<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, 1998

                                 or

        [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
                OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___________ to ____________

Commission file number   1-11819
                         -------

                     HAYWOOD BANCSHARES, INC.
                    ---------------------------
     (Exact name of registrant as specified in its charter)

      North Carolina                            56-1918006
-----------------------------                ----------------
(State or other jurisdiction of              (I.R.S. Employer
incorporation or organization)               Identification No.)

 370 North Main Street, Waynesville, North Carolina      28786
-----------------------------------------------------------------
(Address of principal executive offices)               (Zip Code)

                        (828) 456-9092
                        --------------
       (Registrant's telephone number, including area code)

                         NOT APPLICABLE     
                       -----------------
(Former name, former address, and former fiscal year, if changed
since last report)

Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13  or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.  Yes [X]   No [ ]


                APPLICABLE ONLY TO 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, 1998, shares of common stock outstanding
were 1,250,356.<PAGE>
<PAGE> 
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

                 HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
             Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>                                        September 30,    December 31,
                                                     1998            1997     
                                                 ------------    ------------
            Assets                                (Unaudited)
            ------
<S>                                              <C>             <C>
Cash on hand and in banks                         $  1,799,442     1,736,787
Interest-bearing balances in other banks               436,105       418,967
Federal funds sold                                     350,574     2,039,247
Investment securities:
  Held to maturity (fair value of $11,137,890
    and $11,303,051, at September 30, 1998 and 
    December 31, 1997, respectively)                11,068,066    11,242,929
  Available for sale (cost of $18,725,927 
    and $15,719,503 at September 30, 1998 and 
    December 31, 1997, respectively)                18,632,440    15,805,611
Loans receivable (net of allowance for loan 
    losses of $753,547 and $738,547, at September 
    30, 1998 and December 31, 1997, respectively)  110,810,893   114,150,356
Real estate acquired in settlement of loans              7,192       246,078
Federal Home Loan Bank stock, at cost                1,427,300     1,427,300
Premises and equipment                               1,515,810     1,551,510
Investment in mortgage servicing rights                751,138     3,027,116
Goodwill                                               688,355       727,530
Other assets                                         2,054,355     1,106,143
                                                  ------------   -----------
                                                  $149,541,670   153,479,574
                                                  ============   ===========
       Liabilities and Stockholders' Equity
       ------------------------------------
Deposit accounts:
 Noninterest-bearing                              $    362,540       199,170
 Interest-bearing, including $13,959,121 
  and $13,973,839, respectively, of time 
  deposits for $100,000 or more                    114,982,578   118,471,286
                                                  ------------   -----------
                                                   115,345,118   118,670,456
Advances from Federal Home Loan Bank                10,500,000    10,500,000
Accrued expenses and other liabilities               2,324,938     2,135,586
                                                  ------------   -----------
            Total liabilities                      128,170,056   131,306,042
                                                  ------------   -----------
Stockholders' equity:
  Serial preferred stock, $1.00 par value, 
   5,000,000 shares  authorized; no 
   shares issued or outstanding                             --            -- 
  Common stock, $1.00 par value, 10,000,000 
   shares authorized; 1,250,356 shares issued 
   and outstanding, respectively                     1,250,356     1,250,356
  Additional paid-in capital                         3,515,948     3,437,275
  Retained income, substantially restricted         16,677,988    17,487,686
  Accumulated other comprehensive income               (61,312)       56,831
  Less obligation in connection with funds 
    used to acquire common shares by ESOP              (11,366)      (58,616)
                                                  ------------   -----------
            Total stockholders' equity              21,371,614    22,173,532
                                                  ------------   -----------
                                                  $149,541,670   153,479,574
                                                  ============   ===========
</TABLE>
See accompanying notes to consolidated financial statements.

                                                       
                                 2<PAGE>
<PAGE> 
                 HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
                    Consolidated Statements of Income
<TABLE>
<CAPTION>                                      Nine Months Ended September 30,
                                               ------------------------------
                                                    1998             1997     
                                               -------------    -------------
                                                         (Unaudited)
<S>                                            <C>              <C>
Interest income:
  Loans                                        $ 6,859,929       6,761,795
  Investment securities                          1,330,937       1,057,526
  Interest-bearing balances in other banks          19,960          16,882
  Federal funds sold                                49,486          50,007
  Other                                             79,186          77,397
                                               -----------      ----------
         Total interest income                   8,339,498       7,963,607
                                               -----------      ----------
Interest expense:  
  Deposits, including $431,839 in 1998 and 
    $435,904 in 1997, on time deposits for 
    $100,000 or more                             4,140,012       4,140,251
  Other borrowed money                             453,633         354,838
                                               -----------      ----------
         Total interest expense                  4,593,645       4,495,089
                                               -----------      ----------
         Net interest income                     3,745,853       3,468,518
Provision for loan losses                           15,000          15,000
                                               -----------     -----------
         Net interest income after provision 
           for loan losses                       3,730,853       3,453,518
                                               -----------     -----------
Other income:
  Insurance income, net                            136,356         135,605
  Service charges on deposits                       44,994          56,699
  Rental income                                     37,598          41,760
  Gain on sale of real estate acquired 
   in settlement of loans                          426,872         679,349 
  Real estate operations, net                        3,390         256,079
  Gain on sale of investment securities 
   available for sale                                6,418              --
  Income (loss) on investment in mortgage 
   servicing rights                             (2,384,653)         86,390
  Other income                                      65,913          40,331
                                               -----------     -----------
         Total other income (expense), net      (1,663,112)      1,296,213
                                               -----------     -----------
General and administrative expenses:
  Salaries and employee benefits                 1,387,253       1,400,697
  Occupancy and equipment                          235,938         261,083
  Federal and other insurance premiums              61,209          63,443
  Amortization of goodwill                          39,175          39,375
  Other expenses                                   628,458         608,048
                                               -----------     -----------
         Total general and administrative 
           expenses                              2,352,033       2,372,646
                                               -----------     -----------
         Income before income taxes               (294,292)      2,377,085
Income taxes (benefit)                             (77,000)        824,500
                                               -----------     -----------
         Net income (loss)                     $  (207,292)      1,552,585
                                               ===========     ===========
Per share amounts:
          Net income (loss) - basic            $     (0.17)    $      1.26
                                               ===========     ===========
          Net income (loss) - diluted          $     (0.17)    $      1.26
                                               ===========     ===========
</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,
                                              -------------------------------
                                                   1998             1997     
                                              -------------    -------------
                                                         (Unaudited)
<S>                                            <C>              <C>
Interest income:
  Loans                                        $ 2,277,385       2,294,109
  Investment securities                            415,550         400,134
  Interest-bearing balances in other banks           4,759           8,795
  Federal funds sold                                19,402          32,543
  Other                                             26,982          26,083
                                               -----------      ----------
         Total interest income                   2,744,078       2,761,664     
                                               -----------      ----------
    
Interest expense:  
  Deposits, including $107,023 in 1998 and 
    $133,171 in 1997, on time deposits for 
    $100,000 or more                             1,369,307       1,455,912     
    
  Other borrowed money                             151,636         154,047
                                               -----------      ----------
         Total interest expense                  1,520,943       1,609,959
                                               -----------      ----------
         Net interest income                     1,223,135       1,151,705 
Provision for loan losses                            5,000           5,000
                                               -----------      ----------
         Net interest income after provision 
           for loan losses                       1,218,135       1,146,705
                                               -----------      ----------
Other income:
  Insurance income, net                             59,043          44,301
  Service charges on deposits                       14,649          18,548
  Rental income                                     12,231          12,588
  Gain on sale of real estate acquired in 
    settlement of loans                                 --         679,349
  Real estate operations, net                        2,180          51,123
  Income (loss) on investment in mortgage 
    servicing rights                            (1,207,696)         24,395
  Other income                                      26,042          21,193
                                               -----------      ----------
         Total other income (expense), net      (1,093,191)        851,497
                                               -----------      ----------
General and administrative expenses:
  Salaries and employee benefits                   495,716         466,988
  Occupancy and equipment                           73,288          85,811
  Federal and other insurance premiums              20,992          21,234
  Amortization of goodwill                          12,925          13,125
  Other expenses                                   199,296         192,835
                                               -----------      ----------
         Total general and administrative 
           expenses                                802,217         799,993
                                               -----------      ----------
         Income (loss) before income taxes        (677,273)      1,218,209
Income taxes (benefit)                            (226,000)        391,500
                                               -----------      ----------
         Net income (loss)                     $  (451,273)        826,709
                                               ===========      ==========
Per share amounts:
          Net income (loss) - basic            $     (0.36)     $     0.67
                                               ===========      ==========
          Net income (loss) - diluted          $     (0.36)     $     0.67
                                               ===========      ==========
</TABLE>
See accompanying notes to consolidated financial statements.
                              4<PAGE>
<PAGE>
            HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
        Consolidated Statement of Stockholders' Equity
          Nine Months ended September 30, 1998 and 1997   
                        (Unaudited)

                                                                 

<TABLE>
<CAPTION> 
                                                                     Accumulated    
                                            Additional                  Other       Obligation      Total
                                 Common     Paid-in       Retained   Comprehensive   of the     Stockholders'
                                  Stock     Capital        Income       Income        ESOP          Equity
                                ----------  -----------   ----------    --------    ----------  -------------
<S>                             <C>         <C>          <C>            <C>         <C>          <C>
Balance at December 31, 1997    $1,250,356    3,437,275   17,487,686      56,831     (58,616)    22,173,532
Net income                              --           --     (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 allocation of ESOP
  shares                                --       78,673      (39,747)         --          --         38,926
Net unrealized loss on
  securities, 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>
<TABLE>
<CAPTION> 
 
                                                                     Accumulated    
                                            Additional                  Other      Obligation      Total
                                 Common     Paid-in       Retained   Comprehensive  of the     Stockholders'
                                  Stock     Capital        Income       Income       ESOP          Equity
                                ----------  -----------   ----------   -----------  ----------  --------------
<S>                             <C>         <C>          <C>            <C>         <C>          <C>
Balance at December 31, 1996    $1,211,856    3,218,006   16,298,440          --    (201,408)    20,526,894
Stock options exercised             44,000      194,750           --          --          --        238,750
Repurchase of common stock          (5,500)     (82,157)          --          --          --        (87,657)
Net income                              --           --    1,552,585          --          --      1,552,585 
Cash dividends declared on
  common stock, $.42 per share          --           --     (526,131)         --          --       (526,131)
Principal repayment of
  ESOP debt                             --           --           --          --      47,250         47,250
Release and allocation of
  ESOP shares                           --       61,415      (26,666)         --          --         34,749
Net unrealized loss on securities
  net of tax effect of $58,047          --           --           --    (114,740)         --       (114,740)
                                ----------   ----------   ----------    --------    --------     ----------
Balance at September 30, 1997   $1,250,356    3,392,014   17,298,228    (114,740)   (154,158)    21,671,700
                                ==========   ==========   ==========    ========    ========     ==========

</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 June 30,
                                               ------------------------------
                                                    1998             1997     
                                               -------------    -------------
                                                         (Unaudited)
<S>                                            <C>              <C>
Cash flows from operating activities:
  Net income (loss)                            $  (207,292)      1,552,585
  Adjustments to reconcile net income to net
     cash provided by operating activities:
       Provision for loan losses                    15,000          15,000
       Depreciation and amortization               149,970         128,121
       Amortization of goodwill                     39,175          39,375
       Loss (income) from investment in mortgage 
         servicing rights                        2,384,653         (86,390)
       Increase in allowance for uncollected
         interest                                   11,854           8,042
     Net gain on sale of real estate acquired 
      in settlement of loans                      (426,872)       (679,349)
     Net gain on sale of investment securities
      available for sale                            (6,418)             -- 
     Increase in other assets                     (948,212)       (194,854)
     Increase in accrued expenses and 
       other liabilities                           298,054         538,852
     Increase in deferred loan fees                 34,719          41,453
     Net noncash expense recorded for ESOP          38,926          34,749
                                               -----------     -----------
          Net cash provided by operating 
            activities                           1,383,557       1,397,584
                                               -----------     -----------
Cash flows from investing activities:
  Purchases of investment securities held to 
    maturity                                    (7,100,000)     (3,600,000)
  Proceeds from maturities and issuer calls
    of investment securities held to maturity    7,000,000       4,957,142
  Purchase of investment securities available 
    for sale                                    (9,062,828)     (5,000,925)
  Proceeds from maturities and issuer calls 
    of investment securities available for sale  2,500,000              --
  Proceeds from sale of investment securities 
    available for sale                           3,505,962              --
  Principal collected on mortgage-backed 
    securities held to maturity                    274,863         201,190
  Purchase of mortgage-backed securities 
    available for sale                                  --     (10,725,345)
  Repayment (origination) of loans, net          3,241,454      (5,251,106)
  Purchases of premises and equipment              (57,410)        (50,524)
  Purchase of investment in mortgage servicing 
    rights                                        (108,675)     (1,163,250)
  Proceeds from sales of real estate acquired 
    in settlement of loans                         702,194       2,251,951
                                               -----------     -----------
          Net cash provided by (used in) 
            investing activities                   895,560     (18,380,867)
                                               -----------     -----------
Cash flows from financing activities:
  Net (decrease) increase in certificates 
    of deposit                                  (4,453,631)     10,695,725
  Net increase in other deposits                 1,128,293         255,639 
  Advances from FHLB                                    --      10,500,000
  Repayment of note payable                             --      (1,200,000)
  Repurchase of common stock                            --         (87,657)
  Cash dividends paid                             (562,659)       (519,761)
  Proceeds from issuance of common stock upon 
    exercise of stock options                           --         238,750
                                               -----------     -----------
<PAGE>
         Net cash provided by (used in) 
            financing activities                (3,887,997)     19,882,696
                                               -----------     -----------
Net increase (decrease) in cash and cash 
  equivalents                                   (1,608,880)      2,899,413
Cash and cash equivalents at beginning of 
  period                                         4,195,001       1,326,503
                                               -----------     -----------
Cash and cash equivalents at end of period      $2,586,121       4,225,916
                                               ===========     ===========
</TABLE>
See accompanying notes to consolidated financial statements.

                                6<PAGE>
<PAGE>
              HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
               Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>                                            Nine Months Ended September 30,
                                                     -------------------------------
                                                          1998             1997     
                                                      -------------    -------------
                                                                (Unaudited)
<S>                                                    <C>              <C>
Supplemental disclosures of cash flow information:
  Cash paid during the period for:
     Interest                                          $4,646,239       4,499,869
                                                       ==========       =========
     Income taxes                                      $  694,000         601,000
                                                       ==========       =========
Supplemental schedule of noncash investing and 
  financing activities:
     Loans transferred to real estate acquired in 
      settlement of loans                              $   36,436              --
                                                       ==========       =========
 Dividends payable                                     $  187,553         175,050
                                                       ==========       =========

</TABLE>
See accompanying notes to consolidated financial statements.


                             7<PAGE>
<PAGE>
              HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements
                        September 30, 1998
                             (Unaudited)

(1)  Presentation of Financial Statements
     ------------------------------------
     The consolidated financial statements include the accounts
     of Haywood Bancshares, Inc. (the Corporation) and its
     wholly-owned subsidiary, Haywood Savings Bank, SSB (Haywood
     Savings).  All intercompany transactions and balances are
     eliminated in consolidation.
 
     The preparation of the consolidated financial statements in 
     conformity with generally accepted accounting principles
     requires management to make estimates and assumptions that
     affect reported amounts of assets and liabilities at the
     date of the financial statements, as well as the amounts of
     income and expenses during the reporting period.  Actual
     results could differ from those estimates.
 
     All adjustments considered necessary for a fair
     presentation of the results for the interim periods
     presented have been included (such adjustments are
     normal and recurring in nature).  Operating results for the
     three and nine month periods ended September 30, 1998, are
     not necessarily indicative of the results that may be
     expected for the year ending December 31, 1998.  The
     Consolidated Statement of Financial Condition as of
     December 31, 1997 was derived from the Corporation's
     audited Consolidated Statement of Financial Condition as of
     December 31, 1997, included in the Corporation's 1997
     Annual Report on Form 10-K.
 
(2)  Summary of Significant Accounting Policies
     ------------------------------------------
     For a description of the significant accounting and
     reporting policies, see note (1) in the notes to
     the December 31, 1997 consolidated financial statements of
     the 1997 annual report.  Also see note (4) to the
     consolidated financial statements for accounting policies
     related to the investment in mortgage servicing rights.
 
     On January 1, 1998 the Corporation adopted Statement of
     Financial Accounting Standards No. 130, "Reporting
     Comprehensive Income" ("SFAS No. 130").  SFAS No. 130
     establishes standards for reporting and displaying
     comprehensive income and its components (revenues, expense,
     gains and losses) in a full set of general-purpose
     financial statements.  This Statement requires that an
     enterprise (a) classify items of other comprehensive income
     by their nature in the financial statement and (b) display
     the accumulated balance of other comprehensive income
     separately from retained earnings and additional
     paid-in-capital in the equity section of a statement of
     financial position.  In accordance with the provisions of
     SFAS No. 130, comparative financial statements
     presented for earlier periods have been reclassified to
     reflect the provisions of the statement.
 
     Comprehensive income is the change in equity of a
     Corporation during the period from transactions and other
     events and circumstances from nonowner sources.    
     Comprehensive income is divided into net income and other
     comprehensive income.  The Corporation's other
     comprehensive income (loss) for the three and nine months
     ended September 30, 1998 and 1997 consists of unrealized
     gains and losses on certain investments in debt and equity
     securities.  Comprehensive income (loss) for the three
     months ended September 30, 1998 and 1997 is ($566,440) and
     $856,060, respectively. Comprehensive income (loss) for the
     nine months ended September 30, 1998 and 1997 is ($325,435)
     and $1,437,845, respectively.

                             8<PAGE>
<PAGE>
(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
     companiesand other loan investors.  DMI formed DMCLP as a
     funding vehicle to purchase portfolios of the Federal
     National Mortgage Association and the Federal Home Loan
     Mortgage Corporation nonrecourse residential servicing. 
     DMI provides the mortgage servicing for these portfolios. 
     Under this structure investors in DMCLP invest in separate
     tranches, each of which has its own identified servicing
     rights and each of which may be owned by one or a group of
     investors.  The equity investors in each tranche benefit
     from a financial return based solely on the performance of
     the mortgage servicing rights purchased for the tranche. 
     The Corporation has funded all of its $3,000,000
     commitment.  
 
     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 three months and nine months ended September 30,
     1998, the Corporation recognized impairment valuation
     adjustments totaling approximately $1,078,000 and
     $2,316,000, respectively. The impairment and write-down of
     the mortgage servicing rights is due to significant
     prepayments of the underlying mortgage loans due to a
     decline in mortgage loan interest rates.  Total earnings
     (loss) of DMCLP recognized by the Corporation on the equity
     method of accounting were($1,207,696) and $24,395 for the
     three months ended  September 30, 1998 and 1997,
     respectively, and ($2,384,653) and $86,390 for the nine
     months ended September 30, 1998 and 1997, respectively.
 
(5)  Allowance for Loan Losses
     -------------------------
 
     The following is a reconciliation of the allowance for loan
     losses for the three and nine months ended September 30,
     1998 and 1997:
<TABLE>
<CAPTION>
                                    Three months          Nine months
                                ended September 30,    ended September 30,
                                -------------------    -------------------
                                 1998         1997      1998         1997
                                ------       ------    -------     -------
<S>                             <C>          <C>       <C>         <C>
Balance at beginning of period  $ 748,547    713,547   738,547     703,547
Provision for loan losses           5,000      5,000    15,000      15,000
                                ---------    -------   -------     -------
Balance at end of period        $ 753,547    718,547   753,547     718,547
                                =========    =======   =======     =======
</TABLE>
(6)  Borrowings
     ----------
     The Corporation has $10,500,000 in advances from the
     Federal Home Loan Bank of Atlanta.  These advances bear
     interest at a floating rate equal to one month LIBOR and
     mature on February 24, 1999.
                                 9                  (Continued)

<PAGE>
(7)  Earnings per Share
     ------------------
     The Corporation adopted the provisions of Statement of Financial
     Accounting Standards No. 128, "Earnings per Share", (SFAS No. 128) during
     1997.  The statement establishes standards for computing and presenting
     earnings per share (EPS).  In accordance with SFAS No. 128, all prior
     period EPS has been restated.
 
     Basic EPS is computed by dividing net income by the weighted average
     number of common shares outstanding for the period.  Diluted EPS reflects
     the potential dilution that could occur if the Corporation's dilutive
     stock options were exercised.  The numerator of the basic net income per
     share computation is the same as the numerator of the diluted net income
     per share computation for all periods presented.  A reconciliation of the
     denominator of the basic net income EPS computation is as follows:

<TABLE>
<CAPTION>

                                                 Three months           Nine months
                                             ended September 30,     ended September 30,
                                             -------------------     -------------------
                                              1998         1997       1998         1997
                                             ------       ------     -------     -------
<S>                                          <C>          <C>        <C>         <C>
Basic EPS denominator:  weighted average
  number of common shares outstanding        1,248,692    1,240,957  1,247,612    1,229,802
Dilutive effect arising from assumed
  exercise of stock options                         --           --         --          952
                                             ---------    ---------  ---------   ----------
           Diluted EPS denominator           1,248,692    1,240,957  1,247,612    1,230,754
                                             =========    =========  =========   ==========
</TABLE>
 
 
(8)  Other Accounting Changes
     ------------------------
     In September 1997, the Financial Accounting Standards Board
     issued Statement of Financial Accounting Standards No. 131,
     "Disclosures about Segments of an Enterprise and Related
     Information" ("SFAS No. 131").  SFAS 131 establishes
     standards for the way that public businesses report
     information about operating segments in annual financial
     statements and requires that those enterprises report
     selected information about operating segments in interim 
     financial reports issued to shareholders.  It also
     establishes standards for related disclosures about
     products and services, geographic areas, and major
     customers.  This Statement is effective for financial
     statements for periods beginning after December 15, 1997
     and in the initial year of application, comparative
     information for earlier years is to be restated.  The
     Corporation will adopt SFAS No. 131 in 1998 without any
     significant impact on its consolidated financial statements
     as the Corporation operates as one segment.
 
     In February 1998, the Financial Accounting Standards Board
     issued Statement of Financial Accounting Standards No. 132,
     "Employer's Disclosure about Pensions and Other
     Postretirement Benefits" ("SFAS No. 132").  SFAS No. 132
     standardizes the disclosure requirements of pensions
     and other postretirement benefits.  It does not change any
     measurement or recognition provisions, and thus will not
     materially impact the Corporation.  SFAS No. 132 is
     effective for fiscal years beginning after December 15,
     1997.  The Corporation will present the required
     disclosures in its financial statements for the year ending
     December 31, 1998. 
                         10
                                                    (Continued)<PAGE>
<PAGE>
     In September 1998, the Financial Accounting Standards Board
     issued Statement of Financial accounting Standards No. 133,
     "Accounting for Derivative Financial Instruments and
     Hedging Activities" ("SFAS No. 133").  SFAS No. 133
     establishes accounting and reporting standards for 
     derivative financial instruments and for hedging
     activities.  SFAS No. 133 is effective for all fiscal
     quarters of fiscal years beginning after September 15,
     1999.  This statement will be adopted by the Corporation in
     1999 without any impact on its consolidated financial
     statements as the Corporation does not have any derivative
     financial instruments nor is involved in any hedging
     activities.
                         11<PAGE>
<PAGE>
ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
          CONDITION AND RESULTS  OF OPERATIONS.

Comparison of Operating Results for the Nine months ended
---------------------------------------------------------
 September 30, 1998 and 1997
----------------------------

Net income (loss) for the nine months ended September 30, 1998
decreased to ($207,292), or ($.17) per basic and diluted share,
from $1,552,585 or $1.26 per basic and diluted share for the
same period in 1997.  The decrease in net income was due to a
($2,384,653) loss on investment in mortgage servicing rights. 
This loss was partially offset by a $403,000 pre-tax gain on the
sale of two outparcels to the Waynesville Plaza Shopping
Center which the Corporation had been holding as real estate
acquired in settlement of loans.  In addition, net
interest income increased by $277,000 and general and
administrative expenses decreased by $21,000.

Total interest income for the nine months ended September 30,
1998 was $8,339,498, a $376,000 increase from the same period in
1997.  The reason for the change was an increase in the average
balance of interest earning assets of approximately $7.4 million
due to the purchase of investment securities.  The average yield
on interest earning assets decreased by 5 basis points to 7.69%
for the nine months ended September 30, 1998 compared to 7.74%
for the same period in 1997.  The decrease in average yield is
mainly due to a decrease in average yield on loans receivable
from 8.05% for the nine months ended September 30, 1997 to 8.01%
for the same period in 1998 due to competitive pressures in the
marketplace for loans.

Interest expense for the nine months ended September 30, 1998
increased from 1997 by $99,000 mainly due to an increase in the
average balance of interest bearing liabilities of $4.6 million,
or 3.7%.  The increase is mainly due to the Corporation
borrowing $10.5 million in advances from the Federal Home Loan
Bank of Atlanta ("FHLB") in the first quarter of 1997.  The rate
paid on interest bearing liabilities remained fairly constant
between periods.  

The overall net effect of these changes was a $277,000 increase
in net interest income and an increase in the interest rate
spread between interest earning assets and interest bearing
liabilities from 2.86% in 1997 to 2.88% in 1998.  

Comparative yields, costs and spreads for the respective periods
are as follows:
<TABLE>
<CAPTION>                                      Nine months                 Twelve Months
                                                 ended           At            ended
                                              September 30,  September 30,   December 31,
                                              1998    1997      1998            1997
                                              ----    ----      ----            ---- 
<S>                                           <C>     <C>       <C>            <C> 
Average yield on interest earning assets      7.69%   7.74%     7.47%          7.80%
Average rate on interest bearing liabilities  4.81%   4.88%     4.04%          4.94%
                                              ----    ----      ----           ---- 
 Asset/liability spread                       2.88%   2.86%     3.43%          2.86%
                                              ====    ====      ====           ====
 Net interest margin                          3.45%   3.37%     3.91%          3.38%
                                              ====    ====      ====           ====
</TABLE>
Other income decreased $2,959,000 for the nine months ended
September 30, 1998 compared to the same period in 1997 due to an
approximately $2,316,000 impairment valuation adjustment to an
equity investment in a mortgage servicing partnership.  The
underlying mortgage servicing rights were written down to their
fair value based on an independent appraisal.  The impairment
and subsequent write-down of the mortgage servicing rights
is due to significant prepayments of the underlying mortgage
loans due to a decline in mortgage loan interest rates.  Total
loss on mortgage servicing rights was $2,384,653 for the nine
month period.  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.  Also see
footnote (4) to the consolidated financial statements.
                         12                         (Continued)<PAGE>
<PAGE>
This loss was partially offset by the sale of the outparcels to
the Waynesville Plaza Shopping Center for a gain of
approximately $403,000.  Total proceeds from the sales were
$682,000 which were invested in loans receivable and other
investments.  The gain on the sale of real estate acquired in
settlement of loans was offset in part by a decrease in real
estate operations, net, of approximately $253,000.  In 1997, the
Corporation sold the Waynesville Plaza Shopping Center and as a
result no longer receives rental and other income associated
with operating the shopping center.  A pre-tax gain of
approximately $679,000 was recognized on the sale of the
Waynesville Plaza Shopping Center in 1997. 

General and administrative expenses decreased by approximately
$21,000, or .87%, between nine month periods.  The decrease is
due to a decrease in federal and other insurance premiums,
salaries and employee benefits, and occupancy and equipment
expense.

As a result of these and other factors, income (loss) before
income taxes decreased $2,661,377 for the nine months ended
September 30, 1998 versus 1997.  Income tax expense (benefit) of
($77,000) during the period resulted in an effective income tax
rate of 27.1% compared to 34.7% in 1997.

Comparison of Operating Results for the Three Months ended 
----------------------------------------------------------
September 30, 1998 and 1997
---------------------------

Net income (loss) for the three months ended September 30, 1998
was ($451,273), or ($.36) per basic and diluted share as
compared to net income of  $826,709 or $.67 per basic and
diluted share for the same period in 1997.  The net loss was due
to a ($1,207,696) loss on investment in mortgage servicing
rights.

Total interest income for the three months ended September 30,
1998 was $2,744,078, a $17,600 decrease from the same period in
1997.  Average interest earning assets increased approximately
$491,000 between periods while the average yield on interest
earning assets decreased from 7.72% for the three months ended
September 30, 1997 to 7.64% for the three months ended September
30, 1998.

Interest expense for the three months ended September 30, 1998
decreased from the same period in 1997 by $89,000 due to a
decrease in the average balance of interest bearing liabilities
of $2.1 million and a decrease in the rate paid on interest
bearing liabilities of 20 basis points.

The overall net effect of these changes was a $71,000 increase
in net interest income and an increase in the interest rate
spread between interest earning assets and interest bearing
liabilities from 2.72% in 1997 to 2.84% in 1998.  

Other income decreased $1,945,000 for the three months ended
September 30, 1998 compared to the same period in 1997 due to an
approximately $1,078,000 impairment valuation adjustment to an
equity investment in a mortgage servicing partnership as
discussed above.  Total loss on mortgage servicing rights was
$1,207,696 for the three month period.  Also attributing to the
change in other income is a decrease in gain on sale of real
estate acquired in settlement of loans and real estate
operations, net, of approximately $679,000 and $49,000,
respectively.  In 1997, the Corporation sold the Waynesville
Plaza Shopping Center for a pre-tax gain of approximately
$679,000, and as a result, no longer receives rental and other
income associated with operating the shopping center.

General and administrative expenses increased by approximately
$22,000, or 2.8%, between three month periods.  The increase is
due to an increase in salaries and employee benefits.

As a result of these and other factors, income (loss) before
income taxes decreased $1,895,482 for the three months ended
September 30,1998 versus 1997.  Income tax benefit of $226,000
during the period resulted in an effective income tax rate of
33.4% compared to 32.1% in 1997.
                              13                 (Continued)
<PAGE>
Comparison of Financial Condition at September 30, 1998 and 
-----------------------------------------------------------
December 31, 1997
-----------------
Total assets decreased by $3.9 million or 2.57% from $153.5
million at December 31, 1997 to $149.5 million at September 30,
1998.  The Corporation experienced negative loan growth during
the period with the loan portfolio decreasing by approximately
$3.3 million. Loan originations for the period were
approximately $20.5 million.  The Corporation also had net
deposit run-off of approximately $3.3 million.

In addition, the investment in mortgage servicing rights
decreased by approximately $2.3 million due to the impairment of
the asset.  As discussed above, the impairment resulted from the
significant prepayment of the underlying mortgage loans during
1998.  

Total liabilities decreased by $3.1 million to $128.2 million at
September 30, 1998.  The decrease is due to a decrease in
interest-bearing deposits of approximately $3.5 million.  The
decrease is mainly in certificates of deposit and is
attributable to competitive pressures in the marketplace for
deposits.

Stockholders' equity decreased by $802,000 from $22.2 million at
December 31, 1997 to $21.4 million at September 30, 1998.  This
decrease is due to quarterly dividends of $.15 per share or
$562,700 combined with net loss for the nine months of $207,000.
 
Asset Quality
-------------

At September 30, 1998, the Corporation had approximately
$752,000 of loans in nonaccrual status as compared
to $583,000 at December 31, 1997.  At September 30, 1998 and
December 31, 1997, the Corporation had no loans that were
considered to be impaired under Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for
Impairment of a Loan".  There were no loans contractually past
due 90 days or more and still accruing at September 30, 1998 and
December 31, 1997.  In the opinion of management, there
are no other loans which cause management to have serious doubts
as to the ability of such borrowers to comply with the present
repayment terms and thus resulting in such loans becoming
classified as problem assets.  The Corporation's allowance for
loan losses was $753,547 or .68% of outstanding loans at
September 30, 1998.  This compares to .64% at December 31, 1997.

The allowance for loan losses represents management's estimate
of an amount adequate to provide for potential losses inherent
in the loan portfolio.  The adequacy of the allowance for loan
losses and the related provision are based upon management's
evaluation of the risk characteristics of the loan portfolio
under current economic conditions with consideration to such
factors as financial condition of the borrower, collateral
values, growth and composition of the loan portfolio, the
relationship of the allowance for loan losses to outstanding
loans, and delinquency trends.  Management believes the
allowance for loan losses is adequate.  While management uses
all available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in
economic conditions.  Various regulatory agencies, as an
integral part of their examination process, periodically review
the Corporation's allowance for loan losses.  Such agencies may
require the Corporation to recognize additions to the allowance
based on their judgments about information available to
them at the time of their examination.

Real estate acquired in settlement of loans decreased from
approximately $246,000 at December 31, 1997 to $7,000 at
September 30, 1998 due primarily to the sale of two outparcels
to the Waynesville Plaza Shopping Center.

                              14
                                                   (Continued)<PAGE>
<PAGE>
Year 2000 Planning
------------------
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
depositers. 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 depositers 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 had previously estimated the total costs to
address the Year 2000 Issue to be $180,000.  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 three and nine month
periods ended September 30, 1998 were approximately $7,500. 
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.  
                             15
                                                   (Continued)

<PAGE>
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 September 30, 1998, Haywood Bancshares had approximately $32
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, 1998, is
adequate and in compliance with regulatory requirements.

Impact of Inflation and Changing Prices
---------------------------------------

The consolidated financial statements and accompanying footnotes
have been prepared in accordance with generally accepted
accounting principles, which require the measurement of
financial position and operating results in terms of historical
dollars without consideration for changes in the relative
purchasing power of money over time due to inflation.  The
assets and liabilities of the Corporation are primarily monetary
in nature and changes in interest rates have a greater impact on
the Corporation's performance than the effect of inflation.


                                16
                                                  (Continued)<PAGE>
<PAGE>
Capital Resources
-----------------
As a North Carolina-charted savings bank, Haywood Savings is
subject to the capital requirements of the FDIC
and the N.C. Administrator of Savings Institutions ("the
Administrator").  The FDIC requires Haywood Savings
to maintain minimum ratios of Tier I capital to total
risk-weighted assets and total capital to risk-weighted assets
of 4% and 8%, respectively.  To be well-capitalized, the FDIC
requires ratios of Tier I capital to total risk-
weighted assets and total capital to risk-weighted assets of 6%
and 10%, respectively.  Tier I capital consists of total
stockholders' equity calculated in accordance with generally
accepted accounting principles less intangible assets, and total
capital is comprised of Tier I capital plus certain adjustments,
the only one of which is applicable to Haywood Savings is the
allowance for loan losses.  Risk-weighted assets reflect Haywood
Savings' on- and off-balance sheet exposures after such
exposures have been adjusted for their relative risk levels
using formulas set forth in FDIC regulations.  Haywood Savings
is also subject to a leverage capital requirement, which calls
for a minimum ratio of Tier I capital (as defined above) to
quarterly average total assets of 3%, and a ratio of 5% to be
"well capitalized."  The Administrator requires a net worth
equal to at least 5% of assets.  At September 30, 1998, 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.

                             17<PAGE>
<PAGE>
PART II.  OTHER INFORMATION

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS

        None.

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

     (a)  Exhibits.  The following exhibits are being filed with
          the report.

        Exhibit
        Number           Description
        ------           -----------
         27.1            Financial Data Schedule (EDGAR only)
         27.2            Restated Financial Data Schedule
                         (EDGAR only)

     (b)  Reports on Form 8-K. During the quarter ended
          September 30, 1998, the Registrant did not file any
          reports on Form 8-K.

                             18<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, 1998    By: /s/Larry R. Ammons  
                               ----------------------
                               Larry R. Ammons
                               (President and Principal
                                Executive Officer)
                               (Duly Authorized Representative)




Date: November 12, 1998    By: /s/Jack T. Nichols  
                               ----------------------
                               Jack T. Nichols
                               (Principal Financial Officer
                               and Principal Accounting Officer)


                                   19