<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, 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 November 12, 1999, shares of common stock outstanding
were 1,250,356.
1
<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,
1999 1998
------------ ------------
Assets (Unaudited)
------
<S> <C> <C>
Cash on hand and in banks $ 2,069,500 1,525,035
Interest-bearing balances in other banks 158,091 805,357
Federal funds sold 694,402 1,713,611
Investment securities:
Held to maturity (market value of $16,957,007
and $10,332,472, at September 30, 1999 and
December 31, 1998, respectively) 17,296,705 10,302,987
Available for sale (cost of $13,788,842
and $19,711,642 at September 30, 1999 and
December 31, 1998, respectively) 13,372,292 19,466,200
Loans receivable (net of allowance for loan
losses of $928,547 and $758,547
at September 30, 1999 and December 31,
1998, respectively) 108,560,385 110,792,991
Real estate acquired in settlement of loans 59,824 7,192
Federal Home Loan Bank stock, at cost 1,108,300 1,427,300
Premises and equipment 1,485,651 1,565,173
Investment in mortgage servicing rights 1,228,192 977,720
Goodwill 635,855 675,030
Other assets 1,478,054 1,697,128
------------ -----------
$148,147,251 150,955,724
============ ===========
Liabilities and Stockholders' Equity
------------------------------------
Deposit accounts:
Noninterest-bearing $ 338,007 241,823
Interest-bearing, including $15,435,721
and $15,245,006, respectively, of time
deposits for $100,000 or more 116,620,745 116,519,550
------------ -----------
116,958,752 116,761,373
Advances from Federal Home Loan Bank 7,000,000 10,500,000
Accrued expenses and other liabilities 2,342,026 2,146,919
------------ -----------
Total liabilities 126,300,778 129,408,292
------------ -----------
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 17,346,000 16,937,456
Accumulated other comprehensive income (loss) (271,495) (161,992)
------------ -----------
Total stockholders' equity 21,846,473 21,547,432
------------ -----------
$148,147,251 150,955,724
============ ===========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Income
<TABLE>
<CAPTION> Nine Months Ended September 30,
1999 1998
------------- -------------
(Unaudited)
<S> <C> <C>
Interest income:
Loans $6,488,751 6,859,929
Investment securities 1,314,035 1,330,937
Interest-bearing balances in other banks 24,235 19,960
Federal funds sold 79,020 49,486
Other 69,493 79,186
---------- ----------
Total interest income 7,975,534 8,339,498
---------- ----------
Interest expense:
Deposits, including $454,600 in 1999 and
$324,816 in 1998, on time deposits for
$100,000 or more 3,817,800 4,140,012
Other borrowed money 297,712 453,633
---------- ----------
Total interest expense 4,115,512 4,593,645
---------- ----------
Net interest income 3,860,022 3,745,853
Provision for loan losses 170,000 15,000
---------- -----------
Net interest income after provision
for loan losses 3,690,022 3,730,853
---------- -----------
Other income:
Insurance income, net 149,557 136,356
Service charges on deposits 40,179 44,994
Rental income 41,025 37,598
Gain on sale of real estate acquired
in settlement of loans -- 426,872
Real estate operations, net (556) 3,390
Gain on sale of investment securities
available for sale 11,522 6,418
Income (loss) on investment in mortgage
servicing rights 250,472 (2,384,653)
Other income 31,570 65,913
---------- -----------
Total other income (loss), net 523,769 (1,663,112)
---------- -----------
General and administrative expenses:
Salaries and employee benefits 1,464,804 1,387,253
Occupancy and equipment 235,945 235,938
Federal and other insurance premiums 60,165 61,209
Amortization of goodwill 39,375 39,175
Other expenses 798,788 628,458
---------- -----------
Total general and administrative
expenses 2,599,077 2,352,033
---------- -----------
Income (loss) before income taxes 1,614,714 (284,292)
Income taxes 606,000 (77,000
---------- -----------
Net income (loss) $1,008,714 (207,292)
========== ===========
Per share amounts:
Net income - basic $ 0.81 (0.17)
========== ===========
</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,
1999 1998
------------- -------------
(Unaudited)
<S> <C> <C>
Interest income:
Loans $2,103,908 2,277,385
Investment securities 537,593 415,550
Interest-bearing balances in other banks 9,696 4,759
Federal funds sold 19,205 19,402
Other 21,129 26,982
---------- ----------
Total interest income 2,691,531 2,744,078
---------- ----------
Interest expense:
Deposits, including $141,370 in 1999 and
$152,759 in 1998, on time deposits for
$100,000 or more 1,281,243 1,369,307
Other borrowed money 93,058 151,636
---------- ----------
Total interest expense 1,374,301 1,520,943
---------- ----------
Net interest income 1,317,230 1,223,135
Provision for loan losses 150,000 5,000
---------- -----------
Net interest income after provision
for loan losses 1,167,230 1,218,135
---------- -----------
Other income:
Insurance income, net 53,085 59,043
Service charges on deposits 10,299 14,649
Rental income 13,947 12,231
Gain on sale of real estate acquired
in settlement of loans -- --
Real estate operations, net (419) 2,180
Income (loss) on investment in mortgage
servicing rights 20,207 (1,207,696)
Other income 10,472 26,402
---------- -----------
Total other income (loss), net 107,591 (1,093,191)
---------- -----------
General and administrative expenses:
Salaries and employee benefits 503,127 495,716
Occupancy and equipment 82,955 73,288
Federal and other insurance premiums 19,926 20,992
Amortization of goodwill 13,125 12,925
Other expenses 333,930 199,296
---------- -----------
Total general and administrative
expenses 953,063 802,217
---------- -----------
Income (loss) before income taxes 321,758 (677,273)
Income taxes 121,000 (226,000)
---------- -----------
Net income (loss) $ 200,758 (451,273)
========== ===========
Per share amounts:
Net income (loss) - basic $ 0.16 (0.36)
========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Stockholders' Equity
and Comprehensive Income
Nine Months ended September 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Common Paid-in Retained Comprehensive Stockholders'
Stock Capital Income Income (Loss) 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
Net income -- -- 1,008,714 -- 1,008,714
Cash dividends declared on
common stock, $.48 per share -- -- (600,170) -- (600,170)
Net unrealized loss on securities
available for sale, net of
tax effect of $61,605 -- -- -- (109,503) (109,503)
---------- ---------- ---------- -------- ----------
Balance at September 30, 1999 $1,250,356 3,521,612 17,346,000 (271,495) 21,846,473
========== ========== ========== ======== ==========
</TABLE>
<TABLE>
<CAPTION>
Accumulated
Additional Other Obligation Total
Common Paid-in Retained Comprehensive of the Stockholders'
Stock Capital Income Income (loss) 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 -- -- (207,292) -- -- (207,292)
Cash dividends declared on
common stock, $.45 per share -- -- (562,659) -- -- (562,659)
Principal repayment of ESOP
debt -- -- -- -- 47,250 47,250
Release and allocations of
ESOP shares -- 78,673 (39,747) -- -- 38,926
Net unrealized loss on
securities available for
sale, net of tax effect
of $61,452 -- -- -- (118,143) -- (118,143)
---------- ---------- ----------- --------- -------- ----------
Balance at September 30, 1998 $1,250,356 3,515,948 16,677,988 (61,312) (11,366) 21,371,614
========== ========== ========== ======== ======== ==========
</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,
1999 1998
------------- -------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Net income (loss $ 1,008,714 (207,292)
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 170,000 15,000
Depreciation and amortization 135,154 149,970
Amortization of goodwill 39,375 39,175
Loss (income) from investment
for uncollected interest (250,472) 2,384,653
Increase (decrease) in allowance for
uncollected interest (10,488) 11,854
Net gain on sale of real estate acquired
in settlement of loans -- (426,872)
Net gain on sale of investment securities
available for sale (11,522) (6,418)
Decrease (increase) in other assets 218,875 (948,212)
Increase in accrued expenses
and other liabilities 256,713 298,054
Increase in deferred loan fees 9,873 34,719
Net noncash expense recorded for ESOP -- 38,926
----------- -----------
Net cash provided by operating
activities 1,566,222 1,383,557
----------- -----------
Cash flows from investing activities:
Purchases of investment securities held to
maturity (10,600,000) (7,100,000)
Proceeds from maturities and issuer calls
of investment securities held to maturity 3,436,957 7,000,000
Purchase of investment securities available
for sale (7,682,824) (9,062,828)
Proceeds from maturities and issuer calls
of investment securities available for sale 664,963 2,500,000
Proceeds from sale of investment securities
available for sale 12,948,748 3,505,962
Principal collected on mortgage-backed
securities held to maturity 130,716 274,863
Proceeds from sale of Federal Home Loan
Bank stock 319,000 --
Repayment of loans, net 2,010,589 3,241,454
Purchases of premises and equipment (13,588) (57,410)
Purchase of mortgage servicing rights -- (108,675)
Proceeds from sales of real estate acquired
in settlement of loans -- 702,194
----------- -----------
Net cash provided by investing
activities 1,214,561 895,560
----------- -----------
Cash flows from financing activities:
Net increase (decrease) in deposits 197,378 (3,325,338)
Repayment of Federal Home Loan
Bank advances (3,500,000) --
Cash dividends paid (600,171) (562,659)
----------- -----------
Net cash used in financing activities (3,902,793) (3,887,997)
----------- -----------
Net decrease in cash and cash equivalents (1,122,010) (1,608,880)
Cash and cash equivalents at beginning of
period 4,044,003 4,195,001
----------- -----------
Cash and cash equivalents at end of period $ 2,921,993 2,586,121
=========== ===========
</TABLE>
(Continued)
6
<PAGE>
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION> Nine Months Ended September 30,
1999 1998
------------- -------------
(Unaudited)
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $4,135,518 4,646,239
========== =========
Income taxes $ 826,125 694,000
========== =========
Supplemental schedule of noncash investing and
financing activities:
Loans transferred to real estate acquired in
settlement of loans $ 52,632 36,436
========== =========
Dividends payable $ 200,056 187,553
========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
(Continued)
7
<PAGE>
<PAGE>
HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 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 nine
month period ended September 30, 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 in
the 1998 Annual Report to stockholders.
(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.
(Continued)
8
<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 $25,892 and $95,482 during the three and nine
months ended September 30, 1999, respectively, of the
impairment previously recorded. Total earnings (loss) of
DMCLP recognized by the Corporation on the equity method
of accounting were $20,207 and ($1,207,696) for the three
months ended September 30, 1999 and 1998, respectively
and $250,472 and ($2,384,653) for the nine months ended
September 30, 1999 and 1998, respectively.
(5) Allowance for Loan Losses
-------------------------
The following is a reconciliation of the allowance for
loan losses for the three months and nine months ended
September 30, 1999 and 1998:
<TABLE>
<CAPTION>
Three Months Nine Months
ended September 30, ended September 30
------------------- ------------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Balance at beginning of period $778,547 748,547 758,547 738,547
Provision for loan losses 150,000 5,000 170,000 15,000
-------- ------- ------- -------
Balance at end of period $928,547 753,547 928,547 753,547
======== ======= ======= =======
</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
September 30, 1999 and 1998 and the nine months ended
September 30, 1999 and 1998. The weighted average number
of common shares outstanding is 1,250,356 and 1,248,692
for the three months ended September 30, 1999 and 1998,
respectively, and 1,250,356 and 1,247,612 for the nine
months ended September 30, 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. 137,
"Accounting for Derivative Instruments and Hedging
Activities - Deferral of the Effective Date of FASB
Statement No. 133 - an amendment of FASB Statement No.
133" delayed the effective date of this Statement for one
year. The Statement is
(Continued)
9
<PAGE>
<PAGE>
effective for all fiscal quarters of fiscal years beginning
after June 15, 2000. The Company does not have any
derivative financial instruments and is not involved in any
hedging activities.
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) Subsequent Event - Proposed Merger
----------------------------------
On August 5, 1999, the Corporation entered into an
Agreement and Plan of Merger ("the Agreement") with
Century South Banks, Inc. ("Century South") and HBI
Acquisition Corporation ("HBI"), a wholly-owned
subsidiary of Century South. Century South is a bank
holding company headquartered in Dahlonega, Georgia with
assets of approximately $1.2 billion at September 30,
1999. Under the terms of the Agreement, each outstanding
share of the Corporation would be converted into the
right to receive .8874 shares of common stock subject to
adjustment based upon the average closing price for the
Century South common stock for a 20 day period preceding
the closing of the transaction or if the Corporation's
stockholders' equity (as of the month end immediately
prior to the effective date, as adjusted in accordance
with the Merger Agreement) is less than $21,000,000.
Subject to certain limitations, stockholders may elect to
receive cash in lieu of shares of Century South common
stock. In connection with the execution of the
Agreement, the Corporation and Century South entered into
a Stock Option Agreement pursuant to which the
Corporation granted Century South an option to purchase
up to 19.9% of the outstanding shares of Common Stock.
The option is only exercisable in certain circumstances.
The merger is expected to be finalized in the first
quarter of 2000 and is subject to a number of conditions,
including approval by regulatory authorities and the
stockholders of the Corporation.
(Continued)
10
<PAGE>
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Forward-Looking Statements
- --------------------------
When used in this Form 10-Q, the words or phrases "will likely
result," "are expected to," "will continue," "is anticipated,"
"estimate," "project" or similar expressions are intended to
identify "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995. Such
statements are subject to certain risks and uncertainties
including changes in economic conditions in our market area,
changes in policies by regulatory agencies, fluctuations in
interest rates, demand for loans in our market area, and
competition that could cause actual results to differ materially
from historical earnings and those presently anticipated or
projected. The reader should not place undue reliances on any
such forward-looking statements, which speak only as of the date
made. The factors listed above could affect the Corporation's
financial performance and could cause its actual results for
future periods to differ materially from any opinions or
statements expressed with respect to future periods in any
current statements.
The Corporation does not undertake, and specifically disclaim
any obligation, to publicly release the result of any revisions
which may be made to any forward-looking statements to reflect
events or circumstances after the date of such statements or to
reflect the occurrence of anticipated or unanticipated events.
Comparison of Operating Results for the Nine Months Ended
- ---------------------------------------------------------
September 30, 1999 and 1998
- ---------------------------
Net income for the nine months ended September 30, 1999
increased to $1,008,714 or $.81 per share, from a net loss of
($207,292) or ($.17) per share for the same period in 1998. The
increase in net income was due to income from investment in
mortgage servicing rights of $250,472 during the nine months
ended September 30, 1999 compared to a $2,384,653 loss on
investment in mortgage servicing rights for the same period in
1998. This loss during the 1998 period was partially offset by
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. In
addition, general and administrative expenses increased by
$247,044 between periods.
Total interest income for the nine months ended September 30,
1999 was $7,975,534, a $363,964 decrease from the same period in
1998. The reason for the change was a decrease in both average
volume and average yield of interest earning assets. The
average volume decreased $1.5 million between periods due to a
decrease in average loans receivable of $3.8 million. 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 investment securities
and federal funds sold. The average yield on interest earning
assets decreased by 26 basis points to 7.43% for the nine months
ended September 30, 1999 compared to 7.69% for the same period
in 1998. The decrease in average yield is partially due to a
decrease in average yield on investment securities of 47 basis
points from 6.47% for the nine months ended September 30, 1998
to 6.00% for the nine months ended September 30, 1999. This is
due to the Corporation's higher yielding securities either
maturing or being called during the period. Proceeds were
reinvested in lower yielding investments. Also contributing to
the decrease in average yield on interest earning assets is a
change in the mix of interest earning assets from loans
receivable to investment securities and federal funds sold. The
average yield on loans receivable was 7.84% for the nine months
ended September 30, 1999 compared to 6.00% and 5.50% on
investment securities and federal funds sold, respectively.
Interest expense for the nine months ended September 30, 1999
decreased from 1998 by $478,133 or 10.4% mainly due to a
decrease in the cost of funds. The rate paid on interest
bearing liabilities decreased 44 basis points between periods
from 4.81% for the nine months ended September 30, 1998 to 4.37%
for the nine months ended September 30, 1999. In addition, the
average balance of interest-bearing liabilities decreased
(Continued)
11
<PAGE>
<PAGE>
$1.9 million due to the Corporation repaying $3.5 million in
advances to the Federal Home Loan Bank of Atlanta ("FHLB") in
1999.
The overall net effect of these changes was a $114,169 increase
in net interest income and an increase in the interest rate
spread between interest earning assets and interest bearing
liabilities from 2.88% in 1998 to 3.06% in 1999.
Comparative yields, costs and spreads for the respective periods
are as follows:
<TABLE>
<CAPTION>
Nine months ended At Twelve months ended
September 30, (1) September 30, December 31,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Average yield on interest
earning assets 7.43% 7.69% 7.09% 7.64%
Average rate on interest
bearing liabilities 4.37% 4.81% 4.76% 4.76%
---- ---- ---- ----
Asset/liability spread 3.06% 2.88% 2.33% 2.88%
==== ==== ==== ====
Net interest margin 3.60% 3.45% 2.90% 3.46%
==== ==== ==== ====
<FN>
(1) Annualized
</FN>
</TABLE>
During the nine months ended September 30, 1999 and 1998,
management recorded provisions for loan losses of $170,000 and
$15,000, respectively. The Corporation had no charge-offs and
no recoveries in either 1999 or 1998. Historically, the
Corporation has experienced a relatively low level of losses on
its loans, which is largely due to a sound economy and stable
work force in its market area. In addition, the values of real
estate have remained stable or have been increasing, which has
minimized losses on foreclosed loans. Recent increases in
interest rates and changes in broader-based economic indices
could have a negative impact on the Corporations' market area
and customer base. The Corporation's management has recently
learned of reductions in employees by several large companies
with operations in the Corporation's market areas. These events
have increased the risk that historical levels of loan losses
will not continue, and that a trend of increased delinquencies
and losses on foreclosures will begin. The Corporation's
management has determined that it is necessary to increase its
allowance for loan losses in the third quarter of 1999 to
account for these recent developments. There can be no
assurance that the Corporation will not be required to
further increase the allowance for loan losses in future
periods.
Other income increased $2,186,881 for the nine months ended
September 30, 1999 compared to the same period in 1998. This is
mainly due to income from mortgage servicing rights of $250,472
for the nine months ended September 30, 1999 compared to loss
from investment in mortgage servicing rights of $2,384,653 for
the same period in 1998. During the 1998 period, the
Corporation recognized an impairment valuation adjustment to an
equity investment in a mortgage servicing partnership totaling
approximately $2,316,000. The Corporation recognized a recovery
of $95,482 during the nine months ended September 30, 1999 of
the impairment previously recorded. The investment in mortgage
servicing rights is evaluated periodically by management for
impairment and no assurance can be given that additional
impairment valuation adjustments will not be required in the
future. For additional information, see note (4) to the
consolidated financial statements.
In addition, during the nine months ended September 30, 1998,
the Corporation recognized a gain on the sale of the outparcels
to the Waynesville Plaza Shopping Center of approximately
$403,000. There was no such gain in the 1999 period.
General and administrative expenses increased by $247,144 or
10.5%, between periods. This is mainly due to a $77,551
increase in salaries and employee benefits. This is due to
normal salary increases and increases in deferred compensation
expense due to a change in the discount rate from 8.0% to 7.0%.
Also contributing to the increase was an increase in other
expenses of $170,330 mainly due an increase in
(Continued)
12
<PAGE>
<PAGE>
professional fees of approximately $104,000 and merger related
expenses of approximately $33,000 during the 1999 period.
As a result of these and other factors, income before income
taxes increased $1,899,006 in 1999 versus 1998. Income tax
expense of $606,000 during the nine month period resulted in an
effective income tax rate of 37.5% compared to 27% in 1998.
Comparison of Operating Results for the Three Months ended
- ----------------------------------------------------------
September 30, 1999 and 1998
- ---------------------------
Net income for the three months ended September 30, 1999 was
$200,758, or $.16 per share as compared to a net loss of
($451,273) or ($.36) per share for the same period in 1998. The
net loss in 1998 was due to a $1,207,696 loss on investment in
mortgage servicing rights.
Total interest income for the three months ended September 30,
1999 was $2,691,531, a $52,547 decrease from the same period in
1998. Average interest earning assets decreased approximately
$2.6 million between periods and the average yield on interest
earning assets decreased from 7.64% for the three months ended
September 30, 1998 to 7.63% for the three months ended September
30, 1999.
Interest expense for the three months ended September 30, 1999
decreased from the same period in 1998 by $146,642 due to a
decrease in the average balance of interest bearing liabilities
of $1.3 million and a decrease in the rate paid on interest
bearing liabilities of 42 basis points.
The overall net effect of these changes was a $94,095 increase
in net interest income and an increase in the interest rate
spread between interest earning assets and interest bearing
liabilities from 2.84% in 1998 to 3.25% in 1999.
During the three months ended September 30, 1999 and 1998,
management recorded provisions for loan losses of $150,000 and
$5,000, respectively. See the discussion regarding increase in
the provision for loan losses under the heading "Comparison of
Operating Results for the Nine Months Ended September 30, 1999
and 1998."
Other income increased $1,200,782 for the three months ended
September 30, 1999 compared to the same period in 1998. The
1998 period reflected a $1,078,000 impairment valuation
adjustment to an equity investment in a mortgage servicing
partnership as discussed above. The Corporation recognized a
recovery of $25,892 during the three months ended September 30,
1999 of the impairment previously recorded. Total loss on
mortgage servicing rights was $1,207,696 for the three month
period ended September 30, 1998 compared to income on mortgage
servicing rights of $20,207 for the same period in 1999.
General and administrative expenses increased by $150,846, or
18.8%, between three month periods. The increase is mainly due
to a $134,634 increase in other expenses mainly due to an
increase in professional fees and merger related expenses during
the period.
As a result of these and other factors, income before income
taxes increased $999,031 for the three months ended September
30, 1999 versus 1998. Income tax expense of $121,000 during the
period resulted in an effective income tax rate of 37.6%
compared to 33.4% in 1998.
Comparison of Financial Condition at September 30, 1999 and
- -----------------------------------------------------------
December 31, 1998
- -----------------
Total assets decreased by $2,808,473 or 1.9% from $150,955,724
at December 31, 1998 to $148,147,251 at September 30, 1999. The
decrease is mainly due to a decrease in loans receivable of
$2,232,606. Loan originations for the nine month period were
approximately $9.2 million but were more than offset by
significant prepayments.
(Continued)
13
<PAGE>
<PAGE>
Total liabilities decreased by $3,107,514 to $126,300,778 at
September 30, 1999. The decrease is due to the repayment of
$3,500,000 of advances from the Federal Home Loan Bank.
Stockholders' equity increased by $299,041 from $21,547,432 at
December 31, 1998 to $21,846,473 at September 30, 1999. This
increase is due to net income of $1,008,714 for the nine months
ended September 30, 1999. This was offset by quarterly
dividends of $.16 per share or $600,170 in the aggregate and an
increase in unrealized loss on securities available for sale of
$109,503.
Asset Quality
- -------------
At September 30, 1999, the Corporation had approximately
$578,000 of loans in nonaccrual status as compared to $841,000
at December 31, 1998 and $752,000 at September 30, 1998. At
September 30, 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
September 30, 1999 and December 31, 1998. The Corporation's
allowance for loan losses was $928,547 or .85% of outstanding
loans at September 30, 1999. This compares to $758,547 or .68%
at December 31, 1998. The increase in the allowances for loan
losses since December 31, 1998 is largely attributable to
changes in recent economic factors both nationally and locally.
As previously discussed, recent issues in interest rates and
changes in broader based economic indices could have a negative
impact on the Corporation's market area and customer base.
In addition, there have been recent reductions in employees in
the Corporation's market area. The Corporation's management has
determined that it is necessary to increase its allowance for
loan losses in the third quarter of 1999 to account for these
recent developments. There can be no assurance that the
Corporation will not be required to further increase the
allowance for loan losses in future periods.
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, 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.
Proposed Merger
- ---------------
On August 5, 1999, the Corporation entered into an Agreement and
Plan of Merger ("the Agreement") with Century South Banks, Inc.
("Century South") and HBI Acquisition Corporation ("HBI"), a
wholly-owned subsidiary of Century South. Century South is a
bank holding company headquartered in Dahlonega, Georgia with
assets of approximately $1.2 billion at September 30, 1999.
Under the terms of the Agreement, each outstanding share of the
Corporation would be converted into the right to receive .8874
shares of common stock subject to adjustment based upon the
average closing price for the Century South common stock for a
20 day period preceding the closing of the transaction or if the
Corporation's stockholders' equity (as of the month end
immediately prior to the effective date, as adjusted in
accordance with the Merger Agreement) is less than $21,000,000.
Subject to certain limitations, stockholders may elect to
receive cash in lieu of shares of Century South common stock.
In connection with the execution of the Agreement, the
Corporation and Century South entered into a Stock Option
Agreement pursuant to which the Corporation granted Century
South an option to purchase up to 19.9% of the outstanding
shares of Common Stock. The option is only exercisable in
certain
(Continued)
14
<PAGE>
<PAGE>
circumstances. The merger is expected to be finalized in the
first quarter of 2000 and is subject to a number of conditions,
including approval by regulatory authorities and the
stockholders of the Corporation.
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 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.
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 $12,000 Year 2000
project costs incurred and expensed during the nine months ended
September 30, 1999. Funding of the
(Continued)
15
<PAGE>
<PAGE>
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, in the event
one of the most reasonably likely worst case scenarios occur in
the Year 2000, the Corporation has prepared 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 September 30, 1999, Haywood Bancshares had approximately
$33.6 million in cash, interest bearing balances in other banks,
federal funds sold and investment securities. Management
believes that the level of liquidity at September 30, 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)
16
<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 September 30, 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.
(Continued)
17
<PAGE>
<PAGE>
Recently Enacted Legislation
- ----------------------------
On November 12, 1999, President Clinton signed legislation
which could have a far-reaching impact on the financial services
industry. The Gramm-Leach-Bliley ("G-L-B") Act authorizes
affiliations between banking, securities and insurance firms and
authorizes bank holding companies and national banks to engage in
a variety of new financial activities. Under the G-L-B Act, any
bank holding company whose depository institution subsidiaries have
satisfactory Community Reinvestment Act ("CRA") records may elect
to become a financial holding company if it certifies to the
Federal Reserve Board that all of its depository institution
subsidiaries are well-capitalized and well-managed. Financial
holding companies may engage in any activity that the Federal
Reserve Board, after consultation with the Secretary of the
Treasury, determines to be financial in nature or incidental to a
financial activity. Financial holding companies may also engage
in activities that are complementary to financial activities and
do not pose a substantial risk to the safety and soundness of their
depository institution subsidiaries or the financial system
generally. The G-L-B Act specifies that activities that are
financial in nature include lending and investing activities,
insurance and annuity underwriting and brokerage, financial,
investment and economic advice, selling interests in pooled
investment vehicles, securities underwriting, engaging in
activities currently permitted to bank holding companies (including
activities in which bank holding companies may currently engage
outside the United States) and merchant banking through a
securities or insurance underwriting affiliate. The Federal
Reserve Board, in consultation with the Department of Treasury, may
approve additional financial activities.
The G-L-B Act permits well capitalized and well managed
national banks with satisfactory CRA records to invest in financial
subsidiaries that engage in activities that are financial in nature
(or incidental thereto) on an agency basis. National banks that
are among the 50 largest insured banks and have at least one issue
of investment grade debt outstanding may invest in financial
subsidiaries that engage in activities as principal other than
insurance underwriting, real estate development or merchant
banking. All national banks are given the authority to underwrite
municipal revenue bonds. The aggregate total consolidated assets
of a national bank's financial subsidiaries may not exceed the
lesser of 45% of the bank's total consolidated assets or $50
billion. A national bank would be required to deduct its
investments in financial subsidiaries from its regulatory capital.
National banks must also adopt procedures for protecting the bank
against risks associated with the financial subsidiary and to
preserve the separate corporate identity of the financial
subsidiary. Financial subsidiaries of state and national banks
(which include any subsidiary engaged in an activity not permitted
to a national bank directly) would be treated as affiliates for
purposes of the limitations on aggregate transactions with
affiliates in Sections 23A and 23B of the Federal Reserve Act and
for purposes of the anti-tying restrictions of the Bank Holding
Company Act. State-chartered banks would be prohibited from
investing in financial subsidiaries unless they would be well
capitalized after deducting the amount of their investment from
capital and observe the other safeguards applicable to national
banks.
The G-L-B Act imposes functional regulation on bank
securities and insurance activities. Banks will only be exempt
from SEC regulation as securities brokers if they limit their
activities to those described in the G-L-B Act. Banks that advise
mutual funds will be subject to the same SEC regulation as other
investment advisors. Bank common trust funds will be regulated as
mutual funds if they are advertised or offered for sale to the
general public. National banks and their subsidiaries will be
prohibited from underwriting insurance products other than those
which they were lawfully underwriting as of January 1, 1999 and are
prohibited from underwriting title insurance or tax-free annuities.
<PAGE>
National banks may only sell title insurance in states in which
state-chartered banks are authorized to sell title insurance. The
G-L-B Act directs the federal banking agencies to promulgate
regulations governing sales practices in connection with
permissible bank sales of insurance.
(Continued)
18
<PAGE>
<PAGE>
Recently Enacted Legislation (continued)
- ---------------------------------------
The G-L-B Act imposes new requirements on financial
institutions with respect to customer privacy. The G-L-B Act
generally prohibits disclosure of customer information to non-
affiliated third parties unless the customer has been given the
opportunity to object and has not objected to such disclosure.
Financial institutions are further required to disclose their
privacy policies to customers annually. Financial institutions,
however, will be required to comply with state law if it is more
protective of customer privacy than the G-L-B Act. The G-L-B Act
directs the federal banking agencies, the National Credit Union
Administration, the Secretary of the Treasury, the Securities and
Exchange Commission and the Federal Trade Commission, after
consultation with the National Association of Insurance
Commissioners, to promulgate implementing regulations within six
months of enactment. The privacy provisions will become effective
six months thereafter.
The G-L-B Act contains significant revisions to the Federal
Home Loan Bank System. The G-L-B Act imposes new capital
requirements on the Federal Home Loan Banks and authorizes them to
issue two classes of stock with differing dividend rates and
redemption requirements. The G-L-B Act deletes the current
requirement that the Federal Home Loan Banks annually contribute
$300 million to pay interest on certain government obligations in
favor of a 20% of net earnings formula. The G-L-B Act expands the
permissible uses of Federal Home Loan Bank advances by community
financial institutions (under $500 million in assets) to include
funding loans to small businesses, small farms and small agri-
businesses. The G-L-B Act makes membership in the Federal Home
Loan Bank System voluntary for federal savings associations.
The G-L-B Act contains a variety of other provisions
including a prohibition against ATM surcharges unless the customer
has first been provided notice of the imposition and amount of the
fee. The G-L-B Act reduces the frequency of CRA examinations for
smaller institutions and imposes certain reporting requirements on
depository institutions that make payments to non-governmental
entities in connection with the CRA.
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.
(Continued)
19
<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
September 30, 1999, the Registrant did not file any
reports on Form 8-K.
(Continued)
20
<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 12, 1999 By: /s/Larry R. Ammons
----------------------
Larry R. Ammons
(President and Principal
Executive Officer)
(Duly Authorized Representative)
Date: November 12, 1999 By: /s/Jack T. Nichols
----------------------
Jack T. Nichols
(Principal Financial Officer
and Principal Accounting Officer)
21
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,069,500
<INT-BEARING-DEPOSITS> 158,091
<FED-FUNDS-SOLD> 694,402
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 13,372,292
<INVESTMENTS-CARRYING> 17,296,705
<INVESTMENTS-MARKET> 16,957,007
<LOANS> 109,488,932
<ALLOWANCE> 928,547
<TOTAL-ASSETS> 148,147,251
<DEPOSITS> 116,958,752
<SHORT-TERM> 7,000,000
<LIABILITIES-OTHER> 2,342,026
<LONG-TERM> 0
0
0
<COMMON> 1,250,356
<OTHER-SE> 20,596,117
<TOTAL-LIABILITIES-AND-EQUITY> 148,147,251
<INTEREST-LOAN> 6,488,751
<INTEREST-INVEST> 1,314,035
<INTEREST-OTHER> 172,748
<INTEREST-TOTAL> 7,975,534
<INTEREST-DEPOSIT> 3,817,800
<INTEREST-EXPENSE> 4,115,512
<INTEREST-INCOME-NET> 3,860,022
<LOAN-LOSSES> 170,000
<SECURITIES-GAINS> 11,522
<EXPENSE-OTHER> 2,599,077
<INCOME-PRETAX> 1,614,714
<INCOME-PRE-EXTRAORDINARY> 1,008,714
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,008,714
<EPS-BASIC> .81
<EPS-DILUTED> .81
<YIELD-ACTUAL> 3.60
<LOANS-NON> 578,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 758,547
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 928,547
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<ALLOWANCE-UNALLOCATED> 928,547
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