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, 2000
[ ] 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
------------------------------ (I.R.S. Employer
(State or other jurisdiction of Identification No.)
incorporation or organization)
13925 West North Avenue
Brookfield, Wisconsin 53005
---------------------------
(Address of principal executive offices)
262-789-1011
----------------------
(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, 2000
----- ------------------------------------
Common Stock, no par value 876,492
Transitional Small Business Disclosure Format: Yes No X
-------- ---------
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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, 2000 and December 31, 1999................... 1
Consolidated Statements of Income
For the Three Months and Nine Months Ended September 30,
2000 and 1999 ............................................. 2
Consolidated Statements of Cash Flows
For the Nine Months Ended September 30, 2000 and 1999...... 3
Consolidated Statements of Stockholders' Equity
For the Nine Months Ended September 30, 2000 and 1999...... 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........................... 10
SIGNATURES .................................................................. 11
EXHIBIT INDEX ............................................................... 12
<PAGE>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
RIDGESTONE FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
September 30, 2000 and December 31, 1999
September 30, December 31,
2000 1999
(Unaudited)
-------------- ---------------
ASSETS
Cash and due from banks $ 2,853,725 $ 2,400,560
Interest-bearing deposits in banks 239,457 264,024
Federal funds sold 9,841,000 4,532,173
Investments - Held to Maturity
(fair value Sept 2000 $248,650
and Dec 1999 $995,203) 250,000 999,381
Investments - Available for Sale 59,177 128,500
Loans receivable 53,944,386 51,692,567
Less: Allowance for estimated loan losses (696,206) (653,270)
------------ ------------
Net loans receivable 53,248,180 51,039,297
------------ ------------
Mortgage loans held for sale 207,955 136,000
Office building and equipment, net 2,593,552 1,352,995
Other real estate owned 706,214 905,938
Cash surrender value of life insurance 2,014,401 1,942,672
Accrued interest & other assets 1,068,337 1,136,683
------------ ------------
Total assets $ 73,081,998 $ 64,838,223
============ ============
LIABILITIES AND STOCKHOLDERS'
EQUITY LIABILITIES
Deposits:
Demand $ 9,646,709 $ 10,935,647
Savings, NOW and other time deposits 55,651,981 46,528,744
------------ ------------
Total deposits 65,298,690 57,464,391
Accrued interest & other liabilities 994,124 712,424
------------ ------------
Total liabilities 66,292,814 58,176,815
------------ ------------
STOCKHOLDERS' EQUITY
Common stock, no par value:
10,000,000 shares authorized:
876,492 issued and outstanding 8,417,117 8,417,117
Retained deficit (1,568,882) (1,717,271)
Accumulated other comprehensive loss (59,051) (38,438)
------------ ------------
Total stockholders' equity 6,789,184 6,661,408
------------ ------------
Total liabilities and stockholders' equity $ 73,081,998 $ 64,838,223
============ ============
1
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<TABLE>
RIDGESTONE FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Three and Nine Months Ended September 30, 2000 and 1999
(Unaudited)
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Interest income
Interest and fees on loans $ 1,238,646 $ 1,103,337 $ 3,628,512 $ 3,062,623
Interest on securities 8,707 103,761 49,263 307,950
Interest on federal funds sold 106,935 27,120 170,188 173,330
Interest on deposits in banks 1,905 2,057 5,888 3,949
----------- ----------- ----------- -----------
Total interest income 1,356,193 1,236,275 3,853,851 3,547,852
----------- ----------- ----------- -----------
Interest expense
Interest on deposits 752,724 601,155 1,971,898 1,834,932
----------- ----------- ----------- -----------
Net interest income before
provision for loan losses 603,469 635,120 1,881,953 1,712,920
Provision for loan losses 0 125,000 42,500 192,500
----------- ----------- ----------- -----------
Net interest income after
provision for loan losses 603,469 510,120 1,839,453 1,520,420
----------- ----------- ----------- -----------
Non interest income
Secondary market loan fees 4,784 11,253 15,447 49,690
Rental income 22,987 0 22,987 0
Service charges on deposit accts 23,904 28,809 73,029 60,561
Miscellaneous 31,483 47,307 162,701 136,999
----------- ----------- ----------- -----------
Total non interest income 83,158 87,369 274,164 247,250
----------- ----------- ----------- -----------
Non interest expense
Salaries and employee benefits 303,733 263,579 918,113 783,181
Occupancy and equipment exp 120,082 113,989 384,714 319,231
Loss (gain) on sale of other r.e (5,000) 14,065 (26,591) 38,822
Loss on sale of AFS securities 0 0 9,164 15,402
Other expense 210,592 178,274 625,769 531,062
----------- ----------- ----------- -----------
Total non interest expense 629,407 569,907 1,911,169 1,687,698
----------- ----------- ----------- -----------
Income before income taxes 57,220 27,582 202,448 79,972
Income taxes (benefit) 14,067 (94,840) 54,059 (290,850)
----------- ----------- ----------- -----------
Net income $ 43,153 $ 122,422 $ 148,389 $ 370,822
=========== =========== =========== ===========
Earnings per share
Basic $ .05 $ .14 $ .17 $ .42
Diluted $ .05 $ .14 $ .17 $ .42
Weighted average shares outstanding 876,492 876,492 876,492 876,492
</TABLE>
2
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<TABLE>
RIDGESTONE FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended September 30, 2000 and 1999
(Unaudited)
<CAPTION>
Nine Months Ended
September 30, September 30,
2000 1999
------------- --------------
<S> <C> <C>
Cash Flows From Operating Activities:
Net Income $ 148,389 $ 370,822
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 150,325 113,490
Loss (gain) on sale of other real estate (26,591) 38,222
Loss on sale of investment securities 9,164 15,402
Provision for loan losses 42,500 192,500
Charges to loan losses (24,154) 0
Recoveries to loan losses 24,590 0
Accretion/Amortization of securities - net (619) 603
(Increase) decrease in assets
Net (increase) decrease in mortgage loans
held for sale (71,955) 259,000
Interest receivable 330,338 (22,563)
Other assets (333,721) (496,247)
Increase (decrease) in liabilities:
Accrued interest 180,305 (226,264)
Other liabilities 101,395 136,786
------------ ------------
Total adjustments 381,577 10,929
------------ ------------
Net cash provided by operating activities 529,966 381,751
------------ ------------
Cash Flows From Investing Activities:
Net (increase) decrease in interest-bearing deposits 24,567 (259,299)
Net (increase) decrease in federal funds sold (5,308,827) 10,550,000
Proceeds from sale of available for sale securities 53,088 80,548
Purchase of available for sale securities (13,542) (1,796,860)
Proceeds from maturities of held to maturity
securities 750,000 1,500,000
Purchase of held to maturity securities 0 (250,000)
Net proceeds on other real estate 226,315 224,398
Purchases of premises and equipment (1,390,882) (112,361)
Net (increase) in loans (2,251,819) (4,013,171)
------------ ------------
Net cash provided by (used in) investing activities (7,911,100) 5,923,255
------------ ------------
Cash Flows From Financing Activities:
Net increase (decrease) in deposits 7,834,299 (5,432,316)
------------ ------------
Net cash provided by (used in) financing activities 7,834,299 (5,432,316)
------------ ------------
Net increase in cash and due from banks 453,165 872,690
Cash and due from banks, beginning 2,400,560 2,741,672
------------ ------------
Cash and due from banks, ending $ 2,853,725 $ 3,614,362
============ ============
Supplemental disclosure of cash flow information
Cash paid during the period or:
Interest $ 1,791,593 $ 2,061,196
Income taxes $ 54,059 $ 0
</TABLE>
3
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<TABLE>
RIDGESTONE FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Nine Months Ended September 30, 2000 and 1999
(Unaudited)
<CAPTION>
Accumulated
Other
Common Retained Comprehensive
Stock Earnings Income (Loss) Total
----- -------- ------------- -----
<S> <C> <C> <C> <C>
Balances, December 31, 1998 $ 8,417,117 $(2,196,449) $ (22,524) $ 6,198,144
Comprehensive income:
Net income 370,822 370,822
Unrealized gain (loss)
on available for sale securities 482 482
Reclassification adjustment for
gains (losses) realized in net income (15,402) (15,402)
Income tax effect 5,819 5,819
Total comprehensive income 361,721
Balances, September 30, 1999 $ 8,417,117 $(1,825,627) $ (31,625) $ 6,559,865
=========== =========== =========== ===========
Balances, December 31, 1999 $ 8,417,117 $(1,717,271) $ (38,438) $ 6,661,408
Comprehensive income:
Net income 148,389 148,389
Unrealized gain (loss)
on available for sale securities (24,628) (24,628)
Reclassification adjustment for
gains (losses) realized in net income (9,164) (9,164)
Income tax effect 13,179 13,179
Total comprehensive income 127,776
Balances, September 30, 2000 $ 8,417,117 $(1,568,882) $ (59,051) $ 6,789,184
=========== =========== =========== ===========
</TABLE>
4
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RIDGESTONE FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2000 and 1999
(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 three and nine months ended September 30, 2000 are not
necessarily indicative of the results that may be expected for the year ended
December 31, 2000. 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, 1999.
NOTE 2 - PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of the
Company and its wholly owned subsidiary, Ridgestone 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, 2000 and September 30, 1999 have been
presented.
5
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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.
During the third quarter of fiscal 2000, the Bank agreed to enter into a
Memorandum of Understanding (the "Memorandum") with the Federal Deposit
Insurance Corporation and the State of Wisconsin Department of Financial
Institutions, as previously disclosed. Management has devoted significant time
to the issues raised by the Memorandum and believes that the Bank is in
compliance with substantially all of the conditions and covenants contained in
the Memorandum and intends to continue to comply therewith. Management does not
currently anticipate that the Memorandum will result in any material adverse
effect on the results of operations or financial condition of the Company or the
Bank.
In October 2000, the Bank received regulatory approval to form a real estate
subsidiary. Management intends to utilize this subsidiary in liquidating the
parcel of property the Bank acquired in October 1997 when the entity owning the
underlying real estate assets securing a loan with the Bank filed for
bankruptcy.
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, 2000.
Financial Condition
Total Assets. Total assets of the Company as of September 30, 2000 were
$73,081,998 compared to $64,838,223 as of December 31, 1999.
Cash and Cash Equivalents. Cash and due from banks 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 $3,093,182
at September 30, 2000, compared to $2,664,584 as of December 31, 1999. The Bank
reported $9,841,000 of federal funds sold (which are inter-bank funds with daily
liquidity) as of September 30, 2000 compared to $4,532,173 as of December 31,
1999. The $428,598 increase in cash and due from banks and interest-bearing
deposits and the $5,308,827 increase in federal funds sold were primarily a
result of deposit growth during the period resulting from the Company's
marketing efforts to increase deposits to better match deposit growth with
increased loan demand.
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
held-to-maturity securities portfolio was $250,000 at September 30, 2000
compared to $999,381 at December 31, 1999, a decrease of $749,381. The decrease
was primarily a result of maturing securities. The available-for-sale securities
portfolio was $59,177 at September 30, 2000 compared to $128,500 at December 31,
1999.
6
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Loans. Total loans prior to the allowance for estimated loan losses were
$53,944,386 as of September 30, 2000, compared to $51,692,567 as of December 31,
1999, an increase of $2,251,819 or 4%.
At September 30, 2000, the mix of the loan portfolio included Commercial loans
of $18,140,000 or 33% of total loans; Commercial Real Estate loans of
$13,804,000 or 26% of total loans; Residential Real Estate loans of $19,770,000
or 37% of total loans; and Consumer loans of $2,230,000 or 4% of total loans.
At December 31, 1999, the mix of the loan portfolio included Commercial loans of
$19,086,000 or 37% of total loans; Commercial Real Estate loans of $13,948,000
or 27% of total loans; Residential Real Estate loans of $15,656,000 or 30% of
total loans; and Consumer loans of $3,002,000 or 6% of total loans.
Some loans were reclassified during 2000 to conform more closely to regulatory
reporting classifications. The balances shown above reflect this
reclassification.
Allowance for Loan Losses. The allowance for estimated loan losses was $696,206
or 1.29% of gross loans on September 30, 2000, compared to $653,270 or 1.26 % of
gross loans at December 31, 1999. In accordance with Financial Accounting
Standards Board 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 2000, the Bank charged $8,847 against the loan loss
reserve, which related to a consumer loan charge-off and a business loan related
to a customer that declared bankruptcy. During the third quarter of 2000, the
Bank recovered $24,590 related to a prior loan charge-off which was added to the
loan loss reserve.
On September 30, 2000, the Company had $706,214 in Other Real Estate Owned
compared to $905,938 on December 31, 1999. The decrease was the result of the
sale of certain real estate assets owned by the Bank.
Deposits. In early 2000, the Bank began a marketing campaign directed towards
increasing deposits. The Bank was successful in generating deposit growth of
$7,834,299 or 14%, with total deposits as of September 30, 2000 at $65,298,690
compared to $57,464,391 at December 31, 1999.
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 loan-to-deposit funds ratio prior to
loan loss reserve on September 30, 2000 was 82.61% compared to 89.96% at
December 31, 1999.
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
7
<PAGE>
liabilities. Changes in net interest income also arise from changes in the mix
of interest-earning assets and interest-bearing liabilities.
Results of Operations
Net Income. Net income before income taxes for the three-month period ended
September 30, 2000 increased by $29,638, or 107%, to $57,220 as compared to net
income before income taxes of $27,582 in the same period of 1999. For the
nine-month period ended September 30, 2000, the Company reported net income
before income taxes of $202,448, up 153% as compared to net income before income
taxes of $79,972 for the nine months ended September 30, 1999.
For the three-month period ended September 30, 2000, the Company reported
after-tax net income of $43,153, compared to after-tax net income of $122,422
for the three months ended September 30, 1999. After-tax net income was $148,389
for the nine months ended September 30, 2000 as compared to after-tax net income
of $370,822 for the same period in 1999.
During the three and nine months ended September 30, 1999, the Company
recognized an income tax benefit of $94,840 and $290,850, respectively, related
to the carryforward of prior years' losses. As of the end of 1999, all of the
Company's loss carryforward benefits had been recognized. As a result, after-tax
earnings for the three and nine months ended September 30, 2000 do not include a
tax benefit, but rather a tax expense.
Net Interest Income. Net interest income before provision for loan losses for
the three and nine months ended September 30, 2000 was $603,469 and $1,881,953
compared to $635,120 and $1,712,920 for the same periods in 1999, a decline of
5% and an improvement of 10% respectively, in each period. The Company's net
interest margin improved from 3.73% at September 30, 1999 to 4.27% at September
30, 2000. Total interest income for the three and nine months ended September
30, 2000 increased by $119,918 and $305,999 respectively, as compared with the
same periods in 1999, while total interest expense increased by $151,569 for the
three months ended September 30, 2000 and increased by $136,966 for the nine
months ended September 30, 2000.
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. During the three month
period ended September 30, 2000, management felt the loan loss reserve was
adequate, and therefore no provision was made to the loan loss reserve in the
third quarter.
Non-Interest Income. Total non-interest income was $83,158 for the three months
ended September 30, 2000 compared to $87,369 for the same period in 1999, a
decrease of 5%. Total non-interest income was $274,164 for the nine months ended
September 30, 2000 compared to $247,250 for the same period in 1999, an increase
of 11%. This was due to lower mortgage loan demand which caused secondary market
mortgage fee income to decline from the prior year, offset by an increase in
brokerage services fee income and rental income from the building the Bank
purchased in May 2000 which houses the Bank premises.
Non-Interest Expense. Total non-interest expenses (excluding any gains or losses
on the sale of securities and assets) were $634,407 for the three months ended
September 30, 2000 compared to $555,842 for the same period in 1999, an increase
of 14%. Total non-interest expenses (excluding any gains or losses on the sale
of securities and assets) were $1,928,596 for the nine months ended September
30, 2000 compared to $1,633,474 for the same period in 1999, an increase of 18%.
The increase in non-interest expenses is primarily attributed to higher salary
expense relating to increased staffing in the loan area and additional expenses
related to the purchase of the building housing the Bank premises. Also, as
8
<PAGE>
the Bank continues to grow, the expenses associated with its audit are
increasing which led the Bank to begin accruing those expenses throughout the
year as opposed to paying them as incurred. As a result, operating expenses in
the third quarter of 2000 include additional accrued expenses associated with
the upcoming audit as well as certain overlapping expenses associated with the
1999 audit.
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, 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.
9
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PART II - OTHER INFORMATION
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, 2000.
10
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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 14, 2000 /s Paul E.Menzel
------------------------- ----------------
Paul E. Menzel
President
Date: November 14, 2000 /s/ William R. Hayes
------------------------- --------------------
William R. Hayes
Vice President and Treasurer
11
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EXHIBIT INDEX
Exhibit Number
a. Exhibits
27 Financial Data Schedule
(EDGAR version only)
12
