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Baylake Corp. Announces First Quarter 2014 Financial Results

Earnings and Assets Rise Year-Over-Year

STURGEON BAY, Wis., April 17, 2014 /PRNewswire/ -- Baylake Corp. (the "Company") (NASDAQ:BYLK), holding company for Baylake Bank (the "Bank"), which provides full service banking and financial services from 21 locations in Northeast Wisconsin, today announced results for the three months ended March 31, 2014.

In the first quarter of 2014, the Company's net income was $2.07 million or $0.23 per diluted share, an increase of 17.7% compared to $1.76 million or $0.19 per diluted share in the first quarter of 2013. The Company achieved earnings and operational improvement as a leaner, more efficient organization following the sale of four branches late in 2012 and three branch closings in 2013.

Robert J. Cera, President and CEO, commented:  "We believe the positive financial trends of the second half of 2013, which continued through the first quarter of 2014, demonstrate that our actions to improve the efficiency of Baylake's branch network, while expanding services and capabilities in our core markets, are bearing results.  We are pleased with progress made to strengthen the Company's balance sheet and now are focusing management efforts on executing our growth initiatives.   It was especially rewarding to report linked quarter and year-over-year diversified loan growth in several key sectors.  Commercial lending has been a targeted growth area, resulting in commercial & industrial loan growth of 18% and commercial real estate loan growth of 5% for the first quarter of 2014 compared to the first quarter of 2013."

"We have succeeded in expanding existing loan relationships and cultivating new loan customers despite a competitive lending market, and reduced costlier deposits by refining deposit pricing strategies as well as attracting lower-cost core deposits.  Our prudent efforts on a number of fronts led to lower year-over-year interest expense, and expanded net interest margin and net interest spread compared to a year ago."


  • Net interest income after provision for loan losses increased 12% in the first quarter of 2014 compared to the first quarter of 2013, primarily reflecting stable total interest income, a 29% reduction in total interest expense, and zero loan loss provision compared to a $0.60 million provision recorded in the first quarter of 2013.
  • Continued focus on asset quality resulted in a sharp decline in non-performing assets to $12.42 million at March 31, 2014 compared to $17.22 million at March 31, 2013.
  • The ratio of non-performing assets to total assets was 1.27% at March 31, 2014 compared to 1.80% at March 31, 2013, as the Company demonstrated consistent asset quality improvement. The allowance for loan and lease losses to non-performing loans was 107.37% at March 31, 2014 compared to 96.23% at March 31, 2013.
  • While lower by 19% overall for the first quarter of 2014, non-interest income included 25% year-over-year income growth from the Company's 49.8% equity stake in United Financial Services ("UFS"), a data processing and e-banking affiliate headquartered in Grafton, Wisconsin.
  • The Company's non-interest expense declined year-over-year, reflecting savings related to branch closures and divestitures, balanced by strategic investment in personnel to drive growth in key areas such as commercial banking and wealth management services, as well as the expansion of Baylake Bank's presence in the Appleton, Wisconsin market.
  • Total gross loans outstanding increased to $633.18 million at March 31, 2014, up from $591.40 million at March 31, 2013 and $617.96 million at December 31, 2013. Loan growth has been led by increased commercial lending and 1-4 family residential loans retained on the Company's balance sheet.
  • Following a modest decline in deposits due to branch sales, offset in part by the purchase of a branch in the Appleton market, the Company has added new low cost core interest-bearing deposits that contributed to a 28 basis point cost of funds in the first quarter of 2014 compared to 47 basis points in the first quarter of 2013.
  • Return on average assets ("ROAA") improved to 0.88% in the first quarter of 2014 compared to 0.73% in the first quarter of 2013. Return on average equity ("ROAE") increased to 8.87% in the first quarter of 2014 compared to 7.60% in the first quarter of 2013.
  • The Company continued to exceed regulatory standards for a well-capitalized institution. At March 31, 2014, the Company's Tier 1 risk-based capital ratio was 13.84%, its total risk based capital ratio was 16.16% and its Tier 1 leverage ratio was 10.50%.
  • Book value per share rose to $12.23 at March 31, 2014 compared to $11.85 per share at March 31, 2013.

"With asset quality distractions primarily in the rear view mirror, and following the refocusing of our branch banking efforts, Baylake has turned its full attention to steady and profitable growth," explained Cera.  "We continue the process of building out our Appleton market presence, which included the purchase of a branch facility and deposit relationships from another institution in the first quarter of 2014, giving us a broader customer base and our second location in Outagamie County.  The demographics in this market are quite strong and we are optimistic about the expansion opportunities.

"We have also selectively added experienced individuals to our Baylake Bank team, including Rick Schabo, our new Appleton Market President and Fox Valley native, who has more than 20 years' experience in the financial services industry.  We have invested in capabilities to support growth in our Fox Valley, Green Bay and Door County markets, particularly to generate increased revenue from business banking and wealth management."

First Quarter 2014 Income Statement Highlights

Net interest income after provision for loan losses increased 12% in the first quarter of 2014 compared to the first quarter of 2013.  The Company lowered interest expense by 29% to $0.92 million compared to $1.29 million in the first quarter of 2013, and recorded no loan loss provision in either the first quarter of 2014 or the fourth quarter of 2013, reflecting asset quality stability in the Company's loan portfolio.

The Bank's net interest margin for the three months ended March 31, 2014 increased to 3.65%, up from 3.45% for the three months ended March 31, 2013. In the first quarter of 2014, the Company's net interest spread was 3.57% compared to 3.35% in the first quarter of 2013.

Total non-interest income in the first quarter of 2014 was $2.02 million compared to $2.50 million in the first quarter of 2013, primarily reflecting a $0.47 million decline in gains from mortgage loans sold, offset in part by increased income from the Company's investment in UFS.  Fee income from brokerage and asset management services remained relatively stable between the first quarters of 2013 and 2014, however, the Company expects continued growth in this area in the future due to current strategic initiatives focused on building its wealth management business.

"We reported softer than anticipated wealth services revenue for the first quarter of 2014, compared to a year earlier," said Cera.  "However, the long term strategic value of growing this business remains a focal point of our growth plans, and we remain confident in our belief that as new team members hit full stride, we can report year-over-year growth in both fees from fiduciary services, as well as financial services income compared to the already strong results recorded in fiscal 2013."

Non-interest income in the first quarter of 2014 included $0.29 million income from the Company's equity stake in UFS, up 25% compared to the first quarter of 2013.  Cera noted the continuing positive results generated by growth from existing UFS customers enhanced by the net earnings accretion generated by an acquisition completed by UFS in 2013.  "Our ownership interest in UFS continues to make significant and growing contributions to the Company's bottom line, and is demonstrating value," Cera noted.

Non-interest expense in the first quarter of 2014 was $6.77 million compared to $6.81 million in the first quarter of 2013.  As the Company continued to divest of other real estate owned, costs related to operating foreclosed properties declined 17% year-over-year, while the strength and overall asset quality of the loan portfolio resulted in an 80% drop in collection-related expenses in the first quarter of 2014 compared to the first quarter of 2013.

The Bank's efficiency ratio, which was impacted by investments in additions to its wealth services and commercial banking teams, offset in part by cost savings related to asset divestitures, was 69.03% in the first quarter of 2014 compared to 67.14% in the first quarter of 2013.

Balance Sheet, Asset Quality Highlights

At March 31, 2014, total assets were $976.51 million compared to $955.93 million at March 31, 2013, reflecting a return to growth following the branch closures and related deposit sales in 2013, and reductions in problem and substandard credits.  Total assets at year-end 2013 were $996.78 million, with the consecutive quarter decline primarily reflecting a decline in cash balances resulting from seasonal fluctuations in deposits and repurchase agreements.

Total gross loans increased to $633.18 million at March 31, 2014 compared to $591.40 million at March 31, 2013 and $617.96 million at December 31, 2013.  The growth primarily reflected increased retention of originated 1-4 family residential mortgages and commercial loan growth as the Bank continued its emphasis on expanding its commercial lending business, with a special focus on professional practice owners and their financial needs.  The Bank's loan-to-deposit ratio (based on daily averages) increased to 86.24% in the first quarter of 2014 compared to 76.43% in the prior year's first quarter.

Total deposits were $721.31 million at March 31, 2014 compared to $744.21 at December 31, 2013 and $758.96 million at March 31, 2013.  Significant deposit declines due to branch sales and closings in 2012 and 2013 were partially offset by acquired deposits in the Appleton market in the first quarter of 2014 and organic deposit growth, particularly in non-interest bearing DDAs that reflected expanded commercial banking relationships.  The Bank's total wholesale borrowings were $116.72 million in the first quarter of 2014 compared to $125.15 million at December 31, 2013 and $69.11 million in the first quarter of 2013, as the Bank took advantage of attractively priced FHLB borrowings of varying short and long term maturities to fund growth in the commercial loan portfolio during the fourth quarter of 2013 and the first quarter of 2014.  The Bank's cost of interest bearing deposits declined to 28 basis points in the first quarter of 2014 compared to 47 basis points in the first quarter of 2013.

Total non-performing assets, including loans and OREO property, were $12.42 million at March 31, 2014 compared to $17.22 million at March 31, 2013 and $12.96 million at December 31, 2013.  Non-performing loans were $6.94 million at March 31, 2014 compared to $8.64 million at March 31, 2013 and $6.66 million at December 31, 2013, reflecting a strengthened balance sheet and stabilized loan quality.  Non-performing loans were 1.10% of total gross loans, the allowance for loan losses to total gross loans was 1.18%, net annualized charge-offs to average loans were 0.13% and the Company maintained a 107.37% allowance for loan losses to non-performing loans at March 31, 2014.

The measures of capital strength were above regulatory standards for a well-capitalized institution and generally demonstrated year over year improvement.  At March 31, 2014, the Tier 1 risk-based capital ratio was 13.84%, the total risk-based capital ratio was 16.16%, and the Tier 1 leverage ratio was 10.50%.  ROAA increased to 0.88% in the first quarter of 2014 compared to 0.73% in the first quarter of 2013, while ROAE was 8.87% in the first quarter of 2014 compared to 7.60% in the prior year's first quarter.

Cera concluded:  "We have a clear focus on building a diversified revenue stream throughout our contiguous core markets, which have a population of more than 600,000 and provide more than 300,000 jobs.  We are excited by the opportunities that have been presented to expand our teams in the Appleton and Green Bay markets thus far in 2014.  Accelerating growth will provide value for our shareholders, who have already seen a positive impact from the Company's improved year-over-year financial performance, including increased book value, dividend growth and a stronger balance sheet.  We are excited about the opportunity to serve more customers and deliver increased value for our shareholders as we move forward."

Baylake Corp., headquartered in Sturgeon Bay, Wisconsin, is the bank holding company for Baylake Bank. Through Baylake Bank, Baylake Corp. provides a variety of banking and financial services from 21 financial centers located throughout Northeast Wisconsin, in Brown, Door, Kewaunee, and Outagamie 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 "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. These factors, which are described in this press release and in the annual and quarterly reports filed by Baylake Corp. with the Securities and Exchange Commission, including its Annual Report on Form 10-K for the year ended December 31, 2013 under "Item 1A. Risk Factors," include 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, developments (including collection efforts) relating to the identified non-performing loans and other problem loans and assets, world events (especially those which could affect our customers' tourism-related businesses), competition, fiscal and monetary policies and legislation.

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.

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 financial and other data at March 31, 2014 and 2013 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.


Selected Financial Condition Data

(at end of period), March 31 data is UNAUDITED


March 31, 2014

December 31, 2013

March 31, 2013

(dollars in thousands, except share and per share data)

Total assets

$ 976,513

$  996,776

$ 955,930

Investment securities (1)




Gross loans




Total deposits




Borrowings (2)




Subordinated debentures




Convertible promissory notes




Shareholders' equity




Non-performing loans (3)




Non-performing assets (3)




Restructured loans, accruing




Shares outstanding




Book value per share

$          12.23

$          12.02

$          11.85


As of and for the Three Months

March 31,

(dollars in thousands, except per
share data)

Selected Operations Data – UNAUDITED



Total interest income

$      8,512

$      8,653

Total interest expense



Net interest income before provision for loan losses



Provision for loan losses



Net interest income after provision for loan losses



Total non-interest income



Total non-interest expense



Income before income taxes



Income tax expense



Net income

$       2,065

$       1,755

Selected Operations Data – UNAUDITED

Per Share Data: (4)

Net income per share (basic)

$     0.27

$     0.22

Net income per share (diluted)

$     0.23

$     0.19

Cash dividends per common share

$     0.07

$     0.04

Book value per share

$   12.23

$  12.02



As of and for the Three Months

March 31,



Performance Ratios: (5)

Return on average total assets



Return on average total shareholders' equity



Net interest margin (6)



Net interest spread (6)



Efficiency ratio (9)



Non-interest income to average assets



Non-interest expense to average assets



Net overhead ratio (7)



Average loan to average deposit ratio



Average interest earning assets to average interest bearing liabilities



Asset Quality Ratios:  (3)(5)

Non-performing loans to total gross loans



Allowance for loan losses to:

     Total gross loans



     Non-performing loans



Net charge-offs to average loans (annualized)



Non-performing assets to total assets



Capital Ratios: (5)(8)

Shareholders' equity to assets



Tier 1 risk-based capital



Total risk-based capital



Tier 1 leverage ratio




Number of bank subsidiaries



Number of banking facilities



Number of full-time equivalent employees





Includes securities classified as available for sale.


Consists of Federal Home Loan Bank advances, federal funds purchased, and collateralized borrowings.


Non-performing loans consist of non-accrual loans and guaranteed loans 90 days or more past due but still accruing interest.  Non-performing assets consist of non-performing loans and other real estate owned.


Earnings per share are based on the weighted average number of shares outstanding for the period.  Diluted earnings per share is based on shares that would be issued if outstanding stock options were exercised, stock awards were fully vested and promissory notes were converted in addition to the weighted average number of shares outstanding for the period.


With the exception of end-of-the-period ratios, all ratios are based on average daily balances and are annualized where appropriate.


Net interest margin represents net interest income as a percentage of average interest-earning assets.  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.


Net overhead ratio represents the difference between non-interest expense and non-interest income, divided by average assets.


The capital ratios are presented on a consolidated basis.


Efficiency ratio is calculated as follows: non-interest expense divided by the sum of taxable equivalent net interest income plus non-interest income, excluding net investment security gains and net gains on sale of fixed assets and land held for sale.


SOURCE Baylake Corp.

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