<PAGE>
<PAGE>                       FORM 10-Q

                SECURITIES AND EXCHANGE COMMISSION
                      Washington, D.C.  20549

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

        For the Quarterly Period Ended September 30, 1997

                                 or

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

For the transition period from ___________ to ____________

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

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

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

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

                        (704) 456-9092
                        --------------
       (Registrant's telephone number, including area code)

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

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

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS:

Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court. 
Yes [X]   No [ ]

                APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate by check mark whether the registrant has filed all
documents and reports required to be filed by Sections 12, 13 or
15(d) of the Securities Exchange Act of 1934 subsequent to the
distribution of securities under a plan confirmed by a court. 
Yes [ ]   No [ ]

               APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer s
classes of common stock, as of the latest practicable date.

    As of November 14, 1997, shares of common stock outstanding
were 1,250,356.<PAGE>
<PAGE> 
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

                 HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
             Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>                                        September 30,   December 31,
                                                     1997            1996     
                                                 ------------    ------------
Assets                                            (Unaudited)
------
<S>                                              <C>             <C>
Cash on hand and in banks                        $  1,387,056       1,029,850
Interest-bearing balances in other banks              629,532         143,806
Federal funds sold                                  2,209,328         152,847
Investment securities:
  Held to maturity (market value of $9,548,519
   and $10,744,961, respectively)                   9,536,957      10,894,099
  Available for sale (cost of $5,000,739)           5,006,890               -
Mortgage-backed securities:
  Held to maturity (market value of $920,459
   and $1,118,023, respectively)                      868,133       1,069,323
  Available for sale (cost of $10,720,791)         10,541,853               -
Loans receivable (net of allowance for loan
 losses of $733,547 and $718,547, respectively    114,531,017     109,344,406
Real estate acquired in settlement of loans           217,585       1,790,187
Federal Home Loan Bank stock, at cost               1,427,300       1,427,300
Premises and equipment                              1,587,530       1,660,387
Investment in mortgage servicing rights             2,977,715       1,728,075
Other assets                                        1,133,955         881,054
Goodwill                                              740,655         780,030
                                                 ------------    ------------
                                                 $152,795,506     130,901,364
                                                 ============    ============
Liabilities and Stockholders' Equity
------------------------------------
Deposit accounts:                                       
 Noninterest-bearing                             $    162,349         196,526
 Interest-bearing, including $14,138,998 and
  $11,129,365, respectively, of time deposits
  for $100,000 or more                            118,132,394     107,146,853
                                                 ------------    ------------
                                                  118,294,743     107,343,379
Note payable                                                -       1,200,000
Advances from Federal Home Loan Bank               10,500,000               -
Accrued expenses and other liabilities              2,329,063       1,831,091
                                                 ------------    ------------
          Total liabilities                       131,123,806     110,374,470

Stockholders' equity:
  Serial preferred stock, $1.00 par value,
   5,000,000 shares authorized; no shares
   issued or outstanding                                    -               -
  Common stock, $1.00 par value, 10,000,000
   shares authorized; 1,250,356 and 1,211,856
   shares issued and outstanding, respectively      1,250,356       1,211,856
  Additional paid-in capital                        3,392,014       3,218,006
  Retained income, substantially restricted        17,298,228      16,298,440
  Less obligation in connection with funds used
   to acquire common shares by ESOP                  (154,158)       (201,408)
  Net unrealized losses on securities                (114,740)              -
                                                 ------------    ------------
          Total stockholders' equity               21,671,700      20,526,894
                                                 ------------    ------------
                                                 $152,795,506     130,901,364
                                                 ============    ============
</TABLE>
See accompanying notes to consolidated financial statements.

                                 2<PAGE>
<PAGE> 
                 HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
                    Consolidated Statements of Income
<TABLE>
<CAPTION>                                      Nine Months Ended September 30,
                                                         (Unaudited)
                                                    1997             1996     
                                               -------------    -------------
<S>                                            <C>              <C>
Interest income:
  Loans                                        $   6,761,795        6,539,678
  Investment securities                              421,910          642,222
  Mortgage-backed securities                         635,616           82,271
  Interest-bearing balances in other banks            16,882           15,360
  Federal funds sold                                  50,007           26,394
  Other                                               77,397           82,076
                                               -------------    -------------
     Total interest income                         7,963,607        7,388,001
                                               -------------    -------------
Interest expense:  
  Deposits, including $435,904 in 1997 and
   $331,475 in 1996, on time deposits for
   $100,000 or more                                4,140,251        3,682,609
  Borrowed money                                     354,838           16,019
                                               -------------    -------------
     Total interest expense                        4,495,089        3,698,628
                                               -------------    -------------

     Net interest income                           3,468,518        3,689,373

Provision for loan losses                             15,000           15,000  
                                               -------------    -------------
     Net interest income after provision
      for loan losses                              3,453,518        3,674,373
                                               -------------    -------------
Other income:
  Insurance income, net                              135,605          119,516
  Service charges on deposits                         56,699           53,823
  Rental income                                       41,760           37,963
  Real estate operations, net                        935,428          306,327
  Other income                                       126,721           20,096
                                               -------------    -------------
     Total other income, net                       1,296,213          537,725
                                               -------------    -------------
General and administrative expenses:
  Salaries and employee benefits                   1,400,697        1,358,887
  Occupancy and equipment                            261,083          273,301
  Federal and other insurance premiums                63,443          927,552
  Amortization of goodwill                            39,375           39,375
  Other expenses                                     608,048          553,328
                                               -------------    -------------
     Total general and administrative expenses     2,372,646        3,152,443
                                               -------------    -------------

     Income before income taxes                    2,377,085        1,059,655

Income taxes                                         824,500          365,000
                                               -------------    -------------
     Net income                                $   1,552,585          694,655
                                               =============    =============
Per share amounts:

     Net income                                $        1.25    $         .57
                                               =============    =============

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

                                 3<PAGE>
<PAGE>
                 HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
                    Consolidated Statements of Income
<TABLE>
<CAPTION>                                     Three Months Ended September 30,
                                                         (Unaudited)
                                                   1997              1996     
                                              -------------     -------------
<S>                                           <C>               <C>
Interest income:
  Loans                                       $   2,294,109         2,168,284
  Investment securities                             144,198           195,163
  Mortgage-backed securities                        255,936            25,380
  Interest-bearing balances in other banks            8,795             5,883
  Federal funds sold                                 32,543            11,629
  Other                                              26,083            27,558
                                              -------------     -------------
     Total interest income                        2,761,664         2,433,897
                                              -------------     -------------
Interest expense:  
  Deposits, including $133,171 in 1997 and
   $97,750 in 1996, on time deposits for
   $100,000 or more                               1,455,912         1,155,108
  Borrowed money                                    154,047             2,040
                                              -------------     -------------
     Total interest expense                       1,609,959         1,157,148
                                              -------------     -------------

     Net interest income                          1,151,705         1,276,749
Provision for loan losses                             5,000             5,000
                                              -------------     -------------
     Net interest income after provision
      for loan losses                             1,146,705         1,271,749
                                              -------------     -------------
Other income:
  Insurance income, net                              44,301            44,534
  Service charges on deposits                        18,548            15,970
  Rental income                                      12,588            14,956
  Real estate operations, net                       730,472            98,159
  Other income                                       45,588             1,587
                                              -------------     -------------
     Total other income, net                        851,497           175,206
                                              -------------     -------------
General and administrative expenses:
  Salaries and employee benefits                    466,988           447,448
  Occupancy and equipment                            85,811            85,604
  Federal and other insurance premiums               21,234           786,362
  Amortization of goodwill                           13,125            13,125
  Other expenses                                    192,835           171,179
                                              -------------     -------------
     Total general and administrative expenses      779,993         1,503,718
                                              -------------     -------------
     Income (loss) before income taxes            1,218,209           (56,763)
Income taxes (benefit)                              391,500           (44,000) 
                                              -------------     -------------
     Net income (loss)                        $     826,709           (12,763)
                                              =============     =============
Per share amounts:
     Net income (loss)                        $         .66     $        .(01)
                                              =============     =============
</TABLE>
See accompanying notes to consolidated financial statements.
                                  
                              4<PAGE>
<PAGE>
            HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
        Consolidated Statement of Stockholders' Equity
        Nine Months ended September 30, 1997 and 1996
                        (Unaudited)

                                                                 

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

<TABLE>
<CAPTION> 
                                                                                    Net
                                            Additional                           Unrealized          Total
                                 Common     Paid-in     Retained     Obligation   Loss on        Stockholders'
                                  Stock     Capital      Income      of the ESOP Securities        Equity
                                --------   ----------   --------     ----------- -----------    --------------
<S>                             <C>         <C>          <C>            <C>       <C>            <C>
Balance at December 31, 1995    $1,287,372    4,652,561   15,825,090    (358,754)         --     21,406,269
Stock options exercised              5,700       23,863           --          --          --         29,563
Repurchase of Common Stock         (92,216)  (1,569,097)          --          --          --     (1,661,313)
Net income                              --           --      694,655          --          --        694,655 
Cash dividends declared on
  common stock, $.39 per share          --           --     (480,542)         --          --       (480,542)
Principal repayment of
  ESOP debt                             --           --           --      46,800          --         46,800
Release and allocation of
  ESOP shares                           --       57,303      (16,650)         --          --         40,653
                                ----------   ----------   ----------    --------    --------     ----------
Balance at September 30, 1996   $1,200,856    3,164,630   16,022,553    (311,954)         --     20,076,085
                                ==========   ==========   ==========    ========    ========     ==========

</TABLE>

See accompanying notes to consolidated financial statements.

                                     5<PAGE>
<PAGE>
                   HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
                    Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>                                     Nine Months Ended September 30,
                                                         (Unaudited)
                                                   1997              1996     
                                              -------------     -------------
<S>                                           <C>               <C>
Cash flows from operating activities:
  Net income                                  $   1,552,585           694,655
  Adjustments to reconcile net income to net
   cash provided by operating activities:
    Provision for loan losses                        15,000            15,000
    Depreciation and amortization                   128,121           105,952
    Amortization of goodwill                         39,375            39,375
    Income from mortgage servicing rights           (86,390)                -
    Increase (decrease) in allowance for
     uncollected interest                             8,042           (24,388)
    Net gain on sale of assets                     (679,349)          (12,695)
    (Increase) decrease in other assets            (194,854)          138,367
    Increase in accrued expenses and other
     liabilities                                    538,852           609,572
    Increase in deferred loan fees                   41,453            33,329
    Net noncash expense recorded for ESOP            34,749            46,800
                                              -------------     -------------
     Net cash provided by operating
      activities                                  1,397,584         1,645,967
                                              -------------     -------------
Cash flows from investing activities:
  Purchases of investment securities
   held to maturity                              (3,600,000)       (4,500,000)
  Proceeds from maturities/calls of
   investment securities held to maturity         4,957,142         8,005,901
  Purchase of investment securities
   available for sale                            (5,000,925)                -
  Principal collected on mortgage-backed
   securities held to maturity                      201,190           267,416
  Purchase of mortgage-backed securities
   available for sale                           (10,725,345)                -
  Origination of loans, net                      (5,251,106)       (2,703,885)
  Proceeds of sales from real estate
   acquired in settlement of loans                2,251,951            57,075
  Purchases of premises and equipment               (50,524)          (21,727)
  Purchases of mortgage servicing rights         (1,163,250)                -
                                              -------------     -------------
     Net cash provided by (used in)
      investing activities                      (18,380,867)        1,104,780
                                              -------------     -------------
Cash flows from financing activities:
  Net increase in certificates of deposit        10,695,725           (73,611)
  Net decrease in other deposits                    255,639          (364,552)
  Advances from FHLB                             10,500,000                 -
  Proceeds from note payable                              -         1,000,000
  Repayment of note payable                      (1,200,000)       (1,000,000)
  Repurchase of common stock                        (87,657)       (1,661,313)
  Cash dividends paid                              (519,761)         (491,789)
  Proceeds from issuance of common stock
   upon exercise of stock options                   238,750            29,563
                                              -------------     -------------
     Net cash provided by (used in)
      financing activities                       19,882,696        (2,561,702)
                                              -------------     -------------
Net increase in cash and cash equivalents         2,899,413           189,045
Cash and cash equivalents at beginning of
 period                                           1,326,503         2,725,084
                                              -------------     -------------
Cash and cash equivalents at end of period    $   4,225,916         2,914,129
                                              =============     =============
<PAGE>
Supplemental disclosures of cash flow information:
  Cash paid during the period for:
    Interest                                  $   4,499,869         3,716,204
    Income taxes                                    601,342           579,122
                                              -------------     -------------
Supplemental schedule of noncash investing
 and financing activities:
  Dividends payable                           $     175,050           156,111
                                              =============     =============
</TABLE>
See accompanying notes to consolidated financial statements.

                                     6<PAGE>
<PAGE>

              HAYWOOD BANCSHARES, INC. AND SUBSIDIARY
             Notes to Consolidated Financial Statements
                         September 30, 1997
                             (Unaudited)


(1)  Presentation of Financial Statements
     ------------------------------------

     The consolidated financial statements include the accounts
     of Haywood Bancshares, Inc. (the Corporation) and its
     wholly-owned subsidiary Haywood Savings Bank, Inc., SSB
     (Haywood Savings).  All intercompany transactions and
     balances are eliminated in consolidation.

     The preparation of the consolidated financial statements in
     conformity with generally accepted accounting principles 
     requires management to make estimates and assumptions that
     affect reported amounts of assets and liabilities at the
     date of the financial statements, as well as the amounts of
     income and expenses during the reporting period.  Actual
     results could differ from those estimates.

     All adjustments considered necessary for a fair
     presentation of the results for the interim periods
     presented have been included (such adjustments are normal
     and recurring in nature).  Operating results for the three
     and nine month periods ended September 30, 1997, are not
     necessarily indicative of the results that may be expected
     for the year ending December 31, 1997.

(2)  Summary of Significant Accounting Policies
     ------------------------------------------

     For a description of the significant accounting and
     reporting policies, see note (1) in the notes to the
     December 31, 1996 consolidated financial statements of the
     1996 annual report.

(3)  Cash and Cash Equivalents
     -------------------------

     Cash and cash equivalents include cash on hand and in
     banks, interest-bearing balances in other banks, and
     federal funds sold.  Generally, cash and cash equivalents
     are considered to have maturities of three months or less.

(4)  Investment in Mortgage Servicing Rights
     ---------------------------------------

     During 1996, the Corporation made a $3,000,000 commitment
     to be a limited partner in Dovenmuehle Mortgage Company
     L.P. ("DMCLP") Tranche VIII Servicing Division of 
     Dovenmuehle Mortgage Inc. ("DMI").  DMI provides mortgage
     servicing for a national portfolio of residential,
     multi-family and commercial mortgage loans.  These loans
     are owned or securitized by national mortgage agencies, and
     by a variety of private banks, thrifts, insurance companies
     and other loan investors.  DMI formed DMCLP as a funding
     vehicle to purchase portfolios of the Federal National
     Mortgage Association and the Federal Home Loan Mortgage
     Corporation nonrecourse residential servicing. DMI provides
     the mortgage servicing for these portfolios.  Under this
     structure investors in DMCLP invest in separate tranches,
     each of which has its own identified servicing rights and
     each of which may be owned by one or a group of investors. 
     The equity investors in each tranche benefit from a
     financial return based solely on the performance of the
     mortgage servicing rights purchased for the tranche.

     During 1997, the Corporation funded an additional
     $1,163,250 of its $3,000,000 commitment.  The Corporation
     has funded $2,891,325 of the total commitment.  The
     investment is accounted for under the equity method and
     equity earnings of $24,395 and $86,390 were recorded for
     the three and nine months ended September 30, 1997,
     respectively.

                              7<PAGE>
<PAGE>

(5)  Allowance for Loan Losses
     -------------------------

     The following is a reconciliation of the allowance for loan
     losses for the three and nine months ended September 30,
     1997 and 1996, respectively

<TABLE>
<CAPTION>
                                              Three months               Nine months
                                           ended September 30,       ended September 30,
                                          ----------------------    ----------------------
                                            1997         1996         1997         1996
   <S>                                    <C>          <C>          <C>          <C>
   Balance at beginning of period         $ 728,547    $ 713,547    $ 718,547    $ 703,547
         Provision for loan losses            5,000        5,000       15,000       15,000
                                          ---------    ---------    ---------    ---------
         Balance at end of period         $ 733,547      718,547    $ 733,547    $ 718,547 
                                          =========    =========    =========    =========
</TABLE>

(6)  Stock Options
     -------------

     During the nine month period ended September 30, 1997,
     30,000 incentive stock options were exercised at an option
     price of $5.63 per share, and 14,000 non-incentive stock
     options were exercised at an option price of $5 per share. 

(7)  Borrowings
     ----------

     In the first quarter of 1997, the Corporation obtained
     $10,500,000 in advances from the Federal Home Loan Bank of
     Atlanta.  The term of the loan is two years, with interest
     only payments monthly, at a floating rate equal to one
     month LIBOR.

(8)  Stock Repurchase
     ----------------

     In May of 1997, the Corporation repurchased 5,500 shares of
     common stock at $15.94 per share in connection with the
     stock repurchase program announced on August 8, 1995, which
     permits repurchases of up to 10% of the shares outstanding
     at August 8, 1995 which was 1,287,372.  At September 30,
     1997, the Corporation has repurchased 97,716 shares, all of
     which have been retired.

(9)  Other Accounting Changes
     ------------------------

     In August 1996, the Financial Accounting Standards Board
     issued Statement of Financial Accounting Standards No. 125
     ("SFAS No. 125"), "Accounting for Transfers and Servicing
     of Financial Assets and Extinguishments of Liabilities." 
     SFAS No. 125 provides accounting and reporting standards
     for transfers and servicing of financial assets and
     extinguishments of liabilities using a financial-components
     approach that focuses on control of the asset or liability. 
     It requires that an entity recognize only assets it
     controls and liabilities it has incurred and should
     derecognize assets only when control has been surrendered
     and derecognize liabilities only when they have been
     extinguished.  SFAS No. 125 is effective for transfers and
     servicing of financial assets and Extinguishments of
     liabilities occurring after December 31, 1996, and is to be
     applied prospectively.  The Corporation adopted this
     Statement on January 1, 1997 without any impact on its
     consolidated financial statements.

     In February 1997, the Financial Accounting Standards Board
     issued Statement of Financial Accounting Standards No. 128
     ("SFAS No. 128"), "Earnings per Share."  SFAS No. 128
     establishes standards of computing and presenting earnings
     per share (EPS) and applies to entities with publicly held
     common stock or potential common stock.  This Statement
     simplifies the standards for computing earnings per share
     previously found in APB Opinion No. 15, Earnings Per Share,
     and 
                                   8<PAGE>
<PAGE>

     makes them comparable to international EPS standards.  It
     replaces the presentation of primary EPS with a
     presentation of basic EPS.  It also requires dual
     presentation of basic and diluted EPS on the face of the
     income statement for all entities with complex capital
     structures and requires a reconciliation of the numerator
     and denominator of the basic EPS computation to the
     numerator and denominator of the diluted EPS computation. 
     SFAS No. 128 is effective for financial statements issued
     for periods ending after December 15, 1997 and requires
     restatement of all prior-period EPS data presented.  The
     Corporation plans to adopt SFAS No. 128 in 1997 without any
     significant impact on its consolidated financial
     statements.

     In February 1997, the Financial Accounting Standards Board
     issued Statement of Accounting Financial Standards No. 129
     ("SFAS No. 129"), "Disclosure of Information about Capital
     Structure".  SFAS No. 129 establishes standards for
     disclosing information about an entity's capital structure
     and is applicable to all entities.  It contains no change
     in disclosure requirements for entities that were
     previously subject to the requirements of Accounting
     Principles Board ("APB") Opinion No. 10, "Omnibus Opinion -
     1966", APB Opinion No. 15, "Earnings per Share" and SFAS
     No. 47, "Disclosure of Long-Term Obligations".  SFAS is
     effective for financial statements for periods ending after
     December 15, 1997.  The Corporation plans to adopt SFAS No. 
     129 in 1997 without any significant impact on its
     consolidated financial statements.

     In June 1997, the Financial Accounting Standards Board
     issued Statement of Accounting Financial Standards No. 130
     ("SFAS No. 130"), "Reporting Comprehensive Income".  SFAS
     No. 130 establishes standards for reporting and display of
     comprehensive income and its components (revenues,
     expenses, gains, and losses) in a full set of
     general-purpose financial statements.  This Statement
     requires that an enterprise (a) classify items of other
     comprehensive income by their nature in a financial
     statement and (b) display the accumulated balance of other
     comprehensive income separately from retained earnings and  
     additional paid-in-capital in the equity section of a
     statement of financial position.  SFAS No. 130 is effective
     for fiscal years beginning after December 15, 1997. 
     Reclassification of financial statements for earlier
     periods provided for comparative purposes is required.  The
     Corporation plans to adopt SFAS No. 130 in 1998 and will
     make the required disclosures in its consolidated financial
     statements.  

     In June 1997, the Financial Accounting Standards Board
     issued Statement of Accounting Financial Standards No. 131
     ("SFAS No. 131"), "Disclosures about Segments of an
     Enterprise and Related Information".  SFAS No. 131
     establishes standards for the way  that public business
     enterprises report information about operating segments in
     annual financial statements and requires that those
     enterprises report selected information about operating
     segments in interim financial reports issued to
     shareholders.  It also establishes standards for related
     disclosures about products and services, geographic areas,
     and major customers.  This Statement is effective for
     financial statements for periods beginning after December
     15, 1997 and in the initial year of application,
     comparative information for earlier years is to
     be restated.  The Corporation plans to adopt SFAS No. 131
     in 1998 without any significant impact on its consolidated
     financial statements.
                                     9<PAGE>
<PAGE>
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
         CONDITION AND RESULTS OF OPERATIONS.
          
Comparison of Operating Results for the Nine months ended
September 30, 1997 and 1996
---------------------------------------------------------

Net income for the nine months ended September 30, 1997
increased to $1,552,585, or $1.25 per share, from $694,655 or
$0.57 per share, in 1996.  The Corporation's net income was
affected by certain non-recurring items in both the 1997 and
1996 periods.  During the nine months ended September 30, 1997,
the Corporation recognized a $679,000 pre-tax gain on the sale
of the Waynesville Plaza Shopping Center which the Corporation
has been holding as real estate acquired in settlement of loans. 
By contrast, during the nine months ended September 30, 1996,
the Corporation recognized a one-time $720,000 pre-tax expense
for its portion of a special assessment imposed by the FDIC to
recapitalize the Savings Association Insurance Fund ("SAIF"). 
Factoring out these non-recurring items, the Corporation's net
income would have declined between the periods as improvements
in other income and expense were not sufficient to offset a
decline in net interest income.  The Corporation's net interest
income has narrowed during the current fiscal year as interest
expense has grown faster than interest income.

Total interest income in 1997 was $7,963,607, a $575,606, or 8%,
increase from the same period in 1996.  The primary reason for
the change was an increase in the balance of average interest
earning assets of approximately $8.5 million.  This is due to
the purchase of approximately $14.7 million in investment and
mortgage-backed securities available for sale during the first
quarter 1997.  In addition, the average yield on interest
earning assets increased 9 basis points to 7.74% for the nine
months ended September 30, 1997 as compared to 7.65% for the
same period in 1996.  This is mainly because of the increase in
average yield on the investment portfolio from 5.42% for the
nine months ended September 30, 1996 to 6.32% for the same
period in 1997 due to the investment purchases described above.

Interest expense in 1997 increased from 1996 by $796,461, or
22%, mainly due to an increase in the average balance of
interest bearing liabilities of $13.5 million.  The increase is
due to the Corporation borrowing $10.5 million in advances from
the Federal Home Loan Bank of Atlanta ("FHLB") during the first
quarter of 1997.  In addition, the rate paid on interest bearing
liabilities increased 39 basis points between periods.

The overall net effect of these changes was a $220,855 decrease
in net interest income and a decrease in the interest rate
spread between interest earning assets and interest bearing
liabilities from 3.16% in 1996 to 2.86% in 1997.  

Comparative yields, costs and spreads for the respective periods
are as follows:
<TABLE>
<CAPTION>
                                                Nine months                  Twelve Months
                                                    ended           At            ended
                                               September 30,   September 30,  December 31,
                                               1997     1996       1997          1996
                                               ----     ----       ----          ----
<S>                                            <C>      <C>        <C>           <C>
Average yield on interest earning assets       7.74%    7.65%      7.68%         7.81%
Average rate on interest bearing liabilities   4.88     4.49       5.28          4.56
                                               ----     ----       ----          ----
  Asset/liability spread                       2.86%    3.16%      2.40%         3.25%
                                               ====     ====       ====          ====
  Net interest margin                          3.37%    3.84%      2.98%         3.83%
                                               ====     ====       ====          ====
</TABLE>
Other income increased $758,488 or 141%, in 1997 compared to the
same period in 1996 primarily as a result of the sale of the
Waynesville Plaza Shopping Center which caused real estate
operations, net to increase $629,101 between the periods.  Total 
proceeds from the sale were approximately $2,252,000 which the
Corporation intends

                                 10<PAGE>
<PAGE>

to invest in loans and other investments.  As a result of the
sale, the Corporation will no longer receive rental and other
income attributable to its operation of the shopping center.  In
addition, the Corporation recognized equity earnings of $86,390
on its limited partnership investment in mortgage servicing
rights compared to no such earnings during the 1996 period. 
Such equity earnings is included in other income in the
accompanying consolidated statement of income.  General and
administrative expenses decreased $779,797, or 24.7%, in 1997
compared to 1996.  The decrease is mainly a result of the
non-recurring expense recognized during the third quarter of
1996 in connection with the SAIF special assessment and the
lower assessment rate for insurance of deposits thereafter.

As a result of these and other factors, income before income
taxes increased $1,317,430, or 124%, in 1997 versus 1996. 
Income tax expense of $824,500 during the period resulted in an
effective income tax rate of 34.7% compared to 34.4% in 1996.

Comparison of Operating Results for the Three Months Ended
September 30, 1997 and 1996
----------------------------------------------------------

Net income for the three months ended September 30, 1997
increased to $826,709 or $.66 per share, from a loss of
($12,763), or ($.01) per share, for the same period in 1996. 
The increase in net income was partially due to a non-recurring
$720,000 pre-tax expense recognized during the third quarter of
1996 in connection with the SAIF special assessment.   Also
contributing to the increase was a pre-tax gain of approximately
$679,000 on the sale of real estate acquired in the settlement
of loans.  Factoring out these non-recurring items, the
Corporation's net income would have declined between the periods
due to declines in net interest income and other income and an
increase in other expense.

Total interest income for the three months ended September 30,
1997 was $2,761,664 a $327,767, or 13.5% increase from the same
period in 1996.  The primary reason for the change was an
increase in the balance of average interest earning assets of
approximately $15 million.  This is due to the purchase of
approximately $14.7 million in investment and mortgage-backed
securities available for sale during the first quarter of 1997. 
In addition, the average yield on interest earning assets
increased 14 basis points from 7.58% for the three months ended
September 30, 1996 to 7.72% for the same period in 1997.  This
is mainly due to an increase in the average yield on the
investment portfolio between periods due to the investment
purchases described above.

Interest expense for the three months ended September 30, 1997
was $1,609,959 a $452,811 or 39% increase from the same period
in 1996 due primarily to an increase in the average balance of
interest bearing liabilities of $19 million, or 17%.  The
average rate paid on interest bearing liabilities increased from
4.23% for the three months ended September 30, 1996 to 5.0% for
the same period in 1997.

The overall net effect of these changes was an $125,044 decrease
in net interest income and a decrease in the interest rate
spread between interest earning assets and interest bearing
liabilities from 3.35% in 1996 to 2.72% in 1997.

Other income increased $676,291 for the three months ended
September 30, 1997 compared to the same period in 1996 primarily
as a result of the aforementioned gain on sale of real estate
acquired in settlement of loans of $679,000.

General and administrative expenses decreased $723,725 or 48.1%,
in 1997 compared to the same period in 1996.  This is mainly due
to the one-time assessment of SAIF-insured deposits in September
1996 and a subsequent decrease in federal and other insurance
premiums as mentioned above.

As a result of these and other factors, income before income
taxes increased $1,274,972 in 1997 versus 1996.  Income tax
expense of $391,500 during the period resulted in an effective
income tax rate of 32.1%.

                                   11<PAGE>
<PAGE>

Comparison of Financial Condition at September 30, 1997 and
December 31, 1996
-----------------------------------------------------------

Total assets increased by $21.9 million or 16.7% from $130.9
million at December 31, 1996 to $152.8 million at September 30,
1997.  The increase is mainly due to an increase in investment
and mortgage-backed securities available for sale of $15.5
million.  In addition, the Corporation's loan portfolio
increased by approximately $5.2 million during the nine months
ended September 30, 1997.  Loan originations for the period were
approximately $24.4 million.

Total liabilities increased by $20.7 million to $131.1 million
at September 30, 1997.  The increase is due to the Corporation
borrowing $10.5 million in advances from the FHLB and deposit
growth of approximately $10.9 million.

Stockholders' equity increased by $1,144,806 from $20.5 million
at December 31, 1996 to $21.7 million at September 30, 1997. 
This increase is due to the exercise of 44,000 stock options
which increased stockholders' equity by $239,000 and net income
of $1,552,585 for the nine months.  This was offset by a net
unrealized loss on securities of $115,000, repurchase of stock
totaling $88,000, and dividends of $.42 per share or
$526,131.
                                    
Asset Quality
-------------

The Corporation's allowance for loan losses as a percentage of
outstanding loans remained stable at .64% at September 30, 1997
compared to .66% at December 31, 1996.  At September 30, 1997,
nonperforming loans, which consist of nonaccrual loans, were
$813,000 compared to $814,000 at December 31, 1996.  There were
no charge-offs or recoveries during the nine month periods ended
September 30, 1997 and 1996.  Management recorded provisions for
loan losses of $15,000 for the nine month periods ended
September 30, 1997 and 1996.  Management remains conscious of
the judgmental nature of the allowance for loan losses and the
need for periodically evaluating the risk inherent in the loan
portfolio.

Real estate acquired in settlement of loans declined $1,572,602,
or 88%, to $217,585 as the result of the sale of the Waynesville
Plaza Shopping Center.

Liquidity
---------

The Corporation's asset-liability management policy is to
maintain and enhance the net interest income and provide
adequate liquidity to meet continuing loan demand, withdrawal
requirements, and pay for normal operating expenses.  Liquidity
is primarily provided by the ability to attract deposits,
maturities in the investment portfolio, loan repayments, and
current earnings.

At September 30, 1997, the Corporation had approximately $30
million in cash, interest bearing balances in other banks,
federal funds sold, investment securities and mortgage-backed
securities.  Management believes that the level of liquidity at
September 30, 1997, is adequate and in compliance with
regulatory requirements.

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

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

                                 12<PAGE>
<PAGE>

Capital Resources
-----------------

As a North Carolina-charted savings bank, Haywood Savings is
subject to the capital requirements of the FDIC and the N.C.
Administrator of Savings Institutions ("the Administrator"). 
The FDIC requires Haywood Savings to maintain minimum ratios of
Tier I capital to total risk-weighted assets and total capital
to risk-weighted assets of 4% and 8%, respectively.  To be
well-capitalized, the FDIC requires ratios of Tier I capital to
total risk-weighted assets and total capital to risk-weighted
assets of 6% and 10%, respectively.  Tier I capital consists of
total stockholders' equity calculated in accordance with
generally accepted accounting principles less intangible assets,
and total capital is comprised of Tier I capital plus certain
adjustments, the only one of which is applicable to Haywood
Savings is the allowance for loan losses.  Risk-weighted assets
reflect Haywood Savings' on- and off-balance sheet exposures
after such exposures have been adjusted for their relative risk
levels using formulas set forth in FDIC regulations.  Haywood
Savings is also subject to a leverage capital requirement, which
calls for a minimum ratio of Tier I capital (as defined above)
to quarterly average total assets of 3%, and a ratio of 5% to be
"well capitalized."  The Administrator requires a net worth
equal to at least 5% of assets.  At September 30, 1997, Haywood
Savings was in compliance with all of the aforementioned capital
requirements.  The Corporation must also comply with FRB capital
requirements which are substantially the same as the FDIC's
requirements for Haywood Savings.

Regulatory Matters and Contingencies
------------------------------------

Management is not presently aware of any current recommendations
to the Corporation or to Haywood Savings by regulatory
authorities which, if they were to be implemented, would have a
material effect on the Corporation s liquidity, capital
resources, or operations.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
         RISK.
     
Not applicable.

                                 13<PAGE>
<PAGE>

PART II.  OTHER INFORMATION


ITEM 4. EXHIBITS AND REPORTS ON FORM 8-K

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

        Exhibit
        Number           Description
        -------          -----------

          27             Financial Data Schedule (EDGAR only)

        (b)  Reports on Form 8-K.  During the quarter ended
             September 30, 1997, the Registrant did not file
             any reports on Form 8-K.
         
                              14<PAGE>
<PAGE>
                         SIGNATURES
                         ----------


Under the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.


                               HAYWOOD BANCSHARES, INC.
                               (Registrant)


Date: November 14, 1997        By: /s/Larry R. Ammons  
                               ----------------------
                               Larry R. Ammons
                               (President and Principal
                                Executive Officer)
                               (Duly Authorized Representative)




Date: November 14, 1997        By: /s/Jack T. Nichols  
                               ----------------------
                               Jack T. Nichols
                               (Principal Financial Officer
                               and Principal Accounting Officer)


                                   15