RIDGESTONE FINANCIAL SERVICES INC, 10KSB, 1997-03-21

RIDGESTONE FINANCIAL SERVICES INC
10KSB, 1997-03-21
STATE COMMERCIAL BANKS

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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-KSB

[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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.
(Name of small business issuer 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) (Zip Code)

Issuer's telephone number (414) 789-1011

Securities registered under Section 12(b) of the Act: None

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, no par value
(Title of class)

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 ___.

Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-KSB or any amendment to this Form 10-KSB. [ ]

Issuer's revenues for its most recent fiscal year: $1,636,579

Aggregate market value of voting stock held by non-affiliates of the
issuer: $9,878,490

Number of shares of common stock, no par value, outstanding on March 3,
1997: 834,340

DOCUMENTS INCORPORATED BY REFERENCE

Proxy Statement for the 1997 Annual Meeting (incorporated by reference
into Part III)

Transitional Small Business Disclosure Format: Yes ___; No X .

<PAGE>
Ridgestone Financial Services, Inc.

Index to Annual
Report on Form 10-KSB
For The Fiscal Year Ended December 31, 1996

Page

Part I . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 1. Description of Business . . . . . . . . . . . . . . . 1
Item 2. Description of Property . . . . . . . . . . . . . . . 10
Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . . 10
Item 4. Submission of Matters to a Vote of Security Holders . 10

Part II . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Item 5. Market for Common Equity and Related Stockholder
Matters . . . . . . . . . . . . . . . . . . . . . . . 10
Item 6. Management's Discussion and Analysis or Plan of
Operation . . . . . . . . . . . . . . . . . . . . . . 12
Item 7. Financial Statements . . . . . . . . . . . . . . . . . 24
Item 8. Changes In and Disagreements With Accountants on
Accounting and Financial Disclosure . . . . . . . . . 47

Part III . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
Item 9. Directors, Executive Officers, Promoters and Control
Persons; Compliance With Section 16(a) of the Exchange
Act . . . . . . . . . . . . . . . . . . . . . . . . . 47
Item 10. Executive Compensation . . . . . . . . . . . . . . . . 47
Item 11. Security Ownership of Certain Beneficial Owners and
Management . . . . . . . . . . . . . . . . . . . . . . 47
Item 12. Certain Relationships and Related Transactions . . . . 47
Item 13. Exhibits and Reports on Form 8-K . . . . . . . . . . . 47

SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48

<PAGE>
Part I

Item 1. Description of Business

General

Ridgestone Financial Services, Inc. (the "Company") was incorporated in
Wisconsin on May 25, 1994. The Company was formed to acquire all of the
issued and outstanding stock of Ridgestone Bank (the "Bank") and to engage
in the business of a bank holding company under the Bank Holding Company
Act of 1956, as amended (the "BHCA"). The organizers received a
certificate of authority to organize the Bank from the Wisconsin
Commissioner of Banking on May 9, 1995. The organizers' application for
deposit insurance was approved on May 24, 1995 by the Federal Deposit
Insurance Corporation ("FDIC"), subject to certain conditions including
conditions related to capital adequacy. The Company's application to
become a bank holding company for the Bank was approved by the Federal
Reserve Board on July 20, 1995. In November 1995, the Company sold
834,340 shares of its common stock, no par value, in an initial public
offering. The net proceeds received by the Company in this offering
totalled approximately $7.8 million. The Bank was capitalized on
December 6, 1995, and commenced operations on December 7, 1995.

The Bank provides full-service commercial and consumer banking services in
its primary market areas of Brookfield, Elm Grove and Wauwatosa,
Wisconsin. The Bank competes with other commercial banks, savings banks,
savings and loan institutions, credit unions and other financial service
organizations in the three city area. The bank is one of the newest
financial institutions in its market.

The Company's principal business consists of attracting deposits from the
public and investing those deposits in loans and securities. The Bank's
deposits are insured to the maximum extent allowable by the FDIC. The
Company's results of operations are dependent primarily on net interest
income, which is the difference between the interest earned on its loans
and securities and the interest paid on deposits. The Company's operating
results are affected by deposit service charges and other income.
Operating expenses of the Company include employee compensation and
benefits, occupancy and equipment expense, professional and data
processing fees, advertising and marketing expenses, and other
administrative expenses. The Company's operating results are also
affected by economic and competitive conditions, particularly changes in
interest rates, government policies and actions of regulatory authorities.

In 1996, the Bank received regulatory approval to open its first branch at
15565 W. North Avenue, Brookfield, Wisconsin. The branch opened for
business on January 2, 1997 and houses a drive-thru branch banking
facility and telephone banking center.

Business Strategy

The Bank's strategy is to concentrate on the financial service needs of
individuals and small businesses by providing on-site decision making and
using technology to enhance customer service. While the Bank has a
lending limit of $800,000 per loan, the Bank is able to attract business
loans beyond its $800,000 lending limit by using bank participations with
other banks in Wisconsin. Likewise, the Bank has purchased participations
from other area Wisconsin financial institutions.

Loan Products

The Bank offers a full range of retail and commercial lending services,
including commercial revolving lines of credit, residential and commercial
real estate mortgage loans, consumer loans and equipment financing. These
loan products are discussed below.

Although the Bank's management takes a competitive approach to lending, it
stresses high quality in its loans. To promote such quality lending, the
Board of Directors of the Bank has established maximum lending authority
for each loan officer. Each loan request exceeding a loan officer's
authority has to be approved by one or more senior officers. On a monthly
basis, the entire Board of Directors of the Bank reviews all loans over
$25,000 made in the preceding month. In addition, a loan committee of the
Board of Directors of the Bank reviews loans over $250,000 for prior
approval when the loan request exceeds the established limits for the
senior officers. The lending committee of the Bank reviews loans between
the lending officer's lending authority and $250,000. The lending
committee is comprised of the President of the Bank, the Executive Vice
President and Loan Review Officer. Because of the Bank's local nature,
management believes that quality control is achievable while still
providing prompt and personal service.

Management of the Bank has established relationships with a correspondent
bank and other independent financial institutions to provide other
services required by its customers, including loan participations where
the requested loan amounts exceed the Bank's policies or legal lending
limits.

The Bank has established a continuous loan review process designed to
promote early identification of credit quality problems. The Bank's
credit review administrator is responsible for conducting a continuous
internal review which tests compliance with loan policy and documentation
of all loans. Any past due loans and identified problem loans are
reviewed with the Board of Directors of the Bank on a monthly basis.

Real Estate Loans. The Bank originates residential mortgage loans, which
generally are long-term with either fixed or variable interest rates. The
Bank's policy is to retain all variable interest rate mortgage loans in
the Bank's loan portfolio and to sell all fixed rate loans with their
servicing rights in the secondary market. This policy is subject to
review by management as a result of changing market and economic
conditions.

The retention of variable-rate loans in the Bank's loan portfolio helps to
reduce the Bank's exposure to fluctuations in interest rates. However,
such loans generally pose credit risks different from the risks inherent
in fixed rate loans, primarily because as interest rates rise, the
underlying payments from the borrowers rise, thereby increasing the
potential for default.

Regulatory and supervisory loan-to-value ("LTV") limits were established
by Section 304 of the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA"). The Bank's internal limitations follow those
limits and in certain cases are more restrictive than those mandated by
the regulators. Proof of insurance is required on all collateral taken as
security before loan proceeds are advanced. The regulatory limits are as
follows:

Loan Category LTV Limit

Raw Land 65%

Land Development 75%

Construction:

Commercial, multi-family, and non-residential 80%

1-4 family residential 85%

Improved Property 85%

Owner-occupied 1-4 family and home equity 90% (1)

(1) Residential loans exceeding the 90% guideline may be excluded from
the reporting requirement if enhanced by mortgage insurance or
readily marketable collateral.

Personal Loans. The Bank makes personal loans, lines of credit and credit
cards available to consumers for various purposes, such as the purchase of
automobiles, boats and other recreational vehicles, home improvements,
education and personal investments. The Bank retains substantially all
such loans.

Commercial Loans. Commercial loans are made primarily to small and
mid-sized businesses. These loans may be secured or unsecured, and are
available for general operating purposes, acquisition of fixed assets and
real estate, purchases of equipment and machinery, and financing inventory
and accounts receivable. The Bank generally looks to a borrower's
business operations as the principal source of repayment, but also
receives, when appropriate, mortgages on real estate, security interests
in inventory, accounts receivable and other personal property and/or
personal guaranties to secure repayment.

The Bank's commercial loan portfolio totalled $6,967,836 as of
December 31, 1996 and consisted primarily of lines of credit and loans to
businesses. Lines of credit are generally used for the purpose of
financing working capital and may be secured with current assets of the
company. Loans are written for a period of greater than one year and are
amortized over a period of five to seven years and are used principally
for financing fixed asset expenditures. Loans are generally secured with
the fixed assets of the company.

Real Estate Commercial Loans. As of December 31, 1996, the Bank had
$4,632,272 of real estate commercial loans outstanding. These loans were
made for the purpose of purchasing plant and multiple family commercial
real estate holdings.

Competition. The company has identified 50 offices of either thrifts,
credit unions or banks operating in Brookfield, Elm Grove and Wauwatosa,
Wisconsin. Although the Company commenced operations on December 7, 1995,
using the most recently available data as of June 1996, the Bank exceeds
many of these offices in terms of deposits.

The Bank also faces competition from finance companies, insurance
companies, mortgage companies, securities brokerage firms, money market
funds and other providers of financial services. Most of the Bank's
competitors have been in business for a number of years, have established
customer bases, are larger and have higher lending limits than the Bank.

The Bank competes for loans principally through its ability to communicate
effectively with its customers in understanding and meeting their needs.
Management believes that its personal service philosophy continues to
enhance its ability to compete favorably in attracting individual and
business customers. The Bank actively solicits retail customers and
competes for deposits by offering customers personal attention,
professional service and competitive interest rates.

Supervision and Regulation

The operations of financial institutions, including banks and bank holding
companies, are highly regulated, both at the federal and state levels.
Numerous statutes and regulations affect the business of the Company and
the Bank. To the extent that the information below is a summary of
statutory provisions, such information is qualified in its entirety by
reference to the statutory provisions described. There are additional
laws and regulations having a direct or indirect effect on the business of
the Company or the Bank.

In recent years, the banking and financial industry has been the subject
of numerous legislative acts and proposals, administrative rules and
regulations at both federal and state regulatory levels. As a result of
many of such regulatory changes, the nature of the banking industry in
general has changed dramatically in recent years as increasing competition
and a trend toward deregulation have caused the traditional distinctions
among different types of financial institutions to be obscured. Further
changes along these lines could permit other financially oriented
businesses to offer expanded services, thereby creating greater
competition for the Company and the Bank with respect to services
currently offered or which may in the future be offered by those entities.
Proposals for new legislation or rule making affecting the financial
services industry are continuously being advanced and considered at both
the national and state levels. Neither the Company nor the Bank can
predict the effect that future legislation or regulation will have on the
financial services industry in general or on their businesses in
particular.

The performance and earnings of the Bank, like other commercial banks, are
affected not only by general economic conditions but also by the policies
of various governmental regulatory authorities. In particular, the
Federal Reserve System regulates money and credit conditions and interest
rates in order to influence general economic conditions primarily through
open-market operations in U.S. Government securities, varying the discount
rate on bank borrowings, and setting reserve requirements against bank
deposits. The policies of the Federal Reserve System have a significant
influence on overall growth and distribution of bank loans, investments
and deposits, and affect interest rates earned on loans and investments.
The general effect, if any, of such policies upon the future business and
earnings of the Bank cannot accurately be predicted.

The Company

As a registered bank holding company, the Company is subject to regulation
under the BHCA. The BHCA requires every bank holding company to obtain
the prior approval of the Board of Governors of the Federal Reserve System
(the "Board") before it may merge with or consolidate into another bank
holding company, acquire substantially all the assets of any bank, or
acquire ownership or control of any voting shares of any bank if after
such acquisition it would own or control, directly or indirectly, more
than 5% of the voting shares of such bank.

Under the BHCA, the Company is prohibited, with certain exceptions, from
acquiring direct or indirect ownership or control of more than 5% of the
voting shares of any company which is not a bank or holding company, and
neither the Company nor any subsidiary may engage in any business other
than banking, managing or controlling banks or furnishing services to or
performing services for its subsidiaries. The Company may, however, own
shares of a company the activities of which the Board has determined to be
so closely related to banking or managing or controlling banks as to be a
proper incident thereto, and the holding company itself may engage in such
activities. The Company has no pending acquisition plans.

As a registered bank holding company, the Company is supervised and
regularly examined by the Board. Under the BHCA, the Company is required
to file with the Board an annual report and such additional information as
may be required. The Board can order bank holding companies and their
subsidiaries to cease and desist from any actions which in the opinion of
the Board constitute serious risk to the financial safety, soundness or
stability of a subsidiary bank and are inconsistent with sound banking
principles or in violation of law. The Board has adopted regulations
which deal with the measure of capitalization for bank holding companies.
Such regulations are essentially the same as those adopted by the FDIC,
described below. The Board's regulations also provide that its capital
requirements will generally be applied on a bank-only (rather than a
consolidated) basis in the case of a bank holding company with less than
$150 million in total consolidated assets. The Board has also issued a
policy statement on the payment of cash dividends by bank holding
companies, wherein the board has stated that a bank holding company
experiencing earnings weaknesses should not pay cash dividends exceeding
its net income or which could only be funded in ways that weaken the bank
holding company's financial health, such as by borrowing.

Under Wisconsin law, the Company is also subject to supervision and
examination by the Wisconsin Department of Financial Institutions (the
"Department"). The Department is also empowered to issue orders to a bank
holding company to remedy any condition or policy which, in its
determination, endangers the safety of deposits in any subsidiary state
bank, or the safety of the bank or its depositors. In the event of
noncompliance with such an order, the Department has the power to direct
the operation of the state bank subsidiary and withholding dividends from
the holding company.

The Company, as the holder of the stock of a Wisconsin state-chartered
bank, may be subject to assessment to restore impaired capital of the bank
to the extent provided in Section 220.07, Wisconsin Statutes. Any such
assessment would apply only to the Company and not to any shareholder of
the Company. The Company has committed to the Department that if the
Bank's contingent fund decreases to less than $250,000, the Company will
transfer funds to the Bank's contingent fund sufficient to restore the
contingent fund to at least $500,000.

Federal law prohibits the acquisition of "control" of a bank holding
company by individuals or business entities or groups or combinations of
individuals or entities acting in concert without prior notice to the
appropriate federal bank regulator. For this purpose, "control" is
defined in certain instances as the ownership of or power to vote 10% or
more of the outstanding shares of the bank holding company.

The Bank

As a state-chartered institution, the Bank is subject to regulation and
supervision by the Department and the Wisconin Banking Review Board and is
periodically examined by the Department's staff. Deposits of the Bank are
insured by the Bank Insurance Fund administered by the FDIC and as a
result the Bank is also subject to regulation by the FDIC and periodically
examined by its staff.

The Federal Deposit Insurance Act requires that the appropriate federal
regulatory authority -- the FDIC in the case of the Bank (as an insured
state bank which is not a member of the Federal Reserve System) -- approve
any acquisition by it through merger, consolidation, purchase of assets,
or assumption of deposits. The same regulatory authority also supervises
compliance by the Bank with provisions of federal banking laws which,
among other things, prohibit the granting of preferential loans to
executive officers, directors, and principal shareholders of banks which
have a correspondent relationship with one another.

Wisconsin banking laws restrict the payment of cash dividends by state
banks by providing that (i) dividends may be paid only out of a bank's
undivided profits, and (ii) prior consent of the Department is required
for the payment of a dividend which exceeds current year income if
dividends declared have exceeded net profits in either of the two
immediately preceding years. The various bank regulatory agencies have
authority to prohibit a bank regulated by them from engaging in an unsafe
or unsound practice; the payment of a dividend by a bank could, depending
upon the circumstances, be considered such an unsafe or unsound practice.
In the event that (i) the FDIC or the Department should increase minimum
required levels of capital; (ii) the total assets of the Bank increase
significantly; (iii) the income of the Bank decreases significantly; or
(iv) any combination of the foregoing occurs, then the Board of Directors
of the Bank may decide or be required by the FDIC or the Department to
retain a greater portion of the Bank's earnings to achieve or maintain the
required capital.

Subsidiary banks of a bank holding company are subject to certain
restrictions imposed by the Federal Reserve Act on any extensions of
credit to the bank holding company or any of its subsidiaries, on
investments in stock or other securities of the bank holding company and
on the taking of such stock or securities as collateral for loans to any
borrower. Under the BHCA and regulations of the Board, a bank holding
company and its subsidiaries are prohibited from engaging in certain tie-
in arrangements in connection with any extension of credit or of any
property or service.

The activities and operations of banks are subject to a number of
additional detailed, complex and sometimes overlapping federal and state
laws and regulations. These include state usury and consumer credit laws,
state laws relating to fiduciaries, the Federal Truth-in-Lending Act and
Regulation Z, the Federal Equal Credit Opportunity Act and Regulation B,
the Fair Credit Reporting Act, the Financial Institutions Reform, Recovery
and Enforcement Act of 1989, FDICIA, the Community Reinvestment Act, anti-
redlining legislation and the antitrust laws. The Community Reinvestment
Act includes provisions under which the federal bank regulatory agencies
must consider, in connection with applications for certain required
approvals, including applications to acquire control of a bank or holding
company or to establish a branch, the records of regulated financial
institutions in satisfying their continuing and affirmative obligations to
help meet the credit needs of their local communities, including those of
low and moderate-income borrowers.

FDICIA, among other things, establishes five tiers of capital
requirements: well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized. The FDIC
has adopted regulations which define the relevant capital measures for the
five capital categories. An institution is deemed to be "well
capitalized" if it has a total risk-based capital ratio (total capital to
risk-weighted assets) of 10% or greater, a Tier I risk-based capital ratio
(Tier I Capital to risk weighted assets) of 6% or greater, and a Tier I
leverage capital ratio (Tier I Capital to total assets) of 5% or greater,
and is not subject to a regulatory order, agreement, or directive to meet
and maintain a specific capital level for any capital measure. An
institution is deemed to be "adequately capitalized" if it has a total
risk-based capital ratio of 8% or greater, a Tier I risk-based capital of
4% or greater, and (generally) a Tier I leverage capital ratio of 4% or
greater, and the institution does not meet the definition of a well
capitalized institution. An institution is deemed to be
"undercapitalized" if it has a total risk-based capital ratio less than
8%, or a Tier I risk-based capital ratio less than 4%, or (generally) a
Tier I leverage ratio of less than 4%. An institution is deemed to be
"significantly undercapitalized" if it has a total risk-based capital
ratio less than 6%, or a Tier I risk-based capital ratio less than 3%, or
a Tier I leverage ratio less than 3%. An institution is deemed to be
"critically undercapitalized" if it has a ratio of tangible equity (as
defined in the regulations) to total assets that is equal to or less than
2%. Undercapitalized banks are subject to growth limitations and are
required to submit a capital restoration plan. If an undercapitalized
bank fails to submit an acceptable plan, it is treated as if it is
"significantly undercapitalized." Significantly undercapitalized banks
may be subject to a number of requirements and restrictions, including
orders to sell sufficient voting stock to become adequately capitalized,
requirements to reduce total assets, and cessation of receipt of deposits
from correspondent banks. "Critically undercapitalized" institutions may
not, beginning 60 days after becoming critically undercapitalized, make
any payment of principal or interest on their subordinated debt. The Bank
currently exceeds the regulatory definitions of a well capitalized
financial institution.

As a condition to the regulatory approvals incident to the Bank's
formation, the Bank is required to maintain a minimum leverage ratio of 8%
during the Bank's first three years of operation.

The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Riegle Act"), among other things, permits bank holding companies to
acquire banks in any state effective September 29, 1995. The Riegle Act
contains certain exceptions relative to acquisitions. For example, a
holding company may not acquire a bank that has not been in existence for
less than a minimum period established by the home state; however, the
minimum period cannot exceed five years. The Riegle Act makes a
distinction between interstate banking and interstate branching. Under
the Riegle Act, banks can merge with banks in another state beginning June
1, 1997, unless a state has adopted a law preventing interstate branching.
Under terms of the BHCA, an acquiring bank may not control more than 10
percent of federal or 30 percent of state total deposits of insured
depository institutions. Wisconsin law requires approval by the
Department for all acquisitions of Wisconsin banks, whether by an in-state
or out-of-state purchaser and requires, in an interstate acquisition, that
the acquired bank must have been in existence for at least five years.

Employees

The Company and the Bank together employ fourteen full-time and six part-
time employees, including three personal bankers, an investment officer, a
loan review officer, four operations specialists, five customer service
representatives, a cashier, a business calling representative, a
commercial loan officer, a senior officer in charge of retail banking, a
computer specialist and the Bank president.

Directors and Executive Officers

The directors of the Company and the Bank as of March 3, 1997 were as
follows:

Name of Director Principal Occupation

Paul E. Menzel President and Chief Executive Officer of
the Company and the Bank

William R. Hayes Vice President and Treasurer of the Company
and Vice President, Cashier/Controller of
the Bank

Christine V. Lake Vice President and Secretary of the Company
and Executive Vice President and Secretary
of the Bank

Charles N. Ackley Owner of C.N.A. Associates, Inc., a company
engaged in the sales representation of
manufacturers

Gregory J. Hoesly President of L.L. Richards Machinery Co.,
Inc., a machine tool dealer

John E. Horning Chairman of the Board and Chief Executive
Officer of Wauwatosa Realty Company,
Wisconsin Mortgage Corporation, and
Heritage Title Service

William F. Krause, Jr. President of Krause Funeral Home, Inc.

Charles G. Niebler President of Eye Care Vision Centers

Frederick I. Olson Retired Professor of History at the
University of Wisconsin-Milwaukee and
former Associate Dean of the University's
College of Letters

James E. Renner Owner of Renner Oldsmobile and Renner
Mitsubishi

Richard A. Streff Chairman of the Board of Streff
Advertising, Inc.

William J. Tetzlaff President of Tetzlaff Associates, Inc., a
consulting services company; President of
Advanced Plastics Technology, Inc., a
distribution company; Vice President of
Executive Travel Services, Ltd., a travel
agency

The executive officers of the Company and the Bank as of March 3, 1997
were as follows:

Name of Executive Officer Position

Paul E. Menzel President and Chief Executive Officer
of the Company and the Bank

William R. Hayes Vice President and Treasurer of the
Company and Vice President,
Cashier/Controller of the Bank

Christine V. Lake Vice President and Secretary of the
Company and Executive Vice President
and Secretary of the Bank

Item 2. Description of Property

The Company has leased space at 13925 West North Avenue, Brookfield,
Wisconsin for use as the Bank's main office and the Company's
headquarters. The lease has a five-year term with renewal and purchase
options. The Bank's main office occupies approximately 5,000 square feet
of a larger shopping mall which houses various retail establishments.

The Bank opened its drive-up branch and phone center on January 2, 1997 in
a renovated one-room schoolhouse. The branch is located in a turn-of-the-
century schoolhouse building, which has been renovated to house a branch
banking facility and a telephone banking center with state-of-the-art
technology. The Company owns this facility, which is located on
approximately one acre of land at 15565 W. North Avenue, Brookfield,
Wisconsin and has approximately 1,057 square feet of space. It provides
four drive-up kiosks and room for one drive-up automated teller machine.
In addition to the drive-up facilities, the branch houses the Company's
telephone banking center, which enhances the Bank's ability to sell bank
products through alternative delivery means.

Item 3. Legal Proceedings

The Company is not aware of any material legal proceedings against it or
the Bank.

Item 4. Submission of Matters to a Vote of Security Holders

There were no matters submitted to the shareholders of the Company for a
vote during the fourth quarter of the year ended December 31, 1996.

Part II

Item 5. Market for Common Equity and Related Stockholder Matters

The Company's common stock has traded in the over-the-counter market since
the completion of the company's initial public offering in November 1995.
High and low bid prices, as reported on the OTC Bulletin Board, for the
period from November 27, 1995 (the date the Company's common stock began
trading) to December 31, 1996 are as follows:

1995 High Low

1st Quarter N/A N/A

2nd Quarter N/A N/A

3rd Quarter N/A N/A

4th Quarter $10.25 $9.75

1996 High Low

1st Quarter $10.75 $10.05

2nd Quarter 11.50 10.438

3rd Quarter 12.375 11.25

4th Quarter 12.875 12.00

These quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not represent actual transactions. On
December 31, 1996, there were approximately 44 holders of record of the
Company's common stock.

No cash dividends have been declared to date on the Company's common
stock. The Company expects that all earnings, if any, will be retained to
finance the growth of the Company and the Bank and that no cash dividends
will be paid for the foreseeable future. If and when dividends are
declared, the Company will be dependent upon dividends paid to it by the
Bank for funds to pay dividends on the common stock.

Item 6. Management's Discussion and Analysis or Plan of Operation

Plan of Operation

Market Area. The Company selected its market location because the area
has a demographic profile with a large number of people that management
believes are most likely to become long-term, high-yield customers.

The Bank's main office is in Brookfield, Wisconsin and its primary market
area is divided almost equally between Elm Grove, Brookfield and
Wauwatosa, Wisconsin. Per capita income and median home values in 1990
were almost three times the Wisconsin average in Elm Grove, almost two
times the state average in Brookfield, and almost one and a half times the
state average in Wauwatosa. The Bank's primary market area also has a
mature population. As of 1990, the percentage of residents 65 years or
older was 12.6% in Brookfield, 19.8% in Wauwatosa and 20.6% in Elm Grove,
compared to an overall national average of 12.6% of the total population.

Marketing and Sales. Over the next twelve months, the Company and the
Bank will continue to implement the Bank's business strategy of focusing
on providing banking services to targeted individuals and businesses
within the Bank's market area. The Bank plans to implement this strategy
by emphasizing its local management, by providing a high level of personal
service to individual customers and by developing and employing technology
which will enable Bank personnel to provide individualized service to
customers on a cost-effective basis.

Since its inception, the Bank has opened over 2,900 consumer and business
deposit and loan accounts from over 1,200 customers. The demographic make-
up of those 1,200 customers mirrors the demographic make-up of what
national studies indicate to be the most profitable household
relationships available to banks.

The Bank's marketing efforts in developing these relationships were
primarily through direct mail, telephone solicitations and referrals.
Throughout the year, the Bank sent over 24,000 pieces of direct mail to
persons residing in its primary market area and made over 4,000 personal
contacts with customers and prospects. In addition to direct marketing,
the Bank gained a significant number of new relationships through customer
referrals.

Once an initial customer relationship is established with the Bank, the
Bank's sales force then pursues expansion of that relationship through the
sale of additional products and services. The Bank's salespeople manage a
portfolio of assigned clients and prospects, and are measured by the
overall profitability of those relationships.

Recognizing that the future value of the Company's franchise is dependent
upon the quality of the Bank's customer base, the Bank invested heavily in
1996 in attracting long-term, high-yield customers. The initial investment
of acquiring relationships is reflected in the financial performance of
the Company in 1996. Industry statistics show that retaining and
expanding relationships with the right customers is less costly, and
therefore more profitable, for financial institutions. The Bank believes
it has attracted a customer base that represents potentially high-yield
relationships and is working aggressively to prioritize and expand those
relationships.

In part through frequent contacts by the Bank's salesforce, the Bank has
succeeded in retaining 95% of its customer relationships since the Bank
commenced operations. During 1996, the average household deposit size
has grown from $20,000 to $30,000 and average loan size has grown from
$56,000 to $84,000.

In an effort to expand customer satisfaction and profitability, the
Company has developed and implemented a database to track customer
financial goals, needs and banking preferences. This database allows each
employee to provide individualized service and product offerings, and to
respond promptly to service requests.

Commercial loan activity at the Bank expanded rapidly in the third and
fourth quarters of 1996 with a significant percentage of assets employed
in business lines and/or loans. The Bank continues to receive loan
referrals from its business clients.

Technology supports every aspect of the Company's business. The Company
has an ongoing commitment to invest in state-of-the-art systems that
enables the Bank to provide better service to our customers. On June 7,
1996, the Bank was the first bank in Wisconsin to offer full-service PC
banking, called RidgeStone Connect . This on-line service enables the
Bank's customers to access their accounts in real time, pay bills,
transfer funds, access lines of credit, exchange e-mail and view product
and rate information. About 18% of the Bank's consumer customers are
enrolled in RidgeStone Connect . The Bank plans to introduce a business
version of this service in the second quarter of 1997.

Management's Discussion and Analysis

Results of Operations. During the fiscal year ended December 31, 1996,
the Company, as expected, reported a net loss of $1,271,070 or $1.52 per
share, which was caused primarily by certain non-recurring expenses, the
Company's early stage of development and the attraction strategies
outlined earlier. Prior year comparisons are not meaningful because the
Bank commenced operations on December 7, 1995, and, therefore, had only
3 weeks of operations during the prior fiscal year.

The Company's return on average equity and return on average assets during
fiscal 1996 is as follows:

Return on average assets -4.81%
Return on average equity -19.97%
Dividend payout ratio on common stock None
Average equity to average assets 24.06%

Net Interest Income. Total interest income during the period ended
December 31, 1996 increased from $149,186 at the end of the first
quarter to $1,583,724 at the end of the fourth quarter. The increase was
due primarily to greater average outstanding balances in interest bearing
assets, primarily loans. Net interest income consisted primarily of
interest on loans, federal funds sold and interest-bearing deposits in
banks. Management anticipates that interest income will continue to grow
as the Bank's loan portfolio and other assets increase.

The following table summarizes the distribution of the Company's loans at
December 31, 1996 and December 31, 1995.

December 31,

1996 1995

Commercial $ 6,967,836 389,908
Real Estate:
Construction 2,565,144 6,304
Commercial 4,632,272 300,000
Residential 4,634,990 25,000
Installment and Consumer 585,855 8,558
---------- --------
Total Loans $19,386,097 729,770
========== ========

Interest expense increased to $1,025,524 at December 31, 1996 from $65,105
at March 31, 1996 and represents interest paid to depositors. The
increase in expense was primarily due to greater average outstanding
balances in interest bearing liabilities, primarily deposits.

Set forth below is a summary of the Company's average deposits and
interest paid on such deposits during fiscal 1996 and fiscal 1995.

Rate Rate
1996 Paid 1995 Paid

Non-interest bearing demand $2,086,618 -- $20,088 ---
Interest-bearing demand 444,072 1.76% 7,720 1.45%
Money Market demand 8,316,058 5.69% 68,032 4.95%
Savings deposits 326,895 2.89% 1,594 2.29%
Time deposits 8,763,340 6.11% 9,605 5.55%
--------- ----- ------- -----
Total Deposits $19,936,983 5.75% $107,039 3.79%
========= ===== ======= =====

Set forth below is a schedule of the maturities for the Company's time
deposits of $100,000 or more.

3 Months Over 3 mos. Over 6 mos.
or less thru 6 mos. thru 12 mos. Over 12 mos.
Certificates of
Deposit $ 1,034,721 611,021 860,048 206,519
Other Time
Deposits 0 0 0 0
-------- ------- ------- --------
$ 1,034,721 611,021 860,048 206,519
========= ======= ======= =======

Net interest income rose from $84,081 as of March 31, 1996 to $558,200 as
of December 31, 1996. Net interest income represents the difference
between interest income and interest expense. The following table sets
forth an analysis of the interest rates and interest differential of the
Company's earning assets, which earn interest income, and interest bearing
liabilities, which accrue interest expense.

1996
Average Related Yield
Balance Interest Rate
Earning assets:
Time deposits in bank $ 680,715 37,226 5.47%
Investments (taxable) 5,171,489 289,707 5.60%
Investments (nontaxable) 0 0
Funds sold 11,642,626 614,803 5.28%
Loans (a)(b) 6,833,651 641,988 9.39%
---------- --------- ----
Total earning assets $ 24,328,480 1,583,724 6.51%
========== ========= ====
Interest bearing liabilities:
NOW accounts $ 444,072 7,818 1.76%
Savings accounts 326,895 9,460 2.89%
Money Market deposit
accounts 8,316,058 472,769 5.69%
Time deposits 8,763,340 535,477 6.11%
---------- --------- ----
Total interest bearing
liabilities $ 17,850,366 1,025,524 5.75%
========== ========= ====

Interest spread $ 558,200 0.76%
======= ====
Interest margin $ 558,200 2.29%
======= ====

(a) No loans have been placed on nonaccrual.

(b) Loan interest income includes net loan fees.

Provision for Loan Losses. The provision for loan losses is based on
management's evaluation of factors such as the local and national economy
and the risk associated with the loans in the portfolio. The Company's
reserve for loan losses was $334,740 as of December 31, 1996. Of that
provision, $325,740 was charged against earnings in 1996. As of
December 31, 1996, the Company's loan loss reserve was 1.73% of
outstanding loans, which compares favorably to the average loan loss
reserve within the Company's industry peer group which was 1.40% as of
December 31, 1996. Set forth below is an analysis of the Company's
provision for loan losses.

1996 1995

Beginning loan loss reserve 9,000 0

Charge-offs:
Commercial 0 0
Real Estate:
Construction 0 0
Commercial 0 0
Other Mortgages 0 0
Installment-consumer 0 0
Recoveries:
Commercial 0 0
Real Estate:
Construction 0 0
Commercial 0 0
Other Mortgages 0 0
Installment-consumer 0 0
-------- --------
Net Charge-offs 0 0

Additions charged to
operations 325,740 9,000
-------- --------
Balance at end of period 334,740 9,000
======== ========

For each year ending December 31, the determination of the additions to
loan loss reserve charged to operating expenses was based on an evaluation
of the loan portfolio, current domestic economic conditions, and other
factors.

Management believes that the majority of risk in the Bank's loan portfolio
lies in commercial loans, which include commercial real estate and
construction loans. Accordingly, the Bank has allocated $80,474 or 24% of
the reserve for loan losses to these loans, which comprise about 60% of
the loan portfolio. The Bank has allocated $4,635 or about 1% of the
reserve for loan losses to residential mortgages, which comprise about 24%
of the loan portfolio. Consumer loans comprise about 3% of the loan
portfolio, and $5,899 or about 2% of the reserve for loan losses is
allocated to consumer loans. The Bank has allocated $4,366 of the reserve
for loan losses to unfunded loan commitments, which total approximately
$8,732,000. The balance of the reserve for loan losses or $239,366 is
unallocated.

There were no loan charge-offs or recoveries or any impaired loans during
1996. The Bank evaluated the adequacy of the reserve for loan losses
based on an analysis of specific problem loans, as well as on an aggregate
basis. The reserve for loan losses is maintained at a level management
considers adequate to provide for potential future losses. The provision
for loan losses accounted for 25.6% of the Company's net loss for the
fiscal year ended December 31, 1996. The following table summarizes the
Company's nonperforming loans as of December 31, 1996 and December 31,
1995.

December 31,
1996 1995

Nonaccrual Loans 0.00 0.00
Past Due 90 Days+ (1) 0.00 0.00
Restructured Loans (2) 0.00 0.00

(1) Loans are generally placed in nonaccrual when contractually
past due 90 days or more.
(2) There were no restructured loans for each of the presented
years.

Each of the loans which becomes contractually past due 90 days or more as
to principal or interest payments will be reviewed by management and
reported to the Loan Committee of the Board of Directors of the Bank.
These loans would then be placed on a nonaccrual basis.

As of December 31, 1996, management, to the best of its knowledge, is not
aware of any significant loans, group of loans or segments of the loan
portfolio not included above, where there are serious doubts as the
ability of the borrowers to comply with the present loan payment terms.

Non-Interest Income and Expense. Other operating income was $52,855 as
of December 31, 1996 and consisted of service charges on deposit accounts,
merchant credit card processing services, loan fees, and commission
income generated by the investment center. The Bank also realized a gain
of $22,500 from the sale of securities.

Operating expenses consisted primarily of salaries and benefits, occupancy
and equipment expenses, data processing fees, marketing expenses,
professional fees and other expenses. For 1996, payroll expense amounted
to $719,544. Of that number, $16,650 was the employer contribution to the
Company's 401(k) program. Occupancy expenses for the year amounted to
$130,901.

In fiscal 1996, the Bank's FDIC premiums were assessed at $500 a quarter
as required by federal law.

Financial Condition. The Bank reported total assets of $41,805,534 as of
December 31, 1996, an increase of $31,378,211 from December 31, 1995.
Loans prior to the allowance for loan losses increased from $729,770 to
$19,386,097 or an increase of $18,656,327. In addition to the $19,386,097
in loans outstanding that the Bank reported on December 31, 1996, the Bank
had unfunded loan commitments of $8,732,000. Loan demand continues to
increase primarily through referrals and is augmented by an aggressive
calling campaign on commercial customers.

Cash and due from banks was $1,494,243 at December 31, 1996, and
represents cash maintained at the Bank and funds that the Bank and the
Company have deposited in other financial institutions. The Bank reported
$13,259,000 of Federal Funds sold on December 31, 1996, which are inter-
bank funds with daily liquidity. The Bank's loan-to-deposit funds ratio
on December 31, 1996 was 54%. The Bank did not have any short-term
borrowings during fiscal 1995 or fiscal 1996.

The Bank increased its portfolio of investment securities during 1996. A
portion of these securities were purchased with the intent to hold the
securities until they mature. Another portion of the securities was
placed in the available for sale category as the securities may be
liquidated to provide cash for operating or financing purposes. The
following table summarizes those securities:

<TABLE>
<CAPTION>
After 1 After 5
1 Year or year through years through
less 5 years 10 years Total

<S> <C> <C> <C> <C>
Available for Sale Securities:
U. S. Treasury and other U. S.
Gov't agencies and
corporations $ 0 $489,793 $ 0 $489,793
Weighted average yield 0.00% 6.27% 0.00% 6.27%
Corporate Securities 536,288 0 0 536,288
Weighted average yield 0.86% 0.00% 0.00% 0.86%
TOTAL AVAILABLE FOR
SALE 536,288 489,793 0 1,026,081
======== ======== ======== =========
Weighted Avg. Yield of Total 0.86% 6.27% 0.00% 3.44%
======== ======== ======== =========
Held to Maturity Securities:
U. S. Treasury and other U. S.
Gov't agencies and corporations $249,766 $4,005,840 $750,000 $5,005,606
Weighted average yield 6.08% 6.59% 7.00% 6.62%
TOTAL HELD TO
MATURITY 249,766 4,005,840 750,000 5,005,606
======== ========= ======== ==========
Weighted Avg. Yield of Total 6.08% 6.59% 7.00% 6.62%
TOTAL 786,054 4,495,633 750,000 6,031,687
======== ========== ======== ==========
Weighted Avg. Yield of Total 2.52% 6.55% 7.00% 6.08%
======== ========== ======== ==========

</TABLE>

Amortized costs and fair values of available for sale securities are
discussed in Notes C and D, respectively, to the Company's Consolidated
Financial Statements.

The Company's office building, leasehold improvements and equipment less
accumulated depreciation and amortization increased from $1,056,738 to
$1,511,222. This increase was primarily due to the renovation of the new
drive-up facility and phone center.

The Bank experienced significant deposit growth during fiscal 1996. Total
deposits increased to $35,668,660 as of December 31, 1996 from $3,308,531
on December 31, 1995. Every category of deposits increased during each
quarter of 1996.

Accrued interest payables and other liabilities of $268,869 at December
31, 1996 were made up of accrued interest payable on deposit accounts and
accounts payable.

Capital Resources. The Bank's most recent notification from the
regulatory agencies categorized the Bank as well-capitalized under the
regulatory framework for prompt corrective action. To be categorized as
well-capitalized, the Bank must maintain the minimum total risk-based,
Tier I risk-based, and leverage ratios as set forth in Item 1.
"Description of Business--Supervision and Regulation." There have been no
conditions or events since these notifications that management believes
will change the Bank's classification. See Note Q to the Company's
Consolidated Financial Statements.

The Company has made a commitment to the Federal Reserve Bank of Chicago
that it will not raise any debt until December 7, 2000, without prior
approval from the Federal Reserve System.

The Bank has committed to the FDIC that it will maintain a Tier I capital
to total asset ratio of not less than 8% for its first three years of
operations starting December 7, 1995.

Asset/Liability Management. The principal function of asset/liability
management is to manage the balance sheet mix, maturities, repricing
characteristics and pricing components to provide an adequate and stable
net interest margin with an acceptable level of risk over time and through
interest rate cycles.

Interest-sensitive assets and liabilities are those that are subject to
repricing within a specific relevant time horizon. The Company measures
interest-sensitive assets and liabilities, and their relationship with
each other at terms of immediate, quarterly intervals up to one year, and
over one year.

Changes in net interest income, other than volume related changes, arise
when interest rates on assets reprice in a time frame or interest rate
environment that is different from the repricing period for liabilities.
Changes in net interest income also arise from changes in the mix of
interest earning assets and interest-bearing liabilities.

The following table summarizes the maturities and sensitivity to
changes in interest rates of the Company's loan portfolio at December 31,
1996.

<TABLE>
<CAPTION>
Loan Maturities Amount over one year with
Floating or
After 1 Pre- adj.
1 Year Through 5 After 5 determined interest Total
or less yrs years Total rates rates

<S> <C> <C> <C> <C> <C> <C> <C>
December 31,
1996
Commercial 6,718,000 4,844,000 38,000 11,600,000 4,246,000 386,000 4,632,000
Real estate-
construction 2,179,000 386,000 0 2,565,000 0 0 0
--------- --------- ---------- ---------- ---------- ---------- ---------
TOTAL 8,897,000 5,230,000 38,000 14,165,000 4,246,000 386,000 4,632,000
========= ========= ========== ========== ========== ========== =========
</TABLE>

The Company's strategy with respect to asset/liability management is to
maximize net interest income while limiting exposure to potential downward
movement. This strategy is implemented by the Bank's management, which
takes action based upon its analysis of the Bank's present positioning,
its desired future positioning, economic forecasts, and its goals. The
Company's goal is to maintain a cumulative GAP of +or- 25% of assets at
the 0 to 359 day time frame.

The following table summarizes the repricing opportunities as of December
31, 1996, for each major category of interest-bearing asset and interest-
bearing liability:

0-89 90-179 180-359 +360
(Millions) Days Days Days Days Total

Investments $13.3 0.0 0.2 4.5 18.0
Loans $ 9.8 0.7 1.4 6.7 18.6
Total Rate
Sensitive Assets $23.1 0.7 1.6 11.2 36.6
Rate Sensitive
Liabilities (1) $23.8 3.4 3.5 1.6 32.3
GAP (0.7) (2.7) (1.9) 9.6
Cumulative GAP (0.7) (3.4) (5.3) 4.3
GAP/Rate
Sensitive Assets -3% -14% -21% 12%

(1) Savings, NOW, and Money Market Demand Deposits are considered as
immediately repricable.

Liquidity. For banks, liquidity generally represents the ability to meet
withdrawals from deposits and the funding of loans. The assets that
provide liquidity are cash, federal funds sold and short-term loans and
securities. Liquidity needs are influenced by economic conditions,
interest rates and competition. Management believes that current
liquidity levels are sufficient to meet future demands. Management
believes the current liquidity position of the Bank allows it opportunity
to expand the Bank's loan portfolio and account for any deposit
withdrawals which may occur. As of December 31, 1996, the Bank had
$15,989,693 available to meet future demand.

Impact of Inflation and Changing Prices. Unlike most industries,
essentially all of the assets and liabilities of a bank are monetary in
nature. As such, the level of prices has less effect than do interest
rates. Prices and interest rates do not always move in the same
direction. The Company's consolidated financial statements and notes are
generally prepared in terms of historical dollars without considering the
changes in the relative purchasing power of money over time due to
inflation.

DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY
Average Balance Sheet

1996

Cash and due from banks $ 900,071

Federal funds sold and securities
purchased under agreement to
resell 11,642,626
Interest-bearing deposits in other
banks 680,715
Investment securities:
U.S. Treasury agency and other 5,171,489
Unrealized Gain (Loss) on
securities

Loans:
Real estate mortgages 709,204
Consumer-net 1,901,982
Commercial and other 4,264,643
----------
Total 6,875,829
Less allowance for loan losses 42,178
----------
Net loans 6,833,651
Fixed assets 1,087,955
Other assets 133,839
----------
Total assets $ 26,450,345
==========
Interest-bearing deposits:
NOW accounts $ 444,072
Savings accounts 326,895
Money Market deposit accounts 8,316,058
Time deposits 8,763,340
----------
Total interest-bearing
deposits 17,850,366

Demand deposits 2,086,618
----------
Total deposits 19,936,983
Other liabilities 148,611
----------
Total liabilities 20,085,594
Equity capital 6,364,750
----------

Total liabilities and
capital $ 26,450,345
==========

Item 7. Financial Statements

Page

Independent Auditor's Report . . . . . . . . . . . . . . . . . . . . . 25

Consolidated Balance Sheet . . . . . . . . . . . . . . . . . . . . . . 26

Consolidated Statement of Income . . . . . . . . . . . . . . . . . . . 27

Consolidated Statement of Changes in Stockholders' Equity . . . . . . . 28

Consolidated Statement of Cash Flows . . . . . . . . . . . . . . . . . 29

Notes to Consolidated Financial Statements . . . . . . . . . . . . . . 30

<PAGE>

CONLEY McDONALD
Certified Public Accountants
& Consultants

INDEPENDENT AUDITOR'S REPORT

Board of Directors
RidgeStone Financial Services, Inc.
Brookfield, Wisconsin

We have audited the accompanying consolidated balance sheets of
RidgeStone Financial Services, Inc. as of December 31, 1996 and
1995, and the related consolidated statements of income, changes
in stockholders' equity, and cash flows for the year ended
December 31, 1996 and period from March 31, 1995 through
December 31, 1995. These consolidated financial statements are
the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial
statements based on our audits.

We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether
the consolidated financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
consolidated financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of RidgeStone Financial Services, Inc. as of December
31, 1996 and 1995, and the results of its operations and its
cash flows for the year ended December 31, 1996 and period from
March 31, 1995 through December 31, 1995, in conformity with
generally accepted accounting principles.

CONLEY McDONALD LLP

Brookfield, Wisconsin
January 24, 1997

<PAGE>
RIDGESTONE FINANCIAL SERVICES, INC.

CONSOLIDATED BALANCE SHEETS
December 31, 1996 and 1995

ASSETS 1996 1995

Cash and due from banks (Note B) $ 1,494,243 $ 527,132

Federal funds sold 13,259,000 5,627,000

Interest-bearing deposits in banks 184,637 2,444,031
---------- ---------
Cash and cash equivalents 14,937,880 8,598,163

Available for sale securities
stated at fair value (Note C) 1,051,813 -
Held to maturity securities, fair
value of $5,041,826 and $-0- in
1996 and 1995 respectively
(Note D) 5,005,606 -
Loans, less allowance for loan
losses of $334,740 and $9,000
in 1996 and 1995 respectively
(Notes E, F and N) 19,051,357 720,770

Office building, leasehold
improvements and equipment,
net (Note G) 1,511,222 1,056,738

Accrued interest receivable
and other assets 247,656 51,652
----------- ----------
Total assets $ 41,805,534 $10,427,323
=========== ==========

LIABILITIES & STOCKHOLDERS' EQUITY

Liabilities:
Deposits: (Note H)
Demand $ 3,365,496 $ 1,492,249
Savings and NOW accounts 17,282,081 -
Other Time 15,021,083 1,816,282
----------- ----------
Total deposits 35,668,660 3,308,531

Accrued interest payable and
other liabilities 268,869 5,449
----------- ----------
Total liabilities 35,937,529 3,313,980
----------- ----------

Commitments and contingencies
(Notes L, M and T)

Stockholders' equity: (Note O)

Common stock, no par value;
1,000,000 shares authorized,
834,340 shares issued and
outstanding (Note O) 7,721,399 7,721,399

Retained deficit (Notes P,
Q and T) (1,879,126) (608,056)
----------- ----------
5,842,273 7,113,343
Unrealized gain on available
for sale securities, net 25,732 -
----------- ----------
Total stockholders' equity 5,868,005 7,113,343
----------- ----------
Total liabilities and
stockholders' equity $ 41,805,534 $10,427,323
=========== ==========

See Notes to Consolidated Financial Statements.

<PAGE>
RIDGESTONE FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF INCOME
Year ended December 31, 1996 and Period from
March 31, 1995 through December 31, 1995

1996 1995

Interest income:
Interest and fees on loans
(Note E) $ 641,988 $ 4,927
Interest on securities - taxable 289,707 -
Interest on Federal funds 614,803 20,307
Interest on deposits in banks 37,226 6,156
----------- ----------
Total interest income 1,583,724 31,390
----------- ----------

Interest expense - interest on
deposits (Note I) 1,025,524 4,055

Net interest income before
provision for loan losses 558,200 27,335
Provision for loan losses (Note F) 325,740 9,000
----------- ----------
Net interest income after
provision for loan losses 232,460 18,335
----------- ----------

Other operating income:
Service charges on deposit accounts 7,829 335
Gain on sale of securities, net
(Note C) 22,500 -
Other 22,526 -
----------- ----------
Total other operating income 52,855 335

Other operating expenses:
Salaries and employee benefits
(Note K) 719,544 39,220
Occupancy expenses (Notes G and L) 130,901 10,375
Equipment expenses (Note G) 167,700 -
Data processing fees 80,632 -
Other 456,674 1,682
Pre-opening expenses (Notes
R and S) - 575,449
----------- ----------
Total other operating
expenses 1,555,451 626,726
----------- ----------

Loss before income taxes (1,270,136) (608,056)
Income taxes (Note J) 934 -
----------- ----------

Net loss $ (1,271,070) $ (608,056)
=========== ==========
Loss per share of
common stock $ (1.52) $ (0.73)
=========== ==========
Weighted average shares
outstanding 834,340 834,340
=========== ==========

See Notes to Consolidated Financial Statements.

<PAGE>

RIDGESTONE FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY

Year ended December 31, 1996 and Period from
March 31, 1995 through December 31, 1995

Unrealized
gain on Total
available stock-
Common Retained for sale holders'
stock deficit securities equity

Balance, March 31,
1995 $ - $ - $ - $ -

Proceeds from sale
of 834,340 shares
of common stock,
net of stock
offering costs
(Note O) 7,721,399 - - 7,721,399
Net loss - (608,056) - (608,056)
--------- --------- -------- ---------

Balance, December 31,
1995 7,721,399 (608,056) - 7,113,343
Net loss - (1,271,070) - (1,271,070)
Change in
unrealized
gain on avail-
able for sale
securities, net - - 25,732 25,732
--------- --------- -------- ---------
Balance, December 31,
1996 $ 7,721,399 $ (1,879,126) $ 25,732 $5,868,005
========= ========= ======== =========

See Notes to Consolidated Financial Statements.

<PAGE>
RIDGESTONE FINANCIAL SERVICES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended December 31, 1996 and Period from
March 31, 1995 through December 31, 1995

1996 1995

Cash flows from operating activities:

Net loss $ (1,271,070) $ (608,056)
Adjustments to reconcile net
loss to net cash used in
operating activities:
Depreciation 182,032 96,689
Provision for loan losses 325,740 9,000
Gain on sale of investment
securities (22,500) -
Amortization of organizational
costs 2,275 519
(Increase) decrease in assets:
Interest receivable (200,631) (2,483)
Other assets 2,352 (49,688)
Increase in liabilities:
Accrued interest 250,002 3,921
Other liabilities 13,418 1,528
---------- ---------
Total adjustments 552,688 59,486
---------- ---------
Net cash used in operating
activities (718,382) (548,570)
---------- ---------

Cash flows from investing activities:
Proceeds from sales of available for
sale securities 9,335,817 -
Purchase of available for sale
securities (10,339,643) -
Proceeds from maturities of held to
maturity securities 500,000 -
Purchase of held to maturity
securities (5,505,361) -
Purchase of office building,
leasehold improvements and
equipment (636,516) (1,153,427)
Net increase in loans (18,656,327) (729,770)
---------- ---------
Net cash used in investing
activities: (25,302,030) (1,883,197)
---------- ---------

Cash flows from financing activities:
Net increase in deposits 32,360,129 3,308,531
Proceeds from the issuance of
common stock, net - 7,721,399
Proceeds from notes payable - 414,900
Payment of notes payable - (414,900)
---------- ---------
Net cash provided by financing
activities 32,360,129 11,029,930
---------- ---------
Increase in cash and cash
equivalents 6,339,717 8,598,163

Cash and cash equivalents:
Beginning 8,598,163 -
---------- ---------
Ending $ 14,937,880 $ 8,598,163
========== =========
Supplemental disclosures of cash
flow information:
Cash paid for:
Interest $ 775,522 $ 5,212
========== =========
Income taxes $ 934 $ -
========== =========
Supplemental schedule of non-cash
investing and financing activities:
Net change in unrealized gain on
available for sale securities $ 25,732 $ -
========== =========

See Notes to Consolidated Financial Statements.

<PAGE>
RIDGESTONE FINANCIAL SERVICES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note A. Summary of Significant Accounting Policies

1. Consolidation:

The consolidated financial statements of RidgeStone Financial
Services, Inc. include the accounts of its wholly owned
subsidiary, RidgeStone Bank. The consolidated financial
statements have been prepared in conformity with generally
accepted accounting principles and conform to general practices
within the banking industry. All significant intercompany
accounts and transactions have been eliminated in the
consolidated financial statements.

2. Nature of banking activities:

The consolidated income of RidgeStone Financial Services, Inc.
(the "Company") is principally from income of its subsidiary,
RidgeStone Bank. RidgeStone Bank (the "subsidiary Bank") grants
commercial, installment and residential loans and accepts
deposits from customers primarily in southeastern Wisconsin. The
subsidiary Bank is subject to competition from other financial
institutions and nonfinancial institutions providing financial
products. Additionally, the Company and the subsidiary Bank are
subject to the regulations of certain regulatory agencies and
undergo periodic examinations by those regulatory agencies.

3. Basis of financial statement presentation:

The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates.

4. Cash and cash equivalents:

For purposes of reporting cash flows, cash and cash equivalents
include cash on hand, amounts due from banks, federal funds sold
and investments with an original maturity of three months or
less. Generally, federal funds are sold for one-day periods.

The subsidiary Bank maintains amounts due from banks which, at
times, may exceed federally insured limits. The subsidiary Bank
has not experienced any losses in such accounts.

5. Available for sale securities:

Securities classified as available for sale are those debt
securities that the Company and its subsidiary Bank intend to
hold for an indefinite period of time, but not necessarily to
maturity. Any decision to sell a security classified as
available for sale would be based on various factors, including
significant movements in interest rates, changes in the maturity
mix of the subsidiary Bank's assets and liabilities, liquidity
needs, regulatory capital consideration, and other similar
factors. Securities available for sale are carried at fair
value. Unrealized gains or losses are reported as increases or
decreases in stockholders' equity, net of the related deferred
tax effect. Realized gains or losses, determined on the basis
of the cost of specific securities sold, are included in
earnings.

6. Held to maturity securities:

Securities classified as held to maturity are those debt
securities the Company and its subsidiary Bank has both the
intent and ability to hold to maturity regardless of changes in
market conditions, liquidity needs or changes in general
economic conditions. These securities are carried at cost,
adjusted for amortization of premium and accretion of discount,
computed by the interest method over their contractual lives.
The sale of a security within three months of its maturity date
or after collection of at least 85 percent of the principal
outstanding at the time the security was acquired is considered
a maturity for purposes of classification and disclosure.

7. Loans:

Loans that management has the intent and ability to hold for the
foreseeable future or until maturity or payoff are reported at
the amount of unpaid principal, reduced by the allowance for
loan losses. Interest on loans is calculated by using the
simple interest method on daily balances of the principal amount
outstanding. The accrual of interest income on impaired loans
is discontinued when, in the opinion of management, there is
reasonable doubt as to the borrower's ability to meet payment of
interest or principal when they become due. When interest
accrual is discontinued, all unpaid accrued interest is
reversed. Cash collections on impaired loans are credited to
the loan receivable balance, and no interest income is
recognized on those loans until the principal balance is
current. Accrual of interest is generally resumed when the
customer is current on all principal and interest payments and
has been paying on a timely basis for a period of time.

Loan fees and certain direct loan origination costs are
deferred, and the net fee or cost is recognized as an adjustment
to interest income using the interest method over the
contractual life of the loans, adjusted for estimated
prepayments based on the subsidiary Bank's historical prepayment
experience.

8. Allowance for loan losses:

The allowance for loan losses is established through a provision
for loan losses charged to expense. Loans are charged against
the allowance for loan losses when management believes that the
collectibility of the principal is unlikely. The allowance is an
amount that management believes will be adequate to absorb
possible losses on existing loans that may become uncollectible,
based on evaluation of the collectibility of loans and prior
loan loss experience. The evaluations take into consideration
such factors as changes in the nature and volume of the loan
portfolio, overall portfolio quality, review of specific problem
loans, and current economic conditions that may affect the
borrower's ability to pay. While management uses the best
information available to make its evaluation, future adjustments
to the allowance may be necessary if there are significant
changes in economic conditions. Impaired loans (primarily
commercial loans) are measured based on the present value of
expected future cash flows discounted at the loan's effective
interest rate or, as a practical expedient, at the loan's
observable market price or the fair value of the collateral if
the loan is collateral dependent. A loan is impaired when it is
probable the creditor will be unable to collect all contractual
principal and interest payments due in accordance with the terms
of the loan agreement.

In addition, various regulatory agencies periodically review the
allowance for loan losses. These agencies may require the
subsidiary Bank to make additions to the allowance for loan
losses based on their judgments of collectibility based on
information available to them at the time of their examination.

9. Office building, leasehold improvements and equipment:

Depreciable assets are stated at cost less accumulated
depreciation. Provisions for depreciation are computed on
straight-line and accelerated methods over the estimated useful
lives of the assets, which are 39 years for office building and
leasehold improvements and 3 to 7 years for equipment.

10. Profit-sharing plan:

The Company has established a trusteed contributory 401(k)
profit-sharing plan for qualified employees. The Company's
policy is to fund contributions as accrued.

11. Income taxes:

The Company files a consolidated federal income tax return and
individual subsidiary state income tax returns. Accordingly,
amounts equal to tax benefits of those companies having taxable
federal losses or credits are reimbursed by the other companies
that incur federal tax liabilities.

Amounts provided for income tax expense are based on income
reported for financial statement purposes and do not necessarily
represent amounts currently payable under tax laws. Deferred
income tax assets and liabilities are computed annually for
differences between the financial statement and tax bases of
assets and liabilities that will result in taxable or deductible
amounts in the future based on enacted tax laws and rates
applicable to the periods in which the differences are expected
to affect taxable income. As changes in tax laws or rates are
enacted, deferred tax assets and liabilities are adjusted
through the provision for income taxes. The differences relate
principally to the reserve for loan losses, operating loss
carryforwards and fixed assets. Valuation allowances are
established when necessary to reduce deferred tax assets to the
amount expected to be realized.

12. Off-balance-sheet financial instruments:

In the ordinary course of business, the subsidiary Bank has
entered into off-balance-sheet financial instruments consisting
of commitments to extend credit, commitments under credit card
arrangements, commercial letters of credit and standby letters
of credit. Such financial instruments are recorded in the
financial statements when they are funded or related fees are
incurred or received.

13. Per share data:

Net loss per common share data has been computed based upon the
weighted average number of shares outstanding during the period.

14. Fair value of financial instruments:

Financial Accounting Standards Board Statement No. 107,
"Disclosures About Fair Value of Financial Instruments,"
requires disclosure of fair value information about financial
instruments, whether or not recognized in the balance sheet, for
which it is practicable to estimate that value. In cases where
quoted market prices are not available, fair values are based on
estimates using present value or other valuation techniques.
Those techniques are significantly affected by the assumptions
used, including the discount rate and estimates of future cash
flows. In that regard, the derived fair value estimates cannot
be substantiated by comparison to independent markets and, in
many cases, could not be realized in immediate settlement of the
instrument. Statement No. 107 excludes certain financial
instruments from its disclosure requirements. Accordingly, the
aggregate fair value amounts presented do not represent the
underlying value of the Company.

The following methods and assumptions were used by the Company
in estimating the fair value of its financial instruments:

Carrying amounts approximate fair values for the following
instruments:

Cash and cash equivalents
Federal funds sold
Accrued interest receivable
Accrued interest payable
Variable rate loans that reprice frequently where no
significant change in credit risk has occurred
Demand deposits
Variable rate money market accounts
Variable rate certificate of deposit
Available for sale securities

Quoted market prices:

Where available, or if not available, based on quoted market
prices of comparable instruments for the following instrument:

Held to maturity securities

Discounted cash flows:

Using interest rates currently being offered on instruments with
similar terms and with similar credit quality:

All loans except variable rate loans described above
Fixed rate certificates of deposit

Quoted fees currently being charged for similar instruments:

Taking into account the remaining terms of the agreements and
the counterparties' credit standing:

Off-balance-sheet instruments:
Letters of credit
Lending commitments

Since the majority of the Company's off-balance-sheet
instruments consists of nonfee-producing, variable rate
commitments, the Company has determined it does not have a
distinguishable fair value.

Note B. Cash and Due from Banks

At this time, the Federal Reserve Bank has not required the
Company's bank subsidiary to maintain vault cash or reserve
balances with the Federal Reserve Bank based upon a percentage
of deposits.

Note C. Available for Sale Securities

Amortized costs and fair values of available for sale securities
as of December 31, 1996 are summarized as follows:

December 31, 1996
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value

U.S. Treasury
securities $ 489,793 $ 8,709 $ (2,564) $ 495,938

Equity securities 536,288 26,775 (7,188) 555,875
--------- ------ ------- ---------
$1,026,081 $ 35,484 $ (9,752) $1,051,813
========= ====== ======= =========

The amortized cost and fair value of available for sale
securities as of December 31, 1996, by contractual maturity, are
shown below. Expected maturities will differ from contractual
maturities in other equity securities since the anticipated
maturities are not readily determinable. Therefore, these
securities are not included in the maturity categories in the
following maturity summary:

December 31, 1996
Amortized Fair
Cost Value

Due after one year through
5 years $ 489,793 $ 495,938
======== =========

Realized gains and losses on sale of available for sale
securities as of December 31, 1996 are as follows:

Gross gains $ 22,500
Gross losses -
-------
$ 22,500
=======

There were no available for sale securities at December 31, 1995.

Note D. Held to Maturity Securities

Amortized costs and fair values of held to maturity securities
as of December 31, 1996 are summarized as follows:

December 31, 1996
Gross Gross
Amortized unrealized unrealized Fair
cost gains losses value

U.S. Treasury
securities $ 2,757,325 $ 25,800 $ - $2,783,125

Obligations of
other U.S.
government
agencies and
corporations 2,248,281 10,850 (430) 2,258,701
--------- ------ ----- ----------
$ 5,005,606 $ 36,650 $ (430) $ 5,041,826
========= ====== ===== ==========

The amortized cost and fair value of held to maturity securities
as of December 31, 1996, by contractual maturity, are shown
below. Expected maturities will differ from contractual
maturities in mortgage-backed securities since the anticipated
maturities are not readily determinable. Therefore, these
securities are not included in the maturity categories in the
following maturity summary.

December 31, 1996
Amortized Fair
Cost Value

Due in one year or less $ 249,766 $ 250,859
Due after one year
through five years 4,005,840 4,037,747
--------- ---------
Due after five years
through ten years 750,000 753,220
--------- ---------
$ 5,005,606 $ 5,041,826
========= =========

There were no held to maturity securities at December 31, 1995.

Note E. Loans

Major classifications of loans are as follows:

December 31, 1996
1996 1995

Commercial $ 6,967,836 $ 389,908
Real estate:
Construction 2,565,144 6,304
Commercial 4,632,272 300,000
Residential 4,634,990 25,000
Installment and consumer 585,855 8,558
---------- --------
19,386,097 729,770
Allowance for loan losses (334,740) (9,000)
---------- --------
Net loans $ 19,051,357 $ 720,770
========== ========

There were no loans that were impaired at December 31, 1996 or
1995. There was no interest income recognized on a cash basis
during the year ended December 31, 1996 or the period ended
December 31, 1995.

Certain directors, executive officers and principal shareholders
of the Company, and their related interests, had loans
outstanding in the aggregate amounts of $1,223,122 and $312,815
at December 31, 1996 and 1995 respectively. During 1996,
$1,197,581 of new loans were made with $287,274 of repayments.
These loans were made on substantially the same terms, including
interest rates and collateral, as those prevailing at the same
time for comparable transactions with other persons and did not
involve more than normal risks of collectibility or present
other unfavorable features.

Note F. Allowance for Loan Losses

The allowance for loan losses reflected in the consolidated
financial statements represents the allowance available to
absorb loan losses. An analysis of changes in the allowance is
presented in the following tabulation:

December 31, 1996
1996 1995

Balance, beginning $ 9,000 $ -
Loans charged off - -
Recoveries on loans previously
charged off - -
Provision charged to operations 325,740 9,000
------- -------

Balance, ending $ 334,740 $ 9,000
======= =======

Note G. Office Building, Leasehold Improvements and Equipment

Office building, leasehold improvements and equipment are stated
at cost less accumulated depreciation and amortization and are
summarized as follows:

December 31, 1996
1996 1995

Land $ 72,200 $ 72,200
Building and leasehold
improvements 1,015,898 549,578
Furniture and equipment 701,845 531,649
--------- ---------
1,789,943 1,153,427
Less accumulated depreciation
and amortization 278,721 96,689
--------- ---------
Total office building,
leasehold improve-
ments and equipment $1,511,222 $1,056,738
========= =========

Depreciation and amortization expense amounted to $182,032 and
$96,689 in 1996 and 1995 respectively.

Note H. Deposits

The aggregate amount of other Time deposits (including CD's),
each with a minimum denomination of $100,000, was $2,712,309 and
$100,000 in 1996 and 1995 respectively.

At December 31, 1996, the scheduled maturities of other Time
deposits are as follows:

1997 $ 13,427,578
1998 822,131
1999 345,440
2000 265,863
2001 160,071
----------
$ 15,021,083
==========

Note I. Interest on Deposits

Interest expense on deposits is as follows:

December 31, 1996
1996 1995

NOW accounts $ 7,818 $ 112
Money market demand accounts 472,769 3,369
Savings deposits 9,460 36
Time, $100,000 or greater 94,837 356
Time, under $100,000 440,640 182
--------- --------
Total $ 1,025,524 $ 4,055
========= ========

Note J. Income Taxes

The provision for income taxes included in the accompanying
consolidated financial statements consists of the following:

December 31, 1996
1996 1995

Current taxes:
Federal $ - $ -
State 934 -
--------- --------
934 -

Deferred income taxes (benefit):
Federal - -
State - -
--------- --------

Total provision for
income taxes $ 934 $ -
========= ========

At December 31, 1996, the Company had a net operating loss
carryforward for income tax purposes of approximately
$1,279,000, of which, if not utilized to reduce taxable income
in future periods will expire as follows:

Year ending December 31,
2010 $ 77,000
2011 1,202,000
---------
$ 1,279,000
=========

The following amounts make up the deferred tax assets and
liabilities reduced by a valuation allowance:

December 31, 1996
1996 1995

Deferred tax assets:
Allowance for loan losses $ 70,681 $ -
Depreciation 22,942 32,255
Start up costs 150,224 188,580

Net operating loss
carryforward 496,684 30,429

Deferred tax liabilities:
Allowance for loan losses (11,561) -
Unrealized gain on available
for sale securities (1,016) -
Other (419) -
Valuation (739,096) (239,703)

Note K. Profit Sharing Plan

The Company established a 401(k) plan during 1996. The Company
contributed $16,650 in 1996.

Note L. Facilities Lease

Lease expense for the years ended December 31, 1996 and 1995 was
$88,771 and $41,275 respectively. The lease term which is
accounted for as an operating lease, expires on May 31, 2000,
requires monthly base rental payments of $6,828 and has two
five-year renewal options. The Company also has the option of
purchasing the building upon the fourth anniversary of the
commencement of the lease for $1,000,000.

In connection with the lease of the subsidiary Bank's main
office, the Company paid broker's commissions to an organizer of
the subsidiary Bank, and to an affiliate of a director of the
Company and director of the subsidiary Bank, in the amount of
$6,584 and $2,425 in 1996 and 1995 respectively. Additional
commissions may be payable if the Company exercises its options
for further lease terms and if the Company later purchases the
shopping mall in which the subsidiary Bank premises are located.

Minimum future rental payments under the noncancelable operating
lease are:

Year ending December 31,

1997 $ 81,936
1998 81,936
1999 81,936
2000 34,140
-------
Total minimum future
rental payments $ 279,948
=======

Note M. Commitments and Contingencies

In the normal course of business, the Company is involved in
various legal proceedings. In the opinion of management, any
liability resulting from such proceedings would not have a
material adverse effect on the consolidated financial statements.

The Company is party to financial instruments with
off-balance-sheet risk in the normal course of business to meet
the financing needs of its customers. These financial
instruments include commitments to extend credit, financial
guarantees and standby letters of credit. They involve, to
varying degrees, elements of credit risk in excess of amounts
recognized on the consolidated balance sheet.

The Company's exposure to credit loss in the event of
nonperformance by the other party to the financial instrument
for commitments to extend credit and standby letters of credit
is represented by the contractual notional amount of those
instruments. The Company uses the same credit policies in making
commitments and issuing letters of credit as it does for
on-balance-sheet instruments.

A summary of the contract or notional amount of the Company's
exposure to off-balance-sheet risk as of December 31 is as
follows:

1996 1995

Financial instruments whose
contract amounts represent
credit risk:

Commitments to extend
credit $ 8,373,142 $ 1,007,754
Credit card commitments $ 297,615 $ 15,500
Commercial letters of
credit $ 60,955 $ -

Commitments to extend credit are agreements to lend to a
customer as long as there is no violation of any condition
established in the contract. Commitments generally have fixed
expiration dates or other termination clauses and may require
payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do
not necessarily represent future cash requirements. Standby
letters of credit are conditional commitments issued to
guarantee the performance of a customer to a third party. Those
guarantees are primarily issued to support public and private
borrowing arrangements. The credit risk involved in issuing
letters of credit is essentially the same as that involved in
extending loan facilities to customers. The Company evaluates
each customer's credit worthiness on a case-by-case basis. The
amount of collateral obtained, if deemed necessary by the
Company upon extension of credit, is based on management's
credit evaluation of the counterparty. Collateral held varies
but may include accounts receivable, inventory, property and
equipment, and income-producing commercial properties. Credit
card commitments are unsecured.

The Company and the subsidiary Bank do not engage in the use of
interest rate swaps, futures, forwards or option contracts.

Note N. Concentration of Credit Risk

Practically all of the subsidiary Bank's loans, commitments, and
commercial and standby letters of credit have been granted to
customers in the subsidiary Bank's market area. Although the
subsidiary Bank has a diversified loan portfolio, the ability of
its debtors to honor their contracts is dependent on the
economic conditions of the counties surrounding the subsidiary
Bank. The concentration of credit by type of loan are set forth
in note E.

Note O. Stockholders' Equity

Common stock at December 31, 1996 represents 834,340 shares
issued at no par value per share less associated costs for
professional fees and underwriting discounts and commissions.

Proceeds from public stock offering
at $10 per share $ 8,343,400
Associated costs (622,001)
----------
Common stock (net) $ 7,721,399
==========

In 1996, the Company established an Incentive Stock Option Plan
which was approved by the directors at the July 1996 board of
directors meeting, providing for the granting of options for up
to 100,000 shares of common stock to key officers and employees
of the Company. These stock option grants have been awarded to
employees in 1996, but not exercisable until shareholder
approval of the Plan takes place at the 1997 annual meeting.
Options are granted at the current market value unless the stock
is traded on a public market which it is then granted at the
average of the high and the low for the year, provided, however,
if the principal market is a national exchange, the grant price
shall be the last reported sales price. Options may be
exercised 33.33% per year beginning one year after the date of
the grant and must be exercised within a ten year period.

Activity of the Incentive Stock Option Plan is summarized in the
following table:

Options Options Option price
available outstanding per share

Balance, December 31, 1995 - - $ -
Stock options authorized 100,000 - -
Granted (49,025) 49,025 11.75
Exercise of stock option - - -
Canceled - - -
-------- ------- --------
Balance, December 31, 1996 50,975 49,025
======== =======

The Company applies APB Opinion 25 and related interpretation in
accounting for its Plan. Accordingly, no compensation cost has
been recognized for its incentive stock option plan. The effect
on net income had the Company adopted FASB Statement No. 123
would be immaterial.

Note P. Retained Earnings and Restriction on Dividends

The principal source of income and funds of the Company will be
dividends from the subsidiary Bank. Under Wisconsin law, the
subsidiary Bank will be restricted as to the maximum amount of
dividends it may pay on its common stock. A Wisconsin bank may
not pay dividends except out of net profits. Unless exempted by
the Office of Commissioner of Banking for the State of Wisconsin
(the "Commissioner"), a state bank may not pay any dividend
until an amount equal to at least 20% of net profits for the
preceding half year or dividend period has been transferred to
surplus. Such transfers are required until the surplus fund
equals 100% of the bank's capital stock. A bank's ability to pay
dividends may also be restricted in the event that losses in
excess of undivided profits have been charged against surplus
and in certain other circumstances. Federal regulators have
authority to prohibit a bank from engaging in any action deemed
by them to constitute an unsafe or unsound practice, including
the payment of dividends. In addition to the foregoing,
Wisconsin business corporations such as the Company are
prohibited by Wisconsin law from paying dividends while they are
insolvent or if the payment of dividends would render them
unable to pay debts as they come due in the usual course of
business.

Federal Reserve Board policy provides that a bank holding
company should not pay dividends unless (i) the dividends can be
fully funded out of net income from the Company's net earnings
over the prior year and (ii) the prospective rate of earnings
retention appears consistent with the Company's (and its
subsidiary) capital needs, asset quality and overall financial
conditions.

Note Q. Regulatory Capital Requirements

The subsidiary Bank is subject to various regulatory capital
requirements administered by the federal and state banking
agencies. Failure to meet minimum capital requirements can
initiate certain mandatory, and possibly additional
discretionary, actions by regulators that, if undertaken, could
have a direct material effect on the subsidiary Bank's financial
statements. Under capital adequacy guidelines and the regulatory
framework for prompt corrective action, the subsidiary Bank
must meet specific capital guidelines that involve quantitative
measures of the subsidiary Bank's assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory
accounting practices. The subsidiary Bank's capital amounts and
classification are also subject to qualitative judgments by the
regulators about components, risk- weightings, and other
factors.

Quantitative measures established by regulation to ensure
capital adequacy requires the subsidiary Bank to maintain
minimum amounts and ratios (set forth in the table below) of
total and Tier 1 capital (as defined in the regulations) to
risk-weighted assets (as defined) and Tier 1 capital (as
defined) to average assets (as defined). Management believes, as
of December 31, 1996, the subsidiary Bank meets all capital
adequacy requirements to which it is subject.

As of December 31, 1996, the most recent notification from the
regulatory agencies categorized the subsidiary Bank as
well-capitalized under the regulatory framework for prompt
corrective action. To be categorized as well-capitalized, the
subsidiary Bank must maintain minimum total risk-based, Tier I
risk-based, and leverage ratios as set forth in the table. There
are no conditions or events since these notifications that
management believes have changed the institution's category.

Below is a comparison of the Company and subsidiary Bank's 1996
and 1995 actual with the minimum requirements for
well-capitalized and adequately capitalized banks, as defined by
the federal regulatory agencies' Prompt Corrective Action Rules:

<TABLE>
<CAPTION>
To be well
capitalized under
For capital prompt corrective
Actual adequacy purposes action provisions
Amount Ratio Amount Ratio Amount Ratio

<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total capital (to risk
weighted assets):
RidgeStone Financial
Services, Inc. $ 6,125,583 27.1% $ 1,809,072 8.0% $ 2,261,340 10.0%
RidgeStone Bank 5,074,748 23.1% 1,754,262 8.0% 2,192,828 10.0%

Tier I capital (to risk
weighted assets):
RidgeStone Financial
Services, Inc. $ 5,842,273 25.8% $ 904,536 4.0% $1,356,804 6.0%
RidgeStone Bank 4,799,897 21.9% 877,131 4.0% 1,315,697 6.0%

Tier I capital (to average
assets):
RidgeStone Financial
Services, Inc. $ 5,842,273 21.5% $ 1,085,076 4.0% $1,356,345 5.0%
RidgeStone Bank 4,799,897 19.0% 1,009,802 4.0% 1,262,253 5.0%

As of December 31, 1995:
Total capital (to risk
weighted assets):
RidgeStone Financial
Services, Inc. $ 7,122,343 201.9% $ 282,212 8.0% $352,766 10.0%
RidgeStone Bank 4,438,577 152.7% 231,892 8.0% 289,864 10.0%

Tier I capital (to risk
weighted assets):
RidgeStone Financial
Services, Inc. $ 7,113,343 201.6% $ 141,106 4.0% $211,659 6.0%
RidgeStone Bank 4,429,577 152.4% 115,946 4.0% 173,919 6.0%

Tier I capital (to average
assets):
RidgeStone Financial
Services, Inc. $ 7,113,343 68.2% $ 329,257 4.0% $411,571 5.0%
RidgeStone Bank 4,429,577 80.0% 221,552 4.0% 276,940 5.0%
</TABLE>

Note R. Development Stage Company

During a portion of 1995, the Company was a development stage
company as its wholly owned subsidiary, RidgeStone Bank, had not
yet commenced its planned principal operations of banking. The
subsidiary Bank commenced operations on December 7, 1995 and at
that time the Company ceased to be a development stage company.

Note S. Pre-Opening Expenses

Pre-opening expenses represent expenses incurred by the Company
and the subsidiary Bank while the Company was a development
stage company in 1995. Below is a breakdown of these expenses
into the other operating expense categories:

Salary and employee benefits $ 210,581
Employee training 19,544
Occupancy and equipment expenses 142,238
Computer expenses 23,113
Other expenses 135,819
Printing, forms and supplies 39,076
Interest expenses on borrowed money 5,078
-------
Total pre-opening expenses $ 575,449
=======

Note T. Regulatory Restriction

RidgeStone Financial Services, Inc. (Holding Company only) has
made a commitment to the Federal Reserve Bank, Chicago not to
raise any debt until the later of August 31, 2000 or five years
from the date of consummation of operation (December 7, 1995),
without prior approval from the Federal Reserve System.
RidgeStone Bank has committed to the FDIC that its Tier-I
capital to total asset ratio will not fall below 8% during the
first three years of operations starting December 7, 1995.

Note U. Fair Values of Financial Instruments

The estimated fair values of the Company's financial instruments
are as follows:

December 31, 1996 December 31, 1995
Carrying Estimated Carrying Estimated
amount fair value amount fair value

Financial assets:
Cash and cash
equivalents $ 14,937,880 $ 14,937,880 $ 8,598,163 $ 8,598,163
=========== =========== ========== ==========
Securities $ 6,057,419 $ 6,093,639 $ - $ -
=========== =========== ========== ==========
Net loans $ 19,051,357 $ 19,017,760 $ 720,770 $ 720,770
=========== =========== ========== ==========
Accrued interest
receivable $ 203,114 $ 203,114 $ 2,483 $ 2,483
=========== =========== ========== ==========
Financial
liabilities:
Deposits $ 35,668,660 $ 35,679,914 $ 3,308,531 $ 3,308,531
=========== =========== ========== ==========
Accrued interest
payable $ 253,923 $ 253,923 $ 3,921 $ 3,921
=========== =========== ========== ==========

The estimated fair value of fee income on letters of credit at
December 31, 1996 and 1995 is insignificant. Loan commitments
on which the committed interest rate is less than the current
market rate are also insignificant at December 31, 1996 and 1995.

The Company assumes interest rate risk (the risk that general
interest rate levels will change) as a result of its normal
operations. As a result, fair values of the Company's financial
instruments will change when interest rate levels change and
that change may be either favorable or unfavorable to the
Company. Management attempts to match maturities of assets and
liabilities to the extent believed necessary to minimize
interest rate risk. However, borrowers with fixed rate
obligations are less likely to prepay in a rising rate
environment and more likely to repay in a falling rate
environment. Conversely, depositors who are receiving fixed
rates are more likely to withdraw funds before maturity in a
rising rate environment and less likely to do so in a falling
rate environment. Management monitors rates and maturities of
assets and liabilities and attempts to minimize interest rate
risk by adjusting terms of new loans and deposits and by
investing in securities with terms that mitigate the Company's
overall interest rate risk.

Note V. Financial Services, Inc. (Parent Company only) Financial
Information

December 31,
CONDENSED BALANCE SHEETS 1996 1995

Assets:
Cash and cash equivalents $ 468,535 $ 2,507,495
Available for sale securities
stated at fair value 555,875 -
Investment in subsidiary 4,806,041 4,429,577
Leasehold improvements and
equipment, net 32,933 169,482
Other assets 13,474 15,642
--------- ---------

Total assets $5,876,858 $ 7,122,196
========= ==========

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities - other liabilities $ 8,853 $ 8,853
--------- ----------
Stockholders' equity:

Common stock, no par value;
1,000,000 shares authorized,
834,340 shares issued 7,721,399 7,721,399
Retained deficit (1,879,126) (608,056)
Unrealized gain on available for
sale securities, net 25,732 -
--------- ---------
Total stockholders'
equity 5,868,005 7,113,343
--------- ---------
Total liabilities and
stockholders'
equity $5,876,858 $ 7,122,196
========= ==========

CONDENSED STATEMENTS OF INCOME

Income:
Interest $ 37,226 $ 6,156
Gain on sale of securities 22,500 -
Other 1,900 -
--------- ----------
Total income 61,626 6,156
--------- ----------
Expenses:
Salaries and employee benefits 3,766 -
Occupancy and depreciation 7,892 418
Pre-opening - 43,371
Other 31,097 -
--------- ----------
Total expenses 42,755 43,789
--------- ----------

Gain (loss) before equity in undistributed
loss at subsidiary 18,871 (37,633)
Equity in undistributed loss at
subsidiary (1,289,941) (570,423)
--------- ----------
Net loss $(1,271,070) $ (608,056)
========== ==========

CONDENSED STATEMENTS OF CASH FLOWS

Cash flows from operating activities:
Net loss $(1,271,070) $ (608,056)
Adjustments to reconcile net
loss to net cash provided by
(used in) operating activities:
Depreciation 5,983 418
Gain on sale of investment
securities (22,500) -
Amortization of organizational
costs 2,120 265
Increase (decrease) in other
assets 48 (15,907)
Increase in other liabilities - 8,853
Equity in undistributed loss
of subsidiary 1,289,941 570,423
--------- --------
Total adjustments 1,275,592 564,052
--------- --------
Net cash provided by
(used in) operating
activities 4,522 (44,004)
--------- --------

Cash flows from investing activities:

Proceeds from sales of available
for sale securities 1,446,042 -
Purchase of available for sale
securities (1,959,829) -
Investment in subsidiary Bank (1,660,261) (5,000,000)
Purchase of office building and
equipment (36,411) (169,900)
Proceeds from sale of office
building and equipment 166,977 -
--------- ---------
Net cash used in
investing activities (2,043,482) (5,169,900)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of common
stock, net - 7,721,399
Proceeds from notes payable - 414,900
Payment of notes payable - (414,900)
--------- ---------
Net cash provided by
financing activities - 7,721,399
--------- ---------
Increase (decrease) in cash
and cash equivalents (2,038,960) 2,507,495
--------- ---------
Cash and cash equivalents:
Beginning 2,507,495 -
--------- ---------
Ending $ 468,535 $ 2,507,495
========= =========

Supplemental disclosures of cash
flow information:
Cash paid during the year for:
Interest $ - $ 5,078
========= =========
Income taxes $ 909 $ -
========= =========

Supplemental schedule of non-cash
investing and financing activities:
Net change in unrealized gain on
available for sale securities $ 25,732 $ -
========= =========

<PAGE>
Item 8. Changes In and Disagreements With Accountants on Accounting and
Financial Disclosure

There have been no changes in or disagreements with the Company's
independent auditors regarding accounting and financial disclosure
required to be reported pursuant to this Item.

Part III

Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act

The information required by this Item is hereby incorporated by reference
to the information under the captions entitled "Election of Directors,"
"Executive Officers" and "Compliance With Section 16(a) of The Exchange
Act" set forth in the Company's definitive Proxy Statement for its 1997
Annual Meeting of Shareholders.

Item 10. Executive Compensation

The information required by this Item is hereby incorporated by reference
to the information under the captions entitled "Board of Directors -
Director Compensation" and "Executive Compensation" set forth in the
Company's definitive Proxy Statement for its 1997 Annual Meeting of
Shareholders.

Item 11. Security Ownership of Certain Beneficial Owners and Management

The information required by this Item is hereby incorporated by reference
herein to the information under the caption entitled "Principal
Shareholders" set forth in the Company's definitive Proxy Statement for
its 1997 Annual Meeting of Shareholders.

Item 12. Certain Relationships and Related Transactions

The information required by this Item is hereby incorporated by reference
herein to the information under the caption entitled "Certain
Transactions" set forth in the Company's definitive Proxy Statement for
its 1997 Annual Meeting of Shareholders.

Item 13. Exhibits and Reports on Form 8-K

(a) Exhibits

Reference is made to the separate exhibit index contained on page E-1
hereof.

(b) Reports on Form 8-K

No reports on Form 8-K were filed by the Company during the quarter ended
December 31, 1996.

<PAGE>
SIGNATURES

In accordance with Section 13 or 15(d) of the Securities Exchange Act
of 1934, the Registrant caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized, on March 18, 1997.

RIDGESTONE FINANCIAL
SERVICES, INC.

By: /s/ Paul E. Menzel
Paul E. Menzel
President and Chief Executive Officer

In accordance with the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf
of the Registrant in the capacities indicated on March 18, 1997:

Signatures Title

/s/ Paul E. Menzel President, Chief Executive
Paul E. Menzel Officer and Director
(Principal Executive
Officer)

/s/ William R. Hayes Vice President, Treasurer
William R. Hayes and Director (Principal
Financial and Accounting
Officer)

/s/ Christine V. Lake Vice President, Secretary
Christine V. Lake and Director

/s/ Charles N. Ackley Director
Charles N. Ackley

/s/ Gregory J. Hoesly Director
Gregory J. Hoesly

/s/ John E. Horning Director
John E. Horning

Director
William F. Krause, Jr.

/s/ Charles G. Niebler Director
Charles G. Niebler

Director
Frederick I. Olson

/s/ James E. Renner Director
James E. Renner

/s/ Richard A. Streff Director
Richard A. Streff

Director
William J. Tetzlaff

<PAGE>
INDEX TO EXHIBITS

Exhibit No. Exhibit Description

3.1 Articles of Incorporation of Ridgestone Financial
Services, Inc., as amended [Incorporated by reference
to Exhibit 3.1 to Ridgestone Financial Services,
Inc.'s Registration Statement on Form SB-2
(Registration No. 33-97644)]

3.2 By-Laws of Ridgestone Financial Services, Inc.
[Incorporated by reference to Exhibit 3.2 to
Ridgestone Financial Services, Inc.'s Registration
Statement on Form SB-2 (Registration No. 33-97644)]

10.1 Lease Agreement between CDJLT Investments and
Ridgestone Financial Services, Inc. dated as of March
31, 1995 [Incorporated by reference to Exhibit 10.2 to
Ridgestone Financial Services, Inc.'s Registration
Statement on Form SB-2 (Registration No. 33-97644)]

10.2 Consolidated Agreement between Ridgestone Financial
Services, Inc. and Unisys Corporation, dated as of May
31, 1995 [Incorporated by reference to Exhibit 10.3 to
Ridgestone Financial Services, Inc.'s Registration
Statement on Form SB-2 (Registration No. 33-97644)]

10.3 Real Estate Purchase Contract between J.M. and P.L.
Wilson and Ridgestone Financial Services, Inc. dated
June 23, 1995 [Incorporated by reference to Exhibit
10.5 to Ridgestone Financial Services, Inc.'s
Registration Statement on Form SB-2 (Registration No.
33-97644)]

10.4 Data Processing Service Agreement between Ridgestone
Bank and United Financial Services, Inc. dated as of
September 1, 1995 [Incorporated by reference to
Exhibit 10.10 to Ridgestone Financial Services, Inc.'s
Registration Statement on Form SB-2 (Registration No.
33-97644)]

10.5 Ridgestone Financial Services, Inc. 1996 Stock Option
Plan [Incorporated by reference to Exhibit 10.1 to
Ridgestone Financial Services, Inc.'s Quarterly Report
on Form 10-Q for the quarter ended September 30, 1996
(File No. 0-27984)]

10.6 Employment Agreement, dated as of December 31, 1996,
between Ridgestone Financial Services, Inc. and
Paul E. Menzel.

10.7 Employment Agreement, dated as of December 31, 1996,
between Ridgestone Financial Services, Inc. and
William R. Hayes.

10.8 Employment Agreement, dated as of December 31, 1996,
between Ridgestone Financial Services, Inc. and
Christine V. Lake.

21 Subsidiaries of Ridgestone Financial Services, Inc.
[Incorporated by reference to Exhibit 21.1 to
Ridgestone Financial Services, Inc.'s Registration
Statement on Form SB-2 (Registration No. 33-97644)]

27 Financial Data Schedule (EDGAR version only)

EMPLOYMENT AGREEMENT

This Employment Agreement ("Agreement") is made as of the 31st
day of December, 1996, by and between Ridgestone Bank, Brookfield,
Wisconsin, a state chartered bank ("Bank") and Paul E. Menzel
("Executive").

WHEREAS, Bank is a wholly-owned subsidiary of Ridgestone
Financial Services, Inc., a Wisconsin corporation ("Corporation"); and

WHEREAS, Executive possesses intimate knowledge of the business
and affairs of Bank and its policies, markets and financial and human
resources; and

WHEREAS, Executive is currently the President and a Director of
Bank and is the President and Director of Corporation ("Positions"); and

WHEREAS, the Board of Directors of Bank desires to assure the
continued services and employment of Executive, to recognize Executive's
contribution to the growth and success of Bank, and to compensate
Executive for such contribution and service; and

WHEREAS, Bank desires and believes it would be in its best
interests to ensure that the current and continued competent management
services it is receiving from Executive continues; and

WHEREAS, Executive is willing to continue in the employment of
Bank on a full-time basis, upon the terms and conditions hereinafter set
forth.

NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained in this Agreement, Bank and Executive
agree as follows:

1. Employment. Bank shall continue to employ Executive and
Executive shall continue to serve Bank for the period of time stated in
paragraph 2 of this Agreement. Bank and Executive agree that Executive
shall not be required to perform Executive's duties under this Agreement
other than in Brookfield, Wisconsin.

2. Employment Term. Unless employment has sooner terminated
in accordance with paragraph 5 of this Agreement, the term of Executive's
employment under this Agreement shall be deemed to commence as of December
31, 1996, and shall continue until December 31, 1998; provided, however,
that on each December 31st during the term of this Agreement (except the
first day of the Employment Term) the Employment Term shall automatically
be extended for one additional year so that the Employment Term shall be
annually restored to a full two (2) year term, unless on or before 60 days
immediately preceding any such renewal date, Bank, in connection with an
annual performance review of Executive conducted by the Board of
Directors, or for any other reason, or Executive gives notice to the other
that the term shall not be extended beyond the then current expiration
date of the term. The period of employment is the "Employment Term."

3. Position and Duties. Executive agrees to devote
Executive's full-time knowledge, skill and efforts to the performance of
Executive's duties as an executive of Bank.

4. Compensation/Benefits. During the Employment Term,
Executive shall receive a base salary and such bonuses as may from time to
time be decided by the Board of Directors of Bank, in accordance with the
regular payroll practices of Bank from time to time in effect.
Executive's base salary (exclusive of bonuses) shall not be less than his
salary (exclusive of bonuses) in effect on the date of this Agreement, and
shall not be reduced at any time after any increase is approved by the
Board of Directors of Bank. During the Employment Term, Executive shall
be entitled to participate in such other benefits and perquisites of
employment generally made available to Bank's executive or key management
personnel, in accordance with Bank's practices from time to time in
effect, such as group health, dental, disability and life insurance plans,
retirement and pension plans, deferred compensation plans, stock purchase
plans, stock option plans, paid vacations, club memberships, and
automobile usage, and any other similar plans or arrangements presently or
hereafter made available by Bank to its executive officers.

5. Termination.

a. Death or Disability; Cause; Voluntary Termination.
The Employment Term will cease prior to its expiration under paragraph 2:
(i) automatically and immediately, upon Executive's death or Disability;
(ii) upon the effective date of a notice of termination for Cause given by
Bank to Executive; or (iii) upon the effective date of a notice of
voluntary termination given by Executive to bank. If the Employment Term
ceases for any of these reasons, Executive or Executive's estate, heirs
and beneficiaries, as applicable, shall be entitled to all compensation
and other benefits and expense reimbursement to which Executive is
entitled through the termination date. In addition, Executive shall be
entitled to all benefits otherwise payable to Executive relating to
retirement benefits or any other deferred compensation benefits for
Executive, if any, according to the terms of such plans.

b. Change in Control; Other. The Employment Term will
cease prior to its expiration under paragraph 2: (i) upon the effective
date of a notice of termination under subparagraph 5.c.(3) resulting from
a Change in Control, given by Executive to Bank; or (ii) upon the
effective date of a notice of termination for any reason other than for
Cause (and other than confirmation of death or Disability), given by Bank
to Executive. In the event of termination under this subparagraph 5.b.,
compensation shall be paid to Executive as provided in subparagraph 5.d.

c. Definitions.

(1) Disability. The term "Disability" shall have the
same definition contained in Executive's disability insurance plan in
effect as of the date of this Agreement. In the event there is no such
disability insurance plan, Disability shall mean Executive's inability, as
a result of physical or mental incapacity, to substantially perform
Executive's duties with bank for a period of six (6) consecutive months.
Any question as to the existence of Executive's Disability upon which
Executive and Bank cannot agree shall be determined by a qualified
independent physician mutually agreeable to Executive and Bank or, if the
parties are unable to agree upon a physician within 10 days after notice
from bank or Executive to the other suggesting a physician, by a physician
designated by the then president of the medical society for the county in
which Executive maintains his principal residence, upon the request of
either party. Costs of any such medical examination shall be paid by
Bank.

(2) Cause. Cause shall mean (i) the willful and
continued failure by Executive to substantially perform Executive's duties
with Bank (other than a failure resulting from Executive's incapacity due
to Disability or physical or mental illness) after a written demand for
substantial performance is delivered to Executive by Bank, which demand
specifically identifies the manner in which Bank believes that Executive
has not substantially performed Executive's duties; (ii) any willful act
of misconduct by Executive which is injurious to bank, monetarily or
otherwise; (iii) criminal conviction of Executive for any act involving
dishonesty, breach of trust or a violation of the banking laws of the
State of Wisconsin or the United States; (iv) criminal conviction of
Executive for the commission of any felony; or (v) final action by a bank
regulatory agency prohibiting Executive from participating in the affairs
of Bank. For purposes of this definition, no act, or failure to act on
Executive's part shall be deemed "willful" unless done or admitted to be
done by Executive not in good faith and without reasonable belief that the
action or omission was in the best interest of Bank.

(3) Change in Control. A "Change in Control" of Bank
shall occur if and when, as a result of one transaction or a series of
transactions: (i) any person (other than a member of Executive's
immediate family) or group of persons (not including a member of
Executive's immediate family) acting in concert becomes the beneficial
owner, directly or indirectly, of securities of Bank or Corporation
representing 25% or more of the combined voting power of the then
outstanding securities of Bank or Corporation; (ii) Bank or Corporation is
combined (by merger, share exchange, consolidation, or otherwise) with
another entity and as a result of such combination less than 75% of the
outstanding securities of the surviving or resulting corporation are owned
in the aggregate by the former shareholders of Bank or Corporation; or
(iii) Bank or Corporation sells, leases, or otherwise transfers all or
substantially all of the properties or assets of Bank or Corporation not
in the ordinary course of business to another person or entity.
Executive's immediate family is Executive's children and spouse. These
"Change in Control" provisions shall apply to successive changes in
control or an individual transaction basis.

Except for terminations under paragraph 5.1., a
termination by Bank "in contemplation of" a "Change in Control" or a
termination by Bank (or other surviving entity) during the twelve month
period after a "Change in Control" shall be deemed to be a Change in
Control termination pursuant to paragraph 5.b. A termination by Bank
other than under paragraph 5.a. during the three month period prior to the
announcement of a Change in Control and up to the closing of such Change
in Control shall be deemed to be a termination in contemplation of a
Change in Control and compensation shall be paid as for a Change in
Control termination pursuant to paragraph 5.b.

Executive may terminate his employment under this
Agreement by giving at least ninety (90) days prior written notice to Bank
at any time after the occurrence, subsequent to any "Change in Control" or
in contemplation of a Change in Control of any of the following events,
without Executive's express written consent:

(A) Executive is assigned to positions, duties
or responsibilities that are less significant than his positions, duties
and responsibilities at the commencement of the Employment Term;

(B) Executive is removed from or Bank fails to
re-elect Executive to any of his Positions, except (1) in connection with
termination of Executive's employment for Cause, Disability or Retirement,
or (2) in connection with any Change in Control of Corporation, the result
of which Corporation is not the continuing or surviving Corporation,
provided, however, the successor organization executes an agreement in
substantially the form of this Agreement and the removal or failure to re-
elect is limited to Positions with the Corporation;

(C) Executive's base salary is reduced or
Executive experiences in any year a reduction of the ratio of his bonus
payments to his base salary which is greater than the average reduction in
the ratio of bonus payments to base salaries in such year experienced by
all other executive officers of Bank, or any other failure by Bank to
comply with paragraph 4;

(D) Executive is transferred to a location not
within a thirty-five (35) mile radius of Brookfield, Wisconsin; or

(E) Bank fails to obtain an agreement from a
successor organization as required under subsection (B) above.

(4) Termination Date. The "Termination Date" is the
effective date of termination of Executive's employment under this
Agreement.

d. Compensation for Termination Under Paragraph 5.b. If
the Employment Term is terminated for any of the reasons in paragraph
5.b., Executive shall at Executive's option receive either a lump sum
severance payment, or a series of installment severance payments for a
period of two years commencing on the termination date. The lump sum
payment of cash shall be in a total cash amount (without making a present
value adjustment) equal to two times the sum of (a) Executive's then
current annual base salary, plus (b) the average of Executive's annual
cash bonuses, if any, for the two year ends immediately preceding the
termination date. If Executive elects to receive installment payments,
Executive shall receive the same amount as would be provided by a lump sum
payment, but payment shall be made in equal installments for a period of
two years commencing on the termination date, on the same dates as Bank's
regular payroll payments are made.

Executive shall continue to receive for two (2) years
following the termination date, and not via a lump sum, all other benefits
that Executive was receiving or was entitled to receive immediately prior
to the termination date; provided, however, if it is impractical to
continue a particular benefit (for example, a benefit plan limits benefits
to active employees) Bank shall provide a reasonably equivalent substitute
benefit to Executive or shall pay in cash to Executive the reasonable
equivalent value of the benefit.

In addition, Executive shall be entitled to all benefits
otherwise payable to Executive relating to retirement benefits or any
other deferred compensation benefits for Executive, if any, according to
the terms of such plans, computed as though Executive had continued in
Bank's employ for the then unexpired portion of the Employment Term
remaining as of the termination date (as though the Employment Term had
not been terminated under paragraph 5.b.) at Executive's compensation
level as of the termination date; provided, however, if it is impractical
to continue a particular benefit (for example, a benefit plan limits
benefits to active employees) Bank shall provide a reasonably equivalent
substitute benefit to Executive or shall pay in cash to Executive the
reasonable equivalent value of the benefit.

Executive's death after a termination under paragraph 5.b.
shall not affect Bank's payment obligations under this subparagraph.

e. Mitigation. Notwithstanding anything to the contrary
in this Agreement, if Executive's employment is terminated for any reason
other than under paragraph 5.a., and if Executive is under sixty (60)
years old on the termination date, Executive shall take reasonable steps
to obtain employment which is substantially similar in job duties to those
performed by Executive with Bank at this time, and thereby mitigate the
amount of compensation and benefits due under paragraph 5.d.; provided,
however, that Executive shall not be required to accept a position other
than one within a 35 mile radius of Brookfield, Wisconsin. If Executive
is sixty (60) years old or older on the termination date or Executive
determines upon the advice of a qualified independent physician that
Executive is physically or mentally unable to substantially perform duties
with another employer comparable to those performed by Executive with
Bank, Executive shall have no obligation to seek other employment.
However, regardless of age or capacity, during any period for which
Executive is receiving benefits under this Agreement, if Executive becomes
employed on a full-time basis by another employer, then to the extent
Executive shall receive compensation, benefits or service credit from such
other employer, the aggregate amount of all compensation to be paid and
benefits to be provided under this Agreement shall be correspondingly
reduced.

f. Prohibited Compensation. Regardless of any provision
in this Agreement, Bank is not required to compensate Executive according
to the terms of this Agreement to the extent such compensation is
prohibited or limited by applicable federal or state law, including but
not limited to 12 U.S.C Section 182(k) and 12 C.F.R. Part 359, or by a
federal or state bank regulatory agency acting under applicable federal or
state law or regulation, but shall compensate Executive according to the
terms of this Agreement to the extent compensation is not so prohibited or
limited.

g. Limitations on Termination Compensation.

(1) In the event that the severance benefits payable
to Executive under paragraph 5.d., or any other payments or benefits
received or to be received by Executive from bank (whether payable
pursuant to the terms of this Agreement, any other plan, agreement or
arrangement with Bank or any corporation ("Affiliate") affiliated with
Bank within the meaning of Section 1504 of the Internal Revenue Code of
1954, as amended (the "Code"), in the opinion of tax counsel selected by
Bank and acceptable to Executive, constitute "parachute payments" within
the meaning of Section 280G(b)(2) of the Code, and the present value of
such "parachute payments" equals or exceeds three (3) times the average of
the annual compensation payable to Executive by Bank (or an Affiliate) and
includable in the Executive's gross income for federal income tax purposes
for the five (5) calendar years preceding the year in which a change in
ownership or control of Bank occurred ("Base Amount"), such benefits shall
be reduced to an amount the present value of which (when combined with the
present value of any other payments or benefits otherwise received or to
be received by Executive from Bank (or an Affiliate) that are deemed
"parachute payments") is equal to 2.99 times the Base Amount,
notwithstanding any other provision to the contrary in this Agreement.
The severance benefits shall not be reduced if (A) Executive shall have
effectively waived his receipt or enjoyment of any such payment or benefit
which triggered the applicability of this paragraph g., or (B) in the
opinion of such tax counsel, the severance benefits (in its full amount or
as partially reduced, as the case may be) plus all other payments or
benefits which constitute "parachute payments" within the meaning of
Section 280G(b)(2) of the Code are reasonable compensation for services
actually rendered, within the meaning of Section 280G(b)(4) of the Code,
and such payments are deductible by Bank. The Base Amount shall include
every type and form of compensation includable in Executive's gross income
in respect to his employment by Bank (or an Affiliate), except to the
extent otherwise provided in regulations promulgated under Section 280G(b)
of the Code. For purposes of this paragraph g.(1), a "change in ownership
or control" shall have the meaning set forth in Section 280G(b) of the
Code and any regulations promulgated thereunder. The present value of any
non-cash benefit or any deferred cash payment shall be determined by
Bank's independent auditors in accordance with the principles of Sections
280G(b)(3) and (4) of the Code.

(2) In the event that Section 280G, or any successor
statute, is repealed, this section g. shall cease to be effective on the
effective date of such repeal.

6. Confidential Information. Executive acknowledges that
during the course of Executive's employment, Executive has produced and
has access to material records, files, documents, data, trade secrets and
information not generally available to the public ("Confidential
Information") regarding Bank and its affiliates. Therefore, during and
subsequent to Executive's employment by Bank, Executive shall hold in
confidence and not directly or indirectly disclose or use or copy or make
lists of any such Confidential Information, except to the extent required
by any court or administrative agency, other than to an employee of Bank
or a person to whom disclosure is reasonably necessary or appropriate in
connection with the performance by Executive of Executive's duties as an
officer of Bank. All records, files, documents, and other materials or
copies of these items, relating to Bank's business and the business of any
affiliate thereof, which Executive shall prepare, or use or come into
contact with, shall be and remain the sole property of Bank, and should
not be removed from Bank's premises without its written consent, and shall
be promptly returned to Bank upon the termination date.

7. Competition. Subject to Executive's obligations under
section 5.e., Executive agrees that at any time while Executive is
employed by Bank pursuant to this Agreement, or during any period after
termination of Executive's employment under paragraph 5.b., during which
time Executive is receiving or has received severance pay under this
Agreement, Executive shall not either directly or indirectly as agent,
stockholder, employee, officer, director, trustee, partner, proprietor, or
otherwise (except as the holder of not more than 1% equity in another
entity) engage in, render advice or assistance to (other than on behalf of
Bank), or be employed on a compensation basis, without the prior written
consent of Bank, by any person, firm or entity which competes in Wisconsin
with the commercial banking, such other entity competes in any banking
market in Wisconsin where, in the immediately preceding fiscal year, Bank
derived not less than two percent (2%) of its total consolidated banking
deposits; in the case of any other business, Executive's principal duties
with Bank where in the same type of business and such other entity
competes anywhere in wisconsin with any material segment of said business
of bank. For purposes hereof, a segment of business of bank shall be
deemed "material" where, in the immediately preceding fiscal year, not
less than two percent (2%) of Bank's consolidated total assets were
devoted to such business in wisconsin, or not less than two percent (2%)
of Bank's consolidated gross revenues were derived from such business in
Wisconsin. Notwithstanding anything to the contrary in this paragraph,
Executive may engage in employment which competes with Bank at any time
during which or for which Executive is no longer receiving severance
benefits under the terms of this Agreement.

8. General Provisions.

a. Successors; Assignment. Executive's rights and
obligations under this Agreement shall not be transferable by assignment
or otherwise. This Agreement and all rights of Executive hereunder shall
inure to the benefit of and be enforceable by Executive's personal or
legal representatives, estate, executors, administrators, heirs, and
beneficiaries. Nothing in this Agreement shall prevent the consolidation
of Bank with, its merger into, or a share exchange with, any other
corporation, or the sale by Bank of all or substantially all of its
properties or assets; and this Agreement shall inure to the benefit of, be
binding upon and be enforceable by, any successor, surviving or resulting
corporation, or other entity to which such assets are transferred. This
Agreement shall not be terminated by the voluntary or involuntary
dissolution of Bank. As used herein, the term "Bank" shall, where the
context requires, mean and include, in addition to Ridgestone Bank, any
successor of Bank following a "Change in Control" and any successor(s) of
any such successor.

b. Arbitration. Any controversy or claim arising out of
or relating to this Agreement shall be submitted and settled by binding
arbitration in Brookfield, Wisconsin, or at such other place as the
parties may agree, under the rules of the American Arbitration
Association. Any award, order or judgment pursuant to such arbitration
shall be deemed final and may be entered and enforced in any state or
federal court of competent jurisdiction. Each party agrees to submit to
the jurisdiction of any such court for purposes of the enforcement of any
such award, order or judgment. The arbitrator(s) shall interpret this
Agreement in accordance with the laws of the State of Wisconsin. In any
arbitration proceeding hereunder, the arbitrator(s) are authorized to
award reasonable attorneys' fees and other arbitration-related costs to
the prevailing party.

c. Expenses. If any legal proceeding is necessary to
enforce or interpret the terms of this Agreement or to recover damage for
breach of this Agreement, the prevailing party shall be entitled to
recover from the other party reasonable attorneys' fees and necessary
costs and disbursements incurred in such legal proceeding, in addition to
any other relief to which such prevailing party may be entitled.

d. Enforcement/ The provisions of this Agreement shall
be regarded as divisible and if any provisions or any part of them are
declared invalid or unenforceable by a court of competent jurisdiction,
the validity and enforceability of the remainder of the provision or parts
of the provisions and the applicability of the provisions shall not be
affected by such declaration.

e. Withholding. Bank shall be entitled to withhold from
amounts to be paid to Executive under this Agreement any federal, state or
local withholding or other taxes or charges which it is from time to time
required to withhold. Bank shall be entitled to rely on an opinion of
legal counsel if any question as to the amount or requirement of any such
withholding arises.

f. Governing Law. This Agreement and the rights and
obligations under this Agreement shall be governed by and construed in
accordance with the laws of the State of Wisconsin.

g. Notice. Notices given pursuant to this Agreement
shall be in writing and shall be deemed given when received if delivered
by hand, or forty-eight (48) hours after mailing, if properly mailed as
described below. Notices by mail shall be mailed by United States
registered or certified mail, return receipt requested, addressee only,
postage prepaid, if to Bank to 13925 W. North Avenue, Brookfield,
Wisconsin, 53005, or if to Executive at the address set forth below
Executive's signature line on this Agreement, or to such other address as
the party to be notified shall have given to the other party by proper
notice.

h. No Waiver. No waiver by either party at any time of
any breach by the other party of, or compliance with, any condition or
provisions of this Agreement to be performed by the other party shall be
deemed a waiver of similar or dissimilar provisions or conditions at the
same time or any prior or subsequent time.

i. Headings. The headings in this Agreement are for
reference only and shall not affect the meaning or interpretation of any
provision of this Agreement.

j. Miscellaneous. This Agreement constitutes the entire
agreement between the parties pertaining to its subject matter, and
supersedes all prior and contemporaneous agreements, employment
agreements, understandings, and discussions, whether oral or written, in
connection with the subject matter. This Agreement may be executed in two
or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument. This
Agreement may not be amended or modified except by written instrument
executed by Bank and Executive.

RIDGESTONE BANK (SEAL)
By:

/s/ Christine V. Lake
Title: Executive Vice President

/s/ Paul E. Menzel (SEAL)
Paul E. Menzel

Address: 15215 Santa Maria Court
Brookfield, WI 53005

EMPLOYMENT AGREEMENT

WHEREAS, Bank is a wholly-owned subsidiary of Ridgestone
Financial Services, Inc., a Wisconsin corporation ("Corporation"); and

WHEREAS, Executive possesses intimate knowledge of the business
and affairs of Bank and its policies, markets and financial and human
resources; and

WHEREAS, Executive is currently the Vice President and a
Director of Bank and is the Vice President and Director of Corporation
("Positions"); and

WHEREAS, Bank desires and believes it would be in its best
interests to ensure that the current and continued competent management
services it is receiving from Executive continues; and

WHEREAS, Executive is willing to continue in the employment of
Bank on a full-time basis, upon the terms and conditions hereinafter set
forth.

NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained in this Agreement, Bank and Executive
agree as follows:

3. Position and Duties. Executive agrees to devote
Executive's full-time knowledge, skill and efforts to the performance of
Executive's duties as an executive of Bank.

5. Termination.

c. Definitions.

(A) Executive is assigned to positions, duties
or responsibilities that are less significant than his positions, duties
and responsibilities at the commencement of the Employment Term;

(D) Executive is transferred to a location not
within a thirty-five (35) mile radius of Brookfield, Wisconsin; or

(E) Bank fails to obtain an agreement from a
successor organization as required under subsection (B) above.

(4) Termination Date. The "Termination Date" is the
effective date of termination of Executive's employment under this
Agreement.

Executive's death after a termination under paragraph 5.b.
shall not affect Bank's payment obligations under this subparagraph.

g. Limitations on Termination Compensation.

(2) In the event that Section 280G, or any successor
statute, is repealed, this section g. shall cease to be effective on the
effective date of such repeal.

8. General Provisions.

f. Governing Law. This Agreement and the rights and
obligations under this Agreement shall be governed by and construed in
accordance with the laws of the State of Wisconsin.

i. Headings. The headings in this Agreement are for
reference only and shall not affect the meaning or interpretation of any
provision of this Agreement.

RIDGESTONE BANK (SEAL)
By:

/s/ Paul E. Menzel
Title: President

/s/ William R. Hayes (SEAL)
William R. Hayes

Address: 4601 S. 50th St.
Greenfield, WI 53220

EMPLOYMENT AGREEMENT

WHEREAS, Bank is a wholly-owned subsidiary of Ridgestone
Financial Services, Inc., a Wisconsin corporation ("Corporation"); and

WHEREAS, Executive possesses intimate knowledge of the business
and affairs of Bank and its policies, markets and financial and human
resources; and

WHEREAS, Executive is currently the Executive Vice President and
a Director of Bank and is the Vice President and Director of Corporation
("Positions"); and

WHEREAS, Bank desires and believes it would be in its best
interests to ensure that the current and continued competent management
services it is receiving from Executive continues; and

WHEREAS, Executive is willing to continue in the employment of
Bank on a full-time basis, upon the terms and conditions hereinafter set
forth.

NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements contained in this Agreement, Bank and Executive
agree as follows:

3. Position and Duties. Executive agrees to devote
Executive's full-time knowledge, skill and efforts to the performance of
Executive's duties as an executive of Bank.

5. Termination.

c. Definitions.

(A) Executive is assigned to positions, duties
or responsibilities that are less significant than his positions, duties
and responsibilities at the commencement of the Employment Term;

(D) Executive is transferred to a location not
within a thirty-five (35) mile radius of Brookfield, Wisconsin; or

(E) Bank fails to obtain an agreement from a
successor organization as required under subsection (B) above.

(4) Termination Date. The "Termination Date" is the
effective date of termination of Executive's employment under this
Agreement.

Executive's death after a termination under paragraph 5.b.
shall not affect Bank's payment obligations under this subparagraph.

g. Limitations on Termination Compensation.

(2) In the event that Section 280G, or any successor
statute, is repealed, this section g. shall cease to be effective on the
effective date of such repeal.

8. General Provisions.

d. Enforcement. The provisions of this Agreement shall
be regarded as divisible and if any provisions or any part of them are
declared invalid or unenforceable by a court of competent jurisdiction,
the validity and enforceability of the remainder of the provision or parts
of the provisions and the applicability of the provisions shall not be
affected by such declaration.

f. Governing Law. This Agreement and the rights and
obligations under this Agreement shall be governed by and construed in
accordance with the laws of the State of Wisconsin.

i. Headings. The headings in this Agreement are for
reference only and shall not affect the meaning or interpretation of any
provision of this Agreement.

RIDGESTONE BANK (SEAL)
By:

/s/ Paul E. Menzel
Title: President

/s/ Christine V. Lake (SEAL)
Christine V. Lake

Address: 14750 Pomona Rd.
Brookfield, WI 53005

<ARTICLE> 9
<MULTIPLIER> 1

<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 1,494,243
<INT-BEARING-DEPOSITS> 184,637
<FED-FUNDS-SOLD> 13,259,000
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0
0
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<INCOME-PRETAX> (1,270,136)
<INCOME-PRE-EXTRAORDINARY> (1,270,136)
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<CHANGES> 0
<NET-INCOME> (1,271,070)
<EPS-PRIMARY> (1.52)
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<YIELD-ACTUAL> 6.42
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