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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2000
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[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND 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.
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(Exact name of Registrant as specified in its charter)
Wisconsin 39-1268055
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporated or organization) Identification No.)
217 North Fourth Avenue., Sturgeon Bay, WI 54235
- ------------------------------------------- -------------------
(Address of principal executive offices) (Zip Code)
Registrant's Telephone number, including area code: (920)-743-5551
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Securities registered pursuant to Section 12(b) of the Act: None
- ----------------------------------------------------------- -------------------
Securities registered pursuant to Section 12(g) of the Act: Common Stock $5
- ----------------------------------------------------------- -------------------
Par Value
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
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ]
As of March 12, 2001, 7,471,574 shares of Common Stock were outstanding, and the
aggregate market value of the Common Stock (based upon the $14.50 reported bid
price on that date) held by non-affiliates (excludes a total of 606,559 shares
reported as beneficially owned by directors and executive officers -- does not
constitute an admission as to affiliate status) was approximately $99,542,718.
DOCUMENTS INCORPORATED BY REFERENCE
Part of Form 10-K Into Which
Document Portions of Documents are Incorporated
-------- --------------------------------------
Definitive Proxy Statement for Part III
2001 Annual Meeting of
Shareholders to be Filed
within 120 days of the fiscal
Year ended December 31, 2000
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2000 FORM 10-K
TABLE OF CONTENTS
DESCRIPTION PAGE NO.
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PART I
ITEM 1. Business 3
ITEM 2. Properties 23
ITEM 3. Legal Proceedings 23
ITEM 4. Submission of Matters to a Vote of Security Holders 23
PART II
ITEM 5. Market for Registrant's Common Equity and Related
Stockholder Matters 23
ITEM 6. Selected Financial Data 25
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 29
ITEM 7A. Quantitative and Qualitative Disclosures about Market
Risk 59
ITEM 8. Financial Statements and Supplementary Data 60
ITEM 9. Changes and Disagreements with Accountants on Accounting and
Financial Disclosure. 99
PART III
ITEM 10. Directors and Executive Officers of the Registrant 99
ITEM 11. Executive Compensation 99
ITEM 12. Security Ownership of Certain Beneficial Owners and Management 99
ITEM 13. Certain Relationships and Related Transactions 100
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 100
Signatures 101
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ITEM 1. BUSINESS
General
Baylake Corp., a Wisconsin corporation organized in 1976, ("Baylake" or the
"Company") is a registered bank holding company under the Federal Bank Holding
Company Act of 1956, as amended. Baylake's primary activities consist of holding
indirectly the stock of Baylake Bank ("Bank"), and providing a wide range of
banking and related business activities, through the Bank and its other
subsidiaries.
Baylake Bank
The Bank is a Wisconsin State Bank originally chartered in 1876. The Bank
conducts its community banking business through 25 financial centers located
throughout Northeast Wisconsin, in Brown, Door, Green Lake, Kewaunee, Manitowoc,
Outagamie, Waupaca, and Waushara Counties. The Bank has eight financial centers
in Door County, which is known for its seasonal and tourism related services.
The balance of the Bank's financial centers are located in the previously
mentioned counties, with the highest concentration, after Door County, in Brown
County, which has six financial centers. Other principal industries in Bank's
market area include light industry and manufacturing, agriculture, food related
products, and to a lesser degree, lumber and furniture.
The Bank is an independent community bank offering a full range of financial
services primarily to small businesses and individuals located in its market
area. To complement the Bank's traditional banking products, such as demand
deposit accounts, various savings account plans, certificates of deposit and
real estate, consumer, commercial/industrial and agricultural loans, the Bank
offers its customers a variety of services. These services include transfer
agency, personal and corporate trust, insurance agency, brokerage, financial
planning, cash management and electronic banking services.
In addition to its banking operations, the Bank owns four non-bank subsidiaries:
Baylake Investments, Inc., located in Las Vegas, Nevada, which holds and manages
a portion of the bank's investment portfolio; Bank of Sturgeon Bay Building
Corporation, which owns the Bank's main office building in Sturgeon Bay,
Wisconsin and nearby conference center facilities and underlying real property;
Cornerstone Financial, Inc., which manages the conference center facilities; and
Baylake Insurance Agency, Inc., which offers various types of insurance products
to the general public as an independent agent. The Bank also owns a minority
(49.8% of the outstanding common stock) interest in United Financial Services,
Inc. ("UFS"), a data processing services company, located in Grafton, Wisconsin,
that provides data processing services to approximately 22 banks and ATM
processing services to 50 banks. The revenues generated by Bank's wholly-owned
subsidiaries and UFS amount, in aggregate, to less than 5% of the Bank's total
income.
At December 31, 2000, the Bank had total assets of $772.3 million. For
additional financial information, see the Consolidated Financial Statements and
Notes beginning at Item 8 of this Form 10-K.
Acquisitions
Baylake acquired Evergreen Bank, N.A., from M&I Marshall & Ilsley Bank,
Milwaukee, Wisconsin ("M&I") through a stock purchase agreement on October 1,
1998. Pursuant to the stock purchase agreement with M&I, Baylake is only
required to pay M&I for the Evergreen Bank, N.A. stock it purchased upon certain
events set forth in the stock purchase agreement. Although the payment period
set forth in the stock purchase agreement expired, Baylake has committed
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to M&I that it will treat the payment terms of the stock purchase agreement as
though they had not expired. As of December 31, 2000, none of the events that
would require Baylake to pay any funds to M&I has occurred. In connection with
Baylake's acquisition of Evergreen Bank, N.A., Baylake changed the name of
Evergreen Bank, N.A., to Baylake Bank, N.A. ("BLBNA"). On March 15, 1999,
Baylake Bank merged with BLBNA.
Lending and Investments
The Company offers short-term and long-term loans on a secured and unsecured
basis for business and personal purposes. It makes real estate,
commercial/industrial, agricultural and consumer loans, in accordance with the
basic lending policies established by its board of directors. The Company
focuses lending activities on individuals and small businesses in its market
area. Lending has, historically, been exclusively within the State of Wisconsin.
The Company does not conduct any substantial business with foreign obligors. The
markets served by the Company include a wide variety of industries; therefore,
Baylake believes the broad business base of its market area limits its exposure
to the problems in any particular industry group. However, any general weakness
in the economy of Northeastern Wisconsin (as a result, for example, of a decline
in its manufacturing and tourism industries or otherwise) could have a material
adverse effect on the business and operations of Baylake.
The Company's total outstanding loans as of December 31, 2000 amounted to
approximately $555.1 million, consisting of 81.7% residential, commercial,
agricultural and construction real estate loans, 13.5% commercial and industrial
loans, 3.2% installment and 1.6% agricultural loans.
The Company maintains a portfolio of other investments, primarily consisting of
U.S. Treasury securities, U.S. Government agency securities, mortgage-backed
securities, and obligations of states and their political subdivisions. The
Company attempts to balance its portfolio to manage interest rate risks,
maximize tax advantages and meet its liquidity needs while endeavoring to
maximize investment income.
Deposits
The Company offers a broad range of depository products, including non-interest
bearing demand deposits, interest-bearing demand deposits, various savings and
money market accounts and certificates of deposit. Deposits at the Company are
insured by the Bank Insurance Fund of the FDIC up to statutory limits. At
December 31, 2000, the Company's total deposits amounted to $553.3 million,
including interest bearing deposits of $484.1 million and non-interest bearing
deposits of $69.2 million.
Other Customer Services and Products
Other services and products offered by the Company include transfer agency, safe
deposit box services, personal and corporate trust services, conference center
facilities, insurance agency and brokerage services, cash management, financial
planning and electronic banking services, including eBanc, an Internet banking
product for its customers.
Competition
The financial services industry is highly competitive. The Company competes with
other financial institutions and businesses in both attracting and retaining
deposits and making loans in all of its principal markets. The primary factors
in competing for deposits are interest rates, personalized services, the quality
and range of financial services, convenience of office locations and office
hours. Competition for deposit products comes primarily
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from other commercial banks, savings banks, credit unions and non-bank
competitors, including insurance companies, money market and mutual funds and
other investment alternatives. The primary factors in competing for loans are
interest rates, loan origination fees, the quality and range of lending services
and personalized services. Competition for loans comes primarily from other
commercial banks, savings banks, mortgage banking firms, credit unions, finance
companies, leasing companies, and other financial intermediaries. Although no
assurance can be given that it will continue to do so, the Bank believes that it
has been able to maintain its prominence in these market areas, even though
certain competitors have considerably more financial and other resources than
does Baylake.
Regulation and Supervision
The banking industry is highly regulated by both federal and state regulatory
authorities. Regulation includes, among other things, capital and reserve
requirements, dividend limitations, limitations on products and services
offered, geographical limits, consumer credit regulations, community
reinvestment requirements and restrictions on transactions with affiliated
parties. Financial institution regulation has been the subject of significant
legislation in recent years and may be the subject of further significant
legislation in the future, that is not within the control of Baylake. This
regulation substantially affects the business and financial results of all
financial institutions and holding companies, including Baylake and its
subsidiaries. As an example, Baylake is subject to the capital and leverage
guidelines of the Board of Governors of the Federal Reserve System ("FRB"),
which requires that Baylake's capital to asset ratio meet certain minimum
standards. For a discussion of the Federal Reserve Board's guidelines and the
Company's applicable ratios, see the section entitled "Capital Resources" under
Item 7; "Management's Discussion and Analysis of Financial Condition and Results
of Operation."
As a Wisconsin bank, the Bank is subject to supervision and regulation by the
Wisconsin Department of Financial Institutions (the "WDFI"), the FRB and the
FDIC. As a registered bank holding company under the Bank Holding Company Act,
Baylake is subject to review and regulation by the FRB (its primary regulator).
Baylake is also subject to review and examination by the WDFI under Wisconsin
law.
In addition to general requirements that banks retain specified levels of
capital and otherwise conduct their business in a safe and sound manner,
Wisconsin law requires that dividends of Wisconsin banks declared and paid
without approval of the WDFI be paid out of current earnings or, no more than
once within the immediate preceding two years, out of undivided profits in the
event that there have been insufficient net profits. Any other dividends require
the prior written consent of the WDFI. The Bank is in compliance with all
applicable capital requirements and may pay dividends to Baylake.
Current federal law provides that adequately managed bank holding companies from
any state may acquire banks and bank holding companies located in any other
state, subject to certain conditions. Beginning on June 1, 1997, banks may
create interstate branching networks in states that do not "opt out" of
interstate branching. Prior to that date, banks could create interstate
branching networks in states that "opted in" to interstate branching early.
Wisconsin law generally permits establishment of full service bank branch
offices statewide.
Employees
At December 31, 2000, Baylake and its subsidiaries, had 272 full-time equivalent
employees.
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Statistical Information
The following statistical information is presented in accordance with the
Securities and Exchange Commission's Guide 3, "Statistical Disclosure by Bank
Holding Companies." Reference numbers relate to Guide 3.
I. DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY
INTEREST RATES AND INTEREST DIFFERENTIAL
A. Three-year comparison of Consolidated Average Balance Sheet
(dollars in thousands)
2000 1999 1998
---- ---- ----
Assets
Cash and Due from Banks $ 15,142 $ 15,978 $ 11,917
Investment Securities:
U. S. Treasury 1,164 1,156 2,102
U. S. Government Agencies 96,757 89,863 67,824
State and Municipal Obligations 50,263 50,954 44,614
Other Securities 7,440 5,019 5,629
Market Adjustment on AFS Securities (2,775) 386 2,298
-------- -------- --------
Total Investments $152,849 $147,378 $122,467
-------- -------- --------
Federal Funds Sold $ 14 $ 5,361 $ 6,657
Loans, Net of Unearned Income $505,892 $421,541 $333,484
Reserve for Loan Losses (7,999) (8,924) (5,833)
-------- -------- --------
Net Loans $497,893 $412,617 $327,651
-------- -------- --------
Bank Premises and Equipment $ 20,128 $ 16,795 $ 14,434
Other Real Estate Owned $ 562 $ 287 $ 93
Other Assets $ 19,858 $ 18,423 $ 14,139
-------- -------- --------
Total Assets $706,446 $616,839 $497,358
======== ======== ========
Liabilities and Stockholders' Equity
Demand Deposits $ 61,214 $ 56,755 $ 46,586
NOW Account Deposits 44,965 47,313 41,734
Savings Deposits 164,858 141,972 109,778
Time Deposits 252,086 246,782 188,412
-------- -------- --------
Total Deposits $523,123 $492,822 $386,510
-------- -------- --------
Short Term Borrowings $ 41,798 $ 10,812 $ 15,106
Customer Repurchase Agreements $ 2,213 $ 3,657 $ 3,637
Other Borrowings $ 83,629 $ 56,466 $ 42,099
Long Term Debt $ 211 $ 265 $ 387
Other Liabilities $ 6,718 $ 6,882 $ 6,247
-------- -------- --------
Total Liabilities $657,692 $570,904 $453,986
-------- -------- --------
Common Stock $ 37,333 $ 20,996 $ 18,475
Additional paid in capital 7,125 6,560 8,718
Retained Earnings 7,234 18,743 15,305
Net Unrealized Gains (Losses) on AFS Securities (2,313) 261 1,496
Treasury Stock (625) (625) (622)
-------- -------- --------
Total Equity $ 48,754 $ 45,935 $ 43,372
-------- -------- --------
Total Liabilities and Stockholders' Equity $706,446 $616,839 $497,358
======== ======== ========
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I. B. INTEREST RATES AND INTEREST DIFFERENTIAL
The tables below show for the periods indicated the daily average amount
outstanding for major categories of the interest-earning assets and
interest-bearing liabilities, the interest earned or paid and the average yields
thereon (dollars in thousands).
2000 1999
Amount Interest Yield Amount Interest Yield
------ -------- ----- ------ -------- -----
Interest-earning assets:
Loans, Net $505,892 $421,541
Less: non-accruing Loans (8,396) (10,364)
-------- --------
Loans $497,496 $ 46,685 9.38% $411,177 $ 37,586 9.14%
U.S. Treasury Securities 1,164 79 6.79% 1,156 79 6.83%
U.S. Government Agencies 96,757 6,127 6.33% 89,863 5,579 6.21%
State and Municipal Obligations 50,263 3,912 7.78% 50,954 3,989 7.83%
Other Securities 6,457 467 7.23% 4,036 265 6.57%
Federal Funds Sold 14 1 7.14% 5,361 245 4.57%
Other Money Market Instruments 1,188 69 5.81% 1,251 58 4.64%
-------- -------- ----- -------- -------- -----
Total Interest Earning Assets (net of
non-accruing loans) $653,339 $ 57,340 8.78% $563,798 $ 47,801 8.48%
======== ======== ===== ======== ======== =====
Interest-bearing liabilities:
NOW Accounts $ 44,965 $ 837 1.86% $ 47,313 $ 837 1.77%
Savings Accounts 164,858 7,890 4.79% 141,972 5,325 3.75%
Time Deposits 252,086 14,855 5.89% 246,782 13,379 5.42%
Short Term Borrowings 41,798 2,847 6.81% 10,812 605 5.60%
Customer Repurchase 2,213 123 5.56% 3,657 163 4.46%
Agreements
Other Borrowings 83,629 5,529 6.61% 56,466 2,950 5.22%
Long Term Debt 211 18 8.53% 265 21 7.92%
-------- -------- ----- -------- -------- -----
Total Interest-bearing Liabilities $589,760 $ 32,099 5.44% $507,267 $ 23,280 4.59%
======== ======== ===== ======== ======== =====
1998
Amount Interest Yield
------ -------- -----
Interest-earning assets:
Loans, Net $333,484
Less: non-accruing Loans (4,505)
--------
Loans $328,979 $ 30,161 9.17%
U.S. Treasury Securities 2,102 135 6.42%
U.S. Government Agencies 67,824 4,707 6.94%
State and Municipal Obligations 44,614 3,576 8.02%
Other Securities 3,964 260 6.56%
Federal Funds Sold 6,657 356 5.35%
Other Money Market Instruments 1,665 81 4.86%
-------- -------- -----
Total Interest Earning Assets (net of
non-accruing loans) $455,805 $ 39,276 8.62%
======== ======== =====
Interest-bearing liabilities:
NOW Accounts $ 41,734 $ 852 2.04%
Savings Accounts 109,778 4,077 3.71%
Time Deposits 188,412 10,826 5.75%
Short Term Borrowings 15,106 898 5.94%
Customer Repurchase 3,637 173 4.76%
Agreements
Other Borrowings 42,099 2,290 5.44%
Long Term Debt 348 32 9.20%
-------- -------- -----
Total Interest-bearing Liabilities $401,114 $ 19,148 4.77%
======== ======== =====
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The table below shows the net interest earnings and the net yield on
interest-earning assets for the periods indicated (dollars in thousands).
2000 1999 1998
Total Interest Income $ 57,340 $ 47,801 $ 39,276
Total Interest Expense 32,099 23,280 19,148
-------- -------- --------
Net Interest Earnings $ 25,241 $ 24,521 $ 20,128
======== ======== ========
Net Yield on Interest-earning Assets (excluding 3.86% 4.35% 4.42%
non-accruing loans)
Interest on tax exempt income, (i.e., interest earned on state and municipal
obligations) are figured on a federal tax-equivalent basis using a tax rate of
34%.
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I. C. The following table sets forth for the periods indicated a summary of the
changes in interest earned and interest paid resulting from changes in volume
and changes in rate.
(dollars in thousands).
2000 COMPARED TO 1999 1999 COMPARED TO 1998
INCREASE (DECREASE) INCREASE (DECREASE)
DUE TO (1) DUE TO (1)
RATE/ RATE/
VOLUME RATE VOLUME VOLUME RATE VOLUME
------ ---- ------ ------ ---- ------
Interest earned on:
Loans $7,995 $1,104 $9,099 $7,525 ($ 100) $ 7,425
U.S. Treasury
Securities 1 (1) 0 (63) 7 (56)
U.S. Government
Agencies 432 116 548 1,449 (577) 872
State and Municipal
Obligations (2) (54) (23) (77) 502 (89) 413
Other Securities 167 35 202 5 0 5
Federal Funds Sold (313) 69 (244) (64) (47) (111)
Other Money Market
Instruments (3) 14 11 (20) (3) (23)
------ ------ ------ ----- ------ ------
Total Interest
Earning Assets
(net of non-accruing
loans) $8,225 $1,314 $9,539 $9,334 ($ 809) $ 8,525
====== ====== ====== ====== ======= =======
Interest paid on:
NOW Accounts $ (43) $ 43 $ 0 $ 106 ($ 121) ($ 15)
Savings Accounts 977 1,588 2,565 1,202 46 1,248
Time Deposits 300 1,176 1,476 3,259 (706) 2,553
Short Term
Borrowings 1,922 320 2,242 (233) (60) (293)
Customer Repurchase
Agreements (72) 32 (40) 1 (11) (10)
Other Borrowings 1,607 972 2,579 780 (120) 660
Long Term Debt (4) 1 (3) (7) (4) (11)
------ ------ ------ ----- ------ ------
Total Interest-
Bearing
Liabilities $4,687 $4,132 $8,819 $5,108 $ (976) $ 4,132
====== ====== ====== ====== ======= =======
(1) When a change in interest is due both to rate changes and volume this
analysis has been made on a fifty-fifty basis.
(2) Interest on tax exempt income is figured on a federal tax-equivalent
basis using a tax rate of 34%.
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================================================================================
II. INVESTMENT PORTFOLIO
A. The carrying value of investment securities for those held to maturity (at
amortized cost) and available for sale (at fair market value) as of December 31,
2000, 1999 and 1998 are summarized as follows (dollars in thousands):
2000 1999 1998
---- ---- ----
Available for Sale
- ------------------
U.S. Treasury and Other U.S.
government agencies $ 32,997 $ 22,819 $ 20,192
Mortgage-backed securities 66,986 69,410 54,981
Obligations of states and
political subdivisions 33,795 31,797 34,288
Other 1,311 1,674 3,075
-------- -------- --------
$135,089 $125,700 $112,536
Held to Maturity
- ----------------
Obligations of states and
Political subdivisions $ 18,422 $ 19,380 $ 15,510
Other 0 0 0
-------- -------- --------
$ 18,422 $ 19,380 $ 15,510
Total $153,511 $145,080 $128,046
Baylake does not hold investment securities of any issuer (other than securities
of the U.S. Government or its agencies) whose book value exceeds ten percent of
its stockholders equity.
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II. B. The following table shows the maturities of investment securities as of
December 31, 2000 and the weighted average yields of investment securities. The
weighted average yields by maturity range were computed by annualizing the
purchase yield income on the securities within such maturity range (dollars in
thousands):
One Year Over 1 Year Over 5 Years
or less Within 5 Years Within 10 Years
Amount Yield Amount Yield Amount Yield
------ ----- ------ ----- ------ -----
U.S. Treasury and other U.S.
government agencies $10,215 6.52% $ 8,634 6.76% $14,148 6.81%
Mortgage-backed securities 6,172 6.11% 56,086 6.14% 716 6.13%
Obligations of states and
political subdivisions 2,441 10.08% 14,783 7.18% 12,508 8.01%
Other 2 6.09% 0.00% 0.00%
------- ---- ------- ---- ------- ----
Total $18,830 6.85% $79,503 6.40% $27,372 7.34%
Over 10 Years Total
Amount Yield Amount Yield
------ ----- ------ -----
U.S. Treasury and other U.S.
government agencies $ 0.00% $32,997 6.71%
Mortgage-backed securities 4,012 7.24% 66,986 6.20%
Obligations of states and
political subdivisions 22,485 7.89% 52,217 7.82%
Other 1,309 5.83% 1,311 5.83%
------- ---- -------- ----
Total $27,806 7.70% $153 511 6.86%
Weighted average yield on tax-exempt state and political subdivisions has been
computed on a fully taxable equivalent basis using a tax rate of 34%.
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III. LOAN PORTFOLIO
A. Types of Loans
The following table sets forth the comparison of the loan portfolio at December
31st of each of the past five years (dollars in thousands).
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Loans secured primarily
By real estate:
Secured by 1 to 4 family
residential properties $ 160,150 $ 138,030 $ 136,564 $ 100,555 $ 83,538
Real estate-construction 41,524 26,534 9,553 14,760 11,365
Other real estate loans 251,971 201,301 178,846 118,103 104,391
Loans to farmers 9,047 8,472 6,810 6,314 5,883
Commercial and Industrial
Loans 73,893 56,861 60,495 40,624 40,777
Loans to individuals for
Household, family and
other personal
expenditures 17,925 15,446 15,914 13,480 15,233
All other loans 957 826 245 140 240
--------- --------- --------- --------- ---------
Total gross loans $ 555,467 $ 447,470 $ 408,427 $ 293,976 $ 261,427
Less:
Unearned Income (360) (451) (779) (538) (573)
--------- --------- --------- --------- ---------
Net Loans $ 555,107 $ 447,019 $ 407,648 $ 293,438 $ 260,854
========= ========= ========= ========= =========
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III. LOAN PORTFOLIO
B. Maturity and Sensitivities of Loans to Changes in Interest Rates
The following table shows the amount of loans outstanding (dollars in thousands)
as of December 31, 2000 that, based on remaining scheduled repayments of
principal, are due in the periods indicated. Also, the amounts due after one
year are classified according to the sensitivity to change in interest rates.
Maturing
--------------------------------------------------------------------
After One
Within But Within After
One Year Five Years Five Years Total
-------- ---------- ---------- -----
Loans secured primarily by real estate:
Secured by 1 to 4 family
Residential property $ 32,660 $ 73,116 $ 54,374 $160,150
Real estate - construction 23,609 17,005 910 41,524
Other real estate loans 65,828 138,550 47,593 251,971
Loans to farmers 3,273 4,887 887 9,047
Commercial and industrial loans 18,786 28,866 26,241 73,893
Loans to individuals for
household, family and other
personal expenditures 5,492 11,966 467 17,925
All other loans 847 100 10 957
-------- -------- -------- --------
Total gross loans $150,495 $274,490 $130,482 $555,467
======== ======== ======== ========
Interest Sensitivity
--------------------
Fixed Variable
Rate Rate
----- --------
Due after one year $228,480 $176,492
C. Risk Elements
1. The following table shows at December 31, the aggregate amounts of loans
(dollars in thousands) which are non-accrual, troubled with debt restructurings
and accruing loans past due 90 days or more as to principal or interest
payments.
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Non-accrual loans $ 8,479 $ 8,086 $11,060 $ 1,720 $ 3,677
Troubled debt restructurings 4,510 4,458 3,028 2,930 1,000
Loans past due 90 days or more 0 0 0 0 0
------- ------- ------- ------- -------
Total $12,989 $12,544 $14,088 $ 4,650 $ 4,677
======= ======= ======= ======= =======
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If the non-accrual loans had been current throughout their terms, interest
income would have been approximately $1,065,000: $929,000; $431,000; $202,000
and $472,000 for 2000, 1999, 1998, 1997 and 1996 respectively. Interest income,
which is recorded only as received, amounted to $460,000; $442,000; $216,000;
$180,000 and $154,000 for 2000, 1999, 1998, 1997 and 1996 respectively for these
non-accrual loans.
In accordance with the general policies established by the board of directors of
the Company, loans are placed on non-accrual status when they are contractually
past due 90 days or more as to interest or principal payments. Additionally,
whenever management becomes aware of facts or circumstances that may adversely
impact the collectibility of principal or interest on loans, it is the practice
of management to place such loans on a non-accrual status immediately rather
than waiting until the loans become 90 days past due. 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.
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2. As of December 31, 2000, there existed potential problem loans totaling
$8,679,251, which are not now disclosed within the category "Risk Element".
The following table indicates management's assessment of potential loss at year
end 2000.
Loans in category Loss factor Loan loss potential
----------------- ----------- -------------------
$4,404,163 5% $ 220,208
3,564,758 10% 356,476
291,738 25% 72,935
415,677 50% 207,839
$ 2,915 100% 2,915
---------- --- ----------
Totals $8,679,251 $ 860,372
Commercial loans comprised $8,114,113 or 93.5% of the total loans categorized as
problem loans. The other types of loans comprising this amount were consumer
loans totaling $565,138 or 6.5%.
3. The Company's loan portfolio is diversified by types of borrowers and
industry groups within all of the counties that comprise its market area.
Significant loan concentrations are considered to exist for a financial entity
when such amounts are loaned to borrowers engaged in similar activities as would
cause them to be similarly impacted by economic or other conditions. At December
31, 2000, there existed no industry group concentrations in the Company's loans
which exceed 10% of total loans; See Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Balance Sheet
Analysis -- Loans" for additional discussion regarding industry groups.
15
16
IV. SUMMARY OF LOAN LOSS EXPERIENCE
A. The following table summarizes the daily average loan balances at the end of
each period; changes in allowance for loan losses arising from loans charged off
and recoveries on loans previously charged off, by loan category; and addition
to the allowance for loan losses that have been charged to operating expenses
(dollars in thousands).
December 31
-----------
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Daily average amount of
loans $ 505,892 $ 421,541 $ 333,484 $ 276,639 $ 233,473
========= ========= ========= ========= =========
Balance of allowance for
possible loan losses
at beginning of period $ 7,611 $ 11,035 $ 3,881 $ 2,893 $ 2,617
Loans Charged Off:
Real estate - mortgage 1,584 991 355 1 99
Real estate - construction 40 -- -- --
Loans to farmers 24 35 -- -- --
Commercial/Industrial Loans 343 4,097 376 199 82
Consumer Loans 123 199 114 121 105
Lease financing/other loans -- -- -- -- --
--------- --------- --------- --------- ---------
Total loans charged off $ 2,074 $ 5,362 $ 845 $ 321 $ 286
========= ========= ========= ========= =========
Recoveries of loans previously
charged off
Real estate - mortgage 290 508 148 1 --
Real estate - construction 2 -- -- -- --
Loans to farmers 11 -- -- -- --
Commercial/Industrial Loans 557 1,433 186 151 16
Consumer loans 64 47 43 42 26
Lease financing/other loans -- -- -- -- --
--------- --------- --------- --------- ---------
Total loan recoveries $ 924 $ 1,988 $ 377 $ 194 $ 42
--------- --------- --------- --------- ---------
Net loans charged off $ 1,150 $ 3,374 $ 468 $ 127 $ 244
--------- --------- --------- --------- ---------
Additions to allowance for loan
losses charged to operating
expense $ 545 $ 850 $ 1,135 $ 1,115 $ 400
--------- --------- --------- --------- ---------
Allowance to related assets
acquired $ -- $ (900) $ 6,487 $ -- $ 120
--------- --------- --------- --------- ---------
Allowance for loan losses at
end of period $ 7,006 $ 7,611 $ 11,035 $ 3,881 $ 2,893
========= ========= ========= ========= =========
Ratio of net charge offs
during period to average
Loans outstanding .23% .80% .14% .05% .10%
The factors which influence management's judgment in determining the additions
to loan valuation reserve are discussed in the section titled "Risk Management
and the Allowance for Loan Losses" in Item 7. "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
16
17
V. DEPOSITS
The average amounts of and the average rate paid on each category of the
Company's deposits are summarized below for the periods indicated (dollars in
thousands).
YEAR ENDED DECEMBER 31
----------------------
2000 1999 1998
---- ---- ----
BALANCE RATE BALANCE RATE BALANCE RATE
------- ---- ------- ---- ------- ----
Non-interest bearing demand
deposits $ 61,214 0.00% $ 56,755 0.00% $ 46,586 0.00%
Interest bearing demand
deposits 44,965 1.86% 47,313 1.77% 41,734 2.04%
Savings deposits 164,858 4.79% 141,972 3.75% 109,778 3.71%
Time deposits (Excluding time
certificates of deposit of
$100,000 or more) 186,696 5.77% 193,416 5.36% 144,772 5.86%
Time Certificates of Deposit
of $100,000 or more 65,390 6.24% 53,366 5.63% 43,640 5.38%
-------- ---- -------- ---- -------- ----
Total Deposits $523,123 4.51% $492,822 3.97% $386,510 4.08%
======== ==== ======== ==== ======== ====
Maturities of time certificates of deposit of $100,000 or more outstanding at
December 31 are summarized as follows (dollars in thousands).
2000 1999 1998
---- ---- ----
3 months or less $ 8,034 $20,118 $ 9,778
Over 3 months thru 6 months 6,185 20,955 17,183
6 months thru 12 months 12,345 8,244 12,629
Over 12 months 34,770 6,218 8,127
------- ------- -------
Total $61,334 $55,535 $47,717
======= ======= =======
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VI. RETURN ON EQUITY AND ASSETS
The ratio of consolidated net income to average stockholders' equity and to
average total assets and other ratios are as follows:
YEAR ENDED DECEMBER 31,
--------------------------------------
2000 1999 1998
---- ---- ----
Percentage of consolidated net income
to:
Average total assets (return on assets) .95% 1.12% 1.21%
Average stockholders' equity (return
on equity) 13.76% 15.07% 13.87%
Percent of dividends declared per
common share to net income per common
share (dividend pay-out ratio) 45.56% 39.36% 57.32%
Percent of average stockholders'
equity to average total assets
(equity to assets ratio) 6.90% 7.45% 8.72%
18
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VII. Short-Term Borrowings
A. The following table shows outstanding amounts of short-term borrowings,
together with the weighted average interest rates thereon, at December 31, of
each of the past three years (dollars in thousands).
2000 1999 1998
---- ---- ----
Balance Yield Balance Yield Balance Yield
------- ----- ------- ----- ------- -----
Federal funds purchased $35,000 7.08% $ 6,330 6.16% $ -- 0.00%
Federal Home Loan Bank
borrowings 42,000 6.24% -- 0.00% -- 0.00%
Securities Sold under
agreements to repurchase 3,289 4.68% 2,901 3.88% 3,758 4.19%
------- ----- ------- ----- ------- -----
Totals $80,289 6.54% $ 9,231 5.44% $ 3,758 4.19%
======= ===== ======= ===== ======= =====
B. The following table shows the maximum amounts outstanding of short term
borrowings at any month-end during each reported period (dollars in thousands).
2000 1999 1998
---- ---- ----
Balance Balance Balance
------- ------- -------
Federal funds purchased $35,000 $28,350 $38,392
Federal Home Loan Bank
borrowings 42,000 -- --
Securities sold under
agreements to repurchase 3,289 2,032 2,925
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20
C. The following table shows for the periods indicated the daily average amount
outstanding for the categories of short-term borrowings, the interest paid and
the weighted average rates thereon (dollars in thousands).
2000 1999 1998
---- ---- ----
Average Average Average
Amount Int. Rate Amount Int. Rate Amount Int. Rate
------ ---- ------- ------ ---- ------- ------ ---- -------
Short-term
borrowings:
Federal funds
purchased $20,459 $ 1,388 6.78% $10,812 $ 605 5.60% $15,106 $ 898 5.94%
Federal Home Loan
Bank borrowings 21,339 1,459 6.84% 0.00% -- -- 0.00%
Securities sold
under agreements
to repurchase 2,213 123 5.56% 3,657 163 4.46% 3,637 173 4.76%
------- ------- ---- ------- ------- ---- ------- ------- ----
Total short-term
borrowings $44,011 $ 2,970 6.75% $14,469 $ 768 5.31% $18,743 $ 1,071 5.71%
======= ======= ==== ======= ======= ==== ======= ======= ====
20
21
VIII. Other Borrowings
A. The following table shows outstanding amounts of other borrowings, together
with the weighted average interest rates thereon, at December 31, of each of the
past three years (dollars in thousands).
2000 1999 1998
---- ---- ----
Balance Yield Balance Yield Balance Yield
------- ----- ------- ----- ------- -----
Federal Home Loan Bank
loan $70,000 6.80% $80,000 6.39% $53,000 5.26%
Correspondent Bank
loans 7,700 8.50% --- 0.00% --- 0.00%
Totals $77,700 6.97% $80,000 6.39% $53,000 5.26%
======= ===== ======= ===== ======= =====
B. The following table shows the maximum amounts outstanding of other borrowings
at any month-end during each reported period (dollars in thousands).
2000 1999 1998
---- ---- ----
Balance Balance Balance
------- ------- -------
Federal Home Loan Bank
loan $95,000 $80,000 $53,000
Correspondent Bank loans $ 7,800
C. The following table shows for the periods indicated the daily average amount
outstanding for the categories of other borrowings, the interest paid and the
weighted average rates thereon (dollars in thousands).
2000 1999 1998
---- ---- ----
Average Average Average
Amount Int. Rate Amount Int. Rate Amount Int. Rate
------ ---- ------- ------ ---- ------- ------ ---- -------
Federal Home Loan Bank
loan: $79,904 $ 5,208 6.52% $56,466 $ 2,950 5.22% $42,099 $ 2,290 5.44%
Correspondent Bank
loans $ 3,725 $ 321 8.62% -- -- 0.00% -- -- 0.00%
Total other
borrowings $83,629 $ 5,529 6.61% $56,466 $ 2,950 5.22% $42,099 $ 2,290 5.44%
======= ======= ==== ======= ======= ==== ======= ======= ====
21
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IX. Long Term Debt
A. The following table shows outstanding amounts of long term debt,
together with the weighted average interest rates thereon, at December
31, of each of the past three years (dollars in thousands). Long term
debt consists of a land contract requiring annual principal payments
of $53,000 plus interest calculated at prime + 1/4%.
2000 1999 1998
---- ---- ----
Balance Yield Balance Yield Balance Yield
------- ----- ------- ----- ------- -----
Land contract payable $ 211 8.75% $ 264 8.00% 317 8.75%
Other -- 0.00% -- 0.00% 75 5.85%
------ ---- ------ ---- ------ ----
$ 211 8.75% $ 264 8.00% $ 392 8.20%
====== ==== ====== ==== ====== ====
B. The following table shows the maximum amounts outstanding of long term debt
at any month-end during each reported period (dollars in thousands).
2000 1999 1998
---- ---- ----
Balance Balance Balance
------- ------- -------
Land contract payable $ 211 $ 264 $ 317
Other -- -- 89
C. The following table shows for the periods indicated the daily average amount
outstanding for the categories of long term debt, the interest paid and the
weighted average rates thereon (dollars in thousands).
2000 1999 1998
---- ---- ----
Average Average Average
Amount Int. Rate Amount Int. Rate Amount Int. Rate
------ ---- ------- ------ ---- ------- ------ ---- -------
Long term debt:
Land contract payable $ 211 $ 18 8.75% $ 265 $ 21 7.92% $ 348 $ 31 9.20%
22
23
ITEM 2. PROPERTIES
Baylake directly owns no real properties of any kind. However, the Bank owns
twenty-three branches and leases the Company's main office building in Sturgeon
Bay, Wisconsin from its subsidiary, the Bank of Sturgeon Bay Building
Corporation.
The main office building located in Sturgeon Bay serves as headquarters for
Baylake as well as the main banking office of the Bank. The main office also
accommodates the expanded business of the Bank, primarily an insurance agency
(Baylake Insurance Agency) and financial services. The twenty-five branches
owned or leased by Bank are conveniently located throughout the market area
served by Bank, including the counties of Door, Kewaunee, Brown, Manitowoc,
Green Lake, Outagamie, Waushara and Waupaca. All properties are in good
condition and considered adequate for present and near term requirements.
ITEM 3. LEGAL PROCEEDINGS
There are currently no legal proceedings of any kind constituting material
litigation involving Baylake or its subsidiaries. The previously pending
litigation, described in Baylake's annual report on Form 10-K for the year ended
December 31, 1999, was based on a lender liability claim for an alleged failure
to extend credit and was dismissed by the Circuit Court for Waupaca County,
Wisconsin on December 20, 2000 with prejudice and without payment or settlement
of any kind by the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth
quarter of fiscal year 2000.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SECURITY
HOLDER MATTERS
Historically, trading in shares of the Company's Common Stock has been limited.
Since mid-1993, Baylake Common Stock has been listed on the OTC Bulletin Board
(Trading symbol: BYLKBB), an electronic interdealer quotation system providing
real-time quotations on over 4,000 eligible securities. Trading in Baylake
Common Stock has been conducted principally by certain brokerage and investment
firms with offices in Door County, Wisconsin that have provided price
quotations, and have assisted individual holders of Baylake Common Stock who
wish to sell their shares. In addition, since May 1993, prices for Baylake
Common
23
24
Stock have generally been reported daily in The Milwaukee Journal Sentinel based
on information provided by a local brokerage firm.
The following table summarizes high and low bid prices and cash dividends paid
for the Baylake Common Stock for the periods indicated. Bid prices are computed
from those obtained from two brokerage firms, and, since May 1993 from bid
prices reported in The Milwaukee Journal Sentinel. The reported high and low
prices represent interdealer bid prices, without retail mark-up, mark-downs or
commission, and may not necessarily represent actual transactions. Prices and
dividends per share quoted have been adjusted for a 2 for 1 stock dividend paid
on November 15, 1999.
Cash dividends per
Calendar period High Low share
--------------- ---- --- ------------------
1999 1st Quarter $17.25 $15.50 $0.090
2nd Quarter $17.63 $16.56 $0.090
3rd Quarter $20.00 $17.25 $0.090
4th Quarter $30.00 $19.75 $0.100
2000 1st Quarter $26.00 $21.50 $0.100
2nd Quarter $23.50 $19.88 $0.100
3rd Quarter $21.00 $18.00 $0.100
4th Quarter $18.25 $14.50 $0.110
Baylake had approximately 1,733 shareholders of record at March 12, 2001.
Dividends on Baylake Common Stock have historically been paid in cash on a
quarterly basis in March, June, September and January, and Baylake expects to
continue this practice for the immediate future. The holders of Baylake Common
Stock are entitled to receive such dividends when and as declared by Baylake's
Board of Directors. The ability of Baylake to pay dividends is dependent upon
receipt by Baylake of dividends from the Bank, which is subject to regulatory
restrictions. Such restrictions, which govern state chartered banks, generally
limit the payment of dividends on bank stock to the bank's undivided profits
after all payments of all necessary expenses, provided that the bank's surplus
equals or exceeds its capital, as discussed further in Item 7. "Management
Discussion and Analysis of Financial Condition and Results of Operation-Capital
Resources". In determining the payment of cash dividends, the Board of Directors
of Baylake considers the earnings, capital and debt servicing requirements,
financial ratio guidelines issued by the FRB and other banking regulators,
financial conditions of Baylake and the Bank, and other relevant factors.
Baylake maintains a dividend reinvestment plan enabling participating
shareholders to elect to purchase shares of Baylake Common Stock in lieu of
receiving cash dividends. Such shares may be newly issued securities or acquired
in the market and will be purchased on behalf of participating shareholders at
their then fair market value.
24
25
ITEM 6. SELECTED FINANCIAL DATA
Year Ended December 31,
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
(dollars in thousands, except per share data)
Interest Income $ 56,036 $ 46,467 $ 38,061 $ 31,577 $ 26,926
Interest Expense 32,099 23,280 19,148 14,662 12,046
--------- --------- --------- --------- ---------
Net Interest Income 23,937 23,187 18,913 16,915 14,880
Provision for Loan Losses 545 850 1,135 1,115 400
--------- --------- --------- --------- ---------
Net interest income after
provision for loan losses 23,392 22,337 17,778 15,800 14,480
Non-interest income:
Gain on sale of loans 240 295 893 678 212
Loan servicing fees 837 875 846 731 674
Trust fees 517 553 451 491 611
Service charges on deposit
accounts 1,489 1,369 1,074 844 743
Securities gains (losses), net 0 (2) 0 292 38
Other 1,603 1,466 1,113 1,032 1,173
--------- --------- --------- --------- ---------
Total non-interest income 4,686 4,556 4,377 4,068 3,451
Non-interest expense
Salaries and employee benefits 10,353 9,700 7,772 7,003 6,270
Occupancy expense, net 3,047 2,668 2,192 2,035 1,732
Data processing 932 872 699 642 548
Other non-interest expense 4,280 4,247 3,213 2,861 2,972
Operation of other real estate (22) (117) 15 30 (188)
--------- --------- --------- --------- ---------
Total non-interest expense 18,590 17,370 13,891 12,571 11,289
--------- --------- --------- --------- ---------
Income before income tax 9,488 9,523 8,264 7,297 6,642
Income tax provision 2,778 2,600 2,247 2,027 1,939
--------- --------- --------- --------- ---------
Net income $ 6,710 $ 6,923 $ 6,017 $ 5,270 $ 4,703
PER SHARE DATA: (1)
Net income per share (basic) $ 0.90 $ 0.94 $ 0.82 $ 0.72 $ 0.64
Net income per share (diluted) 0.87 0.90 0.80 0.71 0.63
Cash dividends per common share 0.41 0.37 0.47 0.40 0.31
25
26
Book value per share 7.14 6.21 6.17 5.71 5.32
SELECTED FINANCIAL CONDITION
DATA (AT END OF PERIOD):
Total assets $ 772,268 $ 646,310 $ 607,438 $ 450,062 $ 395,356
Investment securities (2) 153,511 145,080 128,046 114,899 99,138
Total loans 555,831 447,767 408,921 293,438 260,854
Total deposits 553,254 504,074 495,284 345,976 327,165
Short-term borrowings (3) 80,289 9,231 3,758 20,649 23,840
Other borrowings (4) 77,700 80,000 53,000 36,000 0
Notes payable and subordinated
debt 211 264 392 383 422
Total shareholders' equity 53,127 46,210 45,272 41,855 39,234
PERFORMANCE RATIOS:
Return on average assets 0.95% 1.12% 1.21% 1.29% 1.34%
Return on average total
shareholders' equity 13.76% 15.07% 13.87% 13.14% 12.39%
Net interest margin (5) 3.86% 4.35% 4.42% 4.77% 4.97%
Net interest spread (5) 3.34% 3.89% 3.85% 4.12% 4.36%
Non-interest income to average
assets 0.66% 0.74% 0.88% 1.00% 0.98%
Non-interest expense to average
assets 2.63% 2.82% 2.79% 3.08% 3.20%
Net overhead ratio (6) 1.97% 2.08% 1.91% 2.08% 2.22%
Average loan-to-average deposit
ratio 96.71% 85.54% 86.28% 83.14% 78.44%
Average interest-earning assets
to average interest-bearing
liabilities 110.78% 111.14% 113.63% 116.51% 115.83%
ASSET QUALITY RATIOS: (7)(8)
Non-performing loans to total loans 2.34% 2.80% 3.45% 1.58% 1.79%
Allowance for loan losses to:
Total loans 1.26% 1.70% 2.71% 1.32% 1.11%
Non-performing loans 53.94% 60.67% 78.33% 83.46% 61.86%
26
27
Net charge-offs to average loans 0.23% 0.80% 0.14% 0.05% 0.10%
Non-performing assets to total
assets 1.80% 1.95% 2.41% 1.03% 1.27%
CAPITAL RATIOS: (9)
Shareholders' equity to assets 6.88% 7.15% 7.45% 9.30% 9.92%
Tier 1 risk-based capital 7.77% 8.81% 7.97% 11.31% 12.14%
Total risk-based capital 8.92% 10.07% 9.22% 12.52% 13.18%
Leverage ratio 6.38% 6.79% 6.02% 8.86% 9.63%
RATIO OF EARNINGS TO FIXED
CHARGES: (10)
Including deposit interest 1.30x 1.41x 1.43x 1.50x 1.55x
Excluding deposit interest 2.11x 3.55x 3.44x 5.24x 10.83x
(1) Earnings and dividends per share are based on the weighted average number
of shares outstanding for the period. All per share data has been adjusted
to reflect (a) a 2 for 1 stock dividend paid on November 15, 1999 and (b) a
3 for 2 stock dividend paid on May 15, 1998.
(2) Includes securities classified as held-to-maturity and available for sale.
(3) Consists of Federal Home Loan Bank advances, federal funds purchased and
collateralized borrowings.
(4) Consists of Federal Home Loan Bank term notes and Company borrowings
from unaffiliated correspondent bank.
(5) Net interest margin represents net interest income as a percentage of
average interest-earning assets, and net interest rate spread represents
the difference between the weighted average yield on interest-earning
assets and the weighted average cost of interest-bearing liabilities.
(6) Net overhead ratio represents the difference between noninterest expense
and noninterest income, divided by average assets.
(7) Non-performing loans consist of non-accrual loans, guaranteed loans 90 days
or more past due but still accruing interest and restructured loans.
(8) The increases in non-performing loans culminating with the period ended
December 31, 1998 were due, in part, to various troubled loans acquired as
a result of the Evergreen Bank acquisition. For additional information, see
in Item 7. "Management's Discussion and Analysis of Financial Condition and
Result of Operations-Non-performing Loans, Potential Problem Loans and
Other Real Estate."
(9) The capital ratios are presented on a consolidated basis. For information
on Baylake and the Bank's regulatory capital requirements, see Item 7.
"Management's Discussion and Analysis
27
28
of Financial Condition and Results of Operations-Capital Resources" and
Item 1. "Business-Regulation and Supervision".
(10) For purposes of calculating the ratio of earnings to fixed charges,
earnings consist of income before taxes plus interest and rent expense.
Fixed charges consist of interest and rent expense.
28
29
ITEM 7. 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 at Item 8. 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 similar expressions 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 Company: 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. and changed its
name to Baylake Bank, N.A. ("BLBNA"). The acquisition was accounted for using
the purchase method of accounting. Therefore, any consideration paid to M&I will
affect future income. See the discussion of this transaction under Item 1.
"Business" and Note 13 of Notes to Consolidated Financial Statements for
additional details on this transaction.
All per share information has been restated to reflect the 3-for-2 stock
dividend paid on May 15, 1998 and the 2-for-1 dividend paid on November 1999.
Results of Operations
Earnings Summary
Net income in 2000 was $6.7 million, a 3.1% decrease from the $6.9 million
earned in 1999. Net income for 1999 showed a 15.1% increase
29
30
over the 1998 earnings. Basic operating earnings per share decreased $.04 to
$.90 per share in 2000 compared with $.94 in 1999, a decrease of 4.3%. Basic
operating earnings per share in 1999 showed a 14.6% increase over 1998 results
of $.82 per share. On a diluted earnings per share basis, the Company recorded
$.87 per share in 2000, compared to $.90 and $.80 per share in 1999 and 1998,
respectively.
Net income for 2000 includes amortization expense of $327,000 of goodwill
related to the purchase of Four Seasons (holding company of financial
institution named "The Bank", acquired by the Company on July 1, 1996) and
$159,000 related to the acquisition of BLBNA. This expense reduced after-tax net
income in 2000 by $486,000 or earnings per share by $.06. Net income for 1999
reflected amortization expense of $453,000 related to goodwill, thereby reducing
after-tax earnings per share by $.06.
Although affected by a rising interest rate environment and increased
competition in 2000, net interest income improved. Net interest income for 2000
improved $750,000 or 3.2% over 1999 levels. Net interest income for 1999
improved $4.3 million or 22.6% over 1998 levels. Interest income increased by
20.1% while interest expense increased 37.9%.
Other income increased $130,000 or 2.9%. The primary factors increasing other
income were an increase in fees for other services to customers and other income
offset by a decrease in gains on sales of loans, a decrease in loan servicing
fees and reduced fiduciary income.
Non-interest expense increased $1.2 million or 7.0% over 1999 levels. Factors
contributing to the increase were increased personnel expenses, occupancy and
equipment expense, data processing and other operating expenses offset by a
reduction in operation of other real estate.
For 2000, return on average assets declined to .95% compared with 1.12% in 1999
and 1.21% in 1998. This ratio declined as a result of the various factors
discussed above combined with an average asset growth rate of 14.5% in 2000.
Return on average stockholders' equity in 2000 showed a decrease to 13.8%
compared to 15.1% in 1999 and 13.9% in 1998. The decrease in 2000 compared to
1999 occurred as a result of decreased net income, higher average capital and
the factors described above.
Cash dividends declared in 2000 increased 10.8% to $.41 per share compared with
$.37 in 1999. This compares to a decrease of 21.3% in 1999 dividends as compared
to 1998.
The major components of net income and changes in these components are
summarized in the following table for years ended December 31, 2000, 1999 and
1998 and are discussed in more detail on the following pages.
30
31
Years ended December 31,
2000 1999 1999 to 1998 1998 to
2000 1999
increase increase
(dollars in thousands)
Net interest income 23,937 23,187 3.23% 18,913 22.60%
Provision for loan losses 545 850 (35.88%) 1,135 (25.11%)
Noninterest income 4,686 4,556 2.85% 4,377 4.09%
Noninterest expense 18,590 17,370 7.02% 13,891 25.04%
Income before income taxes 9,488 9,523 (0.37%) 8,264 15.23%
Income tax expense 2,778 2,600 6.85% 2,247 15.71%
----- ----- -----
Net income 6,710 6,923 (3.08%) 6,017 15.06%
Net Interest Income
Net interest income (on a tax equivalent basis) is the Company's principal
source of revenue accounting for 84.3% of total income in 2000, as compared to
84.3% in 1999 and 82.1% in 1998. Net interest income represents the difference
between interest earned on loans, investments and other interest earning assets
offset by the interest expense attributable to funding sources, principally
deposits and borrowings. Interest rate 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 income 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 $25.2 million in 2000, an
increase of 2.9% from $24.5 million in 1999 and $20.1 million in 1998. The
improvement in 2000 net interest income of $700,000 was due in part to an
increase in the volume of net average earning assets of $7.0 million. In spite
of this, average-earning assets increased 15.9% offset by an increase of 16.3%
in average interest-bearing liabilities. The benefit from an increase in earning
assets, non-interest bearing deposits and an increase in the yield on earning
assets were offset, in part, by an increase in interest-bearing liabilities and
an increase in the cost of interest paying liabilities. As a result, interest
income increased 20.1% while interest expense for 2000 increased 37.9%.
Average loans outstanding grew from $421.5 million in 1999 to $505.9 million in
2000, an increase of 20.0%. The increase in loan volume was a significant
contributing factor to the increase in interest income. Average loans
outstanding increased from $333.5 million in 1998 to $421.5 million in 1999, an
increase of 26.4%. The mix of average loans to average total assets increased
from 67.1% in 1998 to 68.3% in 1999 and to 71.6% in 2000. The relationship of a
higher volume of loans as
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a percentage of the asset mix has provided a source of higher yielding assets,
which has contributed to an increase in net interest income.
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 year 2000 saw the compression of the interest rate spread for
the Company as a higher rate environment and additional reliance on wholesale
funding resulted in higher interest expense relative to interest income. The
interest rate spread decreased 55 basis points in 2000 to 3.34% from 3.89% in
1999, as the average yield on earning assets increased 30 basis points while the
average rate paid on interest-bearing liabilities increased 85 basis points over
the same period. In contrast, interest rate spread increased 4 basis points in
1999 compared to 1998 results. The increase in the Company's earning assets
yield reflects an increasing rate environment impacting rates on the variable
priced loans for the year 2000. Increased investment interest income, which
resulted from an increased investment portfolio, combined with higher yields on
the investment portfolio have contributed to some of the increase in the yields
on interest earning assets. Yields on interest-paying liabilities increased 85
basis points. An increased rate environment also affected the funding side of
the balance sheet. Increased interest costs resulted from increased competition
for retail deposits; increased balances in indexed accounts and additional
reliance on wholesale funding. Yields on interest bearing deposits increased 63
basis points from 4.48% in 1999 to 5.11% in 2000.
Short-term borrowings increased $71.0 million as loan demand continued to exceed
deposit growth, increasing reliance on wholesale funding sources. Short-term
borrowings consist of federal funds purchased and overnight borrowings from the
Federal Home Loan Bank ("FHLB") of Chicago. These funding sources increased the
percentage of average short-term borrowings as a percentage of average
interest-bearing liabilities to 7.1% in 2000 compared to 2.1% in 1999. Yields on
these borrowings increased 121 basis points in 2000 compared to 1999
contributing to an overall increase in the yields paid on interest-bearing
liabilities.
Additional sources of funds consisted of other borrowings. Other borrowings
consist of term loans with the FHLB and other term loans taken out by the
Company during the year 2000. Other borrowings decreased $2.3 million to $77.7
million. As a percentage of interest-bearing liabilities, other borrowings
increased to 14.2% from 11.1% in 1999. Yields on these borrowings increased 139
basis points to 6.61% from 5.22% in 1999.
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.
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The net interest margin for 2000 was 3.86% compared to 4.35% in 1999. The
decline in net interest margin was in part related to a decline in the free
funds ratio and a decrease in the interest rate spread offset by a decrease in
non-accrual loans. The impact from competition as it relates to the commercial
loan portfolio and costs related to new product offerings had a negative affect
on the change in net interest margin. A rising interest rate environment further
compressed margin for the year 2000. The free funds ratio, or the level of
non-interest bearing funds that support earning assets, declined to 16.8% from
18.2% in 1999.
The net interest margin for 1999 was 4.35% compared to 4.42% in 1998 as interest
rate spread declined during that period. The decrease in 1999 occurred primarily
as the result of an increase in non-accrual loans and a decline in the free
funds ratio offset by a 4 basis point increase in the interest rate spread.
Increased competition especially as it relates to the commercial loan portfolio,
negatively affected net interest margin.
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 92.5% in 2000 compared with 91.4% in 1999 and 91.7% in
1998. The ratio increased in 2000 as a result of a decrease in non-accrual
loans.
Competition in the financial services industry will also affect net interest
margin. Spreads will be a focus of management's attention, as the Company
constantly seeks to attract lower cost core deposits, service the needs of
customers, and provide attractively priced products. Competition for high
quality assets will also affect asset yields.
Growth in net interest income primarily is the result of growth in the level of
earning asset volumes and changes in asset mix. Interest rate spread management
through asset and liability pricing and increased levels of non-interest-bearing
sources of funds also aid in improving net interest income. Management will
continue its focus on maintaining an appropriate mix of quality earning assets
as well as seeking to achieve appropriate growth in volumes.
Changes in the levels of market interest rates also affect net income, but are
less directly under the control of the Company. Although a stable rate
environment has been experienced, management believes that a gradual increase in
interest rates will not adversely affect the earning capacity of the Company.
Past experience has shown that, although the Company remains in a short-term
negative interest rate sensitivity gap, deposits tend not to be repriced as
quickly as loans in a rising rate scenario and are repriced more frequently in a
falling interest rate environment. More discussion on this subject is referenced
in the section titled "Interest Rate Risk" below.
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Provision for Loan Losses
The provision for loan losses is the periodic cost, not less than quarterly, of
providing an allowance for anticipated future loan losses. In any accounting
period, the amount of provision is based on management's evaluation of the loan
portfolio, especially nonperforming and other potential problem loans, taking
into consideration many factors, including loan growth, net charge-offs, changes
in the composition of the loan portfolio, delinquencies, management's evaluation
of loan quality, general economic factors and collateral values.
Provision for loan losses in 2000 at $545,000 compares to a provision of
$850,000 for 1999 and $1,135,000 for 1998. Net charge-offs in 2000 were $1.2
million compared with net charge-offs of $3.4 million in 1999 and $468,000 in
1998. Net charge-offs as a percentage of average loans is a key measure of asset
quality. Net charge-offs to average loans were .23% in 2000 compared with .80%
in 1999 and .14% in 1998. Entry into new markets has allowed management the
opportunity to re-evaluate and refine the methodology used in estimating
adequate provision for loan losses. As a result, the provision for loan losses
was reduced despite increased loan growth. Management believes that the current
provision conforms with the Company's loan loss reserve policy and is adequate
in view of the present condition of the Company's loan portfolio. See "Risk
Management and the Allowance for Loan Losses" below.
Non-Interest Income
Total non-interest income for 2000, excluding securities transactions, was, $4.7
million, a $130,000 increase from 1999, or 2.9%. In 1999, total non-interest
income was $179,000 more than 1998, a 4.1% increase. Trust service fees, loan
servicing fees, gains from sales of loans and service charges continue to be the
primary components of non-interest income.
Trust fees decreased $36,000 or 6.5% to $517,000 in 2000 compared to 1999,
primarily as a result of a decrease in trust estate business offset slightly by
an increase in additional assets under management. This compared to an increase
of $102,000 or 22.6% in 1999 compared to 1998, primarily the result of increased
trust estate business.
Loan servicing fees decreased $38,000, or 4.3%, to $837,000 in 2000. This
followed an increase of $29,000, or 3.4%, increase to $875,000 in 1999. The
decrease in 2000 occurred as a result of decreased servicing income due to a
smaller portfolio of commercial loan business sold on the secondary market and
serviced by Company.
Gains on sales on loans in the secondary market decreased $55,000 to $240,000 in
2000 primarily as a result of decreased gains from sales of commercial loans.
Premiums declined in the secondary market for commercial loans contributing to a
decline of $46,000 in gains from the sale of commercial loans. In addition,
gains from mortgage loans
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decreased $9,000 in 2000. A decrease in mortgage loan business sold during 2000
amounted to $17.2 million of loans sold compared to $19.9 million of mortgage
loans sold in 1999. Total loans sold during 2000 were $23.6 million compared to
$26.2 million in 1999.
Service charges on deposit accounts showed an increase of $120,000, or 8.7%,
over 1999 results accounting for the improvement in fee income generated for
other services provided to customers.
Other income increased $94,000, or 9.9%, to $1.0 million in 2000. The growth
resulted primarily from increases in undistributed income from UFS, the data
processing subsidiary. Undistributed income from UFS increased as a result of
increased earnings of $105,000, to $232,000, from the data processing
subsidiary.
Non-Interest Expense
Non-interest expense in 2000 increased to $18.6 million, a $1.2 million, or 7.0%
increase compared to 1999 results, primarily as a result of increased personnel,
equipment, data processing, and other operating expense. This followed a $3.5
million or 25.0% increase in 1999 as compared to 1998.
Salaries and employee benefits expense is the largest component of non-interest
expense and totaled $10.4 million in 2000, an increase of $653,000, or 6.7%, as
compared to 1999 results. The increase in 2000 primarily resulted from staffing
increases, increased benefit costs, and normal salary increases. Salary and
employee benefits expense in 1999 totaled $9.7 million, an increase of $1.9
million, or 24.8%, as compared to 1998 results. The 1999 increase resulted
primarily from staffing increases, including the addition of BLBNA, bonus
expense, increased benefit costs, and normal salary increases.
Bonus expense in 2000 was $134,000 compared to $636,000 in 1999. The decrease
occurred as a result of no bonus expense arising from the Company's
Pay-for-Performance Program in 2000. In 1999, Baylake paid $536,000 pursuant to
its Pay-for-Performance Program. This program is designed to reward various
divisions upon achievement of certain goals related to improvement in income and
on return on equity. The Company did not achieve its return on equity goals and,
accordingly, no bonus payment was made.
The Company's 401(k) profit sharing plan, including a money purchase plan
initiated in 1999, covering all employees who qualify as to age and length of
service increased to $626,000, an increase of $53,000, or 9.3%, over 1999
levels. Expenses in the same category were up $94,000, or 19.7%, over 1998
levels.
The number of full-time equivalent employees increased to 272 in 2000 from 252
in 1999, an increase of 7.9%. Employee levels in 1999 increased to 252 from 229
in 1998, an increase of 10.0%. In addition to increases from the BLBNA
acquisition, the increases occurred
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primarily at the Company's Green Bay locations with emphasis on additional
personnel for sales and calling programs. Management will continue its efforts
to control salaries and employee benefits expense, although increases in these
expenses are likely to continue to occur in future years.
Net occupancy expense for 2000 showed an increase of $213,000, or 14.9%, as
compared to 1999 for a total of $1.6 million. Additions of two facilities in the
Green Bay region plus two additional branches built on existing sites accounted
for the balance of the increase in occupancy expense for 2000. Additional
depreciation expense, real estate tax expense, and other occupancy costs
resulted in 2000. This increase followed an increase of $261,000, or 22.3%, in
1999. The cost of a new branch in Waupaca along with additional expense stemming
from the BLBNA acquisition and expansion opportunities in the Green Bay region
were reasons for the additional expense in 1999.
Equipment expense increased $166,000, or 13.4%, compared to 1999. This followed
an increase of $215,000, or 21.0%, in 1999. The increase resulted from
depreciation expense from past capital expenditures for equipment that were made
to enhance the Company's technological capabilities. The addition of branches in
2000 also accounted for an increase in equipment expense in 2000.
Data processing expense in 2000 increased $60,000, or 6.9%, due to an increase
in the volume of transaction activity processed, conversion expense, and
technology enhancements. This followed an increase of $173,000, or 24.7%, in
1999 compared to 1998. Management estimates that data processing expense should
show relatively flat increases with only adjustments related to any volume
increases incurred by the Company.
Other real estate expenses are netted against income received in the
determination of net other real estate owned expense (income). As a result, the
Company has shown varied results. Other real estate owned showed net income of
$22,000 in 2000 as a result of various gains taken on property sales. Gains of
$73,000 were taken from lot sales of Idlewild Valley, Inc., a former subsidiary
of the Bank whose value was written off in 1988. In addition, gains of $110,000
from three commercial property sales and $72,000 from seven residential property
sales were realized in 2000. These were offset by losses of $2,000 from the sale
of one commercial property and two residential properties. Various operating
expenses, net of income, of other real estate totaling $231,000 occurred in
2000. Other real estate owned expenses resulted in net income of $117,000 in
1999. Gains of $232,000 were realized from lot sales of Idlewild Valley, Inc. in
1999. In addition, gains of $69,000 from three commercial property sales and
$33,000 from three residential property sales were realized in 1999. These were
offset by losses of $56,000 from the sale of one commercial property and three
residential properties. Various operating expenses, net of income, of other real
estate totaling $161,000 occurred in 1999. Other real estate owned expenses
showed a net loss of $15,000 in 1998,
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stemming from various operating expenses incurred on property held during the
year.
Other operating expenses in 2000 increased $33,000 or .8%. This compares to an
increase of $1 million, or 32.2%, in 1999 compared to 1998. Included in 2000
expenses were amortization of goodwill related to the Four Seasons acquisition
of $327,000, the same as in 1999, and amortization of $159,000, as compared to
$126,000 in 1999, related to the BLBNA acquisition.
Supplies expense shows an increase of $94,000, or 21.3%, in 2000 as compared to
1999. This increase occurred as a result of additional branches coming online
during the year 2000.
Payments to regulatory agencies decreased $41,000 to $140,000 for 2000. For the
Bank, these charges related to a debt service assessment related to Financing
Corporation ("FICO") for 2000 and a Federal Deposit Insurance Corporation
("FDIC") assessment for the first quarter of 2000. As a result of a change in
rating assigned of 2A, rating for adequately capitalized institutions, the Bank
experienced higher assessment costs for the last quarter of 1999 and first
quarter of 2000. The higher assessment occurred as a result of the "Total
Risk-Based Capital Ratio" decreasing to a level below 10%. Prior to the merger
of the Bank and BLBNA, BLBNA had 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 received a FDIC
assessment for its Bank Insurance Fund. The Bank's risk classification changed
to 1A, rating assigned to well-capitalized institutions, on May 31, 2000,
thereby enabling Bank to reduce FDIC premiums accordingly for the remainder of
2000. For additional information regarding the Company's capital adequacy, see
"Capital Resources" below.
Other items comprising other operating expense shows a decrease of $56,000 or a
1.8% decrease in 2000 compared to 1999. Additional marketing and advertising
expense of $135,000 account for some of this increase, as entry into newer
markets contributed to more extensive and costlier media advertising expense.
Loan and collection expense decreased $161,000, the result of less costly legal
and collection actions occurring during the year, especially as it involved the
BLBNA loans. Legal expenses decreased $173,000 during 2000, primarily the result
of the completion of various legal actions stemming from the operations of the
former BLBNA. The overhead ratio, which is computed by subtracting non-interest
income from non-interest expense and dividing by average total assets was 1.97%
for 2000 compared to 2.08% for 1999 and 1.91% for 1998. The Company continues
its commitment to deliver quality service and products to its customer base.
Income Taxes
Income tax expense for the Company in 2000 was $2.8 million, an increase of
$178,000 or 6.8% compared to 1999. This followed an increase of $353,000 or
15.7% in 1999 compared to 1998. The higher tax
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expense in 2000 and 1999 reflected the Company's increase in before tax earnings
offset by an increase in tax-exempt interest income.
The Company's effective tax rate, income tax expense divided by income before
taxes, was 29.3% in 2000 compared with 27.3% in 1999 and 27.2% in 1998. Of the
29.3% effective tax rate for 2000, the federal effective tax rate was 26.0%
while the Wisconsin State effective tax rate was 3.3%.
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. A valuation allowance has
been recognized to offset the related deferred tax assets due to the uncertainty
of realizing tax benefits of a portion of loan loss and mortgage servicing
differences.
Income taxes are provided for the tax effects of transactions reported in the
financial statements and consists of taxes currently due plus deferred taxes
related primarily to differences between the basis of the allowance for loan
losses, deferred loan origination fees, deferred compensation, mortgage loan
servicing, market value adjustments of securities, and depreciation for
financial and income tax reporting in accordance with SFAS 109. 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.
Balance Sheet Analysis
Loans
Total loans outstanding grew to $555.1 million at December 31, 2000, a 24.2%
increase from the end of 1999. This follows a 9.7% increase at December 31, 1999
over 1998 year end.
The commercial, financial, and agricultural loan classification primarily
consists of commercial loans to small businesses. Loans of this type are in a
broad range of industries and include service, retail, wholesale, and
manufacturing concerns. Agricultural loans are made principally to farmers
engaged in dairy, cherry and apple production. Borrowers are primarily
concentrated in Door, Brown, Outagamie, Waupaca, Waushara and Kewaunee counties,
Wisconsin. The credit risk related to commercial loans made is largely
influenced by general economic conditions, especially those applicable to the
Northeast Wisconsin market area, and the resulting impact on a borrower's
operations.
Commercial loans and commercial real estate loans (including construction loans)
totaled $377.4 million at year end 2000 and comprised 68.0% of the loan
portfolio compared with 65.7% of the portfolio at the end of 1999. Loans in
these classifications grew $83.4 million or 28.4% during 2000.
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The following table reflects composition (mix) of the loan portfolio at December
31 (in thousands of dollars):
2000 1999 1998
---- ---- ----
% of % of % of
Amount Total Amount Total Amount Total
Amount of loans by type
Real estate-mortgage
- -----------------------
Commercial $251,971 45.4% $201,301 45.0% $178,846 43.9%
1-4 Family residential
- ----------------------
First liens $109,173 19.7% $ 95,255 21.3% $101,391 24.9%
Junior liens $ 26,513 4.8% $ 23,811 5.3% $ 17,122 4.2%
Home equity $ 24,464 4.4% $ 18,963 4.3% $ 18,051 4.4%
Commercial,financial
and agricultural $ 83,897 15.1% $ 66,159 14.8% $ 67,550 16.6%
Real estate-construction $ 41,524 7.5% $ 26,535 5.9% $ 9,553 2.3%
Installment
- -----------
Credit cards and related
plans $ 2,140 0.4% $ 1,810 0.4% $ 1,809 0.4%
Other $ 15,785 2.8% $ 13,636 3.1% $ 14,105 3.5%
Less: deferred fees, net
of costs $ 360 0.1% $ 451 0.1% $ 779 0.2%
Total loans (net of
unearned income) $555,107 $447,019 $407,648
1997 1996
---- ----
% of % of
Amount Total Amount Total
Amount of loans by type
Real
estate-mortgage
- ---------------
Commercial $118,103 40.2% $104,391 40.0%
1-4 Family residential
- ----------------------
First liens $ 67,270 22.9% $ 57,319 22.0%
Junior liens $ 16,571 5.7% $ 15,416 5.9%
Home equity $ 16,714 5.7% $ 10,803 4.1%
Commercial,financial and
agricultural $ 47,078 16.1% $ 46,900 18.0%
Real estate-
construction $ 14,760 5.0% $ 11,365 4.4%
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Installment
- -----------
Credit cards and related
plans $ 1,790 0.6% $ 2,069 0.8%
Other $ 11,690 4.0% $ 13,164 5.0%
Less: deferred fees, net
of costs $ 538 0.2% $ 573 0.2%
Total loans (net of
unearned income) $293,438 $260,854
Real estate loans (including construction loans) secured by non-residential real
estate properties involve borrower characteristics similar to those for
commercial loans. Because of their similarities, they are combined with
commercial loans for purposes of analysis and discussion.
Management uses an active credit risk management process for commercial loans to
ensure that sound and consistent credit decisions are made. Management attempts
to control credit risk by adhering to detailed underwriting procedures,
performing comprehensive loan administration, and undertaking periodic review of
borrowers' outstanding loans and commitments. Borrower relationships are
formally reviewed periodically during the life of the loan. Further analyses by
customer, industry, and location are performed to monitor trends, financial
performance and concentrations.
The Company's loan portfolio is diversified by types of borrowers and industry