U.S. SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM ____________ TO _________
Commission file number 0-27984
Ridgestone Financial Services, Inc.
(Exact name of small business issuer as specified in its charter)
Wisconsin 39-1797151
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13925 West North Avenue
Brookfield, Wisconsin 53005
(Address of principal executive offices)
414-789-1011
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
State the number of shares outstanding of each of the issuer's classes of common
equity as of the latest practicable date.
Class Outstanding as of June 30, 1999
----- -------------------------------
Common Stock, no par value 876,492
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
June 30, 1999 and December 31, 1998...............................1
Consolidated Statements of Income
For the Three Months and Six Months Ended
June 30, 1999 and 1998............................................2
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 1999 and 1998...................3
Consolidated Statements of Stockholders' Equity
For the Six Months Ended June 30, 1999 and 1998...................4
Notes to Consolidated Financial Statements........................5
Item 2. Management's Discussion and Analysis..........................6
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders..........12
Item 6. Exhibits and Reports on Form 8-K.............................12
SIGNATURES .............................................................13
EXHIBIT INDEX .............................................................14
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
RIDGESTONE FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
June 30, 1999 and December 31, 1998
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
(Unaudited)
------------ -------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 1,888,813 $ 2,741,672
Interest-bearing deposits in banks 259,892 2,649
Federal funds sold 7,457,000 12,525,000
Investments-Held to Maturity 1,752,419 1,750,335
(fair value Jun 1999, $1,752,419
and Dec 1998, $1,780,700)
Investments-Available for Sale 1,818,361 615,284
Loans receivable 49,676,250 48,869,077
Less: Allowance for estimated loan losses (449,884) (562,747)
------------ -------------
Net loans receivable 49,226,366 48,306,330
Mortgage loans held for sale 0 259,000
Office building and equipment, net 1,379,655 1,376,660
Other real estate owned 943,782 1,297,835
Cash surrender value of life insurance 1,897,102 1,797,153
Accrued interest & other assets 1,511,736 663,617
------------ -------------
Total assets $ 68,135,126 $ 71,335,535
============ =============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand $ 9,040,372 $ 8,552,053
Savings, NOW and other time deposits 51,898,065 55,970,803
------------ -------------
Total deposits 60,938,437 64,522,856
------------ -------------
Accrued interest & other liabilities 745,628 614,535
------------ -------------
Total liabilities 61,684,065 65,137,391
------------- ------------
STOCKHOLDERS' EQUITY
Common stock, no par value: 10,000,000
shares authorized:
876,492 issued and outstanding 8,417,117 8,417,117
Retained earnings (deficit) (1,948,047) (2,196,449)
Accumulated other comprehensive income(loss) (18,009) (22,524)
------------ ------------
Total stockholders' equity 6,451,061 6,198,144
------------ -------------
Total liabilities and stockholders' equity $ 68,135,126 $ 71,335,535
============ =============
</TABLE>
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RIDGESTONE FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Three and Six Months Ended June 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
-------------------------- ---------------------------
Jun 30, Jun 30, Jun 30, Jun 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans $ 1,009,133 $ 1,016,667 $ 1,959,286 $ 2,008,681
Interest on securities 34,959 70,282 146,210 152,195
Interest on federal funds sold 121,782 102,793 204,189 153,806
Interest on deposits in banks 1,750 2,910 1,892 4,360
------------- ------------- ------------- -------------
Total interest income 1,167,624 1,192,652 2,311,577 2,319,042
------------- ------------- ------------- -------------
Interest expense:
Interest on deposits 607,091 718,622 1,233,777 1,390,367
------------- ------------- ------------- -------------
Net interest income before
provision for loan losses 560,533 474,030 1,077,800 928,675
Provision for loan losses 60,000 10,000 67,500 15,000
------------- ------------- ------------- -------------
Net interest income after
provision for loan losses 500,533 464,030 1,010,300 913,675
------------- ------------- ------------- -------------
Non interest income:
Secondary market loan fees 18,263 34,008 38,437 55,181
Service charges on deposit accts 18,618 8,951 31,752 17,640
Miscellaneous 44,714 22,804 89,693 34,879
------------- ------------- ------------- -------------
Total non interest income 81,595 65,763 159,882 107,700
------------- ------------- ------------- -------------
Non interest expense:
Salaries and employee benefits 212,946 266,018 519,602 525,210
Occupancy and equipment expense 114,401 93,669 205,242 175,407
Gain(loss) on sale of AFS securities 0 (23,747) 15,402 7,687
Other expense 222,520 147,661 377,544 251,261
------------- ------------- ------------- -------------
Total non interest expense 549,867 483,601 1,117,790 959,565
------------- ------------- ------------- -------------
Income before income taxes 32,261 46,192 52,392 61,810
Income taxes(benefit) (121,060) (102,500) (196,010) (92,700)
------------- -------------- ------------ -------------
Net income $ 153,321 $ 148,692 $ 248,402 $ 154,510
============= ============= ============= =============
Earnings per share:
Basic $ 0.17 $ 0.17 $ 0.28 $ 0.18
Diluted $ 0.17 $ 0.17 $ 0.28 $ 0.18
Weighted average shares outstanding 876,492 876,055 876,492 876,055
</TABLE>
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RIDGESTONE FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 1999 and 1998
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
----------------------------
Jun 30, Jun 30,
1999 1998
------------- -------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net income $ 248,402 $ 154,510
Adjustments to reconcile net income to
net cash used in operating activities:
Depreciation 73,019 78,499
Loss on sale of investment securities 15,402 7,687
Provision for loan losses 67,500 15,000
Charges to loan losses (180,363) (126,373)
Accretion/Amortization of securities-net 265 (441)
Net decrease in mortgage loans held for sale 259,000 0
(Increase)decrease in assets:
Interest receivable (12,396) 16,676
Other assets (935,672) 233,456
Increase(decrease) in liabilities:
Accrued interest (47,711) 192,379
Other liabilities 178,804 (178,519)
------------- -------------
Total adjustments (582,152) 238,364
------------- -------------
Net cash provided by (used in) operating activities (333,750) 392,874
------------- -------------
Cash Flows From Investing Activities:
Net increase in interest-bearing deposits (257,243) (5,011)
Proceeds from sales of available for sale securities 80,548 141,316
Net (increase) decrease in federal funds sold 5,068,000 (2,717,000)
Purchase of available for sale securities (1,796,860) (138,200)
Proceeds from maturities of held to maturity securities 500,000 1,750,000
Net proceeds on other real estate 354,053 165,489
Purchases of premises and equipment (76,015) (17,790)
Net increase in loans (807,173) (1,931,060)
------------- -------------
Net cash provided by (used in) investing activities 3,065,310 (2,752,256)
------------- -------------
Cash Flows From Financing Activities:
Net increase(decrease) in deposits (3,584,419) 1,889,504
------------- -------------
Net cash provided by (used in) financing activities (3,584,419) 1,889,504
------------- -------------
Net (decrease)increase in cash and cash equivalents (852,859) (469,878)
Cash and due from banks, beginning 2,741,672 2,671,051
------------- -------------
Cash and due from banks, ending $ 1,888,813 $ 2,201,173
============= =============
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest $ 1,241,488 $ 1,407,043
============= =============
Income taxes $ 0 $ 9,800
============= =============
Supplemental schedule of noncash investing activities:
Net changes in unrealized gain on securities
available for sale $ 4,515 $ 28,534
============= =============
</TABLE>
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<PAGE>
RIDGESTONE FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Six Months Ended June 30, 1999 and 1998
<TABLE>
<CAPTION>
Available
Common Retained For Sale
Stock Earnings Securities Total
------------- ------------- ------------- -----------
<S> <C> <C> <C> <C>
Balances, December 31, 1997 $ 7,721,399 $ (1,837,493) $ (20,606) $ 5,863,300
Comprehensive income:
Net income 154,510 154,510
Change in unrealized gain
on available for sale securities 28,534 28,534
------------
Total comprehensive income 183,044
------------- ------------- ------------- ------------
Balances, June 30, 1998 $ 7,721,399 $ (1,682,983) $ 7,928 $ 6,046,344
============= ============= ============= ============
Balances, December 31, 1998 $ 8,417,117 $ (2,196,449) (22,524) $ 6,198,144
Comprehensive income:
Net income 248,402 248,402
Change in unrealized gain
on available for sale securities 4,515 4,515
------------
Total comprehensive income 252,917
------------- ------------- ------------- -----------
Balances, June 30, 1999 $ 8,417,117 $ (1,948,047) $ (18,009) $ 6,451,061
============= ============= ============== ===========
</TABLE>
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RIDGESTONE FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
(Unaudited)
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Ridgestone Financial Services, Inc. (the "Company") 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 adjustments)
considered necessary for the fair presentation have been included. Operating
results for the six months ended June 30, 1999 are not necessarily indicative of
the results that may be expected for the year ended December 31, 1999. 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, 1998.
NOTE 2 - PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of 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
Comparative statements of income for the three and six months and cash flows for
the six months ended June 30, 1999 and June 30, 1998 have been presented.
NOTE 4 - STOCK DIVIDEND
On May 21, 1998, the Company paid a 5% stock dividend on issued and outstanding
shares of its common stock. The dividend totaled 41,717 shares.
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<PAGE>
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 as of and for the three and six months ended June 30, 1999.
Financial Condition
Total Assets. Total assets of the Company as of June 30, 1999 were $68,135,126
compared to $71,335,535 as of December 31, 1998, a decrease of 4%. This decrease
in total assets is related to the Company's efforts to expand the loan portfolio
and control deposit growth to further improve earnings. While this strategy has
resulted in a slight decline in total assets, it has also resulted in an
increase in net interest income and an improvement in the Bank's net interest
margin.
Cash and Cash Equivalents. Cash and interest bearing deposits, which represents
cash maintained at the Bank and funds that the Bank and the Company have
deposited in other financial institutions, was $2,148,705 at June 30, 1999,
compared to $2,744,321 as of December 31, 1998. The Bank reported $7,457,000 of
federal funds sold (which are inter-bank funds with daily liquidity) on June 30,
1999 compared to $12,525,000 on December 31, 1998.
Investment Securities. The Company'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 $1,752,419 at June 30, 1999 compared to
$1,750,335 at December 31, 1998. The securities available-for-sale portfolio was
$1,818,361 at June 30, 1999 compared to $615,284 at December 31, 1998, an
increase of $1,203,077, which was primarily due to a reinvestment of certain
funds into repurchase agreements.
Loans. Total loans prior to the allowance for estimated loan losses were
$49,676,250 as of June 30, 1999, compared to $48,869,077 as of December 31,
1998, an increase of 2%.
At June 30, 1999, the mix of the loan portfolio included Commercial loans of
$11,782,000 or 24% of total loans; Commercial Real Estate loans of $21,318,000
or 43% of total loans; Residential Real Estate loans of $13,283,000 or 27 % of
total loans; and Consumer loans of $3,293,000 or 7% of total loans.
Allowance for Loan Losses. The allowance for estimated loan losses was $449,884
or .91% of gross loans on June 30, 1999 compared to $562,747 or 1.15% of gross
loans at December 31, 1998. In accordance with Financial Accounting Standards
Board ("FASB") Statements No. 5 and 114, the allowance is provided for losses
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<PAGE>
that have potentially been incurred based on the Bank's outstanding loan balance
as of the balance sheet date. The Bank evaluates the adequacy of the loan loss
reserve based on past events and current economic conditions, and does not
include the effects of potential losses on specific loans or groups of loans
that are related to future events or expected changes in economic conditions
which are then unknown to the Bank. For additional information regarding the
Company's allowance for loan losses, see "Results of Operations - Provision for
Loan Losses" below.
In the second quarter of 1999, the Bank charged $150,363 against the loan loss
reserve which related primarily to a commercial loan whose guarantor filed
personal bankruptcy.
On June 30, 1999, the Company had $943,782 in Other Real Estate Owned compared
to $1,297,835 on December 31, 1998. This decrease was the result of the sale of
real estate assets owned by the Bank.
Deposits. As of June 30, 1999, total deposits were $60,938,437 compared to
$64,522,856 at December 31, 1998, a decrease of 6%. For more information on
deposits, see "Total Assets" above.
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 the current liquidity position of the Bank
allows it opportunity to expand the Bank's loan portfolio and account for any
withdrawals which may occur. The Bank's loan-to-deposit funds ratio prior to
loan loss reserve on June 30, 1999 was 82%.
Asset/Liability Management. Closely related to liquidity management is the
management of interest-earning assets and interest-bearing liabilities. The
Company manages its rate sensitivity position to avoid wide swings in net
interest margins and to minimize risk due to changes in interest rates.
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 Company currently does not expect to experience any material fluctuations in
its net interest income in the short-term as a consequence of changes in
interest rates.
Results of Operations
Net Income. For the three-month period ended June 30, 1999, the Company reported
net income of $153,321 as compared to net income of $148,692 in the same period
of 1998. For the six month period ended June 30, 1999, the Company reported net
income of $248,402 which compares favorably to net income of $154,510 for the
six months ended June 30, 1998. A tax benefit related to a tax loss carryforward
accounted for $121,060 and $196,010 of net income for the three and six months
ended June 30, 1999, respectively.
Net Interest Income. Net interest income before provision for loan losses for
the three and six months ended June 30, 1999 was $560,533 and $1,077,800
compared to $474,030 and $928,675 for the same periods in 1998, an improvement
of 18% and 16%, respectively. Total interest income for the three and six months
ended June 30, 1999 decreased by $25,028 and $7,465 as compared with the same
periods in 1998, while total interest
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<PAGE>
expense decreased by $111,531 and $156,590. The Bank's net interest margin
improved from 3.21% at June 30, 1998 to 3.49% at June 30, 1999.
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 risks associated with the loans in the portfolio.
As a result of increasing balances in the loan portfolio and a commercial loan
charge-off during the second quarter, the loan loss reserve as a percentage of
gross loans is slightly below the levels historically maintained by the Bank.
During the six month period ended June 30, 1999, a $67,500 provision was made to
the loan loss reserve to build the reserve to adequate levels. Management
anticipates continued growth in the loan portfolio and intends to make
provisions during 1999 which will build the reserve to a higher percentage of
gross loans.
The Federal Deposit Insurance Corporation ("FDIC") conducted a routine
examination of the Bank's loan classifications in the second quarter of 1999. As
a result of this examination, certain loans may be reclassified and the Bank may
be required to make additional provisions for loan losses. The Bank cannot
estimate the extent of any such required provisions, if any, to be made in the
future.
Non-Interest Income. Total non interest income was $81,595 for the three months
ended June 30, 1999 compared to $65,763 for the same period in 1998, an increase
of $15,832 or 24%. Total non interest income was $159,882 for the six months
ended June 30, 1999 compared to $107,700 for the same period in 1998, an
increase of 48%.
Non-Interest Expense. Total non interest expenses (excluding gains on the sale
of securities and assets) were $557,669 for the three months ended June 30, 1999
compared to $507,348 for the same period in 1998, an increase of 10%. Total non
interest expenses (excluding losses on sale of assets and securities) were
$1,077,631 for the six months ended June 30, 1999 compared to $951,878 for the
same period in 1998, an increase of 13% from the prior period in 1998. The
majority of the increase in non interest expenses is attributed to two areas,
benefit plans and occupancy expense. The majority of the benefit plan expense is
offset by income related to the benefit plans in noninterest income, and the
increase in occupancy expense is primarily due to an accounting change in the
treatment of expenses related to Other Real Estate Owned.
Year 2000 Impact
Existing computer programs generally recognize dates and perform calculations by
using only the last two digits of any given year. These computer programs may
not recognize a year that begins with "20" instead of "19." As a result, the
functions of computer software, hardware and embedded systems at many
businesses, including the Bank, may experience failures or produce incorrect
results when the calendar changes to January 1, 2000. Systems failures or
miscalculations at the Bank or the Bank's vendors or customers may result in
disruption of operations, including a failure to process information and/or a
reduced likelihood of collecting loan payments on a timely basis.
The Bank's Readiness. To determine whether and to what extent it may experience
disruptions as a result of the turning of the Year 2000 ("Y2K"), the Bank has
established a committee to oversee the assessment process and report
periodically to Bank management. The Bank is currently in the process of
assessing (i) the Y2K status of its own internal systems, including computer
equipment (hardware), applications (software), and other
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<PAGE>
electronically controlled equipment that does not process data (embedded
systems); (ii) the Y2K status of its customers' systems; and (iii) the Y2K
status of its vendors' systems.
Internal Systems. The Bank has completed testing or received manufacturer
certification of Y2K compliance with respect to 100% of its internal hardware
and embedded systems. All such systems appear to be Y2K compliant. The Bank
spent less than $5,000 on testing these systems to date and does not expect to
incur additional costs in testing internal computer hardware or embedded
systems.
The following chart displays the current status of the Bank's mission-critical
software with respect to assessing Y2K compliance.
<TABLE>
<CAPTION>
Vendor-
Internal Mission-critical certified
Software Category Compliant? Status of Testing/Replacement
- - ----------------------------------------- ----------------- ----------------------------------------------------------------
<S> <C> <C>
Operating systems Yes Testing complete - satisfactory
Banking platform applications Yes Testing Phase 1 complete - satisfactory
Testing Phase 2 complete - satisfactory
On-line PC banking Yes Testing complete - satisfactory
Implementation - in process
Telephone banking No Replacement installation in process
Loan documentation Yes Replacement configuration in process
Document management Yes Testing complete - satisfactory
Contact management Yes Testing complete - satisfactory
General office applications Yes Testing complete - satisfactory
Data warehousing Yes Testing complete - satisfactory
</TABLE>
All the Bank's internal software systems are vendor-certified compliant except
for the telephone banking system. Although the Bank does not expect this system
to experience problems associated with Y2K, it is nevertheless upgrading the
system to a Y2K compliant version. The upgraded system hardware is in place at
the Bank's data processor and the first of the processor's client banks is in
the process of conversion. The Bank will be converted to this system before
December 31, 1999. The Bank will incur a charge of $250 for this conversion.
The Bank's remaining internal systems have all been successfully tested for Y2K
readiness, except for the loan documentation system. This system is being
configured and should be operational by the end of September, 1999. Both the
current loan documentation system and its replacement have been certified Y2K
ready by the vendor.
The platform banking system went through a series of tests in May of 1998 and
passed successfully. Because of the critical nature of these systems, the Bank
went through a second round of testing of this software in February 1999. This
test also passed successfully.
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<PAGE>
Customers. The Bank may experience loan collection or other credit-related
problems if significant customers are not Y2K compliant before the turn of the
century. In order to assess their Y2K compliance, the Bank has sent Y2K surveys
to a majority of its commercial customers. Many of these customers have
responded to the Bank's inquiries and continue to update the Bank as new data
becomes available. The Bank intends to continue surveying new customers as
appropriate to assess their Y2K readiness. The Bank will also conduct another
survey of all its commercial customers in August, 1999. To date, the Bank has
received satisfactory responses from most of its major commercial customers, and
management currently does not anticipate the Bank will experience material
adverse effects on operations as a result of customer non-compliance.
Vendors. Similarly, the Bank is receiving regular updates from almost all the
vendors who provide mission- critical products and services. The Bank is making
efforts to contact those vendors who have not yet provided information regarding
their Y2K readiness. Of those vendors whose compliance status is known to the
Bank, all are either already compliant or appear to be making satisfactory
progress toward compliance.
Y2K Compliance Costs. The Bank outsources a majority of its information
processing, and its internal computer systems generally rely on software
provided by third-party vendors. As a result, the Bank has incurred very little
cost to date, less than $5,000, in assessing its internal readiness. The Bank
will incur additional remediation costs which are not expected to be material,
generally in connection with (i) its continuing dialog with vendors and
customers to assess their readiness, (ii) the installation of one new system and
the replacement of one old system, and (iii) contingency planning and status
updates. The Bank currently expects that such additional costs will not exceed
$15,000.
Y2K Risks. One set of Y2K risks to the Bank are associated with the potential
non-compliance of its third-party vendors who provide mission-critical services.
Since the Bank outsources most of its information processing to third-party
vendors, such a failure could result in higher operating costs, increased
staffing needs or the inability to provide needed services to customers.
Likewise, the failure of those vendors providing critical infrastructure
services, specifically, power and communications, could result in temporary
operational difficulties at the bank.
Y2K failures of the Bank's significant commercial customers could result in the
inability of those customers to make timely payments on loans, potentially
resulting in a loss of revenue, adjustments to the Bank's loan loss reserves,
reduced deposit balances or increased cash requirements.
Another area of risk to the Bank lies with consumer deposit behavior. If a
significant number of customers were to withdraw substantial amounts of
deposits, the Bank could face a shortage of liquid assets. Management currently
intends to maintain additional levels of cash on hand to meet potential demands,
and expects to be able to meet such cash demands satisfactorily.
The Bank does not anticipate material failures of its embedded systems, since
virtually none of these systems rely on date-based control systems.
Contingency Plans. The Bank has developed contingency plans to deal with
potential business interruptions caused by Y2K non-compliance of its vendors,
customers or internal systems. These plans address a wide range of potential
problems. The Bank's plan is complete, but portions of the plan still require
testing and validation. Likewise, there may be future changes to the plan as
further developments occur.
Although the Bank has taken many steps to ensure that Y2K will not adversely
impact its results of operations or financial condition, there can be no
assurance that it will not have such an effect. Whether the Bank will
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experience adverse effects as a result of Y2K will depend on certain risks and
factors including risks associated with (i) Y2K readiness of the vendors who
supply the Bank with critical information processing, credit delivery and other
services; (ii) Y2K readiness of the Bank's key commercial customers; (iii)
unanticipated expenses associated with ongoing assessment or remediation of
potential internal Y2K problems which could affect the Bank's operations; (iv)
the potential inadequacy or failure of the testing procedures used by the Bank
in performing its internal Y2K assessments; (v) the inaccuracy of Y2K compliance
certification received by the Bank from certain outside vendors regarding those
vendors' systems which are used by the Bank; and (vi) the failure of the Bank to
design adequate contingency plans in the event of internal or external Y2K
non-compliance.
Special Note Regarding Forward-Looking Statements
Certain matters discussed in this Quarterly Report on Form 10-QSB are
"forward-looking statements" intended to qualify for the safe harbors from
liability established by the Private Securities Litigation Reform Act of 1995.
These forward-looking statements can generally be identified as such because the
context of the statement will include words such as the Company "believes,"
"anticipates," "expects," or other words of similar import. Similarly,
statements that describe the Company's future plans, objectives or goals are
also forward-looking statements. Such forward-looking statements are subject to
certain risks and uncertainties which could cause actual results to differ
materially from those contemplated in the forward-looking statements. Such risks
include, among others: interest rate trends, the general economic climate in the
Company's market area, loan delinquency rates, risks associated with the turning
of the Year 2000, and legislative enactments or regulatory changes which
adversely affect the business of the Company and/or the Bank. Shareholders,
potential investors and other readers are urged to consider these factors in
evaluating the forward-looking statements. The forward-looking statements
included herein are only made as of the date of this Form 10-QSB and the Company
undertakes no obligation to publicly update such forward-looking statements to
reflect subsequent events or circumstances.
-11-
<PAGE>
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's annual meeting of shareholders held on April 27, 1999,
the following individuals were elected to the Board of Directors to hold office
until the 2002 annual meeting of shareholders and until their successors are
duly elected and qualified:
Directors Shares Voted For Authority to Vote Withheld
Charles N. Ackley 847,144 13,902
Bernard E. Adee 848,246 12,800
William R. Hayes 848,246 12,800
John E. Horning 848,246 12,800
The following table sets forth the other directors of the Company whose
terms of office continued after the 1999 annual meeting:
Name of Director Year in Which Term Expires
Gregory J. Hoesly 2000
Christine V. Lake 2000
Richard A. Streff 2000
William J. Tetzlaff 2000
William F. Krause, Jr. 2001
Paul E. Menzel 2001
Charles G. Niebler 2001
James E. Renner 2001
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
27 Financial Data Schedule
(EDGAR version only)
b. Reports on Form 8-K
The Company did not file a Current Report on Form 8-K during
the quarter ended June 30, 1999.
-12-
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
RIDGESTONE FINANCIAL SERVICES, INC.
Date: August 13, 1999 /s/ Paul E. Menzel
------------------- ------------------------------------------
Paul E. Menzel
President
Date: August 13, 1999 /s/ William R. Hayes
------------------- ------------------------------------------
William R. Hayes
Vice President and Treasurer
-13-
<PAGE>
EXHIBIT INDEX
Exhibit Number
a. Exhibits
27 Financial Data Schedule
(EDGAR version only)
-14-
<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 SIX MONTHS ENDED JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,888,813
<INT-BEARING-DEPOSITS> 259,892
<FED-FUNDS-SOLD> 7,457,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,818,361
<INVESTMENTS-CARRYING> 1,752,419
<INVESTMENTS-MARKET> 1,752,419
<LOANS> 49,676,250
<ALLOWANCE> 449,884
<TOTAL-ASSETS> 68,135,126
<DEPOSITS> 60,938,437
<SHORT-TERM> 0
<LIABILITIES-OTHER> 745,628
<LONG-TERM> 0
0
0
<COMMON> 8,417,117
<OTHER-SE> (1,948,047)
<TOTAL-LIABILITIES-AND-EQUITY> 68,135,126
<INTEREST-LOAN> 1,959,286
<INTEREST-INVEST> 204,189
<INTEREST-OTHER> 148,102
<INTEREST-TOTAL> 2,311,577
<INTEREST-DEPOSIT> 1,233,777
<INTEREST-EXPENSE> 1,233,777
<INTEREST-INCOME-NET> 1,077,800
<LOAN-LOSSES> 180,363
<SECURITIES-GAINS> 15,402
<EXPENSE-OTHER> 1,102,388
<INCOME-PRETAX> 52,392
<INCOME-PRE-EXTRAORDINARY> 52,392
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 52,392
<EPS-BASIC> 0.17
<EPS-DILUTED> 0.17
<YIELD-ACTUAL> 7.53
<LOANS-NON> 215,841
<LOANS-PAST> 5,438,688
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 562,747
<CHARGE-OFFS> 180,363
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 449,884
<ALLOWANCE-DOMESTIC> 606,733
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 156,849
</TABLE>
