SecProbe.io

<DOCUMENT>
<TYPE>LETTER
<SEQUENCE>1
<FILENAME>filename1.txt
<TEXT>

      June 17, 2005

Mail Stop 4561

By U.S. Mail and facsimile to (419)833-3663

Thomas E. Funk
Chief Financial Officer
Exchange Bancshares, Inc.
237 Main Street, P.O. Box 177
Luckey, Ohio 43443

Re:	Exchange Bancshares, Inc.
	Form 10-K filed March 31, 2005
	File No. 033-54566

Dear Mr. Funk:

	We have reviewed your filing and have the following comments.
Where indicated, we think you should revise your document in
response
to these comments.  If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary.  Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
supplemental information so we may better understand your
disclosure.
After reviewing this information, we may or may not raise
additional
comments.

      Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects.  We welcome
any questions you may have about our comments or any other aspect
of
our review.  Feel free to call us at the telephone numbers listed
at
the end of this letter.

Form 10-K for the Year ended December 31, 2004

Note 7.  Federal Income Taxes - page 28

1. We have reviewed your response to our comment letter dated May
12,
2005 and continue to believe that, based on the following
circumstances, there is a preponderance of negative evidence that
supports the assumption under paragraph 17 of SFAS 109 that is
more
likely than not that a significant portion of the deferred tax
assets
will not be realized in future periods:

* The 25% total decrease in outstanding loans during the four-year
and three-month period ended March 31, 2005, shows decreases
during
each successive fiscal period and is not consistent with your
statement that the decrease in loans outstanding is due to
stricter
underwriting standard implemented in 2004.

* We remain unclear your position that the decrease in loans was
part
of management`s strategy to create quality loan growth when:

o  the majority of the decrease in loans is due to competition,
payoffs and charge-offs;  and
o the Company is unable to quantify the portion of the decrease in
loans attributable to changes in underwriting standards.

* Management`s Discussion and Analysis in the December 31, 2004
Form
10-K and the March 31, 2005 10-Q does not describe management`s
plans
to generate quality loan growth that you state was implemented in
2004.  The March 31, 2005 10-Q states the decrease in loan
categories
can be somewhat attributed to tightening underwriting standards
and
therefore does not support your response that the decrease in the
loan portfolio is mainly due to management`s strategies to improve
asset quality.

* The deposits have decreased 21% during the three-year and three-
month period ended March 31, 2005, and include the loss of one
large
public account fund of $4 million during the three-month period
ended
March 31, 2005.

* Your response that the $17 million decrease in deposits from
2002
to 2004 was part of management`s strategy to decrease its reliance
on
funding from high-rate certificates of deposit was not disclosed
in
Management`s Discussion and Analysis covering those fiscal
periods.

* Non-performing assets as of March 31, 2005 increased 26% as
compared to December 31, 2005, and have marginally increased in
April
30, 2005 as stated in your response letter.

* Your statements that net charge-offs will decrease for 2005 and,
along with tightened underwriting standards, will allow for a
reduction in the provision in future years, may not be reliable
forecasts since the risk characteristics of the loan portfolio are
subject to change significantly over an extended period of time.

* The pre-tax net losses of $1.7 million in 2002; $564,000 in 2004
and $112,000 during the three-months ended March 31, 2005 do not
support the reversal of 50% of the valuation allowance for
$138,000
in 2003, a period in which the Company only recorded minimal pre-
tax
net income.

* The fact that the Company had been profitable from 1997 through
2001 provides no assurance that it will be profitable in the
future
since it has sustained continued losses during the most recent
annual
and interim fiscal periods.

* Your response that through the Company`s 100 year history it has
never had an NOL expire without being used does not provide
assurance
that it will be able to use the NOLs in the future since the
Company`s loss in 2004 created a NOL carryforward for the first
time
in its history.

* Your statement in Appendix A that the Board of Directors has
been
discussing selling a branch building to generate a taxable gain of
$100,000 is a nonrecurring income item and will result in
additional
expenses through the rental of other facilities.

In this regard, please file the necessary amendments to the 10-KSB
for the year ended December 31, 2004 and the 10-QSB for the three
months ended March 31, 2005 to give effect to the restatements,
which
we previously requested, to reverse the reductions in the
valuation
allowance during 2002 and 2003 and to increase the valuation
allowance in 2004 considering the pre-tax losses; the decrease in
loans, deposits and interest income and the increase in net loan
charge-offs in 2004.

Form 10-QSB for the three-months ended March 31, 2005

Note 6. Commitments and Contingencies, page 11

2. We refer to the statement that the Company has entered into
"change in control" agreements with four officers which provide
for a
specified multiple of each employee`s annual salaries upon the
consummation of the merger agreement with Rurkan.  In this regard,
please tell us and revise the Form 10Q to provide the following
information:

* Disclose in the footnote the maximum amount of compensation due
to
these employees.

* Tell us why these payments have not been accrued considering the
definitive merger agreement was signed on April 13, 2005 as stated
in
Note 3, "Definitive Agreement" on page 9.

* Discuss when these payments are expected to be made and disclose
in
MD&A the expected effects of these payments on the Company`s
future
operations, liquidity and cash flow.

* Tell us and disclose if the Amendment to the Change in Control
Agreement has been duly authorized by the Board of Directors and
by
your regulators, if necessary.

*	*	*

Closing Comments

      As appropriate, please response to these comments within 10
business days or tell us when you will provide us with a response.
Please furnish a cover letter with your amendment that keys your
responses to our comments and provides any requested supplemental
information.  Detailed cover letters greatly facilitate our
review.
Please understand that we may have additional comments after
reviewing your amendment and responses to our comments.

      You may contact Edwin Adames (Senior Staff Accountant) at
(202)
551-3447 or me at  (202) 551-3492 if your have any questions
regarding these comments.

						Sincerely,

						John P. Nolan
						Accounting Branch Chief
??

??

??

??

Exchange Bancshares, Inc.
Thomas E. Funk
Page 1 of 4

</TEXT>
</DOCUMENT>