<PAGE> 1
FORM 8-K/A
AMENDMENT NO. 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------
CURRENT REPORT
Pursuant to Section 13 of 15(d)
of the Securities and Exchange Act of 1934
-------------
Date of Report: September 25, 1996
BAYLAKE CORPORATION
- -------------------------------------------------------------------------------
Wisconsin 0-8679 39-1268055
- -------------------------------------------------------------------------------
(State or other (Commission File (I.R.S. Employer
jurisdiction of Number) Identification No.)
incorporation)
217 NORTH FOURTH AVENUE, STURGEON BAY, WISCONSIN 54235
- --------------------------------------------------------------------------------
(Address of principal executive officers)
Registrant's telephone number, including area code (414)-743-5551
<PAGE> 2
This Amendment No. 1 to the Form 8-K dated September 25, 1996 is being made to
file the audited financial statements and pro forma financial statements
referred to below. Such statements were unavailable at the time of the
original Form 8-K filing, but the registrant committed to filing an amendment
including those statements within 60 days of that filing.
* * * * * *
Item 7. Financial Statements and Exhibits
(a) Financial statements of business acquired:
The following audited financial statements of Four Seasons are included in
this Amendment No. 1:
Consolidated Statement of Condition at June 30, 1996
Consolidated Statement of Income for the Year Ended June 30, 1996
Consolidated Statement of Stockholder Equity for the Year Ended June 30,
1996
Consolidated Statement of Cash Flows for the Year Ended June 30, 1996
Notes to Consolidated Financial Statements
(b) Pro forma financial information:
The following unaudited pro forma financial statements of Baylake Corp.
(the "Company"), giving effect to its acquisition of Four Seasons of Wis.,
Inc. ("Four Seasons"), are included in this Amendment No. 1:
Combined Balance Sheet at June 30, 1996
Combined Statement of Income Summary for the six months ended June 30,
1996 and the Year ended December 31, 1995
Combined Statements of Income for the six months ended June 30, 1996
Combined Statements of Income for the Year ended December 31, 1995
<PAGE> 3
FOUR SEASONS OF WIS., INC.
Manawa, Wisconsin
CONSOLIDATED FINANCIAL STATEMENTS
and
REPORT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
For the Year Ended June 30, 1996
<PAGE> 4
FOUR SEASONS OF WIS., INC.
Manawa, Wisconsin
TABLE OF CONTENTS
Page
----
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS 1
FINANCIAL STATEMENTS
Consolidated Statement of Condition 2 - 3
Consolidated Statement of Income 4
Consolidated Statement of Stockholder Equity 5
Consolidated Statement of Cash Flows 6 - 7
Notes to Consolidated Financial Statements 8 - 24
<PAGE> 5
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Four Seasons of Wis., Inc.
Manawa, Wisconsin
We have audited the accompanying consolidated statement of condition of
Four Seasons of Wis., Inc., and subsidiaries as of June 30, 1996, and the
related consolidated statements of income, stockholder equity, and cash flows
for the year then ended. These financial statements are the responsibility of
the company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly
the financial position of Four Seasons of Wis., Inc., and subsidiaries at June
30, 1996, and the results of its operations and its cash flows for the year
then ended in conformity with generally accepted accounting principles.
Madison, Wisconsin SMITH & GESTELAND, LLP
July 18, 1996
<PAGE> 6
FOUR SEASONS OF WIS., INC.
Manawa, Wisconsin
CONSOLIDATED STATEMENT OF CONDITION
June 30, 1996
ASSETS
<TABLE>
<S> <C>
Cash and due from banks $ 1,130,350
Investment securities available for sale
(at market) 28,533,704
Investment securities held to maturity
(market value of $1,166,000) 1,166,000
Loans 12,337,825
Less: Allowance for loan losses 120,670
-----------
Loans, net of allowance for loan losses 12,217,155
Federal funds sold 11,854,000
Bank premises and equipment 75,294
Accrued interest receivable 481,458
Deferred income taxes 79,877
Other assets 241,216
-----------
Total assets $55,779,054
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE> 7
LIABILITIES
<TABLE>
<S> <C>
Domestic deposits
Noninterest bearing $ 3,214,049
Interest bearing
NOW 2,992,521
Savings 7,973,408
Time, $100,000 and over 4,819,194
Other time 27,862,930
-----------
Total interest bearing 43,648,053
-----------
Total deposits 46,862,102
Income taxes payable 21,062
Accrued expenses and other liabilities 467,450
-----------
Total liabilities 47,350,614
STOCKHOLDER EQUITY
Common stock no par value - authorized 4,000
shares; issued and outstanding 3,241 shares 313,324
Additional paid-in capital 622,125
Retained earnings 8,398,135
Net unrealized loss on securities available
for sale, net of tax of $26,991 (905,144)
-----------
Total stockholder equity 8,428,440
-----------
Total liabilities and stockholder equity $55,779,054
===========
</TABLE>
3
<PAGE> 8
FOUR SEASONS OF WIS., INC.
Manawa, Wisconsin
CONSOLIDATED STATEMENT OF INCOME
For the Year Ended June 30, 1996
<TABLE>
<S> <C>
Interest income
Interest and fees on loans $1,135,312
Interest on investment securities
Taxable 2,396,228
Exempt from federal income taxes 139,824
----------
Total interest income 3,671,364
----------
Interest expense
Interest on deposits 2,334,942
Interest on short-term borrowings 3,000
----------
Total interest expense 2,337,942
----------
Net interest income 1,333,422
Provision for loan losses
----------
Net interest income after provision for
loan losses 1,333,422
----------
Other income
Fees from loan servicing 2,286
Fees for other services to customers 94,626
Investment securities gains, net 151,002
Other income 76,793
----------
Total other income 324,707
----------
Other expenses
Salaries and employee benefits 517,877
Occupancy expense 56,205
Equipment expense 27,439
Data processing and courier 52,864
Operation of other real estate 50,507
Other operating expenses 380,185
----------
Total other expenses 1,085,077
----------
Income before income taxes 573,052
Income tax expense 268,989
----------
NET INCOME $ 304,063
==========
Earnings per common share $93.82
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 9
FOUR SEASONS OF WIS., INC.
Manawa, Wisconsin
CONSOLIDATED STATEMENT OF STOCKHOLDER EQUITY
For the Year Ended June 30, 1996
<TABLE>
<CAPTION>
Net
Unrealized
Additional Gain (Loss)
Common Paid-In on Securities Retained
Stock Capital Available for Sale Earnings
------ ---------- ------------------ --------
<S> <C> <C> <C> <C>
Balance - July 1, 1995 $ 313,324 $ 22,125 $(329,255) $ 8,094,072
Shareholder debt
converted to equity 600,000
Net income for the year 304,063
Adjustment of investment
securities available
for sale at June 30,
1996, net of
$142,625 of deferred
income taxes (575,889)
--------- --------- --------- -----------
Balance - June 30, 1996 $ 313,324 $ 622,125 $(905,144) $ 8,398,135
--------- --------- --------- -----------
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 10
FOUR SEASONS OF WIS., INC.
Manawa, Wisconsin
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Year Ended June 30, 1996
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received from:
Loans $ 1,127,238
Investments 2,711,433
Fees and service charges 173,705
Interest paid to depositors (2,207,827)
Interest paid to shareholder (3,000)
Cash paid to suppliers and employees (976,309)
Income taxes paid (292,279)
-----------
Net cash provided by operating activities 532,961
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of investment securities 2,237,320
Principal payments received on investments 10,700,603
Purchase of investments (10,956,000)
Proceeds from sale of other assets 57,459
Loans made to customers in excess of principal
collected (1,773,002)
Capital expenditures (2,975)
-----------
Net cash provided by investing activities 263,405
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in demand deposits,
NOW accounts, and savings accounts (1,546,097)
Net increase in time deposits 627,597
-----------
Net cash used in financing activities (918,500)
-----------
Net decrease in cash and due from banks (122,134)
Cash and due from banks, beginning 1,252,484
-----------
Cash and due from banks, ending $ 1,130,350
===========
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE> 11
<TABLE>
<S> <C>
Reconciliation of net income to net cash
provided by operating activities:
Net income $ 304,063
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 24,872
Provision for losses on real estate owned 38,488
Accretion of discount on investments (16,578)
Gain on sale of investment securities (151,002)
Deferred income taxes (59,283)
Changes in assets and liabilities:
Interest receivable 183,885
Prepaids and other assets 39,111
Interest payable 127,114
Income taxes payable/receivable 35,993
Other liabilities 6,298
----------
Net cash provided by operating activities $ 532,961
==========
SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Acquisition of property in lieu of foreclosure $ 139,619
Shareholder debt converted to equity 600,000
</TABLE>
7
<PAGE> 12
FOUR SEASONS OF WIS., INC.
Manawa, Wisconsin
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - INFORMATION ABOUT THE COMPANY AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
The company's consolidated financial statements include the accounts of
the company, its wholly-owned subsidiary, The Bank - Manawa, and the
wholly-owned subsidiary of the bank, Bond Investments, Inc. All
significant intercompany items and transactions have been eliminated.
See Note 14 related to the merger of the company.
In 1995, the bank formed Bond Investments, Inc., as a wholly - owned
subsidiary of the bank to manage certain bank assets available for
investment.
The bank grants commercial, personal, mortgage and agricultural loans
to customers substantially all of whom are located in the Waupaca
County, Wisconsin, area. Although the bank has a diversified
portfolio, debtors' ability to honor their contracts is dependent upon
the economic condition of the local industrial businesses, and
commercial and agricultural industries.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from
those estimates.
Investment securities classified as held to maturity are those
securities which the bank has both the intent and the ability to hold
until maturity. Under this classification, securities are stated at
cost, adjusted for amortization of premiums and accretion of discounts
which are recognized as adjustments to interest income. 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.
Investment securities available for sale 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.
Loans are stated at face value, net of the allowance for loan losses.
Interest on loans is calculated using the simple interest method on
daily balances of the principal amount outstanding.
8
<PAGE> 13
FOUR SEASONS OF WIS., INC.
Manawa, Wisconsin
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - INFORMATION ABOUT THE COMPANY AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)
The allowance for loan losses is maintained at a level believed
adequate by management to absorb potential losses in the loan
portfolio. Management's determination of the adequacy of the
allowance is based on an evaluation of the portfolio, past loan loss
experience, current domestic and international economic conditions,
volume, growth and composition of the loan portfolio, and other
relevant factors. The allowance is increased by provisions for loan
losses charged against income.
The bank adopted SFAS No.'s 114 and 118, "Accounting by Creditors for
Impairment of a Loan" and "Accounting by Creditors for Impairment of a
Loan -Income Recognition and Disclosures" as of January 1, 1995. The
adoption of SFAS 114 did not result in additional provisions for
credit losses.
The accrual of interest income is discontinued when a loan becomes 90
days past due as to principal or interest. When interest accruals are
discontinued, interest credited to income in the current year is
reversed, and interest accrued in the prior year is charged to the
allowance for loan losses. If collectibility is in doubt, cash
receipts on nonaccrual loans are used to reduce principal rather than
being recorded as interest income.
Depreciable assets are stated at cost less accumulated depreciation.
Depreciation is charged to operating expense over the estimated useful
lives of the assets, using the straight-line and accelerated methods
Other real estate, which is included in other assets, comprises
properties acquired through a foreclosure proceeding or acceptance of
a deed in lieu of foreclosure. These properties are carried at the
lower of cost or fair value minus estimated costs to sell, based on
appraised value at the date acquired. Loan losses arising from the
acquisition of such property are charged against the allowance for
loan losses. An allowance for losses on other real estate is
maintained for subsequent valuation adjustments on a specific property
basis.
Income taxes are provided for the tax effects of transactions reported
in the financial statements and consist of taxes currently due plus
deferred taxes related primarily to differences between the basis of
the allowance for loan losses, deferred compensation, market value
adjustments of securities, and interest on nonaccrual loans for
financial and income tax reporting. The deferred tax assets represent
the future tax return consequences of those differences, which will
either be taxable or deductible when the assets are recovered.
9
<PAGE> 14
FOUR SEASONS OF WIS., INC.
Manawa, Wisconsin
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - INFORMATION ABOUT THE COMPANY AND SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES (continued)
The company and its subsidiaries file a consolidated federal income
tax return. Each entity provides for income taxes on a
separate-return basis, and remits to the company amounts determined to
be currently payable, if any.
Earnings per share are based on the weighted average number of shares
outstanding during each year.
For purposes of the statement of cash flows, the company considers
cash and due from banks as cash and cash equivalents.
NOTE 2 - RESTRICTIONS ON CASH AND DUE FROM BANKS
The company is required to maintain average reserve balances by the
Federal Reserve Bank. The average amount of those reserve balances
for the year ended June 30, 1996, was approximately $92,800.
NOTE 3 - INVESTMENT SECURITIES
The amortized cost and estimated market values of investment
securities are as follows:
<TABLE>
<CAPTION>
June 30, 1996
--------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
--------- ---------- ---------- ----------
Available for sale
------------------
<S> <C> <C> <C> <C>
U.S. government
agencies $27,518,488 $161,848 $1,093,226 $26,587,110
Obligations of
states and
political
subdivisions 1,947,351 39,263 40,020 1,946,594
----------- -------- ---------- -----------
$29,465,839 $201,111 $1,133,246 $28,533,704
=========== ======== ========== ===========
Held to maturity
----------------
Obligations of
states and
political
subdivisions $ 1,166,000 $ $ $ 1,166,000
=========== ======== ========== ===========
</TABLE>
10
<PAGE> 15
FOUR SEASONS OF WIS., INC.
Manawa, Wisconsin
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - INVESTMENT SECURITIES (continued)
Results of sales of securities available for sale were as follows:
Proceeds $2,237,320
Realized gains 151,002
The amortized cost and estimated market value of investments at June
30, 1996 by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call
or prepayment penalties.
<TABLE>
<CAPTION>
Available for Sale Held to Maturity
------------------------- --------------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Within one
year $ 7,050,000 $ 7,024,501 $1,166,000 $1,166,000
2-5 years 10,288,941 10,132,443
6-10 years 3,828,349 3,648,374
Over 10 years 8,298,549 7,728,386
----------- ----------- ---------- ----------
$29,465,839 $28,533,704 $1,166,000 $1,166,000
=========== =========== ========== ==========
</TABLE>
Securities pledged to secure public and trust deposits and borrowed
funds had a carrying value of $1,000,000 and a market value of
$1,053,000 at June 30, 1996.
NOTE 4 - LOANS
Major classifications of loans at June 30, 1996, were as follows:
<TABLE>
<S> <C>
Commercial, financial, and agricultural $ 5,755,320
Real estate - mortgage 4,830,652
Installment 1,751,853
-----------
Total loans $12,337,825
===========
</TABLE>
11
<PAGE> 16
FOUR SEASONS OF WIS., INC.
Manawa, Wisconsin
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - LOANS (continued)
Certain directors and executive officers of the bank, including their
immediate families, companies in which they are principal owners, and
trusts in which they are involved, were loan customers of the bank
during 1996. Such loans were made in the ordinary course of business
at normal credit terms, including interest rate and collateralization,
and do not represent more than a normal risk of collection. The
aggregate dollar amount of these loans was $10,786 at June 30, 1996.
During 1996, $11,000 of new loans were made and repayments totalled
$31,899.
Loans on which the accrual of interest has been discontinued or
reduced amounted to $112,504 at June 30, 1996. If these loans had
been current throughout their terms, interest income for the
nonaccrual period would have approximated $10,309 for 1996. Interest
income which has been recorded amounted to $7,801 for 1996 for these
nonaccrual loans.
Changes in the allowance for loan losses for 1996 were as follows:
Balance at beginning of year $123,214
Loans charged off 2,544
--------
Balance at end of year $120,670
========
The provision for credit losses charged to expense is based upon the
bank's credit loss experience and an evaluation of potential losses in
the current loan portfolio, including the evaluation of impaired loans
under SFAS 114. A loan is considered to be impaired when, based upon
current information and events, it is probable that the bank will be
unable to collect all amounts due according to the contractual terms
of the loan.
12
<PAGE> 17
FOUR SEASONS OF WIS., INC.
Manawa, Wisconsin
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - LOANS (continued)
The following table summarizes activity in investment in loans during
1996 that have declined in value and related interest income and
allowance for credit losses accounts:
Impaired loans at June 30, 1996 $112,665
Impaired loans at June 30, 1996 allowed for $112,655
Average impaired loans during the period $114,206
Interest income recognized while loans
impaired $ 14,321
Interest income using a cash-basis method $ 7,801
Allowance as of January 1 (date of adoption) $ 11,606
Additions during the year 29
Recoveries of amounts previously written off 368
--------
Balance at June 30, 1996 $ 11,267
========
NOTE 5 - BANK PREMISES AND EQUIPMENT
Bank premises and equipment at June 30, 1996, were as follows:
Land $ 17,925
Buildings and improvements 457,044
Equipment 316,940
--------
791,909
Less accumulated depreciation 716,615
--------
$ 75,294
========
Depreciation expense aggregated $24,872 in 1996.
13
<PAGE> 18
FOUR SEASONS OF WIS., INC.
Manawa, Wisconsin
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - OTHER REAL ESTATE
Other real estate of $215,427, net of an allowance for other real
estate losses of $56,436, is included in other assets.
Net cost of operation of other real estate for June 30, 1996 is
summarized below:
Loss on disposition of properties
and other costs $50,507
-------
Net costs $50,507
=======
Changes in the allowance for losses on other real estate at June 30,
1996, were as follows:
Balance at beginning of year $17,948
Provision charged to cost of
operation of other real estate 38,488
-------
Balance at end of year $56,436
-------
NOTE 7 - SHORT-TERM BORROWINGS
There were no outstanding balances on short-term borrowings at June
30, 1996, or at any time during the year.
NOTE 8 - DIVIDEND AND CAPITAL RESTRICTIONS
As of June 30, 1996, undistributed earnings of the subsidiary,
included in consolidated retained earnings, available for distribution
to the company as dividends without prior approval of regulatory
authorities was $2,390,328.
Federal Reserve Board standards require banks and bank holding
companies to maintain capital based on "risk-adjusted" assets. All
banks are required to meet a minimum ratio of 8% of qualifying total
capital to risk-adjusted total assets and a ratio of at least 4% of
Tier 1 capital to risk-adjusted assets. Capital that qualifies as
Tier 2 capital is limited to 100% of Tier 1 capital. The minimum
leverage ratio requirement is to maintain Tier 1 capital of at least
3% of average quarterly assets.
14
<PAGE> 19
FOUR SEASONS OF WIS., INC.
Manawa, Wisconsin
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 8 - DIVIDEND AND CAPITAL RESTRICTIONS (continued)
The Tier 1 capital, total (Tier 1 and Tier 2) capital, and leverage
ratios for the company at June 30, 1996, were 48.2% 48.9%, and 16.7%,
respectively.
NOTE 9 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The company is a party to financial instruments with off-
balance-sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments include
commitments to extend credit, standby letters of credit, and financial
guarantees.
The company's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for commitments to
extend credit and standby letters of credit and financial guarantees
written is represented by the contract or notional amount of those
instruments. The company uses the same credit policies in making
commitments and conditional obligations as it does for
on-balance-sheet instruments.
Contract or Notional Amount
Financial instruments whose
contract amounts represent
credit risk:
Commitments to extend credit $2,024,000
Standby letters of credit and
financial guarantees written 185,000
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of
the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements. The company evaluates each customer's creditworthiness
on a case-by-case basis. The amount of collateral obtained if deemed
necessary by the company upon extension of credit is based on
management's credit evaluation of the counter-party. Collateral held
varies but may include accounts receivable, inventory, property,
plant, and equipment, and income-producing commercial properties.
15
<PAGE> 20
FOUR SEASONS OF WIS., INC.
Manawa, Wisconsin
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - Standby letters of credit and financial guarantees written are
conditional commitments issued by the company to guarantee the
performance of a customer to a third party. Those guarantees are
primarily issued to support private borrowing arrangements. The
guarantees expire in decreasing amounts through 1998, with the
majority expiring within one year. The credit risk involved in
issuing letters of credit is essentially the same as that involved in
extending loan facilities to customers. The company does not require
collateral as support for the commitments. Collateral is obtained
based on loan policies upon use of a commitment by a customer.
NOTE 10 - INCOME TAX EXPENSE
The components of income tax expense for the year ended June 30,
1996, are as follows:
Taxes currently payable
Federal $326,119
State 2,153
--------
328,272
--------
Deferred income taxes
Federal (59,284)
State --------
(59,284)
--------
Total expense $268,988
========
Income tax expense associated with realized securities gains was $0
for 1996 due to capital loss carryovers available to offset gains.
Deferred income tax provisions are related primarily to loan loss
reserves, available for sale security reserves, the use of cash basis
for tax purposes, capital loss carryovers, and accretion income
recognition differences.
16
<PAGE> 21
FOUR SEASONS OF WIS., INC.
Manawa, Wisconsin
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - INCOME TAX EXPENSE (continued)
Deferred tax assets (liabilities) are comprised of the following at
June 30, 1996:
Allowance for loan losses $(19,784)
Accrual to cash difference 29,057
Accretion on bonds (10,260)
Capital loss carryover 68,987
State net operating loss carryforward 369,581
Market value adjustment on securities
held for sale 316,926
--------
Total gross deferred tax assets $754,507
--------
A valuation allowance is comprised of the following at June 30, 1996:
Amounts not to be realized due to
corporate ownership change and
merger:
State net operating loss
carryover $369,581
State tax effect of other items
listed in above section 15,114
Estimated amounts not realizable due
to capital loss carryover rules 289,935
--------
Total deferred tax valuation
allowance $674,630
========
Net deferred tax assets $ 79,877
========
17
<PAGE> 22
FOUR SEASONS OF WIS., INC.
Manawa, Wisconsin
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 10 - INCOME TAX EXPENSE (continued)
The provision for income taxes differs from the amount of income tax
determined by applying the statutory federal income tax rate to
pretax income as a result of the following differences:
Income tax based on statutory rate $194,837
State income taxes, net of federal
tax benefit 1,429
Interest exempt from federal taxes (48,705)
Expenditures specifically not deductible 59,619
Accrual to cash recognition 96,456
Other income not taxed (17,922)
Other (16,726)
--------
Provision based on effective tax rates $268,988
========
NOTE 11 - EARNINGS PER COMMON SHARE
Earnings per share are based on the weighted average number of shares
outstanding of 3,241.
NOTE 12 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL
INSTRUMENTS
Provided below is the information required by Statement of Financial
Accounting Standards No. 107, "Disclosures about Fair Value of
Financial Instruments" (SFAS 107). These amounts represent estimates
of fair values at a point in time. Significant estimates regarding
economic conditions, loss experience, risk characteristics associated
with particular financial instruments and other factors were used for
the purposes of this disclosure. These estimates are subjective in
nature and involve matters of judgment. Therefore, they cannot be
determined with precision. Changes in the assumptions could have a
material impact on the amounts estimated.
Many of the bank's financial instruments lack an available trading
market. Furthermore, most of the financial instruments are intended
to be held to maturity. Therefore, it is not probable that the fair
values shown will be realized in a current transaction.
18
<PAGE> 23
FOUR SEASONS OF WIS., INC.
Manawa, Wisconsin
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL
INSTRUMENTS (continued)
The estimated fair values disclosed do not reflect the value of
assets and liabilities that are not considered financial instruments.
In addition, the significant value of long-term relationships with
depositors and other customers are not reflected.
A. CASH AND DUE FROM BANKS
These instruments are, by definition, short-term and do not
present any unanticipated credit issues. Therefore, the carrying
amount is a reasonable estimate of fair value.
B. INVESTMENT SECURITIES
The estimated fair values of securities are provided in Note 3 to
the financial statements. These are based on quoted market
prices, when available. If a quoted market price is not
available, fair value is estimated using quoted market prices for
similar securities.
C. LOANS
The carrying amount (total outstanding excluding unearned income
and reserve for loan losses) and estimated fair value of loans
outstanding at June 30, 1996, is $12,338,000 and $12,320,000,
respectively. In order to determine the fair values for loans,
the loan portfolio was segmented based on loan type, credit
quality and repricing characteristics. For certain variable rate
loans with no significant credit concerns and frequent repricings,
estimated fair values are based on the carrying values.
The fair values of other loans are estimated using discounted cash
flow analyses. The discount rates used in these analyses are
generally based on origination rates for similar loans of
comparable credit quality. However, where appropriate,
adjustments have been made so as to more accurately reflect market
rates. Maturity estimates are based on historical experience with
prepayments and current economic and lending conditions.
19
<PAGE> 24
FOUR SEASONS OF WIS., INC.
Manawa, Wisconsin
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL
INSTRUMENTS (continued)
D. DEPOSITS
The carrying amount and estimated fair value of deposits
outstanding at June 30, 1996, is $46,863,000 and $47,037,000,
respectively. Under SFAS 107, the fair value of deposits with no
stated maturity is equal to the amount payable on demand.
Therefore, the fair value estimates for these products do not
reflect the benefits that the bank receives from the low-cost,
long-term funding they provide. These benefits are significant.
The estimated fair values of fixed rate time deposits are based on
discounted cash flow analyses. The discount rates used in these
analyses are based on market rates currently offered for deposits
of similar remaining maturities. Because of the repricing
characteristics and the competitive nature of the bank's rates
offered on variable rate time deposits, carrying amount is a
reasonable estimate of the fair value.
E. COMMITMENTS TO EXTEND CREDIT, STANDBY LETTERS OF CREDIT,
AND LETTERS OF CREDIT
Pricing of these financial instruments is based on the credit
quality and relationship, fees, interest rates, probability of
funding, and compensating balance and other covenants or
requirements. Loan commitments generally have fixed expiration
dates, are variable rate and contain termination and other clauses
which provide for relief from funding in the event that there is a
significant deterioration in the credit quality of the customer.
Many loan commitments are expected to, and typically do, expire
without being drawn upon. The carrying amounts are reasonable
estimates of the fair value of these financial instruments.
Carrying amounts are comprised of the unamortized fee income and,
where necessary, reserves for any expected credit losses from
these financial instruments.
20
<PAGE> 25
FOUR SEASONS OF WIS., INC.
Manawa, Wisconsin
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - CONDENSED FINANCIAL INFORMATION - PARENT
COMPANY ONLY
FOUR SEASONS OF WIS., INC.
(Parent Company Only)
CONDENSED BALANCE SHEET
June 30, 1996
<TABLE>
<S> <C>
ASSETS
Cash $ 947
Investment in subsidiary 8,725,202
----------
Total assets $8,726,149
==========
LIABILITIES AND STOCKHOLDER EQUITY
Liabilities
Income taxes payable $ 7,774
----------
Total liabilities 7,774
Stockholder equity 8,718,375
----------
Total liabilities and stockholder equity $8,726,149
==========
</TABLE>
21
<PAGE> 26
FOUR SEASONS OF WIS., INC.
Manawa, Wisconsin
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - CONDENSED FINANCIAL INFORMATION - PARENT
COMPANY ONLY (continued)
FOUR SEASONS OF WIS., INC.
(Parent Company Only)
CONDENSED STATEMENTS OF INCOME
For the Year Ended June 30, 1996
<TABLE>
<S> <C>
Income
Rent from the bank $ 50,000
Interest 4,873
--------
Total income 54,873
--------
Expenses
Depreciation 8,713
Other 195,982
Income tax 10,084
--------
Total expenses 214,779
--------
Loss before equity in undistributed net
income of subsidiary (159,906)
Equity in undistributed net income of subsidiary 463,969
--------
NET INCOME $304,063
========
</TABLE>
22
<PAGE> 27
FOUR SEASONS OF WIS., INC.
Manawa, Wisconsin
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 13 - CONDENSED FINANCIAL INFORMATION - PARENT
COMPANY ONLY (continued)
FOUR SEASONS OF WIS., INC.
(Parent Company Only)
CONDENSED STATEMENT OF CASH FLOWS
For the Year Ended June 30, 1996
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received $ 4,873
Rent received 50,000
Cash paid to suppliers (195,982)
Income tax paid (15,682)
---------
Net cash used in operating activities (156,791)
---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of other assets 57,459
---------
Net cash provided by investing activities 57,459
Net decrease in cash (99,332)
Cash at beginning of year 100,279
---------
Cash at end of year $ 947
=========
Reconciliation of net income to net cash
used in operating activities:
Net income $ 304,063
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 8,713
Undistributed earnings of subsidiary (463,969)
Change in accrued taxes payable (5,598)
---------
Net cash used in operating activities $(156,791)
=========
</TABLE>
23
<PAGE> 28
FOUR SEASONS OF WIS., INC.
Manawa, Wisconsin
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 14 - ACQUISITION
Subsequent to year end on July 1, 1996, all of the outstanding
shares of the company were purchased by Baylake Corp. The
purchase price was $13.8 million plus an amount to be based on the
company's net income for the six months ended June 30, 1996.
24
<PAGE> 29
PRO FORMA COMBINED FINANCIAL INFORMATION
BAYLAKE CORP. AND FOUR SEASONS OF WISCONSIN, INC.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
At June 30, 1996
(In thousands)
The following Unaudited Pro Forma Combined Balance Sheet combines the
historical Consolidated Balance Sheets of Baylake and Four Seasons giving
effect to the Merger, which will be accounted for as a purchase, as if it had
been effective on June 30, 1996. This information should be read in
conjunction with the historical consolidated financial statements (and notes
thereto) and Management's Discussion and Analysis of Financial Condition and
Results of Operations of Baylake and Four Seasons, and the condensed
consolidated historical and other pro forma financial information (including
the notes thereto) appearing elsewhere herein. The pro forma financial data
presented below is not necessarily indicative of the actual financial position
that would have occurred had the Merger been consummated on June 30, 1996, or
that may be obtained in the future.
<TABLE>
Four Pro Forma Pro Forma
Baylake Seasons Adjustments Combined
------- ------- ----------- ---------
ASSETS
<S> <C> <C> <C> <C>
Cash and due from banks $ 13,860 $ 1,130 $ $ 14,990
Investment securities available for sale 61,389 61,389
Investment securities held to maturity 11,192 29,700 40,892
Loans 231,174 12,338 243,512
Allowance for loan losses (2,775) (121) (2,896)
-------- ------- -------- --------
Loans, net 228,399 12,217 240,616
Federal funds sold 11,854 (11,854)
Bank premises and equipment 10,056 75 10,131
Accrued interest receivable 2,779 482 3,261
Income taxes receivable 249 249
Deferred income taxes 1,002 80 1,082
Other assets 3,136 241 4,467 7,844
-------- ------- -------- --------
Total assets $332,062 $55,779 $ $380,454
======== ======= ======== ========
LIABILITIES
Non-interest bearing deposits $ 37,511 $ 3,214 $ $ 40,725
Interest bearing deposits 240,386 43,648 284,034
-------- ------- -------- --------
Total deposits 277,897 46,862 324,759
Short-term borrowings 13,023 1,946 14,969
Long-term debt 422 422
Accrued expenses and other liabilities 3,725 468 4,193
Accrued income taxes 21 21
-------- ------- -------- --------
Total liabilities 295,067 47,351 344,364
-------- ------- -------- --------
STOCKHOLDERS' EQUITY
Common stock 12,274 313 (313) 12,274
Additional paid-in capital 5,954 622 (622) 5,954
Reserve for market adjustment of securities (352) (905) (1,257)
Retained earnings 19,168 8,398 (8,398) 19,168
Treasury stock (49) (49)
-------- ------- -------- --------
Total stockholders' equity 36,995 8,428 36,090
-------- ------- -------- --------
Total liabilities and stockholders'
equity $332,062 $55,779 $ $380,454
======== ======= ======== ========
</TABLE>
<PAGE> 30
BAYLAKE CORP. AND FOUR SEASONS OF WISCONSIN, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME SUMMARY
(In thousands, except per common share data)
The following Unaudited Pro Forma Combined Statement of Income
Summary combines the historical Consolidated Statements of Income of Baylake
and Four Seasons giving effect to the Merger, which will be accounted for as a
purchase, as if it had been effective as of the beginning of the period
indicated. This information should be read in conjunction with the historical
consolidated financial statements (and notes thereto) and Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Baylake and Four Seasons, and the condensed consolidated historical and other
pro forma financial information (including the notes thereto) appearing
elsewhere herein. The pro forma financial data presented below is not
necessarily indicative of the actual financial results that would have occurred
had the Merger been consummated on January 1, 1995, or that may be obtained in
the future.
<TABLE>
<CAPTION>
Six Months Year Ended
Ended June 30, 1996 December 31, 1995
------------------- -----------------
<S> <C> <C>
Interest income
Interest and fees on loans $10,711 $21,189
Interest on investment securities
Taxable 2,711 5,552
Exempt from federal income taxes 805 1,409
Other interest income 35 281
------- -------
Total interest income 14,262 28,431
Interest expense
Interest on deposits 6,367 11,833
Interest on short-term borrowings 199 252
Interest on long-term debt 21 41
------- -------
Total interest expense 6,587 12,126
Net interest income 7,675 16,305
Provision for loan losses 181 250
------- -------
Net interest income after provision for
loan losses 7,494 16,055
Other income
Fees from fiduciary activities 273 394
Fees for other services to customers 1,233 1,141
Securities gains, net 13 (212)
Other income 207 690
------- -------
Total other income 1,726 2,013
Other expenses
Salaries and employee benefits 3,347 5,882
Occupancy expense 389 748
Equipment expense 381 669
Data processing and courier 274 762
Operation of other real estate (127) (71)
Other operating expenses 1,480 2,822
------- -------
Total other expenses 5,744 10,812
Income before income taxes 3,476 7,256
Income tax expense 1,190 2,240
------- -------
Net income $ 2,286 $ 5,016
======= =======
Net income per share $.93 $2.04
Weighted average shares outstanding 2,453 2,453
</TABLE>
<PAGE> 31
BAYLAKE CORP. AND FOUR SEASONS OF WISCONSIN, INC.
UNAUDITED PRO FORMA COMBINED STATEMENTS OF INCOME
For the Six Months Ended June 30, 1996
The following Unaudited Pro Forma Combined Statements of Income combine
the historical Consolidated Statements of Income of Baylake and Four Seasons
giving effect to the Merger, which will be accounted for as a pooling of
interests, as if it had been effective as of the beginning of the periods
indicated. This information should be read in conjunction with the historical
consolidated financial statements (and notes thereto) and Management's
Discussion and Analysis of Financial Condition and Results of Operations of
Baylake and Four Seasons, and the condensed consolidated historical and other
pro forma financial information (including the notes thereto) appearing
elsewhere herein. The pro forma financial data presented below is not
necessarily indicative of the actual financial results that would have occurred
had the Merger been consummated at the beginning of the periods indicated, or
that may be obtained in the future.
BAYLAKE CORP. AND FOUR SEASONS OF WISCONSIN, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
Six Months Ended June 30, 1996
(In thousands, except per common share data)
<TABLE>
<CAPTION>
Four Pro Forma
Baylake Seasons Combined
------- ------- ---------
<S> <C> <C> <C>
Interest income
Interest and fees on loans $10,099 $ 612 $10,711
Interest on investment securities
Taxable 1,464 1,247 2,711
Exempt from federal income taxes 739 66 805
Other interest income 35 35
------- ------ -------
Total interest income 12,337 1,925 14,262
Interest expense
Interest on deposits 5,112 1,255 6,367
Interest on short-term borrowings 199 199
Interest on long-term debt 21 21
------- ------ -------
Total interest expense 5,332 1,255 6,587
Net interest income 7,005 670 7,675
Provision for loan losses 181 181
------- ------ -------
Net interest income after provision
for loan losses 6,824 670 7,494
Other income
Fees from fiduciary activities 273 273
Fees for other services to customers 1,185 48 1,233
Securities gains, net 13 13
Other income 170 37 207
------- ------ -------
Total other income 1,628 98 1,726
Other expenses
Salaries and employee benefits 3,069 278 3,347
Occupancy expense 360 29 389
Equipment expense 374 7 381
Data processing and courier 255 19 274
Operation of other real estate (170) 43 (127)
Other operating expenses 1,175 305 1,480
------- ------ -------
Total other expenses 5,063 681 5,744
Income before income taxes 3,389 87 3,476
Income tax expense 1,012 178 1,190
------- ------ -------
Net income $ 2,377 $ (91) $ 2,286
======= ====== =======
Net income per share $.97 $(28.05) $.93
Weighted average shares outstanding 2,453 3 2,453
</TABLE>
<PAGE> 32
BAYLAKE CORP. AND FOUR SEASONS OF WISCONSIN, INC.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
Year Ended December 31, 1995
(In thousands, except per common share data)
<TABLE>
<CAPTION>
Four Pro Forma
Baylake Seasons Combined
------- ------- ---------
<S> <C> <C> <C>
Interest income
Interest and fees on loans $20,192 $ 997 $21,189
Interest on investment securities
Taxable 3,298 2,254 5,552
Exempt from federal income taxes 1,247 162 1,409
Other interest income 281 281
------- ------ -------
Total interest income 25,018 3,413 28,431
Interest expense
Interest on deposits 9,840 1,993 11,833
Interest on short-term borrowings 250 2 252
Interest on long-term debt 41 41
------- ------ -------
Total interest expense 10,131 1,995 12,126
Net interest income 14,887 1,418 16,305
Provision for loan losses 250 250
------- ------ -------
Net interest income after provision
for loan losses 14,637 1,418 16,055
Other income
Fees from fiduciary activities 394 394
Fees for other services to customers 1,041 100 1,141
Securities gains, net 4 (216) (212)
Other income 611 79 690
------- ------ -------
Total other income 2,050 (37) 2,013
Other expenses
Salaries and employee benefits 5,391 491 5,882
Occupancy expense 690 58 748
Equipment expense 632 37 669
Data processing and courier 707 55 762
Operation of other real estate (84) 13 (71)
Other operating expenses 2,558 264 2,822
------- ------ -------
Total other expenses 9,894 918 10,812
Income before income taxes 6,793 463 7,256
Income tax expense 2,149 91 2,240
------- ------ -------
Net income $ 4,644 $ 372 $ 5,016
======= ====== =======
Net income per share $ 1.89 $114.63 $2.04
Weighted average shares outstanding 2,453 3 2,453
</TABLE>
<PAGE> 33
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
BAYLAKE CORP.
Date: September 25, 1996 By: STEVEN D. JENNERJOHN
-------------------------
STEVEN D. JENNERJOHN
Treasurer
