UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): December 29, 2010

BAYLAKE CORP.

(Exact name of registrant as specified in its charter)


Wisconsin	001-16339	39-1268055
(State or other jurisdiction of incorporation)	(Commission File Number)	(IRS Employer Identification No.)

217 North Fourth Avenue

Sturgeon Bay, Wisconsin

54235

(Address of principal executive offices)

(Zip code)

(920) 743-5551

(Registrant’s telephone number, including area code)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the Registrant under any of the following provisions:

¨ Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

¨ Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

¨ Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

¨ Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01.

Entry into a Material Definitive Agreement.

Effective December 29, 2010, Baylake Corp., a registered bank holding company (the “Company”) and its wholly-owned bank subsidiary, Baylake Bank, a state-chartered bank and a member of the Federal Reserve System (the “Bank”) entered into a written agreement with the Federal Reserve Bank of Chicago (“Reserve Bank”) and the State of Wisconsin Department of Financial Institutions (the “DFI”) (the final written agreement, as executed by the parties, is herein called the “Written Agreement”). A copy of the Written Agreement is filed as Exhibit 10.1 to this Current Report and is incorporated herein by this reference.

Under the terms of the Written Agreement, the Bank has agreed to develop and submit for approval within the time periods specified therein written plans to: (a) further reduce the Bank’s concentration of commercial real estate loans; (b) improve the Bank’s position with respect to loans, relationships, or other assets in excess of $0.5 million which are now or in the future become past due more than 90 days, are on the Bank’s problem loan list, or adversely classified in any report of examination of the Bank; (c) review and revise, as appropriate, the Bank’s current policy for determining, documenting and recording an adequate allowance for loan and lease losses and maintain sound processes for compliance with the same; and (d) improve the Bank’s earnings and overall condition.

In addition, the Bank has agreed that it will: (a) not extend, renew or restructure any credit that has been criticized by the Reserve Bank or the DFI absent prior board of directors’ approval in accordance with the restrictions in the Written Agreement; and (b) eliminate all assets or portions of assets classified as “loss” and thereafter charge off all assets classified as “loss” in a federal or state report of examination, unless otherwise approved by the Reserve Bank.

In addition, the Company has agreed that it will: (a) not take any other form of payment representing a reduction in the Bank’s capital or make any distributions of interest, principal or other sums on subordinated debentures or trust preferred securities absent prior regulatory approval; (b) refrain from incurring or guaranteeing any debt without the prior written approval of the Reserve Bank; and (c) refrain from purchasing or redeeming any shares of its stock without the prior written consent of the Reserve Bank.

Under the terms of the Written Agreement, both the Company and the Bank have agreed to: (a) submit for approval plans to maintain sufficient capital at the Company, on a consolidated basis, and the Bank, on a stand-alone basis; (b) comply with applicable notice provisions with respect to the appointment of new directors and senior executive officers of the Company and the Bank and legal and regulatory limitations on indemnification payments and severance payments; and (c) refrain from declaring or paying dividends absent prior regulatory approval.

This description of the Written Agreement is a summary and does not purport to be a complete description of all of the terms of such agreement and is qualified in its entirety by reference to the copy of the Written Agreement filed with this Current Report.

The Directors of the Company and the Bank have recognized and unanimously agree with the goal of financial soundness represented by the Written Agreement and have confirmed

the intent of the Directors and senior management of the Company and the Bank to diligently seek to comply with all requirements specified in the Written Agreement.

Item 8.01.

Other Events.

Loan Sale

During the fourth quarter of 2010, the Bank placed a pool of loans for sale through a loan sale advisor with an aggregate principal amount of $10.3 million and a carrying amount of $7.0 million. An offer of $3.6 million was accepted on certain loans in the pool with an aggregate principal amount of $7.9 million and a carrying value of $5.3 million and the sale closed on December 29, 2010. A loss on the sale of loans of $1.8 million was recorded by the Bank upon consummation of the sale, including loan sale fees in the amount of $0.1 million incurred in connection with the transaction.

The above transactions will result in a reduction of the Bank’s nonperforming loans of approximately $5.3 million during the quarter ended December 31, 2010 and have a $1.8 million negative impact on the Company’s earnings for the fourth quarter and year ending December 31, 2010.

Additional Risk Factors

The following additional risk factors are associated with the Written Agreement and should be read in conjunction with the Risk Factors set forth under Item 1A in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 and other documents filed with the SEC:

There can be no assurance the Company and the Bank will be able to fully comply with each of the provisions of the Written Agreement in the required timeframes set forth therein, if at all. Any failure by the Company or the Bank to so comply could result in additional regulatory sanctions being imposed that could have a material adverse impact on the Company’s and the Bank’s respective financial condition and results of operations.

Although the Written Agreement is intended to strengthen the Company’s and the Bank’s financial condition and results of operations, its primary purpose is to protect depositors and the FDIC Deposit Insurance Fund and not to protect shareholders or increase the value of the Company;

Compliance with certain provisions of the Written Agreement could have a material adverse affect on the Bank’ and the Company’s results of operations for the fourth quarter of 2010, most notably the requirement that the Bank charge off approximately $3.8 million of certain assets classified as loss. Of this amount, $3.3 million was charged off during the third quarter of 2010 and the remaining $0.5 million will be charged off during the fourth quarter of 2010.

Compliance with certain provisions of the Written Agreement could adversely impact the ability of the Company to raise additional capital in the future should it become necessary to do so, or to engage in certain deposit-taking activities.

Item 9.01.

Financial Statements and Exhibits.


	Exhibit No.	Description

	10.1	Written Agreement, effective December 29, 2010, by and among Baylake Corp., Baylake Bank, the Federal Reserve Bank of Chicago and the State of Wisconsin Department of Financial Institutions

Caution about Forward-Looking Statements

Certain information contained in this Current Report or in an attached exhibit may include “forward-looking statements.” These forward-looking statements related to the Company’s future growth, profitability, capital and market position, the execution of its business plans, and expected progress on satisfying the terms of the Written Agreement. Actual results, performance or achievements of the Company may differ materially from those expressed or implied by forward-looking statements. For details on factors that could affect expectations, see the cautionary language included in Item 8.01 above and under the heading “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009 and other filings with the SEC.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

Dated: January 3, 2011

BAYLAKE CORP.

By: /s/ Kevin L. LaLuzerne

Kevin L. LaLuzerne

Senior Vice President and Chief Financial

Officer

EXHIBIT INDEX


Exhibit No.	Description

10.1	Written Agreement, effective December 29, 2010, by and among Baylake Corp., Baylake Bank, the Federal Reserve Bank of Chicago and the State of Wisconsin Department of Financial Institutions

Exhibit 10.1

UNITED STATES OF AMERICA

BEFORE THE

BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM

WASHINGTON, D.C.

STATE OF WISCONSIN

DEPARTMENT OF FINANCIAL INSTITUTIONS

MADISON, WISCONSIN

Written Agreement by and among

BAYLAKE CORP.

Sturgeon Bay, Wisconsin

BAYLAKE BANK

Sturgeon Bay, Wisconsin

FEDERAL RESERVE BANK OF CHICAGO

Chicago, Illinois

and

STATE OF WISCONSIN

DEPARTMENT OF

FINANCIAL INSTITUTIONS

Madison, Wisconsin

Docket Nos.

10-149-WA/RB-HC
10-149-WA/RB-SM

WHEREAS, in recognition of their common goal to maintain the financial soundness of Baylake Corp., Sturgeon Bay, Wisconsin (“Baylake”), a registered bank holding company, and its subsidiary bank, Baylake Bank, Sturgeon Bay, Wisconsin (the “Bank”), a state-chartered bank that is a member of the Federal Reserve System, Baylake, the Bank, the Federal Reserve Bank of Chicago (the “Reserve Bank”), and the State of Wisconsin Department of Financial Institutions (the “DFI”) have mutually agreed to enter into this Written Agreement (the “Agreement”); and

WHEREAS, on December 21, 2010, the boards of directors of Baylake and
the Bank, at duly constituted meetings, adopted resolutions authorizing and directing

Robert J. Cera to enter into this Agreement on behalf of Baylake and the Bank, and consenting to compliance with each and every applicable provision of this Agreement by Baylake, the Bank, and their institution-affiliated parties, as defined in sections 3(u) and 8(b)(3) of the Federal Deposit Insurance Act, as amended (the “FDI Act”)(12 U.S.C. §§ 1813(u) and 1818(b)(3)).

NOW, THEREFORE, Baylake, the Bank, the Reserve Bank, and the DFI agree as follows:

Source of Strength

The board of directors of Baylake shall take appropriate steps to fully utilize Baylake’s financial and managerial resources, pursuant to section 225.4(a) of Regulation Y of the Board of Governors of the Federal Reserve System (the “Board of Governors”) (12 C.F.R. § 225.4(a)), to ensure that the Bank complies with this Agreement and any other supervisory action taken by the Reserve Bank or the DFI.

Concentrations of Credit

Within 60 days of this Agreement, the Bank shall submit to the Reserve Bank and the DFI an acceptable written plan to further reduce the Bank’s commercial real estate (“CRE”) concentrations. The plan shall, at a minimum, include a schedule for reducing and the means by which the Bank will reduce the level of CRE concentrations, and timeframes for achieving the reduced levels.

Asset Improvement

The Bank shall not, directly or indirectly, extend, renew, or restructure any credit to or for the benefit of any borrower, including any related interest of the borrower, whose loans or other extensions of credit are criticized in the report of examination of the Bank conducted by the Reserve Bank and the DFI that commenced on September 8, 2009 (the “Report of

Examination”) or in any subsequent report of examination, without the prior approval of a majority of the full board of directors or a designated committee thereof. The board of directors or its committee shall document in writing the reasons for the extension of credit, renewal, or restructuring, specifically certifying that: (i) the Bank’s risk management policies and practices for loan workout activity are acceptable; (ii) the extension of credit is necessary to improve and protect the Bank’s interest in the ultimate collection of the credit already granted and maximize its potential for collection; (iii) the extension of credit reflects prudent underwriting based on reasonable repayment terms and is adequately secured; and all necessary loan documentation has been properly and accurately prepared and filed; (iv) the Bank has per formed a comprehensive credit analysis indicating that the borrower has the willingness and ability to repay the debt as supported by an adequate workout plan, as necessary; and (v) the board of directors or its designated committee reasonably believes that the extension of credit will not impair the Bank’s interest in obtaining repayment of the already outstanding credit and that the extension of credit or renewal will be repaid according to its terms. The written certification shall be made a part of the minutes of the meetings of the board of directors or its committee, as appropriate, and a copy of the signed certification, together with the credit analysis and related information that was used in the determination, shall be retained by the Bank in the borrower’s credit file for subsequent supervisory review. For purposes of this Agreement, the term “related interest” is defined as set forth in section 215.2(n) of Regulation O o f the Board of Governors (12 C.F.R. § 215.2(n)).

(a)

Within 60 days of this Agreement, the Bank shall submit to the Reserve Bank and the DFI an acceptable written plan designed to improve the Bank’s position through repayment, amortization, liquidation, additional collateral, or other means on each loan, relationship, or other asset in excess of $500,000, including other real estate owned (“OREO”),

that are past due as to principal or interest more than 90 days as of the date of this Agreement, are on the Bank’s problem loan list, or were adversely classified in the Report of Examination.

(b)

Within 30 days of the date that any additional loan, relationship, or other asset in excess of $500,000, including OREO, becomes past due as to principal or interest for more than 90 days, is on the Bank’s problem loan list, or is adversely classified in any subsequent report of examination of the Bank, the Bank shall submit to the Reserve Bank an acceptable written plan to improve the Bank’s position on such loan, relationship, or asset.

(c)

Within 45 days after the end of each calendar quarter thereafter, the Bank shall submit a written progress report to the Reserve Bank and the DFI to update each asset improvement plan, which shall include, at a minimum, the carrying value of the loan or other asset and changes in the nature and value of supporting collateral, along with a copy of the Bank’s current problem loan list, a list of all loan renewals and extensions without full collection of interest in the last quarter, and past due/non-accrual report.

Allowance for Loan and Lease Losses

(a)

Within 10 days of this Agreement, the Bank shall eliminate from its books, by charge-off or collection, all assets or portions of assets classified “loss” in the Report of Examination that have not been previously collected in full or charged off. Thereafter the Bank shall, within 30 days from the receipt of any federal or state report of examination, charge off all assets classified “loss” unless otherwise approved in writing by the Reserve Bank and the DFI.

(b)

Within 60 days of this Agreement, the Bank shall review and revise its ALLL methodology consistent with relevant supervisory guidance, including the Interagency Policy Statements on the Allowance for Loan and Lease Losses, dated July 2, 2001 (SR 01-17

(Sup)) and December 13, 2006 (SR 06-17), and the findings and recommendations regarding the ALLL set forth in the Report of Examination, and submit a description of the revised methodology to the Reserve Bank and the DFI. The revised ALLL methodology shall be designed to maintain an adequate ALLL and shall address, consider, and include, at a minimum, the reliability of the Bank’s loan grading system, the volume of criticized loans, concentrations of credit, the current level of past due and nonperforming loans, past loan loss experience, evaluation of probable losses in the Bank’s loan portfolio, including adversely classified loans, and the impact of market conditions on loan and collateral valuations and collectability.

(c)

Within 60 days of this Agreement, the Bank shall submit to the Reserve Bank and the DFI an acceptable written program for the maintenance of an adequate ALLL. The program shall include policies and procedures to ensure adherence to the revised ALLL methodology and provide for periodic reviews and updates to the ALLL methodology, as appropriate. The program shall also provide for a review of the ALLL by the board of directors on at least a quarterly calendar basis. Any deficiency found in the ALLL shall be remedied in the quarter it is discovered, prior to the filing of the Consolidated Reports of Condition and Income, by additional provisions. The board of directors shall maintain written documentation of its review, including the factors considered and conclusions reached by the Bank in determining the adequacy of the ALLL. During the term of this Agreement, the Bank shall submit to the Reserve Bank and the DFI, within 30 days after the end of each calendar quarter, a written report regarding the board of directors’ quarterly review of the ALLL and a description of any changes to the methodology used in determining the amount of ALLL for that quarter.

Capital Plan

Within 60 days of this Agreement, Baylake and the Bank shall submit to the Reserve Bank and the DFI an acceptable joint written plan to maintain sufficient capital at Baylake on a consolidated basis and the Bank as a separate legal entity on a stand-alone basis. The plan shall, at a minimum, address, consider, and include:

(a)

Baylake’s current and future capital requirements, including compliance with the Capital Adequacy Guidelines for Bank Holding Companies: Risk-Based Measure and Tier 1 Leverage Measure, Appendices A and D of Regulation Y of the Board of Governors (12 C.F.R. Part 225, App. A and D);

(b)

the Bank’s current and future capital requirements, including compliance with the Capital Adequacy Guidelines for State Member Banks: Risk-Based Measure and Tier 1 Leverage Measure, Appendices A and B of Regulation H of the Board of Governors (12 C.F.R. Part 208, App. A and B);

(c)

the adequacy of the Bank’s capital, taking into account the volume of classified assets, concentrations of credit, the adequacy of the ALLL, current and projected asset growth, projected retained earnings, and anticipated and contingency funding needs;

(d)

the source and timing of additional funds to fulfill Baylake’s and the Bank’s future capital requirements; and

(e)

the requirements of section 225.4(a) of Regulation Y of the Board of Governors that Baylake serve as a source of strength to the Bank.

Baylake and the Bank shall notify the Reserve Bank and the DFI, in writing, no more than 30 days after the end of any calendar quarter in which any of Baylake’s consolidated capital ratios, or the Bank’s capital ratios (total risk-based, Tier 1, or leverage), fall below the

approved capital plan’s minimum ratios. Together with the notification, Baylake and the Bank shall submit an acceptable written plan that details the steps Baylake or the Bank, as appropriate, will take to increase Baylake’s or the Bank’s capital ratios to or above the approved capital plan’s minimums.

Earnings Plan and Budget

(a)

Within 90 days of this Agreement, the Bank shall submit to the Reserve Bank and the DFI a written business plan for 2011 to improve the Bank’s earnings and overall condition. The plan, at a minimum, shall provide for or describe:

(i)

a comprehensive budget for 2011, including income statement and balance sheet projections; and

(ii)

a description of the operating assumptions that form the basis for, and adequately support, major projected income, expense, and balance sheet components.

(b)

During the term of this Agreement, a business plan and budget for each calendar year subsequent to 2011 shall be submitted to the Reserve Bank and the DFI at least 30 days prior to the beginning of that calendar year.

Dividends and Distributions

(a)

Baylake and the Bank shall not declare or pay any dividends without the prior written approval of the Reserve Bank, the Director of the Division of Banking Supervision and Regulation of the Board of Governors (“Director”), and, as to the Bank, the DFI.

(b)

Baylake shall not take any other form of payment representing a reduction in capital from the Bank without the prior written approval of the Reserve Bank.

(c)

Baylake and its nonbank subsidiary shall not make any distributions of interest, principal, or other sums on subordinated debentures or trust preferred securities without the prior written approval of the Reserve Bank and the Director.

(d)

All requests for prior approval shall be received at least 30 days prior to the proposed dividend declaration date, proposed distribution on subordinated debentures, and required notice of deferral on trust preferred securities. All requests shall contain, at a minimum, current and projected information, as appropriate, on the parent’s capital, earnings, and cash flow; the Bank’s capital, asset quality, earnings and loan loss reserve needs; and identification of the sources of funds for the proposed payment or distribution. For requests to declare or pay dividends, Baylake and the Bank, as appropriate, must also demonstrate that the requested declaration or payment of dividends is consistent with the Board of Governors’ Policy Statement on the Payment of Cash Dividends by State Member Banks and Bank Holding Companies, dated November 14, 1985 (Federal Reserve Regulatory Service, 4-877 at
page 4-323).

Debt and Stock Redemption

10.

(a)

Baylake and its nonbank subsidiary shall not, directly or indirectly, incur, increase, or guarantee any debt without the prior written approval of the Reserve Bank. All requests for prior written approval shall contain, but not be limited to, a statement regarding the purpose of the debt, the terms of the debt, and the planned source(s) for debt repayment, and an analysis of the cash flow resources available to meet such debt repayment.

(b)

Baylake shall not, directly or indirectly, purchase or redeem any shares of its stock without the prior written approval of the Reserve Bank.

Cash Flow

11.

Within 60 days of this Agreement, Baylake shall submit to the Reserve Bank a written statement of its planned sources and uses of cash for debt service, operating expenses, and other purposes (“Cash Flow Projection”) for 2011. Baylake shall submit to the Reserve Bank a Cash Flow Projection for each calendar year subsequent to 2011 at least one month prior to the beginning of that calendar year.

Compliance with Laws and Regulations

12.

In appointing any new director or senior executive officer, or changing the responsibilities of any senior executive officer so that the officer would assume a different senior executive officer position, Baylake and the Bank shall comply with the notice provisions of Section 32 of the FDI Act (12 U.S.C. § 1831i) and Subpart H of Regulation Y of the Board of Governors (12 C.F.R. §§ 225.71 et seq.).

13.

Baylake and the Bank shall comply with the restrictions on indemnification and severance payments of Section 18(k) of the FDI Act (12 U.S.C. § 1828(k)) and Part 359 of the Federal Deposit Insurance Corporation’s regulations (12 C.F.R. Part 359).

Compliance with the Agreement

14.

Within 30 days after the end of each calendar quarter following the date of this Agreement, Baylake’s and the Bank’s boards of directors shall submit to the Reserve Bank and the DFI written progress reports detailing the form and manner of all actions taken to secure compliance with this Agreement and the results thereof.

Approval and Implementation of Plans and Program

15.

(a)

The Bank and, as applicable, Baylake shall submit written plans and a program that are acceptable to the Reserve Bank and the DFI within the applicable time periods set forth in paragraphs 2, 4(a), 4(b), 5(c), 6, and 7 of this Agreement.

(b)

Within 10 days of approval by the Reserve Bank and the DFI, the Bank and, as applicable, Baylake shall adopt the approved plans and program. Upon adoption, the Bank and, as applicable, Baylake shall promptly implement the approved plans and program and thereafter fully comply with them.

(c)

During the term of this Agreement, the approved plans and program shall not be amended or rescinded without the prior written approval of the Reserve Bank and the DFI.

Communications

16.

All communications regarding this Agreement shall be sent to:

(a)

Mr. David A. Ward

Assistant Vice President

Federal Reserve Bank of Chicago

230 South LaSalle Street

Chicago, Illinois 60604

(b)

Mr. Michael J. Mach

Administrator

Division of Banking

Wisconsin Department of Financial Institutions

P.O. Box 7876

Madison, Wisconsin 53507-7876

(c)

Mr. Robert J. Cera

Chief Executive Officer

Baylake Corp.

Baylake Bank

217 North 4^th Avenue

Sturgeon Bay, Wisconsin 54235

Miscellaneous

17.

Notwithstanding any provision of this Agreement, the Reserve Bank and the DFI may, in their sole discretion, grant written extensions of time to Baylake and the Bank to comply with any provision of this Agreement.

18.

The provisions of this Agreement shall be binding upon Baylake, the Bank, and their institution-affiliated parties, in their capacities as such, and their successors and assigns.

19.

Each provision of this Agreement shall remain effective and enforceable until stayed, modified, terminated, or suspended in writing by the Reserve Bank and the DFI.

20.

The provisions of this Agreement shall not bar, estop, or otherwise prevent the Board of Governors, the Reserve Bank, the DFI, or any other federal or state agency from taking any other action affecting Baylake, the Bank, or any of their current or former
institution-affiliated parties and their successors and assigns.

21.

Pursuant to section 50 of the FDI Act (12 U.S.C. § 1831aa), this Agreement is enforceable by the Board of Governors under section 8 of the FDI Act (12 U.S.C. § 1818).

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed as of the 23^rd day of December, 2010.


BAYLAKE CORP.	FEDERAL RESERVE BANK OF CHICAGO


By: /s/ Robert J. Cera	By: /s/ Mark H. Kawa
Robert J. Cera	Mark H. Kawa
	Vice President


BAYLAKE BANK	STATE OF WISCONSIN
	DEPARTMENT OF FINANCIAL INSTITUTIONS


By: /s/ Robert J. Cera	By: /s/ Michael J. Mach
Robert J. Cera	Michael J. Mach
	Administrator