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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington DC 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, 1999
[ ] Transition report under Section 13 or 15(d) to the Exchange Act
For the transition period from __________________ to __________________
Commission File No. 333-70589
NEW COMMERCE BANCORP
--------------------
(Exact Name of Small Business Issuer as Specified in its Charter)
South Carolina 58-2403844
-------------- ----------
One Five Forks Plaza Court, Simpsonville, South Carolina 29681
(Address of Principal Executive Offices)
(864) 288-3337
(Issuer's Telephone Number, Including Area Code)
Not Applicable
--------------
(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 [ ]
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date:
One million shares of common stock, par value $.01 per share, were
issued and outstanding as of August 1, 1999.
Transitional Small Business Disclosure Format (check one): Yes [ ]
No [X]
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NEW COMMERCE BANCORP
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30, December 31,
1999 1998 (Develop-
(Unaudited) ment stage
enterprise)
(Audited)
------------ -----------
ASSETS
Cash and due from banks $ 752,254 $ 1,762,031
Federal funds sold 8,585,000 --
Loans - net 2,607,042 --
Property - at cost, less accumulated 1,738,936 8,218
depreciation
Real estate options -- 39,800
Deferred stock offering costs -- 143,427
Federal Reserve Bank capital stock 210,000 --
Other assets 198,002 --
------------ -----------
TOTAL $ 14,091,234 $ 1,953,476
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits $ 4,714,939 $ --
Accrued expenses and other liabilities 30,595 --
------------ -----------
Total liabilities 4,745,534 --
------------ -----------
Shareholders' Equity
Common stock - $.01 par value, authorized
10,000,000 shares, 1,000,000 and 200,000
shares issued and outstanding at June 30,
1999 and December 31, 1998, respectively 10,000 2,000
Additional paid-in capital 9,776,748 1,998,000
Retained earnings (deficit) (441,048) (46,524)
------------ -----------
Total shareholders' equity 9,345,700 1,953,476
------------ -----------
TOTAL $ 14,091,234 $ 1,953,476
============ ===========
See Notes to Consolidated Financial Statements which are an integral part of
these statements.
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NEW COMMERCE BANCORP
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
For the three For the six
months ended months ended
June 30, 1999 June 30, 1999
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INTEREST INCOME
Loans (including fees) $ 13,000 $ 13,000
Investment securities 15,476 15,476
Federal funds sold 45,468 51,652
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Total interest income 73,944 80,128
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INTEREST EXPENSE
Deposits 9,462 9,462
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NET INTEREST INCOME 64,482 70,666
Provision for Possible Loan Losses 22,629 22,629
------------ -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 41,853 48,037
NONINTEREST INCOME
Service charges 1,820 1,820
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Total Income 43,673 49,857
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NONINTEREST EXPENSES
Salaries and employee benefits 277,274 331,204
Occupancy, office and equipment 37,082 37,082
Data Processing 8,596 8,596
Insurance 1,431 1,431
Postage and supplies 37,202 37,202
Marketing 61,761 61,761
Other 90,756 153,990
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Total noninterest expense 514,102 631,266
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LOSS BEFORE INCOME TAX BENEFIT (470,429) (581,409)
INCOME TAX BENEFIT (148,434) (186,885)
------------ -----------
NET LOSS $ (321,995) $ (394,524)
------------ -----------
Net loss Per Common Share $ (0.32) $ (0.39)
============ -----------
See Notes to Consolidated Financial Statements which are an integral part of
these statements.
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NEW COMMERCE BANCORP
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
Accumulated
Additional Retained other Total
Common Stock paid-in Earnings comprehensive Shareholders'
Shares Amount capital (Deficit) income Equity
------- -------- ----------- ---------- ------------ ------------
Balance December 31, 1998 200,000 $ 2,000 $ 1,998,000 $ (46,524) $ -- $1,953,476
Net loss -- -- -- (394,524) -- (394,524)
Other comprehensive income
(loss), net of tax _________
Comprehensive income -- -- -- -- -- 1,558,952
Issuance of common stock 800,000 8,000 7,992,000 -- -- 8,000,000
Stock offering expenses -- -- (213,252) -- -- (213,252)
--------- -------- ------------ ----------- ------------- ----------
Balance, June 30, 1999 1,000,000 $ 10,000 $ 9,776,748 $ (441,048) $ -- $9,345,700
--------- -------- ------------ ----------- ------------- ----------
See Notes to Consolidated Financial Statements which are an integral part of
these statements.
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NEW COMMERCE BANCORP
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(UNAUDITED)
OPERATING ACTIVITIES
Net loss $ (394,524)
Adjustments to reconcile net loss to net cash
provided by operating activities
Depreciation 3,000
Provision for possible loan losses 22,629
Deferred income tax benefit (186,885)
Increase in other assets (11,117)
Increase in accrued expenses and other liabilities 30,595
-----------
Net cash used for operating activities (536,302)
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INVESTING ACTIVITIES
Net increase in federal funds sold (8,585,000)
Net increase in loans (2,629,671)
Capital expenditures for property (1,733,718)
Increase in Federal Reserve Bank capital stock (210,000)
Decrease in real estate options 39,800
------------
Net cash used for investing activities (13,118,589)
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FINANCING ACTIVITIES
Net increase in deposits 4,714,939
Issuance of capital stock, Net of stock offering costs 7,930,175
------------
Net cash provided by financing activities 12,645,114
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Net Decrease in Cash and Due from Banks (1,009,777)
------------
Cash and Due From Banks, Beginning of Period 1,762,031
------------
Cash and Due From Banks, End of Period $ 752,254
============
CASH PAID FOR
Interest $ 5,664
------------
Income Taxes $ --
============
See Notes to Consolidated Financial Statements which are an integral part of
these statements.
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NEW COMMERCE BANCORP
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Nature of Business and Basis of Presentation
Business activity and organization
New Commerce Bancorp (the "Company") was incorporated to operate as a
bank holding company pursuant to the Federal Bank Holding Company Act of 1956
and the South Carolina Bank Holding Company Act, and to purchase 100% of the
issued and outstanding stock of New Commerce Bank (the "Bank"), an association
organized under the laws of the United States, to conduct a general banking
business in Simpsonville, South Carolina.
Since inception through May 17, 1999, the Company had engaged in
organizational and preopening activities necessary to obtain regulatory
approvals and to prepare its subsidiary, the Bank, to commence business as a
financial institution. On May 17, 1999, the Bank opened for business. The Bank
is primarily engaged in the business of accepting demand deposits and savings
insured by the Federal Deposit Insurance Corporation, and providing commercial,
consumer and mortgage loans to the general public.
Basis of Presentation
The accompanying financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-QSB. Accordingly, they do not include all
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for
a fair presentation have been included. Operating results for the six-month
period ended June 30, 1999 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1999. For further information,
refer to the consolidated financial statements and footnotes thereto included
in the Company's Registration Statement on Form SB-2 (Registration Number
333-70589) as filed with and declared effective by the Securities and Exchange
Commission.
Until the Bank opened for business on May 17, 1999, the Company was
accounted for as a development stage enterprise as defined by Statement of
Financial Accounting Standards No. 7, "Accounting and Reporting by Development
Stage Enterprises," as the Company devoted substantially all of its efforts to
establishing a new business. When the Bank opened, certain reclassifications
and adjustments were made to the financial statements to reflect that the
Company is now accounted for as an operating company.
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Note 2 - Net Loss Per Common Share
SFAS No. 128, "Earnings per Share" requires that the Company present
basic and diluted net income per share. Net loss per common share is calculated
by dividing net loss by the weighted average number of common shares
outstanding for each period presented. The weighted average number of common
shares outstanding for basic net loss per common share was 1,000,000 for the
six months ended June 30, 1999, and 1,000,000 for the three months ended June
30, 1999. The Company did not have any common stock equivalents during the six
months ended June 30, 1999.
Part 1 - FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operation.
The following discussion contains forward-looking statements within
the meaning of the Private Securities Litigation Reform Act of 1995, such as
statements relating to financial results and plans for future business
development activities, and are thus prospective. Such forward-looking
statements are subject to risks, uncertainties, and other factors which could
cause actual results to differ materially from future results expressed or
implied by such forward-looking statements. These statements appear in a number
of places in this report and include all statements that are not statements of
historical fact regarding our intent, belief, or expectations. These
forward-looking statements are not guarantees of future performance and actual
results may differ materially from those projected in the forward-looking
statements. Potential risks and uncertainties include, but are not limited to,
our brief operating history, our ability to manage rapid growth, general
economic conditions, competition, interest rate sensitivity, and exposure to
regulatory and legislative changes. Additional risks are discussed in detail in
our filings with the Securities and Exchange Commission, including the "Risk
Factors" section in our Registration Statement on Form SB-2 (Registration
Number 333-70589) as filed with and declared effective by the Securities and
Exchange Commission.
Until May 17, 1999, the Company's principal activities related to its
organization, the conducting of its initial public offering, the pursuit of
approvals from the OCC for its application to charter the Bank, and the pursuit
of approvals from the FDIC for its application for insurance of the deposits of
the Bank. In February 1999, the Company received preliminary approval from the
OCC to charter the Bank. On March 10, 1999, the FDIC granted preliminary
approval of deposit insurance application for the Bank. The Bank opened for
business on May 17, 1999.
The Company completed its stock offering on June 30, 1999 and sold the
maximum of 1,000,000 shares of its common stock at $10 per share. The maximum
offering raised $9,786,000, representing $10,000,000 in capital, reduced by
sales agent commissions of $144,195 and stock offering expenses of $69,057. The
Company capitalized the Bank with $8,250,000 of the proceeds of the stock
offering. The remaining offering proceeds will be used to pay organization
expenses of the Company and provide working capital, including additional
future capital for investment in the Bank, if needed. The Company believes this
amount will be sufficient to fund the activities of the Bank in its initial
stages of operations, and that the Bank will generate sufficient income from
operations to fund its activities on an ongoing basis. However, there can be no
assurance that either the Bank or the Company will achieve any particular level
of profitability.
At June 30, 1999, the Company had total assets of $14,091,000,
consisting principally of cash and due from banks of $752,000, federal funds
sold of $8,585,000, net loans of $2,607,000, and property, at cost less
accumulated depreciation, of $1,739,000. Liabilities at June 30, 1999 totaled
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$4,746,000, consisting of deposits of $4,715,000 and accrued expenses and other
liabilities of $31,000. At June 30, 1999, shareholders' equity was $9,346,000.
The Company had a net loss of $394,500 for the six months ended June
30, 1999. These losses resulted primarily from expenses incurred in connection
with activities relating to the organization of the Company and preopening
activities of the Bank. These activities included (without limitation) the
preparation and filing of an application with the OCC to charter the Bank, the
preparation and filing of an application with the FDIC to obtain insurance of
the deposits of the Bank, responding to questions and providing additional
information to the OCC and FDIC in connection with the application process, the
selling of the Company's common stock in the offering, meetings and discussions
among various organizers regarding application information, target markets, and
capitalization issues, salaries and benefits, and planning and organizing for
the opening of the Bank. With respect to the Bank, these activities included
completing all required steps for final approval from the OCC for the Bank to
open for business, hiring qualified personnel to work in the Bank, conducting
public relations activities on behalf of the Bank, developing prospective
business contacts for the Bank and taking other actions necessary for a
successful bank opening. Through June 30, 1999, the Company incurred
organization and preopening costs of approximately $469,000. These costs were
expensed when incurred in accordance with SOP 98-5, "Reporting on the Costs of
Start-Up Activities". Because the Bank did not open until May 17, 1999, it has
had minimal operations from which to generate revenues.
From its opening date through June 30, 1999, the Bank raised $4.7
million in deposits and loaned $2.6 million, net of the loan loss reserve. Net
interest income totaled $71,000 and net interest income after the provision for
loan losses amounted to $48,000. Since the Bank has been open for less than two
months, a more detailed discussion of the Bank's results of operations is not
meaningful.
Year 2000 Readiness
Like many financial institutions, we rely on computers to conduct our
business and information systems processing. Industry experts are concerned
that on January 1, 2000, some computers may not be able to interpret the new
year properly, causing computer malfunctions. As described in more detail
below, we have developed and are executing a plan to insure that our computer
and telecommunication systems do not have these year 2000 problems and we do
not anticipate that the year 2000 issue will materially impact our business or
operations. We rely on third party vendors to supply our computer and
telecommunication systems and other office equipment, and we also rely on a
third party to process our data and account information. As a new bank, we had
the ability to choose only those vendors who are ready for the year 2000 and,
therefore, would not have to address problems in older systems. Although we
believe we have addressed the year 2000 issue, we cannot be entirely sure that
the year 2000 will not have any adverse effect on the Bank.
We have prepared a comprehensive year 2000 plan to monitor and ensure
the year 2000 compliance of our third party vendors of computer and
telecommunication systems, data processing services and other office equipment.
We have budgeted $12,000 for the execution of this plan and the plan calls for
us to have all systems in place and be fully year 2000 compliant by August 30,
1999, although the plan calls for us to continue to monitor the situation
through the end of the year and beyond. We are executing this plan under the
supervision of our chief financial officer, with oversight from our board of
directors. Under the plan, we have investigated the year 2000 readiness of each
vendor and required comprehensive year 2000 warranties from each vendor. We
have reviewed year 2000 testing completed by each vendor, and tested our own
systems to the extent we deemed necessary. Our investigation of each vendor
primarily consists of requesting and reviewing its year 2000 test results.
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Jack Henry & Associates, Inc. provides our mission critical computer
software and data processing services. Jack Henry is a well-established company
and provides computer systems and data processing services to hundreds of
financial institutions throughout the United States. Jack Henry has tested its
systems for year 2000 issues. Rather than test all of its customers
individually, Jack Henry, like other vendors, tested its systems on selected
financial institutions which run its systems under a variety of conditions and
configurations. The purpose of this selective testing is to avoid the
prohibitive cost of testing every installed system, while still providing a
high level of comfort that its systems will perform under all conditions.
Banking regulators have approved this type of testing as a valid means of
testing. Jack Henry has completed testing of the systems we are using. We have
reviewed the methods and results of this testing and are satisfied that the
tested systems are similar to ours and that the Jack Henry systems will
function as intended on all critical year 2000 related dates.
Our year 2000 plan extends to our other less critical vendors as well,
including our vendors for ATM hardware, telephone systems, credit card
processors, and suppliers of office equipment. Under our plan, we have reviewed
assurances and warranties of all of these vendors and intend to be satisfied
that all systems provided are year 2000 compliant before August 31, 1999. Based
on our review of our vendor's systems and year 2000 testing results to date, we
do not believe that they will have any significant year 2000 problems. The
Office of the Comptroller of the Currency and the FDIC are also monitoring the
year 2000 readiness of the banking industry.
Our agreements with each of our vendors, including Jack Henry, do
include contractual assurances and warranties regarding year 2000 compliance.
Some of these warranties are limited by disclaimers of liability which
specifically exclude special, incidental, indirect, and consequential damages.
These limitations could limit our ability to obtain recourse against a vendor
which is not year 2000 compliant by excluding damages for things such as lost
profits and customer lawsuits. We are also in the process of evaluating our
worst case scenario and developing contingency plans in case year 2000 issues
do arise. We expect to have our contingency plans in place by August 31, 1999.
Based on the information currently available, we believe that we will be able
to continue to operate the business if one or more our vendors experience
unanticipated year 2000 problems.
Our customers may also have year 2000 issues. These issues could
disrupt certain businesses with high year 2000 risk and affect their deposit
balances and their ability to repay their loans. We are reviewing customer
exposure and assessing year 2000 readiness through year 2000 surveys. For those
customers with high credit risk and high potential exposure, we may require
more substantial proof of year 2000 compliance. Although these surveys are
helpful, it is very difficult for us to accurately assess the year 2000
readiness of any particular borrower or depositor. Additionally, there may be a
higher than usual demand for liquidity immediately prior to the century change
due to deposit withdrawals by customers concerned about year 2000 issues. To
address this possible demand, we have developed a liquidity plan to include
assessment of cash needs and we plan to have a higher percentage of investments
in readily accessible federal funds. We have federal funds lines of credit
available from two major correspondent banks and are in the process of
obtaining approval to have the ability to use the Federal Reserve Bank's
discount window.
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PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDING.
There are no material pending legal proceedings to which the Company
or any of its subsidiaries is party or of which any of their property is the
subject.
ITEM 2. CHANGES IN SECURITIES.
(a) Not applicable.
(b) Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to security holders for a vote
during the three months ended June 30, 1999.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
3.1. *Articles of Incorporation, as amended
3.2. *Bylaws
4.1. *See Exhibits 3.1 and 3.2 for provisions in New Commerce
BanCorp's Articles of Incorporation and Bylaws defining the
rights of holders of the common stock
4.2. *Form of certificate of common stock
10.1. *Employment Agreement dated August 1, 1998 between New
Commerce BanCorp and James D. Stewart
10.2. *Agreement to Buy and Sell dated January 4, 1999, between New
Commerce BanCorp, as buyer, and The Bess G. Kirkland Trust,
as seller
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10.3. *Agreement to Buy and Sell dated September 30, 1998 between
New Commerce BanCorp, as buyer, and Stephen M. Young and
Lewis P. Young, Trustees of Wilbert Burial Vault, Inc.,
Profit Sharing Plan, as seller
10.4. *Agreement to Buy and Sell dated October 26, 1998, between
New Commerce BanCorp, as buyer, and Hawkins Development
Corporation, as seller
10.5. *Sales Agency Agreement dated December 11, 1998 between New
Commerce BanCorp and J.C. Bradford & Co.
10.6. *Escrow Agreement dated October 27, 1998 between New Commerce
BanCorp and The Bankers Bank
10.7. *Data Processing Services Agreement and Contract Modification
dated December 1, 1998 between New Commerce BanCorp and Jack
Henry & Associates, Inc.
10.8. *Form of Stock Warrant Agreement
10.9. *Employment Agreement dated January 29, 1999 between New
Commerce BanCorp and Paula S. King
27.1. Financial Data Schedule (for electronic filing purposes)
- ---------------------------------
*Incorporated by reference to the Company's Registration Statement on Form
SB-2, File No. 333-70589.
(b) Reports on Form 8-K.
There were no reports on Form 8-K filed by the Company during the
quarter ended June 30, 1999.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934 (the "Exchange Act"), the registrant caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
NEW COMMERCE BANCORP
Date: August 13, 1999 By: /s/ James D. Stewart
- ------------------------ -----------------------------------------------
James D. Stewart
President and Chief Executive officer
Date: August 13, 1999 By: /s/ Paula S. King
- ------------------------ -----------------------------------------------
Paula S. King
Senior Vice President and
Chief Financial Officer
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EXHIBIT INDEX
EXHIBIT DESCRIPTION
- ------- -----------
3.1. *Articles of Incorporation, as amended
3.2. *Bylaws
4.1. *See Exhibits 3.1 and 3.2 for provisions in New Commerce
BanCorp's Articles of Incorporation and Bylaws defining the
rights of holders of the common stock
4.2. *Form of certificate of common stock
10.1. *Employment Agreement dated August 1, 1998 between New Commerce
BanCorp and James D. Stewart
10.2. *Agreement to Buy and Sell dated January 4, 1999, between New
Commerce BanCorp, as buyer, and The Bess G. Kirkland Trust, as
seller
10.3. *Agreement to Buy and Sell dated September 30, 1998 between New
Commerce BanCorp, as buyer, and Stephen M. Young and Lewis P.
Young, Trustees of Wilbert Burial Vault, Inc., Profit Sharing
Plan, seller
10.4. *Agreement to Buy and Sell dated October 26, 1998, between New
Commerce BanCorp, as buyer, and Hawkins Development Corporation,
as seller
10.5. *Sales Agency Agreement dated December 11, 1998 between New
Commerce BanCorp and J.C. Bradford & Co.
10.6. *Escrow Agreement dated October 27, 1998 between New Commerce
BanCorp and The Bankers Bank
10.7. *Data Processing Services Agreement and Contract Modification
dated December 1, 1998 between New Commerce BanCorp and Jack Henry
& Associates, Inc.
10.8. *Form of Stock Warrant Agreement
10.9. *Employment Agreement dated January 29, 1999 between New Commerce
BanCorp and Paula S. King
27.1. Financial Data Schedule (for electronic filing purposes)
- -------------------------
*Incorporated by reference to the Company's Registration Statement on Form
SB-2, File No. 333-70589
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