8-K

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: July 21, 2006

BAYLAKE CORP.

(Exact name of registrant as specified in its charter)

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

217 North Fourth Avenue, Sturgeon Bay, Wisconsin	54235
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code:
(920) 743-5551

     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 (see General Instruction A.2. below):

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

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

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

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

TABLE OF CONTENTS

Press Release

Item 2.02. Results of Operations and Financial Condition.

On July 21, 2006, Baylake Corp. announced its results for the six and three months ended June 30, 2006. A copy of Baylake Corp.’s related press release is furnished to the Commission by attaching it as Exhibit 99.1 to this report.

* * * * *

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.

Date: July 21, 2006		BAYLAKE CORP. (Registrant)
	By:	/s/ Steven Jennerjohn
		Steven Jennerjohn
		Chief Financial Officer

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EX-99.1

News Release

Contact: Steven D. Jennerjohn
(920)-743-5551

Source: Baylake Corp.

Baylake Corp. Reports Financial Results for the Six and Three Months ended June 30, 2006

Sturgeon Bay, Wisconsin –(PR Newswire)-July 21, 2006

     Baylake Corp. (OTC BB: BYLK.ob), a bank holding company with $1.1 billion in assets, reported net income of $3.7 million or $0.47 basic earnings per share for the six months ended June 30, 2006, as compared to $5.1 million or $0.67 per share for the six months ended June 30, 2005. The decrease in net income for the six-month period ended June 30 is primarily due to a decrease in net interest income, an increase in the provision for loan losses and an increase in non-interest expense. These were partially offset by an increase in non-interest income and a decrease in income tax expense. Net income was $2.4 million for the three months ended June 30, 2006, a decrease of $190,000, or 7.4%, from the same period in the prior year. Disposals of premises and equipment impacted the results for the three-month and six-month periods ended June 30, 2006 and 2005. A gain on sale of bank land totaling $188,000, pre-tax, occurred in the second quarter of 2006, while net losses on various bank properties totaling $151,000, pre-tax, were taken in the second quarter of 2005.

     Diluted earnings per share were $0.47 for the first six months of 2006 compared to $0.66 a year earlier, and $0.30 for the second quarter of 2006, as compared to $0.33 for the same period in 2005. Return on assets (ROA) and return on equity (ROE) decreased for the six months ended June 30, 2006, to 0.67% and 9.47%, respectively, from 0.96% and 13.38%, respectively, from the same period one year ago. For the quarter ended June 30, 2006, ROA and ROE were 0.86% and 12.12%, respectively, compared to 0.94% and 13.27%, respectively, for the same period a year ago.

     For the six months ended June 30, 2006, net interest income decreased $939,000 to $16.6 million when compared to the same period in 2005 due primarily to a decrease in net interest margin of 29 basis points offset partially by an increase in average interest-earning assets of $24.2 million or 2.5% for the period. The decline in net interest margin was primarily the consequence of the Federal Reserve’s monetary policy of gradually increasing short-term interest rates which has caused interest rates to rise faster on short-term deposits than on loans and investments. This flattening of the yield curve (where shorter-term interest rates have approached longer-term interest rates), an increase in competition for both deposits and loans, the redemption of trust preferred securities and a substantial increase in non-accrual loans (the impact of which was a decrease of $592,000 in interest income for the period) were major factors driving the compression of the net interest margin. Net interest income for the three months ended June 30, 2006 was $8.7 million compared to $8.9 million for the same period a year earlier. Net interest income decreased for the quarter as a result of a decrease in net interest margin of 14 basis points to 3.53% offset partially by an increase in average earning assets amounting to $12.2 million.

     Net interest margin for the six months ended June 30, 2006 decreased to 3.38% from 3.67% a year earlier as interest-earning assets re-priced 86 basis points higher in addition to growth in average interest-earning assets which was more than offset by an increase of 124 basis points in interest-bearing liabilities. The increase in average interest-earning assets was primarily attributable to growth of $46.0 million in average loans partially offset by a decrease in average investments and other earning assets of $22.3 million during the period. In addition, interest spread decreased to 3.00% for the six months ended June 30, 2006 compared to 3.38% for the same period in 2005.

     Baylake Corp. recorded provisions for loan losses totaling $261,000 during the six months ended June 30, 2006, compared to $121,000 for the same period in 2005. For the three months ended June 30, 2006, Baylake Corp. recorded provisions for loan losses totaling $61,000 compared to $91,000 for the same period in 2005. The provision for loan losses is determined based on a quarterly process of evaluating the allowance for loan loss which takes into account various factors including specific credit allocations for individual loans, historical loss experience for category of loans, consideration of concentrations and changes in portfolio volume, and other qualitative factors. For the six and three months ended June 30, 2006, this calculation also took into account overall asset quality in the loan portfolio during the period.

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     Non-interest income was $4.7 million during the first six months of 2006, an increase of $430,000 when compared to the same period last year. Non-interest income for the three months ended June 30, 2006 increased $455,000 to $2.5 million. For both the six and three month periods in 2006, non-interest income included gains of $185,000 compared to losses of $151,000 on the sale of various properties for the same period in 2005, as noted earlier. In addition, the increase in the six-month period was attributable to an increase in trust fees of $178,000 and fees for other services to customers of $102,000 offset by a decrease in other income of $182,000. For the six and three month periods in 2005, other income had included a gain on sale of stock of $179,000 in connection with a third party acquisition of Pulse (an ATM operator/provider) in which the Bank held an ownership interest.

     Non-interest expense increased $1.7 million or 11.9%, to $15.8 million for the six months ended June 30, 2006 compared to the same period in 2005. Personnel and benefit expense increased approximately $660,000 (of which $755,000 was due to increases in salary expense offset to a lesser degree by decreases in bonus and other benefit costs). The increase in salary expense was due to additional staffing (326 full-time equivalent employees for the first six months of 2006 compared to 308 for the same period in 2005) and normal salary increases. Other occupancy and equipment expense increased $219,000 for the six months ended June 30, 2006 compared to the same period in 2005 as a result of increased depreciation, equipment upgrades and utility costs, due in part to the operation of a remodeled facility located in Green Bay that was opened in June 2005. Other operating expense increased $775,000 for the six months ended June 30, 2006, in part due to costs of $216,000 related to various employee recruitment and search expenses, including costs related to the search for a new chief operating officer, $207,000 due to new product offering costs and an increase of $153,000 in loan collection expenses.

     For the three months ended June 30, 2006, non-interest expense increased $602,000 or 8.5%, from the three months ended June 30, 2005 to $7.7 million. Personnel and benefit expense increased $196,000 as a result of additional staffing costs. Other operating expense increased $428,000 as a result of increases in new product and services costs and loan collection expenses.

     Income tax expense decreased $880,000 for the six months ended June 30, 2006 when compared to the same period last year, the result of decreased taxable income. For the three months ended June 30, 2006, income tax expense decreased $130,000 when compared to the same period last year, the result of decreased taxable income.

     Total assets for Baylake Corp. increased 1.4% for the six months ended June 30, 2006. Assets were $1.1 billion at both June 30, 2006 and December 31, 2005. Total loans increased 1.1% during the first six months of 2006 to $822.0 million at June 30, 2006, while deposits increased 1.7% to $871.0 million during the period. Growth in shareholders’ equity was flat during the six months ended June 30, 2006 with balances totaling $78.4 million and $78.5 million, respectively, at June 30, 2006 and December 31, 2005, respectively. The slight decrease in shareholders’ equity was the result of an increase in other comprehensive loss (specifically related to unrealized losses on securities) offset slightly by the retention of earnings less the payment of cash dividends for the period.

     The allowance for loan loss decreased $126,000 during the six months ended June 30, 2006, reflecting $386,000 in net loan charge-offs for the period partially offset by an increased provision during the period. The ratio of allowance for loan loss to total loans was 1.15% at June 30, 2006, as compared to 1.18% at December 31, 2005.

     Non-performing loans totaled $28.7 million and $6.9 million at June 30, 2006 and December 31, 2005, respectively. The increase in non-performing loans during the period ended June 30, 2006 was due to an increase in non-accrual loans during the period, primarily during the first quarter. New non-accrual loans totaling $21.2 million have been added for the six months ended June 30, 2006 (including $3.0 million in the second quarter of 2006) due to six unrelated commercial loans that are experiencing difficulties in cash flow, operations, or management. As previously discussed, one loan is a commercial real estate development, two are recreational real estate properties, one loan is a residential real estate development, one is a hotel development, and one is a retail shopping mall. Each of these loans is secured primarily by commercial or residential real estate and the bank has initiated litigation measures involving three of these loans, which comprise $9.4 million of the $21.2 million increase. Voluntary liquidation plans are in place for the other

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loans to assist in the sale of underlying real estate assets and recovery of loan balances upon sale. However, the bank does not have a time line for final disposition of these delinquencies because of the uncertainty of the marketing process. Current impairments have been established for each of these credits and the bank does not anticipate any further loss at this time, in part due to expected collateral values. The ratio of allowance for loan loss to non-performing loans was 32.9% and 137.6% at June 30, 2006 and December 31, 2005, respectively.

     Due to the actions being taken as described above, Baylake Corp. believes the balance of the allowance for loan loss is presently sufficient to absorb probable incurred losses at June 30, 2006. However, future adjustments to the allowance for loan losses 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.

     Foreclosed assets, net, at June 30, 2006 decreased $2.0 million from December 31, 2005 primarily as the result of the sales of seven commercial and one residential real estate properties totaling $2.4 million. Net gains on the sale of those properties amounted to $53,000.

     As noted in a press release dated February 28, 2006, Baylake Corp. redeemed on March 31, 2006 (the “Redemption Date”) all of its $16.6 million 10.00% Cumulative Trust Preferred Securities (the “Trust Preferred Securities”) and its 10.00% Common Securities at a price equal to the $10.00 liquidation amount of each security plus all accrued and unpaid interest per security to the Redemption Date. In connection with the redemption of the Trust Preferred Securities, Baylake Corp. expensed during the first six months (all in the first quarter) $475,015 ($313,510 net of tax) of unamortized origination cost associated with these securities.

     Baylake Corp. funded the redemption through the issuance of $16.1 million of trust preferred securities and $498,000 of trust common securities that will adjust quarterly at a rate equal to 1.35% over the three month LIBOR. The interest rate on this financing for the second quarter was 6.31% and will be 6.85% for the third quarter. This lower interest rate began to provide interest savings in the second quarter of 2006 and management believes that the new financing should provide a better match for the overall interest rate sensitivity position of Baylake Corp. going forward.

     Capital resources for the six months ended June 30, 2006 decreased by $119,000, as a result of factors previously stated. Baylake Corp. anticipates that it has resources available to meet its commitments. At June 30, 2006, Baylake Corp. had $75.6 million of established lines of credit with nonaffiliated banks, of which $54.4 million was available.

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 27 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 March 31, 2006 and Form 10-K for the year ended December 31, 2005, describe some of these factors, including certain credit, market, operational, liquidity and interest rate risks associated with the company’s business and operations, and recent actions taken by the Wisconsin Department of Revenue relating to state tax obligations. Other factors include changes in general business and economic conditions, developments relating to the identified non-performing loans and

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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.

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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 June 30, 2006 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
	June 30,		December 31,		June 30,
	2006		2005		2005
	(dollars in thousands)
Selected Financial Condition Data (at end of period):
Total assets	$	1,104,687	$	1,089,408	$	1,105,235
Investment securities(1)		183,955		171,638		209,824
Federal funds sold		0		199		0
Total loans		821,977		812,670		797,583
Allowance for loan loss		9,425		9,551		9,564
Total deposits		871,042		856,711		844,952
Borrowings(2)		127,376		126,500		156,773
Subordinated debentures		16,100		16,100		16,100
Total shareholders’ equity		78,425		78,544		78,515
Non-performing loans, net of discount(3)(4)		28,651		6,942		7,907
Non-performing assets, net of discount(3)(4)		30,025		10,275		10,003

	As of and for the						As of and for the
	Three Months						Six Months
	Ended June 30,						Ended June 30,
	2006			2005			2006			2005
	(dollars in thousands, except per share data)
Selected Income Data:
Total interest income	$	17,522		$	15,178		$	34,168		$	28,990
Total interest expense		8,835			6,288			17,603			11,486
Net interest income		8,687			8,890			16,565			17,504
Provision for loan losses		61			91			261			121
Net interest income after provision for loan losses		8,626			8,799			16,304			17,383
Total non-interest income		2,481			2,026			4,719			4,289
Total non-interest expense		7,693			7,091			15,817			14,136
Income before income tax		3,414			3,734			5,206			7,536
Income tax provision		1,044			1,174			1,512			2,392
Net income	$	2,370		$	2,560		$	3,694		$	5,144
Per Share Data:(5)
Net income per share (basic)	$	0.30		$	0.33		$	0.47		$	0.67
Net income per share (diluted)		0.30			0.33			0.47			0.66
Cash dividends per common share		0.16			0.15			0.32			0.30
Book value per share		10.05			10.16			10.05			10.16
Performance Ratios:(6)
Return on average total assets		0.86	%		0.94	%		0.67	%		0.96	%
Return on average total shareholders’ equity		12.12			13.27			9.47			13.38
Net interest margin(7)		3.53			3.67			3.38			3.67
Net interest spread(7)		3.15			3.36			3.00			3.38
Non-interest income to average assets		0.90			0.75			0.86			0.80
Non-interest expense to average assets		2.79			2.61			2.88			2.65
Net overhead ratio(8)		1.89			1.87			2.02			1.84
Efficiency ratio(10)		67.21			63.05			72.46			63.04
Average loan-to-average deposit ratio		94.92			95.35			96.16			94.18
Average interest-earning assets to average interest-bearing liabilities		110.76			112.38			110.86			112.52
Asset Quality Ratios:(3)(4)(6)
Non-performing loans to total loans		3.49	%		0.99	%		3.49	%		0.99	%

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	As of and for the						As of and for the
	Three Months						Six Months
	Ended June 30,						Ended June 30,
	2006			2005			2006			2005
	(dollars in thousands, except per share data)
Allowance for loan losses to:
Total loans		1.15			1.20			1.15			1.20
Non-performing loans		32.90			120.96			32.90			120.96
Net charge-offs to average loans		0.16			0.41			0.09			0.26
Non-performing assets to total assets		2.72			0.91			2.72			0.91
Capital Ratios:(6)(9)
Shareholders’ equity to assets		7.10	%		7.10	%		7.10	%		7.10	%
Tier 1 risk-based capital		9.82			9.56			9.82			9.56
Total risk-based capital		10.82			10.60			10.82			10.60
Leverage ratio		8.39			8.18			8.39			8.18
Other Data at End of Period:
Number of bank subsidiaries		1			1			1			1
Number of banking facilities		27			27			27			27
Number of full-time equivalent employees		326			308			326			308

(1)	Includes securities classified as 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 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.
(4)	The increase in non-performing assets during the six months ended June 30, 2006 was due, in part, to a $21.2 million increase in non-accrual loans in the first six months of 2006, particularly relating to six unrelated commercial credits, offset partially by a decrease in other real estate owned in the first six months of 2006.
(5)	Earnings 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 daily 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)	Efficiency ratio is calculated as follows: non-interest expense divided by the sum of taxable equivalent net interest income plus non-interest income, excluding investment securities gains, net and excluding net gains on sale of fixed assets.

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