<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, 1997
-------------------------------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------------------- ----------------
Commission file number 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 May 12, 1997.
$5.00 Par Value Common
2,458,537 shares
<PAGE> 2
BAYLAKE CORP. AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PART I - FINANCIAL INFORMATION PAGE NUMBER
<S> <C>
Item 1.
Consolidated Condensed Balance Sheet 3
as of March 31, 1997 and December 31, 1996
Consolidated Condensed Statement of Income 4
Three months ended March 31, 1997
and 1996
Consolidated Statement of Cash Flows 5 - 6
Three months ended March 31, 1997 and 1996
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
</TABLE>
<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 1997 1996
------ -------- -----------
<S> <C> <C>
Cash and due from Banks $ 10 861 $ 13 853
Investment securities available for
sale (at market) 79 413 87 690
Investment securities held to maturity (market value
$11,728 on 3/31/97; $11,869 on 12/31/96) 11 386 11 448
Federal funds sold
Loans 267 266 260 854
Less: Allowance for loan losses (3 038) (2 893)
--------- ---------
Loans, net of allowance for loan losses 264 228 257 961
Bank premises and equipment 12 515 12 354
Accrued interest receivable 3 262 2 883
Income tax receivable 220
Deferred income taxes 940 705
Other assets 8 116 8 242
-------- --------
TOTAL ASSETS $390 721 $395 356
======== ========
LIABILITIES
-----------
Domestic Deposits
Non-interest bearing deposits $ 36 269 $ 42 285
Interest bearing deposits
Now 39 223 43 356
Savings 85 398 93 465
Time, $100,000 and over 25 474 19 873
Other time 129 723 128 186
-------- --------
Interest bearing deposits $279 818 $284 880
-------- --------
Total deposits $316 087 $327 165
Short term borrowings 30 506 23 840
Long term debt 370 422
Accrued income taxes 252
Accrued expenses and other liabilities 4 124 4 105
Dividends payable 590
-------- --------
TOTAL LIABILITIES $351 339 $356 122
======== ========
STOCKHOLDERS EQUITY
-------------------
Common Stock $5.00 par value - authorized
10,000,000 shares; issued 2,460,681 shares
on 3/31/97 and 12/31/96; outstanding
2,458,537 shares on 3/31/97 and 12/31/96
$ 12 302 $ 12 302
Additional paid-in capital 6 038 6 038
Reserve for market adjustment of
securities 146 604
Retained earnings 20 945 20 339
Treasury Stock (49) (49)
-------- --------
TOTAL STOCKHOLDERS EQUITY 39 382 39 234
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $390 721 $395 356
======== ========
</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
1997 1996
------ --------
<S> <C> <C>
Interest Income
Interest and fees on loans $ 6 130 $ 4 869
Interest on investment securities
Taxable 1 093 741
Exempt from federal income tax 380 358
Other interest income 0 27
-------- --------
Total Interest Income 7 603 5 995
Interest Expense
Interest on deposits 2 992 2 560
Interest on short term borrowings 400 50
Interest on long term debt 8 10
-------- --------
Total Interest Expense 3 400 2 620
-------- --------
Net Interest Income 4 203 3 375
Provision for loan losses 150 94
-------- --------
Net interest income after
provision for loan losses 4 053 3 281
-------- --------
Other Income
Fees for fiduciary activities 100 137
Fees from loan servicing 228 283
Fees for other services to customers 362 329
Securities gains (losses) 20 0
Other income 65 93
-------- --------
Total Other Income 775 842
-------- --------
Other Expenses
Salaries and employee benefits 1 843 1 577
Occupancy expense 249 190
Equipment expense 237 185
Data processing and courier 156 125
FDIC insurance expense 10 1
Operation of other real estate 1 (170)
Other operating expense 647 540
-------- --------
Total Other Expenses 3 143 2 448
-------- --------
Income before income taxes 1 685 1 675
Income tax expense (benefit) 488 504
-------- --------
Net Income $ 1 197 $ 1 171
======== ========
Net Income per share (1) $0.49 $0.48
Cash dividends per share $0.24 $0.23
</TABLE>
(1) Based on 2,458,537 shares average outstanding in 1997 and 2,452,937 in
1996.
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
------------------------------
1997 1996
-------- --------
(thousands of dollars)
<S> <C> <C>
Cash flows from operating activities:
Interest received from:
Loans $ 5 829 $ 4 637
Investments 1 370 1 044
Fees and service charges 741 840
Interest paid to depositors (2 804) (2 385)
Interest paid to others (419) (89)
Cash paid to suppliers and employees (2 909) (2 746)
Income taxes paid (15) (104)
-------- ---------
Net cash provided by operating activities 1 793 1 197
Cash flows from investing activities
Proceeds from sales of investment securities 1 272 0
Principal payments received on investments 8 961 2 903
Purchase of investments (2 558) (2 713)
Proceeds from sale of other real estate owned 0 220
Loans made to customers in excess of principal collected (6 414) (7 658)
Capital expenditures (400) (902)
-------- --------
Net cash provided by (used in) investing activities 861 (8 150)
Cash flows from financing activities:
Net increase (decrease) in demand deposits, NOW accounts (18 517) (8 153)
and savings accounts
Net increase (decrease) in advances from borrowers 6 614 5 209
Net increase (decrease) in time deposits 7 437 9 923
Dividends paid (1 180) (1 128)
---------- ----------
Net cash provided by (used in) financing activities (5 646) 5 851
---------- ----------
Net decrease in cash and cash equivalents (2 992) (1 102)
Cash and cash equivalents, beginning 13 853 9 887
--------- ---------
Cash and cash equivalents, ending $ 10 861 $ 8 785
</TABLE>
<PAGE> 6
<TABLE>
<CAPTION>
1997 1996
-------- --------
(thousands of dollars)
<S> <C> <C>
Reconciliation of net income to net cash provided by
operating activities:
Net Income $ 1 197 $ 1 171
Adjustment to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 322 190
Provision for loan losses and real estate owned 150 94
Amortization of premium on investments 62 68
Accretion of discount on investments (72) (35)
Cash surrender value increase (13) (20)
(Gain) loss from disposal of other real estate 0 (178)
(Gain) loss on sale of investment securities (20) 0
Equity in income of service center (12) 17
Deferred compensation 46 53
Changes in assets and liabilities:
Interest receivable (379) (340)
Prepaids and other assets 70 165
Unearned income (3) (7)
Interest payable 177 146
Taxes payable 472 401
Deferred Taxes 0 0
Other liabilities (204) (528)
--------- ---------
Total adjustments 596 26
--------- ---------
Net cash provided by operating activities $ 1 793 $ 1 197
========= =========
</TABLE>
<PAGE> 7
BAYLAKE CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1997
1. The accompanying unaudited consolidated financial statements
should be read in conjunction with Baylake Corp.'s
("Company") 1996 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, 1997 and December 31, 1996. The results of operations
for the three months ended March 31, 1997 and 1996 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
1997 1996
-------- -----------
(thousands of dollars)
<S> <C> <C>
Investment securities held to maturity:
Obligations of states and political
subdivisions $ 10 449 $ 10 511
Other 937 937
------- --------
Investment securities held to maturity $ 11 386 $ 11 448
Investment securities available for sale:
U.S. Treasury and other U.S. government
agencies $ 34 393 $ 38 924
Obligations of states and political
subdivisions 17 249 16 971
Mortgage-backed securities 27 295 31 426
Other 476 369
-------- --------
Investment securities available for sale $ 79 413 $ 87 690
======== ========
</TABLE>
3. At March 31, 1997 and December 31, 1996, loans were as follows:
<TABLE>
<CAPTION>
March 31 December 31
1997 1996
--------- -----------
(thousands of dollars)
<S> <C> <C> <C>
Commercial, industrial and agricultural $ 153 958 $ 151 291
Real estate - construction 9 986 11 365
Real estate - mortgage 89 039 83 538
Installment 14 852 15 233
Less: Deferred loan origination fees,
net of costs (569) (573)
-------- --------
267 266 260 854
Less allowance for loan losses (3 038) (2 893)
-------- --------
Net loans $ 264 228 $ 257 961
</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,
1997 and December 31, 1996 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 January 1, 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 three months ended March 31, 1997 and 1996.
6. On July 1, 1996, the Company acquired Four Seasons of Wis, Inc.
("Four Seasons"), a registered bank holding company, and its
wholly owned subsidiary, The Bank. Effective July 1, 1996,
Baylake Bank and The Bank were merged, and referred to herein as
"Baylake Bank". The transaction is accounted for using the
purchase method.
<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,
1997, and the results of operations for the three months ended March 31, 1997
and March 31, 1996. This discussion and analysis should be read in conjunction
with the Company's unaudited consolidated financial statements and the notes
thereto included herein.
On July 1, 1996, the Company acquired Four Seasons of Wis., Inc. ("Four
Seasons") and its subsidiary The Bank (with branches in Manawa and King,
Wisconsin) in a cash transaction totaling $13.875 million. On July 1, 1996,
Four Seasons was dissolved and The Bank was merged into Baylake Bank. At the
time of acquisition, The Bank had total assets of $55.8 million, loans of $12.2
million, deposits of $46.9 million and shareholders' equity of $8.4 million.
This transaction has been accounted for using the purchase method of
accounting.
RESULTS OF OPERATIONS
For the three months ended March 31, 1997, net income increased $26,000, or
2.2%, to $1.20 million from $1.17 million for the first quarter of 1996. The
annualized return on average assets and return on average equity for the three
months ended March 31, 1997, were 1.24% and 12.35%, respectively compared to
1.52% and 12.91%, respectively, for the same period a year ago.
The increase in net income for the period is primarily due to improved net
interest income offset by a decrease in other income and increased other
expenses.
NET INTEREST INCOME
Net interest income for the three months ended March 31, 1997 increased
$828,000, or 24.5%, to $4.20 million from $3.38 million for the same period a
year ago. Total interest income for the first quarter of 1997 increased $1.61
million, or 26.8%, to $7.60 million from $6.00 million for the first quarter of
1996, while interest expense increased $780,000, or 29.8%, to $3.40 million
from $2.62 million in the first quarter of 1996. These changes were primarily
the result of a favorable increase in the average volume of earning assets
offset by increased competition related to loan pricing, particularly in the
commercial sector, and deposit pricing, primarily in time deposits.
<PAGE> 10
For the three months ended March 31, 1997, average earning assets increased
$69.4 million, or 24.1%, when compared to the same period last year. The
Company registered an increase in average loans of $51.4 million, or 24.1% for
the first quarter of 1997 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, 1997 increased from 4.94% to 4.96% compared to a year ago. The
average yield on interest earning assets amounted to 8.79% for the first
quarter of 1997, representing an increase of 21 basis points from the same
period last year. Total loan yields increased 22 basis points to 9.40%, while
total investment yields increased 17 basis points to 7.08% as compared to the
same period a year ago. The Company's average cost on interest-bearing deposit
liabilities declined 6 basis points to 4.30% for the first three months of
1997, while short-term borrowing costs increased 37 basis points comparing the
two periods. The above factors contributed to an increase in the Company's
overall interest margin for the first three months ended March 31, 1997.
PROVISION FOR LOAN LOSSES
The provision for loan losses for the three months ended March 31, 1997
increased $56,000, or 59.6%, to $150,000 from $94,000 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.
NON-INTEREST INCOME
Total non-interest income decreased $67,000, or 8.0%, to $775,000 for the first
quarter of 1997, from $842,000 for the first quarter a year ago. This
decrease has occurred as a result of decreased trust revenues and loan
servicing fees offset by increased fees for other customer services and gains
resulting from sales in the investment portfolio.
Trust revenues decreased primarily as a result of increased trust business
offset by the change in billing fee cycles from annual to quarterly which
started in the first half of 1996. Loan servicing fees decreased for two
reasons. A reduction of premiums of approximately $23,000 were realized as a
result of slowing of loan sales in the secondary market. In addition there
resulted a decline of approximately $44,000 recognized as a result of the
implementation of SFAS No. 122 "ACCOUNTING FOR MORTGAGE SERVICING RIGHTS"
comparing the first quarter of 1997 with 1996. The increase in fees for other
services to customers primarily resulted from increased service charges on
deposit products. A decline in revenues of approximately $14,000 stemming from
the operation of Karsten Resources, Inc. ("Karsten"), a hotel and restaurant
<PAGE> 11
business, account partially for the decrease in other income.
NON-INTEREST EXPENSE
Non-interest expense increased $695,000, or 28.4%, for the three months ended
March 31, 1997 compared to the same period in 1996. Salaries and employee
benefits showed the largest increase of $266,000 or 16.9%, due in part to
additional employee expense resulting from operations in the Green Bay region.
Approximately $79,000 of the increase occurred as a result of additional staff
in the Manawa region due to the Four Seasons purchase and merger. Normal
salary increases account for the remaining increase in salaries and benefits.
Increased occupancy and equipment expenses have also resulted due to the start
up of operations in the Green Bay region and additional expense from the Manawa
region. These expansion efforts have resulted in additional depreciation
expense resulting from new building construction and past increased capital
expenditures for equipment which were made to enhance the Company's
technological capabilities. Other operating expense shows an increase of
$107,000, or 19.8%, for the first quarter of 1997 primarily as a result of
approximately $82,000 of goodwill amortized during the quarter as a result of
the acquisition of Four Seasons. $20,000 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 normal increases in promotional
expenses, supplies expense, and data services expense. The overhead ratio,
which is computed by subtracting non-interest income from non-interest expense
and dividing by average total assets, was 2.46% for the three months ended
March 31, 1997 compared to 2.09% for the same period in 1996.
PROVISION FOR INCOME TAXES
The Company's provision for income taxes for the three months ended March 31,
1997 decreased $16,000, or 3.2%, to $488,000 from $504,000 for the same period
one year ago. The decrease in income tax provision was due to decreased
taxable income.
BALANCE SHEET ANALYSIS
LOAN PORTFOLIO
At March 31, 1997, total loans increased $6.4 million, or 2.5%, to $267.3
million from $260.9 million at December 31, 1996. The change in loan mix in
the Company's portfolio resulted from an increase in commercial loans to $154.0
million at March 31, 1997 compared to $151.3 million at December 31, 1996. In
addition, real estate construction loans decreased to $10.0 million at March
31, 1997 compared to $11.4 million at December 31, 1996 and real
estate-mortgage loans increased to $89.0 million at March 31, 1996 compared to
$83.5 million at December 31, 1996.
NON-PERFORMING ASSETS
<PAGE> 12
At March 31, 1997, non-performing assets amounted to $4.01 million compared to
$4.70 million at December 31, 1996. Non-performing assets at March 31, 1997
were 1.03% of total assets compared with 1.19% at December 31, 1996. $531,000
of this decrease stems from a paydown resulting from sale of collateral on a
commercial credit. The ratio of non-performing assets to total loans at March
31, 1997 was 1.50% compared to 1.80% at December 31, 1996.
ALLOWANCE FOR POSSIBLE LOAN LOSSES
At March 31, 1997, the allowance for loan losses increased $145,000 from year
end 1996 to $3.04 million. Although loans have continued to grow at an above
average rate, the allowance for loan losses as a percent of total loans has
increased slightly. The allowance is at a level currently believed to be
acceptable by management. At March 31, 1997 and December 31, 1996, the
allowance for loan losses as a percentage of total loans were at 1.14% and
1.11%, respectively.
INVESTMENT PORTFOLIO
At March 31, 1997, the investment portfolio decreased $8.3 million, or 8.4%, to
$90.8 million from $99.1 million at December 31, 1996. At March 31, 1997, the
investment portfolio represented 23.2% of total assets compared with 25.1% at
December 31, 1996. The decline in total investments occurred as proceeds from
matured investment securities were used to fund loan demand.
DEPOSITS
Total deposits at March 31, 1997 decreased $11.1 million, or 3.4%, to $316.1
million from $327.2 million at December 31, 1996. Non-interest bearing
deposits at March 31, 1997 decreased $6.0 million, or 14.2%, to $36.3 million
from $42.3 million at December 31, 1996. Interest- bearing deposits at March
31, 1997 decreased $5.1 million, or 1.8%, to $279.8 million from $284.9 million
at December 31, 1996. Savings and Now deposits show a larger than normal
decrease of $12.2 million, partially as a result of municipal deposits
shifting 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, 1997 increased $6.7 million to $30.5
million from $23.8 million at December 31, 1996. The increase has primarily
occurred as a result of the acquisition of Four Seasons totaling $13.8 million
and additional demands caused by increases in the loan portfolio where customer
demand remains quite strong in the markets that the Company serves. In
addition, the seasonality of the customer base influences the Company's balance
sheet as deposits normally decrease and loan
<PAGE> 13
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, 1997, cash and cash equivalents decreased $3.0 million
during the period to $10.9 million at March 31, 1997. The decrease primarily
reflected $1.8 million in net cash provided by operating activities and
$861,000 provided by investing activities offset by $5.6 million used in
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 provided by investing activities consisted of a net
increase in loans plus necessary capital expenditures offset by a net decrease
in investment securities. Net cash used in financing activities resulted
primarily from a net decrease in short term deposits and dividends paid offset
by a net increase in time deposits and borrowed funds. Strong loan demand for
the first three months of 1997 continues to remain solid, thereby effecting an
increase in short term funding requirements through overnight correspondent fed
funds purchases. A component of the Company's strategy to enter additional
markets will continue to concentrate on core deposit growth and utilize other
funding sources such as the Federal Home Loan Bank so as to reduce reliance on
short-term funding needs.
The Company manages its liquidity to provide adequate funds to support the
borrowing requirements and deposit flow of its customers. Management views 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
<PAGE> 14
accounts in small 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 sensitive 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, 1997, rate
sensitive liabilities exceeded rate sensitive assets by $62.8 million, or a
ratio of rate sensitive assets to rate sensitive liabilities of 68.3%. For the
next time frame of four to six months, rate sensitive liabilities exceeded rate
sensitive assets by $11.4 million, or a ratio of rate sensitive assets to rate
sensitive liabilities of 71.3%. For all assets and liabilities priced within a
one year time frame, the cumulative ratio of rate sensitive assets to rate
sensitive liabilities was 74.6%, which is outside the range of plus or minus
15% deemed acceptable by management. Management is presently reviewing other
funding sources so as to decrease the reliance on short term funding needs.
Management continually review 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, 1997
<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 $ 4 554 $ 7 018 $ 2 353 $48 611 $28 263 $ 90 799
Federal funds sold 0 0
Loans and Leases:
Variable Rate 103 087 0 0 103 087
Fixed Rate 27 640 21 222 33 602 80 381 1 358 164 203
-------- -------- ------- ------- ------- --------
Total Loans and Leases $130 727 $ 21 222 $33 602 $80 381 $ 1 358 $267 290
-------- -------- ------- ------- ------- --------
Total Earning Assets $135 281 $ 28 240 $35 955 $128 992 $29 621 $358 089
======== ======== ======= ======== ======= ========
Interest Bearing Liabilities:
NOW Accounts $ 39 223 $ $ $ $ $ 39 223
Saving Deposits 85 398 85 398
Time Deposits 42 935 39 635 29 688 42 878 61 155 197
Borrowed Funds 30 506 0 53 211 106 30 876
-------- ------- ------- ------- ------- --------
Total Interest Bearing Liabilities $198 062 $39 635 $29 741 $43 089 $ 167 $310 694
======== ======= ======= ======= ======= ========
Interest Sensitivity GAP $(62 781) $(11 395) $ 6 214 $85 903 $29 454 $ 47 395
(within periods)
Cumulative Interest Sensitivity (62 781) (74 176) (67 962) 17 941 $47 395
GAP
Ratio of Cumulative Interest -17.53% -20.71% -18.98% 5.01% 13.24%
Sensitivity GAP to Rate
Sensitive Assets
Ratio of Rate Sensitive Assets to 68.30% 71.25% 120.89% 299.36% ---
Rate Sensitive Liabilities
Cumulative Ratio of Rate Sensitive 68.30% 68.79% 74.59% 105.78% 115.25%
Assets to Rate Sensitive
Liabilities
</TABLE>
<PAGE> 16
CAPITAL RESOURCES
At March 31, 1997, stockholders' equity increased $148,000, or .4%, to $39.4
million from $39.2 million at December 31, 1996. The increase resulted from
net income less dividends paid offset by a reduction in capital of $458,000
resulting from decreases in the market value of available for sale securities
related to FAS 115. At March 31, 1997, the Company's risk-based Tier 1 Capital
Ratio was 11.80%, the total risk based capital ratio was 12.84% and the
leverage ratio was 8.9%. The Company and Baylake Bank continue to exceed all
applicable regulatory capital requirements.
<PAGE> 17
PART II - OTHER INFORMATION
Item 5. Other Information
On March 14, 1997 property was purchased on the north side of the city
of Appleton in Outagamie County. Although that property will be
developed for a future site, no plans have been presently made.
On April 30, 1997 property was purchased in the town of Ledgeview,
located on the east side of De Pere in Brown County. Although that
property will be developed for a future site, no plans have been
presently made.
Baylake Bank continues to modernize its facilities in the Door
County market replacing two existing buildings in the Egg Harbor and
Sturgeon Bay West Side markets. These offices will feature drive-up
convenience, automated teller machines and drive-up night depository
services. In addition, they will provide an expanded customer service
area, customer education area and conference rooms. Anticipated
completion time for the Egg Harbor facility is prior to Memorial Day of
1997 while the fall of 1997 is the anticipated completion date for the
West Side site. Costs for these projects are estimated to be $900,000
for each site.
Item 6. 8-K
(a) Exhibits
None
(b) Reports on Form 8-K filed for three months ended March 31, 1997
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 12, 1997 Thomas L. Herlache
------------------------- ---------------------------------
Thomas L. Herlache
President (CEO)
Date: May 12, 1997 Steven D. Jennerjohn
------------------------- ---------------------------------
Steven D. Jennerjohn
Treasurer (CFO)
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