, December 30,
1999 1998
------------- ------------
<S> <C> <C>
ASSETS
Cash and cash equivalents
Cash and amounts due from depository institutions $ 2,830 $ 3,092
Interest bearing demand deposits in banks 6 21
Federal funds sold 3,678 4,874
------- -------
Total cash and cash equivalents 6,514 7,987
Investments securities
Securities available-for-sale 16,451 18,448
Securities held-to-maturity,
fair values of$500 and $1,030 495 1,022
------- -------
Total investment securities 16,946 19,470
Mortgage loans held-for-sale 0 603
Loans 67,089 62,874
Allowance for loan losses (1,194) (1,542)
------- -------
Net loans 65,895 61,332
Premises and equipment, net 3,728 3,910
Accrued interest receivable 783 689
Deferred income taxes 385 309
Other assets 643 336
------- -------
TOTAL ASSETS $94,894 $94,636
LIABILITIES
Deposits
Noninterest-bearing $10,549 $ 9,655
Interest-bearing 74,399 75,536
------- -------
Total deposits 84,948 85,191
Borrowed funds 153 173
Accrued interest payable 165 171
Other liabilities 407 135
------ -------
TOTAL LIABILITIES 85,673 85,670
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, 550,851 shares issued 2,754 2,623
Additional paid-in capital 4,337 3,786
Retained earnings 2,195 2,497
Treasury stock at cost, 1,741 and 3,701 shares held (28) (50)
Accumulated other comprehensive income (37) 110
------ -------
TOTAL SHAREHOLDERS' EQUITY 9,221 8,966
------ -------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $94,894 $94,636
======= =======
</TABLE>
- --------------------------------------------------------------------------------
See accompanying notes.
<PAGE>
EXCHANGE BANCSHARES, INC.
LUCKEY, OHIO
CONSOLIDATED INCOME STATEMENTS
===============================================================================
<TABLE>
<CAPTION>
(Dollars in thousands)
(Unaudited) (Unaudited)
3 Months Ended 9 Months Ended
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 1,503 $ 1,446 $ 4,394 $ 3,693
Interest and dividends on investments 251 273 772 791
Interest on federal funds sold 41 90 142 247
Interest on due from banks 0 0 1 2
------ ------- -------- -------
TOTAL INTEREST INCOME 1,795 1,809 5,309 4,733
INTEREST EXPENSE
Interest on deposits 785 834 2,358 2,113
Interest on borrowed funds 3 1 9 9
------ ------- ------- -------
TOTAL INTEREST EXPENSE 788 835 2,367 2,122
NET INTEREST INCOME 1,007 974 2,942 2,611
Provision for loan losses 0 0 0 0
NET INTEREST INCOME AFTER
FOR LOAN LOSSES 1,007 974 2,942 2,611
NON-INTEREST INCOME
Service charges on deposits 73 81 214 210
Other income 84 22 258 73
------- ------ ------- -------
TOTAL NON-INTEREST INCOME 157 103 472 283
NON-INTEREST EXPENSE
Salaries and employee benefits 415 359 1,270 941
Occupancy and equipment, net 143 145 446 312
Bank and ATM charges 26 23 72 64
Credit cards 20 48 61 48
Data processing 30 35 92 83
Director fees 14 14 49 50
Examination and accounting fees 34 46 135 116
State and other taxes 28 29 87 92
Postage and courier 28 19 86 57
Supplies and printing 33 45 91 94
Other expenses 117 138 370 342
------ ------ ------ ------
TOTAL NON-INTEREST EXPENSE 888 901 2,759 2,199
------ ------ ------ ------
INCOME BEFORE FEDERAL INCOME
TAX EXPENSE 276 176 655 695
Federal income tax expense 86 59 197 234
------ ------- ------- -------
NET INCOME $ 190 $ 117 $ 458 $ 461
====== ======= ======= =======
EARNINGS PER SHARE:
Basic $0.35 $0.22 $0.84 $0.85
Diluted $0.35 $0.22 $0.84 $0.85
</TABLE>
- ------------------------------------------------------------------------
See accompanying notes.
<PAGE>
EXCHANGE BANCSHARES, INC
LUCKEY, OHIO
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
================================================================================
<TABLE>
<CAPTION>
(Dollars in thousands)
Shares Amounts
------ -------
Accumulated
other
Additional compre- Compre-
Common Treasury Common paid-in Retained Treasury hensive hensive
stock stock stock surplus earnings stock income income
----- ----- ----- ------- -------- ----- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
December 31, 1997 499,534 (8,439) $2,498 $3,370 $2,626 ($126) $75
Net income 623 $623
Other comprehensive income
Change in unrealized gain (loss) on
securities available-for-sale,
net of tax of $18 35 35
-----
Comprehensive income $658
=====
Cash dividend declared ($0.49 per share) (253)
5% stock dividend declared 24,976 (422) 124 375 (499)
Issuance of common stock 110 1 2
Sale of treasury stock 5,336 39 76
------- ------ ------ ----- ----- ---- ---
December 31, 1998 524,620 (3,525) 2,623 3,786 2,497 (50) 110
Net income 458 $458
Other comprehensive income
Change in unrealized gain (loss) on
securities available-for-sale,
net of tax of ($50) (147) (50)
Comprehensive income
----
Cash dividend declared ($0.20 per share) (104) $508
====
5% stock dividend declared 26,231 (176) 131 525 (656)
Sale of treasury stock 2,335 26 31
Purchase of treasury stock (375) (9)
------- ------ ------ ------ ------ ---- -----
September 30, 1999 550,851 (1,741) $2,754 $4,337 $2,195 ($28) ($37)
</TABLE>
<PAGE>
EXCHANGE BANCSHARES, INC.
LUCKEY, OHIO
CONSOLIDATED STATEMENT OF CASH FLOWS
===============================================================================
<TABLE>
(Dollars in thousands)
(Unaudited)
9 Months
September 30, September 30,
1999 1998
---- ----
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $458 $461
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 0 0
Loss on disposal of fixed assets 3 0
Depreciation 239 140
Goodwill amortization 2 0
Deferred income taxes 0 63
Amortization (accretion) 72 61
Proceeds from loans held-for-sale 603 286
Changes in operating assets and liabilities:
Accrued interest receivable (95) (118)
Accrued interest payable (6) (18)
Taxes payable 28 (35)
Other assets (312) 74
Other liabilities 248 (77)
------- -------
Net cash provided by operating activities 1,240 837
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of held-to-maturity securities 518 1,142
Purchases of available-for-sale securities (3,692) (2,578)
Proceeds from maturities of available-for-sale securities 5,400 3,655
Net increase in loans (4,560) (1,650)
Cash received on purchase of Towne Bank 0 918
Purchases of premises and equipment (60) (3,128)
------ --------
Net cash used in investing activities (2,394) (1,641)
------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in:
Noninterest-bearing, interest-bearing demand,
and savings deposits 1,494 4,703
Certificates of deposit (1,737) (580)
Net decrease in short-term borrowings 0 (23)
Payments on long-term Federal Home Loan Bank advances (21) 0
Sale of treasury stock 58 46
Purchase of treasury stock (9) 0
Dividends paid (104) (98)
------ ------
Net cash (used) provide by financing activities (319) 4,048
------ ------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,473) 3,244
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 7,987 6,192
------ ------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,514 $ 9,436
======= =======
SUPPLEMENTAL DISCLOSURES
Cash paid during the nine-month period for interest $ 2,373 $ 2,095
Cash paid during the nine-month period for income taxes 225 527
</TABLE>
- --------------------------------------------------------------------
See accompanying notes.
<PAGE>
EXCHANGE BANCSHARES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1999 (unaudited) and December 31, 1998
===============================================================================
NOTE 1. BASIS OF PRESENTATION
In the opinion of Management, the accompanying unaudited condensed
consolidated financial statements contain all adjustments necessary for a
fair presentation of Exchange Bancshares, Inc.'s ("Company") financial
condition as of September 30, 1999, and December 31, 1998, and the results
of operations for the three-and nine-months ended September 30, 1999 and 1998,
and the cash flows for the nine months ended September 30, 1999 and 1998.
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 nine-months ended September 30,
1999, 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)
Nine months Year ended
ended December 31,
September 30, 1998
------------ ----
1999
----
Balance beginning of period $1,542 $624
Allowance related to loans acquired 0 961
Provision for loan losses 0 0
Loans charged-off (371) (125)
Recoveries on loans charged-off 23 82
------ ------
Balance, end of period $1,194 $1,542
====== ======
NOTE 3. ADVANCES FROM FEDERAL HOME LOAN BANK
Borrowings at September 30, 1999, consisted of one long-term advance totaling
$153,000 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.
<PAGE>
Scheduled maturity of the advance from the FHLB is as follows:
<TABLE>
<CAPTION>
(Dollars in thousands)
At September 30, 1999 At December 31, 1998
------------------------------------- ------------------------------------
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 $153 6.85% 6.85% $ 173 6.85% 6.85%
The aggregate minimum future annual principal payments on borrowings are
$4,000 in 1999, $22,000 in 2000, $19,000 in 2001, $17,000 in 2002, $14,000 in
2003, and $77,000 after 2002.
NOTE 4. REGULATORY CAPITAL
The following table illustrates the compliance by the Bank with currently
applicable regulatory capital requirements at September 30, 1999.
</TABLE>
<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
(to Risk-Weighted Assets) $9,896 16.10% $4,916 8.0% $6,145 10.0%
Tier I Capital
(to Risk-Weighted Assets) 9,123 13.97% N/A N/A 3,687 6.0%
Tier I Capital
(to Average Total Assets) 9,123 9.12% 3,749 4.0% 4,686 5.0%
Tier I Capital
(to Average Total Assets) 9,123 9.12% 2,811 3.0% N/A N/A
</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.
<PAGE>
Following is a reconciliation of the numerators and denominators of the basic
and diluted EPS calculations.
For the Three Months Ended September 30, 1999
---------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic EPS
Income available to
common shareholders $189,981 549,110 $0.35
Effect of dilutive securities:
None 0 0
-------- -------
Diluted EPS
Income available to
common shareholders +
assumed conversions $189,981 549,110 $0.35
======== ======= =====
For the Three Months Ended September 30, 1998
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic EPS
Income available to
common shareholders $117,136 543,861 $0.22
Effect of dilutive securities:
None 0 0
-------- --------
Diluted EPS
Income available to
common shareholders +
assumed conversions $117,136 543,861 $0.22
For the Nine months Ended September 30, 1999
--------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic EPS
Income available to
common shareholders $457,718 550,348 $0.84
Effect of dilutive securities:
None 0 0
-------- -------
Diluted EPS
Income available to
common shareholders +
assumed conversions $457,718 550,348 $0.84
======== ======= =====
<PAGE>
Following is a reconciliation of the numerators and denominators of the basic
and diluted EPS calculations.
For the Nine months Ended September 30, 1998
--------------------------------------------
Income Shares Per Share
(Numerator) (Denominator) Amount
Basic EPS
Income available to
common shareholders $460,836 542,393 $0.85
Effect of dilutive securities:
None 0 0
-------- -------
Diluted EPS
Income available to
common shareholders +
assumed conversions $460,836 542,393 $0.85
======== =======
NOTE 6. 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.
<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 nine-month
periods ended September 30, 1999 and 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.
<PAGE>
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 nine 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.
The following discussion under the captions Changes in Financial
Condition and Results of Operations, make reference to the acquisition of
the bank or the two office locations which have had a significant effect on
the Company's operations during the second, third and fourth quarters of
fiscal 1998 as well as the first three quarters of fiscal 1999. The following
discussion, i.e. comparisons and comments, are intended to assist the reader
in understanding the operating results of the Company for the periods
presented.
Year 2000 Readiness
As with other organizations, the data processing programs used by the
Company were originally designed to recognize calendar years by their last
two digits. Calculations performed using the truncated fields may not work
properly with dates beyond 1999. Correct processing of date orientated
information is critical to the operation of all financial institutions.
Failure of these processes could severely hinder the ability to continue
operations and provide customer service. Because of the critical nature of
the issue, the Company established a committee early in 1997 to address "Year
2000" issues. Data processing for the Company is provided by a third party
service bureau. The service bureau has stated that all their processing is
or will be Year 2000 ready. The Company's subsidiary had been selected to be a
"proxy" bank and was one of the user institutions where the service bureau
tested applications in December 1998.
Critical data processing applications, in addition to those provided by
the service bureau, have been identified. These include applications such as
electronic processing through the Federal Reserve Bank and ATM processing.
Testing procedures for these applications have been completed. Contingency
and Business Resumption Plans have been developed. These plans address actions
to be taken to continue operations in the event of system failure due to areas
that cannot be tested in advance, such as power and telephone service, which
are vital to business continuation. Validation of the Contingency and
Business Resumption Plans and testing procedures has be completed by the
bank's external auditors prior to June 30,1999. The internal testing of the
Contingency and Business Resumption Plans was completed and the results were
validated by the bank's external auditors.
All personal computers ("PCs") and related software throughout the Company
have been inventoried and tested for Year 2000 capabilities. The Company is
using two testing methods for PC certification of Year 2000 compatibility.
PCs must pass both tests to be considered ready for Year 2000. Those PCs
identified as non-Year 2000 compatible are being modified and/or replaced .
The Company believes that the Year 2000 issue will not pose significant
operational problems and is not anticipated to be material to its financial
position or results of operation in any given year. As of September 30,
1999, the Company estimates that total Year 2000 implementation costs will
not exceed $250,000 ($220,000 which have already been incurred) and are
expected to be expensed over the next several months, impacting fiscal year
ending December 31, 1999. This estimate is based on information available
at September 30, 1999, and may be revised as additional information and actual
costs become available.
In management's opinion, the additional liquidity needs and cash
planning issues have been reviewed and procedures have been implemented to
adequately address customer needs and to either minimize or avoid possible
customer inconvenience.
Changes in Financial Condition
At September 30, 1999, the consolidated assets of the Company totaled
$94.9 million, an increase of $300,000, or 0.27%, from $94.7 million at
December 31, 1998. There has been some reallocation of funds from the
investment portfolio to the higher yielding loan portfolio during the nine
months ended September 30, 1999. The deposit portfolio decreased by
$200,000, or 0.29%, from $85.2 million at December 31, 1998.
Net loans receivable increased by $4.6 million, or 7.44%, to $65.9
million at September 30, 1999, compared to $61.3 million at December 31,
1998. The majority of the increase was in the commercial loan portfolio
primarily as a result of the previously mentioned bank acquisition and the
resulting staff changes. The other loan portfolios remained relatively
constant with the new loan demand equaling loan repayments.
Investment securities decreased a net of $2.5 million, or 13.0%, from
$19.5 million at December 31, 1998, to $16.9 million at September 30, 1999.
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 on going strategy to expand their loan
product base.
Excess funds are temporarily invested in federal funds which decreased
from $4.9 million at December 31, 1998, to $3.7 million at September 30,
1999. These funds were utilized primarily to satisfy the decline in deposit
account balances.
Deposit liabilities decreased $243,000, or 0.29%, during the nine
months ended September 30, 1999. Noninterest bearing deposits increased
$894,000, or 9.62%, while interest-bearing deposits decreased $1.1 million,
or 1.51%, during the period. Management attributes the decrease to the
maintaining of competitive rates in our market area. Interest credited on
accounts also contributed to the shift in deposit balances.
Total shareholders' equity increased $255,000, or 2.84%, from $9.0
million at December 31, 1998, to $9.2 million at September 30, 1999. This
increase was primarily the result of $458,000 in earnings for the first nine
months in fiscal 1999 and net sales of $48,000 in treasury shares through the
Dividend Reinvestment Plan. These increases were partially offset by a
decrease in accumulated comprehensive income (unrealized losses on securities
available-for-sale) of $147,000 and the payment of cash dividends of
$104,000.
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
<PAGE>
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 September 30, 1999, that the Bank meets all of the
capital adequacy requirements to which it is subject.
As of December 31, 1998, 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 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 September 30, 1999, Exchange Bancshares had no material commitments
for capital expenditures.
<PAGE>
Results of Operations
Comparison of Three months Ended September 30, 1999 and 1998
General. Net income increased for the three months ended September 30,
1999, to $190,000, as compared to the three months ended September 30, 1998,
$117,000, an increase of $73,000, or 62.39%. This increase was primarily
attributed to the increases in the other noninterest income, primarily from
other fee income, and the decrease in noninterest expense, the majority of
which were directly related to the acquisition of Towne Bank. These are
discussed in greater detail under the captions "Non-Interest Income" and
"Non-Interest Expense".
Interest Income. Average earning assets have increased during the
third quarter of 1999 while the yield on earning assets decreased by 19 basis
points resulting in a net decrease in interest income of $14,000, or 0.77%,
for the three months ended September 30, 1999, compared to same three month
period in 1998. The increase in loans outstanding contributed $99,000 to
interest income while the portfolio yield decreased interest income by $42,000.
The decrease in the value of the investments held accounted for a $6,000
decrease in interest income while the decline in the portfolio yield reduced
interest income by $16,000. The average amount of excess funds invested in
overnight federal funds accounted for an additional $39,000 decrease while the
decline in yield amounted to an additional decrease of $10,000. The overall
yield on earning assets for the three month period ending September 30, 1999,
was 8.41% as compared to 8.50% for the same period in 1998.
Interest Expense. Interest expense on deposit liabilities decreased
$49,000, or 5.88%, for the three months ended September 30, 1999, as compared
to the same period in 1998. Average interest-bearing deposits increased by
$2.9 million comparing three month period ended September 30, 1999 to
September 30, 1998, and the average interest paid on interest-bearing
deposits decreased by 44 basis points from 4.64% for the three months ended
September 30, 1998, to 4.20% for the same period ended September 30, 1999.
The FHLB advance interest expense during the three-month period ended
September 30, 1999, increased by $2,000 in 1999 compared to 1998.
Provision for Loan Losses. There were no provisions for possible loan
losses during the third quarter of 1999 or 1998 while net charge-offs of
$9,000 and $43,000 were recorded during the three month periods ending
September 30, 1999 and 1998, respectively. 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, as well as the reserves associated with the recent bank acquisition.
Non-Interest Income. Non-interest income increased $54,000, or 52.43%,
to $157,000 for the three months ended September 30, 1999, from $103,000 for
the three months ended September 30, 1998. Service charges on deposit
accounts decreased $8,000 while other income (primarily miscellaneous fee
income from PrimeVest) increased by $62,000.
Non-Interest Expense. Non-interest expense decreased $13,000, or 1.44%,
to $888,000 for the three months ended September 30, 1999, from $901,000 in
the comparable period in 1998. Compensation and benefit expense increased in
1999, reflecting normal salary and benefit adjustments. Occupancy and
equipment expenses have stabilized since the addition of the two new office
locations in the third quarter of 1998. The legal, accounting and
examination expenses remained relatively constant with the remainder of the
general expenses decreasing modestly from the levels experienced during the
same three month period in 1998.
Income Taxes. The provision for income taxes increased $27,000 for the
three months ended September 30, 1999, compared with the prior year,
primarily as a result of higher taxable income for the period.
Comparison of Nine months Ended September 30, 1999 and 1998
General. Net income remained relatively constant for the nine months
ended September 30, 1999, at $458,000, as compared to the nine months ended
September 30, 1998, $461,000, a decrease of $3,000. This decrease was
primarily attributed to the increases experienced in salaries and employee
benefits, and occupancy and equipment expenses which are directly related to
internal restructuring of the bank's operation as a result of the additional
offices associated with the Towne Bank acquisition. These are discussed in
greater detail under the captions Non-Interest Income and Non-Interest
Expense.
<PAGE>
Interest Income. Average earning assets have continued to increase
during the nine months of 1999 which has contributed to an increase in
interest income of $576,000, or 12.17%, for the nine months ended September
30, 1999, compared to 1998. The increase was attributed to the additional
loan income of $701,000 resulting from an increase in loans receivable being
offset by decreases of $105,000, $19,000 and $1,000 in federal funds sold,
investments and due from banks, respectively. The increase in interest
income on loans is primarily related to the average volume outstanding,
$740,000, and the decline in average yield, $39,000. Volume decreases in
other categories of earning-assets accounted for a decline of $72,000 in
interest income and the lower yields for a decline of $53,000. The yield on
interest-earnings assets decreased by 9 basis points to 8.27% , for the nine
months ended September 30, 1999, from 8.36% for the comparable period in
1998.
Interest Expense. Interest expense on deposit liabilities increased
$245,000 for the nine months ended September 30, 1999, as compared to the
same period in 1998. Average interest-bearing deposits increased by $2.9
million comparing the nine months ended September 30, 1999 to September 30,
1998, and the average interest paid on interest-bearing deposits decreased
by 44 basis points from 4.64% for the nine months ended September 30, 1998,
to 4.20%for the same period ended September 30, 1999. The FHLB advance
interest expense during the nine-month period ended September 30, 1999,
remained relatively constant.
Provision for Loan Losses. There were no provisions for loan losses and
there were net charge-offs of $348,000 during the nine months ended September
30, 1999, compared to no provisions and net charge-offs of $339,000 during
the nine months ended September 30, 1998. 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, as well as the reserves associated with the recent bank acquisition.
Non-Interest Income. Non-interest income increased $189,000, or 66.78%,
to $472,000 for the nine months ended September 30, 1999, from $283,000 for
the nine months ended September 30, 1998. Service charges on deposit accounts
increased $4,000 while other income (primarily miscellaneous fee income from
PrimeVest) increased by $211,000.
Non-Interest Expense. Non-interest expense increased $560,000, or
25.47%, to $2.8 million for the nine months ended September 30, 1999, from
$$2.2 million in the comparable period in 1998. Of this increase, $349,000
was attributable to an increase in compensation and benefit expense in 1999,
reflecting normal salary and benefit adjustments as well as additional
staffing associated with the addition of two branch office locations. The
increase of $134,000 in occupancy and equipment is primarily attributable to
the two new office locations. The normal legal, accounting and examination
expenses remained relatively constant with the remainder of the general
expenses increasing slightly over the levels experienced during the same
three month period in 1998. The significant increase in other expense,
$77,000, was primarily a result of the additional expenses incurred as a
result of the on legal, consulting and accounting fees, and the data processing
services associated with the recent bank acquisition.
Income Taxes. The provision for income taxes decreased $37,000 for the
nine months ended September 30, 1999, compared with the prior year, primarily
as a result of lower taxable income for the period.
<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
Not Applicable
ITEM 5 - OTHER INFORMATION
Not Applicable
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibit 27: Financial Data Schedule
b. No report on Form 8-K was filed during the quarter ended
September 30, 1999.
<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.
November 15, 1999 /s/ Marion Layman
- -------------------------- ------------------------------
Date Marion Layman
Chairman, President,
and Chief Executive Officer
November 15, 1999 /s/ Marion Layman
- -------------------------- ------------------------------
Date Marion Layman
Principal Accounting and Financial Officer
<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
months ended June 30, 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> APR-01-1998
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 2,989
<INT-BEARING-DEPOSITS> 25
<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> 91,320
<DEPOSITS> 83,891
<SHORT-TERM> 0
<LIABILITIES-OTHER> 522
<LONG-TERM> 175
0
0
<COMMON> 2,622
<OTHER-SE> 6,110
<TOTAL-LIABILITIES-AND-EQUITY> 91,320
<INTEREST-LOAN> 1,140
<INTEREST-INVEST> 251
<INTEREST-OTHER> 99
<INTEREST-TOTAL> 1,490
<INTEREST-DEPOSIT> 656
<INTEREST-EXPENSE> 660
<INTEREST-INCOME-NET> 830
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 712
<INCOME-PRETAX> 215
<INCOME-PRE-EXTRAORDINARY> 136
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 136
<EPS-BASIC> 0.25
<EPS-DILUTED> 0.25
<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 September 30, 1999 and December 31, 1998, and
the related Consolidated Statements of Income and Comprehensive Income for the
three months ended September 30, 1999 and 1998, 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-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<EXCHANGE-RATE> 1
<CASH> 2,830
<INT-BEARING-DEPOSITS> 6
<FED-FUNDS-SOLD> 3,678
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 16,451
<INVESTMENTS-CARRYING> 495
<INVESTMENTS-MARKET> 500
<LOANS> 67,089
<ALLOWANCE> 1,194
<TOTAL-ASSETS> 94,894
<DEPOSITS> 84,948
<SHORT-TERM> 0
<LIABILITIES-OTHER> 572
<LONG-TERM> 153
0
0
<COMMON> 2,754
<OTHER-SE> 6,467
<TOTAL-LIABILITIES-AND-EQUITY> 94,894
<INTEREST-LOAN> 1,503
<INTEREST-INVEST> 251
<INTEREST-OTHER> 41
<INTEREST-TOTAL> 1,795
<INTEREST-DEPOSIT> 785
<INTEREST-EXPENSE> 788
<INTEREST-INCOME-NET> 1,007
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 888
<INCOME-PRETAX> 276
<INCOME-PRE-EXTRAORDINARY> 190
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 190
<EPS-BASIC> 0.35
<EPS-DILUTED> 0.35
<YIELD-ACTUAL> 4.51
<LOANS-NON> 423
<LOANS-PAST> 125
<LOANS-TROUBLED> 18
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,203
<CHARGE-OFFS> 11
<RECOVERIES> 2
<ALLOWANCE-CLOSE> 1,194
<ALLOWANCE-DOMESTIC> 1,203
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 594
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
The schedule contains summary financial information extracted from the
Consolidated Balance Sheets as of March 31, 1999 and December 31, 1998, and the
related Consolidated Statements of Income and Comprehensive Income for the three
months ended March 31, 1999 and 1998, 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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 2,855
<INT-BEARING-DEPOSITS> 17
<FED-FUNDS-SOLD> 5,033
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 16,951
<INVESTMENTS-CARRYING> 744
<INVESTMENTS-MARKET> 751
<LOANS> 64,726
<ALLOWANCE> 1,393
<TOTAL-ASSETS> 94,567
<DEPOSITS> 84,635
<SHORT-TERM> 0
<LIABILITIES-OTHER> 651
<LONG-TERM> 172
0
0
<COMMON> 2,623
<OTHER-SE> 6,486
<TOTAL-LIABILITIES-AND-EQUITY> 94,567
<INTEREST-LOAN> 1,420
<INTEREST-INVEST> 260
<INTEREST-OTHER> 58
<INTEREST-TOTAL> 1,738
<INTEREST-DEPOSIT> 785
<INTEREST-EXPENSE> 788
<INTEREST-INCOME-NET> 950
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 873
<INCOME-PRETAX> 224
<INCOME-PRE-EXTRAORDINARY> 157
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 157
<EPS-BASIC> 0.29
<EPS-DILUTED> 0.29
<YIELD-ACTUAL> 4.64
<LOANS-NON> 242
<LOANS-PAST> 226
<LOANS-TROUBLED> 220
<LOANS-PROBLEM> 1,293
<ALLOWANCE-OPEN> 1,542
<CHARGE-OFFS> 159
<RECOVERIES> 10
<ALLOWANCE-CLOSE> 1,393
<ALLOWANCE-DOMESTIC> 1,393
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 944
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
The schedule contains summary financial information extracted from the
Consolidated Balance Sheets as of December 31, 1998 and December 31, 1997, and
the related Consolidated Statements of Income and Comprehensive Income for the
twelve months ended December 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> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 3,092
<INT-BEARING-DEPOSITS> 21
<FED-FUNDS-SOLD> 4,874
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 18,448
<INVESTMENTS-CARRYING> 1,022
<INVESTMENTS-MARKET> 1,030
<LOANS> 62,874
<ALLOWANCE> 1,542
<TOTAL-ASSETS> 94,636
<DEPOSITS> 85,191
<SHORT-TERM> 0
<LIABILITIES-OTHER> 306
<LONG-TERM> 173
0
0
<COMMON> 2,623
<OTHER-SE> 6,343
<TOTAL-LIABILITIES-AND-EQUITY> 94,636
<INTEREST-LOAN> 5,168
<INTEREST-INVEST> 1,059
<INTEREST-OTHER> 360
<INTEREST-TOTAL> 6,587
<INTEREST-DEPOSIT> 2,946
<INTEREST-EXPENSE> 2,958
<INTEREST-INCOME-NET> 3,629
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 3,124
<INCOME-PRETAX> 925
<INCOME-PRE-EXTRAORDINARY> 624
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 624
<EPS-BASIC> 1.15
<EPS-DILUTED> 1.15
<YIELD-ACTUAL> 4.62
<LOANS-NON> 399
<LOANS-PAST> 115
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 720
<ALLOWANCE-OPEN> 624
<CHARGE-OFFS> 125
<RECOVERIES> 82
<ALLOWANCE-CLOSE> 1,542
<ALLOWANCE-DOMESTIC> 1,542
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 298
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
The schedule contains summary financial information extracted from the
Consolidated Balance Sheets as of September 30, 1998 and December 31,1997, and
the related Consolidated Statements of Income and Comprehensive Income for the
three months ended September 30, 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> JUL-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 2,900
<INT-BEARING-DEPOSITS> 25
<FED-FUNDS-SOLD> 6,511
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 16,516
<INVESTMENTS-CARRYING> 1,243
<INVESTMENTS-MARKET> 1,377
<LOANS> 62,137
<ALLOWANCE> 1,513
<TOTAL-ASSETS> 91,131
<DEPOSITS> 83,733
<SHORT-TERM> 0
<LIABILITIES-OTHER> 320
<LONG-TERM> 175
0
0
<COMMON> 2,622
<OTHER-SE> 6,281
<TOTAL-LIABILITIES-AND-EQUITY> 91,131
<INTEREST-LOAN> 1,446
<INTEREST-INVEST> 273
<INTEREST-OTHER> 90
<INTEREST-TOTAL> 1,809
<INTEREST-DEPOSIT> 834
<INTEREST-EXPENSE> 835
<INTEREST-INCOME-NET> 984
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 901
<INCOME-PRETAX> 176
<INCOME-PRE-EXTRAORDINARY> 117
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 117
<EPS-BASIC> 0.22
<EPS-DILUTED> 0.22
<YIELD-ACTUAL> 4.67
<LOANS-NON> 16
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,544
<CHARGE-OFFS> 43
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,513
<ALLOWANCE-DOMESTIC> 1,513
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 830
</TABLE>
