<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
FORM 8-K/A
Amendment No. 1
CURRENT REPORT
Pursuant to Section 13 of 15(d)
of the Securities and Exchange Act of 1934
----------------------------------------
Date of Report (Date of earliest event reported): October 1, 1998
BAYLAKE CORP.
(Exact name of registrant as specified its charter)
Wisconsin 000-8679 39-1268055
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification No.)
217 NORTH FOURTH AVENUE, STURGEON BAY, WISCONSIN 54235
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (920) 743-5551
---------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE> 2
This amended report is being filed to provide the financial statements and
consent referred to herein
Item 7. Financial Statements and Exhibits
(a) Financial statements of business acquired:
The following audited financial statements of Evergreen Bank NA (k/n/a
Baylake Bank NA) (the "Bank") are filed herewith:
Report of Independent Certified Public Accountants
Consolidated Balance Sheets as of October 1, 1998 and
December 31, 1997 (unaudited)
Consolidated Statement of Operations for the period
from January 1, 1998 to October 1, 1998
Consolidated Statement of Changes in Stockholder
Equity for the period from January 1, 1998 to
October 1, 1998
Consolidated Statement of Cash Flows for the period
from January 1, 1998 to October 1, 1998
Notes to Consolidated Financial Statements
(b) Pro forma financial information:
The following unaudited pro forma financial statements of Baylake
Corp., giving effect to its acquisition of the Bank, are filed
herewith:
Pro Forma Combined Balance Sheet as of
September 30, 1998
Pro Forma Combined Statement of Income for nine months ended
September 30, 1998
(c) Exhibits.
See Exhibit Index on the last page of this report, which is
incorporated herein by reference.
2
<PAGE> 3
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors
Baylake Bank, N.A.
Poy Sippi, Wisconsin
We have audited the accompanying consolidated balance sheet of Baylake
Bank, N.A. and subsidiary as of October 1, 1998, and the related consolidated
statements of income, changes in stockholder equity, and cash flows for the
period from January 1, 1998 to October 1, 1998. 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 consolidated financial position of Baylake Bank, N.A. and subsidiary
at October 1, 1998, and the results of its operations and cash flows for the
period from January 1, 1998 to October 1, 1998, in conformity with generally
accepted accounting principles.
The accompanying balance sheet of Baylake Bank, N.A. as of December 31,
1997, was not audited by us and, accordingly, we do not express an opinion on
it.
Madison, Wisconsin Smith & Gesteland, LLP
November 12, 1998 SMITH & GESTELAND, LLP
<PAGE> 4
BAYLAKE BANK, N. A.
Poy Sippi, Wisconsin
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
October 1, 1997
1998 (Unaudited)
------------------ ------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 3,459,246 $ 1,806,262
Federal funds sold 13,000,000 4,516,028
Investment securities available for sale (at market) 704,050 10,776,401
Loans 83,773,937 87,741,761
Less: Allowance for loan losses 6,487,484 6,773,764
------------------ ------------------
Loans, net of allowance for loan losses 77,286,453 80,967,997
Bank premises and equipment 1,202,689 1,687,940
Accrued interest receivable 538,740 777,437
Income taxes receivable 981,824 8,614
Deferred income taxes 158,000
Goodwill 4,312,367
Other assets 254,148 880,625
------------------ ------------------
Total assets $ 101,897,517 $ 101,421,304
================== ==================
</TABLE>
The accompanying notes are an integral part of the financial statements.
2
<PAGE> 5
<TABLE>
<CAPTION>
December 31,
October 1, 1997
1998 (Unaudited)
------------------ ------------------
<S> <C> <C>
LIABILITIES
Domestic deposits
Noninterest bearing $ 4,875,732 $ 6,560,583
Interest bearing
NOW 4,055,571 4,691,648
Savings 10,614,499 11,447,952
Time, $100,000 and over 8,651,102 13,277,256
Other time 65,010,460 65,394,731
------------------ ------------------
Total interest bearing 88,331,632 94,811,587
------------------ ------------------
Total deposits 93,207,364 101,372,170
Accrued expenses and other liabilities 1,530,153 1,310,030
Dividends payable 62,025
------------------ ------------------
Total liabilities 94,737,517 102,744,225
------------------ ------------------
STOCKHOLDER EQUITY
Preferred stock, $10,000 par value; 8%
non-cumulative; 350 shares authorized;
316 and 307 shares issued and outstanding at
October 1, 1998 and December 31, 1997 3,160,000 3,070,000
Common stock, $100 par value; 3,700 shares authorized;
3,700 shares issued and outstanding at October 1, 1998
and December 31, 1997 370,000 370,000
Surplus 3,630,000 3,000,000
Accumulated deficit (7,789,263)
Net unrealized gain on securities available for sale, net of
tax of $17,561 26,342
------------------ ------------------
Total stockholder equity 7,160,000 (1,322,921)
------------------ ------------------
Total liabilities and stockholder equity $ 101,897,517 $ 101,421,304
================== ==================
</TABLE>
3
<PAGE> 6
BAYLAKE BANK, N. A.
Poy Sippi, Wisconsin
CONSOLIDATED STATEMENT OF OPERATIONS AND
COMPREHENSIVE OPERATIONS
For the Period from January 1, 1998 through October 1, 1998
<TABLE>
<CAPTION>
<S> <C>
Interest income
Interest and fees on loans $ 6,256,790
Interest on investment securities
Taxable 281,978
Exempt from federal income taxes 36,865
Other interest income 115,303
---------------
Total interest income 6,690,936
---------------
Interest expense
Interest on deposits 4,201,123
Interest on short-term borrowings 4,708
---------------
Total interest expense 4,205,831
---------------
Net interest income 2,485,105
Provision for loan losses 3,408,505
---------------
Net interest income (loss) after provision for loan losses (923,400)
---------------
Other income
Fees from loan servicing 552,275
Fees for other services to customers 474,978
Securities gains, net 11,143
Security bond claim proceeds 2,050,000
Other income 47,448
---------------
Total other income 3,135,844
---------------
Other expenses
Salaries and employee benefits 830,257
Occupancy expense 178,769
Equipment expense 219,308
Data processing and courier 14,492
Operation of other real estate 16,298
Other charge-offs and losses 1,184,918
Other operating expenses 1,067,367
---------------
Total other expenses 3,511,409
---------------
Loss before income taxes (1,298,965)
Income tax benefit 806,824
---------------
NET LOSS (492,141)
Other comprehensive income, net of tax
Net change to unrealized gain on securities available for sale (25,143)
---------------
COMPREHENSIVE LOSS $ (517,284)
===============
Basic earnings per common share $ (133.01)
===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 7
BAYLAKE BANK, N. A.
Poy Sippi, Wisconsin
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDER EQUITY
For the Period from January 1, 1998 through
October 1, 1998
<TABLE>
<CAPTION>
Preferred Stock Common Stock
------------------------ ---------------------
Shares Amount Shares Amount Surplus
------ ------------ ------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Balance - January 1, 1998 307 $ 3,070,000 3,700 $ 370,000 $ 3,000,000
Net loss
Preferred stock issued 9 90,000
Preferred stock dividends
Capital contribution 500,000
Net changes in unrealized gain on
securities available for sale,
net of $16, 762 of deferred taxes
----- ------------- -------- ----------- -------------
Balance - October 1, 1998 before
acquisition and capital contribution 316 3,160,000 3,700 370,000 3,500,000
Recapitalization as a result of
acquisition (370,000) (3,500,000)
Capital contribution 370,000 3,630,000
===== ============= ======== =========== =============
Balance - October 1, 1998 after
acquisition and capital contribution 316 $ 3,160,000 3,700 $ 370,000 $ 3,630,000
===== ============= ======== =========== =============
</TABLE>
<TABLE>
<CAPTION>
Net
Unrealized
Gain
on Securities
Available Accumulated
For Sale Deficit
------------- --------------
<S> <C> <C>
Balance - January 1, 1998 $ 26,342 $ (7,789,263)
Net loss (492,141)
Preferred stock issued
Preferred stock dividends (62,000)
Capital contribution
Net changes in unrealized gain on
securities available for sale,
net of $16, 762 of deferred taxes (25,143)
---------- -------------
Balance - October 1, 1998 before
acquisition and capital contribution 1,199 (8,343,404)
Recapitalization as a result of
acquisition (1,199) 8,343,404
Capital contribution
========== =============
Balance - October 1, 1998 after
acquisition and capital contribution $ $
========== =============
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 8
BAYLAKE BANK, N.A.
Poy Sippi, Wisconsin
CONSOLIDATED STATEMENT OF CASH FLOWS
For the Period from January 1, 1998 through October 1, 1998
<TABLE>
<CAPTION>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest received from:
Loans $ 6,390,690
Investments 575,578
Fees and service charges 1,074,701
Security Bond claim proceeds 2,050,000
Interest paid to depositors (3,948,033)
Interest paid to others (4,708)
Cash paid to suppliers and employees (1,938,293)
Income taxes paid (221,498)
--------------
Net cash provided by operating activities 3,978,437
--------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of investments 10,599,660
Principal payments received on investments 1,550,000
Purchase of investments (2,107,603)
Principal collected in excess of loans made 36,973
Capital expenditures (221,681)
Net increase in federal funds sold (4,483,972)
--------------
Net cash provided by investing activities 5,373,377
--------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in demand deposits, NOW
accounts, and savings accounts (3,154,380)
Net decrease in time deposits (5,010,425)
Proceeds from issuance of preferred stock 90,000
Capital contribution 500,000
Preferred stock dividends paid (124,025)
--------------
Net cash used in financing activities (7,698,830)
--------------
Net increase in cash and due from banks 1,652,984
Cash and due from banks, beginning 1,806,262
--------------
Cash and due from banks, ending $ 3,459,246
==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
6
<PAGE> 9
<TABLE>
<S> <C>
Reconciliation of net loss to net cash provided:
Net loss $ (492,141)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation 125,271
Provision for losses on loans 3,408,506
Amortization of premium on investments 9,315
Accretion of discount on investments (8,747)
Gain on sale of investment securities (11,143)
Write down of fixed assets to market value
on date of acquisition 581,660
Changes in assets and liabilities:
Interest receivable 238,698
Prepaids and other assets 826,478
Unearned income 36,066
Interest payable 253,090
Taxes receivable/payable (1,028,322)
Other liabilities 39,706
--------------
Net cash provided by operating activities $ 3,978,437
==============
SCHEDULE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Federal funds sold received as capital contribution $ 4,000,000
Goodwill and deferred taxes established as a result
of recapitalization due to acquisition $ 4,470,367
</TABLE>
7
<PAGE> 10
BAYLAKE BANK, N.A.
Poy Sippi, Wisconsin
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - INFORMATION ABOUT THE BANK AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
The consolidated financial statements of Baylake Bank, N.A.
(formerly Evergreen Bank, N.A., see note 2) include the accounts of
the bank and its wholly-owned subsidiary, Dahlman Investment Corp.
All significant intercompany items and transactions have been
eliminated.
Baylake Bank, N.A, is a wholly-owned subsidiary of Baylake Corp.
The bank grants commercial, mortgage, and installment loans to
customers substantially all of whom are located in Waushara,
Outagamie, Green Lake, and Waupaca Counties of Wisconsin. Although
the bank has a diversified portfolio, a substantial portion of
their debtors' ability to honor its contracts is dependent upon the
economic condition of the local 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 available for sale are those
securities which the bank has determined might be sold to manage
interest rate risk or in response to changes in interest rates or
other economic factors. While the bank has no current intention of
selling these securities, they may not be held to maturity.
Investment securities available for sale at October 1, 1998, and
December 31, 1997, are carried at market value. At December 31,
1997, adjustments up or down to market value are recorded as a
separate component of equity, net of tax. At October 1, 1998, the
securities were adjusted to market values as required by purchase
accounting. 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 market value at October 1, 1998, and face value
at December 31, 1997, net of deferred loan origination fees (net of
costs) and the allowance for loan losses. Interest on loans is
calculated using the simple interest method on daily balances of
the principal amount outstanding.
Loan origination fees and related costs are deferred and the net
deferred revenue is amortized over the term of the loans using the
effective interest rate method.
8
<PAGE> 11
BAYLAKE BANK, N.A.
Poy Sippi, 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 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 is reversed.
If collectibility is in doubt, cash receipts on nonaccrual loans
are used to reduce principal rather than recorded as interest
income.
Depreciable assets are stated at market value at October 1, 1998,
and at cost less accumulated depreciation at December 31, 1997.
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
depreciation for financial and income tax reporting. The deferred
tax assets and liabilities represent the future tax return
consequences of those differences, which will either be taxable or
deductible when the assets and liabilities are recovered or
settled.
The bank and its subsidiary file a consolidated federal income tax
return. The subsidiary 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 the period.
For purposes of the statement of cash flows, the bank considers
cash and due from banks as cash and cash equivalents.
9
<PAGE> 12
BAYLAKE BANK, N.A.
Poy Sippi, Wisconsin
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - ACQUISITION
On October 1, 1998, Baylake Corp. (a bank holding company) acquired
Evergreen Bank, N.A. and changed its name to Baylake Bank, N.A.
Prior to the acquisition, Evergreen Bank, N.A. was under the active
supervision of the Office of the Comptroller of the Currency due to
its designation of the bank as a "troubled and critically under
capitalized institution" based on severe asset quality problems and
significant fraudulent activities by former bank employees and
directors.
As part of the acquisition, Baylake Corp. was required to
contribute $4 million of capital to the bank. Subsequent to October
1, Baylake Corp. contributed an additional $3 million of capital to
the bank.
No payments to the former shareholder of Evergreen Bank, N.A. have
been made, but are contingently payable in May 1999 based on a
formula set forth in the stock purchase agreement. The formula
requires a payment of the lesser of $2 million, or the amount of
recoveries of the allowance for loan losses for loans classified as
being of substandard quality on the acquisition date and any other
recoveries of items previously charged-off. The contingent payments
are not accrued at October 1, 1998, since the amount, if any, is
not estimable.
The acquisition is accounted for using the purchase method of
accounting. Under the purchase method, net assets purchased are
recorded at their fair market values on the date of acquisition.
Any excess of the purchase price over the value of the net assets
is recorded as goodwill.
The goodwill recorded on the bank is the result of assumption of
liabilities having a market value in excess of market value of
assets received. Any payments made in the future to the former
shareholder of the bank may affect the goodwill recorded. Goodwill
will be amortized over 15 years.
NOTE 3 - RESTRICTIONS ON CASH AND DUE FROM BANKS
The bank is required to maintain average reserve balances by the
Federal Reserve Bank. The average amount of those reserve balances
for the period ended October 1, 1998, was $0.
10
<PAGE> 13
BAYLAKE BANK, N.A.
Poy Sippi, Wisconsin
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - INVESTMENT SECURITIES
<TABLE>
<CAPTION>
<S> <C>
Available for Sale
U.S. government agencies
(matures January 1999) $ 500,800
Other (no maturity) 203,250
------------
$ 704,050
============
</TABLE>
Results of sales of securities as follows:
<TABLE>
<CAPTION>
Available for Sale
------------------
<S> <C>
Proceeds $ 10,599,660
Realized gains 35,100
Realized losses 23,957
</TABLE>
Securities pledged to secure public and trust deposits had a
carrying value of $500,800 at October 1, 1998.
NOTE 5 - LOANS
<TABLE>
<CAPTION>
Major classifications of loans are as follows:
<S> <C>
Commercial, financial, and agricultural $ 16,271,000
Real estate - construction 603,000
Real estate - mortgage 63,348,138
Installment 3,831,000
----------------
84,053,138
Less: Deferred loan origination fees,
net of costs (279,201)
----------------
Net loans $ 83,773,937
================
</TABLE>
Certain current and former directors and 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 1998. Such loans were made in the
ordinary course of business at normal credit terms, including
interest rate, but on occasion were not adequately collateralized,
and may represent more than a normal risk of collection. The
aggregate dollar amount of these loans was $694,411 at October 1,
1998. During 1998, $493,557 of new loans were made, repayments
totaled $647,254, and $107,479 was charged-off.
11
<PAGE> 14
BAYLAKE BANK, N.A.
Poy Sippi, Wisconsin
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - LOANS (continued)
Loans on which the accrual of interest has been discontinued or
reduced amounted to $10,672,256 at October 1, 1998. If these loans
had been current throughout their terms, interest income for the
nonaccrual period would have approximated $702,743 for 1998.
Interest income which has been recorded amounted to $422,195 for
1998 for these nonaccrual loans.
<TABLE>
<CAPTION>
Changes in the allowance for loan losses were as follows:
<S> <C>
Balance at beginning of the period $ 6,773,764
Provision charged to operations 3,408,505
Recoveries 27,140
Loans charged off (3,721,915)
---------------
Balance at end of the period $ 6,487,494
===============
</TABLE>
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.
The following is a summary of activity in investment in loans that
have declined in value and related interest income and allowance
for credit losses accounts:
<TABLE>
<S> <C>
Impaired loans at October 1, 1998 $ 14,619,562
Impaired loans at October 1, 1998 allowed for $ 14,619,562
Average impaired loans during the period $ 18,584,390
Interest income recognized while loans impaired $ 1,075,129
Interest income using a cash-basis method $ 825,565
Allowance as of January 1, 1998 $ 5,493,233
Additions during the period 2,593,613
Recoveries of amounts previously allowed for (2,717,733)
----------------
Balance at October 1, 1998 $ 5,369,113
================
</TABLE>
12
<PAGE> 15
BAYLAKE BANK, N.A.
Poy Sippi, Wisconsin
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - BANK PREMISES AND EQUIPMENT
<TABLE>
<CAPTION>
<S> <C>
Land $ 36,586
Buildings and improvements 612,320
Equipment 553,783
---------------
$ 1,202,689
===============
Depreciation expense $ 125,271
===============
</TABLE>
NOTE 7 - OTHER REAL ESTATE
Other real estate of $200,000 at October 1, 1998, is included in
other assets.
Expenses related to the operation of other real estate was $16,298
during the period ended October 1, 1998.
NOTE 8 - TIME DEPOSITS
At October 1, 1998, the scheduled maturities of certificates of
deposit were as follows:
<TABLE>
<CAPTION>
October 1,
----------
<S> <C>
1999 $ 54,201,830
2000 13,929,433
2001 4,458,458
2002 994,437
2003 77,404
----------------
$ 73,661,562
================
</TABLE>
13
<PAGE> 16
BAYLAKE BANK, N.A.
Poy Sippi, Wisconsin
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - DIVIDENDS AND CAPITAL RESTRICTIONS
As of October 1, 1998, the bank had an accumulated deficit, and
therefore, no amount was available for distribution to shareholders
as dividends without prior approval of regulatory authorities.
Federal banking regulatory agencies have established capital
adequacy rules which take into account risk attributable to balance
sheet assets and off-balance sheet activities. All banks and bank
holding companies must meet a minimum total risk-based capital
ratio of 8%. Of the 8% required, at least half must be comprised of
core capital elements defined as Tier 1 capital. The federal
banking agencies also have adopted leverage capital guidelines
which banking organizations must meet. Under these guidelines, the
most highly rated banking organizations must meet a leverage ratio
of at least 3% Tier 1 capital to total assets, while lower rated
banking organizations must maintain a ratio of at least 4% to 5%.
Failure to meet minimum capital requirements can initiate certain
mandatory - and possibly additional discretionary - actions by
regulators that, if undertaken, could have a direct material effect
on the consolidated financial statements.
At June 11, 1998, the most recent notification from the Office of
Comptroller of the Currency categorized the bank as critically
undercapitalized. Since that notification, Baylake Corp.
contributed $4 million to the bank on October 1, 1998, and an
additional $3 million subsequent to that date to address the
condition (see note 2).
To be well capitalized under the regulatory framework, the Tier 1
capital ratio must meet or exceed 6%, the total capital ratio must
meet or exceed 10% and the leverage ratio must meet or exceed 5%.
The bank's risk-based capital and leverage ratios at October 1,
1998 are as follows:
<TABLE>
<CAPTION>
Risk-Based Capital Ratios
-------------------------
Amount Ratio
------------ -------
<S> <C> <C>
Tier 1 Capital
Baylake Bank, N.A. $ (194,000) (.3)%
Minimum requirement 2,896,000 4.0 %
Total capital
Baylake Bank, N.A. 711,000 1.0 %
Minimum requirement 5,792,000 8.0 %
</TABLE>
14
<PAGE> 17
BAYLAKE BANK, N.A.
Poy Sippi, Wisconsin
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 9 - DIVIDENDS AND CAPITAL RESTRICTIONS (continued)
<TABLE>
<CAPTION>
Leverage Ratios
------------------------
Amount Ratio
------------ ------
<S> <C> <C>
Tier 1 capital to average total assets
Baylake Bank, N.A. $ (194,000) (.2)%
Minimum requirement 3,141,000 3.0 %
</TABLE>
NOTE 10 - FINANCIAL INSTRUMENTS WITH OFF-BALANCE -SHEET RISK
The bank is 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 consist primarily of
commitments to extend credit.
The bank's exposure to credit loss in the event of nonperformance
by the other party to the financial instrument for commitments to
extend credit is represented by the contract or notional amount of
those instruments. The bank uses the same credit policies in making
commitments and conditional obligations as it does for
on-balance-sheet instruments.
<TABLE>
Contract or
Notional Amount
----------------
<S> <C>
Commitments to extend credit $ 2,254,000
</TABLE>
Commitments to extend credit are agreements to lend to a customer
as established in a 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 bank
evaluates each customer's creditworthiness on a case-by-case basis.
The amount of collateral obtained, if deemed necessary by the bank
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> 18
BAYLAKE BANK, N.A.
Poy Sippi, Wisconsin
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 11 - PENSION PLAN
The bank has a 401(k) profit sharing plan covering all employees
who qualify as to age and length of service. The employer
contributions paid and expensed under the plans for 1998 totaled
$33,701.
NOTE 12 - INCOME TAX EXPENSE
The following is a summary of the provision for income taxes, and a
reconciliation of the U.S. statutory income tax rate to the
effective income tax rate. Federal loss carryback refunds will be
based on 1998 income tax losses.
<TABLE>
<CAPTION>
Provision for income taxes:
<S> <C>
Taxes currently payable (refundable)
Federal $ (806,824)
State 0
-------------
Total expense (benefit) $ (806,824)
=============
</TABLE>
Income tax expense associated with net realized securities gains
was $3,789 for 1998.
Provisions for deferred income taxes have been determined to be not
material.
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:
<TABLE>
<S> <C>
Income tax based on statutory rate $ (441,648)
Additional loss carryback refunds (365,176)
-------------
Provision based on effective tax rates $ (806,824)
=============
</TABLE>
16
<PAGE> 19
BAYLAKE BANK, N.A.
Poy Sippi, Wisconsin
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 12 - INCOME TAX EXPENSE (continued)
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities
for financial reporting purposes and the amounts used for income
tax purposes. The following is a summary of the significant
components of the company's deferred tax assets and liabilities as
of October 1, 1998:
<TABLE>
<CAPTION>
<S> <C>
Deferred tax assets
Bank premises and equipment $ 158,000
Other 10,000
-------------
Gross deferred tax assets 168,000
Valuation allowance for deferred tax assets 0
-------------
Net deferred tax assets 168,000
-------------
Deferred tax liabilities
Other 10,000
-------------
Total deferred tax liabilities 10,000
-------------
Net deferred asset $ 158,000
=============
</TABLE>
NOTE 13 - EARNINGS AND DIVIDENDS PER SHARE
Earnings and dividends per share are based on the weighted average
number of shares outstanding for the period.
There is no difference between basic and diluted income available
to common stockholders.
NOTE 14 - OTHER INCOME
Other income is comprised of no amounts which are individually
greater than 1% of total interest income and total other income.
NOTE 15 - OTHER OPERATING EXPENSES
Other operating expenses includes legal and professional fees at
$521,887. No other amounts are individually greater than 1% of
interest income and total other income.
17
<PAGE> 20
PRO FORMA COMBINED FINANCIAL INFORMATION
BAYLAKE CORP. AND BAYLAKE BANK, NA
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
At September 30, 1998
(In thousands)
The following Unaudited Pro Forma Combined Balance Sheet combines the historical
Consolidated Balance Sheets of Baylake Corp. and Baylake Bank, NA (formerly
Evergreen Bank, NA) giving effect to the Merger, which will be accounted for as
a purchase, as if it had been effective on September 30, 1998. 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 Evergreen, 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
September 30, 1998, or that may be obtained in the future.
<TABLE>
<CAPTION>
Pro Forma Pro Forma
Baylake Evergreen Adjustments Combined
------- --------- ----------- --------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 11,773 $ 3,459 $ $ 15,232
Federal funds sold 5,218 9,000 14,218
Investment securities available for sale 110,947 704 111,651
Investment securities held to maturity 12,498 12,498
Loans 319,356 83,774 403,130
Allowance for loan losses (4,286) (6,488) (10,774)
Loans, net 315,070 77,286 392,356
Bank premises and equipment 14,430 1,203 15,633
FHLB stock 2,300 2,300
Accrued interest receivable 3,591 539 4,130
Income taxes receivable 371 982 1,353
Deferred income taxes 1,021 158 1,179
Other assets 7,930 254 4,312 12,496
----------- ----------- ----------- -----------
Total assets $ 485,149 $ 93,427 $ 4,470 $ 583,046
=========== =========== =========== ===========
LIABILITIES
Non-interest bearing deposits $ 50,138 $ 4,875 $ $ 55,013
Interest bearing deposits 328,541 88,332 416,873
----------- ----------- ----------- -----------
Total deposits 378,679 93,207 471,886
Short-term borrowings 54,994 54,994
Long-term debt 329 329
Accrued expenses and other liabilities 5,212 1,530 6,742
----------- ----------- ----------- -----------
Total liabilities $ 439,214 $ 94,737 $ $ 533,951
=========== =========== =========== ===========
STOCKHOLDERS' EQUITY
Preferred stock $ $ 3,160 $ $ 3,160
Common stock 18,424 370 (370) 18,424
Additional paid-in stock 6,071 3,500 (3,500) 6,071
Reserve for market adjustment of
securities 3,151 1 (1) 3,151
Retained earnings 18,914 (8,341) 8,341 18,914
Treasury stock (625) (625)
----------- ----------- ----------- -----------
Total stockholders' equity $ 45,935 $ (1,310) $ 4,470 $ 49,095
=========== =========== =========== ===========
Total liabilities and stockholders'
equity $ 485,149 $ 93,427 $ 4,470 $ 583,046
=========== =========== =========== ===========
</TABLE>
<PAGE> 21
BAYLAKE CORP. AND BAYLAKE BANK, NA
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 Evergreen 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 Evergreen, 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, 1998, or that may be obtained in the future.
<TABLE>
<CAPTION>
Nine Months
Ended September 30, 1998
------------------------
<S> <C>
Interest income
Interest and fees on loans $ 27,247
Interest on investment securities
Taxable 4,063
Exempt from federal income taxes 1,793
Other interest income 141
----------
Total interest income 33,244
----------
Interest expense
Interest on deposits 14,915
Interest on short-term borrowings 2,574
Interest on long-term debt 21
----------
Total interest expense 17,510
----------
Net interest income 15,734
Provision for loan losses 3,860
----------
Net interest income after provision for loan losses 11,874
----------
Other income
Fees from fiduciary activities 336
Fees from loan servicing 1,121
Fees for other services to customers 1,782
Gains from sales of loans 686
Security bond claim proceeds 11
Security gains, net 2,050
Other income 170
----------
Total other income 6,156
----------
Other expenses
Salaries and employee benefits 6,660
Occupancy expense 947
Equipment expense 951
Data processing and courier 533
Operation of other real estate 16
Other charge-offs and losses 1,185
Other operating expenses 3,119
----------
Total other expenses 13,411
----------
Income before income taxes 4,619
Income tax expense 858
----------
Net income $ 3,761
==========
Net income per share 1.03
Weighted average shares outstanding 3,659
</TABLE>
<PAGE> 22
BAYLAKE CORP. AND BAYLAKE BANK, NA
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
For the Nine Months Ended September 30, 1998
(In thousands, except per common share data)
The following Unaudited Pro Forma Combined Statements of Income combine the
historical Consolidated Statements of Income of Baylake and Evergreen 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 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 Evergreen, 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.
<TABLE>
<CAPTION>
Pro forma
Baylake Evergreen Combined
------- --------- --------
<S> <C> <C> <C>
Interest income
Interest and fees on loans $ 20,990 $ 6,257 $ 27,247
Interest on investment securities
Taxable 3,781 282 4,063
Exempt from federal income taxes 1,756 37 1,793
Other interest income 26 115 141
-------- -------- ----------
Total interest income 26,553 6,691 33,244
-------- -------- ----------
Interest expense
Interest on deposits 10,714 4,201 14,915
Interest on short-term borrowings 2,569 5 2,574
Interest on long-term debt 21 21
-------- -------- ----------
Total interest expense 13,304 4,206 17,510
-------- -------- ----------
Net interest income 13,249 2,485 15,734
Provision for loan losses 451 3,409 3,860
-------- -------- ----------
Net interest income after provision for loan losses 12,798 (924) 11,874
-------- -------- ----------
Other income
Fees from fiduciary activities 336 336
Fees from loan servicing 569 552 1,121
Fees for other services to customers 1,307 475 1,782
Gains from sales of loans 686 686
Securities gains, net 11 11
Security bond claim proceeds 2,050 2,050
Other income 123 47 170
-------- -------- ----------
Total other income 3,021 3,135 6,156
-------- -------- ----------
Other expenses
Salaries and employee benefits 5,830 830 6,660
Occupancy expenses 768 179 947
Equipment expense 732 219 951
Data processing and courier 519 14 533
Operation of other real estate 16 16
Other charge-offs and losses 1,185 1,185
Other operating expenses 2,052 1,067 3,119
-------- -------- ----------
Total other expenses 9,901 3,510 13,411
-------- -------- ----------
Income before income taxes 5,918 (1,299) 4,619
Income tax expense 1,665 (807) 858
-------- -------- ----------
Net income $ 4,253 $ (492) $ 3,761
======== ======== ==========
Net income (loss) per share 1.16 (133.01) 1.03
Weighted average shares outstanding 3,659 4 3,659
</TABLE>
<PAGE> 23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this amended report to be signed on its behalf by
the undersigned hereunto duly authorized.
BAYLAKE CORP.
Date: December 14, 1998 By: /s/ Steven D. Jennerjohn
--------------------------
Steven D. Jennerjohn
Chief Financial officer
S-1
<PAGE> 1
EXHIBIT 23.1
October 1, 1998 8-K
Consent of Independent Certified Public Accountants
We consent to incorporation by reference in the registration statement (No.
33-43880) on Form S-3 of Baylake Corp. ("Baylake") and the registration
statement (No. 33-77498) on Form S-8 of Baylake of our report dated November 12,
1998 relating to the consolidated balance sheet of Evergreen Bank NA (k/n/a
Baylake Bank NA) and its subsidiary as of October 1, 1998, and the related
consolidated statements of operations, changes in stockholder equity and cash
flows for the nine month period then ended, which report appears in Baylake's
amended Periodic Report on Form 8-K dated October 1, 1998.
/s/ SMITH & GESTELAND LLP
Madison, Wisconsin
December 14, 1998
