<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, 1999
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 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 14, 1999, 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,
1999 1998
------------ ------------
Assets (Unaudited)
------
<S> <C> <C>
Cash on hand and in banks $ 1,586,048 1,525,035
Interest-bearing balances in other banks 416,645 805,257
Federal funds sold 2,982,496 1,713,611
Investment securities:
Held to maturity (fair value of $11,815,140
and $10,332,472, at March 31, 1999 and
December 31, 1998, respectively) 11,840,389 10,302,987
Available for sale (cost of $16,124,088
and $19,711,642 at March 31, 1999 and
December 31, 1998, respectively) 15,932,099 19,466,200
Loans receivable (net of allowance for loan
losses of $768,547 and $758,547, at March
31, 1999 and December 31, 1998,
respectively) 110,224,026 110,792,991
Real estate acquired in settlement of loans 7,192 7,192
Federal Home Loan Bank stock, at cost 1,427,300 1,427,300
Premises and equipment 1,539,163 1,565,173
Investment in mortgage servicing rights 1,020,257 977,720
Goodwill 662,105 675,030
Other assets 1,432,537 1,697,128
------------ -----------
$149,070,257 150,955,724
============ ===========
Liabilities and Stockholders' Equity
------------------------------------
Deposit accounts:
Noninterest-bearing $ 193,562 241,823
Interest-bearing, including $14,987,697
and $15,245,006, respectively, of time
deposits for $100,000 or more 117,809,714 116,519,550
------------ -----------
118,003,276 116,761,373
Advances from Federal Home Loan Bank 7,000,000 10,500,000
Accrued expenses and other liabilities 2,291,079 2,146,919
------------ -----------
Total liabilities 127,294,355 129,408,292
------------ -----------
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 3,521,612 3,521,612
Retained income, substantially restricted 17,131,640 16,937,456
Accumulated other comprehensive income (loss) (127,706) (161,992)
------------ -----------
Total stockholders' equity 21,775,902 21,547,432
------------ -----------
$149,070,257 150,955,724
============ ===========
</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,
------------------------------
1999 1998
------------- -------------
(Unaudited)
<S> <C> <C>
Interest income:
Loans $2,175,302 2,298,951
Investment securities 370,507 456,538
Interest-bearing balances in other banks 1,395 8,010
Federal funds sold 71,550 16,608
Other 26,394 25,515
---------- ----------
Total interest income 2,645,148 2,805,622
---------- ----------
Interest expense:
Deposits, including $167,666 in 1999 and
$172,057 in 1998, on time deposits for
$100,000 or more 1,262,219 1,387,126
Other borrowed money 116,183 149,910
---------- ----------
Total interest expense 1,378,402 1,537,036
---------- ----------
Net interest income 1,266,746 1,268,586
Provision for loan losses 10,000 5,000
---------- -----------
Net interest income after provision
for loan losses 1,256,746 1,263,586
---------- -----------
Other income:
Insurance income, net 50,912 44,975
Service charges on deposits 15,511 16,289
Rental income 13,155 12,463
Gain on sale of real estate acquired
in settlement of loans -- 406,872
Real estate operations, net -- 1,246
Gain on sale of investment securities
available for sale -- 6,418
Income on investment in mortgage
servicing rights 42,537 38,835
Other income 12,484 6,147
---------- -----------
Total other income, net 134,599 533,245
---------- -----------
General and administrative expenses:
Salaries and employee benefits 455,366 444,470
Occupancy and equipment 73,330 83,720
Federal and other insurance premiums 21,264 20,069
Amortization of goodwill 13,125 13,125
Other expenses 196,019 193,664
---------- -----------
Total general and administrative
expenses 759,104 755,048
---------- -----------
Income before income taxes 632,241 1,041,783
Income taxes 238,000 407,000
---------- -----------
Net income $ 394,241 634,783
========== ===========
Per share amounts:
Net income - basic $ 0.32 0.51
========== ===========
Net income - diluted $ 0.32 0.51
========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
3<PAGE>
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
and Comprehensive Income
Three Months ended March 31, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Common Paid-in Retained Comprehensive Stockholders'
Stock Capital Income Income Equity
---------- ----------- ---------- -------- -------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $1,250,356 3,521,612 16,937,456 (161,992) 21,547,432
Comprehensive income:
Net income -- -- 394,241 -- 394,241
Other comprehensive income-
unrealized gain on securities
available for sale, net of
income taxes of $19,167 -- -- -- 34,286 34,286
----------
Total comprehensive income 428,527
Cash dividends declared on
common stock, $.16 per share -- -- (200,057) -- (200,057)
---------- ---------- ---------- -------- ----------
Balance at March 31, 1999 $1,250,356 3,521,612 17,131,640 (127,706) 21,775,902
========== ========== ========== ======== ==========
</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, 1997 $1,250,356 3,437,275 17,487,686 56,831 (58,616) 22,173,532
Comprehensive income:
Net income -- -- 634,783 -- -- 634,783
Other comprehensive income
(loss)- unrealized gain on
securities available for
sale, net of income taxes
of $41,431 -- -- -- (78,557) -- (78,557)
----------
Total comprehensive income 556,226
Cash dividends declared on
common stock, $.15 per share -- -- (187,553) -- -- (187,553)
Principal repayment of
ESOP debt -- -- -- -- 15,750 15,750
Release and allocation of
ESOP shares -- 29,804 (15,147) -- -- 14,657
---------- ---------- ---------- -------- -------- ----------
Balance at March 31, 1998 $1,250,356 3,467,079 17,919,769 (21,726) (42,866) 22,572,612
========== ========== ========== ======== ======== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
5<PAGE>
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION> Three Months Ended March 31,
------------------------------
1999 1998
------------- -------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income $ 394,241 634,783
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 10,000 5,000
Depreciation and amortization 56,620 81,403
Amortization of goodwill 13,125 13,125
Income from investment in mortgage
servicing rights (42,537) (38,835)
Net gain on sale of real estate acquired
in settlement of loans -- (406,872)
Gain on sale of investment securities
available for sale -- (6,418)
Increase (decrease) in allowance for
uncollected interest (978) 234
Increase in other assets 264,392 6,444
Increase in accrued expenses and
other liabilities 124,993 243,696
Increase in deferred loan fees 13,766 10,885
Net noncash expense recorded for ESOP -- 14,657
----------- -----------
Net cash provided by operating
activities 833,622 558,102
----------- -----------
Cash flows from investing activities:
Purchases of investment securities held to
maturity (4,700,000) (3,900,000)
Proceeds from maturities and issuer calls
of investment securities held to maturity 3,136,957 3,000,000
Principal collected on investment securities
held to maturity 27,594 88,784
Proceeds from maturities and issuer calls
of investment securities available for sale 59,020 1,500,000
Proceeds from sale of investment securities
available for sale 5,750,997 3,505,963
Purchase of investment securities available
for sale (2,250,000) (5,181,508)
Repayment (origination) of loans, net 546,177 (24,508)
Purchases of premises and equipment (5,026) --
Proceeds from sales of real estate acquired
in settlement of loans -- 682,194
----------- -----------
Net cash provided by (used in)
investing activities 2,565,719 (329,075)
----------- -----------
<PAGE>
Cash flows from financing activities:
Net increase (decrease) in deposits 1,241,902 (2,062,726)
Repayment of advances from FHLB (3,500,000) --
Cash dividends paid (200,057) (187,553)
----------- -----------
Net cash used in financing activities (2,458,155) (2,250,279)
----------- -----------
Net increase (decrease) in cash and cash
equivalents 941,186 (2,021,252)
Cash and cash equivalents at beginning of
period 4,044,003 4,195,001
----------- -----------
Cash and cash equivalents at end of period $ 4,985,189 2,173,749
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
6<PAGE>
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION> Three Months Ended March 31,
-------------------------------
1999 1998
------------- -------------
(Unaudited)
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $1,400,135 1,572,611
========== =========
Income taxes $ 102,400 169,273
========== =========
Supplemental schedule of noncash investing and
financing activities:
Loans transferred to real estate acquired in
settlement of loans $ -- 36,436
========== =========
Dividends payable $ 200,057 187,553
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
7<PAGE>
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
March 31, 1999
(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
month period ended March 31, 1999, are not necessarily
indicative of the results that may be expected for the year
ending December 31, 1999.
(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, 1998 consolidated financial statements of the
1998 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 mortgage 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 all of its $3,000,000
commitment.
7<PAGE>
<PAGE>
The investment is accounted for under the equity
method. Management periodically evaluates the fair
value of the mortgage servicing rights owned by DMCLP
using appraisals prepared by a third party and adjusts
the carrying value of their investment when there is
impairment.
During the year ended December 31, 1998, the
Corporation recognized an impairment valuation
adjustment totaling approximately $2,161,000. The
Corporation recognized a recovery of $12,687 during the
three months ended March 31, 1999 of the impairment
previously recorded. Total earnings of DMCLP
recognized by the Corporation on the equity method of
accounting were $29,850 and $38,835 for the three
months ended March 31, 1999 and 1998, respectively.
(5) Allowance for Loan Losses
-------------------------
The following is a reconciliation of the allowance for loan
losses for the three months ended March 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
------ ------
<S> <C> <C>
Balance at beginning of period $758,547 738,547
Provision for loan losses 10,000 5,000
--------- -------
Balance at end of period $768,547 743,547
========= =======
</TABLE>
(6) Borrowings
----------
The Corporation has $7,000,000 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, 2000.
(7) Earnings per Share
------------------
Basic earnings per share is computed by dividing net
income by the weighted average number of common shares
outstanding for the period. The Corporation had no
dilutive securities during the three months ended March
31, 1999 and 1998. The weighted average number of common
shares outstanding is 1,250,356 and 1,247,507 for the
three months ended March 31, 1999 and 1998, respectively.
(8) Other Accounting Changes
------------------------
In June 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging
Activities" (SFAS No. 133). SFAS No. 133 establishes
accounting and reporting standards for derivative
instruments and for hedging activities. SFAS No. 133 is
effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. The Company does not have any
derivative financial instruments and is not involved in any
hedging activities.
8<PAGE>
<PAGE>
In October 1998, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 134,
"Accounting for Mortgage-Backed Securities Retained after
the Securitization of Mortgage Loans Held for Sale by a
Mortgage Banking Enterprise" (SFAS No. 134). SFAS No. 134
establishes accounting and reporting standards for certain
mortgage banking activities. SFAS No. 134 is effective for
financial statements for the first fiscal quarter beginning
after December 15, 1998. The Company adopted SFAS No. 134
in 1999 without any impact on its 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 Three Months Ended March
- ----------------------------------------------------------------
31, 1999 and 1998
- -----------------
Net income for the first quarter of 1999 decreased to $394,241
or $.32 per basic and diluted share, from $634,783 or $.51 per
basic and diluted share for the same period in 1998. The
decrease in net income was due to a non-recurring item in the
1998 period. During the three months ended March 31, 1998, the
Corporation recognized a $403,000 pretax 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.
Total interest income in 1999 was $2,645,148, a $160,474
decrease from the same period in 1998. The reason for the
change was a decrease in the average yield on interest earning
assets. The average yield on interest earning assets decreased
by 50 basis points to 7.24% for the three months ended March 31,
1999 compared to 7.74% for the same period in 1998. The
decrease in average yield is partially due to a change in the
mix of interest earning assets from loans receivable to federal
funds sold. The average yield on loans receivable was 7.83% for
the three months ended March 31, 1999 compared to 5.08% on
federal funds sold. Average loans receivable decreased $3.4
million between periods and average federal funds sold increased
$4.4 million between periods. The decrease in loans receivable
is due to significant prepayments during the period and
competitive pressures in the marketplace. The Corporation
invested excess funds in federal funds sold for liquidity
purposes. Also attributing to the decrease in average yield on
interest earning assets is a decrease in the average yield on
investment securities of 141 basis points from 6.73% for the
three months ended March 31, 1998 to 5.32% for the three months
ended March 31, 1999. This is due to some of the Corporation's
higher yielding securities either maturing or being called
during the period. Proceeds were reinvested in lower yielding
investments.
Interest expense in 1999 decreased from 1998 by $158,634 or
10.3% mainly due to a decrease in the average balance of
interest bearing liabilities of $1.8 million. The decrease is
mainly due to the Corporation repaying $3.5 million in advances
from the Federal Home Loan Bank of Atlanta ("FHLB") in 1999.
The rate paid on interest bearing liabilities decreased 41 basis
points between periods from 4.80% for the three months ended
March 31, 1998 to 4.39% for the three months ended March 31,
1999.
The overall net effect of these changes was a $1,840 decrease in
net interest income and a decrease in the interest rate spread
between interest earning assets and interest bearing liabilities
from 2.94% in 1998 to 2.85% in 1999.
Comparative yields, costs and spreads for the respective periods
are as follows:
<TABLE>
<CAPTION> Three months Twelve Months
ended At ended
March 31, (1) March 31, December 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Average yield on interest earning assets 7.24% 7.74% 7.02% 7.64%
Average rate on interest bearing liabilities 4.39% 4.80% 4.43% 4.76%
---- ---- ---- ----
Asset/liability spread 2.85% 2.94% 2.59% 2.88%
==== ==== ==== ====
<FN>
(1) Annualized
</FN>
</TABLE>
(Continued)
9<PAGE>
<PAGE>
During the three months ended March 31, 1999 and 1998,
management recorded provisions for loan losses of $10,000 and
$5,000, respectively. The increase in the provision for loan
losses in 1999 was due to the increase in nonaccrual loans
between the period. Nonaccrual loans were approximately
$1,007,000 at March 31, 1999 compared to $558,000 at March 31,
1998. The Corporation had no charge-offs and no recoveries in
either 1999 or 1998. As discussed below, management determines
the provision for loan losses based on their review of the loan
portfolio and their estimate of the allowance for loan losses
required to absorb estimated probable losses inherent in the
loan portfolio.
Other income decreased $399,000 or 75% in 1999 compared to the
same period in 1998 primarily as a result of the sale of two
outparcels to the Waynesville Plaza Shopping Center for a gain
of approximately $403,000 in 1998. Absent this non-recurring
gain in the 1998 period, other income would have improved
$4,354, or 3.3%, between the periods mainly due to a $5,937, or
13.2% increase in insurance income due to an increase in the
volume of business during the period.
General and administrative expenses increased by approximately
$4,100 or 0.5%, between periods.
As a result of these and other factors, income before income
taxes decreased $409,542 or 39.3% in 1999 versus 1998. Income
tax expense of $238,000 during the period resulted in an
effective income tax rate of 37.6% compared to 39.1% in 1998.
Comparison of Financial Condition at March 31, 1999 and December
- ----------------------------------------------------------------
31, 1998
- --------
Total assets decreased by $1.9 million or 1.25% from $151.0
million at December 31, 1998 to $149.1 million at March 31,
1999. The decrease is mainly due to a decrease in investment
securities of $2.0 million due to the repayment of $3.5 million
of Advances from the Federal Home Loan Bank. In addition, the
loan portfolio decreased by $568,965. Loan originations for the
period were approximately $10.0 million but were offset by
significant prepayments.
Total liabilities decreased by $2.1 million to $127.3 million at
March 31, 1999. The decrease is due to the repayment of $3.5
million of Advances from the Federal Home Loan Bank.
Stockholders' equity increased by $228,000 from $21.5 million at
December 31, 1998 to $21.8 million at March 31, 1999. This
increase is due to net income of $394,000 for the quarter and a
decrease in unrealized loss on securities available for sale of
$34,000. This was offset by a quarterly dividend of $.16 per
share or $200,057.
Asset Quality
- -------------
At March 31, 1999, the Corporation had approximately $1,007,000
of loans in nonaccrual status as compared to $841,000 at
December 31, 1998 and $558,000 at March 31, 1998. At March 31,
1999 and December 31, 1998, 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 interest at March 31,
1999 and December 31, 1998. 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 and thus resulting in such loans becoming
classified as problem assets. The Corporation's allowance for
loan losses was $768,547 or .69% of outstanding loans at March
31, 1999. This compares to .68% at December 31, 1998.
The allowance for loan losses represents management's estimate
of an amount adequate to provide for probable 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,
(Continued)
11<PAGE>
<PAGE>
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.
Year 2000 Readiness Disclosure
- ------------------------------
The Corporation recognizes and is addressing the potentially
severe implications of the "Year 2000 Issue." The "Year 2000
Issue" is a general term used to describe the various problems
that may result from the improper processing of dates and date-
sensitive calculations as the Year 2000 approaches. This issue
is caused by the fact that many of the world's existing computer
programs use only two digits to identify the year in the date
field of a program. These programs were designed and developed
without considering the impact of the upcoming change in the
century and could experience serious malfunctions when the last
two digits of the year change to "00" as a result of identifying
a year designated "00" as the year 1900 rather than the year
2000. This misidentification could prevent the Corporation from
being able to engage in normal business operations, including,
among other things, miscalculating interest accruals and the
inability to process customer transactions.
The Corporation's Board of Directors has approved a Year 2000
Plan that was developed in accordance with guidelines set forth
by the Federal Financial Institutions Examination Council. This
plan has three primary phases related to internal Year 2000
compliance.
The first phase of the Corporation's efforts to address the Year
2000 Issue was to inventory all known Corporation processes that
could reasonably be expected to be impacted by the Year 2000
Issue and their related vendors, if applicable. This phase is
complete, although it is periodically updated as necessary.
The Corporation's second phase in addressing the Year 2000 Issue
was to contact all third party vendors, request documentation
regarding their Year 2000 compliance efforts, and analyze the
responses. This was a significant phase because the Corporation
does not perform in-house programming, and thus is dependent on
external vendors to ensure and modify, if necessary, the
hardware, software, or service it provides to the Corporation to
be Year 2000 compliant. This phase is now virtually complete
and the Corporation is currently following up on any issues or
concerns identified in the responses received, as necessary.
The next phase for the Corporation under the plan is to complete
a comprehensive testing of all known processes. The most
significant phase of testing is the testing of the Corporation's
mainframe computer system, teller terminals and core software
applications. The Corporation installed a new mainframe
computer system and teller terminals in September 1998 that are
Year 2000 compliant. Both systems were tested in September
1998. Upgrades of the core software applications currently used
by the Corporation were received from the software vendor in
September and were represented to be Year 2000 compliant by the
vendor. These applications were successfully loaded onto the
Corporation's hardware system in September and Year 2000 testing
was also completed immediately after installation.
Another part of the Corporation's Year 2000 plan is to assess
the Year 2000 readiness of its significant borrowers and
depositors. Through the use of questionnaire's and personal
contacts, the Corporation is in the process of assessing the
Year 2000 readiness of significant borrowers and depositors of
the Corporation. Since the majority of the loans are to
individuals and secured by one to four family residences this
step is not expected to require a significant amount of time or
resources.
(Continued)
12<PAGE>
<PAGE>
The Corporation has estimated the total costs to address the
Year 2000 Issue to be approximately $202,000 . Approximately
$117,500 of these costs related to the installation of the
mainframe computer system and were capitalized in accordance
with the Corporation's capitalization policy. Year 2000 project
costs incurred and expensed during the year ended December 31,
1998 were approximately $149,000. There were no Year 2000
project costs incurred or expensed during the three months ended
March 31, 1999. Funding of the Year 2000 project costs will come
from normal operating cash flow, however the expenses associated
with the Year 2000 Issue will directly reduce otherwise reported
net income for the Corporation.
Management of the Corporation believes that the potential
effects on the Corporation's internal operations of the Year
2000 Issue can and will be addressed prior to the Year 2000.
However, if required modifications or conversions are not made
or are not completed on a timely basis prior to the Year 2000,
the Year 2000 Issue could disrupt normal business operations.
The most reasonably likely worst case Year 2000 scenarios
foreseeable at this time would include the Corporation
temporarily not being able to process, in some combination,
various types of customer transactions. This could affect the
ability of the Corporation to, among other things, originate new
loans, post loan payments, accept deposits or allow immediate
withdrawals, and, depending on the amount of time such a
scenario lasted, could have a material adverse effect on the
Corporation. Because of the serious implications of these
scenarios, the primary emphasis of the Corporation's Year 2000
efforts is to correct, with complete replacement if necessary,
any systems or processes whose Year 2000 test results are not
satisfactory prior to the Year 2000. Nevertheless, should one of
the most reasonably likely worst case scenarios occur in the
Year 2000, the Corporation is also in the process of formalizing
a contingency plan that would allow for limited transactions,
including the ability to make certain deposit withdrawals, until
the Year 2000 problems are fixed.
The costs of the Year 2000 project and the date on which the
Corporation plans to complete Year 2000 compliance are based on
management's best estimates, which were derived using numerous
assumptions of future events such as the availability of certain
resources (including internal and external resources), third
party vendor plans and other factors. However, there can be no
guarantee that these estimates will be achieved at the cost
disclosed or within the time frame indicated, and actual results
could differ materially from these plans. Factors that might
affect the timely and efficient completion of the Corporation's
Year 2000 project include, but are not limited to, vendors'
abilities to adequately correct or convert software and the
effect on the Corporation's ability to test its systems, the
availability and cost of personnel trained in the Year 2000
area, the ability to identify and correct all relevant computer
programs and similar uncertainties.
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, 1999, Haywood Bancshares had approximately $32.8
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, 1999, 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.
(Continued)
13<PAGE>
<PAGE>
Capital Resources
- -----------------
As a North Carolina-chartered 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, 1999, Haywood
Savings was in compliance with all of the aforementioned capital
requirements and is deemed to be "well capitalized". The
Corporation must comply with FRB capital requirements which are
substantially the same.
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.
14<PAGE>
<PAGE>
PART II. OTHER INFORMATION
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
March 31, 1999, the Registrant did not file any
reports on Form 8-K.
15<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 14, 1999 By: /s/Larry R. Ammons
----------------------
Larry R. Ammons
(President and Principal
Executive Officer)
(Duly Authorized Representative)
Date: May 14, 1999 By: /s/Jack T. Nichols
----------------------
Jack T. Nichols
(Principal Financial Officer
and Principal Accounting Officer)
16
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 1,586,048
<INT-BEARING-DEPOSITS> 416,645
<FED-FUNDS-SOLD> 2,982,496
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 15,932,099
<INVESTMENTS-CARRYING> 11,840,389
<INVESTMENTS-MARKET> 11,815,140
<LOANS> 110,224,026
<ALLOWANCE> 768,547
<TOTAL-ASSETS> 149,070,257
<DEPOSITS> 118,003,276
<SHORT-TERM> 7,000,000
<LIABILITIES-OTHER> 2,291,079
<LONG-TERM> 0
0
0
<COMMON> 1,250,356
<OTHER-SE> 20,525,546
<TOTAL-LIABILITIES-AND-EQUITY> 149,070,257
<INTEREST-LOAN> 2,175,302
<INTEREST-INVEST> 370,507
<INTEREST-OTHER> 99,339
<INTEREST-TOTAL> 2,645,148
<INTEREST-DEPOSIT> 1,262,219
<INTEREST-EXPENSE> 1,378,402
<INTEREST-INCOME-NET> 1,266,746
<LOAN-LOSSES> 10,000
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 759,104
<INCOME-PRETAX> 632,241
<INCOME-PRE-EXTRAORDINARY> 632,241
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 394,241
<EPS-PRIMARY> 0.32
<EPS-DILUTED> 0.32
<YIELD-ACTUAL> 3.47
<LOANS-NON> 1,007,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 758,547
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 768,547
<ALLOWANCE-DOMESTIC> 768,547
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
