Baylake Corp. Reports Financial Results for the Three and Nine
Months Ended September 30, 2003 STURGEON BAY, Wis., Oct. 27
/PRNewswire-FirstCall/ -- Baylake Corp. (BULLETIN BOARD: BYLK) , a
bank holding company with $918.1 million in assets, reported net
income of $5.9 million or $0.79 basic net income per share for the
nine months ended September 30, 2003, as compared to $6.3 million
or $0.84 per share for the nine months ended September 30, 2002.
The decrease in net income was primarily due to decreased net
interest income, an increase in the provision for loan loss, and an
increase in non-interest expense. These were partially offset by an
increase in non-interest income and a reduction in income tax
expense. Diluted net income per share was $0.78 for the first nine
months of 2003 compared to $0.83 a year earlier. Return on assets
(ROA) and return on equity (ROE) decreased for the first nine
months of 2003, to 0.88% and 11.83%, respectively, from 0.97% and
13.62%, respectively, from the same period one year ago. For the
nine months ended September 30, 2003, net interest income decreased
$1.1 million to $21.3 million when compared to the first nine
months of 2002 due primarily to a decline in net interest margin of
40 basis points for the period offset somewhat by a $43.5 million
increase in average interest-earning assets. Net interest margin
decreased 40 basis points to 3.58% for the first nine months of
2003 when compared to the first nine months of 2002. The major
contributing factor to the decline in net interest income was net
interest margin compression due to the asset sensitive position of
Baylake Corp's balance sheet. Baylake Corp, like its peer group
banks, continues to be challenged by maintaining growth in its net
interest income in the current interest rate environment of
relatively stable low interest rates, because low rates make it
increasingly difficult to reduce rates on liabilities as
significantly as the reduction in the rates on assets. The increase
in average interest-earning assets was primarily attributable to
substantial growth in loan originations during the period. Baylake
Corp. recorded provisions for loan losses totaling $3.1 million
during the first nine months of 2003, as compared to $2.7 million
for the same period in 2002. The increase in the provision occurred
primarily as a result of an additional provision in the third
quarter on a previously disclosed commercial business loan. That
loan, with a balance at September 30, 2003 totaling $4.2 million,
has been recently restructured. Management continues to review this
loan credit monthly, in addition to its regular reviews of loans
and the allowance. Non-interest income was $8.4 million during the
first nine months of 2003, an increase of $1.5 million when
compared to the same period last year. The increase was primarily
attributable to increases in: gain on sale of subsidiary totaling
$350,000, an increase in gains on sales of loans totaling $866,000;
and an increase in loan servicing fees totaling $998,000; offset by
a decrease in other income totaling $313,000 and a decrease in
securities gains of $511,000. For the nine months ended September
30, 2003, non-interest expense increased $662,000 over the same
period last year. Personnel and benefit expense increased
approximately $673,000 due to additional staffing and normal salary
increases as well as significant increases in costs related to
health care insurance. Occupancy and equipment expense increased
$25,000 as a result of expansion in existing markets and costs
related to the modernization of various facilities. Data processing
expenses increased $39,000, a result of increased customer volume.
Expenses on other real estate owned increased $47,000, the result
of increased holding costs relative to these properties and losses
taken upon sale of various properties during the nine months ended
September 30, 2003. Income tax expense decreased $358,000 for the
nine months ended September 30, 2003 when compared to the same
period last year, the result of decreased taxable income. Baylake
Corp. reported net income of $2.2 million for the three months
ended September 30, 2003, an increase of $27,000, or 1.2%, for the
same period in the prior year. The increase in net income resulted
from an increase in non-interest income and a reduction in the
provision for loan loss offset partially by decreased net interest
income and an increase in non-interest expense. Net interest income
for the three months ended September 30, 2003 was $7.6 million
compared to $7.8 million for the same period a year earlier. Net
interest income decreased as a result of a reduction in net
interest margin of 32 basis points to 3.74% offset somewhat by an
increase in average earning assets amounting to $45.7 million.
Provisions for loan losses of $1.2 million were recorded for the
three months ended September 30, 2003 compared with $1.7 million
for the same period in 2002. Although a reduced provision for loan
losses occurred during the quarter compared to a year earlier, the
provision for loan losses still remained high relative to peer.
During the quarter ended September 30, 2003, a downgrade of the
previously discussed loan credit occurred amounting to an
additional $800,000 in loan loss provision for the period out of
the $1.2 million expensed. Non-interest income for the three months
ended September 30, 2003 increased $88,000 to $3.1 million
primarily due to increased gains on sales of loans amounting to
$267,000 and increased loan servicing fees totaling $428,000 offset
to a lesser degree by decreased other income of $78,000 and a
decrease in securities gains of $511,000. For the three months
ended September 30, 2003, non-interest expense increased $328,000
from the three months ended September 30, 2002 to $6.4 million.
Personnel and benefit expense increased $132,000 as a result of
additional staffing and benefit costs. Other occupancy and
equipment expense increased $62,000. Expenses from the operation of
other real estate owned increased $120,000. Other operating expense
increased $6,000. For the three months ended September 30, 2003,
income tax expense increased $22,000 to $831,000, the result of
increased taxable income. Total assets for Baylake Corp. increased
1.5% during the first nine months of 2003 to $918.1 million at
September 30, 2003 when compared to total assets of $904.7 million
at December 31, 2002. Total loans increased 1.2% during the first
nine months of 2003 to $674.1 million at September 30, 2003, while
deposits during the period increased 1.8% to $753.6 million. Total
shareholders' equity increased 4.1% for the first nine months of
2003 to $68.1 million at September 30, 2003 as compared with $65.4
million at December 31, 2002. The allowance for loan losses
increased $1.2 million to $12.6 million during the nine months
ended September 30, 2003. During the first nine months of 2003,
Baylake Corp. had net loan charge-offs totaling $1.9 million. The
ratio of allowance for loan losses to total loans was 1.87% at
September 30, 2003, as compared to 1.72% at December 31, 2002.
Non-performing loans totaled $19.5 million and $22.1 million at
September 30, 2003 and December 31, 2002, respectively. The ratio
of allowance for loan losses to non-performing loans was 64.8% and
51.7% at September 30, 2003 and December 31, 2002, respectively.
Foreclosed assets, net, at September 30, 2003 decreased $4.1
million from December 31, 2002 primarily as the result of a sale in
early February of a commercial property, which was previously
deeded over to the bank and organized as a operating subsidiary of
Baylake. Despite the relatively high level of non-performing loans
at quarter's end, Baylake Corp. believes the balance of the
allowance for loan loss at September 30, 2003 is presently
sufficient to absorb loan losses inherent in the portfolio,
although future adjustments to the allowance may be necessary based
on changes in the performance of the loan portfolio or in economic
conditions and the impact that these changes, if any, may have on
the ability of borrowers to continue to service or repay
outstanding credits and on the value of the underlying collateral
securing these credits. Capital resources for the nine-month period
ended September 30, 2003 improved by $2.7 million. Baylake Corp.
anticipates that currently it has resources available to meet its
commitments. At September 30, 2003, Baylake Corp. had $60.4 million
of established lines of credit with nonaffiliated banks, of which
$7.2 million was outstanding at September 30, 2003. Baylake Corp.,
headquartered in Sturgeon Bay, Wisconsin, is the bank holding
company for Baylake Bank. Through Baylake Bank, the Company
provides a variety of banking and financial services from 26
financial centers located throughout Northeast and Central
Wisconsin, in Brown, Door, Green Lake, Kewaunee, Manitowoc,
Outagamie, Waupaca, and Waushara Counties. The following appears in
accordance with the Private Securities Litigation Reform Act of
1995: This news release contains forward-looking statements about
the financial condition, results of operations and business of
Baylake Corp. Forward- looking statements can be identified by the
fact that they do not relate strictly to historical or current
facts. They often include the words "believe," "expect,"
"anticipate," "intend," "plan," "estimate" or words of similar
meaning, or future or conditional verbs such as "will," "would,"
"should," "could" or "may." Forward-looking statements, by their
nature, are subject to risks and uncertainties. A number of
factors, many of which are beyond the control of Baylake Corp.,
could cause actual conditions, events or results to differ
significantly from those indicated by the forward-looking
statements. This press release, and the most recent annual and
quarterly reports filed by Baylake Corp. with the Securities and
Exchange Commission, including its Form 10-Q for the quarter ended
June 30, 2003 and Form 10-K for the year ended December 31, 2002,
describe some of these factors, including certain credit, market,
operational, liquidity and interest rate risks associated with the
company's business and operations. Other factors include changes in
general business and economic conditions, world events (especially
those which could affect our customers' tourism-related
businesses), competition which among other things affects the
demand for our products and services and our customers' ability to
repay loans, fiscal and monetary policies and the possibilities of
changes in laws affecting financial institutions as well as on
customers' businesses. Forward-looking statements speak only as of
the date they are made, and Baylake Corp. does not undertake to
update forward-looking statements to reflect circumstances or
events that occur after the date the forward-looking statements are
made. Baylake Corp. and Subsidiaries SUMMARY FINANCIAL DATA The
following tables set forth selected consolidated financial and
other data for Baylake Corp. at the dates and for the periods
indicated. The selected consolidated financial and other data at
September 30, 2003 and at and for the three and nine months ended
September 30, 2003 has not been audited but in the opinion of
management of Baylake Corp. reflects all necessary adjustments for
a fair presentation of results as of the dates and for the periods
covered. At At At Sept. 30, Dec. 31, Sept. 30, 2003 2002 2002
(dollars in thousands) Selected Financial Condition Data (at end of
period): Total assets $918,091 $904,656 $905,363 Investment
securities(1) 171,312 151,366 166,233 Federal funds sold 0 0 0
Total loans 674,074 665,887 652,363 Total deposits 753,556 740,324
735,704 Borrowings(2) 73,376 75,056 80,779 Notes payable and
subordinated debt 53 106 106 Guaranteed preferred beneficial
interest in the company's junior subordinated debt 16,100 16,100
16,100 Total shareholders' equity 68,080 65,400 64,474
Non-performing loans, net of discount(3)(4) 19,506 22,088 22,553
Non-performing assets, net of discount(3)(4) 20,865 24,978 25,193
As of and for the As of and for the Three Months Nine Months Ended
September 30, Ended September 30, 2003 2002 2003 2002 (dollars in
thousands, except per share data) Selected Income Data: Total
interest income $11,951 $13,287 $35,713 $39,169 Total interest
expense 4,341 5,524 14,396 16,793 Net interest income 7,610 7,763
21,317 22,376 Provision for loan losses 1,212 1,654 3,137 2,700 Net
interest income after provision for loan losses 6,398 6,109 18,180
19,676 Total non-interest income 3,055 2,967 8,443 6,986 Total
non-interest expense 6,381 6,053 18,492 17,830 Income before income
tax 3,072 3,023 8,131 8,832 Income tax provision 831 809 2,197
2,555 Net income $2,241 $2,214 $5,934 $6,277 Per Share data:(5) Net
income per share (basic) $0.30 $0.30 $0.79 $0.84 Net income per
share (diluted) 0.30 0.30 0.78 0.83 Cash dividends per common share
0.13 0.12 0.39 0.36 Book value per share 8.99 8.62 8.99 8.62
Performance Ratios:(6) Return on average total assets 0.97% 0.99%
0.88% 0.97% Return on average total shareholders' equity 13.09
13.80 11.83 13.62 Net interest margin(7) 3.74 4.06 3.58 3.98 Net
interest spread(7) 3.47 3.83 3.32 3.71 Non-interest income to
average assets 1.32 1.33 1.25 1.08 Non-interest expense to average
assets 2.77 2.71 2.73 2.76 Net overhead ratio(8) 1.44 1.38 1.48
1.68 Efficiency ratio 58.18 54.49 60.22 58.58 Average
loan-to-average deposit ratio 89.53 90.43 90.91 92.60 Average
interest-earning assets to average interest-bearing liabilities
112.90 108.44 111.28 109.31 Asset Quality Ratios:(3)(4)(6)
Non-performing loans to total loans 2.89% 3.32% 2.89% 3.32%
Allowance for loan losses to: Total loans 1.87 1.43 1.87 1.43
Non-performing loans 64.77 41.32 64.77 41.32 Net charge-offs to
average loans 0.86 0.65 0.38 0.29 Non-performing assets to total
assets 2.27 2.78 2.27 2.78 Capital Ratios:(6)(9) Shareholders'
equity to assets 7.42% 7.12% 7.42% 7.12% Tier 1 risk-based capital
9.95 9.84 9.95 9.84 Total risk-based capital 11.20 11.09 11.20
11.09 Leverage ratio 8.47 8.15 8.47 8.15 Ratio of Earnings to Fixed
Charges:(10) Including deposit interest 1.71x 1.55x 1.56x 1.53x
Excluding deposit interest 4.30 3.63 3.79 3.31 Other Data at End of
Period: Number of banking facilities 26 26 26 26 Number of
full-time equivalent employees 300 289 300 289 (1) Includes
securities classified as held-to-maturity and available for sale.
(2) Consists of Federal Home Loan Bank advances, federal funds
purchased and collateralized borrowings. (3) Non-performing loans
consist of non-accrual loans, guaranteed loans 90 days or more past
due but still accruing interest and restructured loans.
Non-performing assets consist of non-performing loans and other
real estate owned. (4) The decrease in non-performing assets during
the nine months ended September 30, 2003 was due, in large part, to
the sale of bank's operating subsidiary (deeded previously to the
bank in early 2002) in early February 2003 in addition to a slight
decrease in non-accrual loans. (5) Earnings and dividends per share
are based on the weighted average number of shares outstanding for
the period. (6) With the exception of end of period ratios, all
ratios are based on average monthly balances and are annualized
where appropriate. (7) 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. (8) Net overhead ratio
represents the difference between noninterest expense and
noninterest income, divided by average assets. (9) The capital
ratios are presented on a consolidated basis (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. DATASOURCE:
Baylake Corp. CONTACT: Steven D. Jennerjohn of Baylake Corp.,
+1-920-743-5551 Web site: http://www.baylake.com/
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