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, 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
------------------------------- ------------------
(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)
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 June 30, 2000
----- -------------------------------
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, 2000 and December 31, 1999............................. 1
Consolidated Statements of Income
For the Three Months and Six Months
Ended June 30, 2000 and 1999 ................................. 2
Consolidated Statements of Cash Flows
For the Six Months Ended June 30, 2000 and 1999................. 3
Consolidated Statements of Stockholders' Equity
For the Six Months Ended June 30, 2000 and 1999................. 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............. 9
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
June 30, 2000 and December 31, 1999
June 30, December 31,
2000 1999
(Unaudited)
----------- ------------
ASSETS
Cash and due from banks $ 2,069,834 $ 2,400,560
Interest-bearing deposits in banks 237,551 264,024
Federal funds sold 4,057,000 4,532,173
Investments - Held to Maturity
(fair value Jun 2000 $491,738 and
Dec 1999 $995,203) 499,710 999,381
Investments - Available for Sale 61,552 128,500
Loans receivable 55,593,871 51,692,567
Less: Allowance for estimated loan losses (680,463) (653,270)
----------- -----------
Net loans receivable 54,913,408 51,039,297
----------- -----------
Mortgage loans held for sale 97,375 136,000
Office building and equipment, net 2,640,314 1,352,995
Other real estate owned 706,214 905,938
Cash surrender value of life insurance 1,991,616 1,942,672
Accrued interest & other assets 1,184,373 1,136,683
----------- -----------
Total assets $68,458,947 $64,838,223
=========== ===========
LIABILITIES AND STOCKHOLDERS'
EQUITY LIABILITIES
Deposits:
Demand $9,621,887 $10,935,647
Savings, NOW and other time deposits 51,203,376 46,528,744
----------- -----------
Total deposits 60,825,263 57,464,391
Accrued interest & other liabilities 885,278 712,424
----------- -----------
Total liabilities 61,710,541 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 (1,612,034) (1,717,271)
Accumulated other comprehensive loss (56,677) (38,438)
----------- -----------
Total stockholders' equity 6,748,406 6,661,408
----------- -----------
Total liabilities and stockholders' equity $68,458,947 $64,838,223
=========== ===========
1
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<TABLE>
RIDGESTONE FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Three and Six Months Ended June 30, 2000 and 1999
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest income
Interest and fees on loans $1,263,709 $1,009,133 $2,389,866 $1,959,286
Interest on securities 8,702 34,959 40,556 146,210
Interest on federal funds sold 34,856 121,782 63,253 204,189
Interest on deposits in banks 1,924 1,750 3,983 1,892
----------- ----------- ----------- -----------
Total interest income 1,309,191 1,167,624 2,497,658 2,311,577
----------- ----------- ----------- -----------
Interest expense
Interest on deposits 627,481 607,091 1,219,174 1,233,777
----------- ----------- ----------- -----------
Net interest income before 681,710 560,533 1,278,484 1,077,800
Provision for loan losses 30,000 60,000 42,500 67,500
----------- ----------- ----------- -----------
Net interest income after
provision for loan losses 651,710 500,533 1,235,984 1,010,300
----------- ----------- ----------- -----------
Non interest income
Secondary market loan fees 4,954 18,263 10,663 38,437
Service charges on deposit accts 25,981 18,618 49,125 31,752
Miscellaneous 82,147 44,714 131,218 89,693
----------- ----------- ----------- -----------
Total non interest income 113,082 81,595 191,006 159,882
----------- ----------- ----------- -----------
Non interest expense
Salaries and employee benefits 305,512 212,946 614,380 519,602
Occupancy and equipment exp 148,365 114,401 264,632 205,242
(Gain) on sale of other real estate (15,380) 0 (21,591) 0
Loss on sale of AFS securities 0 0 9,164 15,402
Other expense 230,743 222,520 415,176 377,544
----------- ----------- ----------- -----------
Total non interest expense 669,240 549,867 1,281,761 1,117,790
----------- ----------- ----------- -----------
Income before income taxes 95,552 32,261 145,229 52,392
Income taxes (benefit) 29,305 (121,060) 39,992 (196,010)
----------- ----------- ----------- -----------
Net income $ 66,247 $ 153,321 $ 105,237 $ 248,402
=========== =========== =========== ===========
Earnings per share
Basic $ .08 $ .17 $ .12 $ .28
Diluted $ .08 $ .17 $ .12 $ .28
Weighted average shares outstanding 876,492 876,492 876,492 876,492
</TABLE>
2
<PAGE>
RIDGESTONE FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2000 and 1999
(Unaudited)
Six Months Ended
June 30, June 30,
2000 1999
-------- --------
Cash Flows From Operating Activities:
Net Income $ 105,237 $ 248,402
Adjustments to reconcile net income
to net cash provided by (used in)
operating activities:
Depreciation 92,005 73,019
Gain on sale of real estate (21,591) 0
Loss on sale of investment securities 9,164 15,402
Provision for loan losses 42,500 67,500
Charges to loan losses (15,307) (180,363)
Accretion/Amortization of
securities - net (329) 265
(Increase) decrease in assets
Net decrease in mortgage loans
held for sale 38,625 259,000
Interest receivable 350,132 (12,396)
Other assets (446,767) (935,672)
Increase (decrease) in liabilities:
Accrued interest 231,079 (47,711)
Other liabilities (58,225) 178,804
------------ ------------
Total adjustments 221,286 (582,152)
------------ ------------
Net cash provided by (used in)
operating activities 326,523 (333,750)
------------ ------------
Cash Flows From Investing Activities:
Net (increase) decrease in interest-
bearing deposits 26,473 (257,243)
Net decrease in federal funds sold
and securities purchased under
agreements to resell 475,173 5,068,000
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 500,000 500,000
Net proceeds on other real estate 221,315 354,053
Purchases of premises and equipment (1,379,324) (76,015)
Net (increase) in loans (3,901,304) (807,173)
------------ ------------
Net cash provided by (used in)
investing activities (4,018,121) 3,065,310
------------ ------------
Cash Flows From Financing Activities:
Net increase (decrease) in deposits 3,360,872 (3,584,419)
------------ ------------
Net cash provided by (used in)
financing activities 3,360,872 (3,584,419)
------------ ------------
Net (decrease) increase in cash and
due from banks (330,726) (852,859)
Cash and due from banks, beginning 2,400,560 2,741,672
------------ ------------
Cash and due from banks, ending $ 2,069,834 $ 1,888,813
============ ============
Supplemental disclosure of
cash flow information
Cash paid during the period for:
Interest $ 988,095 $ 1,241,488
Income taxes $ 39,992 $ 0
3
<PAGE>
<TABLE>
RIDGESTONE FINANCIAL SERVICES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Six Months Ended June 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 248,402 248,402
Unrealized gain (loss)
on available for sale securities 2,887 2,887
Reclassification adjustment
for gains (losses) realized
in net income 4,515 4,515
Income tax effect (2,887) (2,887)
Total comprehensive income 252,917
Balances, June 30, 1999 $8,417,117 $(1,948,047) $(18,009) $6,451,061
========== ============ ========= ===========
Balances, December 31, 1999 $8,417,117 $(1,717,271) $(38,438) $6,661,408
Comprehensive income:
Net income 105,237 105,237
Unrealized gain (loss)
on available for sale securities (20,736) (20,736)
Reclassification adjustment
for gains (losses) realized
in net income (9,164) (9,164)
Income tax effect 11,661 11,661
Total comprehensive income 86,998
Balances, June 30, 2000 $8,417,117 $(1,612,034) $(56,677) $6,748,406
========== ============ ========= ===========
</TABLE>
4
<PAGE>
RIDGESTONE FINANCIAL SERVICES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 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 six months ended June 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 six months and cash flows for
the six months ended June 30, 2000 and June 30, 1999 have been presented.
5
<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.
During the third quarter of fiscal 2000, the Federal Deposit Insurance
Corporation ("FDIC") and the State of Wisconsin Department of Financial
Institutions (the "State") requested that the Bank enter into a proposed
Memorandum of Understanding (the "Memorandum") with the FDIC and the State.
Management has devoted significant time to the issues raised by the Memorandum
and believes that the Bank is currently or shortly will be 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.
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, 2000.
Financial Condition
Total Assets. Total assets of the Company as of June 30, 2000 were $68,458,947
compared to $64,838,223 as of December 31, 1999.
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 $2,307,385 at June 30, 2000,
compared to $2,664,584 as of December 31, 1999. The Bank reported $4,057,000 of
federal funds sold (which are inter-bank funds with daily liquidity) as of June
30, 2000 compared to $4,532,173 as of December 31, 1999. The $357,199 decrease
in cash and the $475,173 decrease in federal funds sold were primarily a result
of the Bank utilizing cash to (i) fund loan growth; (ii) purchase the building
the Company had previously leased for use as the Bank's main office and the
Company's headquarters; and (iii) remodel additional retail space which became
available within the building.
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 $499,710 at June 30, 2000 compared to
$999,381 at December 31, 1999, a decrease of $499,671. The decrease was
primarily a result of cash from maturing securities being used to fund loan
growth and to purchase the building the Company had previously leased for use as
the Bank's main office and the Company's headquarters. The available-for-sale
securities portfolio was $61,552 at June 30, 2000 compared to $128,500 at
December 31, 1999.
Loans. Total loans prior to the allowance for estimated loan losses were
$55,593,871 as of June 30, 2000, compared to $51,692,567 as of December 31,
1999, an increase of $3,901,304 or 8%.
At June 30, 2000, the mix of the loan portfolio included Commercial loans of
$20,576,000 or 36% of total loans; Commercial Real Estate loans of $13,851,000
or 25% of total loans; Residential Real Estate loans of $18,649,000 or 34% of
total loans; and Consumer loans of $2,518,000 or 5% 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.
6
<PAGE>
Some loans were reclassified during 2000 to conform more closely to regulatory
reporting classifications. The balances shown above reflect this
re-classification.
Allowance for Loan Losses. The allowance for estimated loan losses was $680,463
or 1.22% of gross loans on June 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 second quarter of 2000, the Bank charged $15,307 against the loan loss
reserve which related to a consumer loan charge-off and a business loan related
to a customer who declared bankruptcy.
On June 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
real estate assets owned by the Bank.
Deposits. As of June 30, 2000, total deposits were $60,825,263 compared to
$57,464,391 at December 31, 1999, an increase of $3,360,872 or 6%.
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. The loan-to-deposit funds ratio prior to loan loss reserve on June
30, 2000 was 91% compared to 90% at December 31, 1999. In order to ensure that
liquidity is maintained at an adequate level, in the first quarter of 2000 the
Company began a marketing effort to increase deposits in order to match deposit
growth with increased loan demand. The Company was successful in increasing
deposit growth during the second quarter of 2000 while also increasing the net
interest margin. The Company intends to continue to generate deposit growth to
meet loan demand, while seeking to maintain the net interest margin at
appropriate levels.
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 before income taxes for the three-month period ended June
30, 2000 increased by $63,291, or 196%, to $95,552 as compared to net income
before income taxes of $32,261 in the same period of 1999. For the six month
period ended June 30, 2000, the Company reported net income before income taxes
of $145,229, up 177% as compared to net income before income taxes of $52,392
for the six months ended June 30, 1999.
7
<PAGE>
For the three-month period ended June 30, 2000, the Company reported after-tax
net income of $66,247, compared to after-tax net income of $153,321 for the
three months ended June 30, 1999. After-tax net income was $105,237 for the six
months ended June 30, 2000 as compared to after-tax net income of $248,402 for
the same period in 1999. During the three and six months ended June 30, 1999,
the Company recognized an income tax benefit of $121,060 and $196,010,
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 six months ended June 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 six months ended June 30, 2000 was $681,710 and $1,278,484
compared to $560,533 and $1,077,800 for the same periods in 1999, an improvement
of 22% and 19% respectively, in each period. The Company's net interest margin
improved from 3.52% at June 30, 1999 to 4.47% at June 30, 2000. Total interest
income for the three and six months ended June 30, 2000 increased by $141,567
and $186,081 respectively, as compared with the same periods in 1999, while
total interest expense increased by $20,390 for the three months ended June 30,
2000 and decreased by $14,603 for the six months ended June 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 six month
period ended June 30, 2000, a $42,500 provision was made to the loan loss
reserve to build the reserve to adequate levels in light of recent loan growth.
Non-Interest Income. Total non-interest income was $113,082 for the three months
ended June 30, 2000 compared to $81,595 for the same period in 1999, an increase
of 39%. Total non-interest income was $191,006 for the six months ended June 30,
2000 compared to $159,882 for the same period in 1999, an increase of 19%.
Rising interest rates slowed mortgage volume, causing a decline in secondary
market loan fees, which were offset by gains in fee income primarily from retail
brokerage sales and deposit fees.
Non-Interest Expense. Total non-interest expenses (excluding any gains or losses
on the sale of securities and assets) were $684,620 for the three months ended
June 30, 2000 compared to $549,867 for the same period in 1999, an increase of
25%. Total non-interest expenses (excluding any gains or losses on the sale of
securities and assets) were $1,294,188 for the six months ended June 30, 2000
compared to $1,102,388 for the same period in 1999, an increase of 17%. The
increase in non-interest expenses is primarily attributed to increased salary
expense relating to increased staffing in the loan area.
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.
8
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Company's annual meeting of shareholders held on April 25, 2000, the
following individuals were elected to the Board of Directors to hold office
until the 2003 annual meeting of shareholders and until their successors are
duly elected and qualified:
Authority to
Directors Shares Voted For Vote Withheld
Gregory J. Hoesly 861,504 8,825
Christine V. Lake 861,504 8,825
Richard A. Streff 861,504 8,825
William J. Tetzlaff 861,504 8,825
The following table sets forth the other directors of the Company whose terms of
office continued after the 2000 annual meeting:
Name of Director Year in Which Term Expires
William F. Krause, Jr. 2001
Paul E. Menzel 2001
Charles G. Niebler 2001
James E. Renner 2001
Bernard E. Adee 2002
William R. Hayes 2002
John E. Horning 2002
9
<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 June 30, 2000.
10
<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 14, 2000 /s/ Paul E.Menzel
------------------- -----------------------------------
Paul E. Menzel
President
Date: August 14, 2000 /s/ William R. Hayes
------------------- -----------------------------------
William R. Hayes
Vice President and Treasurer
11
<PAGE>
EXHIBIT INDEX
Exhibit Number
a. Exhibits
27 Financial Data Schedule
(EDGAR version only)
12
