<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, 1999
-------------------------------------
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-8679
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BAYLAKE CORP.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Wisconsin 39-1268055
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
217 North Fourth Ave., Sturgeon Bay, WI 54235
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(Address of principal executive offices) (Zip Code)
(920)-743-5551
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(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 14, 1999.
$5.00 Par Value Common
3,703,987 shares
<PAGE> 2
BAYLAKE CORP. AND SUBSIDIARIES
INDEX
PART I - FINANCIAL INFORMATION PAGE NUMBER
Item 1.
Consolidated Condensed Balance Sheet 3
as of March 31, 1999 and December 31, 1998
Consolidated Condensed Statement of Income 4
Three months ended March 31, 1999 and
1998
Consolidated Statement of Comprehensive Income 5
Three months ended March 31, 1999 and 1998
Consolidated Statement of Cash Flows 6 - 7
Three months ended March 31, 1999 and 1998
Notes to Consolidated Condensed Financial Statements 8 - 9
Item 2.
Managements Discussion and Analysis of Financial 10 - 24
Condition and Results of Operations
PART II. OTHER INFORMATION 24
Signatures 25
<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 1999 1998
------ -------- -----------
<S> <C> <C>
Cash and due from Banks $ 13 476 $ 17 560
Investment securities available for
sale (at market) 129 099 112 536
Investment securities held to maturity
(market value $15,252 and $15,765) 15 058 15 510
Federal funds sold
26 106
Loans 406 755 408 921
Less: Allowance for loan losses 8 029 11 035
-------- --------
Loans, net of allowance for loan losses 398 726 397 886
Bank premises and equipment 16 245 15 627
Federal Home Loan Bank Stock (at cost) 2 650 2 650
Accrued interest receivable 4 300 3 913
Income taxes receivable 1 028 1 459
Deferred income taxes 606 520
Goodwill 8 172 8 326
Other assets 4 848 5 345
-------- --------
TOTAL ASSETS $594 208 $607 438
======== ========
LIABILITIES
Domestic Deposits
Non-interest bearing deposits $ 50 307 $ 58 311
Interest bearing deposits
Now 42 960 54 974
Savings 131 957 132 075
Time, $100,000 and over 56 492 47 717
Other time 196 310 202 207
-------- --------
Total interest bearing $427 719 $436 973
-------- --------
Total deposits $478 026 $495 284
Short term borrowings
Federal funds purchased, repurchase agreements
and Federal Home Bank Loans 60 489 56 758
Long term debt 264 392
Accrued expenses and other liabilities 6 232 5 911
Dividends payable --- 661
Minority interest payable 3 160 3 160
-------- --------
TOTAL LIABILITIES 548 171 $562 166
-------- --------
STOCKHOLDERS EQUITY
Common stock $5.00 par value - authorized
10,000,000 shares; issued 3,722,546 shares
in 1999 and 3,690,021 in 1998; outstanding
3,699,387 in 1999; 3,656,145 in 1998
$ 18 613 $ 18 473
Additional paid-in capital 6 604 6 229
Retained earnings 20 189 19 394
Treasury Stock (625) (625)
Net unrealized gain on securities available
for sale, net of tax of $681 in 1999 and
$975 in 1998 1 256 1 801
-------- --------
TOTAL STOCKHOLDERS EQUITY 46 037 45 272
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY $594 208 $607 438
======== ========
</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 SHARES)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH
31
1999 1998
------ ------
<S> <C> <C>
Interest Income
Interest and fees on loans $ 8 981 $ 6 716
Interest on investment securities
Taxable 1 366 1 231
Exempt from federal income tax 600 586
Other interest income 239 0
-------- --------
Total Interest Income 11 186 8 533
Interest Expense
Interest on deposits 4 929 3 498
Interest on short-term borrowings 818 789
Interest on long-term debt 5 7
-------- --------
Total Interest Expense 5 752 4 294
-------- --------
Net Interest Income 5 434 4 239
Provision for loan losses 163 150
-------- --------
Net interest income after
provision for loan losses 5 271 4 089
-------- --------
Other Income
Fees from fiduciary activities 130 100
Fees from loan servicing 225 181
Fees for other services to customers 490 397
Gains from sales of loans 89 220
Securities gains, net - -
Other income 119 48
-------- --------
Total Other Income 1 053 946
-------- --------
Other Expenses
Salaries and employee benefits 2 415 1 932
Occupancy expense 308 257
Equipment expense 333 239
Data processing and courier 190 163
Operation of other real estate 10 -
Other operating expense 980 642
-------- --------
Total Other Expenses 4 236 3 233
-------- --------
Income before income taxes 2 088 1 802
Income tax expense (benefit) 627 480
-------- --------
NET INCOME $ 1 461 $ 1 322
======== ========
Net Income per share (1) $ 0.40 $ 0.36
Cash dividends per share $ 0.18 $ 0.17
</TABLE>
(1) Based on 3,681,631 average shares outstanding in 1999 and 3,656,394 in 1998.
See accompanying notes to unaudited consolidated financial statements.
<PAGE> 5
BAYLAKE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
(IN THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1999 1998
------ ------
<S> <C> <C>
Net Income
Other comprehensive income,
net of tax: $1 461 $1 322
------ ------
Unrealized gains on securities:
Unrealized holding losses
arising during period (545) (37)
------ ------
Comprehensive Income $ 916 $1 285
====== ======
</TABLE>
<PAGE> 6
BAYLAKE CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASHFLOWS (UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED MARCH 31
------------------------------
1999 1998
-------- --------
(thousands of dollars)
<S> <C> <C>
Cash flows from operating activities:
Interest received from:
Loans $ 8 673 $ 6 553
Investments 2 058 1 611
Fees and service charges 1 001 895
Interest paid to depositors (4 715) (3 577)
Interest paid to others (807) (815)
Cash paid to suppliers and employees (760) (2 741)
Income taxes paid (1 174) (39)
-------- --------
Net cash provided by operating activities 4 276 1 887
Cash flows from investing activities:
Principal payments received on investments 32 763 6 657
Purchase of investments (23 618) (11 284)
Proceeds from sale of other real estate owned 622 0
Loans made to customers in excess of principal collected (2 745) (5 139)
Capital expenditures (915) (497)
-------- --------
Net cash provided by (used in) investing activities 6 107 (10 263)
Cash flows from financing activities:
Net increase (decrease) in demand deposits, NOW accounts (20 135) (6 249)
and savings accounts
Net increase (decrease) in advances from borrowers 3 603 6 445
Net increase (decrease) in time deposits 2 877 4 220
Proceeds from issuance of common stock 514 0
Treasury Stock Acquired 0 (208)
Dividends paid (1 326) (1 221)
-------- --------
Net cash provided by (used in) financing activities (14 467) 2 987
-------- --------
Net decrease in cash and cash equivalents (4 084) (5 389)
Cash and cash equivalents, beginning 17 560 15 065
-------- --------
Cash and cash equivalents, ending $ 13 476 $ 9 676
</TABLE>
<PAGE> 7
<TABLE>
<CAPTION>
1999 1998
------ ------
(thousands of dollars)
Reconciliation of net income to net cash provided by
operating activities:
<S> <C> <C>
Net Income $ 1 461 $ 1 322
Adjustment to reconcile net income to net cash provided
by operating activities:
Depreciation 298 248
Provision for loan losses and real estate owned 163 150
Amortization of premium on investments 50 41
Accretion of discount on investments (40) (70)
Cash surrender value increase (13) (13)
(Gain) loss from disposal of other real estate (26) 0
(Gain) loss on sale of loans (89) (220)
Proceeds from sale of loans held for sale 5 980 6 067
Originations of loans held for sale (5 890) (5 882)
Equity in income of service center (10) (4)
Amortization of goodwill 154 81
Amortization of mortgage servicing rights 15 0
Mortgage servicing rights booked (70) 0
Deferred compensation 42 (6)
Changes in assets and liabilities:
Interest receivable (387) (299)
Prepaids and other assets 728 413
Unearned income (36) (20)
Interest payable 229 (99)
Taxes payable (755) 442
Deferred taxes 209 0
Other liabilities 2 263 (264)
------- -------
Total adjustments 2 815 565
------- -------
Net cash provided by operating activities $ 4 276 $ 1 887
======= =======
</TABLE>
<PAGE> 8
BAYLAKE CORP. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1999
1. The accompanying unaudited consolidated financial statements
should be read in conjunction with Baylake Corp.'s ("Company") 1998
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, 1999 and December 31, 1998. The
results of operations for the three months ended March 31, 1999 and
1998 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
1999 1998
--------- -----------
(thousands of dollars)
<S> <C> <C>
Investment securities held to maturity:
Obligations of states and political
subdivisions $ 15 058 $ 15 510
-------- --------
Investment securities held to maturity $ 15 058 $ 15 510
Investment securities available for sale:
U.S. Treasury and other U.S. government
agencies $ 21 272 $ 20 192
Obligations of states and political 34 195 34 288
subdivisions
Mortgage-backed securities 71 768 54 981
Other 1 864 3 075
-------- --------
Investment securities available for sale $129 099 $112 536
======== ========
3. At March 31, 1999 and December 31, 1998, loans were as follows:
<CAPTION>
March 31 December 31
1999 1998
---------- -----------
(thousands of dollars)
<S> <C> <C>
Commercial, industrial and agricultural $ 247 521 $ 246 396
Real estate - construction 14 008 9 553
Real estate - mortgage 131 017 137 837
Installment 14 952 15 914
Less: Deferred loan origination fees, net of
costs ( 743) (779)
--------- ---------
406 755 408 921
Less allowance for loan losses (8 029) (11 035)
--------- ---------
Net loans $ 398 726 $ 397 886
</TABLE>
<PAGE> 9
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, 1999 and December
31, 1998 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, 1999 and 1998.
6. As of January 1, 1998, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income." This statement established standards
for reporting and the display of comprehensive income in a full set of
general-purpose financial statements.
Effective December 31, 1997, the Company adopted SFAS No. 128,
"Earnings per Share". The statement specifies the computation,
presentation, and disclosure requirements for earnings per share for
entities with publicly held common stock. All reported prior period
earnings per share information has been restated with SFAS No. 128.
In June 1997, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 131, "Disclosure about Segments of an Enterprise and Related
Information." This statement requires certain related disclosures about
products and services, geographic areas, and major customers. The
segment and other information disclosures were required for the year
ended December 31, 1998.
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
General
The following sets forth management's discussion and analysis of the
consolidated financial condition and results of operations of the Baylake Corp.
("Baylake" or the "Company"), which may not be otherwise apparent from the
consolidated financial statements included in this report. This discussion and
analysis should be read in conjunction with those financial statements, related
notes, the selected financial data and the statistical information presented
elsewhere in this report for a more complete understanding of the following
discussion and analysis.
This discussion and analysis of financial condition and results of operations,
and other sections of this report, contain forward-looking statements that are
based on the current expectations of management. Words such as "anticipates,"
"believes," "estimates," "expects," "forecasts," "intends," "is likely,"
"plans," "projects," and other such words are intended to identify such
forward-looking statements. The statements contained herein and such future
statements involve or may involve certain assumptions, risks and uncertainties,
many of which are beyond the control of the Company, that could materially
differ from what may be expressed or forecasted in such forward-looking
statements. In addition to the assumptions and other factors referenced
specifically in connection with such statements, the following factors could
impact the business and financial prospects of the relationships; demand for
products and services; the degree of competition by traditional and
non-traditional competitors; changes in banking regulations; changes in tax
laws; changes in prices; the impact of technological advances; governmental and
regulatory policy changes; trends in customer behavior as well as their ability
to repay loans; and changes in the national economy.
On October 1, 1998, the Company acquired Evergreen Bank, N.A. ("Evergreen") and
changed its name to Baylake Bank, N.A. ("BLBNA"). No payments to the former
shareholder have been made, but are contingently payable in May 1999 based on a
formula set forth in the stock purchase agreement. Prior to the acquisition,
Evergreen was under the active supervision of the Office of the Comptroller of
the Currency ("OCC") due to its designation of the bank as a "troubled
institution" and "critically under capitalized" based on severe asset quality
problems and significant fraudulent activities by former bank employees and
directors.
The acquisition was accounted for using the purchase method of accounting,
therefore it would affect future operations. At the time of acquisition, BLBNA
had total assets of $101.8 million, deposits of $93.2 million and loans of $83.7
million. On March 15, 1999, BLBNA merged with Baylake Bank ("Bank").
<PAGE> 11
All per share information has been restated to reflect the 3-for-2 stock
dividend paid on May 15, 1998, to shareholders of record May 1, 1998.
Results of Operations
For the three months ended March 31, 1999, net income increased $139,000, or
10.5%, to $1.46 million from $1.32 million for the first quarter of 1998. Basic
operating earnings per share increased to $.40 per share in 1999 compared with
$.36 in 1998, an increase of 11.1%. On a diluted operated earnings per share
basis, the Company recorded $.38 per share in 1999, compared to $.36 per share
in 1998.
The annualized return on average assets and return on average equity for the
first three months ended March 31, 1999 were .97% and 12.62%, respectively
compared to 1.20% and 12.74%, respectively for the same period a year ago.
The change in net income for the period is primarily due to improved net
interest income and an increase in other income offset by increased other
expenses.
Cash dividends declared in 1999 increased 5.9% to $.18 per share compared with
$.17 in 1998.
Net Interest Income
Net interest income is the largest component of the Registrant's operating
income (net interest income plus other non-interest income) accounting for 84.5%
of 1999 total operating income, as compared to 82.8% in 1998. Net interest
income represents the difference between interest earned on loans, investments
and other earning assets offset by the interest expense attributable to the
deposits and the borrowings that fund them. Interest fluctuations together with
changes in the volume and types of earning assets and interest-bearing
liabilities combine to affect total net interest income. This analysis discusses
net interest income on a tax-equivalent basis in order to provide comparability
among the various types of interest earned. Tax-exempt interest income is
adjusted to a level that reflects such income as if it were fully taxable.
Net interest income on a tax-equivalent basis reached $5.7 million in 1999, an
increase of 26.5% from $4.5 million in 1998. The improvement in 1999 net
interest income of $1.2 million was due in part to an increase in the volume of
net average earning assets of $3.9 million. Total interest income for the first
quarter of 1999 increased $2.7 million, or 30.1% to $11.5 million from $8.8 for
the first quarter of 1998, while interest expense increased $1.5 million, or
34.0%, to $5.8 million from $4.3 million in the first quarter of 1998. Average
earning assets increased 34.4% offset by an increase of 38.0% in average
interest-bearing liabilities. The benefit from an increase in earning assets and
non-interest bearing deposits were offset, in part, by an increase in
interest-bearing liabilities, a decline in the yield
<PAGE> 12
on earning assets and an increase in the cost of interest paying liabilities. As
a result, interest income increased 30.1% while interest expense for 1999
increased 34.0%.
For the three months ended March 31, 1999, average earning assets increased
$142.1 million, or 34.4%, when compared to the same period last year. The
Company registered an increase in average loans of $114.1 million, or 38.5% for
the first quarter of 1999 compared to the same period a year ago. Loans have
typically resulted in higher rates of interest payable to the Company than have
investment securities.
Interest rate spread is the difference between the tax-equivalent rate earned on
average earning assets and the rate paid on average interest-bearing
liabilities. The interest rate spread decreased 30 basis points in 1999 to 3.55%
from 3.85% in 1998, as the average yield on earning assets decreased 44 basis
points while the average rate paid on interest-bearing liabilities decreased 14
basis points over the same period.
Net interest margin is tax-equivalent net interest income expressed as a
percentage of average earning assets. The net interest margin exceeds the
interest rate spread because of the use of non-interest bearing sources of funds
to fund a portion of earning assets. As a result, the level of funds available
without interest cost (demand deposits and equity capital) is an important
factor affecting an increasing net interest margin.
Net interest margin (on a federal tax-equivalent basis) for the three months
ended March 31, 1999 decreased from 4.44% to 4.09% compared to a year ago. Total
loan yields declined 32 basis points to 8.87%, while total investment yields
declined 51 basis points to 6.73% as compared to the same period a year ago. The
Company's average cost on interest-bearing deposit liabilities decreased 6 basis
points to 4.56% for the first quarter of 1999, while short-term borrowing costs
decreased 50 basis points to 5.23% comparing the two periods. The above factors
contributed to a decrease in the Company's overall interest margin for the three
months ended March 31, 1999. Other factors contributing to the decrease was the
increased volume of non-accrual loans (as a result of the BLBNA purchase) and
the Company's efforts intended to increase interest-earning assets and thus
reduce the percentage of equity to total assets (known as leveraging) by
acquiring additional funding, primarily from the Federal Home Loan Bank of
Chicago.
The ratio of average earning assets to average total assets measures
management's ability to employ overall assets for the production of interest
income. This ratio was 91.7% in 1999 compared with 93.4% in 1998. The ratio
declined in 1999, primarily as a result of additional non-accrual loans acquired
in the BLBNA purchase.
Provision for Loan Losses
<PAGE> 13
The provision for loan losses for the three months ended March 31, 1999
increased $13,000, or 8.7% to $163,000 compared with $150,000 for the first
quarter of 1998. Management believes that the current allowance is adequate in
view of the present condition of the Company's loan portfolio and the balance
existing in the allowance for possible loan losses account.
Non-Interest Income
Total non-interest income increased $107,000, or 11.3%, to $1.0 million from
$946,000 for the first quarter of 1998. The increase has occurred as a result of
increased trust income, loan servicing fees, fees on other customer services and
other income, offset by a decrease in gains from sales of loans.
Trust fees increased $30,000 or 30.0% in 1999 compared to 1998, primarily as a
result of an increase in trust business.
Loan servicing fees increased $44,000 or 24.3% to $225,000 in 1999. The increase
in 1999 occurred as a result of increased servicing income due to a larger
portfolio of commercial loan business sold on the secondary market and serviced
by Company.
Gains on sales on loans in the secondary market decreased $131,000 to $89,000 in
1999 primarily as a result of decreased gains from sales of commercial loans.
Sales of total loans for the quarter declined slightly to $6.0 million, compared
to $6.1 million a year ago.
Service charges on deposit accounts showed an increase of $69,000 or 30.0% over
1998 results accounting for the improvement in fee income generated for other
services to customers.
Included in 1999 other income are recoveries of $77,000 related to the BLBNA
operation, providing the increase to other income as related to 1998 results.
Non-Interest Expense
Non-interest expense increased $1.0 million or 31.0% for the first three months
ended March 31, 1999 compared to the same period in 1998. Salaries and employee
benefits showed an increase of $483,000, or 25.0% for the period as a result of
additional staffing acquired as a result of the BLBNA purchase, salary and
related benefit increases. Full time equivalent staff increased to 234 from 200
a year earlier. Slight increases in occupancy and equipment expenses occurred as
a result of expansion efforts in the Green Bay and Waupaca markets and costs
related to modernization of various facilities.
Other operating expenses increased $338,000 or 52.7%. Included in 1999 expenses
were amortization of goodwill related to the Four Seasons
<PAGE> 14
acquisition of $82,000 (the same as in 1998) and amortization of $72,000 related
to the BLBNA acquisition.
Payments to regulatory agencies increased $72,000 to $83,000 for the three
months ended March 31, 1999. $71,000 of the increase occurred as a result of
BLBNA. For the Bank, these charges related to a debt service assessment related
to Financing Corporation (FICO). A risk classification rating of 1A (rating
assigned to well-capitalized institutions) allowed Bank to experience no Federal
Deposit Insurance Corporation (FDIC) assessments for the first three months of
1999. BLBNA has been assigned a risk classification rating of 3B (rating
assigned to troubled and critically under capitalized institutions) therefore in
addition to a FICO assessment, BLBNA also receives a FDIC assessment.
Audit and legal expense increased $114,000 for the three months ended March 31,
1999, primarily the result of various legal issues revolving around loan
collection efforts of the BLBNA loan portfolio.
Other items comprising other operating expense shows an increase of $80,000 or a
15.4% increase in 1999 compared to 1998. The overhead ratio, which is computed
by subtracting non-interest income from non-interest expense and dividing by
average total assets was 2.13% for the first three months of 1999 compared to
2.10% for the same period in 1998. The Company continues its commitment to
deliver quality service and products for its customer base.
Income Taxes
Income tax expense for the Company for the first three months in 1999 was
$627,000, an increase of $147,000 or 30.6% compared to the same period in 1998.
The increase in income tax provision was due to increased taxable income.
Under current law, the state of Wisconsin imposes a corporate franchise tax of
7.9% on the separate taxable incomes of the affiliated members of the Company's
consolidated income tax group except for Baylake Investments, which is located
in Nevada. Presently, the income of Baylake Investments is only subject to
taxation in Nevada which currently does not impose a corporate income or
franchise tax. The Wisconsin 1999-2001 State Budget Bill contains a proposal for
the adoption of combined corporate income tax reporting in Wisconsin beginning
in the year 2000. If the state legislative branch approves the proposal, then
substantially all of the income of all of the members of the Company's
consolidated federal income tax return group, including that of Baylake
Investments, will be subject to Wisconsin corporate franchise tax.
Balance Sheet Analysis
Loans
<PAGE> 15
At March 31, 1999, total loans decreased $2.2 million, or .53% to $406.8 million
from $408.9 million at December 31, 1998. The change in loan mix in the
Company's loan portfolio resulted from an increase in commercial loans to $247.5
million at March 31, 1999 compared to $246.4 million at December 31, 1998. In
addition, real estate construction loans increased to $14.0 million at March 31,
1999 compared to $9.6 million at December 31, 1998. Real estate mortgage loans
decreased to $131.0 million at March 31, 1999 compared with $137.8 million at
December 31, 1998.
Allowance for Possible Loan Losses
At March 31, 1999, the allowance for possible loan losses ("APLL") of $8.0
million represented 1.97% of total loans, down from 2.7% at December 31, 1998.
APLL of $6.5 million was acquired as a result of the BLBNA acquisition. Loans
decreased .53% from December 31, 1998 to March 31, 1999, while the allowance
declined as a result of higher than normal net charge-offs for the quarter.
Provision expense of $163,000 for the quarter was offset by net chargeoffs over
recoveries of $3.2 million year to date. Net charge-offs increased in the first
three months in 1999 as compared to 1998. As loans have grown in the Bank's
portfolio, management did not believe there existed any trends indicating any
undue portfolio risk. There exists potential asset quality problems in the loan
portfolio acquired in the BLBNA purchase although management believes sufficient
reserves have been provided in the APLL acquired in the BLBNA purchase to absorb
potential losses in the loan portfolio. In the six months since the purchase of
BLBNA, management has undergone extensive efforts to identify and evaluate
potential problem loans stemming from the BLBNA acquisition. As an integral part
of their examination process on BLBNA since the acquisition, various regulatory
agencies have also done a review on these loans. Although no assurance can be
given, management feels that the majority of these loans have been identified.
Ongoing efforts are being made to collect these loans and involve the legal
process where necessary to minimize risk of further deterioration of these loans
for full collectibility.
Commercial, agricultural and other loan net charge-offs represented 97.4% of the
total net charge-offs for the three months of 1999. In the commercial loan
sector, three loans totaling $3.3 million accounted for the net charge-offs.
Loans charged-off are subject to continuous review and specific efforts are
taken to achieve maximum recovery of principal and accrued interest.
Management regularly reviews the adequacy of the allowance for possible loan
losses to ensure that the allowance is sufficient to absorb potential losses
arising from the credit granting process. Factors considered include the levels
of non-performing loans, other real estate, trends in past due loans, loan
portfolio growth, changes in loan portfolio composition, historical net
charge-offs, present and prospective financial condition of borrowers, general
and local economic conditions, specific industry conditions, other factors which
<PAGE> 16
could affect potential credit losses such as Year 2000 issues related to
borrowers, and other regulatory or legal issues that could affect the
Registrant's loss potential.
Management believes that the balance of the allowance for possible loan losses
as of March 31, 1999 is sufficient to absorb potential loan losses.
Non-Performing Loans, Potential Problem Loans and Other Real Estate
Management remains committed to a philosophy that encourages early
identification of non-accrual and problem loans. The philosophy is embodied
through the monitoring and reviewing of credit policies and procedures to ensure
that all problem loans are identified quickly and the risk of loss is minimized.
Non-performing assets at March 31, 1999 were $14.7 million compared to $14.1
million at December 31, 1998. Non-accrual loans represent $9.7 million of the
total of non-performing assets, of which $6.3 million was acquired with the
BLBNA acquisition. Real estate non-accrual loans account for $7.6 million of the
total (of which $3.2 million was residential real estate and $4.2 million was
commercial real estate), while commercial and industrial non-accruals account
for $1.8 million. Management believes collateral is sufficient in the event of
default. $4.7 million of troubled debt restructured loans existed at March 31,
1999 compared with $3.0 million at December 31, 1998. Approximately $1.9 million
of this total consists of one commercial real estate credit which has been
granted various concessions and had experienced past cashflow problems. This
credit was current at March 31, 1999. Management believes that collateral is
sufficient in those loans classified as troubled debt in event of default. As a
result the ratio of non performing loans to total loans at March 31, 1999 was
3.6% compared to 3.4% at 1998 year end. The Registrant's APLL was 54.7% of total
non-performing loans at March 31, 1999 compared to 78.3% at year end 1998.
Investment Portfolio
At March 31, 1999, the investment portfolio increased $16.1 million, or 12.6% to
$144.2 million from $128.0 million at December 31, 1998. At March 31, 1999, the
investment portfolio represented 24.3% of total assets compared with 21.1% at
December 31, 1998. The increase in total investments occurred as a result of a
reduction in federal funds sold and a decrease in the loan portfolio accompanied
by an increase in federal funds purchased.
<PAGE> 17
Deposits
Total deposits at March 31, 1999 decreased $17.3 million, or 3.5%, to $478.0
million from $495.3 million at December 31, 1998. Non-interest bearing deposits
at March 31, 1999 decreased $8.0 million, or 13.7%, to $50.3 million from $58.3
million at December 31, 1998. Interest-bearing deposits at March 31, 1999
decreased $9.3 million, or 2.1%, to $427.7 million from $437.0 million at
December 31, 1998. Interest-bearing transaction accounts (NOW deposits)
decreased $12.0 million, primarily public fund deposits. Overall deposits for
the first six months tend to slightly 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.
Emphasis will be placed on generating additional core deposits in 1999 through
competitive pricing of deposit products and through the branch delivery systems
that have already been established. The Company will also attempt to attract and
retain core deposit accounts through new product offerings and customer service.
Short Term Borrowings
Short-term borrowings consist of federal funds purchased, securities under
agreements to repurchase, and borrowings from the Federal Home Loan Bank. Total
short-term borrowings at March 31, 1999 increased $3.7 million to $60.5 million
from $56.8 million at December 31, 1998. The increase in short-term borrowings
resulted from decreased deposits as compared to increases in the investment
portfolio
Long Term Debt
The only component of long-term debt of $264,000 consists of a land contract
requiring annual payments of $53,000 plus interest calculated at prime + 1/4%.
The land contract is for debt used for the purchase of one of the properties in
the Green Bay region for branch location.
Liquidity
Liquidity refers to the ability of the Company, and its subsidiary Bank to
generate adequate amounts of cash to meet its needs for cash. The Company and
the Bank have different liquidity considerations.
The Bank meets their cash flow needs by having funding sources available to them
to satisfy the credit needs of customers as well as having available funds to
satisfy deposit withdrawal requests. Liquidity at the Bank is derived from
deposit growth, maturing loans, the maturity of the investment portfolio, access
to other funding sources, marketability of certain of their assets and strong
capital positions.
<PAGE> 18
As shown in the Company's Consolidated Statements of Cashflows for the three
months ended March 31, 1999, cash and cash equivalents decreased $4.1 million
during the period to $13.5 million at March 31, 1999. The decrease primarily
reflected $4.3 million in net cash provided by operating activities and $6.1
million by investing activities offset by $14.5 million used in financial
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 flow of funds
provided by investment activities offset by a net increase in loans plus
necessary capital expenditures. Net cash used in financial activities resulted
primarily from a decrease in short term deposits and dividends paid offset by an
increase in time deposits and borrowed funds and issuance of common stock. 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.
Management believes that, in the current economic environment, the Company's and
the Bank's liquidity position are adequate. To management's knowledge, there are
no known trends nor any known demands, commitments, events or uncertainties that
will result or are reasonably likely to result in a material increase or
decrease in the Bank or the Company's liquidity.
Interest Rate Sensitivity
Interest rate risk is the exposure to a bank's earnings and capital arising from
changes in future interest rates. All banks assume interest rate risk as an
integral part of normal banking operations. Management of interest rate risk
includes four components: policy statements, risk limits, risk measurement and
reporting procedures. A primary objective of asset/liability management is the
control and monitoring of interest rate risk. The Registrant's banks use an
Asset/Liability Committee ("ALCO") to manage risks associated with changing
interest rates, changing asset and liability mixes, and their impact on
earnings. The sensitivity of net interest income to market rate changes is
evaluated monthly by the ALCO committee.
<PAGE> 19
Interest rate sensitivity analysis can be performed in several different ways.
The traditional method of measuring interest sensitivity is called "gap"
analysis. The 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 increase 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.
The following table entitled "Asset and Liability Maturity Repricing Schedule"
indicates that the Registrant is liability sensitive, although management
believes that a range of plus or minus 15% within a one year pricing schedule is
acceptable. The analysis considers money market index accounts and 25% of NOW
accounts to be rate sensitive within three months. Regular savings, money market
deposit accounts and 75% of NOW accounts are considered to be rate sensitive
within one to five years. While these accounts are contractually short-term in
nature, it is the Registrant's experience that repricing occurs over a longer
period of time. The Registrant views 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 small increments without a
material decrease in balances. All other earning categories include loans and
investments as well as other paying liability categories such as time deposits
are scheduled according to their contractual maturities.
For the time frame within three months as of March 31, 1999, rate sensitive
liabilities exceeded rate sensitive assets by $46.5 million, or a ratio of rate
sensitive assets to rate sensitive liabilities of 77.3%. For the next time frame
of four to six months, rate sensitive liabilities exceeded rate sensitive assets
by $10.3 million, or a ratio of rate sensitive assets to rate sensitive
liabilities of 79.0%. For all assets and liabilities priced within a one year
time frame, the cumulative ratio of rate sensitive assets to rate sensitive
liabilities was 68.2%, which is outside the range of plus or minus 15% deemed
acceptable by management. When the Company requires funds beyond its ability to
generate them internally, it can borrow from a number of sources, including the
Federal Home Loan Bank of Chicago and other correspondent banks.
Management continually reviews its interest risk position through the committee
processes. Managements' philosophy is to maintain relatively matched rate
sensitive asset and liability position within the range
<PAGE> 20
<TABLE>
<CAPTION>
ASSET AND LIABILITY MATURITY REPRICING SCHEDULE AS OF MARCH 31, 1999
Within Four to Seven to One Year Over
Three Six Twelve to Five Five
(In Thousands) Months Months Months Years Years Total
------ ------ ------ ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Earning Assets:
Investment Securities $ 2 527 $ 128 $ 6 042 $ 63 274 $74 836 $146 807
Federal funds sold 0 0
Loans and Leases:
Variable Rate 122 698 6 011 0 32 797 0 161 506
Fixed Rate 32 843 32 317 31 698 131 836 6 895 235 589
-------- -------- --------- -------- ------- --------
Total Loans and Leases $155 541 $ 38 328 $ 31 698 $164 633 $ 6 895 $397 095
-------- -------- --------- -------- ------- --------
Total Earning Assets $158 068 $ 38 456 $ 37 740 $227 907 $81 731 $543 902
======== ======== ========= ======== ======= ========
Interest Bearing Liabilitites:
NOW Accounts $ 10 740 $ $ 0 $ 32 220 $ 0 $ 42 960
Saving Deposits 78 531 0 53 426 0 131 957
Time Deposits 77 766 38 710 77 426 58 900 0 252 802
Borrowed Funds 37 489 10 000 13 000 264 0 60 753
-------- -------- --------- -------- ------- --------
Total Interest Bearing Liabilities $204 526 $ 48 710 $ 90 426 $144 810 $ 0 $488 472
======== ======== ========= ======== ======= ========
Interest Sensitivity GAP $(46 458) $(10 254) $ (52 686) $ 83 097 $ 81 731 $ 55 430
(within periods)
Cumulative Interest Sensitivity $(46 458) $(56 712) $(109 398) $(26 301) $ 55 430
GAP
Ratio or Cumulative Interest -8.35% -10.20% -19.67 -4.73% 9.97%
Sensitivity GAP to Rate
Sensitivity Assets
Ratio of Rate Sensitive Assets to 77.29% 78.95% 41.74% 157.38% ---
Rate Sensitive Liabilities
Cumulative Ratio of Rate Sensitive 77.29% 77.61% 68.17% 99.55% 102.50%
Assets to Rate Sensitive
Liabilities
</TABLE>
<PAGE> 21
described above, in order to provide earnings stability in the event of
significant interest rate changes.
Capital Resources
Stockholders' equity at March 31, 1999 increased $765,000 or 1.7% to $46.0
million, compared with $45.3 million at 1998 year end. This increase includes a
negative change of $545,000 to capital in 1999 due to the impact of STATEMENT OF
FINANCIAL ACCOUNTING STANDARDS NO. 115. Without the effect of this net change,
stockholders' equity would have increased $1.3 million or 2.9% for 1999 over
1998.
At March 31, 1999, the Company's risk-based Tier 1 Capital Ratio was 8.34%, the
total risk based capital ratio was 9.61% and the leverage ratio was 6.12% The
Company and Bank continue to exceed all applicable regulatory capital
requirements.
The adequacy of the Company's capital is regularly reviewed to ensure that
sufficient capital is available for current and future needs and is in
compliance with regulatory guidelines. The assessment of overall capital
adequacy depends upon a variety of factors, including asset quality, liquidity,
stability of earnings, changing competitive forces, economic conditions in
markets served and strength of management. Management is confident that because
of current capital levels and projected earnings levels, capital levels are more
than adequate to meet the ongoing and future concerns of the Company.
Year 2000
The year 2000 issue relates to systems designed to use two digits rather than
four to define the particular year. The banks computer equipment, software and
devices with imbedded technology that are time sensitive may recognize date
using "00" as the year 1900 rather than the Year 2000 ("Y2K"). This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions
such as the accrual of interest, erroneous billings, or other normal business
activities.
Year 2000 issues have been addressed relating to banks' "mission critical" and
other related systems, both internal and external, affected by the Y2K problem
of identifying the two digit definition for the year 2000.
<PAGE> 22
The Company commenced significant initiatives in the fall of 1997 to correct
actual and potential Y2K problems to ensure that its computer based equipment
and interactive systems will function properly with respect to recognition and
processing of dates commencing as of January 1, 2000 and subsequent dates
thereafter. For disclosure purposes, the phrase "computer equipment and
software" primarily includes: systems that are commonly thought of as
information technology ("IT") systems, including primary data processing,
information storage and retrieval, general accounting, calculating, as well as
financial debit and credit transaction activity. It also includes secondary
systems and equipment affected by computer based activity within the control of
the banks such as direct communications networks (telephone and telefax), remote
communications (security and sensor devices), and physical support equipment
(HVAC, electrical, and general utilities).
Pursuant to its planning, assessment, and remediation initiatives, the
Registrant has established a pro-active plan for Y2K preparation and is
presently compliant with respect to established governmental and commercial
standards for Year 2000 readiness. The Company has completed Y2K identification
and assessment goals, and implemented substantial evaluation, testing, and
remediation activities as of March 31, 1999 which were expressly directed toward
accomplishment of Y2K readiness within established government and commercial
standards.
During the first quarter of 1999, the Company has completed the following Year
2000 related activities. The Company has met all industry and regulatory
requirements concerning the identification of Y2K sensitive systems and
equipment, as well as associated hardware, software, and related physical,
mechanical, and interactive devices sensitive to Y2K performance criteria. The
Company has utilized both internal and external resources in confirming Y2K
standards or, in the alternative, in verifying remediation requirements to avoid
controllable deterioration of performance as a result of external Y2K impact. As
a result of efforts, the Company believes that, as of June 30, 1999, it will
have completed 95% of all required regulatory initiatives with respect to Year
2000 readiness. The completed and remaining efforts determined by regulatory
guidelines affecting Y2K readiness can be identified as follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Year 2000 Initiative Complete Performance Date %
- ----------------------------- ---------------- -
completed
---------
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Initial IT system identification and 6/30/98 100%
assessment
- -------------------------------------------------------------------------------------------------------------
Remediation and testing regarding 12/21/98 100%
Central Processing System issues
- -------------------------------------------------------------------------------------------------------------
Remediation and testing regarding 12/31/98 100%
Division System issues
- -------------------------------------------------------------------------------------------------------------
Remediation and testing regarding 6/30/99 100%
Branch Delivery systems
- -------------------------------------------------------------------------------------------------------------
Upgrades to Y2K ready 6/30/99 90%
telephone/communications systems
- -------------------------------------------------------------------------------------------------------------
Identification, assessment, 6/30/98 100%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 23
<TABLE>
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------
remediation and testing regarding
desktop and individual system issues
- -------------------------------------------------------------------------------------------------------------
Identification and assessment 1/31/99 100%
regarding Non-IT System issues
- -------------------------------------------------------------------------------------------------------------
Remediation and testing regarding 6/30/99 90%
Non-IT System issues
- -------------------------------------------------------------------------------------------------------------
</TABLE>
In addition to internal assessment, testing and remediation efforts, the Company
has completed a pro-active customer information program addressing two
disparate, but significant Year 2000 concerns about Y2K effects, and potentially
adverse impact from Y2K customer impact. The Company has completed detailed
analysis of potential adverse Y2K effects and reviewed both customer awareness
and potential detrimental effects with respect to Company's performance. The
Company has determined that less than 2% of outstanding loans are likely to
adversely affect Bank's financial performance. As of January 1, 1999, all loans
which potentially may be adversely affected have been identified and factored
into existing loan loss reserves to account for potential additional risks
associated with Y2K failures. The Company has also received and responded to
customer inquiries and requests for information about Year 2000 preparations and
has responded with detailed information regarding its preparations and Y2K
compliance to avoid any negative customer response concerning adverse Y2K
impact.
Part of the Company's Year 2000 preparations also includes contacts with its
principal vendors and service providers, including the federal banking
regulatory system and the Federal Reserve System. To date, the Company is not
aware of any identified concerns of any bank customer with respect to their
ability to meet Y2K compliance requirements.
The Company estimates that the cost of Year 2000 identification, assessment,
remediation and testing efforts, as well as currently anticipated costs to be
incurred by the Company will not exceed $200,000. Such amount represents
approximately 10% of the Company's total actual and anticipated IT expenditures
for 1998 through 1999. As of May 1, 1999, the Registrant had incurred costs of
approximately $120,000 related to Year 2000 issues. These amounts relate to
analysis, repair, or replacement of existing hardware or software, upgrades of
existing software, or evaluation of information received from significant
customers, vendors, or other service providers.
The Company has completed a formal contingency plan recognizing the most likely
worst case scenarios. The Plan sets forth specific responsibility and
accountability affecting identification of Y2K related failures and processes
for responding. With respect to mission critical systems, including core
information and data processing activities, the Plan establishes information
backup and retrieval procedures and identifies alternative delivery sources,
including existing disaster recovery preparations, to continue limited business
activities. With respect to mission non-critical systems, including non-critical
technical systems, communications, and support equipment, the Plan allows for
minor business interruption regarding inconvenience or time delays in continuing
Company's activities. Finally, the Plan
<PAGE> 24
addresses in detail plans for resumption of business activity upon the
occurrence of any interruption.
Item 7 A. Quantitative and Qualitative Disclosure about Market Risk.
See Item 7A. Quantitative and Qualitative Disclosures About Market Risk in 1998
Form 10-K.
Part II - Other Information
Item 8. Other Information
Bank has begun construction of a full-service branch facility in the city of
Waupaca with costs of construction estimated to be $716,000. Completion of this
project is expected in the early third quarter of 1999. Bank purchased land for
$144,000 in the city of Luxemburg located in Kewaunee County, Wisconsin in
January 1999. No plans have been made at present on this purchase. BLBNA has
purchased a facility in Berlin for $200,000 in February 1999. This facility was
previously occupied and leased by BLBNA.
The Company repurchased all of the preferred stock of BLBNA at par value of
$3,160,000 on March 31, 1999 with an interest rate of 7% paid in addition on the
shares held during the first quarter 1999. Interest expense amounted to $55,300.
On March 15, 1999, BLBNA was dissolved and merged into Bank.
The Company filed a registration statement for purposes of creating the "Baylake
Corp. Stock Purchase Plan". This registration became effective on December 17,
1998 and will be used by eligible employees and directors to purchase shares of
the Company, thereby creating additional liquidity in the Common Stock of the
Company.
<PAGE> 25
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 14, 1999 Thomas L. Herlache
------------------------------ ----------------------------------------
Thomas L. Herlache
President (CEO)
Date: May 14, 1999 Steven D. Jennerjohn
------------------------------ ----------------------------------------
Steven D. Jennerjohn
Treasurer (CFO)
<TABLE> <S> <C>
<ARTICLE> 9
<CIK> 0000275119
<NAME> BAYLAKE CORP.
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<EXCHANGE-RATE> 1
<CASH> 13,476
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 129,099
<INVESTMENTS-CARRYING> 15,058
<INVESTMENTS-MARKET> 15,252
<LOANS> 406,755
<ALLOWANCE> 8,029
<TOTAL-ASSETS> 594,208
<DEPOSITS> 478,026
<SHORT-TERM> 60,489
<LIABILITIES-OTHER> 6,232
<LONG-TERM> 264
0
3,160
<COMMON> 18,613
<OTHER-SE> 27,424
<TOTAL-LIABILITIES-AND-EQUITY> 594,208
<INTEREST-LOAN> 8,981
<INTEREST-INVEST> 1,966
<INTEREST-OTHER> 239
<INTEREST-TOTAL> 11,186
<INTEREST-DEPOSIT> 4,929
<INTEREST-EXPENSE> 5,752
<INTEREST-INCOME-NET> 5,434
<LOAN-LOSSES> 163
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 4,236
<INCOME-PRETAX> 2,088
<INCOME-PRE-EXTRAORDINARY> 2,088
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,461
<EPS-PRIMARY> .40
<EPS-DILUTED> .38
<YIELD-ACTUAL> 8.20
<LOANS-NON> 9,660
<LOANS-PAST> 0
<LOANS-TROUBLED> 4,722
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 11,035
<CHARGE-OFFS> 3,642
<RECOVERIES> 473
<ALLOWANCE-CLOSE> 8,029
<ALLOWANCE-DOMESTIC> 8,029
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
