<PAGE>
<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1997
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ___________ to ____________
Commission file number 1-11819
-------
HAYWOOD BANCSHARES, INC.
---------------------------
(Exact name of registrant as specified in its charter)
North Carolina 56-1918006
- ----------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
370 North Main Street, Waynesville, North Carolina 28786
- -----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(704) 456-9092
--------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
-----------------
(Former name, former address, and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court.
Yes _____ No _____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest practicable
date.
As of August 11, 1997, shares of common stock outstanding
were 1,250,356.
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
---------- ------------
ASSETS (Unaudited)
- ------
<S> <C> <C>
Cash on hand and in banks $ 1,705,316 $ 1,029,850
Interest-bearing balances in other banks 479,997 143,806
Federal funds sold 2,100,627 152,847
Investment securities:
Held to maturity (market value of $9,652,945
and $10,744,961, respectively) 9,536,957 10,894,099
Available for sale (cost of $4,001,978) 3,988,613 --
Mortgage-backed securities:
Held to maturity (market value of $1,010,028
and $1,118,023, respectively) 957,702 1,069,323
Available for sale (cost of $10,722,780) 10,517,778 --
Loans receivable (net of allowance for loan
losses of $728,547 and $718,547, respectively) 111,614,111 109,344,406
Real estate acquired in settlement of loans 1,790,187 1,790,187
Federal Home Loan Bank stock, at cost 1,427,300 1,427,300
Premises and equipment 1,595,765 1,660,387
Investment in mortgage servicing rights 2,953,320 1,728,075
Other assets 994,925 881,054
Goodwill 753,780 780,030
------------ -----------
$150,416,378 $130,901,364
============ ===========
Liabilities and Stockholders' Equity
- ------------------------------------
Deposit accounts:
Noninterest-bearing $ 167,219 196,526
Interest-bearing, including $12,984,329
and $11,129,365 respectively, of time
deposits for $100,000 or more 116,632,710 107,146,853
------------ ------------
116,799,929 107,343,379
Note payable -- 1,200,000
Advances from Federal Home Loan Bank 10,500,000 --
Accrued expenses and other liabilities 2,156,952 1,831,091
------------ ------------
Total liabilities 129,456,881 110,374,470
Stockholders' equity:
Serial preferred stock, $1.00 par value,
5,000,000 shares authorized; no shares
issued or outstanding --
Common stock, $1.00 par value, 10,000,000
shares authorized; 1,250,356 and 1,211,856
shares issued and outstanding, respectively 1,250,356 1,211,856
Additional paid-in capital 3,362,967 3,218,006
Retained income, substantially restricted 16,660,173 16,298,440
Less obligation in connection with funds
used to acquire common shares by ESOP (169,908) (201,408)
Net unrealized losses on securities (144,091) --
------------ -----------
Total stockholders' equity 20,959,497 20,526,894
------------ -----------
$150,416,378 $130,901,364
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
2<PAGE>
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Income
<TABLE>
<CAPTION>
Six months ended
June 30,
(Unaudited)
------------------------
1997 1996
------- -------
<S> <C> <C>
Interest income:
Loans $4,467,686 4,371,394
Investment securities 277,712 447,059
Mortgage-backed securities 379,680 56,891
Interest-bearing balances in other banks 8,087 9,477
Federal funds sold 17,464 14,765
Other 51,314 54,518
---------- ---------
Total interest income 5,201,943 4,954,104
---------- ---------
Interest expense:
Deposits, including $302,733 in 1997 and
$233,725 in 1996, on time deposits for
$100,000 or more 2,684,339 2,527,501
Borrowed money 200,791 13,979
---------- ---------
Total interest expense 2,885,130 2,541,480
---------- ---------
Net interest income 2,316,813 2,412,624
Provision for loan losses 10,000 10,000
---------- ---------
Net interest income after provision
for loan losses 2,306,813 2,402,624
---------- ---------
Other income:
Insurance income, net 91,304 74,982
Service charges on deposits 38,151 37,853
Rental income 29,172 23,007
Real estate operations, net 204,956 208,168
Other income 81,133 18,509
---------- ---------
Total other income, net 444,716 362,519
---------- ---------
General and administrative expenses:
Salaries and employee benefits 933,709 911,439
Occupancy and equipment 175,272 187,697
Federal and other insurance premiums 42,209 141,190
Amortization of goodwill 26,250 26,250
Other expenses 415,213 382,149
---------- ---------
Total general and administrative expenses 1,592,653 1,648,725
---------- ---------
Income before income taxes 1,158,876 1,116,418
Income taxes 433,000 409,000
---------- ---------
Net income $ 725,876 707,418
========== =========
Per share amounts:
Net income $ .59 $ .60
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
3<PAGE>
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Income
<TABLE>
<CAPTION>
Three months ended
June 30,
(Unaudited)
------------------------
1997 1996
------- -------
<S> <C> <C>
Interest income:
Loans $2,267,831 2,206,185
Investment securities 123,810 207,117
Mortgage-backed securities 328,432 27,191
Interest-bearing balances in other banks 4,101 2,932
Federal funds sold 11,224 6,516
Other 25,799 27,259
---------- ---------
Total interest income 2,761,197 2,477,200
---------- ---------
Interest expense:
Deposits, including $148,239 in 1997 and
$100,393 in 1996, on time deposits for
$100,000 or more 1,395,051 1,263,115
Borrowed money 151,166 13,979
---------- ---------
Total interest expense 1,546,217 1,277,094
---------- ---------
Net interest income 1,214,980 1,200,106
Provision for loan losses 5,000 5,000
---------- ---------
Net interest income after provision
for loan losses 1,209,980 1,195,106
---------- ---------
Other income:
Insurance income, net 51,521 37,588
Service charges on deposits 17,560 16,619
Rental income 15,159 11,516
Real estate operations, net 108,335 100,366
Other income 33,092 8,586
---------- ---------
Total other income, net 225,667 174,675
---------- ---------
General and administrative expenses:
Salaries and employee benefits 491,543 448,818
Occupancy and equipment 82,371 88,910
Federal and other insurance premiums 9,430 69,575
Amortization of goodwill 13,125 13,125
Other expenses 184,366 225,927
---------- ---------
Total general and administrative expenses 780,835 846,355
---------- ---------
Income before income taxes 654,812 523,426
Income taxes 239,000 187,000
---------- ---------
Net income $ 415,812 336,426
========== =========
Per share amounts:
Net income $ .33 $ .29
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
4<PAGE>
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
Six Months ended June 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
Net
Additional Unrealized Total
Common Paid-in Retained Obligation Loss on Stockholders'
Stock Capital Income of the ESOP Securities Equity
-------- ---------- -------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $1,211,856 3,218,006 16,298,440 (201,408) -- 20,526,894
Stock options exercised 44,000 194,750 -- -- -- 238,750
Repurchase of common stock (5,500) (82,157) -- -- -- (87,657)
Net income -- -- 725,876 -- -- 725,876
Cash dividends declared on
common stock, $.14 per share -- -- (351,081) -- -- (351,081)
Principal repayment of ESOP debt -- -- -- 31,500 -- 31,500
Release and allocation of ESOP
shares -- 32,368 (13,062) -- -- 19,306
Net unrealized loss on
securities, net of tax
effect of $74,246 -- -- -- -- (144,091) (144,091)
---------- ---------- ---------- -------- -------- ----------
Balance at June 30, 1997 $1,250,356 3,362,967 16,660,173 (169,908) (144,091) 20,959,497
========== ========== ========== ======== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
Net
Additional Unrealized Total
Common Paid-in Retained Obligation Loss on Stockholders'
Stock Capital Income of the ESOP Securities Equity
-------- ---------- -------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 $1,287,372 4,652,561 15,825,090 (358,754) -- 21,406,269
Stock options exercised 5,700 23,863 -- -- -- 29,563
Repurchase of Common Stock (86,516) (1,470,772) -- -- -- (1,557,288)
Net income -- -- 707,418 -- -- 707,418
Cash dividends declared on
common stock, $.13 per share -- -- (324,431) -- -- (324,431)
Principal repayment of
ESOP debt -- -- -- 31,200 -- 31,200
Release and allocation of ESOP
shares -- 35,155 (9,599) -- -- 25,556
---------- ---------- ---------- -------- -------- ----------
Balance at June 30, 1996 $1,206,556 3,240,807 16,198,478 (327,554) -- 20,318,287
========== ========== ========== ======== ======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
5<PAGE>
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Six months ended
June 30,
(Unaudited)
------------------------
1997 1996
------- -------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 725,876 707,418
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 10,000 10,000
Accretion of discount on loans - (21,000)
Depreciation and amortization 85,932 94,009
Amortization of goodwill 26,250 26,250
Income from mortgage servicing rights (61,995) -
Increase (decrease) in allowance for
uncollected interest 11,707 (16,470)
Increase in other assets (39,624) (19,391)
Increase in accrued expenses and
other liabilities 350,220 107,887
Increase in deferred loan fees 29,144 15,866
Net noncash expense recorded for ESOP 19,306 25,556
------------ ----------
Net cash provided by operating
activities 1,156,816 930,125
------------ ----------
Cash flows from investing activities:
Purchases of investment securities held to
maturity (3,000,000) (3,300,000)
Proceeds from maturities/calls of investment
securities held to maturity 4,357,142 5,305,901
Purchase of investment securities available
for sale (4,001,975) -
Principal collected on mortgage-backed
securities held to maturity 111,621 177,262
Purchase of mortgage-backed securities
available for sale (10,725,345) -
Origination of loans, net (2,320,556) (3,188,942)
Purchases of premises and equipment (18,719) (20,739)
Purchases of mortgage servicing rights (1,163,250) -
------------ ----------
Net cash used in investing activities (16,761,082) (1,026,518)
------------ ----------
Cash flows from financing activities:
Net increase in certificates of deposit 9,572,478 59,886
Net decrease in other deposits (115,928) (19,447)
Advances from FHLB 10,500,000 -
Proceeds from note payable - 1,000,000
Repayment of note payable (1,200,000) (200,000)
Repurchase of common stock (87,657) (1,557,288)
Cash dividends paid (343,940) (334,937)
Proceeds from issuance of common stock
upon exercise of stock options 238,750 29,563
------------ ----------
Net cash provided by (used in)
financing activities 18,563,703 (1,022,223)
------------ ----------
Net increase (decrease) in cash and
cash equivalents 2,959,437 (1,118,616)
Cash and cash equivalents at
beginning of period 1,326,503 2,725,084
------------ ----------
Cash and cash equivalents at end of period $ 4,285,940 1,606,468
============ ==========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 2,845,630 2,552,768
Income taxes 406,342 442,466
------------ ----------
Supplemental schedule of noncash investing
and financing activities:
Dividends payable $ 175,821 156,852
============ ==========
</TABLE> See accompanying notes to consolidated financial
statements. 6<PAGE>
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1997
(Unaudited)
(1) PRESENTATION OF FINANCIAL STATEMENTS
------------------------------------
The consolidated financial statements include the accounts of
Haywood Bancshares, Inc. (the Corporation) and its wholly-owned
subsidiary Haywood Savings Bank, Inc., SSB (Haywood Savings).
All intercompany transactions and balances are eliminated in
consolidation.
The preparation of the consolidated financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect reported
amounts of assets and liabilities at the date of the financial
statements, as well as the amounts of income and expenses during
the reporting period. Actual results could differ from those
estimates.
All adjustments considered necessary for a fair presentation of
the results for the interim periods presented have been included
(such adjustments are normal and recurring in nature). Operating
results for the three and six month periods ended June 30, 1997,
are not necessarily indicative of the results that may be
expected for the year ending December 31, 1997.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
------------------------------------------
For a description of the significant accounting and reporting
policies, see note (1) in the notes to the December 31, 1996
consolidated financial statements of the 1996 annual report.
(3) CASH AND CASH EQUIVALENTS
-------------------------
Cash and cash equivalents include cash on hand and in banks,
interest-bearing balances in other banks, and federal funds sold.
Generally, cash and cash equivalents are considered to have
maturities of three months or less.
(4) INVESTMENT IN MORTGAGE SERVICING RIGHTS
---------------------------------------
During 1996, the Corporation made a $3,000,000 commitment to be a
limited partner in Dovenmuehle Mortgage Company L.P. ("DMCLP")
Tranche VIII Servicing Division of Dovenmuehle Mortgage Inc.
("DMI"). DMI provides mortgage servicing for a national
portfolio of residential, multi-family and commercial mortgage
loans. These loans are owned or securitized by national mortgage
agencies, and by a variety of private banks, thrifts, insurance
companies and other loan investors. DMI formed DMCLP as a
funding vehicle to purchase portfolios of the Federal National
Mortgage Association and the Federal Home Loan Mortgage
Corporation nonrecourse residential servicing. DMI provides the
mortgage servicing for these portfolios. Under this structure
investors in DMCLP invest in separate tranches, each of which has
its own identified servicing rights and each of which may be
owned by one or a group of investors. The equity investors in
each tranche benefit from a financial return based solely on
the performance of the mortgage servicing rights purchased for
the tranche.
During 1997, the Corporation funded an additional $1,163,250 of
its $3,000,000 commitment. The Corporation has funded $2,891,325
of the total commitment. The investment is accounted for under
the equity method and equity earnings of $23,721 and $61,995 were
recorded for the three and six months ended June 30, 1997,
respectively.
7
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<PAGE>
(5) ALLOWANCE FOR LOAN LOSSES
-------------------------
The following is a reconciliation of the allowance for loan
losses for the three and six months ended June 30, 1997 and 1996,
respectively
<TABLE>
<CAPTION>
Three months Six months
ended June 30, ended June 30,
---------------- ---------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Balance at beginning of period $723,547 708,547 $718,547 703,547
Provision for loan losses 5,000 5,000 10,000 10,000
-------- ------- -------- -------
Balance at end of period $728,547 713,547 $728,547 713,547
======== ======= ======== =======
</TABLE>
(6) STOCK OPTIONS
-------------
During the six month period ended June 30, 1997, 30,000 incentive
stock options were exercised at an option price of $5.63 per
share, and 14,000 non-incentive stock options were exercised at
an option price of $5 per share.
(7) BORROWINGS
----------
In the first quarter of 1997, the Corporation obtained
$10,500,000 in advances from the Federal Home Loan Bank of
Atlanta. The term of the loan is two years, with interest only
payments monthly, at a floating rate equal to one month LIBOR.
(8) Stock Repurchase
----------------
In May of 1997, Haywood Bancshares, Inc. repurchased 5,500 shares
of common stock at $15.94 per share in connection with the stock
repurchase program announced on August 8, 1995, which permits
repurchases of up to 10% of the shares outstanding at August 8,
1995 which was 1,287,372. Haywood Bancshares, Inc. will retire
all repurchased shares.
(9) OTHER ACCOUNTING CHANGES
------------------------
In August 1996, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 125 ("SFAS No.
125"), "Accounting for Transfers and Servicing of Financial
Assets and Extinguishments of Liabilities." SFAS No. 125
provides accounting and reporting standards for transfers and
servicing of financial assets and extinguishments of liabilities
using a financial-components approach that focuses on control
of the asset or liability. It requires that an entity recognize
only assets it controls and liabilities it has incurred and
should derecognize assets only when control has been surrendered
and derecognize liabilities only when they have been
extinguished. SFAS No. 125 is effective for transfers and
servicing of financial assets and extinguishments of liabilities
occurring after December 31, 1996, and is to be applied
prospectively. The Corporation adopted this Statement on January
1, 1997 without any impact on its consolidated financial
statements.
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128 ("SFAS No.
128"), "Earnings per Share." SFAS No. 128 establishes standards
of computing and presenting earnings per share (EPS) and applies
to entities with publicly held common stock or potential common
stock. This Statement simplifies the standards for computing
earnings per share previously found in APB Opinion No. 15,
Earnings Per Share, and
8<PAGE>
<PAGE>
makes them comparable to international EPS standards. It
replaces the presentation of primary EPS with a presentation of
basic EPS. It also requires dual presentation of basic and
diluted EPS on the face of the income statement for all entities
with complex capital structures and requires a reconciliation of
the numerator and denominator of the basic EPS computation to the
numerator and denominator of the diluted EPS computation. SFAS
No. 128 is effective for financial statements issued for periods
ending after December 15, 1997 and requires restatement of
all prior-period EPS data presented. The Corporation plans to
adopt SFAS No. 128 in 1997 without any significant impact on its
consolidated financial statements.
In February 1997, the Financial Accounting Standards Board issued
Statement of Accounting Financial Standards No. 129 ("SFAS No.
129"), "Disclosure of Information about Capital Structure". SFAS
No. 129 establishes standards for disclosing information about an
entity's capital structure and is applicable to all entities. It
contains no change in disclosure requirements for entities that
were previously subject to the requirements of Accounting
Principles Board ("APB") Opinion No. 10, "Omnibus Opinion -
1966", APB Opinion No. 15, "Earnings per Share" and SFAS No. 47,
"Disclosure of Long-Term Obligations". SFAS is effective for
financial statements for periods ending after December 15, 1997.
The Corporation plans to adopt SFAS No. 129 in 1997 without any
significant impact on its consolidated financial statements.
In June 1997, the Financial Accounting Standards Board issued
Statement of Accounting Financial Standards No. 130 ("SFAS No.
130"), "Reporting Comprehensive Income". SFAS No. 130
establishes standards for reporting and display of comprehensive
income and its components (revenues, expenses, gains, and losses)
in a full set of general-purpose financial statements. This
Statement 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. SFAS
No. 130 is effective for fiscal years beginning after December
15, 1997. Reclassification of financial statements for earlier
periods provided for comparative purposes is required. The
Corporation plans to adopt SFAS No. 130 in 1998 and has not
determined the impact on its consolidated financial statements.
In June 1997, the Financial Accounting Standards Board issued
Statement of Accounting Financial Standards No. 131 ("SFAS No.
131"), "Disclosures about Segments of an Enterprise and Related
Information". SFAS No. 131 establishes standards for the way
that public business enterprises report information about
operating segments in annual financial statements and requires
that those enterprises report selected information about
operating segments in interim financial reports issued to
shareholders. It also establishes standards for related
disclosures about products and services, geographic areas, and
major customers. This Statement is effective for financial
statements for periods beginning after December 15, 1997 and in
the initial year of application, comparative information for
earlier years is to be restated. The Corporation plans to adopt
SFAS No. 131 in 1998 without any significant impact on its
consolidated financial statements.
9
<PAGE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
COMPARISON OF OPERATING RESULTS FOR THE SIX MONTHS ENDED JUNE 30,
1997 AND 1996
- ----------------------------------------------------------------
Net income for the six months ended June 30, 1997 increased to
$725,876, or $0.59 per share, from $707,418 or $0.60 per share,
in 1996. Average shares outstanding were 1,238,243 and 1,261,333
during the six months ended June 30, 1997 and 1996, respectively.
The increase in net income was attributable to an increase in
other income and a decrease in general and administrative
expenses which was partially offset by a decrease in net interest
income.
Total interest income in 1997 was $5,201,943, a $247,839 increase
from the same period in 1996. The primary reason for the change
was an increase in the balance of average interest earning assets
of approximately $5.3 million. This is due to the purchase of
approximately $14.7 million in investment and mortgage-backed
securities available for sale during the first quarter 1997. In
addition, the average yield on interest earning assets increased
6 basis points to 7.75% for the six months ended June 30, 1997 as
compared to 7.69% for the same period in 1996. This is mainly
because of the increase in average yield on the investment
portfolio from 5.38% for the six months ended June 30, 1996 to
6.37% for the same period in 1997 due to the investment purchases
described above.
Interest expense in 1997 increased from 1996 by $343,650, or
13.5%, mainly due to an increase in the average balance of
interest bearing liabilities of $10.5 million. The increase is
due to the Corporation borrowing $10.5 million in advances from
the Federal Home Loan Bank of Atlanta ("FHLB") during the first
quarter of 1997. In addition, the rate paid on interest bearing
liabilities increased 19 basis points between periods. This is
mainly due to the rates paid on FHLB advances and an increase in
certificate of deposit rates due to competitive pressures in the
marketplace.
The overall net effect of these changes was a $95,811 decrease in
net interest income and a decrease in the interest rate spread
between interest earning assets and interest bearing liabilities
from 3.06% in 1996 to 2.93% in 1997.
Comparative yields, costs and spreads for the respective periods
are as follows:
<TABLE>
<CAPTION> Six Months
ended Twelve Months
June 30, At ended
--------------- June 30, December 31,
1997 1996 1997 1996
---- ---- ------- ------------
<S> <C> <C> <C> <C>
Average yield on interest earning
assets 7.75% 7.69% 7.84% 7.81%
Average rate on interest bearing
liabilities 4.82 4.63 5.31 4.56
---- ---- ---- ----
Asset/liability spread 2.93% 3.06% 2.53% 3.25%
==== ==== ==== ====
Net interest margin 3.45% 3.74% 3.04% 3.83%
==== ==== ==== ====
</TABLE>
Other income increased $82,197 or 22.7%, in 1997 compared to the
same period in 1996 primarily as a result of equity earnings of
$61,995 on investment in mortgage servicing rights. The
Corporation also recorded a $16,322 increase in insurance
income due to an increase in sales volume of insurance products.
General and administrative expenses decreased $56,072, or 3.4%,
in 1997 compared to 1996. The decrease is mainly due to a
$98,981 decrease in federal and other insurance premium expense
due to the lower assessment rate for insurance of deposits by the
Savings Association Insurance Fund ("SAIF") following its
recapitalization in the fourth quarter of 1996.
10
<PAGE>
As a result of these and other factors, income before income
taxes increased $42,458, or 3.8%, in 1997 versus 1996. Income
tax expense of $433,000 during the period resulted in an
effective income tax rate of 37.4% compared to 36.6% in
1996.
COMPARISON OF OPERATING RESULTS FOR THE THREE MONTHS ENDED JUNE
30, 1997 AND 1996
- ---------------------------------------------------------------
Net income for the three months ended June 30, 1997 increased to
$415,812 or $.33 per share, from $336,426, or $.29 per share, for
the same period in 1996. The increase in net income was
primarily attributable to an increase in other income
and a decrease in general and administrative expenses.
Total interest income for the three months ended June 30, 1997
was $2,761,197 a $283,997, or 11.5% increase from the same period
in 1996. The primary reason for the change was an increase in
the balance of average interest earning assets of approximately
$10 million. This is due to the purchase of approximately $14.7
million in investment and mortgage-backed securities available
for sale during the first quarter of 1997. In addition, the
average yield on interest earning assets increased 27 basis
points from 7.63% for the three months ended June 30, 1996 to
7.90% for the same period in 1997. This is mainly due to an
increase in the average yield on the investment portfolio between
periods due to the investment purchases described above.
Interest expense for the three months ended June 30, 1997 was
$1,546,217 a $269,123 or 21% increase from the same period in
1996 due primarily to an increase in the average balance of
interest bearing liabilities of $16 million, or 14%. The average
rate paid on interest bearing liabilities increased from 4.61%
for the three months ended June 30, 1996 to 4.94% for the same
period in 1997.
The overall net effect of these changes was an $14,874 increase
in net interest income and a decrease in the interest rate spread
between interest earning assets and interest bearing liabilities
from 3.02% in 1996 to 2.96% in 1997.
Other income increased $50,992 for the three months ended June
30, 1997 compared to the same period in 1996 primarily as a
result of equity earnings of $23,721 on investment in mortgage
servicing rights and an increase in insurance income of $13,933.
General and administrative expenses decreased $65,520 or 7.7%, in
1997 compared to the same period in 1996. This is mainly due to
a decrease in federal and other insurance premiums.
As a result of these and other factors, income before income
taxes increased $131,386, or 25% in 1997 versus 1996. Income tax
expense of $239,000 during the period resulted in an effective
income tax rate of 36.5% compared to 35.7% in 1996.
COMPARISON OF FINANCIAL CONDITION AT JUNE 30, 1997 AND DECEMBER
31, 1996
- ---------------------------------------------------------------
Total assets increased by $19.5 million or 14.9% from $130.9
million at December 31, 1996 to $150.4 million at June 30, 1997.
The increase is mainly due to an increase in investment and
mortgage-backed securities available for sale of $14.5 million.
In addition, the Corporation's loan portfolio increased by
approximately $2.3 million during the six months ended June 30,
1997. Loan originations for the period were approximately $15.6
million.
Total liabilities increased by $19.1 million to $129.5 million at
June 30, 1997. The increase is due to the Corporation borrowing
$10.5 million in advances from the FHLB and deposit growth of
approximately $9.5 million. Such funds were invested in
investment and mortgage-backed securities available for sale as
noted above, and is yielding a spread of approximately 1%.
11<PAGE>
<PAGE>
Stockholders' equity increased by $433,000 from $20.5 million at
December 31, 1996 to $21.0 million at June 30, 1997. This
increase is due to the exercise of 44,000 stock options which
increased stockholders' equity by $239,000 and net income of
$726,000 for the six months. This was offset by a net unrealized
loss on securities of $144,000, repurchase of stock totaling
$88,000, and a quarterly dividends of $.14 per share or $351,000.
ASSET QUALITY
- -------------
The Corporation's allowance for loan losses as a percentage of
outstanding loans remained stable at .65% at June 30, 1997
compared to .66% at December 31, 1996. At June 30, 1997,
nonperforming assets, which consist of nonaccrual loans, were
$1,171,000 compared to $814,000 at December 31, 1996. Management
attributes the increase in nonaccrual loans to seasonal factors
and is unaware of any significant potential problem loans or any
other concentrations of credit risk which exist in the portfolio.
There were no charge-offs during the six month periods ended June
30, 1997 and 1996. Management recorded provisions for loan
losses of $10,000 for the six month periods ended June 30, 1997
and 1996. Management remains conscious of the judgmental nature
of the allowance for loan losses and the need for periodically
evaluating the risk inherent in the loan portfolio.
LIQUIDITY
- ---------
The Corporation's asset-liability management policy is to
maintain and enhance the net interest income and provide adequate
liquidity to meet continuing loan demand, withdrawal equirements,
and pay for normal operating expenses. Liquidity is primarily
provided by the ability to attract deposits, maturities in the
investment portfolio, loan repayments, and current earnings.
At June 30, 1997, Haywood Bancshares had approximately $29
million in cash, interest bearing balances in other banks,
federal funds sold, investment securities and mortgage-backed
securities. Management believes that the level of liquidity at
June 30, 1997, is adequate and in compliance with regulatory
requirements.
IMPACT OF INFLATION AND CHANGING PRICES
- ---------------------------------------
The consolidated financial statements and accompanying footnotes
have been prepared in accordance with generally accepted
accounting principles, which require the measurement of financial
position and operating results in terms of historical dollars
without consideration for changes in the relative purchasing
power of money over time due to inflation. The assets and
liabilities of the Corporation are primarily monetary in nature
and changes in interest rates have a greater impact on the
Corporation's performance than the effect of inflation.
CAPITAL RESOURCES
- -----------------
As a North Carolina-charted savings bank, Haywood Savings is
subject to the capital requirements of the FDIC and the N.C.
Administrator of Savings Institutions ("the Administrator"). The
FDIC requires Haywood Savings to maintain minimum ratios of Tier
I capital to total risk-weighted assets and total capital
to risk-weighted assets of 4% and 8%, respectively. To be
well-capitalized, the FDIC requires ratios of Tier I capital to
total risk-weighted assets and total capital to risk-weighted
assets of 6% and 10%, respectively. Tier I capital consists of
total stockholders' equity calculated in accordance with
generally accepted accounting principles less intangible assets,
and total capital is comprised of Tier I capital plus certain
adjustments, the only one of which is applicable to Haywood
Savings is the allowance for loan losses. Risk-weighted
assets reflect Haywood Savings' on- and off-balance sheet
exposures after such exposures have been adjusted for their
relative risk levels using formulas set forth in FDIC
regulations. Haywood Savings is also subject to a leverage
capital requirement, which calls for a minimum ratio of Tier I
capital (as defined above) to quarterly average total assets of
3%, and a ratio of 5% to be "well capitalized." The
Administrator requires a net worth equal to at least 5% of
assets. At June 30, 1997, Haywood Savings was in compliance with
all of the aforementioned capital requirements. The Corporation
must also comply with FRB capital requirements which are
substantially the same.
12
<PAGE>
<PAGE>
REGULATORY MATTERS AND CONTINGENCIES
- ------------------------------------
Management is not presently aware of any current recommendations
to the Corporation or to Haywood Savings by regulatory
authorities which, if they were to be implemented, would have a
material effect on the Corporation s liquidity, capital
resources, or operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK.
Not applicable.
13<PAGE>
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY-HOLDERS
On April 22, 1997, the Company held its Annual Meeting of
Stockholders at which the following matters were voted on:
Proposal I Election of Directors
NOMINEE FOR WITHHELD
--- --------
R. Neal Ensley 732,824 50
Joseph E. Taylor, Jr. 732,824 50
C. Leon Turner 732,424 450
There were no abstentions or broker non-votes.
The terms of office of Directors Larry R. Ammons, Glenn W. Brown,
William P. Burgin, Philip S. Dooly, R. Bruce Norma, C. Jeff
Reece, Jr. and G. D. Stovall, Jr. continued after the Annual
Meeting.
PROPOSAL II RATIFICATION OF APPOINTMENT OF AUDITORS
FOR AGAINST ABSTAIN
--- ------- -------
729,574 3,300
In addition, there were no broker non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibits are being filed with
the report.
Exhibit
Number Description
-------- -----------
27 Financial Data Schedule (EDGAR ONLY)
(b) Reports on Form 8-K. During the quarter ended June 30,
1997, the Registrant did not file any reports on Form 8-K.
14<PAGE>
<PAGE>
SIGNATURES
----------
Under 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.
HAYWOOD BANCSHARES, INC.
(Registrant)
Date: August 11, 1997 By:/s/ Larry R. Ammons
----------------------
Larry R. Ammons
(President and Principal
Executive Officer)
(Duly Authorized Representative)
Date: August 11, 1997 By: /s/ Jack T. Nichols
-----------------------
Jack T. Nichols
(Principal Financial Officer
and Principal Accounting
Officer)
15
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 1,705,316
<INT-BEARING-DEPOSITS> 479,997
<FED-FUNDS-SOLD> 2,100,627
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 14,506,391
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<INVESTMENTS-MARKET> 10,662,973
<LOANS> 112,342,658
<ALLOWANCE> 728,547
<TOTAL-ASSETS> 150,416,378
<DEPOSITS> 116,799,929
<SHORT-TERM> 10,500,000
<LIABILITIES-OTHER> 2,156,952
<LONG-TERM> 0
0
0
<COMMON> 1,250,356
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<INTEREST-DEPOSIT> 2,684,339
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<INTEREST-INCOME-NET> 2,316,813
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<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 1,592,653
<INCOME-PRETAX> 1,158,876
<INCOME-PRE-EXTRAORDINARY> 1,158,876
<EXTRAORDINARY> 0
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<NET-INCOME> 725,876
<EPS-PRIMARY> 0.59
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<YIELD-ACTUAL> 3.04
<LOANS-NON> 1,170,511
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