<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 September 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 [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
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 November 14, 1997, shares of common stock outstanding
were 1,250,356.<PAGE>
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION> September 30, December 31,
1997 1996
------------ ------------
Assets (Unaudited)
- ------
<S> <C> <C>
Cash on hand and in banks $ 1,387,056 1,029,850
Interest-bearing balances in other banks 629,532 143,806
Federal funds sold 2,209,328 152,847
Investment securities:
Held to maturity (market value of $9,548,519
and $10,744,961, respectively) 9,536,957 10,894,099
Available for sale (cost of $5,000,739) 5,006,890 -
Mortgage-backed securities:
Held to maturity (market value of $920,459
and $1,118,023, respectively) 868,133 1,069,323
Available for sale (cost of $10,720,791) 10,541,853 -
Loans receivable (net of allowance for loan
losses of $733,547 and $718,547, respectively 114,531,017 109,344,406
Real estate acquired in settlement of loans 217,585 1,790,187
Federal Home Loan Bank stock, at cost 1,427,300 1,427,300
Premises and equipment 1,587,530 1,660,387
Investment in mortgage servicing rights 2,977,715 1,728,075
Other assets 1,133,955 881,054
Goodwill 740,655 780,030
------------ ------------
$152,795,506 130,901,364
============ ============
Liabilities and Stockholders' Equity
- ------------------------------------
Deposit accounts:
Noninterest-bearing $ 162,349 196,526
Interest-bearing, including $14,138,998 and
$11,129,365, respectively, of time deposits
for $100,000 or more 118,132,394 107,146,853
------------ ------------
118,294,743 107,343,379
Note payable - 1,200,000
Advances from Federal Home Loan Bank 10,500,000 -
Accrued expenses and other liabilities 2,329,063 1,831,091
------------ ------------
Total liabilities 131,123,806 110,374,470
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 3,392,014 3,218,006
Retained income, substantially restricted 17,298,228 16,298,440
Less obligation in connection with funds used
to acquire common shares by ESOP (154,158) (201,408)
Net unrealized losses on securities (114,740) -
------------ ------------
Total stockholders' equity 21,671,700 20,526,894
------------ ------------
$152,795,506 130,901,364
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
2<PAGE>
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Income
<TABLE>
<CAPTION> Nine Months Ended September 30,
(Unaudited)
1997 1996
------------- -------------
<S> <C> <C>
Interest income:
Loans $ 6,761,795 6,539,678
Investment securities 421,910 642,222
Mortgage-backed securities 635,616 82,271
Interest-bearing balances in other banks 16,882 15,360
Federal funds sold 50,007 26,394
Other 77,397 82,076
------------- -------------
Total interest income 7,963,607 7,388,001
------------- -------------
Interest expense:
Deposits, including $435,904 in 1997 and
$331,475 in 1996, on time deposits for
$100,000 or more 4,140,251 3,682,609
Borrowed money 354,838 16,019
------------- -------------
Total interest expense 4,495,089 3,698,628
------------- -------------
Net interest income 3,468,518 3,689,373
Provision for loan losses 15,000 15,000
------------- -------------
Net interest income after provision
for loan losses 3,453,518 3,674,373
------------- -------------
Other income:
Insurance income, net 135,605 119,516
Service charges on deposits 56,699 53,823
Rental income 41,760 37,963
Real estate operations, net 935,428 306,327
Other income 126,721 20,096
------------- -------------
Total other income, net 1,296,213 537,725
------------- -------------
General and administrative expenses:
Salaries and employee benefits 1,400,697 1,358,887
Occupancy and equipment 261,083 273,301
Federal and other insurance premiums 63,443 927,552
Amortization of goodwill 39,375 39,375
Other expenses 608,048 553,328
------------- -------------
Total general and administrative expenses 2,372,646 3,152,443
------------- -------------
Income before income taxes 2,377,085 1,059,655
Income taxes 824,500 365,000
------------- -------------
Net income $ 1,552,585 694,655
============= =============
Per share amounts:
Net income $ 1.25 $ .57
============= =============
</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 September 30,
(Unaudited)
1997 1996
------------- -------------
<S> <C> <C>
Interest income:
Loans $ 2,294,109 2,168,284
Investment securities 144,198 195,163
Mortgage-backed securities 255,936 25,380
Interest-bearing balances in other banks 8,795 5,883
Federal funds sold 32,543 11,629
Other 26,083 27,558
------------- -------------
Total interest income 2,761,664 2,433,897
------------- -------------
Interest expense:
Deposits, including $133,171 in 1997 and
$97,750 in 1996, on time deposits for
$100,000 or more 1,455,912 1,155,108
Borrowed money 154,047 2,040
------------- -------------
Total interest expense 1,609,959 1,157,148
------------- -------------
Net interest income 1,151,705 1,276,749
Provision for loan losses 5,000 5,000
------------- -------------
Net interest income after provision
for loan losses 1,146,705 1,271,749
------------- -------------
Other income:
Insurance income, net 44,301 44,534
Service charges on deposits 18,548 15,970
Rental income 12,588 14,956
Real estate operations, net 730,472 98,159
Other income 45,588 1,587
------------- -------------
Total other income, net 851,497 175,206
------------- -------------
General and administrative expenses:
Salaries and employee benefits 466,988 447,448
Occupancy and equipment 85,811 85,604
Federal and other insurance premiums 21,234 786,362
Amortization of goodwill 13,125 13,125
Other expenses 192,835 171,179
------------- -------------
Total general and administrative expenses 779,993 1,503,718
------------- -------------
Income (loss) before income taxes 1,218,209 (56,763)
Income taxes (benefit) 391,500 (44,000)
------------- -------------
Net income (loss) $ 826,709 (12,763)
============= =============
Per share amounts:
Net income (loss) $ .66 $ .(01)
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
4<PAGE>
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statement of Stockholders' Equity
Nine Months ended September 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 -- -- 1,552,585 -- -- 1,552,585
Cash dividends declared on
common stock, $.42 per share -- -- (526,131) -- -- (526,131)
Principal repayment of ESOP debt -- -- -- 47,250 -- 47,250
Release and allocation of ESOP
shares -- 61,415 (26,666) -- -- 34,749
Net unrealized loss on
securities, net of tax
effect of $58,047 -- -- -- -- (114,740) (114,740)
---------- ---------- ---------- -------- -------- ----------
Balance at September 30, 1997 $1,250,356 3,392,014 17,298,228 (154,158) (114,740) 21,671,700
========== ========== ========== ======== ======== ==========
</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 (92,216) (1,569,097) -- -- -- (1,661,313)
Net income -- -- 694,655 -- -- 694,655
Cash dividends declared on
common stock, $.39 per share -- -- (480,542) -- -- (480,542)
Principal repayment of
ESOP debt -- -- -- 46,800 -- 46,800
Release and allocation of
ESOP shares -- 57,303 (16,650) -- -- 40,653
---------- ---------- ---------- -------- -------- ----------
Balance at September 30, 1996 $1,200,856 3,164,630 16,022,553 (311,954) -- 20,076,085
========== ========== ========== ======== ======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
5<PAGE>
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION> Nine Months Ended September 30,
(Unaudited)
1997 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,552,585 694,655
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 15,000 15,000
Depreciation and amortization 128,121 105,952
Amortization of goodwill 39,375 39,375
Income from mortgage servicing rights (86,390) -
Increase (decrease) in allowance for
uncollected interest 8,042 (24,388)
Net gain on sale of assets (679,349) (12,695)
(Increase) decrease in other assets (194,854) 138,367
Increase in accrued expenses and other
liabilities 538,852 609,572
Increase in deferred loan fees 41,453 33,329
Net noncash expense recorded for ESOP 34,749 46,800
------------- -------------
Net cash provided by operating
activities 1,397,584 1,645,967
------------- -------------
Cash flows from investing activities:
Purchases of investment securities
held to maturity (3,600,000) (4,500,000)
Proceeds from maturities/calls of
investment securities held to maturity 4,957,142 8,005,901
Purchase of investment securities
available for sale (5,000,925) -
Principal collected on mortgage-backed
securities held to maturity 201,190 267,416
Purchase of mortgage-backed securities
available for sale (10,725,345) -
Origination of loans, net (5,251,106) (2,703,885)
Proceeds of sales from real estate
acquired in settlement of loans 2,251,951 57,075
Purchases of premises and equipment (50,524) (21,727)
Purchases of mortgage servicing rights (1,163,250) -
------------- -------------
Net cash provided by (used in)
investing activities (18,380,867) 1,104,780
------------- -------------
Cash flows from financing activities:
Net increase in certificates of deposit 10,695,725 (73,611)
Net decrease in other deposits 255,639 (364,552)
Advances from FHLB 10,500,000 -
Proceeds from note payable - 1,000,000
Repayment of note payable (1,200,000) (1,000,000)
Repurchase of common stock (87,657) (1,661,313)
Cash dividends paid (519,761) (491,789)
Proceeds from issuance of common stock
upon exercise of stock options 238,750 29,563
------------- -------------
Net cash provided by (used in)
financing activities 19,882,696 (2,561,702)
------------- -------------
Net increase in cash and cash equivalents 2,899,413 189,045
Cash and cash equivalents at beginning of
period 1,326,503 2,725,084
------------- -------------
Cash and cash equivalents at end of period $ 4,225,916 2,914,129
============= =============
<PAGE>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 4,499,869 3,716,204
Income taxes 601,342 579,122
------------- -------------
Supplemental schedule of noncash investing
and financing activities:
Dividends payable $ 175,050 156,111
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
6<PAGE>
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 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 nine month periods ended September 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 $24,395 and $86,390 were recorded for
the three and nine months ended September 30, 1997,
respectively.
7<PAGE>
<PAGE>
(5) Allowance for Loan Losses
-------------------------
The following is a reconciliation of the allowance for loan
losses for the three and nine months ended September 30,
1997 and 1996, respectively
<TABLE>
<CAPTION>
Three months Nine months
ended September 30, ended September 30,
---------------------- ----------------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Balance at beginning of period $ 728,547 $ 713,547 $ 718,547 $ 703,547
Provision for loan losses 5,000 5,000 15,000 15,000
--------- --------- --------- ---------
Balance at end of period $ 733,547 718,547 $ 733,547 $ 718,547
========= ========= ========= =========
</TABLE>
(6) Stock Options
-------------
During the nine month period ended September 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, the Corporation 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. At September 30,
1997, the Corporation has repurchased 97,716 shares, all of
which have been retired.
(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 will
make the required disclosures in 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 Nine months ended
September 30, 1997 and 1996
- ---------------------------------------------------------
Net income for the nine months ended September 30, 1997
increased to $1,552,585, or $1.25 per share, from $694,655 or
$0.57 per share, in 1996. The Corporation's net income was
affected by certain non-recurring items in both the 1997 and
1996 periods. During the nine months ended September 30, 1997,
the Corporation recognized a $679,000 pre-tax gain on the sale
of the Waynesville Plaza Shopping Center which the Corporation
has been holding as real estate acquired in settlement of loans.
By contrast, during the nine months ended September 30, 1996,
the Corporation recognized a one-time $720,000 pre-tax expense
for its portion of a special assessment imposed by the FDIC to
recapitalize the Savings Association Insurance Fund ("SAIF").
Factoring out these non-recurring items, the Corporation's net
income would have declined between the periods as improvements
in other income and expense were not sufficient to offset a
decline in net interest income. The Corporation's net interest
income has narrowed during the current fiscal year as interest
expense has grown faster than interest income.
Total interest income in 1997 was $7,963,607, a $575,606, or 8%,
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 $8.5 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 9 basis points to 7.74% for the nine
months ended September 30, 1997 as compared to 7.65% for the
same period in 1996. This is mainly because of the increase in
average yield on the investment portfolio from 5.42% for the
nine months ended September 30, 1996 to 6.32% for the same
period in 1997 due to the investment purchases described above.
Interest expense in 1997 increased from 1996 by $796,461, or
22%, mainly due to an increase in the average balance of
interest bearing liabilities of $13.5 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 39 basis points between periods.
The overall net effect of these changes was a $220,855 decrease
in net interest income and a decrease in the interest rate
spread between interest earning assets and interest bearing
liabilities from 3.16% in 1996 to 2.86% in 1997.
Comparative yields, costs and spreads for the respective periods
are as follows:
<TABLE>
<CAPTION>
Nine months Twelve Months
ended At ended
September 30, September 30, December 31,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Average yield on interest earning assets 7.74% 7.65% 7.68% 7.81%
Average rate on interest bearing liabilities 4.88 4.49 5.28 4.56
---- ---- ---- ----
Asset/liability spread 2.86% 3.16% 2.40% 3.25%
==== ==== ==== ====
Net interest margin 3.37% 3.84% 2.98% 3.83%
==== ==== ==== ====
</TABLE>
Other income increased $758,488 or 141%, in 1997 compared to the
same period in 1996 primarily as a result of the sale of the
Waynesville Plaza Shopping Center which caused real estate
operations, net to increase $629,101 between the periods. Total
proceeds from the sale were approximately $2,252,000 which the
Corporation intends
10<PAGE>
<PAGE>
to invest in loans and other investments. As a result of the
sale, the Corporation will no longer receive rental and other
income attributable to its operation of the shopping center. In
addition, the Corporation recognized equity earnings of $86,390
on its limited partnership investment in mortgage servicing
rights compared to no such earnings during the 1996 period.
Such equity earnings is included in other income in the
accompanying consolidated statement of income. General and
administrative expenses decreased $779,797, or 24.7%, in 1997
compared to 1996. The decrease is mainly a result of the
non-recurring expense recognized during the third quarter of
1996 in connection with the SAIF special assessment and the
lower assessment rate for insurance of deposits thereafter.
As a result of these and other factors, income before income
taxes increased $1,317,430, or 124%, in 1997 versus 1996.
Income tax expense of $824,500 during the period resulted in an
effective income tax rate of 34.7% compared to 34.4% in 1996.
Comparison of Operating Results for the Three Months Ended
September 30, 1997 and 1996
- ----------------------------------------------------------
Net income for the three months ended September 30, 1997
increased to $826,709 or $.66 per share, from a loss of
($12,763), or ($.01) per share, for the same period in 1996.
The increase in net income was partially due to a non-recurring
$720,000 pre-tax expense recognized during the third quarter of
1996 in connection with the SAIF special assessment. Also
contributing to the increase was a pre-tax gain of approximately
$679,000 on the sale of real estate acquired in the settlement
of loans. Factoring out these non-recurring items, the
Corporation's net income would have declined between the periods
due to declines in net interest income and other income and an
increase in other expense.
Total interest income for the three months ended September 30,
1997 was $2,761,664 a $327,767, or 13.5% 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 $15 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 14 basis points from 7.58% for the three months ended
September 30, 1996 to 7.72% 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 September 30, 1997
was $1,609,959 a $452,811 or 39% increase from the same period
in 1996 due primarily to an increase in the average balance of
interest bearing liabilities of $19 million, or 17%. The
average rate paid on interest bearing liabilities increased from
4.23% for the three months ended September 30, 1996 to 5.0% for
the same period in 1997.
The overall net effect of these changes was an $125,044 decrease
in net interest income and a decrease in the interest rate
spread between interest earning assets and interest bearing
liabilities from 3.35% in 1996 to 2.72% in 1997.
Other income increased $676,291 for the three months ended
September 30, 1997 compared to the same period in 1996 primarily
as a result of the aforementioned gain on sale of real estate
acquired in settlement of loans of $679,000.
General and administrative expenses decreased $723,725 or 48.1%,
in 1997 compared to the same period in 1996. This is mainly due
to the one-time assessment of SAIF-insured deposits in September
1996 and a subsequent decrease in federal and other insurance
premiums as mentioned above.
As a result of these and other factors, income before income
taxes increased $1,274,972 in 1997 versus 1996. Income tax
expense of $391,500 during the period resulted in an effective
income tax rate of 32.1%.
11<PAGE>
<PAGE>
Comparison of Financial Condition at September 30, 1997 and
December 31, 1996
- -----------------------------------------------------------
Total assets increased by $21.9 million or 16.7% from $130.9
million at December 31, 1996 to $152.8 million at September 30,
1997. The increase is mainly due to an increase in investment
and mortgage-backed securities available for sale of $15.5
million. In addition, the Corporation's loan portfolio
increased by approximately $5.2 million during the nine months
ended September 30, 1997. Loan originations for the period were
approximately $24.4 million.
Total liabilities increased by $20.7 million to $131.1 million
at September 30, 1997. The increase is due to the Corporation
borrowing $10.5 million in advances from the FHLB and deposit
growth of approximately $10.9 million.
Stockholders' equity increased by $1,144,806 from $20.5 million
at December 31, 1996 to $21.7 million at September 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 $1,552,585 for the nine months. This was offset by a net
unrealized loss on securities of $115,000, repurchase of stock
totaling $88,000, and dividends of $.42 per share or
$526,131.
Asset Quality
- -------------
The Corporation's allowance for loan losses as a percentage of
outstanding loans remained stable at .64% at September 30, 1997
compared to .66% at December 31, 1996. At September 30, 1997,
nonperforming loans, which consist of nonaccrual loans, were
$813,000 compared to $814,000 at December 31, 1996. There were
no charge-offs or recoveries during the nine month periods ended
September 30, 1997 and 1996. Management recorded provisions for
loan losses of $15,000 for the nine month periods ended
September 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.
Real estate acquired in settlement of loans declined $1,572,602,
or 88%, to $217,585 as the result of the sale of the Waynesville
Plaza Shopping Center.
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
requirements, 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 September 30, 1997, the Corporation had approximately $30
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
September 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.
12<PAGE>
<PAGE>
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 September 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 as the FDIC's
requirements for Haywood Savings.
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. 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
September 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: November 14, 1997 By: /s/Larry R. Ammons
----------------------
Larry R. Ammons
(President and Principal
Executive Officer)
(Duly Authorized Representative)
Date: November 14, 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> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 1,387,056
<INT-BEARING-DEPOSITS> 629,532
<FED-FUNDS-SOLD> 2,209,328
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 15,548,743
<INVESTMENTS-CARRYING> 10,405,090
<INVESTMENTS-MARKET> 10,468,978
<LOANS> 115,264,564
<ALLOWANCE> 733,547
<TOTAL-ASSETS> 152,795,506
<DEPOSITS> 118,294,743
<SHORT-TERM> 10,500,000
<LIABILITIES-OTHER> 2,329,063
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0
0
<COMMON> 1,250,356
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<TOTAL-LIABILITIES-AND-EQUITY> 152,795,506
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<INTEREST-OTHER> 144,286
<INTEREST-TOTAL> 7,963,607
<INTEREST-DEPOSIT> 4,140,251
<INTEREST-EXPENSE> 4,495,089
<INTEREST-INCOME-NET> 3,468,518
<LOAN-LOSSES> 15,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 2,372,646
<INCOME-PRETAX> 2,377,085
<INCOME-PRE-EXTRAORDINARY> 1,552,585
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,552,585
<EPS-PRIMARY> 1.25
<EPS-DILUTED> 1.25
<YIELD-ACTUAL> 3.37
<LOANS-NON> 813,000
<LOANS-PAST> 0
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<ALLOWANCE-OPEN> 718,547
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<ALLOWANCE-CLOSE> 733,547
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