<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 March 31, 1998
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)
(828) 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 May 11, 1998, 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> March 31, December 31,
1998 1997
------------ ------------
Assets (Unaudited)
------
<S> <C> <C>
Cash on hand and in banks $ 1,649,034 1,736,787
Interest-bearing balances in other banks 79,667 418,967
Federal funds sold 445,048 2,039,247
Investment securities:
Held to maturity (market value of $12,044,688
and $11,303,051, at March 31, 1998 and
December 31, 1997, respectively) 12,054,145 11,242,929
Available for sale (cost of $15,694,082 and
$15,719,503 at March 31, 1998 and
December 31, 1997, respectively) 15,660,202 15,805,611
Loans receivable (net of allowance for loan
losses of $743,547 and $738,547, at
March 31, 1998 and December 31, 1997,
respectively) 114,253,059 114,150,356
Real estate acquired in settlement of loans 7,192 246,078
Federal Home Loan Bank stock, at cost 1,427,300 1,427,300
Premises and equipment 1,546,741 1,551,510
Investment in mortgage servicing rights 3,065,951 3,027,116
Goodwill 714,405 727,530
Other assets 1,099,699 1,106,143
------------ ------------
$152,002,443 153,479,574
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Deposit accounts:
Noninterest-bearing $ 173,085 199,170
Interest-bearing, including $13,671,077
and $13,973,839, respectively, of time
deposits for $100,000 or more 116,434,645 118,471,286
------------ ------------
116,607,730 118,670,456
Advances from Federal Home Loan Bank 10,500,000 10,500,000
Accrued expenses and other liabilities 2,322,101 2,135,586
------------ ------------
Total liabilities 129,429,831 131,306,042
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 shares issued
and outstanding, respectively 1,250,356 1,250,356
Additional paid-in capital 3,467,079 3,437,275
Retained income, substantially restricted 17,919,769 17,487,686
Accumulated other comprehensive income (21,726) 56,831
Less obligation in connection with funds used
to acquire common shares by ESOP (42,866) (58,616)
------------ ------------
Total stockholders' equity 22,572,612 22,173,532
$152,002,443 153,479,574
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
2<PAGE>
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Income
<TABLE>
<CAPTION> Three Months Ended March 31,
(Unaudited)
------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Interest income:
Loans $2,298,951 2,199,855
Investment securities 456,538 205,150
Interest-bearing balances in other banks 8,010 3,986
Federal funds sold 16,608 6,240
Other 25,515 25,515
---------- ---------
Total interest income 2,805,622 2,440,746
---------- ---------
Interest expense:
Deposits, including $172,057 in 1998 and
$154,494 in 1997, on time deposits for
$100,000 or more 1,387,126 1,289,288
Other borrowed money 149,910 49,625
---------- ---------
Total interest expense 1,537,036 1,338,913
---------- ---------
Net interest income 1,268,586 1,101,833
Provision for loan losses 5,000 5,000
---------- ---------
Net interest income after provision
for loan losses 1,263,586 1,096,833
---------- ---------
Other income:
Insurance income, net 44,975 39,783
Service charges on deposits 16,289 20,591
Rental income 12,463 14,013
Gain on sale of real estate acquired in
settlement of loans 406,872 -
Real estate operations, net 1,246 96,621
Gain on sale of investment securities
available for sale 6,418 -
Other income 44,982 48,041
---------- ---------
Total other income, net 533,245 219,049
---------- ---------
General and administrative expenses:
Salaries and employee benefits 444,470 442,166
Occupancy and equipment 83,720 92,901
Federal and other insurance premiums 20,069 32,779
Amortization of goodwill 13,125 13,125
Other expenses 193,664 230,847
---------- ---------
Total general and administrative
expenses 755,048 811,818
---------- ---------
Income before income taxes 1,041,783 504,064
Income taxes 407,000 194,000
---------- ---------
Net income $ 634,783 310,064
========== =========
Per share amounts:
Net income - basic $ .51 $ .26
========== =========
Net income - diluted $ .51 $ .26
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
3<PAGE>
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statement of Stockholders' Equity
Three Months ended March 31, 1998 and 1997
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Additional Other Obligation Total
Common Paid-in Retained Comprehensive of the Stockholders'
Stock Capital Income Income ESOP Equity
---------- ----------- ---------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1997 $1,250,356 3,437,275 17,487,686 56,831 (58,616) 22,173,532
Net income -- -- 634,783 -- -- 634,783
Cash dividends declared on
common stock, $.15 per share -- -- (187,553) -- -- (187,553)
Principal repayment of ESOP debt -- -- -- -- 26,750 15,750
Release and allocation of ESOP
shares -- 29,804 (15,147) -- -- 14,657
Net unrealized loss on
securities, net of tax
effect of $41,431 -- -- -- (78,557) -- (78,557)
---------- ---------- ---------- -------- -------- ----------
Balance at March 31, 1998 $1,250,356 3,467,079 17,919,769 (21,726) (42,866) 21,572,612
========== ========== ========== ======== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Additional Other Obligation Total
Common Paid-in Retained Comprehensive of the Stockholders'
Stock Capital Income Income ESOP 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 40,000 178,750 -- -- -- 218,750
Net income -- -- 310,064 -- -- 310,064
Cash dividends declared on
common stock, $.14 per share -- -- (175,260) -- -- (175,260)
Principal repayment of
ESOP debt -- -- -- -- 15,750 15,750
Release and allocation of
ESOP shares -- 16,637 (6,780) -- -- 9,857
Net unrealized loss on securities
net of tax effect of $117,972 -- -- -- (229,005) -- (229,005)
---------- ---------- ---------- -------- -------- ----------
Balance at March 31, 1997 $1,251,856 3,413,393 16,426,464 (299,005) (185,658) 20,677,050
========== ========== ========== ======== ======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
4<PAGE>
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION> Three Months Ended March 31,
(Unaudited)
------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 634,783 310,064
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 5,000 5,000
Depreciation and amortization 81,403 43,940
Amortization of goodwill 13,125 13,125
Income from mortgage servicing rights (38,835) (38,274)
Net gain on sale of real estate
acquired in settlement of loans (406,872) -
Net gain on investments available
for sale (6,418) -
Increase in allowance for uncollected
interest 234 16,818
Decrease in other assets 6,444 60,323
Increase in accrued expenses and other
liabilities 243,696 209,974
Increase in deferred loan fees 10,885 10,926
Net noncash expense recorded for ESOP 14,657 9,857
----------- -----------
Net cash provided by operating
activities 558,102 641,753
----------- -----------
Cash flows from investing activities:
Purchases of investment securities
held to maturity (3,900,000) (1,500,000)
Proceeds from maturities/calls of
investment securities held to maturity 3,000,000 2,857,142
Principal collected on investment securities
held to maturity 88,784 34,193
Proceeds from maturities/calls of investment
securities available for sale 1,500,000 -
Proceeds from sale of investment securities
available for sale 3,505,963 -
Purchase of investment securities available
for sale (5,026,250) (14,727,320)
Origination of loans, net (155,258) (1,061,187)
Purchases of premises and equipment (24,508) (10,662)
Purchase of mortgage servicing rights - (730,125)
Proceeds from sale of real estate acquired
in settlement of loans 682,194 -
----------- -----------
Net cash used in investing activities (329,075) (15,137,959)
----------- -----------
Cash flows from financing activities:
Net increase (decrease) in certificates of
deposit (2,419,535) 6,650,673
Net increase (decrease) in other deposits 356,809 (754,358)
Advances from FHLB - 10,500,000
Repayment of note payable - (1,200,000)
Cash dividends paid (187,553) (168,680)
Proceeds from issuance of common stock upon
exercise of stock options - 218,750
----------- -----------
Net cash provided by (used in)
financing activities (2,250,279) 15,246,385
----------- -----------
<PAGE>
Net increase (decrease) in cash and
cash equivalents (2,021,252) 750,179
Cash and cash equivalents at beginning
of period 4,195,001 1,326,503
----------- -----------
Cash and cash equivalents at end of period $ 2,173,749 2,076,682
=========== ===========
</TABLE>
(Continued)
5<PAGE>
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION> Three Months Ended March 31,
(Unaudited)
------------------------------
1998 1997
------------- -------------
<S> <C> <C>
Supplemental disclosures of cash flow
information:
Cash paid during the period for:
Interest $ 1,572,611 1,348,095
============= =============
Income taxes $ 169,273 49,342
============= =============
Supplemental schedule of noncash investing
and financing activities:
Loans transferred to real estate acquired
in settlement of loans $ 36,436 $ -
============= =============
Dividends payable $ 187,553 175,260
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
6<PAGE>
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 1998
(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, 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 month period ended March 31, 1998, are not
necessarily indicative of the results that may be expected for
the year ending December 31, 1998.
(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, 1997
consolidated financial statements of the 1997 annual report.
On January 1, 1998 the Corporation adopted Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("SFAS No. 130"). SFAS No. 130 establishes standards
for reporting and displaying comprehensive income and its
components (revenues, expense, 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 the 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. In accordance with the provisions of SFAS
No. 130, comparative financial statements presented for earlier
periods have been reclassified to reflect the provisions
of the statement.
Comprehensive income is the change in equity of a Corporation
during the period from transactions and other events and
circumstances from nonowner sources. Comprehensive income is
divided into net income and other comprehensive income. The
Corporation's other comprehensive income for the three months
ended March 31, 1998 and 1997 consists of unrealized gains and
losses on certain investments in debt and equity securities.
Comprehensive income for the three months ended March 31, 1998
and 1997 is $556,226 and $81,059, respectively.
(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.
7<PAGE>
<PAGE>
(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.
The Corporation has funded $2,891,325 of its $3,000,000
commitment. The investment is accounted for under the equity
method and equity earnings of $38,835 and $38,274 were recorded
for the three months ended March 31, 1998 and 1997,
respectively.
(5) Allowance for Loan Losses
-------------------------
The following is a reconciliation of the allowance for loan
losses for the three months ended March 31, 1998 and 1997:
1998 1997
---- ----
Balance at beginning of period $738,547 718,547
Provision for loan losses 5,000 5,000
-------- -------
Balance at end of period $743,547 723,547
======== =======
(6) Borrowings
----------
The Corporation has $10,500,000 in advances from the Federal
Home Loan Bank of Atlanta. These advances bear interest at a
floating rate equal to one month LIBOR and mature on February
24, 1999.
(7) Earnings per Share
------------------
The Corporation adopted the provisions of Statement of Financial
Accounting Standards No. 128, "Earnings per Share", (SFAS No.
128) during 1997. The statement establishes standards for
computing and presenting earnings per share (EPS). In accordance
with SFAS No. 128, all prior period EPS has been restated.
Basic EPS is computed by dividing net income by the weighted
average number of common shares outstanding for the period.
Diluted EPS reflects the potential dilution that could occur if
the Corporation's dilutive stock options were exercised. The
numerator of the basic net income per share computation is the
same as the numerator of the diluted net income per share
computation for all periods presented. A reconciliation of
the denominator of the basic net income EPS computation is as
follows:
8<PAGE>
<PAGE>
<TABLE>
<CAPTION>
Three months ended March 31,
1998 1997
---- ----
<S> <C> <C>
Basic EPS denominator: weighted average
number of common shares outstanding 1,247,507 1,208,710
Dilutive effect arising from assumed
exercise of stock options - 2,855
--------- ---------
Diluted EPS denominator 1,247,507 1,211,565
========= =========
</TABLE>
(8) Other Accounting Changes
------------------------
In June 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 131,
"Disclosures about Segments of an Enterprise and Related
Information" ("SFAS No. 131"). SFAS 131 establishes standards
for the way that public businesses report information about
operating segments in annual financial statements and requires
that those enterprise 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 will adopt
SFAS No. 131 in 1998 without any significant impact on its
consolidated financial statements as the Corporation operates as
one segment.
In February 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 132,
"Employer's Disclosure about Pensions and Other Postretirement
Benefits" ("SFAS No. 132"). SFAS No. 132 standardizes the
disclosure requirements of pensions and other postretirement
benefits. It does not change any measurement or recognition
provisions, and thus will not materially impact the Corporation.
SFAS No. 132 is effective for fiscal years beginning after
December 15, 1997. The Corporation will present the required
disclosures in its financial statements for the year ended
December 31, 1998.
9<PAGE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Comparison of Operating Results for the Three Months ended
March 31, 1998 and 1997
- ----------------------------------------------------------
Net income for the first quarter of 1998 increased to $634,783,
or $0.51 per basic and diluted share, from $310,064 or $0.25 per
basic and diluted share for the same period in 1997. The
increase in net income was due in part to a non-recurring item
in the 1998 period. During the three months ended March 31,
1998, the Corporation recognized a $403,000 pre-tax gain on the
sale of two outparcels to the Waynesville Plaza Shopping Center
which the Corporation had been holding as real estate acquired
in settlement of loans. In addition, net interest income
increased by $167,000 and general and administrative expenses
decreased by $57,000.
Total interest income in 1998 was $2,805,622, a $364,876
increase from the same period in 1997. The reason for the
change was an increase in both the average balance of interest
earning assets and an increase in the average yield on interest
earning assets. The average volume increased by $16 million
primarily due to the purchase of approximately $14.7 million in
investment securities available for sale in February 1997. The
average yield on interest earning assets increased by 15 basis
points to 7.74% for the three months ended March 31, 1998
compared to 7.59% for the same period in 1997. The increase in
average yield is mainly due to an increase in average yield on
investment securities from 4.91% for the three months ended
March 31, 1997 to 6.74% for the same period in 1998 due to the
purchase of investment securities described above.
Interest expense in 1998 increased from 1997 by $198,123,
or 14.80%, mainly due to an increase in the average balance of
interest bearing liabilities of $14.2 million, or 12.45%. The
increase is mainly due to the Corporation borrowing $10.5
million in advances from the Federal Home Loan Bank of Atlanta
("FHLB") in February 1997. The rate paid on interest bearing
liabilities remained fairly constant between periods, increasing
only 10 basis points.
The overall net effect of these changes was a $167,000 increase
in net interest income and an increase in the interest rate
spread between interest earning assets and interest bearing
liabilities from 2.89% in 1997 to 2.94% in 1998.
Comparative yields, costs and spreads for the respective
periods are as follows:
<TABLE>
<CAPTION>
Three months Twelve Months
ended At ended
March 31, March 31, December 31,
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
Average yield on interest earning assets 7.74% 7.59% 7.56% 7.80%
Average rate on interest bearing liabilities 4.80 4.70 4.85 4.94
---- ---- ---- ----
Asset/liability spread 2.94% 2.89% 2.71% 2.86%
==== ==== ==== ====
</TABLE>
Other income increased $314,196, or 143%, in 1998 compared
to the same period in 1997 primarily as a result of the
sale of two outparcels to the Waynesville Plaza Shopping
Center for a gain of approximately $403,000. Total
proceeds from the sales were $613,000 which were invested
in loans receivable and other investments. The gain on
the sale of real estate acquired in settlement of loans
was partially offset by a decrease in real estate
operations, net of approximately $95,000. In 1997, the
Corporation sold the Waynesville Plaza Shopping Center and
as a result no longer receives rental and other income
associated with operating the shopping center.
10<PAGE>
<PAGE>
General and administrative expenses decreased by approximately
$57,000, or 7%, between periods. The decrease is due to a
decrease in federal and other insurance premiums, office
supplies expense and other miscellaneous expenses.
As a result of these and other factors, income before income
taxes increased $537,719, or 106.68%, in 1998 versus 1997.
Income tax expense of $407,000 during the period resulted in an
effective income tax rate of 39.1% compared to 38.5% in 1997.
Comparison of Financial Condition at March 31, 1998 and
December 31, 1997
- -------------------------------------------------------
Total assets decreased by $1.5 million or .96% from $153.5
million at December 31, 1997 to $152.0 million at March 31,
1998. The decrease is mainly due to a decrease in cash and cash
equivalents of $2.0 million due to deposit run-off of
approximately $2 million. In addition, the Corporation
experienced little loan growth during the quarter with the loan
portfolio increasing by only $103,000. Loan originations for the
period were approximately $6.5 million.
Total liabilities decreased by $1.9 million to $129.4 million at
March 31, 1998. The decrease is due to a decrease in interest-
earing deposits of approximately $2.0 million. The decrease is
mainly in certificates of deposit and is attributable to
competitive pressures in the marketplace for deposits.
Stockholders' equity increased by $399,000 from $22.2 million at
December 31, 1997 to $22.6 million at March 31, 1998. This
increase is due to net income of $635,000 for the quarter. This
was offset by a net unrealized loss on securities of $79,000 and
a quarterly dividend of $.15 per share or $188,000.
Asset Quality
- -------------
At March 31, 1998, the Corporation had approximately $558,000 of
loans in nonaccrual status as compared to $583,000 at December
31, 1997. At March 31, 1998 and December 31, 1997, the
Corporation had no loans that were considered to be impaired
under Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan". There were
no loans contractually past due 90 days or more and still
accruing at March 31, 1998 and December 31, 1997. In the
opinion of management, there are no other loans which cause
management to have serious doubts as to the ability of such
borrowers to comply with the present repayment terms which could
result in becoming classified as problem assets. The
Corporation's allowance for loan losses was $743,547 or .65% of
outstanding loans at March 31, 1998. This compares to .64% at
December 31, 1997.
The allowance for loan losses represents management's estimate
of an amount adequate to provide for potential losses inherent
in the loan portfolio. The adequacy of the allowance for loan
losses and the related provision are based upon management's
evaluation of the risk characteristics of the loan portfolio
under current economic conditions with consideration to such
factors as financial condition of the borrower, collateral
values, growth and composition of the loan portfolio, the
relationship of the allowance for loan losses to outstanding
loans, and delinquency trends. Management believes the
allowance for loan losses is adequate. While management uses
all available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in
economic conditions. Various regulatory agencies, as an
integral part of their examination process, periodically review
the Corporation's allowance for loan losses. Such agencies may
require the Corporation to recognize additions to the allowance
based on their judgments about information available to them at
the time of their examination.
Real estate acquired in settlement of loans decreased from
approximately $246,000 at December 31, 1997 to $7,000 at
March 31, 1998 due primarily to the sale of two outparcels
to the Waynesville Plaza Shopping Center.
11<PAGE>
<PAGE>
Year 2000 Planning
- ------------------
The Corporation has been assessing possible effects of the
Year 2000 problem in connection with its technology
investments and operations. Management believes that the
Corporation has limited exposure and expects the cost of
addressing the Year 2000 issues to be approximately $80,000. As
part of its assessment, the Corporation has contacted its
primary vendors to evaluate Year 2000 compliance. The Year 2000
problem creates risk for the Corporation from unforeseen
problems in its own computer systems and from third parties.
Such failures of the Corporation and/or third parties' computer
systems could have a material impact on the Corporation's
ability to conduct business.
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 March 31, 1998, Haywood Bancshares had approximately $30
million in cash, interest bearing balances in other banks,
federal funds sold and investment securities. Management
believes that the level of liquidity at March 31, 1998, 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 March 31, 1998, Haywood Savings was in compliance
with all of the aforementioned capital requirements. The
Corporation must 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. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits. The following exhibits are being filed
with the report.
Exhibit
Number Description
------- -----------
27.1 Financial Data Schedule (EDGAR only)
27.2 Restated Financial Data (EDGAR only)
(b) Reports on Form 8-K. During the quarter ended
March 31, 1998, 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: May 13, 1998 By: /s/Larry R. Ammons
----------------------
Larry R. Ammons
(President and Principal
Executive Officer)
(Duly Authorized Representative)
Date: May 13, 1998 By: /s/Jack T. Nichols
----------------------
Jack T. Nichols
(Principal Financial Officer
and Principal Accounting Officer)
15
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,649,034
<INT-BEARING-DEPOSITS> 79,667
<FED-FUNDS-SOLD> 445,048
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 15,660,202
<INVESTMENTS-CARRYING> 12,054,145
<INVESTMENTS-MARKET> 12,044,688
<LOANS> 114,996,606
<ALLOWANCE> 743,547
<TOTAL-ASSETS> 152,002,443
<DEPOSITS> 116,607,730
<SHORT-TERM> 10,500,000
<LIABILITIES-OTHER> 2,322,101
<LONG-TERM> 0
0
0
<COMMON> 1,250,356
<OTHER-SE> 21,322,256
<TOTAL-LIABILITIES-AND-EQUITY> 152,002,443
<INTEREST-LOAN> 2,298,951
<INTEREST-INVEST> 456,538
<INTEREST-OTHER> 50,133
<INTEREST-TOTAL> 2,805,622
<INTEREST-DEPOSIT> 1,387,126
<INTEREST-EXPENSE> 1,537,036
<INTEREST-INCOME-NET> 1,268,586
<LOAN-LOSSES> 5,000
<SECURITIES-GAINS> 6,418
<EXPENSE-OTHER> 755,048
<INCOME-PRETAX> 1,041,783
<INCOME-PRE-EXTRAORDINARY> 634,783
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 634,783
<EPS-PRIMARY> 0.51
<EPS-DILUTED> 0.51
<YIELD-ACTUAL> 2.71
<LOANS-NON> 558,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 738,547
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 743,547
<ALLOWANCE-DOMESTIC> 743,547
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 633,372
<IN-BEARING-DEPOSITS> 816,513
<FED-FUNDS-SOLD> 626,797
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 14,379,706
<INVESTMENTS-CARRYING> 10,572,087
<INVESTMENTS-MARKET> 10,464,200
<LOANS> 110,372,819
<ALLOWANCE> 723,547
<TOTAL-ASSETS> 146,330,667
<DEPOSITS> 113,239,694
<SHORT-TERM> 10,500,000
<LIABILITIES-OTHER> 1,913,923
<LONG-TERM> 0
0
0
<COMMON> 1,251,856
<OTHER-SE> 19,425,194
<TOTAL-LIABILITIES-AND-EQUITY> 146,330,667
<INTEREST-LOAN> 2,199,855
<INTEREST-INVEST> 205,150
<INTEREST-OTHER> 35,741
<INTEREST-TOTAL> 2,440,746
<INTEREST-DEPOSIT> 1,289,288
<INTEREST-EXPENSE> 1,338,913
<INTEREST-INCOME-NET> 1,101,833
<LOAN-LOSSES> 5,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 811,818
<INCOME-PRETAX> 504,064
<INCOME-PRE-EXTRAORDINARY> 504,064
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 310,064
<EPS-PRIMARY> .26 */
<EPS-DILUTED> .26 */
<YIELD-ACTUAL> 2.67
<LOANS-NON> 1,269,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 718,547
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 723,547
<ALLOWANCE-DOMESTIC> 723,547
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
*/ Restated for adoption of SFAS 128
</TABLE>
