<PAGE> 1
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, 1995
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 0-8679
--------------------------------------
BAYLAKE CORP.
- ----------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Wisconsin 39-1268055
- ----------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
217 North Fourth Ave., Sturgeon Bay, WI 54235
- ----------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(414)-743-5551
- ----------------------------------------------------------------
(Registrant's telephone number, including area code)
None
- ----------------------------------------------------------------
(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 issuer's classes of common
stock as of November 9, 1995.
$5.00 Par Value Common
2,452,937 shares
PAGE 1 of 19 PAGES
<PAGE> 2
BAYLAKE CORP. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION PAGE NUMBER
Item 1.
Consolidated Condensed Balance Sheets 3
as of September 30, 1995 and December 31, 1994
Consolidated Condensed Statement of Income 4
Three months and nine months ended September 30,
1995 and 1994
Consolidated Statement of Cash Flows 5 - 6
Nine months ended September 30, 1995 and 1994
Note to Consolidated Condensed Financial Statements 7 - 8
Item 2.
Managements Discussion and Analysis of Financial 9 - 17
Condition and Results of Operations
PART II. OTHER INFORMATION 18
Signatures 19
2
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
BAYLAKE CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED)
(In thousands of dollars)
<TABLE>
<CAPTION>
SEPT 30 DECEMBER 31
ASSETS 1995 1994
------ -------- -----------
<S> <C> <C>
Cash and due from Banks $ 9 407 $ 10 516
Investment securities available for
sale (at market) 60 830 59 033
Investment securities held to maturity (market value
$13,444 ON 9/30/95; $14,237 ON 12/31/94) 12 902 14 013
Federal funds sold 8 876
Loans 204 939 192 673
Less: Allowance for loan losses (2 760) (2 534)
--------- ---------
Loans, net of allowance for loan losses 202 179 190 139
Bank premises and equipment 7 213 5 930
Accrued interest receivable 2 307 1 995
Prepaid income taxes 318 237
Deferred income taxes 904 2 125
Other assets 3 782 3 119
-------- --------
TOTAL ASSETS $308 718 $287 107
======== ========
LIABILITIES
-----------
Domestic Deposits
Non-interest bearing deposits $ 36 755 $ 33 506
Interest bearing deposits
Now 34 199 34 369
Savings 85 795 87 467
Time, $100,000 and over 11 801 4 900
Other time 98 624 86 875
-------- --------
Interest bearing deposits $230 419 $213 611
-------- --------
Total deposits $267 174 $247 117
Short term borrowings 1 663 4 149
Accrued expenses and other liabilities 3 878 3 062
Dividends payable 540
-------- --------
TOTAL LIABILITIES $272 715 $254 868
-------- --------
STOCKHOLDERS EQUITY
-------------------
Common Stock $5.00 par value - authorized
10,000,000 shares; issued 2,454,881 shares
on 9/30/95 and 2,454,081 on 12/31/94;
outstanding 2,452,937 shares on 9/30/95
and 2,452,137 on 12/31/94 $ 12 274 $ 12 270
Additional paid-in capital 5 948 5 941
Reserve for market adjustment of
securities 17 (1 995)
Retained earnings 17 813 16 072
Treasury Stock (49) (49)
-------- --------
TOTAL STOCKHOLDERS EQUITY 36 003 32 239
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $308 718 $287 107
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
3
<PAGE> 4
BAYLAKE CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS OF DOLLARS EXCEPT AMOUNTS PER SHARE)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPT 30 SEPT 30
1995 1994 1995 1994
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans $ 4 991 $ 4 464 $ 14 491 $ 12 536
Interest on investment securities
Taxable 840 767 2 459 2 325
Exempt from federal income tax 317 359 930 1 121
Other interest income 113 111 145 176
-------- -------- -------- --------
Total Interest Income 6 261 5 701 18 025 16 158
Interest Expense
Interest on deposits 2 565 1 897 7 277 5 326
Interest on short term borrowings 32 27 271 190
-------- -------- -------- --------
Total Interest Expense 2 597 1 924 7 548 5 516
-------- -------- -------- --------
Net Interest Income 3 664 3 777 10 477 10 642
Provision for loan losses 78 67 233 197
-------- -------- -------- --------
Net interest income after
provision for loan losses 3 586 3 710 10 244 10 445
-------- -------- -------- --------
Other Income
Fees for fudiciary activities 112 81 275 245
Fees from loan servicing 98 105 326 363
Fees for other services to customers 311 145 892 539
Securities gains (losses) (66) (6) (25)
Other income 35 67 200 283
-------- -------- -------- --------
Total Other Income 556 332 1 687 1 405
-------- -------- -------- --------
Other Expenses
Salaries and employee benefits 1 466 1 758 4 034 4 182
Occupancy expense 153 165 436 434
Equipment expense 158 141 467 404
Data processing and courier 65 107 348 325
FDIC insurance expense (15) 152 266 430
Operation of other real estate (2) 21 28 31
Other operating expense 614 596 1 511 1 610
-------- -------- -------- --------
Total Other Expenses 2 439 2 940 7 090 7 416
-------- -------- -------- --------
Income before income taxes 1 703 1 102 4 841 4 434
-------- -------- -------- --------
Income tax expense (benefit) 507 234 1 481 1 236
-------- -------- -------- --------
Net Income $ 1 196 $ 868 $ 3 360 $ 3 198
======== ======== ======== ========
Net Income per share (1) $0.49 $0.35 $1.37 $1.31
Cash dividends per share $0.22 $0.20 $0.66 $0.55
</TABLE>
(1) Based on 2,452,937 shares average outstanding in 1995 and 2,446,625 in
1994.
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE> 5
BAYLAKE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASHFLOWS (UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPT 30
----------------------------
1995 1994
-------- --------
(thousands of dollars)
<S> <C> <C>
Cash flows from operating activities:
Interest received from:
Loans $ 14 313 $ 12 043
Investments 3 499 3 891
Fees and service charges 1 600 1 691
Interest paid to depositors (6 512) (4 824)
Interest paid to others (240) (190)
Cash paid to suppliers and employees (6 514) (6 692)
Income taxes paid (1 564) (1 765)
---------- ----------
Net cash provided by operating activities 4 582 4 154
Cash flows from investing activities:
Proceeds from sales of investment securities 993 9 737
Principal payments received on investments 9 971 16 876
Purchase of investments (17 353) (24 873)
Investment in service center (196)
Proceeds from disposition of subsidiary 148
Proceeds from sale of other real estate owned 264 130
Loans made to customers in excess of principal collected (13 128) (9 383)
Capital expenditures (1 665) (820)
---------- ----------
Net cash (used) provided in investing activities (21 114) (8 185)
Cash flows from financing activities:
Net increase (decrease) in demand deposits, NOW accounts 1 406 5 609
and savings accounts
Net increase (decrease) in advances from borrowers (2 486) (14)
Net increase (decrease) in time deposits 18 650 (2 554)
Proceeds from issuance of common stock 11 435
Treasury stock acquired (5)
Dividends paid (2 158) (1 623)
---------- ----------
Net cash used by financing activities 15 423 1 848
---------- ----------
Net increase (decrease) in cash and cash equivalents (1 109) (2 183)
Cash and cash equivalents, beginning 10 516 10 288
--------- ---------
Cash and cash equivalents, ending $ 9 407 $ 8 105
</TABLE>
5
<PAGE> 6
<TABLE>
<CAPTION>
1995 1994
-------- --------
(thousands of dollars)
<S> <C> <C>
Reconciliation of net income to net cash provided by
operating activities:
Net Income $ 3 360 $ 3 198
Adjustment to reconcile net income to net cash provided
by operating activities:
Depreciation 381 370
Provision for loan losses and real estate owned 233 197
Amortization of premium on investments 196 222
Accretion of discount on investments (139) (96)
Cash surrender value increase (21) (60)
(Gain) loss from disposal of other real estate owned (1) (13)
(Gain) loss on sale of investment securities 6 25
Equity in income of service center (53) (19)
Amortization of book of business 10
Goodwill writedown 4 4
Deferred compensation 59 576
Changes in assets and liabilities:
Interest receivable (312) (58)
Prepaids and other assets 147 (105)
Unearned income 26 61
Interest payable 795 502
Taxes payable (83) (351)
Deferred Taxes (178)
Other liabilities (16) (131)
--------- ---------
Total adjustments 1 222 956
--------- ---------
Net cash provided by operating activities $ 4 582 $ 4 154
========= =========
</TABLE>
6
<PAGE> 7
BAYLAKE CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1995
1. The accompanying unaudited consolidated financial statements should
be read in conjunction with Baylake Corp.'s ("Company") 1994
annual report on Form 10-K. The financial data presented
includes the combination of financial data from Baylake Bank and
Baylake Bank - Kewaunee, formerly known as State Bank of Kewaunee,
the principal subsidiary of Kewaunee County Banc-Shares, Inc.
("KCB"). KCB was acquired by the Company in a merger, which has
been accounted for as a pooling of interests. The unaudited
financial information included in this report reflects all
adjustments (consisting only of normal recurring accruals) which
are necessary for a fair statement of the financial position as of
September 30, 1995 and December 31, 1994. The results of
operations for the three and nine months ended September 30, 1995
and 1994 are not necessarily indicative of results to be expected
for the entire year.
2. The book value of investment securities, by type, held by the
Company are as follows:
<TABLE>
<CAPTION>
SEPT 30 DECEMBER
1995 1994
------- --------
(thousands of dollars)
<S> <C> <C>
Investment securities held to maturity:
U.S. Treasury and other U.S.
government agencies $ $
Mortgage-backed securities
Obligations of states and political
subdivisions 12 484 13 605
Other 418 408
-------- --------
Investment securities held to maturity $ 12 902 $ 14 013
Investment securities available for sale:
U.S. Treasury and other U.S. government
agencies $ 9 528 $ 8 187
Mortgage-backed securities 42 643 41 139
Obligations of states and political
subdivisions 7 243 6 742
Other 1 416 2 965
-------- --------
Investment securities available for sale $ 60 830 $ 59 033
======== ========
</TABLE>
3. At September 30, 1995 and December 31, 1994, loans were as follows:
<TABLE>
<CAPTION>
Sept. 30 December 31
1995 1994
--------- -----------
(thousands of dollars)
<S> <C> <C>
Commercial, industrial and agricultural $ 127 224 $ 109 133
Real estate - construction 4 807 5 881
Real estate - mortgage 61 156 61 818
Installment 12 578 16 639
Less: Deferred loan origination fees,
net of costs (826) (798)
-------- --------
204 939 192 673
Less allowance for loan losses (2 760) (2 534)
-------- --------
Net loans $ 202 179 $ 190 139
</TABLE>
7
<PAGE> 8
4. As of December 31, 1993, the Company adopted STATEMENTS OF
FINANCIAL ACCOUNTING STANDARDS No. 115 (SFAS 115) "ACCOUNTING FOR
CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES."
Accordingly, investment securities available for sale at September
30, 1995 and December 31, 1994 are carried at market value.
Adjustments up or down to market value are recorded as a
separate component of equity, net of tax. Premium amortization
and discount accretion are recognized as adjustments to interest
income. Realized gains or losses on disposition are based on the
net proceeds and the adjusted carrying amount of the securities
sold, using the specific identification method.
5. In February 1994, the Company entered into a definitive agreement
to merge with KCB which was completed on August 31, 1994. In
conjunction with the merger, the Company issued 15.69 shares of its
common stock for each share of KCB common stock. The acquisition is
accounted for as a pooling of interests.
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
GENERAL
The following sets forth management's discussion and analysis of the
consolidated financial condition of Baylake Corp. (the "Company") at September
30, 1995, and the results of operations for the three and nine months ended
September 30, 1995 and September 30, 1994. This discussion and analysis should
be read in conjunction with the Company's unaudited consolidated financial
statements and the notes thereto included herein.
The company completed its acquisition of Kewaunee County Banc-Shares, Inc.
("KCB"), the holding company for Baylake Bank - Kewaunee ("BBK") on August 31,
1994. The company acquired all of the outstanding shares of KCB in exchange
for 574,756 shares of the Company's common stock. The acquisition was
structured as a merger of KCB with a newly-formed subsidiary of the Company and
accounted for using the pooling-of-interests method of accounting; therefore
the financial data presented reflects the combined data of the Company and KCB.
RESULTS OF OPERATIONS
For the three months ended September 30, 1995, net income increased $328,000,
or 37.79%, to $1,196,000 from $868,000 for the third quarter of 1994. The
annualized return on average assets and return on average equity for the three
months ended September 30, 1995, were 1.55% and 13.40% respectively, compared
to 1.19% and 10.17%, respectively, for the same period a year ago.
For the nine months ended September 30, 1995, net income was $3.36 million, an
increase of 5.07% from the $3.20 million earned during the first nine months of
1994. The annualized return on average assets and return on average equity for
the period ended September 30, 1995 were 1.52% and 13.10%, respectively,
compared to 1.50% and 13.00%, respectively for the same period a year ago.
The increase in net income for both periods is primarily due to decreased other
expenses and an increase in other income offset by decreased net interest
income.
NET INTEREST INCOME
Net interest income for the three months ended September 30, 1995 decreased
$113,000, or 3.0%, to $3.66 million from $3.78 million for the same period a
year ago. Total interest income for the third quarter of 1995 increased
$560,000, or 9.82%, to $6.26 million from $5.70 million for the third quarter
of 1994, while interest expense increased $673,000 or 34.98%, to $2.60 million
in the third quarter of 1995 from $1.92 million in the third quarter of 1994.
These changes were primarily the result of a favorable increase in the average
volume of earning assets offset by an
9
<PAGE> 10
increased rate environment contributing to a decrease in net interest margin
for the third quarter of 1995. Net interest income for the nine months ended
September 30, 1995 decreased $165,000, or 1.55%, to $10.48 million from $10.64
million for the first nine months of 1994. Total interest income for the first
nine months increased $1.87 million, or 11.55%, to $18.03 million from $16.16
million for the first nine months of 1994, while interest expense increased
$2.03 million, or 36.83%, to $7.55 million from $5.52 million for the same
period in 1994. These charges were primarily the result of a favorable
increase in the average volume of earning assets, offset primarily by a decline
in the net interest margin.
For the three months ended September 30, 1995, average earning assets increased
$14.61 million, or 5.38%, when compared to the same period last year. The
Company registered an increase in average loans of $14.74 million, or 7.73%,
for the third quarter of 1995 compared to the same period a year ago.
For nine months ended September 30, 1995, average earning assets increased by
$9.31 million, or 3.49%, when compared to the same period last year. Loans
have continued to grow as the Company registered an increase in average loans
of $12.90 million, or 6.85%, for the first nine months of 1995 compared to the
same period in 1994. Loans have typically resulted in higher rates of interest
payable to the Company than have investment securities.
Net interest margin (on a federal tax-equivalent basis) for the three months
ended September 30, 1995 decreased from 5.79% to 5.31% compared to a year ago.
The average yield on interest earning assets amounted to 8.68% for the third
quarter of 1995, representing an increase of 35 basis points from the same
period last year. Total loan yields increased 110 basis points, while total
investment yields increased 17 basis points. The Company's average cost on
interest-bearing liabilities amounted to 4.45%, an increase of 95 basis points
for the third quarter of 1995 compared to the same period in 1994.
Interest-bearing deposits liabilities increased 122 basis points from 3.22% to
4.44% comparing the third quarter of 1995 to the third quarter of 1994, while
short-term borrowing costs increased 213 basis points to 5.45% from 3.32% a
year ago.
Net interest margin (on a federal tax-equivalent basis) for the first nine
months of 1995 declined to 5.30% from 5.62% for the same period a year ago.
The average yield on interest-earning assets amounted to 8.73% for the first
nine months of 1995, representing an increase of 63 basis points from the same
period last year. Total loan yields increased 73 basis points while investment
securities increased 14 basis points. The Company's average cost on
interest-bearing liabilities increased 109 basis points to 4.47% for the first
nine months of 1995, while short-term borrowing costs increased 278 basis
points comparing the two periods. The above factors contributed to a decline
in the Company's overall net interest margin for the first nine months ended
September 30, 1995.
10
<PAGE> 11
PROVISION FOR LOAN LOSSES
The provision for loan losses for the three months ended September 30, 1995
increased $11,000, or 16.42%, to $78,000 from $67,000 for the third quarter a
year ago. For the nine months ended September 30, 1995, the provision for loan
losses increased $36,000, or 18.27%, to $233,000 from $197,000 for the same
period last year. These increases have resulted primarily as a result of above
average loan growth. Management believes that the current allowance is
adequate in view of the healthy condition of the Company's loan portfolio.
Based on current conditions, management intends to maintain the loan loss
reserve at a level above 1.25% of average total loans, subject to continuing
review.
NON-INTEREST INCOME
Total non-interest income increased $224,000, or 67.47%, to $556,000 from
$332,000 for the third quarter a year ago. For the first nine months of 1995,
other income has increased $282,000, or 20.07%, to $1.69 million from $1.41
million for the same period last year. These increases have occurred as a
result of increased trust income and other services to customers.
Service fee income increased primarily as a result of increased deposit fee
income, increases in financial services income, and additional income from
sales of insurance products from the insurance subsidiary. A small loss in
securities activity has resulted in 1995 compared to a loss of $66,000 in 1994
which additionally has affected comparisons between the two periods. During
the second quarter of 1995, a sale of the student loan portfolio provided
approximately $95,000 in gains on sale of that portfolio. For the nine months
ended Baylake Bank's data services subsidiary, United Financial Services, Inc.
showed income of $53,000.
NON-INTEREST EXPENSE
Non-interest expense declined $501,000, or 17.04%, for the three months ended
September 30, 1995 compared to the same period in 1994. Salaries and employee
benefits showed a decrease of $292,000, or 16.61%, due in part to additional
employee expense resulting from the February startup of the Company's Green Bay
operation along with increased benefit costs stemming from increased 401-K
contributions and normal salary increases accounting for the increases in
salaries and benefits offset by a one-time charge of $492,000 taken in the
third quarter of 1994 as certain deferred compensation agreements became vested
as a result of the signed definitive agreement and closing of the merger with
KCB. FDIC assessment expense was reduced due to refunds generated as a result
of the assessment ratio declining to four cents per $100 of deposits compared
to twenty three cents per $100 of deposits with the change taking place as of
June 1, 1995. This amounted to a refund of approximately $153,000 in FDIC
premium expense for the
11
<PAGE> 12
third quarter of 1995. The overhead ratio, which is computed by subtracting
non-interest income from non-interest expense and dividing by average total
assets, was 2.44% for the three months ended September 30, 1995 compared to
3.29% for the same period in 1994.
Non-interest expense decreased $326,000, or 4.40%, for the nine months ended
September 30, 1995, compared to the same period in 1994. Salaries and employee
benefits showed a decrease of $148,000, or 3.54%, due to increased benefit
costs and additional personnel expense as a result of the Green Bay operation
offset by the one-time deferred compensation charge of $492,000 taken in the
third quarter of 1994. Computer costs for the nine month period were up
$23,000, or 7.08%, due to various conversion costs and on line teller system
enhancements. Equipment costs as a result of on-line teller equipment costs
were up $63,000 or 15.59%. Other operating expense shows a decline of $99,000,
or 6.15%, primarily due to non-recurring costs that were expensed in 1994
regarding the name change and merger related expenses. The overhead ratio for
the nine months ended September 30, 1995 was 2.45% compared to 2.83% for the
same period in 1994.
PROVISION FOR INCOME TAXES
The Company's provision for income taxes for the three months ended September
30, 1995 increased $273,000, or 116.66%, to $507,000 from $234,000 for the same
period a year ago. The Company's provision for income taxes for the nine
months ended September 30, 1995 increased $245,000, or 19.82%, to $1.48 million
from $1.24 million for the same period a year ago. The increase in income tax
provision was due to increased taxable income.
BALANCE SHEET ANALYSIS
LOAN PORTFOLIO
At September 30, 1995, total loans increased $12.27 million, or 6.37%, to
$204.9 million from $192.7 million at December 31, 1994. The change in loan
mix in the Company's portfolio resulted primarily as a result of commercial
loans increasing to $127.2 million at September 30, 1995 compared to $109.1
million at December 31, 1994, offset by a decline in real estate mortgage loans
from $61.2 million at September 30, 1995 compared to $61.8 million at December
31, 1994 and consumer loans from $12.6 million at September 30, 1995 compared
to $16.6 million at December 31, 1994. The decrease in consumer loans is
primarily due to a sale of the Company's student loan portfolio resulting in a
reduction of $3.6 million in loans in the second quarter of 1995.
NON-PERFORMING ASSETS
At September 30, 1995, non-performing assets were at $1.32 million compared to
$1.66 million at December 31, 1994. Non-performing loans at September 30, 1995
were .62% of total loans compared with
12
<PAGE> 13
.80% at December 31, 1994. There existed other real estate owned of $67,000 at
September 30, 1995 as compared with $123,000 at December 31, 1994. In
addition, during the second quarter of 1995 Karsten Resources, Inc., a
subsidiary of Baylake Bank - Kewaunee was formed for the expressed purpose of
holding the assets of a former commercial customer. The intent is to actively
market the property (hotel/restaurant in nature) for sale and operate the
business in the short term. The carrying amount of the investment at September
30, 1995 was $619,000. The ratio of non-performing assets to total loans at
September 30, 1995 was .95% compared to .86% at December 31, 1994, primarily as
a result of the investment in Karsten Resources, Inc.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
At September 30, 1995, the allowance for loan losses increased $226,000 from
year end 1994 to $2.76 million. At September 30, 1995 and December 31, 1994,
the allowance for loan losses as a percentage of total loans were at 1.35% and
1.32% respectively. Although loans have continued to grow at an above average
rate, the allowance for loan losses as a percent of total loans remains
comparable. The allowance is at a level currently believed acceptable by
management.
INVESTMENT PORTFOLIO
At September 30, 1995, the investment portfolio increased $686,000, or .94%, to
$73.7 million from $73.0 million at December 31, 1994. At September 30, 1995,
the investment portfolio represented 23.9% of total assets compared with 25.4%
at December 31, 1994. The slight increase in total investments occurred as the
FAS 115 adjustment of approximately $3.0 million increased portfolio size
accompanied by decreases in the portfolio as proceeds from matured investment
securities were used to fund loan demand.
DEPOSITS
Total deposits at September 30, 1995 increased $20.1 million, or 8.1%, to
$267.2 million from $247.1 million at December 31, 1994. Non-interest bearing
deposits at September 30, 1995 increased $3.2 million, or 9.7%, to $36.8
million from $33.5 million at December 31, 1994. Interest bearing deposits at
September 30, 1995 increased $16.8 million, or 7.9%, to $230.4 million from
$213.6 million at December 31, 1994. Time deposits show a larger than normal
increase with $18.7 million in growth since year end 1994 as municipal deposits
have shifted into higher interest paying time deposit accounts. In addition,
entry into the Green Bay market has provided an additional source of deposit
base as compared to year end 1994.
SHORT-TERM BORROWINGS
Total short-term borrowings at September 30, 1995 decreased $2.5 million, or
59.9%, to $1.7 million from $4.1 million at December
13
<PAGE> 14
31, 1994. An increase in the deposit base has allowed the Company to reduce
their short-term borrowings and still meet the loan demands of its customers.
Typically, the seasonality of the customer base influences the Company's
balance sheet as decreased deposits and increased loan demands are historically
recurring for the Company in the late spring and early summer seasons.
LIQUIDITY
As shown in the Company's Consolidated Statements of Cash Flows for the three
months ended September 30, 1995, cash and cash equivalents decreased $1.11
million during the period to $9.41 million at September 30, 1995. The decrease
primarily reflected $4.58 million in net cash provided by operating activities
offset by $21.11 million in net cash used in investing activities, and $15.42
million provided by financing activities. Net cash provided by operating
activities consisted of the Company's net income for the periods increased by
adjustments for non-cash expenditures. Net cash used in investing activities
consisted of net increases in investments and loans plus necessary capital
expenditures. Net cash provided by financing activities resulted primarily from
a net increase in deposits and decrease in borrowed funds offset by dividends
paid. As is typical of the seasonality that exists in the tourism market
serviced, customers tend to prepare for summer business through increasing
loans and drawing down deposits during the early part of the year, increasing
deposits at the end of summer.
The Company manages its liquidity to provide adequate funds to support the
borrowing requirements and deposit flow of its customers. Management view its
liquidity as the ability to raise cash at reasonable costs or with a minimum of
loss and as a measure of balance sheet flexibility to react to marketplace,
regulatory and competitive changes. The primary sources of the Company's
liquidity are marketable assets maturing within one year. The Company
attempts, when possible, to match relative maturities of assets and
liabilities, while maintaining the desired net interest margin. Although the
percentage of earning assets represented by loans is increasing, management
believes that liquidity is adequate to support anticipated borrowing
requirements and deposit flows.
INTEREST RATE SENSITIVITY
The following table entitled "Asset and Liability Maturity Repricing Schedule"
indicates that the Company is slightly liability gap sensitive, although
management believes that a range of plus or minus 15% (from 100% matching)
within one year pricing schedule is acceptable. The analysis considers regular
savings, money market deposits and NOW accounts to be rate sensitive within
three months. All other earning categories including loans and investments as
well as other paying liability categories such as time deposits are scheduled
according to their contractual maturities. Also, Baylake Bank considers it
savings and NOW accounts to be core deposits and relatively non-price
sensitive, as
14
<PAGE> 15
it believes it could make repricing adjustments for these types of accounts in
smaller increments without a material decrease in balances.
Interest rate sensitivity analysis can be performed in several different ways.
The traditional method of measuring interest sensitivity is called "gap"
analysis. This mismatch between asset and liability repricing characteristics
in specific time intervals is referred to as "interest rate sensitivity gap."
If more liabilities than assets reprice in a given time interval a liability
gap position exists. In general, liability sensitive gap positions in a
declining interest rate environment increases net interest income.
Alternatively asset sensitive positions, where assets reprice more quickly than
liabilities, negatively impact the net interest income in a declining rate
environment. In the event of an increasing rate environment, opposite results
would occur in that a liability sensitivity gap position would decrease net
interest income and an asset sensitivity gap position would increase net
interest income. The sensitivity of net interest income to changing interest
rates can be reduced by matching the repricing characteristics of assets and
liabilities. For the time frame within three months as of September 30, 1995,
rate sensitive liabilities exceeded rate sensitive assets by $21.69 million, or
a ratio of rate sensitive assets to rate sensitive liabilities of 84.89%. For
the next time frame of four to six months, rate sensitive liabilities exceeded
rate sensitive assets by $4.59 million or a ratio of rate sensitive assets to
rate sensitive liabilities of 76.31%. For all assets and liabilities priced
within a one year time frame, the cumulative ratio of rate sensitive assets to
rate sensitive liabilities was 84.61%, which was slightly less than the range
of plus or minus 15% deemed acceptable by management.
Management continually reviews it interest risk position through its committee
processes. Managements' philosophy is to maintain a relatively matched rate
sensitive asset and liability position, within the range described above, in
order the provided earnings stability in the event of significant interest rate
changes.
15
<PAGE> 16
ASSET AND LIABILITY REPRICING SCHEDULE
AS OF SEPTEMBER 30, 1995
<TABLE>
<CAPTION>
Within Four to Seven to One Year Over
Three Six Twelve to Five Five
Months Months Months Years Years Total
------ ------ ------ ----- ----- -----
(In Thousands)
<S> <C> <C> <C> <C> <C> <C>
Earning Assets:
Investments Securities $ 3 522 $ 56 $ 1 232 $16 127 $52 795 $ 73 732
Federal funds: 8 876 8 876
Loans and Leases:
Variable Rate 95 836 95 836
Fixed Rate 13 588 14 728 32 792 46 551 498 108 157
-------- -------- -------- -------- -------- --------
Total Loans and Leases $109 424 $ 14 728 $32 792 $46 551 $ 498 $203 993
-------- -------- ------- ------- ------- --------
Total Earning Assets $121 822 $ 14 784 $34 024 $62 678 $53 293 $286 601
======== ======== ======= ======= ======= ========
Interest Bearing Liabilities:
NOW Accounts $ 31 199 $ $ $ $ $ 34 199
Saving Deposits 85 795 85 795
Time Deposits 22 330 19 320 38 779 29 919 77 110 425
Borrowed Funds 1 188 53 0 211 211 1 663
-------- ------- ------- ------- -------- --------
Total Interest Bearing Liabilities $143 512 $19 373 $38 779 $30 130 $ 288 $232 082
======== ======= ======= ======= ======= ========
Interest Sensitivity GAP $(21 690) $(4 589) $(4 755) $32 548 $53 005 $ 54 519
(within periods)
Cumulative Interest Sensitivity (21 690) (26 279) (31 034) 1 514 $54 519
GAP
Ratio of Cumulative Interest -7.57% -9/17% -10.83% 0.53% 19.02%
Sensitivity GAP to Rate
Sensitive Assets
Ratio of Rate Sensitive Assets to Rate 84.89% 76.31% 87.74% 208.03% ---
Sensitive Liabilities
Cumulative Ratio of Rate Sensitive 84.89% 83.87% 84.61% 100.65% 123.49%
Assets to Rate Sensitive
Liabilities
</TABLE>
16
<PAGE> 17
CAPITAL RESOURCES
At September 30, 1995, stockholders' equity increased $3.76 million, or 11.68%,
to $36.0 million from $32.2 million at December 31, 1994. An increase of $2.01
million in capital resulting from the implementation of FAS 115 accounted for
part of this increase, while the remaining increase resulted from net income
less dividends paid. At September 30, 1995, the Company's risk-based Tier 1
Capital Ratio was 17.06%, the total risk based capital ratio was 18.31% and the
leverage ratio was 12.20%. Both the Company, Baylake Bank and Baylake Bank -
Kewaunee continue to exceed all applicable regulatory capital requirements.
17
<PAGE> 18
PART II - OTHER INFORMATION
Item 5. Other Information
Baylake Bank has expanded into the Northern Brown County region
with a mobile unit facility located in Green Bay commencing
operations on February 20, 1995. Various retail services in addition
to consumer and commercial loan services are being offered at this
temporary facility. A permanent facility is planned for early 1996
and is expected to offer a full range of products and services. The
construction phase of this project began in the second quarter of
this year. Construction costs for the facility are estimated to be
$1.2 million with total costs for building and equipment estimated to
be $2.0 million.
Item 6. 8-K
(a) Exhibits
None
(b) Reports on Form 8-K filed for nine months
ended September 30, 1995
None
18
<PAGE> 19
SIGNATURES
Pursuant to 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.
BAYLAKE CORP.
-----------------------------
(Registrant)
Date: NOVEMBER 10, 1995 Thomas L. Herlache
------------------------------ ------------------------------
Thomas L. Herlache
President (CEO)
Date: NOVEMBER 10, 1995 Steven D. Jennerjohn
------------------------------ ------------------------------
Steven D. Jennerjohn
Treasurer (CFO)
19
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 9407
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 8876
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 60,830
<INVESTMENTS-CARRYING> 12,902
<INVESTMENTS-MARKET> 13,444
<LOANS> 204,939
<ALLOWANCE> 2,760
<TOTAL-ASSETS> 308,718
<DEPOSITS> 267,174
<SHORT-TERM> 1,663
<LIABILITIES-OTHER> 3,878
<LONG-TERM> 0
<COMMON> 12,274
0
0
<OTHER-SE> 23,729
<TOTAL-LIABILITIES-AND-EQUITY> 308,718
<INTEREST-LOAN> 14,491
<INTEREST-INVEST> 3,389
<INTEREST-OTHER> 145
<INTEREST-TOTAL> 18,025
<INTEREST-DEPOSIT> 7,277
<INTEREST-EXPENSE> 7,548
<INTEREST-INCOME-NET> 10,477
<LOAN-LOSSES> 233
<SECURITIES-GAINS> (6)
<EXPENSE-OTHER> 7,090
<INCOME-PRETAX> 4,841
<INCOME-PRE-EXTRAORDINARY> 3,360
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,360
<EPS-PRIMARY> 1.37
<EPS-DILUTED> 1.37
<YIELD-ACTUAL> 0
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 0
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
