<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 MARCH 31, 1996
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
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(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 May 13, 1996.
$5.00 Par Value Common
2,452,937 shares
<PAGE> 2
BAYLAKE CORP. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION PAGE NUMBER
Item 1.
Consolidated Condensed Balance Sheets 3
as of March 31, 1996 and December 31, 1995
Consolidated Condensed Statement of Income 4
Three months ended March 31, 1996
and 1995
Consolidated Statement of Cash Flows 5 - 6
Three months ended March 31, 1996 and 1995
Note to Consolidated Condensed Financial Statements 7 - 8
Item 2.
Managements Discussion and Analysis of Financial 9 - 16
Condition and Results of Operations
PART II. OTHER INFORMATION 17
Signatures 18
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
BAYLAKE CORP. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEET (UNAUDITED)
(In thousands of dollars)
<TABLE>
<CAPTION>
MARCH 31 DECEMBER 31
ASSETS 1996 1995
-------- -----------
<S> <C> <C>
Cash and due from Banks $ 8 785 $ 9 887
Investment securities available for
sale (at market) 62 399 63 966
Investment securities held to maturity (market value
$11,611 on 3/31/96; $12,197 on 12/31/95) 11 251 11 645
Federal funds sold 2 738 1 380
Loans 217 847 210 230
Less: Allowance for loan losses (2 707) (2 617)
-------- --------
Loans, net of allowance for loan losses 215 140 207 613
Bank premises and equipment 9 365 8 652
Accrued interest receivable 2 566 2 227
Income tax receivable 262
Deferred income taxes 856 726
Other assets 2 906 3 070
-------- --------
TOTAL ASSETS $316 006 $309 428
======== ========
LIABILITIES
Domestic Deposits
Non-interest bearing deposits $ 29 986 $ 33 887
Interest bearing deposits
Now 32 410 36 945
Savings 84 729 84 448
Time, $100,000 and over 21 964 11 523
Other time 99 660 100 177
-------- --------
Interest bearing deposits $238 763 $233 093
-------- --------
Total deposits $268 749 $266 980
Short term borrowings 6 789 1 528
Long term debt 422 475
Accrued income taxes 139
Accrued expenses and other liabilities 3 276 3 606
Dividends payable 564
-------- --------
TOTAL LIABILITIES $279 376 $273 153
-------- --------
STOCKHOLDERS EQUITY
Common Stock $5.00 par value - authorized
10,000,000 shares; issued 2,454,881 shares
on 3/31/96 and 12/31/95; outstanding
2,452,937 shares on 3/31/96 and 12/31/95 $ 12 274 $ 12 274
Additional paid-in capital 5 954 5 954
Reserve for market adjustment of
securities (74) 176
Retained earnings 18 526 17 920
Treasury Stock (49) (49)
-------- --------
TOTAL STOCKHOLDERS EQUITY 36 630 36 275
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $316 006 $309 428
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements
<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
MARCH 31
1996 1995
------ --------
<S> <C> <C>
Interest Income
Interest and fees on loans $ 4 869 $ 4 643
Interest on investment securities
Taxable 741 827
Exempt from federal income tax 358 314
Other interest income 27 21
-------- --------
Total Interest Income 5 995 5 805
Interest Expense
Interest on deposits 2 560 2 231
Interest on short term borrowings 50 129
Interest on long term debt 10
-------- --------
Total Interest Expense 2 620 2 360
-------- --------
Net Interest Income 3 375 3 445
Provision for loan losses 94 77
-------- --------
Net interest income after
provision for loan losses 3 281 3 368
-------- --------
Other Income
Fees for fiduciary activities 137 81
Fees from loan servicing 283 98
Fees for other services to customers 329 262
Securities gains (losses) 0 0
Other income 93 57
-------- --------
Total Other Income 842 498
-------- --------
Other Expenses
Salaries and employee benefits 1 577 1 319
Occupancy expense 190 132
Equipment expense 185 150
Data processing and courier 125 104
FDIC insurance expense 1 152
Operation of other real estate (170) 10
Other operating expense 540 441
-------- --------
Total Other Expenses 2 448 2 308
-------- --------
Income before income taxes 1 675 1 558
-------- --------
Income tax expense (benefit) 504 479
-------- --------
Net Income $ 1 171 $ 1 079
======== ========
Net Income per share (1) $0.48 $0.44
Cash dividends per share $0.23 $0.22
</TABLE>
(1) Based on 2,452,937 shares average outstanding in 1996 and 1995.
See accompanying notes to unaudited consolidated financial statements.
<PAGE> 5
BAYLAKE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASHFLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
------------------------------
1996 1995
-------- --------
(thousands of dollars)
<S> <C> <C>
Cash flows from operating activities:
Interest received from:
Loans $ 4 637 $ 4 366
Investments 1 044 1 104
Fees and service charges 840 457
Interest paid to depositors (2 385) (1 900)
Interest paid to others (89) (119)
Cash paid to suppliers and employees (2 746) (2 629)
Income taxes paid (104) (104)
-------- --------
Net cash provided by operating activities 1 197 1 175
Cash flows from investing activities
Principal payments received on investments 2 903 5 769
Purchase of investments (2 713) (3 393)
Proceeds from sale of other real estate owned 220 16
Loans made to customers in excess of principal collected (7 658) (5 352)
Capital expenditures (902) (808)
-------- --------
Net cash (used) provided in investing activities (8 150) (3 768)
Cash flows from financing activities:
Net increase (decrease) in demand deposits, NOW accounts
and savings accounts (8 153) (17 482)
Net increase (decrease) in advances from borrowers 5 209 5 151
Net increase (decrease) in time deposits 9 923 13 138
Dividends paid (1 128) (1 079)
--------- --------
Net cash used in financing activities 5 851 (272)
--------- --------
Net increase (decrease) in cash and cash equivalents (1 102) (2 865)
Cash and cash equivalents, beginning 9 887 10 516
-------- --------
Cash and cash equivalents, ending $ 8 785 $ 7 651
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
1996 1995
-------- --------
(thousands of dollars)
<S> <C> <C>
Reconciliation of net income to net cash provided by
operating activities:
Net Income $ 1 171 $ 1 079
Adjustment to reconcile net income to net cash provided
by operating activities:
Depreciation 189 124
Provision for loan losses and real estate owned 94 77
Amortization of premium on investments 68 44
Accretion of discount on investments (35) (50)
Cash surrender value increase (20) (20)
(Gain) loss from disposal of other real estate (178)
Equity in income of service center 17 (17)
Amortization of book of business 0 1
Goodwill writedown 1 24
Deferred compensation 53
Changes in assets and liabilities:
Interest receivable (340) (322)
Prepaids and other assets 165 (222)
Unearned income (7) (11)
Interest payable 146 341
Taxes payable 401 375
Deferred Taxes
Other liabilities 528 (248)
-------- --------
Total adjustments 26 96
-------- --------
Net cash provided by operating activities $ 1 197 $ 1 175
======== ========
</TABLE>
<PAGE> 7
BAYLAKE CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
1. The accompanying unaudited consolidated financial statements
should be read in conjunction with Baylake Corp.'s ("Company")
1995 annual report on Form 10-K. 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 March 31,
1996 and December 31, 1995. The results of operations for the
three months ended March 31, 1996 and 1995 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>
MARCH 31 DECEMBER 31
1996 1995
-------- -----------
(thousands of dollars)
<S> <C> <C>
Investment securities held to maturity:
Obligations of states and political
subdivisions $ 10 728 $ 11 237
Other 523 408
------- --------
Investment securities held to maturity $ 11 251 $ 11 645
Investment securities available for sale:
U.S. Treasury and other U.S. government
agencies $ 10 454 $ 11 321
Obligations of states and political 13 683 13 322
subdivisions
Mortgage-backed securities 37 780 38 430
Other 482 893
-------- --------
Investment securities available for sale $ 62 399 $ 63 966
======== ========
</TABLE>
3. At March 31, 1996 and December 31, 1995, loans were as follows:
<TABLE>
<CAPTION>
March 31 December 31
1996 1995
--------- -----------
(thousands of dollars)
<S> <C> <C>
Commercial, industrial and agricultural $ 136 270 $ 129 712
Real estate - construction 7 866 6 378
Real estate - mortgage 62 074 62 271
Installment 12 286 12 522
Less: Deferred loan origination fees,
net of costs (649) (653)
--------- ---------
217 847 210 230
Less allowance for loan losses (2 707) (2 617)
--------- ---------
Net loans $ 215 140 $ 207 613
</TABLE>
<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 March
31, 1996 and December 31, 1995 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. As of March 31, 1996, the Company adopted SFAS No. 122.
"Accounting for Mortgage Servicing Rights" which amends SFAS No.
65, "Accounting for Certain Mortgage Banking Activities." This
statement required that the rights to service mortgage loans for
others be recognized as separate assets regardless of how those
rights were acquired. The impact on the Company's financial
position and the results of operation were not material for the
first quarter.
6. On August 31, 1994, the Company acquired Kewaunee County
Banc-Shares, Inc. ("KCB"), a registered bank holding company,
and its wholly owned subsidiary, State Bank of Kewaunee
(subsequently named "Baylake Bank Kewaunee") ("BBK"). Effective
January 1, 1996, Baylake Bank and BBK were merged, and referred
to herein as "Baylake Bank".
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATIONS
GENERAL
The following sets forth management's discussion and analysis of the
consolidated financial condition of Baylake Corp. ("Company") at March 31,
1996, and the results of operations for the three months ended March 31, 1996
and March 31, 1995. This discussion and analysis should be read in conjunction
with the Company's unaudited consolidated financial statements and the notes
thereto included herein.
In March 1996, the Company signed an agreement to acquire Four Seasons of Wis.,
Inc. and its subsidiary in a cash transaction valued at $13.8 million. Because
the transaction would be accounted for using the purchase method of accounting,
it would affect future operations. The acquisition remains subject to
regulatory approvals and other contingencies.
RESULTS OF OPERATIONS
For the three months ended March 31, 1996, net income increased $92,000, or
8.5%, to $1.17 million from $1.08 million for the first quarter of 1995. The
annualized return on average assets and return on average equity for the three
months ended March 31, 1996, were 1.52% and 12.91%, respectively compared to
1.53% and 13.27%, respectively, for the same period a year ago.
The increase in net income for the period is primarily due to improved other
income offset by decreased net interest income and increased other expenses.
NET INTEREST INCOME
Net interest income for the three months ended March 31, 1996 decreased
$70,000, or 2.0%, to $3.38 million from $3.45 million for the same period a
year ago. Total interest income for the first quarter of 1996 increased
$190,000, or 3.3%, to $5.99 million from $5.80 million for the first quarter of
1995, while interest expense increased $260,000, or 11.0%, to $2.62 million
from $2.36 million in the first quarter of 1995. These changes were primarily
the result of a decreased rate environment and increased competition relating
to loan pricing, particularly in the commercial sector, and deposit pricing,
particularly in the area of time deposits resulting from entry into the Green
Bay market. These increases were offset by an increase in the average
<PAGE> 10
volume of earning assets. In total, these changes contributed to a decline in
net interest margin for the first quarter of 1996.
For the three months ended March 31, 1996, average earning assets increased
$18.8 million, or 7.0%, when compared to the same period last year. The
Company registered an increase in average loans of $16.75 million, or 8.5%, for
the first quarter of 1996 compared to the same period a year ago. Loans have
typically resulted in higher rates of interest payable to the Company then have
investment securities.
Net interest margin (on a federal tax-equivalent basis) for the three months
ended March 31, 1996 decreased from 5.43% to 4.94% compared to a year ago. The
average yield on interest earning assets amounted to 8.58% for the first
quarter of 1996, representing a decrease of 39 basis points from the same
period last year. Total loan yields declined 40 basis points to 9.18%, while
total investment yields declined 79 basis points to 7.66% as compared to the
same period a year ago. The Company's cost on average interest-bearing
liabilities amounted to 4.40%, an increase of 10 basis points for the first
quarter of 1996 compared to the same period in 1995. Interest-bearing deposits
increased 15 basis points while short-term borrowings and long-term debt
decreased 85 basis points.
PROVISION FOR LOAN LOSSES
The provision for loan losses for the three months ended March 31, 1996
increased $17,000, or 22.1%, to $94,000 from $77,000 for the first quarter a
year ago. This increase has occurred primarily as a result of above average
loan growth. Management believes that the current allowance is adequate in
view of the present 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 $344,000, or 69.1%, to $842,000 for the
first quarter of 1996, from $498,000 for the first quarter a year ago. This
occurred as a result of increased trust revenues, increased loan servicing fees
and increased fees for other customer services.
Trust revenues increased primarily as a result of increased trust business.
Loan servicing fees increased for two reasons. Premiums of approximately
$113,000 were realized as a result of loan sales in the secondary market and
estimated fees of $78,000 were recognized due to the implementation of SFAS No.
122, "Accounting for Mortgage Servicing Rights" in the first quarter of 1996.
The increase in fees for other services to customers primarily resulted from
increased revenues from the Company's insurance subsidiary. Revenues of
approximately $45,000 stemming from the operation of Karsten Resources, Inc.
("Karsten"), a hotel and restaurant business, account for the increase in other
income.
NON-INTEREST EXPENSE
<PAGE> 11
Non-interest expense increased $140,000, or 6.1%, for the three months ended
March 31, 1996 compared to the same period in 1995. Salaries and employee
benefits showed the largest increase of $258,000, or 19.6%, due in part to
additional employee expense of $22,000 stemming from the Karsten operation and
additional employee expense resulting from operations in the Green Bay region.
Normal salary increases account for the remaining increase in salaries and
benefits. Also affected as a result of the start up operations in the Green
Bay region are increased costs in occupancy and equipment expense. FDIC
insurance expense shows a large decline of $151,000 as a result of action taken
by the FDIC to lower the assessment ratio from 23 cents per $100 of deposits in
June 1995 to a minimum fee as reflected in 1996 first quarter numbers.
Other real estate owned expenses shows income of $170,000, due to gains taken
upon disposition of property totaling $177,000. Much of the gains resulted
from additional sales of lots of Idlewild Valley, a former subsidiary of the
Company whose value was written off in 1988.
$26,000 of the increase resulting in other operating expense occurred as a
result of the Karsten operation. The balance of the increase has occurred as a
result of additional promotional expenses, supplies expense, and data services
expense stemming from startup in the Green Bay region.
The overhead ratio, which is computed by subtracting non-interest income from
non-interest expense and dividing by average total assets, was 2.09% for the
first three months ended March 31, 1996 compared with 2.56% for the same period
in 1995.
PROVISION FOR INCOME TAXES
The Company's provision for income taxes for the three months ended March 31,
1996 increased $25,000, or 5.2%, to $504,000 from $479,000 for the same period
one year ago. The increase in income tax provision was due to increased
taxable income.
BALANCE SHEET ANALYSIS
LOAN PORTFOLIO
At March 31, 1996, total loans increased $7.6 million, or 3.6%, to $217.8
million from $210.2 million at December 31, 1995. The change in loan mix in
the Company's portfolio resulted from an increase in commercial loans to $136.3
million at March 31, 1996 compared to $129.7 million at December 31, 1995.
NON-PERFORMING ASSETS
At March 31, 1996, non-performing assets amounted to $2.68 million compared to
$1.49 million at December 31, 1995. Non-performing loans at March 31, 1996
were .85% of total assets compared with .48% at December 31, 1995. $627,000 of
this increase stems from a commercial credit which is attempting a
reorganization of an existing business. Management
<PAGE> 12
is closely monitoring this situation. $275,000 of the increase centers around
four restaurant businesses which are experiencing cashflow problems. In the
event of liquidation, management expects minimal losses due to strong
collateral positions that exist in each loan. The ratio of non-performing
assets to total loans at March 31, 1996 was 1.23% compared to .71% at December
31, 1995.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
At March 31, 1996, the allowance for loan losses increased $90,000 from year
end 1995 to $2.71 million. Although loans have continued to grow at an above
average rate, the allowance for loan losses as a percent of total loans has not
increased. The allowance is at a level currently believed to be acceptable by
management. At March 31, 1996 and December 31, 1995, the allowance for loan
losses as a percentage of total loans were each at 1.24%.
INVESTMENT PORTFOLIO
At March 31, 1996, the investment portfolio declined $1.96 million, or 2.59%,
to $73.7 million from $75.6 million at December 31, 1995. At March 31, 1996,
the investment portfolio represented 23.3% of total assets compared with 24.4%
at December 31, 1995. The slight decline in total investments occurred as
proceeds from matured investment securities were used to fund loan demand.
DEPOSITS
Total deposits at March 31, 1996 increased $1.77 million, or .66%, to $268.7
million from 267.0 million at December 31, 1995. Non-interest bearing deposits
at March 31, 1996 decreased $3.9 million, or 11.5%, to $29.9 million from $33.9
million at December 31, 1995. Interest-bearing deposits at March 31, 1996
increased $5.7 million, or 2.4%, to $238.8 million from $233.1 million at
December 31, 1995. Time deposits show a larger than normal increase with $9.9
million in growth since year end 1995 as municipal deposits have shifted into
higher interest paying time deposit accounts. Overall deposits for the first
quarter tend to decline as a result of the seasonality of the customer base as
they drawdown deposits during the early first half of the year in anticipation
of the summer tourist season.
SHORT-TERM BORROWINGS
Total short-term borrowings at March 31, 1996 increased $5.3 million to $6.8
million from $1.5 million at December 31, 1995. This increase corresponds to
past historical trends. The seasonality of the customer base influences the
Company's balance sheet as deposits normally decrease and loan demand increases
during the early part of the year requiring the Company to meet these needs
with other short term funding.
LIQUIDITY
As shown in the Company's Consolidated Statements of Cashflows for the three
months ended March 31, 1996, cash and cash equivalents decreased $1.1 million
during the period to $8.8
<PAGE> 13
million at March 31, 1996. The decrease primarily reflected $1.2 million in net
cash provided by operating activities and $5.9 million provided by financing
activities offset by $8.2 million used in investing 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 a net decrease in investments offset by a net
increase in loans plus necessary capital expenditures. Net cash provided by
financing activities resulted primarily from a net increase in deposits and
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 on 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 a 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 its savings and NOW accounts to be core deposits and relatively
non-price sensitive, as 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 March 31, 1996, rate
sensitive liabilities exceeded rate sensitive assets by $39.4 million, or a
ratio of rate sensitive assets to rate sensitive liabilities
<PAGE> 14
of 75.7%. For the next time frame of four to six months, rate sensitive
liabilities exceeded rate sensitive assets by $5.8 million, or a ratio of rate
sensitive assets to rate sensitive liabilities of 75.3%. For all assets and
liabilities priced within a one year time frame, the cumulative ratio of rate
sensitive assets to rate sensitive liabilities was 82.8%, which is somewhat
outside the range of plus or minus 15% deemed acceptable by management.
Management continually reviews its 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 to provide earnings stability in the event of significant interest rate
changes.
<PAGE> 15
ASSET AND LIABILITY MATURITY REPRICING SCHEDULE
AS OF MARCH 31, 1996
<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:
Investment Securities $ 1 948 $ 61 $ 6 461 $11 009 $54 171 $ 73 650
Federal funds sold 2 738 2 738
Loans and Leases:
Variable Rate 98 274 0 0 98 274
Fixed Rate 19 815 17 505 27 981 51 967 333 117 601
-------- -------- ------- ------- ------- --------
Total Loans and Leases $118 089 $ 17 505 $27 981 $51 967 $ 333 $215 875
-------- -------- ------- ------- ------- --------
Total Earning Assets $122 775 $ 17 566 $34 442 $62 976 $54 504 $292 263
======== ======== ======= ======= ======= ========
Interest Bearing Liabilities:
NOW Accounts $ 32 410 $ $ $ $ $ 32 410
Saving Deposits 82 525 82 525
Time Deposits 40 453 23 322 25 596 32 169 83 121 623
Borrowed Funds 6 789 0 53 211 159 7 212
-------- -------- ------- ------- ------- --------
Total Interest Bearing Liabilities $162 177 $ 23 322 $25 649 $32 380 $ 242 $243 770
======== ======== ======= ======= ======= ========
Interest Sensitivity GAP $(39 402) $ (5 756) $ 8 793 $30 596 $54 262 $ 48 493
(within periods)
Cumulative Interest Sensitivity
GAP (39 402) (45 158) (36 365) (5 769) $48 493
Ratio of Cumulative Interest -13.48% -15.45% -12.44% -1.97% 16.59%
Sensitivity GAP to Rate
Sensitive Assets
Ratio of Rate Sensitive Assets to Rate 75.70% 75.32% 134.28% 194.49% ---
Sensitive Liabilities
Cumulative Ratio of Rate Sensitive 75.70% 75.66% 82.78% 97.63% 119.89%
Assets to Rate Sensitive
Liabilities
</TABLE>
<PAGE> 16
CAPITAL RESOURCES
At March 31, 1996, stockholders' equity increased $355,000, or 1.0%, to $36.6
million from $36.3 million at December 31, 1995. The increase resulted from
net income less dividends paid offset by a reduction in capital of $250,000
resulting from the implementation of FAS 115. At March 31, 1996, the Company's
risk-based Tier 1 Capital Ratio was 16.42%, the total risk based capital ratio
was 17.63% and the leverage ratio was 11.86%. The Company and Baylake Bank
continue to exceed all applicable regulatory capital requirements.
<PAGE> 17
PART II - OTHER INFORMATION
Item 5. Other Information
Manawa Acquisition
In March 1996, Baylake entered into a definitive agreement
providing for the acquisition of Four Seasons of Wis, Inc.
("Four Seasons"). Four Seasons is the sole shareholder of The
Bank, in Manawa, Wisconsin. In addition to its main office in
Manawa, which is approximately 35 miles west of Green Bay, The
Bank maintains a branch office in King, a nearby community.
The definitive agreement provides that Baylake will acquire
Four Seasons in a cash transaction, in the amount of $13.8
million, plus the amount of Four Seasons net income from
January 1, 1996 prior to closing. The acquisition remains
subject to regulatory approvals, an audit of Four Seasons
financial statements, and other customary conditions.
Assuming the conditions are timely met, the acquisition of
Four Seasons is expected to be consummated in summer 1996.
The acquisition would be accounted for using the purchase
method of accounting.
Green Bay Branches
Baylake Bank completed construction of its permanent facility
in the Green Bay region and opened for business in March 1996.
This facility will offer a full range of products and
services. Total costs for building and equipment to date are
$2.0 million. In addition, construction will occur on a second
site in Green Bay. This area is currently served by a
temporary facility and offers various retail services as well
as consumer and commercial loan services. Subsequent to
December 31, 1995, Baylake Bank has entered into a contract to
construct a building for $1.1 million with completion
anticipated in the late third quarter to early fourth quarter
of 1996.
Merger of Subsidiary Banks
Effective January 1, 1996, Baylake's subsidiary banks, Baylake
Bank and Baylake Bank (Kewaunee), were merged under the name
"Baylake Bank". The merger is intended by Baylake to generate
operating efficiencies, improve customer service, assist in
the coordination of management and reduce regulatory burdens.
Item 6. 8-K
(a) Exhibits
None
(b) Reports on Form 8-K filed for three months ended
March 31, 1996
None
<PAGE> 18
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: May 13, 1996 Thomas L. Herlache
----------------------- -----------------------------------
Thomas L. Herlache
President (CEO)
Date: May 13, 1996 Steven D. Jennerjohn
----------------------- -----------------------------------
Steven D. Jennerjohn
Treasurer (CFO)
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