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 SEPTEMBER 30, 1999
[x] 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 September 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
September 30, 1999 and December 31, 1998................... 1
Consolidated Statements of Income
For the Three Months and Nine Months Ended
September 30, 1999 and 1998................................ 2
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 1999 and 1998...... 3
Consolidated Statements of Stockholders' Equity
For the Nine Months Ended September 30, 1999 and 1998...... 4
Notes to Consolidated Financial Statements................. 5
Item 2. Management's Discussion and Analysis....................... 6
PART II - OTHER INFORMATION
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
September 30, 1999 and December 31, 1998
September 30, December 31,
1999 1998
(Unaudited)
------------ ------------
ASSETS
Cash and due from banks $ 3,614,362 $ 2,741,672
Interest-bearing deposits in banks 261,948 2,649
Federal funds sold 1,975,000 12,525,000
Investments-Held to Maturity 999,340 1,750,335
(fair value Sep 1999, $1,006,268
and Dec 1998, $1,780,700)
Investments-Available for Sale 1,807,486 615,284
Loans receivable 52,690,306 48,869,077
Less: Allowance for estimated loan losses (563,305) (562,747)
------------ ------------
Net loans receivable 52,127,001 48,306,330
Mortgage loans held for sale 0 259,000
Office building and equipment, net 1,375,530 1,376,660
Other real estate owned 1,035,215 1,297,835
Cash surrender value of life insurance 1,818,887 1,797,153
Accrued interest & other assets 1,160,693 663,617
------------ ------------
Total assets $ 66,175,462 $ 71,335,535
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits:
Demand $ 8,798,752 $ 8,552,053
Savings, NOW and other time deposits 50,291,788 55,970,803
------------ ------------
Total deposits 59,090,540 64,522,856
------------ ------------
Accrued interest & other liabilities 525,057 614,535
------------ ------------
Total liabilities 59,615,597 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) (1,825,627) (2,196,449)
Accumulated other comprehensive income(loss) (31,625) (22,524)
------------ ------------
Total stockholders' equity 6,559,865 6,198,144
------------ ------------
Total liabilities and stockholders' equity $ 66,175,462 $ 71,335,535
============ ============
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<TABLE>
RIDGESTONE FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Three and Nine Months Ended September 30, 1999 and 1998
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------- ---------------------------
Sept 30, Sept 30, Sept 30, Sept 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
Interest income:
<S> <C> <C> <C> <C>
Interest and fees on loans $ 1,103,337 $ 1,118,712 $ 3,062,623 $ 3,127,392
Interest on securities 27,120 138,521 173,330 292,327
Interest on federal funds sold 103,761 50,057 307,950 202,252
Interest on deposits in banks 2,057 1,585 3,949 5,945
------------- ------------- ------------- -------------
Total interest income 1,236,275 1,308,875 3,547,852 3,627,916
------------- ------------- ------------- -------------
Interest expense:
Interest on deposits 601,155 761,269 1,834,932 2,151,636
------------- ------------- ------------- -------------
Net interest income before
provision for loan losses 635,120 547,606 1,712,920 1,476,280
Provision for loan losses 125,000 30,000 192,500 45,000
------------- ------------- ------------- -------------
Net interest income after
provision for loan losses 510,120 517,606 1,520,420 1,431,280
------------- ------------- ------------- -------------
Non interest income:
Secondary market loan fees 11,253 35,565 49,690 90,746
Service charges on deposit accts 28,809 8,596 60,561 26,236
Miscellaneous 47,307 22,120 136,999 56,999
------------- ------------- ------------- -------------
Total non interest income 87,369 66,281 247,250 173,981
------------- ------------- ------------- -------------
Non interest expense:
Salaries and employee benefits 263,579 298,185 783,181 823,395
Occupancy and equipment expense 113,989 101,831 319,231 277,238
Gain on sale of assets 14,065 0 38,822 0
Gain on sale of AFS securities 0 0 15,402 7,687
Other expense 178,274 132,833 531,062 384,093
------------- ------------- ------------- -------------
Total non interest expense 569,907 532,849 1,687,698 1,492,413
------------- ------------- ------------- -------------
Income before income taxes 27,582 51,038 79,972 112,848
Income taxes(benefit) ( 94,840) ( 49,533) (290,850) (142,233)
------------- -------------- ------------ --------------
Net income $ 122,422 $ 100,571 $ 370,822 $ 255,081
============= ============= ============= =============
Earnings per share:
Basic $ 0.14 $ 0.12 $ 0.42 $ 0.29
Diluted $ 0.13 $ 0.12 $ 0.38 $ 0.29
Weighted average shares outstanding 876,492 876,055 876,492 862,150
</TABLE>
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<TABLE>
RIDGESTONE FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 1999 and 1998
(Unaudited)
<CAPTION>
Nine Months Ended
-----------------------------
Sept 30, Sept 30,
1999 1998
------------- -------------
Cash Flows From Operating Activities:
<S> <C> <C>
Net income $ 370,822 $ 255,081
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Depreciation 113,490 118,575
Loss on sale of investment securities 15,402 7,687
Provision for loan losses 192,500 45,000
Gain on sale other assets (38,222) 0
Accretion/Amortization of securities-net 603 (452)
Net decrease in mortgage loans held for sale 259,000 (576,050)
(Increase)decrease in assets:
Interest receivable (22,563) 11,237
Other assets (496,247) (1,741,014)
Increase(decrease) in liabilities:
Accrued interest (226,264) 60,410
Other liabilities 136,786 (87,751)
------------- -------------
Total adjustments (65,515) (2,162,358)
------------- --------------
Net cash provided by (used in) operating activities 305,307 (1,907,277)
------------- --------------
Cash Flows From Investing Activities:
Net increase in interest-bearing deposits (259,299) (2,470)
Proceeds from sales of available for sale securities 80,548 141,316
Net (increase) decrease in federal funds sold 10,550,000 (629,000)
Purchase of available for sale securities (1,796,860) (138,200)
Proceeds from maturities of held to maturity securities 1,500,000 2,500,000
Purchase of held to maturity securities (250,000) 0
Net proceeds on other real estate 300,842 449,276
Purchases of premises and equipment (112,361) (39,112)
Net increase in loans (4,013,171) (5,005,115)
------------- -------------
Net cash provided by (used in) investing activities 5,999,699 (2,723,305)
------------- -------------
Cash Flows From Financing Activities:
Net increase(decrease) in deposits (5,432,316) 4,079,592
------------- -------------
Net cash provided by (used in) financing activities (5,432,316) 4,079,592
Net (decrease)increase in cash and cash equivalents 872,690 (550,990)
Cash and due from banks, beginning 2,741,672 2,671,051
------------- -------------
Cash and due from banks, ending $ 3,614,362 $ 2,120,061
============= =============
Supplemental disclosure of cash flow information
Cash paid during the period for:
Interest $ 2,061,196 $ 2,091,225
============= ============
Income taxes $ 0 $ 10,267
============= ============
Supplemental schedule of noncash investing activities:
Net changes in unrealized gain on securities
available for sale $ (9,101) $ 38,075
============== ===========
</TABLE>
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<PAGE>
<TABLE>
RIDGESTONE FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Nine Months Ended September 30, 1999 and 1998
<CAPTION>
Accumulated
Retained Other
Common Earnings Comprehensive
Stock (Deficit) Income (Loss) Total
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Balances, December 31, 1997 $ 7,721,399 $ (1,837,493) $ (20,606) $ 5,863,300
Stock Dividend 690,333 (690,333)
Comprehensive income:
Net income 255,081 255,081
Change in unrealized gain
on available for sale securities 38,075 38,075
-------------
Total comprehensive income 293,156
------------- ------------- ------------- -------------
Balances, September 30, 1998 $ 8,411,732 $ (2,272,745) $ 17,469 $ 6,156,456
============= ============= ============= =============
Balances, December 31, 1998 $ 8,417,117 $ (2,196,449) (22,524) $ 6,198,144
Comprehensive income:
Net income 370,822 370,822
Change in unrealized gain
on available for sale securities (9,101) (9,101)
-------------
Total comprehensive income 361,721
------------- ------------- ------------- -------------
Balances, September 30, 1999 $ 8,417,117 $ (1,825,627) $ (31,625) $ 6,559,865
============= ============= ============= ============
</TABLE>
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<PAGE>
RIDGESTONE FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 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 nine months ended September 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 nine months and cash flows
for the nine months ended September 30, 1999 and September 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 nine months ended September 30, 1999.
Financial Condition
Total Assets. Total assets of the Company as of September 30, 1999 were
$66,175,462 compared to $71,335,535 as of December 31, 1998, a decrease of 7%.
This decrease in total assets is related to the Company's efforts to expand its
loan portfolio and control deposit growth to further improve earnings. While
this strategy has resulted in a 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 $3,876,310 at September 30, 1999,
compared to $2,744,321 as of December 31, 1998. The Bank reported $1,975,000 of
federal funds sold (which are inter-bank funds with daily liquidity) on
September 30, 1999 compared to $12,525,000 on December 31, 1998. The $10,550,000
decrease in federal funds sold is primarily a result of a decline in deposits
and the use of cash to fund loan growth.
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 $999,340 at September 30, 1999 compared to
$1,750,335 at December 31, 1998, a decrease of $750,995, primarily as a result
of securities which matured. The securities available-for-sale portfolio was
$1,807,486 at September 30, 1999 compared to $615,284 at December 31, 1998, an
increase of $1,192,202, 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
$52,690,306 as of September 30, 1999, compared to $48,869,077 as of December 31,
1998, an increase of 8%.
At September 30, 1999, the mix of the loan portfolio included Commercial loans
of $11,990,000 or 23% of total loans; Commercial Real Estate loans of
$22,182,000 or 42% of total loans; Residential Real Estate loans of $15,142,000
or 29% of total loans; and Consumer loans of $3,376,000 or 6% of total loans.
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<PAGE>
Allowance for Loan Losses. The allowance for estimated loan losses was $563,305
or 1.07% of gross loans on September 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 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 third quarter of 1999, the Bank charged $11,579 against the loan loss
reserve which related to a consumer loan charge off.
On September 30, 1999, the Company had $1,035,215 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 September 30, 1999, total deposits were $59,090,540 compared to
$64,522,856 at December 31, 1998, a decrease of 8%. 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 Bank will be able to meet liquidity demands
as the Bank's loan growth continues. The Bank's loan-to-deposit funds ratio
prior to loan loss reserve on September 30, 1999 was 89%.
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. Net income for the three-month period ended September 30, 1999
increased by $21,851 to $122,422 as compared to net income of $100,571 in the
same period of 1998. For the nine month period ended September 30, 1999, the
Company reported net income of $370,822 which compares favorably to net income
of $255,081 for the nine months ended September 30, 1998. A tax benefit related
to a tax loss carryforward accounted for $94,840 and $290,850 of net income for
the three and nine months ended September 30, 1999, respectively.
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<PAGE>
Net Interest Income. Net interest income before provision for loan losses for
the three and nine months ended September 30, 1999 was $635,120 and $1,712,920
compared to $547,606 and $1,476,280 for the same periods in 1998, an improvement
of 16% in each period. Contributing to the increase in net interest income was
an overall lower cost of funds. The Bank's net interest margin improved from
3.27% at September 30, 1998 to 3.70% at September 30, 1999. Total interest
income for the three and nine months ended September 30, 1999 decreased by
$72,600 and $80,064 respectively, as compared with the same periods in 1998,
while total interest expense decreased by $160,114 and $316,704.
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 loan charge-offs
during the nine months ended September 30, 1999, the loan loss reserve as a
percentage of gross loans is slightly below the levels historically maintained
by the Bank. During the nine month period ended September 30, 1999, a $192,500
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 additional provisions during the fourth quarter of 1999 which
will build the reserve to a higher percentage of gross loans.
Non-Interest Income. Total non-interest income (excluding any gains or losses on
the sale of assets and securities) was $87,369 for the three months ended
September 30, 1999 compared to $66,281 for the same period in 1998, an increase
of $21,088 or 32%. Total non-interest income (excluding any gains or losses on
the sale of assets and securities) was $247,250 for the nine months ended
September 30, 1999 compared to $173,981 for the same period in 1998, an increase
of 42%.
Non-Interest Expense. Total non-interest expenses (excluding any gains or losses
on the sale of securities and assets) were $555,842 for the three months ended
September 30, 1999 compared to $532,849 for the same period in 1998, an increase
of 4%. Total non-interest expenses (excluding any gains or losses on sale of
assets and securities) were $1,633,474 for the nine months ended September 30,
1999 compared to $1,484,726 for the same period in 1998, an increase of 10% 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
non-interest 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.
-8-
<PAGE>
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 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.
Vendor-
Internal Mission-critical certified
Software Category Compliant? Status of Testing/Replacement
- --------------------------------------------------------------------------------
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 Yes Replacement configuration in process
- --------------------------------------------------------------------------------
Loan documentation Yes Testing complete - satisfactory
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
All the Bank's internal software systems are vendor-certified compliant and have
been successfully tested for Y2K compliance. Portions of the telephone banking
and loan documentation systems are undergoing final configuration. Management
anticipates such configuration will be completed prior to December 31, 1999.
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. 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 final configuration of one new
system, and (iii) contingency planning and status updates. The Bank currently
expects that such additional costs will not exceed $5,000.
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 is
increasing the 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.
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<PAGE>
The Bank's contingency plans address the potential responses of the Bank in the
event that Y2K problems arise in any of over 35 areas, ranging from ATM and
electronic banking systems to core loan, accounting and general ledger systems.
Depending on the system and the time period during which it is affected, the
contingency plans contemplate that the Bank may engage alternate procedures
and/or alternate third-party service providers to restore functionality. For
certain mission critical services that the Bank currently outsources, alternate
service providers may not be available. In those instances, however, the Bank
has received assurance from those providers that they are or will be Y2K
compliant.
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 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
or successfully implement adequate contingency plans related to potential
internal or external Y2K non-compliance, or the failure of successfully
implemented contingency plans to allow the Bank to continue its operations in
the ordinary course.
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 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 September 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: November 12, 1999 /s/ Paul E. Menzel
--------------------- ----------------------------------------
Paul E. Menzel
President
Date: November 12, 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 INFORMATIOON EXTRACTED FROM THE
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS OF RIDGESTONE FINANCIAL
SERVICES, INC. AS OF AND FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 3,614,362
<INT-BEARING-DEPOSITS> 261,948
<FED-FUNDS-SOLD> 1,975,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,807,486
<INVESTMENTS-CARRYING> 999,340
<INVESTMENTS-MARKET> 999,340
<LOANS> 52,690,306
<ALLOWANCE> 563,305
<TOTAL-ASSETS> 66,175,462
<DEPOSITS> 59,090,540
<SHORT-TERM> 0
<LIABILITIES-OTHER> 525,057
<LONG-TERM> 0
0
0
<COMMON> 8,417,117
<OTHER-SE> (1,825,627)
<TOTAL-LIABILITIES-AND-EQUITY> 66,175,462
<INTEREST-LOAN> 3,062,623
<INTEREST-INVEST> 307,950
<INTEREST-OTHER> 177,279
<INTEREST-TOTAL> 3,547,852
<INTEREST-DEPOSIT> 1,834,932
<INTEREST-EXPENSE> 1,834,932
<INTEREST-INCOME-NET> 1,712,920
<LOAN-LOSSES> 191,942
<SECURITIES-GAINS> 15,402
<EXPENSE-OTHER> 1,672,296
<INCOME-PRETAX> 79,972
<INCOME-PRE-EXTRAORDINARY> 79,972
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 79,972
<EPS-BASIC> 0.42
<EPS-DILUTED> 0.38
<YIELD-ACTUAL> 7.71
<LOANS-NON> 148,846
<LOANS-PAST> 2,626,775
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 562,747
<CHARGE-OFFS> 191,942
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 563,305
<ALLOWANCE-DOMESTIC> 643,572
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 80,267
</TABLE>
