U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO
_________
Commission file number 0-27984
Ridgestone Financial Services, Inc.
(Exact name of small business issuer as specified in its charter)
Wisconsin 39-1797151
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13925 West North Avenue
Brookfield, Wisconsin 53005
(Address of principal executive offices)
414-789-1011
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 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______
State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date.
Class Outstanding as of June 30, 1996
Common Stock, no par value 834,340
Transitional Small Business Disclosure Format: Yes______ No X
<PAGE>
RIDGESTONE FINANCIAL SERVICES, INC., AND SUBSIDIARY
INDEX
Page
Part I FINANCIAL INFORMATION Number
Item 1 Consolidated Financial Statements (Unaudited)
Consolidated Balance Sheets at
June 30, 1996 and December 31, 1995 2
Consolidated Statements of Income
For the Three and Six Months Ended June 30, 1996 3
Consolidated Statement of Cash Flows
For the Six Months Ended June 30, 1996 4
Notes to Consolidated Financial Statements 6
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
Part II OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security Holders 11
Item 6 Exhibits and Reports on Form 8-K 11
SIGNATURES 12
<PAGE>
RIDGESTONE FINANCIAL SERVICES, INC., AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
June 30, 1996 and December 31, 1995
(Unaudited)
June 30, December 31,
1996 1995
ASSETS
Cash and due from banks $ 903,149 $ 527,132
Federal funds sold 13,858,000 5,627,000
Interest-earning deposits 512,512 2,444,031
---------- ----------
Total cash and cash equivalents 15,273,661 8,598,163
---------- ----------
Investments-Held to Maturity 3,255,840 0
(fair value at June 30, 1996,
$3,251,928)
Investments-Available for Sale 1,268,108 0
(amortized cost at June 30, 1996,
$1,271,108)
Loans receivable 5,876,880 729,770
Less: Allowance for estimated
loan losses 39,740 9,000
--------- ---------
Net loans receivable 5,837,140 720,770
--------- ---------
Office building and equipment, net 1,057,121 1,056,738
Accrued interest & other assets 116,429 51,652
--------- ---------
Total assets $26,808,299 $10,427,323
========== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing $2,175,529 $1,492,249
Interest-bearing 17,933,062 1,816,282
--------- ---------
Total deposits 20,108,591 3,308,531
--------- ---------
Other liabilities 145,568 5,449
--------- ---------
Total liabilities 20,254,159 3,313,980
STOCKHOLDERS' EQUITY
Common stock, no par value: shares
authorized 1,000,000; shares issued
and outstanding 834,340 7,721,399 7,721,399
Retained earnings (deficit) (1,164,259) (608,056)
Unrealized gain (loss) on AFS
securities (3,000) 0
--------- ---------
Total stockholders' equity 6,554,140 7,113,343
--------- ---------
Total liabilities and stockholders'
equity $26,808,299 $10,427,323
========== ==========
<PAGE>
RIDGESTONE FINANCIAL SERVICES, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
June 30, 1996 (Unaudited)
Three Months
Ended Six Months Ended
June 30, 1996 June 30, 1996
Interest Income:
Interest and fees on loans $ 85,995 $ 141,956
Interest on securities 30,806 30,806
Interest on federal funds sold 158,583 251,808
Interest on deposits in banks 22,457 22,457
------- -------
Total interest income 297,841 447,027
------- -------
Interest expense:
Interest on deposits 191,944 257,049
------- -------
Total interest expense 191,944 257,049
------- -------
Net interest income 105,897 189,978
Provision for loan losses: 26,100 30,740
------- -------
Net interest income after
provision for loan losses 79,797 159,238
Non-interest income:
Loan fees 10,146 10,146
Service charges on deposit
accts. 2,197 3,383
Miscellaneous 8,973 27,843
------- -------
Total operating income 21,316 41,372
------- -------
Non-interest expense:
Salaries and employee benefits 160,910 339,192
Occupancy and equipment exp. 97,840 154,654
Other expense 142,056 262,058
Total operating expense 400,806 755,904
------- -------
Income before income taxes (299,693) (555,294)
-------- ---------
Income taxes 0 909
-------- ---------
Net income (loss) $(299,693) $(556,203)
======== =========
Income (loss) per share $(0.36) $(0.67)
======== =========
Average shares outstanding 834,340 834,340
<PAGE>
RIDGESTONE FINANCIAL SERVICES, INC., AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
June 30, 1996
(Unaudited)
Six Months Ended
June 30, 1996
Cash Flows From Operating Activities:
Net income (loss) $(556,203)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 88,542
Amortization of premiums (accretion of discounts)
on securities, net (2,282)
Provision for loan losses 30,740
Amortization of organizational costs 1,590
(Increase) decrease in assets:
Interest receivable (79,910)
Other assets 13,543
Increase (decrease) in liabilities:
Accrued interest 141,568
Other liabilities (1,449)
Total adjustments 192,342
--------
Net cash provided (used) by operating activities (363,861)
--------
Cash Flows From Investing Activities:
Purchase of securities held to maturity (3,256,855)
Purchase of securities available for sale (1,767,811)
Proceeds from maturity of available for sale
securities 500,000
Net loans originated (5,147,110)
Purchases of premises and equipment (88,925)
---------
Net cash (used in) investing activities (9,760,701)
---------
Cash Flows From Financing Activities:
Net increase in deposits 16,800,060
Net cash provided by financing activities 16,800,060
----------
Net increase in cash and cash equivalents 6,675,498
Cash and cash equivalents, beginning of period 8,598,163
----------
Cash and cash equivalents, end of period $15,273,661
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 127,407
----------
Income taxes $ 25
----------
Supplemental schedule of noncash investing activities:
Net unrealized losses on securities available for sale $ 3,000
----------
<PAGE>
RIDGESTONE FINANCIAL SERVICES, INC., AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to
Form 10-QSB. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the
three-month and six-month periods ended June 30, 1996 are not necessarily
indicative of the results that may be expected for the year ending
December 31, 1996. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's
Annual Report on Form 10-KSB for the year ended December 31, 1995.
NOTE 2 - PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Ridgestone Financial Services, Inc., (the "Company") and its wholly owned
subsidiary, Ridgestone Bank (the "Bank"). All significant intercompany
accounts and transactions have been eliminated in consolidation.
NOTE 3 - INITIAL PUBLIC OFFERING
On November 30, 1995, the Company completed its initial public offering.
The Company issued 834,340 shares of common stock in the offering.
NOTE 4 - COMPARATIVE DATA
The Company was incorporated in May of 1994, but its primary operating
subsidiary, the Bank, did not commence operations until December 7, 1995.
Comparable statements of income and cash flows for the three months and
six months ended June 30, 1995 have not been presented since the Company
did not have operations during that period.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Ridgestone Financial Services, Inc., (the "Company") was formed in
May 1994 under the laws of the State of Wisconsin for the purpose of
becoming the bank holding company of Ridgestone Bank (the "Bank").
The Bank was capitalized on December 6, 1995 and commenced operation
on December 7, 1995. The Bank was organized as a Wisconsin chartered
commercial bank with depository accounts insured by the Federal Deposit
Insurance Corporation. The Bank provides full service commercial and
consumer banking services in Brookfield, Wisconsin, and adjacent
communities.
FINANCIAL CONDITION AT JUNE 30, 1996
The Company has experienced significant growth since the Bank opened
December 7, 1995. Total assets of the Company increased by $16,380,976 or
157.1% to $26,808,299 at June 30, 1996 from $10,427,323 at December 31,
1995. The growth primarily resulted from an increase in deposits received
from customers.
Cash and cash equivalents increased $6,675,498 or 77.6% to
$15,273,661 at June 30, 1996 from $8,598,163 at December 31, 1995. The
increase was primarily attributable to excess funds invested in overnight
federal funds sold.
Loans receivable increased by $5,147,110 or 705.3% to $5,876,880 at
June 30, 1996 from $729,770 at December 31, 1995.
The allowance for estimated loan losses at June 30, 1996 was $39,740,
representing 0.7% of gross loans outstanding. Similarly, the allowance
for loan losses at December 31, 1995 was $9,000 representing 1.23% of
gross outstanding loans. Although management believes that the allowance
for estimated loan losses at June 30, 1996 is adequate to absorb losses on
existing loans, there can be no assurance that such losses will not exceed
the estimated amounts or that the Company will not be required to make
additional contributions to its loan loss reserve in the future.
Accrued interest receivable on loans and other assets increased by
$64,777 or 125.4% to $116,429 at June 30, 1996 from $51,652 at December
31, 1995. The increase was primarily due to greater outstanding loan
balances.
Deposits increased by $16,800,060 or 507.8% to $20,108,591 at June
30, 1996 from $3,308,531 at December 31, 1995. The increase resulted from
a $9,676,913 increase in certificates of deposit and a $7,123,147 increase
in NOW, money market and other deposit accounts.
Other liabilities increased by $140,119 to $145,568 at June 30, 1996
from $5,449 at December 31, 1995. Other liabilities was comprised
primarily of unpaid interest on deposits.
The accumulated deficit at December 31, 1995 of $608,056 was
comprised of pre-opening expenses and start-up expenses for the Bank,
consisting primarily of salaries, marketing and supplies and the net loss
incurred. Accumulated deficit increased by $556,203 during the six months
ended June 30, 1996, which reflects the loss for the period.
RESULTS OF OPERATIONS FOR THE THREE MONTHS AND SIX MONTHS ENDED JUNE 30,
1996
The net loss for the three month and six month periods ended June 30,
1996 was $299,693 and $556,203 respectively. The Company expected losses
during the pre-opening period and for the first several periods of
operation. The Company's goal is to be profitable for the year ended
December 31, 1997.
Interest income for the three month and six month periods ended
June 30, 1996 was $297,841 and $447,027, respectively. The rise in
interest income was attributable to greater outstanding balances in
earning assets.
Interest expense for the three month and six month periods ended
June 30, 1996 was $191,944 and $257,049, respectively. The increase in
interest expense was attributable to greater outstanding balances in
deposits.
The provision for loan losses at December 31, 1995 was $9,000 or
1.23%. The provision for loan losses at ended June 30, 1996 was $30,740
or .5% with a monthly accrual to bring the loan loss reserve to 1.25% of
outstanding loans by December 31, 1996.
Other income for the three month and six month periods ending
June 30, 1996 was $21,416 and $41,372, respectively. Other income
consisted of income from depository service fees, loan fees, credit card
fees and other miscellaneous fees.
The main components of other expenses were salaries and benefits,
occupancy, equipment, professional, data processing, insurance and other
miscellaneous expenses. Other expenses for the three months and six month
periods ended June 30, 1996 were $400,806 and $755,904.
NEW ACCOUNTING PRONOUNCEMENTS
ACCOUNTING FOR MORTGAGE SERVICING RIGHTS:
The Financial Accounting Standards Board ("FASB") has issued
Statement of Financial Accounting Standards ("SFAS") No. 122, Accounting
for Mortgage Servicing Rights. SFAS No. 122 amends certain provisions of
SFAS No. 65 to eliminate the accounting distinction between rights to
service mortgage loans for others that are acquired through loan
origination activities and those acquired through purchase transactions.
SFAS No. 122 provides that if the Company sells or securitizes mortgage
loans and retains the mortgage servicing rights, the Company should
allocate the total cost of mortgage loans to the mortgage servicing rights
and the loans (without the mortgage servicing rights) based on their
relative fair values. Any costs allocated to mortgage servicing rights
should be recognized as a separate asset. SFAS No. 122 is effective for
the Company's year ending December 31, 1996. The Company believes
adoption of SFAS No. 122 will not have a material effect on operations in
1996.
STOCK-BASED COMPENSATION:
The FASB has issued SFAS No. 123, Accounting for Stock-Based
Compensation. SFAS No. 123 encourages, but does not require, the Company
to account for stock-based compensation awards on the basis of fair value
at the date the awards are granted. The fair value of the award would be
shown as an expense on the income statement. However the FASB also allows
the Company to continue to measure compensation cost using the intrinsic
value approach prescribed by APB No. 25. If the Company elects to use the
intrinsic value approach, it will not show an expense on the income
statement. However, it will be required to provide new footnote
disclosures about the stock-based compensation and the Company must make
pro forma disclosures of net income and earnings per share as if the fair
value method of accounting had been applied. SFAS No. 123 is effective
for the Company's year ending December 31, 1996.
ACCOUNTING FOR TRANSFERS AND SERVICING OF FINANCIAL ASSETS AND THE
EXTINGUISHMENTS OF LIABILITIES:
The FASB has issued SFAS No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, which
supersedes SFAS No. 76, SFAS No. 77 and SFAS No. 122. SFAS No. 125
provides accounting and reporting standards for transfer and servicing of
financial assets and extinguishments of liabilities, which are
based on consistent application of a financial-components approach that
focuses on control. SFAS No. 125 provides that, after a transfer of
financial assets, an entity must recognize the financial servicing assets
it controls and the liabilities it has incurred, derecognize financial
assets when control has been surrendered, and derecognize liabilities when
extinguished. SFAS No. 125 provides consistent standards for
distinguishing transfers of financial assets that are sales from transfers
that are secured borrowings. SFAS No. 125 is to be applied prospectively
for transfers and servicing of financial assets and extinguishments of
liabilities occurring after December 31, 1996. Earlier or retroactive
application is not permitted.
<PAGE>
RIDGESTONE FINANCIAL SERVICES, INC., AND SUBSIDIARY
PART II - OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security Holders.
At the annual meeting of shareholders held on April 23, 1996, all
the persons nominated for election as directors by the Company's
Board of Directors were elected for terms expiring at the 1997
Annual Meeting. The following table sets forth certain
information with respect to such election:
Shares
Shares Withholding
Name of Nominee Voted For Authority
Charles N. Ackley 816,100 2,500
William R. Hayes 816,100 2,500
Gregory J. Hoesly 816,100 2,500
John E. Horning 816,100 2,500
William F. Krause, Jr. 816,100 2,500
Christine V. Lake 816,100 2,500
Paul E. Menzel 816,100 2,500
Charles Niebler 816,100 2,500
Frederick I. Olson 816,100 2,500
James E. Renner 816,100 2,500
Richard A. Streff 816,100 2,500
William J. Tetzlaff 816,100 2,500
Item 6. Exhibits and Reports on Form 8-K.
a. Exhibits
27 Financial Data Schedule
(EDGAR version only)
b. Reports on Form 8-K
The Company did not file a Current Report on Form 8-K during
the quarter ended June 30, 1996.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RIDGESTONE FINANCIAL SERVICES, INC.
Date August 13, 1996 /s/ Paul E. Menzel
Paul E. Menzel
President
Date August 13, 1996 /s/ William R. Hayes
William R. Hayes
Vice President and Treasurer
<PAGE>
EXHIBIT INDEX
Exhibit Number
27 Financial Data Schedule
(EDGAR version only)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL NFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF RIDGESTONE FINANCIAL SERVICES,
INC. AS OF AND FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 903
<INT-BEARING-DEPOSITS> 513
<FED-FUNDS-SOLD> 13,858
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,268
<INVESTMENTS-CARRYING> 3,256
<INVESTMENTS-MARKET> 3,252
<LOANS> 5,877
<ALLOWANCE> 40
<TOTAL-ASSETS> 26,808
<DEPOSITS> 20,109
<SHORT-TERM> 0
<LIABILITIES-OTHER> 146
<LONG-TERM> 0
0
0
<COMMON> 7,721
<OTHER-SE> (1,167)
<TOTAL-LIABILITIES-AND-EQUITY> 6,554
<INTEREST-LOAN> 142
<INTEREST-INVEST> 283
<INTEREST-OTHER> 22
<INTEREST-TOTAL> 447
<INTEREST-DEPOSIT> 257
<INTEREST-EXPENSE> 257
<INTEREST-INCOME-NET> 190
<LOAN-LOSSES> 31
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 715
<INCOME-PRETAX> 555
<INCOME-PRE-EXTRAORDINARY> 555
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 556
<EPS-PRIMARY> (0.67)
<EPS-DILUTED> (0.67)
<YIELD-ACTUAL> 6.10
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 9
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 31
<ALLOWANCE-DOMESTIC> 0
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 40
</TABLE>
