U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED MARCH 31, 1998
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________ TO
_________
Commission file number 0-27984
Ridgestone Financial Services, Inc.
(Exact name of small business issuer as specified in its charter)
Wisconsin 39-1797151
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13925 West North Avenue
Brookfield, Wisconsin 53005
(Address of principal executive offices)
414-789-1011
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the
past 90 days. Yes X No______
State the number of shares outstanding of each of the issuer's classes of
common equity as of the latest practicable date.
Class Outstanding as of March 31, 1998
Common Stock, no par value 834,340
Transitional Small Business Disclosure Format: Yes______ No X
<PAGE>
RIDGESTONE FINANCIAL SERVICES, INC. AND SUBSIDIARY
INDEX
Page
Number
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements . . . . . . . . . . . . . . . . . . 1
Consolidated Statements of Financial Condition at
March 31, 1998 and December 31, 1997 . . . . . . . . . . 1
Consolidated Statements of Income
For the Three Months Ended March 31, 1998 and 1997 . . . 2
Consolidated Statements of Cash Flows
For the Three Months Ended March 31, 1998 and 1997 . . . 3
Consolidated Statements of Stockholders' Equity
For the Three Months Ended March 31, 1998 and 1997 . . . 4
Notes to Consolidated Financial Statements . . . . . . . 5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . 6
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . 9
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
RIDGESTONE FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
March 31, 1998 and December 31,1997
March 31, December 31,
1998 1997
(Unaudited)
ASSETS
Cash and due from banks $ 2,290,914 $ 2,671,051
Federal funds sold 5,103,000 7,994,000
Interest-bearing deposits 204,829 4,185
----------- -----------
Total cash and cash equivalents 7,598,743 $10,669,236
----------- -----------
Investments-Held to Maturity 4,252,382 4,253,095
(fair value Mar 31, 1998: $4,287,287
and Dec 31, 1997: $4,298,356)
Investments-Available for Sale 892,778 874,406
Loans receivable 46,497,033 46,259,021
Less: Allowance for estimated loan losses (504,325) (624,740)
----------- -----------
Net loans receivable 45,992,708 45,634,281
----------- -----------
Office building and equipment, net 1,376,261 1,403,082
Other real estate owned 1,679,000 1,774,489
Accrued interest & other assets 502,073 495,108
----------- -----------
Total assets $62,293,945 $65,103,698
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand $ 6,591,279 $ 7,296,264
Saving, NOW and other time 49,242,065 51,191,361
----------- -----------
Total deposits 55,833,344 58,487,625
----------- -----------
Accrued interest and other liabilities 542,302 752,772
----------- -----------
Total liabilities 56,375,646 59,240,398
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, no par value: shares
authorized 1,000,000; shares issued
and outstanding 834,340 7,721,399 7,721,399
Retained deficit (1,831,675) (1,837,493)
Accumulated other comprehensive income(loss) 28,575 (20,606)
----------- -----------
Total stockholders' equity 5,918,299 5,863,300
----------- -----------
Total liabilities and stockholders' equity $62,293,945 $65,103,698
=========== ===========
<PAGE>
RIDGESTONE FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended March 31, 1998 and 1997
(Unaudited)
Three Months Ended
March 31, March 31,
1998 1997
Interest income:
Interest and fees on loans $1,013,187 $498,970
Interest on securities-taxable 81,913 189,896
Interest on federal funds sold 51,013 63,391
Interest on deposits in banks 1,450 4,092
---------- --------
Total interest income 1,147,563 756,349
---------- --------
Interest expense:
Interest on deposits 671,745 459,575
---------- --------
Total interest expense 671,745 459,575
---------- --------
Net interest income 475,818 296,774
Provision for loan losses 5,000 0
---------- --------
Net interest income after
provision for loan losses 470,818 296,774
Other operating income:
Gain (loss) on sale of securities (31,435) 76,354
Service charges on deposit accounts 8,689 5,362
Other income 66,050 24,800
---------- --------
Total operating income 43,304 106,516
---------- --------
Other operating expense:
Salaries and employee benefits 259,192 230,444
Occupancy and equipment expense 81,738 81,664
Other expense 157,574 87,774
---------- --------
Total operating expense 498,504 399,882
---------- --------
Income before income taxes 15,618 3,408
---------- --------
Income taxes 9,800 1,251
---------- --------
Net income $ 5,818 $ 2,157
========== ========
Earnings per share:
Basic $ 0.01 $ 0.00
========== ========
Diluted $ 0.01 $ 0.00
========== ========
Average shares outstanding 834,340 834,340
========== ========
<PAGE>
RIDGESTONE FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 1998 and 1997
(Unaudited)
Three Months Ended March 31,
1998 1997
Cash flows from operating activities:
Net income $ 5,818 $ 2,157
Adjustments to reconcile net income
to net cash used in operating
activities:
Depreciation 38,980 42,809
(Gain)loss on sale of investment securities 31,435 (73,354)
Provision for loan losses 5,000 0
Charges to loan losses (125,415) 0
Accretion/Amortization of securities net (231) 0
(Increase)decrease in assets:
Interest receivable 26,634 (45,691)
Other real estate owned 95,489 0
Other assets (33,599) 198
Increase(decrease) in liabilities:
Accrued interest (171,347) (37,107)
Other liabilities (39,123) 3,045
----------- -----------
Total adjustments (172,177) (113,100)
----------- -----------
Net cash used in operating activities (166,359) (110,943)
----------- -----------
Cash flows from investing activities:
Proceeds from sales of available for
sale securities 67,568 725,211
Purchase of available for sale securities (67,250) (739,378)
Proceeds from maturities of held to
maturity securities 0 4,702
Purchases of premises and equipment (12,159) (42,309)
Net increase in loans (238,012) (6,792,401)
----------- -----------
Net cash used in investing activities (249,853) (6,844,175)
----------- -----------
Cash flows from financing activities:
Net increase(decrease) in deposits (2,654,281) 3,701,114
----------- -----------
Net cash provided by (used in)
financing activities (2,654,281) 3,701,114
----------- -----------
Net decrease in cash and cash equivalents (3,070,493) (3,254,004)
Cash and cash equivalents, beginning 10,669,236 14,937,881
----------- -----------
Cash and cash equivalents, ending $ 7,598,743 $11,683,877
=========== ===========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 698,379 $ 423,282
=========== ===========
Income taxes $ 9,800 $ 1,276
=========== ===========
Supplemental schedule of noncash
investing activities:
Net changes in unrealized gain(loss)
on securities available for sale $ 49,181 $ (25,732)
=========== ===========
<PAGE>
RIDGESTONE FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Three Months Ended March 31, 1998 and 1997
(Unaudited)
Accumulated
Other
Common Retained Comprehensive
Stock Earnings Income (Loss)
Balances
December 31, 1996 $7,721,399 $(1,879,126) $ 25,732
Net income-YTD 1997 2,157
Other comprehensive income-change
in unrealized loss on securities (25,732)
---------- ----------- --------
Balances
March 31, 1997 $7,721,399 $(1,876,969) $ 0
========== =========== =======
Balances
December 31, 1997 $7,721,399 $(1,837,493) $(20,606)
Net income-YTD 1998 5,818
Other comprehensive income-change in
unrealized gain on securities 49,181
---------- ----------- --------
Balances
March 31, 1998 $7,721,399 $(1,831,675) $28,575
========== =========== =======
<PAGE>
RIDGESTONE FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1998 and 1997
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with generally accepted accounting
principles for interim financial information and with instructions to Form
10-QSB. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for
complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the
three-months ended March 31, 1998 are not necessarily indicative of the
results that may be expected for the year ended December 31, 1998. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-KSB
for the year ended December 31, 1997.
NOTE 2 - PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
Ridgestone Financial Services, Inc., (the "Company") and its wholly owned
subsidiary, Ridgestone Bank (the "Bank"). All significant intercompany
accounts and transactions have been eliminated in consolidation.
NOTE 3 - COMPARATIVE DATA
The Company was incorporated in May of 1994, but its primary operating
subsidiary, the Bank, did not commence operations until December 7, 1995.
Comparative statements of income and cash flows for the three months ended
March 31, 1998 and March 31, 1997 have been presented.
NOTE 4 - COMPREHENSIVE INCOME
Other comprehensive income (loss) (consisting entirely of unrealized gain
(loss) on available for sale securities) for the three months ended
March 31, 1998 and 1997 amounted to $49,181 and ($25,732) respectively.
Comprehensive income (loss), which includes both net income and other
comprehensive income, was $54,999 and ($23,575) for the years ended
December 31, 1997 and 1996 respectively.
Item 2. Management's Discussion and Analysis
General
Ridgestone Financial Services, Inc. (the "Company") was formed in May 1994
under the laws of the State of Wisconsin for the purpose of becoming the
bank holding company of Ridgestone Bank (the "Bank").
The Bank was capitalized on December 6, 1995, and commenced operation on
December 7, 1995. The Bank was organized as a Wisconsin chartered
commercial bank with depository accounts insured by the Federal Deposit
Insurance Corporation. The Bank provides full service commercial and
consumer banking services in Brookfield, Wisconsin, and adjacent
communities.
The following is a discussion of the Company's financial condition and
results of operations for the quarter ended March 31, 1998.
Financial Condition
Total Assets. Total assets of the Company as of March 31, 1998 were
$62,293,945 compared to $65,103,698 as of December 31, 1997.
Loans. Loans prior to the allowance for estimated loan losses were
$46,497,033 as of March 31, 1998, compared to $46,259,021 as of December
31, 1997. The relatively flat loan growth for the first quarter of 1998
was primarily the result of the repayment of several large construction
loans in March 1998.
At March 31, 1998, the mix of the loan portfolio included Commercial loans
of $18,237,676 or 39.23% of total loans; Commercial Real Estate loans of
$11,682,902 or 25.13% of total loans; Residential Real Estate Loans of
$12,326,639 or 26.51% of total loans; and Consumer Loans of $4,249,816 or
9.13% of total loans.
Allowance for Loan Losses. The allowance for estimated loan losses was
$504,325 or 1.08% of gross loans on March 31, 1998. The Bank evaluates
the adequacy of the reserve for loan losses based on factors such as the
local and national economy as well as an analysis of specific problem
loans and loans on an aggregate basis. The reserve for loan losses is
maintained at a level management considers adequate to provide for
potential future losses. For additional information regarding the
Company's allowance for loan losses, see "Results of Operations -
Provision for Loan Losses" below.
In the first quarter of 1998, the Bank charged $2,927 against the loan
loss reserve. The Bank also reduced Other Real Estate Owned by
$122,488.50 and charged this amount against the loan loss reserve in order
to reduce the value of Other Real Estate Owned to the appraised value as
received on December 30, 1997.
Cash and Cash Equivalents. Cash and cash equivalents were $7,598,743 as
of March 31, 1998 compared to $10,669,236 as of December 31, 1997, a
decrease of $3,070,493. Cash and cash equivalents represent cash
maintained at the Bank and funds that the Bank and the Company have
deposited in other financial institutions. The decrease was primarily in
Federal Funds Sold, which are inter-bank funds with daily liquidity, and
was the result of the funding of loan growth at the Bank.
Investment Securities. The Bank's investment portfolio consists of (i)
securities purchased with the intent to hold the securities until they
mature and (ii) securities placed in the available for sale category which
may be liquidated to provide cash for operating or financing purposes.
The securities held-to-maturity portfolio was $4,252,382 at March 31, 1998
compared to $4,253,095 at December 31, 1997. The securities available-
for-sale portfolio was $892,778 at March 31, 1998 compared to $874,406 at
December 31, 1997.
Deposits. As of March 31, 1998, total deposits were $55,833,344 compared
to $58,487,625 at December 31, 1997. The decrease in deposits resulted
primarily from the loss of one large deposit that had been temporarily
placed in the Bank over year-end awaiting an investment opportunity that
occurred in January of 1998.
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.
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. Although loan growth can negatively
affect short-term liquidity, management believes the Bank will be able to
meet liquidity demands as the Bank's loan growth continues.
Results of Operations
For the three-month period ended March 31, 1998, the Company reported net
income of $5,818. This compares to a profit of $2,157 in the first
quarter of 1997. The profit for the first quarter of 1998 was generated
through improved operating results. For the first quarter of last year, a
gain on the sale of securities of $76,354 offset a $74,197 operating loss
at the Bank. In contrast, a $31,435 loss on the sale of securities for
the first quarter of fiscal 1998 partially offset a $37,253 profit at the
Bank. Thus, the first quarter of 1998 shows an improvement in operating
earnings of $111,450 over the comparable quarter in 1997.
Net Interest Income. Net interest income for the quarter ended March 31,
1998 was $475,818 compared to $296,774 for the first quarter of 1997, an
improvement of 60%. The increase was due primarily to greater average
outstanding balances in interest bearing assets, primarily loans. Total
interest income for the quarter ended March 31, 1998 increased by $391,214
as compared with the first quarter of 1997, while total interest expense
rose by $212,170.
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. Management
considers the adequacy of the allowance for estimated loan losses on a
regular basis.
During the three-month period ended March 31, 1998, a provision of $5,000
was made to the loan loss reserve in order to ensure that the loan loss
reserve is maintained at adequate levels.
Non-Interest Income and Expense. Other operating income (excluding gains
and losses on the sale of securities) was $74,739 for the first three
months of 1998 compared to $30,162 for the same period in 1997, an
increase of $44,577.
Operating expenses were $498,504 for the quarter ended March 31, 1998
compared to $399,882 for the first three months of 1997. For the first
quarter of 1998, payroll expense was $259,192 or 52% of total operating
expenses and occupancy and equipment expense was $81,738 or 16% of
total operating expenses. Payroll and occupancy expense increased by
$28,822 over the same period in 1997. Other expense increased by $69,800
from the first quarter of 1997.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
10.1 Ridgestone Financial Services, Inc. 1996 Stock Option Plan, as
amended [incorporated by reference to Exhibit 4.1 to Ridgestone
Financial Services, Inc.'s Registration Statement on Form S-8
(Registration No. 333-52323)]
10.2 Form of Stock Option Agreement used in conjunction with the
Ridgestone Financial Services, Inc. 1996 Stock Option Plan, as
amended [incorporated by reference to Exhibit 4.2 to Ridgestone
Financial Services, Inc.'s Registration Statement on Form S-8
(Registration No. 333-52323)]
27 Financial Data Schedule
(EDGAR version only)
b. Reports on Form 8-K
The Company did not file a Current Report on Form 8-K during the
quarter ended March 31, 1998.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
RIDGESTONE FINANCIAL SERVICES, INC.
Date: May 15, 1998 /s/ Paul E. Menzel
Paul E. Menzel
President
Date: May 15, 1998 /s/ William R. Hayes
William R. Hayes
Vice President and Treasurer
<PAGE>
EXHIBIT INDEX
Exhibit Number
10.1 Ridgestone Financial Services, Inc. 1996 Stock Option Plan,
as amended [incorporated by reference to Exhibit 4.1 to
Ridgestone Financial Services, Inc.'s Registration
Statement on Form S-8 (Registration No. 333-52323)]
10.2 Form of Stock Option Agreement used in conjunction with the
Ridgestone Financial Services, Inc. 1996 Stock Option Plan,
as amended [incorporated by reference to Exhibit 4.2 to
Ridgestone Financial Services, Inc.'s Registration
Statement on Form S-8 (Registration No. 333-52323)]
27 Financial Data Schedule
(EDGAR version only)
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF RIDGESTONE FINANCIAL
SERVICES, INC. AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,290,914
<INT-BEARING-DEPOSITS> 204,829
<FED-FUNDS-SOLD> 5,103,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 892,778
<INVESTMENTS-CARRYING> 4,252,382
<INVESTMENTS-MARKET> 4,287,287
<LOANS> 46,497,033
<ALLOWANCE> 504,325
<TOTAL-ASSETS> 62,293,945
<DEPOSITS> 55,833,344
<SHORT-TERM> 0
<LIABILITIES-OTHER> 542,302
<LONG-TERM> 0
0
0
<COMMON> 7,721,399
<OTHER-SE> (1,831,675)
<TOTAL-LIABILITIES-AND-EQUITY> 5,889,724
<INTEREST-LOAN> 1,013,187
<INTEREST-INVEST> 81,913
<INTEREST-OTHER> 52,463
<INTEREST-TOTAL> 1,147,563
<INTEREST-DEPOSIT> 671,745
<INTEREST-EXPENSE> 671,745
<INTEREST-INCOME-NET> 475,818
<LOAN-LOSSES> 125,415
<SECURITIES-GAINS> (31,435)
<EXPENSE-OTHER> 498,504
<INCOME-PRETAX> 15,618
<INCOME-PRE-EXTRAORDINARY> 15,618
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,618
<EPS-PRIMARY> 0.01
<EPS-DILUTED> 0.01
<YIELD-ACTUAL> 8.19
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 629,740
<CHARGE-OFFS> 125,415
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 504,325
<ALLOWANCE-DOMESTIC> 323,916
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 180,408
</TABLE>
