U.S. SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                   FORM 10-KSB

[x]      ANNUAL  REPORT  PURSUANT  TO  SECTION  13 OR  15(d)  OF THE  SECURITIES
         EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 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.
                 (Name of small business issuer 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)                     (Zip Code)

Issuer's telephone number: (262) 789-1011

Securities registered under Section 12(b) of the Act:  None

Securities registered under Section 12(g) of the Exchange Act:

                           Common Stock, no par value
                                (Title of class)

         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   .
                                                                      ---   ---

         Check if  disclosure  of  delinquent  filers in response to Item 405 of
Regulation  S-B is not  contained  in  this  form,  and no  disclosure  will  be
contained,  to the  best of  registrant's  knowledge,  in  definitive  proxy  or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10KSB. [ ]

Issuer's revenues for its most recent fiscal year:  $5,144,012

Aggregate market value of voting stock held by  non-affiliates  of the issuer as
of February 1, 2000: $5,330,822

Number of shares of common stock,  no par value,  outstanding  on March 1, 2000:
876,492

                       DOCUMENTS INCORPORATED BY REFERENCE

Proxy Statement for the 2000 Annual Meeting (incorporated by reference into Part
III)

Transitional Small Business Disclosure Format:  Yes    ; No  X
                                                    ---     ---


<PAGE>



                       Ridgestone Financial Services, Inc.

                                 Index to Annual
                              Report on Form 10-KSB
                   For The Fiscal Year Ended December 31, 1999

                                                                            Page


Part I .......................................................................1
         Item 1.   Description of Business....................................1
         Item 2.   Description of Property....................................8
         Item 3.   Legal Proceedings..........................................8
         Item 4.   Submission of Matters to a Vote of Security Holders........8

Part II ......................................................................8
         Item 5.   Market for Common Equity and Related Stockholder
                     Matters .................................................8
         Item 6.   Management's Discussion and Analysis.......................9
         Item 7.   Financial Statements......................................24
         Item 8.   Changes In and Disagreements With Accountants
                     on Accounting and Financial Disclosure..................53

Part III ....................................... ............................53
         Item 9.   Directors, Executive Officers, Promoters and
                   Control Persons; Compliance With Section 16(a)
                     of the Exchange Act ....................................53
         Item 10.  Executive Compensation....................................53
         Item 11.  Security Ownership of Certain Beneficial Owners
                     and Management..........................................53
         Item 12.  Certain Relationships and Related Transactions............53
         Item 13.  Exhibits and Reports on Form 8-K..........................53

SIGNATURES...................................................................54



                                        i

<PAGE>


Part I

Item 1.  Description of Business

General

Ridgestone  Financial  Services,   Inc.  (the  "Company")  was  incorporated  in
Wisconsin on May 25,  1994.  The Company was formed to acquire all of the issued
and  outstanding  stock of  Ridgestone  Bank (the  "Bank")  and to engage in the
business of a bank holding  company under the Bank Holding  Company Act of 1956,
as amended (the "BHCA").  The organizers  received a certificate of authority to
organize the Bank from the Wisconsin Commissioner of Banking on May 9, 1995. The
organizers'  application  for deposit  insurance was approved on May 24, 1995 by
the  Federal  Deposit  Insurance  Corporation   ("FDIC"),   subject  to  certain
conditions  including  conditions  related to capital  adequacy.  The  Company's
application  to become a bank  holding  company for the Bank was approved by the
Federal  Reserve  Board on July 20,  1995.  In November  1995,  the Company sold
834,340 shares of its common stock, no par value, in an initial public offering.
The net proceeds received by the Company in this offering totaled  approximately
$7.8  million.  The Bank was  capitalized  on  December 6, 1995,  and  commenced
operations on December 7, 1995.

The Bank provides  full-service  commercial and consumer banking services in its
primary market areas of Brookfield, Elm Grove and Wauwatosa, Wisconsin. The Bank
competes  with  other  commercial  banks,   savings  banks,   savings  and  loan
institutions,  credit unions and other financial  service  organizations  in the
three-city  area. The Bank is one of the newest  financial  institutions  in its
market.

The Bank was the first bank in Wisconsin to introduce  full-service  PC banking,
called  RidgeStone  Connect,K to  consumers.  This on-line  service  enables the
Bank's  customers to access  their  accounts in real time,  pay bills,  transfer
funds,  access  lines of  credit,  exchange  e-mail  and view  product  and rate
information. Approximately 49% of the Bank's consumer checking account customers
were enrolled in RidgeStone  ConnectK as of December 31, 1999. In 2000, the Bank
introduced  two  business  versions of  RidgeStone  ConnectK  to its  commercial
clients and plans to offer these PC banking  services  over the  internet in the
near future.

The  Company's  principal  business  is the  business  of the Bank.  The  Bank's
principal business consists of attracting deposits from the public and investing
those deposits in loans and  securities.  The Bank's deposits are insured to the
maximum extent  allowable by the FDIC.  The Company's  results of operations are
dependent primarily on net interest income,  which is the difference between the
interest  earned on its loans and  securities and the interest paid on deposits.
The  Company's  operating  results are affected by deposit  service  charges and
other income.  Operating  expenses of the Company include employee  compensation
and benefits, occupancy and equipment expense,  professional and data processing
fees, advertising and marketing expenses, and other administrative expenses. The
Company's  operating  results  are also  affected by  economic  and  competitive
conditions,  particularly  changes in interest  rates,  government  policies and
actions of regulatory authorities.

In 1996, the Bank received regulatory approval to open its first branch at 15565
W. North  Avenue,  Brookfield,  Wisconsin.  The branch  opened for  business  on
January 2, 1997 and houses a  drive-thru  branch  banking  facility  and banking
operations center.

Special Note Regarding Forward-Looking Statements

Certain   matters   discussed   in  this  Annual   Report  on  Form  10-KSB  are
Aforward-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  Abelieves,@
Aanticipates,@   Aexpects,@  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


<PAGE>

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 Annual Report on
Form 10-KSB and the Company  undertakes no  obligation  to publicly  update such
forward-looking statements to reflect subsequent events or circumstances.

Business Strategy

The  Bank's  strategy  is to  concentrate  on the  financial  service  needs  of
individuals and small businesses  providing them with quality service,  products
and on-site  decision  making.  The Bank  pursues  this  strategy by  attracting
highly-qualified  employees and utilizing state-of-the-art  technology,  both in
its  operations  and in the  services it provides its  customers.  The Bank also
directs its marketing efforts toward a customer base it identifies as having the
potential to be highly profitable.

Loan Products

The Bank  offers  a full  range  of  retail  and  commercial  lending  services,
including commercial revolving lines of credit,  residential and commercial real
estate  mortgage  loans,  consumer  loans and  equipment  financing.  These loan
products are discussed below.

Although  the Bank's  management  takes a  competitive  approach to lending,  it
stresses high quality in its loans. To promote such quality  lending,  the Board
of Directors of the Bank has established maximum lending authority for each loan
officer.  Each loan  request  exceeding  a loan  officer's  authority  has to be
approved by one or more senior officers. On a monthly basis, the entire Board of
Directors  of the Bank  reviews  all loans over  $25,000  made in the  preceding
month.  In  addition,  the Loan  Committee of the Board of Directors of the Bank
reviews loans over $250,000 for prior approval when the loan request exceeds the
established  limits of senior  loan  officers.  The Loan  Committee  of the Bank
reviews loans with aggregate  principal  amounts  between the lending  officer's
lending authority and $250,000. The Loan Committee is comprised of the President
of the Bank,  the  Executive  Vice  President  and a Senior  Commercial  Lender.
Because of the Bank's local nature,  management believes that quality control is
achievable while still providing prompt and personal service.

Management of the Bank has established  relationships  with a correspondent bank
and other independent financial  institutions to provide other services required
by its customers,  including loan  participations.  As of December 31, 1999, the
Bank had a lending  limit of  $1,240,000.  The Bank is able to attract  business
loans beyond its lending limit by using bank  participations with other banks in
Wisconsin.  Likewise,  the Bank has  purchased  participations  from  other area
Wisconsin financial institutions.

Real  Estate  Loans.  The Bank  originates  residential  mortgage  loans,  which
generally are long-term with either fixed or variable interest rates. The Bank's
policy is to retain all variable interest rate mortgage loans in the Bank's loan
portfolio  and to sell all fixed rate loans with their  servicing  rights in the
secondary market.  This policy is subject to review by management as a result of
changing market and economic conditions.

The  retention  of  variable-rate  loans in the Bank's loan  portfolio  helps to
reduce the Bank's  exposure to fluctuations  in interest  rates.  However,  such
loans  generally  pose credit risks  different  from the risks inherent in fixed
rate loans,  primarily because as interest rates rise, the interest payments due
from the borrowers rise, thereby increasing the potential for default.

Regulatory and  supervisory  loan-to-value  ("LTV")  limits were  established by
Section 304 of the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA").  The Bank's internal  limitations follow those limits and in certain
cases are more  restrictive  than those  mandated  by the  regulators.  Proof of
insurance is required on all collateral  taken as security  before loan proceeds
are advanced.



                                       2
<PAGE>


The regulatory limits are as follows:

      Loan Category                                                  LTV Limit
      -------------                                                  ---------

      Raw Land                                                        65%

      Land Development                                                75%

      Construction:

          Commercial, multi-family, and non-residential               80%

          1-4 family residential                                      85%

      Improved Property                                               85%

      Owner-occupied 1-4 family and home equity                       90% (1)

(1)  Residential  loans  exceeding the 90% limit may be excluded from  reporting
     requirements  of  FDICIA if  enhanced  by  mortgage  insurance  or  readily
     marketable collateral.

Personal Loans. The Bank makes personal loans,  lines of credit and credit cards
available  to  consumers  for  various   purposes,   such  as  the  purchase  of
automobiles, boats and other recreational vehicles, home improvements, education
and personal investments. The Bank retains substantially all such loans.

Commercial  Loans.  Commercial  loans are made  primarily to small and mid-sized
businesses.  These  loans may be secured or  unsecured,  and are  available  for
general  operating  purposes,  acquisition  of fixed  assets  and  real  estate,
purchases of equipment  and  machinery,  and  financing  inventory  and accounts
receivable.  The Bank generally looks to a borrower's business operations as the
principal source of repayment, but also receives, when appropriate, mortgages on
real estate,  security  interests in inventory,  accounts  receivable  and other
personal property and/or personal guaranties to secure repayment.

The Bank's  commercial  loan  portfolio  totaled  $16,956,230 as of December 31,
1999,  and  consisted  primarily  of lines of credit  and  loans to  businesses.
Commercial  lines of credit are  generally  used for the  purpose  of  financing
working  capital  and  may be  secured  with  current  assets  of the  borrower.
Commercial  loans  are  written  for a period  of  greater  than one  year,  are
amortized  over a period  of five to seven  years and are used  principally  for
financing fixed asset expenditures.  Commercial loans are generally secured with
the fixed assets of the borrower.

Real Estate  Commercial Loans. As of December 31, 1999, the Bank had $14,927,167
of real estate commercial loans outstanding. These loans were generally made for
the purpose of purchasing manufacturing facilities, warehouses, office buildings
and multiple family commercial real estate holdings.

Competition.  The Company has identified as its primary competitors,  offices of
either thrifts,  credit unions or banks  operating in Brookfield,  Elm Grove and
Wauwatosa, Wisconsin.

The Bank also faces  competition from finance  companies,  insurance  companies,
mortgage  companies,  securities  brokerage firms,  money market funds and other
providers of financial  services.  Most of the Bank's  competitors  have been in
business for a number of years, have established  customer bases, are larger and
have higher lending limits than the Bank.

The Bank  competes  for loans  principally  through its  ability to  communicate
effectively and  professionally  with its customers in understanding and meeting
their needs.  Management believes that its personal service philosophy continues
to enhance  its  ability to  compete  favorably  in  attracting  individual  and
business customers. The Bank actively solicits retail customers and competes for
deposits by offering  customers  personal  attention,  professional  service and
competitive interest rates.



                                       3
<PAGE>


Supervision and Regulation

General.  The  operations of financial  institutions,  including  banks and bank
holding companies,  are highly regulated,  both at the federal and state levels.
Numerous  statutes  and  regulations  affect the business of the Company and the
Bank.  To the  extent  that the  information  below is a  summary  of  statutory
provisions,  such  information  is qualified in its entirety by reference to the
statutory provisions described. There are additional laws and regulations having
a direct or indirect effect on the business of the Company or the Bank.

In recent  years,  the banking and  financial  industry  has been the subject of
numerous legislative acts and proposals, administrative rules and regulations at
both federal and state regulatory levels. As a result of many of such regulatory
changes,  the nature of the banking industry in general has changed dramatically
in recent years as increasing  competition and a trend toward  deregulation have
caused  the  traditional   distinctions   among  different  types  of  financial
institutions  to be  obscured.  Further  changes  along these lines could permit
other  financially  oriented  businesses  to offer  expanded  services,  thereby
creating  greater  competition  for the  Company  and the Bank with  respect  to
services  currently  offered  or which  may in the  future be  offered  by those
entities.  Proposals for new legislation or rule making  affecting the financial
services  industry are  continuously  being  advanced and considered at both the
national  and state  levels.  Neither  the  Company nor the Bank can predict the
effect that future legislation or regulation will have on the financial services
industry in general or on their businesses in particular.

The Gramm-Leach-Bliley  Financial Services Modernization Act of 1999 (the "Act")
made significant changes in the laws governing financial institutions, including
changes  which  expand the  permissible  range of  activities  for bank  holding
companies and their affiliates  (including  non-banking  financial  activities);
permit  affiliations  between banks,  securities firms and insurance  companies;
make substantial changes in the regulatory structure for financial institutions;
prohibit  new unitary  savings and loan holding  companies;  make changes to the
Community  Reinvestment Act of 1977; and enact substantial new financial privacy
rules.  The new financial  privacy rules may impose some  additional  regulatory
burden on the Bank. It is too early to make specific  predictions  about how the
Act will otherwise impact the Bank and the Company.

The  performance  and earnings of the Bank,  like other  commercial  banks,  are
affected  not only by general  economic  conditions  but also by the policies of
various governmental regulatory authorities.  In particular, the Federal Reserve
System  regulates  money and credit  conditions  and interest  rates in order to
influence general economic conditions  primarily through open-market  operations
in U.S. Government securities, varying the discount rate on bank borrowings, and
setting reserve requirements against bank deposits.  The policies of the Federal
Reserve System have a significant  influence on overall growth and  distribution
of bank loans,  investments  and deposits,  and affect  interest rates earned on
loans and  investments.  The general  effect,  if any, of such policies upon the
future business and earnings of the Bank cannot accurately be predicted.

The Company.  As a registered  bank holding  company,  the Company is subject to
regulation  under the BHCA.  The BHCA  requires  every bank  holding  company to
obtain the prior  approval  of the Board of  Governors  of the  Federal  Reserve
System (the "Board")  before it may merge with or consolidate  into another bank
holding company,  acquire  substantially  all the assets of any bank, or acquire
ownership or control of any voting shares of any bank if after such  acquisition
it would own or  control,  directly  or  indirectly,  more than 5% of the voting
shares of such bank.

As described  above,  the Act now permits  banks and bank  holding  companies to
engage  in  non-banking  financial  activities.  In  order  for a bank or a bank
holding company to engage in such activities,  however, the bank holding company
must comply with certain  capital and asset  requirements  and elect to become a
financial  holding company with the Federal Reserve Board of Governors.  At this
time,  the Company has not made such an  election,  nor does it plan to do so in
the  immediate  future.  Therefore,  subject to a future  election to  financial
holding company status,  the Company remains under the rules of the BHCA.  Under
the BHCA, the Company is  prohibited,  with certain  exceptions,  from acquiring
direct or indirect  ownership or control of more than 5% of the voting shares of
any  company  which is not a bank or a bank  holding  company,  and  neither the
Company  nor any  subsidiary  may engage in any  business  other  than  banking,
managing or controlling banks or furnishing  services to or performing  services
for its subsidiaries. After notice to or approval of the Board, the Company may,
however, own more than 5% of the shares of a company the activities of which the
Board has



                                       4
<PAGE>


determined to be so closely related to banking or managing or controlling  banks
as to be a proper  incident  thereto,  and the bank holding  company  itself may
engage in such activities. The Company has no pending acquisition plans.

As a registered  bank holding  company,  the Company is supervised and regularly
examined by the Board.  Under the BHCA, the Company is required to file with the
Board an annual report and such additional  information as may be required.  The
Board can order  bank  holding  companies  and their  subsidiaries  to cease and
desist from any actions  which in the  opinion of the Board  constitute  serious
risk to the financial  safety,  soundness or stability of a subsidiary  bank and
are inconsistent with sound banking principles or in violation of law. The Board
has adopted  regulations which deal with the measure of capitalization  for bank
holding companies. Such regulations are essentially the same as those adopted by
the FDIC, described below. The Board's regulations also provide that its capital
requirements   will  generally  be  applied  on  a  bank-only   (rather  than  a
consolidated)  basis in the case of a bank  holding  company with less than $150
million  in total  consolidated  assets.  The  Board  has  also  issued a policy
statement on the payment of cash  dividends by bank holding  companies,  wherein
the  Board  has  stated  that  a  bank  holding  company  experiencing  earnings
weaknesses should not pay cash dividends exceeding its net income or which could
only be funded in ways that weaken the bank holding company's  financial health,
such as by borrowing.

Under  Wisconsin law, the Company is also subject to supervision and examination
by the Wisconsin  Department of Financial  Institutions (the "Department").  The
Department is also empowered to issue orders to a bank holding company to remedy
any condition or policy  which,  in its  determination,  endangers the safety of
deposits  in any  subsidiary  state  bank,  or the  safety  of the  bank  or its
depositors. In the event of noncompliance with such an order, the Department has
the power to direct the  operation  of the state bank  subsidiary  and  withhold
dividends from the holding company.

The Company, as the holder of the stock of a Wisconsin state-chartered bank, may
be subject to assessment to restore  impaired  capital of the Bank to the extent
provided in Section 220.07,  Wisconsin Statutes. Any such assessment would apply
only to the Company and not to any  shareholder of the Company.  The Company has
committed to the Department that if the Bank's contingent fund decreases to less
than  $250,000,  the Company will transfer funds to the Bank's  contingent  fund
sufficient to restore the contingent fund to at least $500,000.

Federal law prohibits the  acquisition of "control" of a bank holding company by
individuals  or business  entities or groups or  combinations  of individuals or
entities acting in concert without prior notice to the appropriate  federal bank
regulator.  For this purpose,  "control" is defined in certain  instances as the
ownership of or power to vote 10% or more of the outstanding  shares of the bank
holding company.

The Bank. As a  state-chartered  institution,  the Bank is subject to regulation
and supervision by the Department and the Wisconsin  Banking Review Board and is
periodically  examined  by the  Department's  staff.  Deposits  of the  Bank are
insured by the Bank Insurance Fund  administered by the FDIC and as a result the
Bank is also subject to regulation by the FDIC and periodically  examined by its
staff.

The  Federal  Deposit  Insurance  Act  requires  that  the  appropriate  federal
regulatory  authority  -- the FDIC in the case of the Bank (as an insured  state
bank  which is not a member  of the  Federal  Reserve  System)  --  approve  any
acquisition  by  it  through  merger,  consolidation,  purchase  of  assets,  or
assumption of deposits. The same regulatory authority also supervises compliance
by the Bank with provisions of federal  banking laws which,  among other things,
prohibit the granting of preferential  loans to executive  officers,  directors,
and principal shareholders of banks which have a correspondent relationship with
one another.

Wisconsin  banking laws restrict the payment of cash dividends by state banks by
providing that (i) dividends may be paid only out of a bank's undivided profits,
and (ii) prior  consent  of the  Department  is  required  for the  payment of a
dividend which exceeds  current year income if dividends  declared have exceeded
net profits in either of the two immediately  preceding  years. The various bank
regulatory  agencies  have  authority to prohibit a bank  regulated by them from
engaging in an unsafe or unsound  practice;  the payment of a dividend by a bank
could, depending upon the circumstances, be considered such an unsafe or unsound
practice.  In the  event  that (i) the FDIC or the  Department  should  increase
minimum



                                       5
<PAGE>


required  levels  of  capital;  (ii)  the  total  assets  of the  Bank  increase
significantly; (iii) the income of the Bank decreases significantly; or (iv) any
combination of the foregoing occurs, then the Board of Directors of the Bank may
decide or be required by the FDIC or the Department to retain a greater  portion
of the Bank's earnings to achieve or maintain the required capital.

Subsidiary  banks of a bank holding company are subject to certain  restrictions
imposed  by the  Federal  Reserve  Act on any  extensions  of credit to the bank
holding  company or any of its  subsidiaries,  on  investments in stock or other
securities  of the bank  holding  company  and on the  taking  of such  stock or
securities  as  collateral  for  loans  to any  borrower.  Under  the  BHCA  and
regulations  of the Board,  a bank  holding  company  and its  subsidiaries  are
prohibited  from engaging in certain tie-in  arrangements in connection with any
extension of credit or of any property or service.

The  activities  and  operations  of banks are subject to a number of additional
detailed,   complex  and  sometimes  overlapping  federal  and  state  laws  and
regulations.  These  include  state usury and consumer  credit laws,  state laws
relating to fiduciaries,  the Federal Truth-in-Lending Act and Regulation Z, the
Federal Equal Credit Opportunity Act and Regulation B, the Fair Credit Reporting
Act, the Financial  Institutions  Reform,  Recovery and Enforcement Act of 1989,
FDICIA,  the Community  Reinvestment  Act,  anti-redlining  legislation  and the
antitrust laws. The Community  Reinvestment Act includes  provisions under which
the  federal  bank  regulatory  agencies  must  consider,   in  connection  with
applications for certain required approvals,  including  applications to acquire
control of a bank or bank holding company or to establish a branch,  the records
of  regulated   financial   institutions  in  satisfying  their  continuing  and
affirmative   obligations   to  help  meet  the  credit  needs  of  their  local
communities, including those of low and moderate-income borrowers.

FDICIA, among other things, establishes five tiers of capital requirements: well
capitalized,    adequately    capitalized,    undercapitalized,    significantly
undercapitalized,   and  critically  undercapitalized.   The  FDIC  has  adopted
regulations  which  define the  relevant  capital  measures for the five capital
categories.  An institution is deemed to be "well capitalized" if it has a total
risk-based  capital  ratio  (total  capital to  risk-weighted  assets) of 10% or
greater,  a Tier I  risk-based  capital  ratio (Tier I Capital to risk  weighted
assets) of 6% or greater, and a Tier I leverage capital ratio (Tier I Capital to
average  assets) of 5% or  greater,  and is not subject to a  regulatory  order,
agreement,  or directive to meet and maintain a specific  capital  level for any
capital measure.  An institution is deemed to be "adequately  capitalized" if it
has a total  risk-based  capital  ratio of 8% or  greater,  a Tier I  risk-based
capital of 4% or greater,  and (generally) a Tier I leverage capital ratio of 4%
or  greater,  and  the  institution  does  not  meet  the  definition  of a well
capitalized institution. An institution is deemed to be "undercapitalized" if it
has a total  risk-based  capital  ratio  less  than 8%,  or a Tier I  risk-based
capital ratio less than 4%, or  (generally) a Tier I leverage ratio of less than
4%. An institution is deemed to be "significantly  undercapitalized" if it has a
total  risk-based  capital  ratio less than 6%, or a Tier I  risk-based  capital
ratio less than 3%, or a Tier I leverage  ratio less than 3%. An  institution is
deemed to be "critically  undercapitalized" if it has a ratio of tangible equity
(as defined in the  regulations)  to total  assets that is equal to or less than
2%. Undercapitalized banks may be subject to growth limitations and are required
to submit a capital  restoration  plan.  If an  undercapitalized  bank  fails to
submit  an  acceptable   plan,  it  is  treated  as  if  it  is   "significantly
undercapitalized."  Significantly  undercapitalized  banks may be  subject  to a
number of requirements  and  restrictions,  including  orders to sell sufficient
voting  stock to become  adequately  capitalized,  requirements  to reduce total
assets,  and  cessation  of  receipt  of  deposits  from  correspondent   banks.
"Critically  undercapitalized"  institutions  may not,  beginning  60 days after
becoming critically undercapitalized,  make any payment of principal or interest
on  their   subordinated   debt.  The  Bank  currently  exceeds  the  regulatory
definitions of a well capitalized financial institution.

The  Riegle-Neal  Interstate  Banking and Branching  Efficiency Act of 1994 (the
"Riegle  Act"),  among other things,  permits bank holding  companies to acquire
banks in any state effective September 29, 1995. The Riegle Act contains certain
exceptions relative to acquisitions. For example, a bank holding company may not
acquire a bank  that has not been in  existence  for less than a minimum  period
established  by the home state;  however,  the minimum period cannot exceed five
years.  The  Riegle  Act makes a  distinction  between  interstate  banking  and
interstate  branching.  Under the  Riegle  Act,  banks can merge  with  banks in
another  state  beginning  June 1,  1997,  unless  a  state  has  adopted  a law
preventing interstate branching.  Under terms of the BHCA, an acquiring bank may
not  control  more than 10 percent  of  federal  or 30  percent  of state  total
deposits of insured depository institutions.  Wisconsin law requires approval by
the Department for all acquisitions of Wisconsin  banks,  whether by an in-state
or out-of-state purchaser and requires, in an interstate  acquisition,  that the
acquired bank must have been in existence for at least five years.



                                       6
<PAGE>


Employees

As of December 31, 1999, the Company and the Bank together employed 17 full-time
and 8 part-time  employees,  including  three  personal  bankers,  an investment
officer, six operations specialists,  seven customer service representatives,  a
cashier,  a  receptionist,  a courier,  two commercial  loan officers,  a senior
officer  in charge of  retail  banking,  a  technology  specialist  and the Bank
president.

Directors and Executive Officers

The  directors  of the  Company  and the Bank as of  February  28,  2000 were as
follows:

Name of Director                            Principal Occupation
----------------                            --------------------

Paul E. Menzel              President and Chief Executive Officer of the Company
                            and the Bank

William R. Hayes            Vice President and Treasurer of the Company and Vice
                            President, Cashier/Controller of the Bank

Christine V. Lake           Vice  President  and  Secretary  of  the Company and
                            Executive  Vice President and  Secretary of the Bank

Charles N. Ackley           Retired

Bernard E. Adee             Senior   Vice   President   of   Marshall  Financial
                            Consulting, LLC

Gregory J. Hoesly           President of  L.L. Richards Machinery  Co., Inc.,  a
                            machine tool dealer

John E. Horning             Chairman of the Board and Chief Executive Officer of
                            Shorewest   Realtors   Inc.,    Wisconsin   Mortgage
                            Corporation, and Heritage Title Service

William F. Krause, Jr.      Retired President of Krause Funeral Home, Inc.

Charles G. Niebler          President of Eye Care Vision Centers

James E. Renner             Owner of Renner Oldsmobile and Renner Mitsubishi

Richard A. Streff           Chairman of the Board of Streff Advertising, Inc.

William J. Tetzlaff         President of Tetzlaff Associates, Inc., a consulting
                            services company; Vice President of Around the Globe
                            Travel, a travel agency

The executive  officers of the Company and the Bank as of February 28, 2000 were
as follows:

Name of Executive Officer                       Position
-------------------------                       --------

Paul E. Menzel              President and Chief Executive Officer of the Company
                            and the Bank

William R. Hayes            Vice President and Treasurer of the Company and Vice
                            President, Cashier/Controller of the Bank

Christine V. Lake           Vice  President  and  Secretary  of the  Company and
                            Executive  Vice  President and Secretary of the Bank



                                       7
<PAGE>


Item 2.  Description of Property

The Company has leased space at 13925 West North Avenue,  Brookfield,  Wisconsin
for use as the Bank's main office and the Company's headquarters.  The lease has
a five-year term with renewal and purchase options.  In 1999, the Bank took over
additional  retail space which became  available within the building housing its
main office.  Once the  remodeling of this  additional  space is completed,  the
Bank's  main  office will  occupy  approximately  7,497  square feet of a larger
shopping mall that houses various retail establishments.

The Bank opened its drive-up branch on January 2, 1997. The branch is located in
a turn-of-the-century  schoolhouse building, which has been renovated to house a
branch banking  facility.  The Company owns this  facility,  which is located on
approximately one acre of land at 15565 W. North Avenue,  Brookfield,  Wisconsin
and has  approximately  1,057 square feet of space.  It provides  four  drive-up
kiosks and room for one drive-up automated teller machine.

Item 3.  Legal Proceedings

Neither the Company nor the Bank is party to any material legal proceedings.

Item 4.  Submission of Matters to a Vote of Security Holders

There were no matters  submitted to the  shareholders  of the Company for a vote
during the fourth quarter of the year ended December 31, 1999.

Part II

Item 5.  Market for Common Equity and Related Stockholder Matters

The Company's common stock has traded in the  over-the-counter  market under the
symbol "RFSV" since the completion of the Company's  initial public  offering in
November 1995.  High and low bid prices,  as reported on the OTC Bulletin Board,
and as  adjusted to reflect a 5% stock  dividend  paid on the  Company's  common
stock on May 21, 1998, for each quarter within the last two fiscal years were as
follows:

              1998                         High         Low
              ----                         ----         ---

          1st Quarter                     $18.25       $16.43

          2nd Quarter                     $18.25       $16.70

          3rd Quarter                     $18.75       $16.00

          4th Quarter                     $16.00       $12.00


              1999                         High         Low
              ----                         ----         ---

          1st Quarter                     $12.38       $10.00

          2nd Quarter                     $11.75       $ 9.00

          3rd Quarter                      $9.75       $ 8.50

          4th Quarter                      $8.50       $ 7.00


These quotations reflect inter-dealer prices,  without retail mark-up,  markdown
or commission,  and may not represent actual  transactions.  These quotations do
not  include  intra-day  highs  and lows.  On  December  31,  1999,  there  were
approximately 37 owners of record and approximately 459 beneficial owners of the
Company's common stock.



                                       8
<PAGE>


No cash dividends have been declared to date on the Company's  common stock. The
Company  expects  that all  earnings,  if any,  will be  retained to finance the
growth of the Company and the Bank and that no cash  dividends  will be paid for
the  foreseeable  future.  If and when cash dividends are declared,  the Company
will be  dependent  upon  dividends  paid to it by the  Bank  for  funds  to pay
dividends on its common stock.  The Board of Directors of the Company declared a
5% stock dividend on all shares of the Company's common stock outstanding on May
11, 1998.

Wisconsin  banking laws restrict the payment of cash dividends by state banks by
providing that (i) dividends may be paid only out of a bank's undivided profits,
and (ii) prior  consent  of the  Department  is  required  for the  payment of a
dividend  which  exceeds the current  year's  income if dividends  declared have
exceeded  net  profits  in  either  of  the  two  immediately  preceding  years.
Additionally,  the various bank regulatory agencies have authority to prohibit a
bank  regulated  by them from  engaging  in an unsafe or unsound  practice.  The
payment of a dividend  by a bank could,  depending  upon the  circumstances,  be
considered such an unsafe or unsound practice. In the event that (i) the FDIC or
the Department  should increase  minimum  required  levels of capital;  (ii) the
total assets of the Bank  increase  significantly;  (iii) the income of the Bank
decreases  significantly;  or (iv) any combination of the foregoing occurs, then
the Board of  Directors of the Bank may decide or be required by the FDIC or the
Department  to retain a greater  portion  of the Bank's  earnings  to achieve or
maintain the required capital. In addition to the foregoing, generally speaking,
Wisconsin  corporations  such as the Company  are  prohibited  by the  Wisconsin
Business  Corporation  Law from paying  dividends while they are insolvent or if
the payment of dividends  would render them unable to pay debts as they come due
in the usual course of business.


Item 6.  Management's Discussion and Analysis

Comparison  of  Operating  Results  for the Years  Ended  December  31, 1999 and
December 31, 1998

Net Income.  Net income for the fiscal year ended December 31, 1999 increased by
45% to $479,178  compared with net income of $331,377 for fiscal 1998.  Earnings
per share rose by 49% to $0.55 per diluted common share for fiscal 1999 compared
to $0.37 per diluted  common share for fiscal  1998. A tax benefit  related to a
tax loss  carryforward  accounted for $375,035 of net income for fiscal 1999 and
$202,500 of net income for fiscal 1998.

Interest  Income.  Interest  income  consists  primarily  of  interest  on loans
(including  loan fees),  securities,  federal funds sold,  and  interest-bearing
deposits at other  financial  institutions.  Total interest  income for the year
ended December 31, 1999 was $4,831,816 compared to $4,940,943 for the year ended
December 31, 1998, a decrease of $109,127 or 2%. This decrease was primarily the
result of overall  lower asset  yields.  The interest  yield on average  earning
assets  declined to 7.93% in fiscal 1999  compared to 8.17% in fiscal 1998.  The
reason for the  decline in  interest  yields in 1999 as  compared to 1998 is due
primarily to the Federal  Reserve's  actions in reducing  interest  rates in the
third and fourth quarters of 1998.

Interest  Expense.  Interest  expense  primarily  represents  interest  paid  to
depositors.  Interest  expense  decreased  to  $2,417,939  in  fiscal  1999 from
$2,881,181  in fiscal  1998,  a decrease  of $463,242  or 16%.  The  decrease in
interest  expense was primarily due to an overall decrease in the interest yield
on  interest-bearing  liabilities  from  5.52% in 1998 to  4.68%  in 1999.  Also
contributing  to lower  interest  expense was a shift in balances of higher cost
time  deposits to lower cost money market  accounts and a decline in balances of
higher cost time deposits.



                                       9
<PAGE>

Set forth below is a summary of the Company's average deposits and interest paid
on such deposits during fiscal 1999 and fiscal 1998.

                                                   Rate                    Rate
                                        1999       Paid         1998       Paid
                                        ----       ----         ----       ----

Non interest-bearing demand         $ 8,697,185      --     $ 6,489,824      --
Interest-bearing demand               1,683,475    1.06%      1,454,223    1.72%
Money market accounts                30,601,480    4.64%     24,363,265    5.29%
Savings deposits                      1,590,674    2.12%      1,258,761    2.77%
Time deposits                        17,738,976    5.34%     25,075,721    6.11%
                                    -----------    -----    -----------    -----
     Total deposits                 $60,311,790    4.01%    $58,641,794    4.91%
                                    ===========    =====    ===========    =====

Net Interest  Income.  Net interest  income  represents the  difference  between
interest income earned on  interest-earning  assets and interest expense paid on
interest-bearing  liabilities.  Net interest  income was $2,413,877 for the year
ended  December  31,  1999,  an increase of  $354,115 or 17%  compared  with net
interest income of $2,059,762 for the year ended December 31, 1998. The $463,242
decrease in interest costs,  driven primarily by a reduction in deposit interest
rates and decreasing  balances in time  deposits,  more than offset the $109,127
decline in  interest  income.  The net  interest  margin  increased  to 3.96% at
December 31, 1999 from 3.41% at December 31, 1998.

The  following  table sets forth an analysis of the interest  rates and interest
differential of the Company's  earning assets,  which earn interest income,  and
interest bearing liabilities, which accrue interest expense, for fiscal 1999 and
fiscal 1998.

<TABLE>
                                                             Average Balance Sheet and
                                                          Analysis of Net Interest Income
                                                              Year Ended December 31,
<CAPTION>
                                                      1999                               1998
                                        --------------------------------   --------------------------------
                                          Average       Related    Yield     Average      Related     Yield
                                          Balance       Interest   Rate      Balance      Interest    Rate
                                        -----------   ----------   -----   -----------   ----------   -----
<S>                                     <C>           <C>          <C>     <C>           <C>          <C>
Earning assets:
    Deposits in bank                    $    98,958   $    6,025   6.09%   $   105,954   $    7,553   7.13%
    Investments (taxable)                 5,274,559      276,087   5.23%     3,690,491      237,396   6.43%
    Funds sold and securities
      purchased under
      agreements to resell                5,488,217      286,165   5.21%     7,721,729      411,276   5.33%
    Loans (a)                            50,068,153    4,263,539   8.52%    48,971,885    4,284,718   8.75%
                                        -----------   ----------           -----------   ----------

      Total earning assets              $60,929,887   $4,831,816   7.93%   $60,490,059   $4,940,943   8.17%
                                        ===========   ==========   =====   ===========   ==========   =====

Interest-bearing liabilities:
    NOW accounts                        $ 1,683,475   $   17,908   1.06%   $ 1,454,223   $   25,039   1.72%
    Savings accounts                      1,590,674       33,694   2.12%     1,258,761       34,839   2.77%
    Money market accounts                30,601,480    1,418,807   4.64%    24,363,265    1,289,271   5.29%
    Time deposits                        17,738,976      947,530   5.34%    25,075,721    1,532,032   6.11%
                                        -----------   ----------           -----------   ----------
      Total interest-bearing liabs      $51,614,605   $2,417,939   4.68%   $52,151,970   $2,881,181   5.52%
                                        ===========   ==========   =====   ===========   ==========   =====


Interest spread (b)                                   $2,413,877   3.25%                 $2,059,762   2.65%
                                                      ==========   =====                 ==========   =====

Interest margin (c)                                   $2,413,877   3.96%                 $2,059,762   3.41%
                                                      ==========   =====                 ==========   =====
</TABLE>

----------

(a)  Non-accruing  loans are included in the  computation  of average  balances.
     Loan interest income includes net loan fees.

(b)  The interest  spread is the difference  between the yield on earning assets
     and the yield on interest-bearing liabilities.

(c)  The interest  margin is the net interest  income  divided by total  earning
     assets.

The following  table describes the extent to which changes in interest rates and
changes  in  the  volume  of   interest-earning   assets  and   interest-bearing
liabilities  affected the Company's interest income and interest expense for the
period  indicated.



                                       10
<PAGE>


Information   is  provided  in  each   category  with  respect  to  (i)  changes
attributable to changes in volume (changes in volume  multiplied by prior rate),
(ii) changes  attributable  to changes in rate  (changes in rate  multiplied  by
prior volume),  (iii) changes attributable to changes in rate/volume (changes in
rate multiplied by changes in volume), and (iv) the net change.

The changes  attributable  to the  combined  impact of volume and rate have been
allocated  proportionately  to the  changes due to volume and the changes due to
rate.


<TABLE>
<CAPTION>
                                                   Rate/Volume Analysis of Net Interest Income
                                                           Year Ended December 31, 1999
                                                                   Compared to
                                                           Year Ended December 31, 1998
                                            ---------------------------------------------------------

                                                                 Increase (Decrease) Due To
                                            ---------------------------------------------------------
                                                                             Rate/
                                              Volume           Rate          Volume           Net
                                            ----------      ----------      ---------      ----------

Earning assets:

<S>                                         <C>             <C>             <C>            <C>
    Deposits in bank                        $    (499)      $  (1,102)      $     73       $  (1,528)

    Investments (taxable)                     101,897         (44,224)       (18,982)         38,691

    Funds sold and securities purchased
      under agreements to resell             (118,962)         (8,652)         2,503        (125,111)

    Loans                                      95,917        (114,531)        (2,565)        (21,179)
                                            ----------      ----------      ---------      ----------

      Total earning assets                  $  78,353       $(168,509)      $(18,971)      $(109,127)
                                            ==========      ==========      =========      ==========



Interest-bearing liabilities:

    NOW accounts                            $   3,947       $  (9,570)      $ (1,509)      $  (7,132)

    Savings accounts                            9,186          (8,176)        (2,156)         (1,146)

    Money market accounts                     330,118        (159,693)       (40,889)        129,536

    Time deposits                            (448,247)       (192,607)        56,354        (584,500)
                                            ----------      ----------      ---------      ----------
      Total interest-bearing liabilities    $(104,996)      $(370,046)      $ 11,800       $(463,242)
                                            ----------      ----------      ---------      ----------
      Net change in net interest income     $ 183,349       $ 201,537       $ 30,771       $ 354,115
                                            ==========      ==========      =========      ==========
</TABLE>


Provision  for  Loan  Losses.   The  provision  for  loan  losses  is  based  on
management's  evaluation of factors such as the local and national economies and
the  risks  associated  with the  loans in the  portfolio.  In  accordance  with
Financial  Accounting  Standards  Board  (AFASB@)  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 changes
in economic conditions which are then unknown to the Bank.

For each year ending  December  31, the  determination  of additions to the loan
loss reserve  charged to operating  expenses was based on an  evaluation  of the
loan portfolio, current domestic economic conditions, and other factors.

The Company made a loan loss provision of $282,500 in 1999 compared with $65,000
in 1998.  The  increased  provision  was made to bring the  reserve to  adequate
levels  as a  result  of  increasing  balances  in the loan  portfolio  and loan
charge-offs  during 1999.  During fiscal 1999, the Bank charged $191,977 against
the loan loss  reserve,  which  related  primarily  to a  commercial  loan whose
guarantors  filed personal  bankruptcy.  The Bank also reduced Other Real Estate
Owned by  $356,815 as a result of the sale of real  estate  assets  owned by the
Bank and reclassification of $35,082 of prior year expenses.



                                       11
<PAGE>


As of December 31, 1999,  the Company's  loan loss reserve was $653,270 or 1.26%
of  outstanding  loans  compared to $562,747  or 1.15% of  outstanding  loans at
December 31, 1998.

Set forth below is an analysis of the Company's provision for loan losses.

                         Summary of Loan Loss Experience
                            And Loan Loss Provisions

                                                      1999              1998
                                                      ----              ----
Beginning loan loss reserve                         $562,747          $624,740
Charge-offs:

     Commercial                                            0                 0
     Real Estate:
          Construction                                     0                 0
          Commercial                                 179,396           122,489
          Other Mortgages                                  0                 0
     Installment-consumer                             12,581             4,504

Recoveries:
     Commercial                                            0                 0
     Real Estate:
          Construction                                     0                 0
          Commercial                                       0                 0
          Other Mortgages                                  0                 0
     Installment-consumer                                  0                 0
                                                    --------          --------
Net charge-offs                                     $191,977          $126,993
Additions charged to operations                      282,500            65,000
                                                    --------          --------
Balance at end of period                            $653,270          $562,747
                                                    ========          ========
Ratio of net charge-offs during the period to
average loans outstanding during the period            0.38%             0.26%


Noninterest  Income.  Total  noninterest  income consisted of service charges on
deposit  accounts,  secondary market loan fees,  merchant credit card processing
services,  commission  income  generated by the  investment  center and employee
benefit plan income.  Total noninterest  income (excluding losses on the sale of
securities)  was $327,598 for fiscal 1999  compared to $289,859 for fiscal 1998,
an  increase  of $37,739 or a 13%  improvement.  The Bank  instituted  a service
charge program on business  checking  accounts,  surcharges on  noncustomer  ATM
transactions and increased  miscellaneous  charges on both business and consumer
accounts  during 1999.  These  service  charge  changes  accounted for a $50,156
increase in service charge income over 1998.  However,  due to a higher interest
rate environment  during 1999,  secondary  mortgage loan  originations  declined
which  caused  secondary  market  loan fee income to be reduced by $97,829  from
fiscal 1998. A portion of the  increase in  noninterest  income was related to a
$104,832 increase in the cash surrender value of life insurance.

Noninterest Expenses. Total noninterest expenses consisted primarily of salaries
and employee benefits, occupancy and equipment expenses, professional fees, data
processing  fees, and employee  benefit plans.  Total  noninterest  expenses for
fiscal 1999 (excluding losses on the sale of assets) were $2,291,227 compared to
$2,137,760  for fiscal 1998,  an increase of $153,467 or 7%. The majority of the
increase in  noninterest  expenses is attributed  to employee  benefit plans and
occupancy  expenses.  The bulk of the employee benefit plan expense is offset by
income  related to the employee  benefit plans in  noninterest  income while the
increase in occupancy  expense is primarily due to increases in rent and repairs
related to Other Real Estate Owned.



                                       12
<PAGE>


In fiscal 1999,  the Bank's FDIC premiums were assessed at $7,275 as required by
federal law.

Selected  Financial Ratios. Set forth below are selected financial ratios of the
Company for fiscal 1999 and fiscal 1998:

                                                       1999          1998
                                                       ----          ----
    Return on average assets                           0.71%         0.51%
    Return on average equity                           7.38%         5.60%
    Dividend payout ratio on common stock              NONE        208.30%(a)
    Average equity to average assets                   9.61%         9.02%
----------
(a)  This number reflects a 5% stock dividend on the Company's common stock paid
     on May 21, 1998.

Provision for Income Taxes.  A tax benefit of $375,035 was  recognized in fiscal
1999 resulting from a net operating loss carryforward, which will be utilized to
reduce taxable income in future periods.

Comparison  of  Operating  Results  for the Years  Ended  December  31, 1998 and
December 31, 1997

Net Income.  For the fiscal year ended December 31, 1998, the Company reported a
profit of  $331,377 or $0.37 per diluted  common  share  compared to a profit of
$41,633 or $0.05 per diluted common share for fiscal 1997.  This was an increase
in 1998 earnings of $289,744, or 696% over fiscal 1997. A tax benefit related to
a tax loss  carryforward  accounted  for $202,500 of net income for fiscal 1998.
Additionally,  the increased earnings was attributable to increased loan growth,
improved margins and greater fee income generation in loans.

Interest  Income.  Interest  income  consists  primarily  of  interest  on loans
(including  loan fees),  federal  funds sold,  securities  and  interest-bearing
deposits at other  financial  institutions.  Total interest  income for the year
ended  December 31, 1998  increased to $4,940,943  from  $3,706,879 for the year
ended  December 31, 1997,  an increase of  $1,234,064  or 33%. This increase was
primarily the result of greater average outstanding  balances in earning assets,
which grew by  $14,311,075  or 31%, in fiscal  1998.  The  increase in the asset
yield  was a result  of a  change  in the mix of  earning  assets  as a  greater
percentage of earning assets shifted into loans which carry a higher yield.

Interest  Expense.  Interest  expense  primarily  represents  interest  paid  to
depositors.  Interest  expense  increased  to  $2,881,181  in  fiscal  1998 from
$2,126,065  in fiscal  1997,  an increase of  $755,116 or 36%.  The  increase in
interest   expense  was  due  to  greater   average   outstanding   balances  in
interest-bearing  liabilities,  primarily time deposits and money market deposit
accounts,  while the yield on interest bearing  liabilities  remained relatively
unchanged.

Set forth below is a summary of the Company's average deposits and interest paid
on such deposits during fiscal 1998 and fiscal 1997.

<TABLE>
<CAPTION>
                                       1998            Rate Paid           1997           Rate Paid
                                       ----            ---------           ----           ---------
<S>                                 <C>                  <C>           <C>                  <C>
Non interest-bearing demand         $ 6,489,824            --          $ 4,363,342            --
Interest-bearing demand               1,454,223          1.72%             827,094          1.76%
Money market demand                  24,363,265          5.29%          18,266,062          5.27%
Savings deposits                      1,258,761          2.77%             827,824          2.93%
Time deposits                        25,075,721          6.11%          18,506,746          6.07%
Purchased funds                               0          0.00%               9,603          6.12%
                                    -----------          -----         -----------          -----
     Total deposits                 $58,641,794          4.91%         $42,800,671          4.97%
                                    ===========          =====         ===========          =====
</TABLE>


Net Interest  Income.  Net interest  income  represents the  difference  between
interest income earned on  interest-earning  assets and interest expense paid on
interest-bearing  liabilities.  Net interest income rose from $1,580,814 for the
year ended December 31, 1997 to $2,059,762 for the year ended December 31, 1998,
an increase  of $478,948 or 30%.  This  increase  was  predominantly  due to the
volume  increases in earning assets,  predominantly in loans which are at higher
rates than other  earning  assets,  while the average  cost on interest  bearing
liabilities remained relatively unchanged.



                                       13
<PAGE>


The  following  table sets forth an analysis of the interest  rates and interest
differential of the Company's  earning assets,  which earn interest income,  and
interest bearing liabilities, which accrue interest expense, for fiscal 1998 and
fiscal 1997.

<TABLE>
                                                              Average Balance Sheet and
                                                           Analysis of Net Interest Income
                                                               Year Ended December 31,
<CAPTION>
                                                      1998                               1997
                                        --------------------------------   --------------------------------
                                          Average      Related     Yield     Average      Related     Yield
                                          Balance      Interest    Rate      Balance      Interest    Rate
                                          -------      --------    -----     -------      --------    -----
<S>                                     <C>           <C>          <C>     <C>           <C>          <C>
Earning assets:
    Deposits in bank                    $   105,954   $    7,553   7.13%   $   177,939   $   15,740   8.85%
    Investments (taxable)                 3,690,491      237,396   6.43%     9,439,985      546,627   5.79%
    Funds sold                            7,721,729      411,276   5.33%     3,556,986      195,211   5.49%
    Loans (a)                            48,971,885    4,284,718   8.75%    33,004,074    2,949,301   8.94%
                                        -----------   ----------           -----------   ----------

      Total earning assets              $60,490,059   $4,940,943   8.17%   $46,178,984   $3,706,879   8.03%
                                        ===========   ==========   =====   ===========   ==========   ====

Interest-bearing liabilities:
    NOW accounts                        $ 1,454,223   $   25,039   1.72%   $   827,094   $   14,547   1.76%
    Savings accounts                      1,258,761       34,839   2.77%       827,824       24,285   2.93%
    Money market accounts                24,363,265    1,289,271   5.29%    18,266,062      963,322   5.27%
    Time deposits                        25,075,721    1,532,032   6.11%    18,506,746    1,123,323   6.07%
    Purchased funds                               0            0   0.00%         9,603          588   6.12%
                                        -----------   ----------           -----------   ----------
      Total interest-bearing liabs      $52,151,970   $2,881,181   5.52%   $38,437,329   $2,126,065   5.53%
                                        ===========   ==========   =====   ===========   ==========   =====

Interest spread (b)                                   $2,059,762   2.65%                 $1,580,814   2.50%
                                                      ==========   =====                 ==========   =====

Interest margin (c)                                   $2,059,762   3.41%                 $1,580,814   3.42%
                                                      ==========   =====                 ==========   =====
</TABLE>

----------
(a)  Non-accruing  loans are included in the  computation  of average  balances.
       Loan interest income includes net loan fees.
(b)  The interest  spread is the difference  between the yield on earning assets
       and the yield on interest-bearing liabilities.
(c)  The interest  margin is the net interest  income  divided by total  earning
       assets.

The following  table describes the extent to which changes in interest rates and
changes  in  the  volume  of   interest-earning   assets  and   interest-bearing
liabilities  affected the Company's interest income and interest expense for the
period  indicated.  Information is provided in each category with respect to (i)
changes attributable to changes in volume (changes in volume multiplied by prior
rate), (ii) changes  attributable to changes in rate (changes in rate multiplied
by prior volume),  (iii) changes attributable to changes in rate/volume (changes
in rate multiplied by changes in volume), and (iv) the net change.



                                       14
<PAGE>


The changes  attributable  to the  combined  impact of volume and rate have been
allocated  proportionately  to the  changes due to volume and the changes due to
rate.


<TABLE>
                                                      Rate/Volume Analysis of Net Interest Income
                                                             Year Ended December 31, 1998
                                                                      Compared to
                                                             Year Ended December 31, 1997
                                            ----------------------------------------------------------
                                                              Increase (Decrease) Due To
                                            ----------------------------------------------------------
<CAPTION>
                                                                             Rate/
                                              Volume          Rate           Volume            Net
                                              ------          ----           ------            ---
<S>                                         <C>             <C>             <C>            <C>
Earning assets:
    Deposits in bank                        $   (6,367)     $ (3,056)       $  1,236       $   (8,187)
    Investments (taxable)                     (332,927)       60,613         (36,917)        (309,231)
    Funds sold                                 228,565        (5,758)         (6,742)         216,065
    Loans                                    1,426,911       (61,661)        (29,833)       1,335,417
                                            -----------     ---------       ---------      -----------
      Total earning assets                  $1,316,182      $ (9,862)       $(72,256)      $1,234,064
                                            ===========     =========       =========      ===========


Interest-bearing liabilities:
    NOW accounts                            $   11,030      $   (306)       $   (232)      $   10,492
    Savings accounts                            12,642        (1,373)           (715)          10,554
    Money market accounts                      321,557         3,293           1,099          325,949
    Time deposits                              398,723         7,370           2,616          408,709
    Purchased funds                                  0             0            (588)            (588)
                                            -----------     ---------       ---------      -----------
      Total interest-bearing                $  743,952      $  8,984        $  2,180       $  755,116
      liabilities                           -----------     ---------       ---------      -----------
      Net change in net interest            $  572,230      $(18,846)       $(74,436)      $  478,948
      income                                ===========     =========       =========      ===========
</TABLE>


Provision  for  Loan  Losses.   The  provision  for  loan  losses  is  based  on
management's  evaluation of factors such as the local and national economies and
the  risks  associated  with the  loans in the  portfolio.  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 changes
in economic conditions which are then unknown to the Bank.

For each year ending  December  31, the  determination  of additions to the loan
loss reserve  charged to operating  expenses was based on an  evaluation  of the
loan portfolio, current domestic economic conditions, and other factors.

As of December 31, 1998,  the Company's  loan loss reserve was $562,747 or 1.15%
of  outstanding  loans  compared to $624,740  or 1.37% of  outstanding  loans at
December 31, 1997.

The Company's provision for loan losses was $65,000 in 1998 compared to $290,000
during 1997.  During fiscal 1998,  the Bank charged $4,504 against the loan loss
reserve related to consumer credit card losses. The Bank also reduced Other Real
Estate Owned by $122,489  and charged this amount  against the loan loss reserve
in order to reduce the value of Other Real Estate Owned to the  appraised  value
as received on December 30, 1997.  During 1998,  the Bank further  reduced Other
Real Estate  Owned by  $476,654  as a result of the sale of real  estate  assets
owned by the Bank. Set forth below is an analysis of the Company's provision for
loan losses.



                                       15
<PAGE>


                                           Summary of Loan Loss Experience
                                              And Loan Loss Provisions

                                                1998            1997
                                                ----            ----
Beginning loan loss reserve                   $624,740        $334,740
Charge-offs:

     Commercial                                      0               0
     Real Estate:
          Construction                               0               0
          Commercial                           122,489               0
          Other Mortgages                            0               0
     Installment-consumer                        4,504               0

Recoveries:
     Commercial                                      0               0
     Real Estate:
          Construction                               0               0
          Commercial                                 0               0
          Other Mortgages                            0               0
    Installment-consumer                             0               0
                                              --------        --------
Net charge-offs                               $126,993        $      0
Additions charged to operations                 65,000         290,000
                                              --------        --------
Balance at end of period                      $562,747        $624,740
                                              ========        ========

Ratio of net charge-offs during the
period to average loans outstanding
during the period                                0.26%            0.0%


Noninterest Income.  Total noninterest income (excluding gains and losses on the
sale of securities) was $289,859 for fiscal 1998 compared to $158,495 for fiscal
1997,  an increase of $131,364 or 83%.  Total  noninterest  income  consisted of
service charges on deposit accounts,  merchant credit card processing  services,
commission  income  generated by the investment  center and gains on the sale of
securities.  Fee income  generation from real estate loans sold in the secondary
market accounted for the majority of this increase.

Noninterest Expenses. Total noninterest expenses consisted primarily of salaries
and benefits,  occupancy and equipment expenses, data processing fees, marketing
expenses,  professional fees and other expenses. Noninterest expenses for fiscal
1998 were  $2,137,760  compared to  $1,944,782  for fiscal 1997,  an increase of
$192,978 or 10%. The primary  increase came in the area of salaries and benefits
which increased by $108,392 or 11%.  Occupancy and equipment  expenses increased
by $34,716 or 10% and all other noninterest  expenses increased by $49,870 or 9%
primarily due to an increase in professional and data processing fees.

In fiscal 1998,  the Bank's FDIC premiums were assessed at $6,643 as required by
federal law.

Selected  Financial Ratios. Set forth below are selected financial ratios of the
Company for fiscal 1998 and fiscal 1997:

                                                     1998              1997
                                                     ----              ----
Return on average assets                              0.51%            0.08%
Return on average equity                              5.60%            0.70%
Dividend payout ratio on common stock               208.30%            None
Average equity to average assets                      9.02%           11.98%

Provision for Income Taxes.  A tax benefit of $202,500 was  recognized in fiscal
1998 resulting from a net operating loss carryforward, which will be utilized to
reduce taxable income in future periods.



                                       16
<PAGE>


Financial Condition

Total Assets.  The Company  reported total assets of $64,838,223 at December 31,
1999, a decrease of $6,497,312  or 9% from  December 31, 1998.  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 net interest margin.

Cash and Cash  Equivalents.  Cash and due from banks was  $2,400,560 at December
31,  1999  compared to  $2,741,672  at December  31,  1998 and  represents  cash
maintained at the Bank and funds that the Bank and the Company have deposited in
other financial institutions. The Bank reported $4,532,173 of federal funds sold
(which are inter-bank funds with daily liquidity) and securities purchased under
agreements to resell on December 31, 1999 and  $12,525,000 on December 31, 1998.
The $7,992,827 decrease in federal funds sold is primarily a result of a decline
in deposits and the use of cash to fund loan growth. The Bank's  loan-to-deposit
funds ratio prior to loan loss  reserve on December 31, 1999 was 90% compared to
76% on December 31, 1998.

Investment  Securities.   The  Company's  investment  portfolio  decreased  from
$2,365,619  as of December  31,  1998 to  $1,127,881  at December  31, 1999 as a
result of maturing  securities and securities in the available for sale category
which  were  liquidated  as  deposits  declined  and cash was used to fund  loan
growth.  A portion of the securities in the Company's  investment  portfolio was
originally  purchased with the intent to hold the securities  until they mature.
Another  portion was placed in the available for sale category as the securities
may be liquidated to provide cash for operating or financing purposes.  The book
values of (i) U.S.  Treasuries and (ii) U.S. Government agencies and (iii) other
corporate  securities  as of  December  31,  1999 and  December  31,  1998  were
$1,127,881 and $2,365,619 respectively.

The following  table  summarizes  the maturity  dates of those  securities as of
December 31, 1999.

<TABLE>
                                                                     Investment Portfolio
                                                                      Repricing Schedule

<CAPTION>
                                                                After 1 year
                                               1 year or less   through 5 years   After 5 years        Total
                                               --------------   ---------------   -------------        -----
<S>                                              <C>                <C>             <C>             <C>
    Available for Sale Securities:
        U.S. Treasury and other U.S.             $       0          $   0           $       0       $         0
        Govt. agencies and corporations
        Weighted Average Yield                           0%             0%                  0%                0%
    Corporate Securities                           128,500              0                   0           128,500
        Weighted Average Yield                        3.98%             0%                  0%             3.98%

    Total Available for Sale                     $ 128,500          $   0           $       0       $   128,500
                                                  ---------          -----           -----------     -----------
        Weighted Avg. Yield of Total                  3.98%             0%                  0%             3.98%


    Held to Maturity Securities:
        U.S. Treasury and other U.S.             $ 749,381          $   0           $ 250,000       $   999,381
        Govt. agencies and corporations
        Weighted Average Yield                        6.66%             0%               7.38%             6.84%

    Total Held to Maturity                       $ 749,381          $   0           $ 250,000       $   999,381
                                                  ---------          -----           -----------     -----------
         Weighted Avg. Yield of Total                 6.66%             0%               7.38%             6.84%

    Total Securities                             $ 877,881          $   0           $ 250,000       $ 1,127,881
                                                  ---------          -----           -----------     -----------
         Weighted Avg. Yield of Total                 6.27%             0%               7.38%             6.50%
</TABLE>

Amortized  costs and fair values of available for sale  securities are discussed
in  Notes  4  and  5  respectively,  to  the  Company's  Consolidated  Financial
Statements.



                                       17
<PAGE>


Loans.  Loans prior to the allowance for loan losses  increased from $48,869,077
at  December  31,  1998 to  $51,692,567  at December  31,  1999,  an increase of
$2,823,490 or 6%. In addition to the $51,692,567 in loans  outstanding  that the
Bank reported on December 31, 1999,  the Bank had unfunded loan  commitments  of
$13,523,224.  Also,  during fiscal year 1999 the Bank  originated  $4,815,550 in
mortgage loans sold in the secondary  market  compared to $15,632,460  secondary
market loans originated in 1998. The decline in secondary market loan volume was
primarily  driven by an increased rate  environment  which reduced the amount of
refinancing opportunities.

The following  table  summarizes  the  distribution  of the  Company's  loans at
December 31, 1999 and December 31, 1998.



                                                 Loan Portfolio Composition
                                                        December 31,
                                          -------------------------------------
                                             1999                      1998
                                             ----                      ----

Commercial                                $16,956,230               $10,011,324
Real Estate:
   Construction                             4,321,625                 3,592,246
   Commercial                              14,927,167                21,033,369
   Residential                             10,809,939                 9,854,421
Installment and Consumer                    4,677,606                 4,377,717
                                          -----------               -----------

              Total Loans                 $51,692,567               $48,869,077
                                          ===========               ===========

The following table summarizes the maturities of the Company's loan portfolio at
December 31, 1999 (excluding residential real estate, consumer and installment).


<TABLE>
<CAPTION>
                                                           Loan Maturities
                                   -----------------------------------------------------------------
                                      1 year           After 1            After 5
                                     or less       Through 5 years         years           Total
                                   -----------------------------------------------------------------

<S>                                <C>               <C>                <C>              <C>
  Commercial                       $12,689,696       $17,136,719        $2,056,982       $31,883,397
  Real estate-construction           1,172,108         3,149,517                 0         4,321,625
                Total              $13,861,804       $20,286,236        $2,056,982       $36,205,022
</TABLE>

The following  table  summarizes the  sensitivity of Company's loan portfolio to
interest rate changes by fixed and  adjustable-rate  loans due after one year at
December 31, 1999 (excluding residential real estate, consumer and installment).


                                     Amount of Loans Due After One Year With
                                  ----------------------------------------------
                                  Predetermined    Floating or adj.
                                      Rates         interest rates      Total
                                  ----------------------------------------------

Commercial                         $17,121,518       $ 2,072,183     $19,193,701
Real estate-construction            2,149,517          1,000,000       3,149,517
       Total                       $19,271,035       $ 3,072,183     $22,343,218



                                       18
<PAGE>


Non-Performing  Assets.  The Bank undertakes a continuous loan review process to
promote early  identification  of credit quality  problems in its loan portfolio
and to ensure  compliance with its loan policy and  documentation.  Any past due
loans and  identified  problem loans are reviewed with the Board of Directors of
the Bank on a monthly basis. An outside consulting firm assisted the Bank in its
loan review function in fiscal 1999.

The Bank assigns an internal loan rating to its  commercial  loans based upon an
internally developed rating system. The Bank uses six classifications of assets,
three of which  relate  to  problem  assets:  Substandard,  Doubtful  and  Loss.
Substandard  assets have one or more defined weaknesses and are characterized by
a possibility  that the Bank could sustain some loss if the deficiencies are not
corrected.  Doubtful assets exhibit the same  weaknesses as Substandard  assets,
coupled with the higher possibility of loss because collection or liquidation in
full is questionable in light of current  existing  information,  conditions and
values.  An asset  classified  as Loss is considered  uncollectible  and of such
limited value that continuance as an asset of the Bank is not warranted.  Assets
classified  as  Substandard  or Doubtful  require the Bank to establish  prudent
general allowances for loan losses. If an asset or portion thereof is classified
as Loss, the Bank must either establish  specific  allowances for loan losses of
100% of the portion of the asset classified Loss, or charge-off such amount.  On
the basis of the most recent  comprehensive  loan review  conducted in the first
quarter of 2000,  $1,349,087  was  classified  as Doubtful  and  $2,400,999  was
classified as Substandard. There were no loans classified as Loss. Of the assets
classified,  approximately  $5,307 was on non-accrual  status as of February 29,
2000.  Interest  accrued and unpaid at the time a loan is placed on  non-accrual
status is  charged  against  interest  income.  Subsequent  payments  are either
applied to the  outstanding  principal  balance or recorded as interest  income,
depending on the assessment of the collectibility of the loan.

Each of the loans  which  becomes  contractually  past due 90 days or more as to
principal or interest  payments will be reviewed by  management  and reported to
the Loan Committee of the Board of Directors of the Bank. These loans would then
be placed on a non-accrual status.

As of December  31, 1999,  management  was not aware of any  significant  loans,
group of loans or segments of the loan portfolio not included above, where there
were serious  doubts as to the ability of the  borrowers to comply with the loan
payment terms.

The following table summarizes the Company's  nonperforming loans as of December
31, 1998 and December 31, 1997.


                                                          December 31,
                                                    ----------------------
                                                      1999          1998
                                                      ----          ----
      Non-accrual Loans                             $325,055      $492,540
      Accruing Loans, Past Due 90 Days+ (1)         $      0      $      0

---------
(1)  Loans are generally  placed in non-accrual when  contractually  past due 90
     days or more.


For fiscal 1999 and fiscal 1998 the gross interest  income which would have been
recorded  had the  non-accruing  loans  been  current in  accordance  with their
original  terms  was  $18,731  and  $27,585,  respectively,  none of  which  was
recognized.  The  amounts of  interest  income on  non-accruing  loans that were
included in net income for fiscal 1999 and fiscal 1998 were $8,499 and  $64,157,
respectively.

Allowance for Loan Losses. The Company's allowance for estimated loan losses was
$653,270,  or 1.26% of loans at December 31, 1999 compared to $562,747, or 1.15%
of loans at December  31, 1998.  See  "Comparison  of Operating  Results for the
Years Ended  December  31,  1999 and  December  31,  1998 -  Provision  for Loan
Losses."

Management  believes that the majority of risk in the Bank's loan portfolio lies
in commercial  loans,  which  include  commercial  real estate and  construction
loans.  Accordingly,  the Bank has allocated $566,491 (or 87% of the reserve for



                                       19
<PAGE>


loan losses) to these loans, which comprise about 70% of the loan portfolio. The
Bank has allocated  $11,466 (or approximately 2% of the reserve for loan losses)
to  residential  mortgages,  which  comprise  about  21% of the loan  portfolio.
Consumer loans comprise about 9% of the loan portfolio, and $28,561 (or about 4%
of the reserve for loan  losses) is allocated  to consumer  loans.  The Bank has
allocated  $6,762 of the reserve for loan losses to unfunded  loan  commitments,
which  total  approximately  $13,523,224.  The  balance of the  reserve for loan
losses of $39,990 is unallocated.

Other  Assets.  The  Company's  office  building,   leasehold  improvements  and
equipment less accumulated depreciation and amortization decreased to $1,352,995
at December 31, 1999 from $1,376,660 at December 31, 1998.

On December 31, 1999,  the Bank had $905,938 in Other Real Estate Owned which is
represented by 14 fully improved  residential lots and one completed model home.
The Bank purchased these real estate assets from the bankruptcy  court in fiscal
1997 after the Bank's borrower filed for bankruptcy. The Bank has a contract for
the  exclusive  build-out  of those  lots by an area  builder.  All of this real
estate has been placed for sale.  Since December 31, 1999, the Bank has sold one
additional lot and has an executed offer to purchase on another one.

Accrued interest receivable on loans and other assets increased to $1,136,683 at
December 31, 1999  compared to $663,617 at December  31,  1998.  The increase is
primarily due to deferred income taxes on prior years' losses.

Deposits.  The Bank  experienced  deposit  decline  during  fiscal  1999.  Total
deposits  decreased by $7,058,465  from  $64,522,856  as of December 31, 1998 to
$57,464,391 on December 31, 1999.  This was the result of a deliberate  strategy
to reduce liability costs by trimming the Bank of  single-service,  unprofitable
relationships.

As of December 31, 1999, time deposits over $100,000  represented 7.40% of total
deposits.  Set forth below is a schedule of the  maturities  as of December  31,
1999 for the Company's time deposits of $100,000 or more.

                        Time Deposits of $100,000 or more
                                Maturity Schedule


                              3 mos.    Over 3 mos.    Over 6 mos.      Over
                             or less    thru 6 mos.    thru 12 mos.    12 mos.
                             -------    -----------    ------------    -------

Certificates of Deposit      $201,477       $ 0         $3,852,016     $200,510

Other Liabilities. Accrued interest payable and other liabilities of $712,424 at
December  31, 1999  compared  to  $614,535 at December  31, 1998 were made up of
accrued  interest  payable on deposit  accounts,  accounts  payable and deferred
employee benefits.

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 that current liquidity levels are sufficient to
meet future demands.  Management  believes the current liquidity position of the
Bank allows it  opportunity  to expand the Bank's loan portfolio and account for
any deposit  withdrawals  which may occur.  As of December 31, 1999 the Bank had
$7,325,257,  primarily  in federal  funds,  available  to meet future  liquidity
demands.

Capital  Resources.  The Bank's most recent  notification  as of August 23, 1999
from the FDIC  categorized  the Bank as  well-capitalized  under the  regulatory
framework for prompt corrective  action. To be categorized as  well-capitalized,
the Bank must maintain the minimum  total  risk-based,  Tier I  risk-based,  and
leverage  ratios  as set  forth in  "Description  of  Business--Supervision  and
Regulation."  There have been no conditions or events since these  notifications
that management believes will change the Bank's  classification.  See Note 18 to
the Company's Consolidated Financial Statements.

The Company has made a commitment to the Federal Reserve Bank of Chicago that it
will not incur any debt until December 7, 2000,  without prior approval from the
Federal  Reserve  System.  The Bank has met its  commitment  to the



                                       20
<PAGE>


FDIC that it would  maintain a Tier I capital to total  asset  ratio of not less
than 8% for its first three years of operations, which ended in December 1998.

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.

The Company's strategy with respect to asset/liability management is to maximize
net interest income while limiting  exposure to interest rate  volatility.  This
strategy is implemented by the Bank's management,  which takes action based upon
its analysis of the Bank's present positioning,  its desired future positioning,
economic  forecasts,  and its goals. The Company's goal is to maintain a monthly
GAP position within +or- 25% of 1.00.

The following table  summarizes the repricing  opportunities  as of December 31,
1999 for each major  category of  interest-earning  assets and  interest-bearing
liabilities:

<TABLE>
                         Interest Rate-Sensitive Assets
                                 and Liabilities
                                 (In thousands)


<CAPTION>
                                         0-89         90-179       180-359       360+
                                         Days          Days         Days         Days         Total
                                         ----         ------       -------       ----         -----
<S>                                    <C>            <C>          <C>          <C>          <C>
                   Investments         $   633             0          245          250       $ 1,128
                         Loans         $21,978         1,505        1,092       27,117       $51,692
----------------------------------------------------------------------------------------------------
   Total Rate Sensitive Assets         $22,611         1,505        1,337       27,367       $52,820
Rate Sensitive Liabilities (1)         $31,264(2)      1,507       10,196        3,562       $46,529
----------------------------------------------------------------------------------------------------
                           GAP         $(8,653)           (2)      (8,859)      23,805
                Cumulative GAP         $(8,653)       (8,655)     (17,514)       6,291
     GAP/Rate Sensitive Assets          (38.3%)       (35.9%)      (68.8%)       11.9%


(1)  Savings,   NOW,  and  Money  Market  Demand   Deposits  are  considered  as
       immediately repricable.
(2)  Includes total money market demand account balances.
</TABLE>


With the  recent  action of the  Federal  Reserve  in  raising  interest  rates,
management has attempted to lengthen the maturities of its liabilities.

Impact of Inflation and Changing Prices

Unlike most industries,  essentially all of the assets and liabilities of a bank
are  monetary  in nature.  As such,  the level of prices has less effect than do
interest  rates.  Prices  and  interest  rates  do not  always  move in the same
direction.  The



                                       21
<PAGE>


Company's  consolidated financial statements and notes are generally prepared in
terms of  historical  dollars  without  considering  the changes in the relative
purchasing power of money over time due to inflation.

Year 2000 Impact

In order to ensure  that  neither  the  Company  nor the Bank  would  experience
material disruption of its operations due to computer-related  malfunctions as a
result  of  the  turning  of  the  Year  2000  ("Y2K"),  the  Bank  completed  a
comprehensive testing and manufacturer certification process with respect to all
of its internal computer  software,  hardware and embedded systems prior the end
of 1999.  The Bank also assessed the Y2K readiness of nearly all of its material
vendors and commercial customers.  The cost to the Bank of assessing its and its
vendors' and customers' Y2K readiness was  approximately  $6,000. As of the date
hereof,  neither the Company nor the Bank has  experienced any disruption in the
operation of its internal  computer  software,  hardware or embedded  systems or
other  significant  problems  as a result of the Y2K  transition.  Additionally,
neither the Company nor the Bank  experienced  or has been  informed of any such
problems  related  to any of its  material  third-party  vendors  or  commercial
customers.  Despite the testing  process and lack of  disruption  as of the date
hereof, there can be no assurance that Y2K related disruptions will not occur in
the future and will not have a material  adverse impact on the Bank's results of
operations. Based on currently-available information,  however, the Bank and the
Company  believe that any Y2K related  disruptions  that may occur in the future
will not have a material adverse impact on their results of operations. The Bank
has developed  contingency plans to deal with potential Y2K related  disruptions
and will continue to monitor its exposure as appropriate  and act to resolve any
problems that may occur.



                                       22
<PAGE>


          DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY

                              Average Balance Sheet

                                                        1999            1998
                                                        ----            ----
Cash and due from banks                             $ 2,185,088     $ 1,913,542
Federal funds sold and securities purchased
  under agreement to resell                           8,625,770       7,721,729
Interest-bearing deposits in other banks                 98,958          56,955
Investment securities:
  U.S. Treasury, agency and other securities          2,137,006       3,690,491
Loans:
  Real estate mortgages                              11,531,501      12,264,601
  Consumer-net                                        3,099,319       3,684,486
  Commercial and other                               35,437,333      33,022,799
                                                    ------------    ------------
    Total                                            50,068,153      48,971,886
  Less allowance for loan losses                       (516,397)       (544,812)
                                                    ------------    ------------
    Net loans                                        49,551,756      48,427,074
Fixed assets                                          1,364,062       1,364,536
Other real estate owned                               1,077,062       1,461,638
Cash surrender value of life insurance                1,184,816         448,048
Other assets                                          1,364,965         494,134
                                                    ------------    ------------
    Total assets                                    $67,589,483     $65,578,147
                                                    ============    ============

Interest-bearing deposits:
  NOW accounts                                      $ 1,683,475     $ 1,454,223
  Savings accounts                                    1,590,674       1,258,761
  Money Market deposit accounts                      30,601,480      24,363,265
  Time deposits                                      17,738,976      25,075,721
                                                    ------------    ------------
    Total interest-bearing deposits                  51,614,605      52,151,970
  Demand deposits                                     8,697,185       6,489,825
                                                    ------------    ------------
    Total deposits                                   60,311,790      58,641,795
Other liabilities                                       784,150       1,021,300
                                                    ------------    ------------
    Total liabilities                                61,095,940      59,663,095
Equity capital                                        6,493,543       5,915,052
                                                    ------------    ------------
    Total liabilities and capital                   $67,589,483     $65,578,147
                                                    ============    ============



                                       23
<PAGE>


Item 7.  Financial Statements

                                                                           Page

Independent Auditor's Report................................................25

Consolidated Balance Sheets.................................................26

Consolidated Statements of Income...........................................27

Consolidated Statements of Changes in Stockholders' Equity..................28

Consolidated Statements of Cash Flows.......................................29

Notes to Consolidated Financial Statements..................................31



                                       24
<PAGE>


                          Independent Auditor's Report



Board of Directors
RidgeStone Financial Services, Inc. and Subsidiary
Brookfield, Wisconsin

We have  audited the  accompanying  consolidated  balance  sheets of  RidgeStone
Financial  Services,  Inc. and  Subsidiary as of December 31, 1999 and 1998, and
the related consolidated  statements of income, changes in stockholders' equity,
and cash flows for the years  ended  December  31,  1999,  1998 and 1997.  These
consolidated  financial  statements  are  the  responsibility  of the  Company's
management.  Our  responsibility is to express an opinion on these  consolidated
financial statements based on our audits.

We  conducted  our  audits  in  accordance  with  generally   accepted  auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable  assurance about whether the  consolidated  financial  statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and disclosures in the  consolidated  financial
statements.  An audit also includes assessing the accounting principles used and
significant  estimates  made by  management,  as well as evaluating  the overall
consolidated  financial  statement  presentation.  We  believe  that our  audits
provide a reasonable basis for our opinion.

In our opinion, the consolidated  financial statements referred to above present
fairly, in all material respects, the financial position of RidgeStone Financial
Services,  Inc. and Subsidiary as of December 31, 1999 and 1998, and the results
of its operations and its cash flows for the years ended December 31, 1999, 1998
and 1997, in conformity with generally accepted accounting principles.


                                        VIRCHOW, KRAUSE & COMPANY, LLP



Milwaukee, Wisconsin
January 27, 2000



                                       25
<PAGE>


<TABLE>
               RIDGESTONE FINANCIAL SERVICES, INC. AND SUBSIDIARY

                           CONSOLIDATED BALANCE SHEETS
                           December 31, 1999 and 1998


                                     ASSETS
<CAPTION>
                                                                             1999              1998
                                                                             ----              ----
<S>                                                                     <C>                <C>
Cash and due from banks                                                 $ 2,400,560        $ 2,741,672
Federal funds sold and securities purchased under
  agreements to resell                                                    4,532,173         12,525,000
Interest-bearing deposits in banks                                          264,024              2,649
Available for sale securities                                               128,500            615,284
Held to maturity securities, fair value of $995,203 and
  $1,780,700 in 1999 and 1998, respectively                                 999,381          1,750,335
Loans, less allowance for loan losses of $653,270 and
  $562,747 in 1999 and 1998, respectively                                51,039,297         48,306,330
Mortgage loans held for sale                                                136,000            259,000
Office building, leasehold improvements and equipment, net                1,352,995          1,376,660
Other real estate owned                                                     905,938          1,297,835
Cash surrender value of life insurance                                    1,942,672          1,797,153
Other assets                                                              1,136,683            663,617
                                                                        -----------        -----------
     TOTAL ASSETS                                                       $64,838,223        $71,335,535
                                                                        ===========        ===========




                      LIABILITIES AND STOCKHOLDERS' EQUITY
<CAPTION>
<S>                                                                     <C>                <C>
LIABILITIES
  Deposits
  Demand                                                                $10,935,647        $ 8,552,053
  Savings and NOW accounts                                               29,609,892         34,013,384
  Other Time                                                             16,918,852         21,957,419
                                                                        -----------        -----------
     Total Deposits                                                      57,464,391         64,522,856
Accrued expense and other liabilities                                       712,424            614,535
                                                                        -----------        -----------
Total Liabilities                                                        58,176,815         65,137,391
                                                                        -----------        -----------

COMMITMENTS AND CONTINGENCIES

<CAPTION>
<S>                                                                     <C>                <C>
STOCKHOLDERS' EQUITY
Preferred stock, no par value; 2,000,000 shares
  authorized no shares issued and outstanding                                     -                  -
Common stock, no par value; 10,000,000 shares
  authorized, 876,492 shares issued and outstanding                       8,417,117          8,417,117
Retained deficit                                                         (1,717,271)        (2,196,449)
                                                                        -----------        -----------
                                                                          6,699,846          6,220,668
Accumulated other comprehensive loss                                        (38,438)           (22,524)
                                                                        -----------        -----------
  Total Stockholders' Equity                                              6,661,408          6,198,144
                                                                        -----------        -----------

     TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                         $64,838,223        $71,335,535
                                                                        ===========        ===========
</TABLE>



          See accompanying notes to consolidated financial statements.



                                       26
<PAGE>


<TABLE>
               RIDGESTONE FINANCIAL SERVICES, INC. AND SUBSIDIARY

                        CONSOLIDATED STATEMENTS OF INCOME
                  Years ended December 31, 1999, 1998 and 1997


<CAPTION>
                                                                 1999             1998             1997
                                                                 ----             ----             ----
INTEREST INCOME
<S>                                                           <C>              <C>              <C>
  Interest and fees on loans                                  $4,263,539       $4,284,718       $2,949,301
  Interest on securities - taxable                               276,087          237,396          546,627
  Interest on federal funds sold and securities
    purchased under agreements to resell                         286,165          411,276          195,211
  Interest on deposits in banks                                    6,025            7,553           15,740
                                                              ----------       ----------       ----------
     Total Interest Income                                     4,831,816        4,940,943        3,706,879
                                                              ----------       ----------       ----------

INTEREST EXPENSE
  Interest on deposits                                         2,417,939        2,881,181        2,125,477
  Interest on federal funds purchased                                  -                -              588
                                                              ----------       ----------       ----------
     Total Interest Expense                                    2,417,939        2,881,181        2,126,065
                                                              ----------       ----------       ----------

       Net Interest Income Before Provision
         for Loan Losses                                       2,413,877        2,059,762        1,580,814
PROVISION FOR LOAN LOSSES                                        282,500           65,000          290,000
                                                              ----------       ----------       ----------
       Net Interest Income After Provision
         for Loan Losses                                       2,131,377        1,994,762        1,290,814
                                                              ----------       ----------       ----------

NONINTEREST INCOME
  Service charges on deposit accounts                             87,322           40,532           24,418
  Secondary market loan fees                                      55,446          153,275           32,932
  Gain (loss) on sale of securities, net                         (15,402)          (7,687)         571,382
  Increase in cash surrender value of life insurance             104,832                -                -
  Other income                                                    79,998           96,052          101,145
                                                              ----------       ----------       ----------
     Total Noninterest Income                                    312,196          282,172          729,877
                                                              ----------       ----------       ----------

NONINTEREST EXPENSE
  Salaries and employee benefits                               1,223,532        1,129,696        1,021,304
  Occupancy expenses                                             313,395          260,134          205,833
  Equipment expenses                                             116,550          130,922          150,507
  Professional fees                                              124,078          169,483          137,767
  Data processing fees                                           136,573          104,626           91,346
  Other expenses                                                 425,302          342,899          338,025
                                                              ----------       ----------       ----------
     Total Noninterest Expenses                                2,339,430        2,137,760        1,944,782
                                                              ----------       ----------       ----------

Income Before Income Taxes                                       104,143          139,174           75,909
  Less:  Applicable income taxes (benefits)                     (375,035)        (192,203)          34,276
                                                              ----------       ----------       ----------

     NET INCOME                                               $  479,178       $  331,377       $   41,633
                                                              ==========       ==========       ==========

     Basic earnings per share                                 $     0.55       $     0.38       $     0.05
                                                              ==========       ==========       ==========
     Diluted earnings per share                               $     0.55       $     0.37       $     0.05
                                                              ==========       ==========       ==========
     Weighted average shares outstanding                         876,492          876,239          834,340
                                                              ==========       ==========       ==========
</TABLE>

          See accompanying notes to consolidated financial statements.



                                       27
<PAGE>


<TABLE>
               RIDGESTONE FINANCIAL SERVICES, INC. AND SUBSIDIARY

           CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                  Years Ended December 31, 1999, 1998 and 1997


<CAPTION>
                                                                                    Accumulated
                                                                    Retained           Other
                                                    Common          Earnings        Comprehensive
                                                    Stock           (Deficit)       Income (Loss)        Total
                                                    ------          ---------       -------------        -----
<S>                                               <C>              <C>                <C>             <C>
BALANCES - December 31, 1996                      $7,721,399       $(1,879,126)       $ 25,732        $5,868,005
                                                                                                      ----------
  Comprehensive income
    Net income                                             -            41,633               -            41,633
    Unrealized gains (losses) on
      securities available for sale                        -                 -         (90,654)          (90,654)
    Reclassification adjustment for
      gains (losses) realized in
      net income                                           -                 -          14,690            14,690
    Income tax effect                                      -                 -          29,626            29,626
                                                                                                      ----------
        Total Comprehensive Income (Loss)                  -                 -                            (4,705)
                                                  ----------       -----------        --------        ----------

BALANCES - December 31, 1997                       7,721,399        (1,837,493)        (20,606)        5,863,300
                                                                                                      ----------
  Comprehensive income
    Net income - 1998                                      -           331,377               -           331,377
    Unrealized gains (losses) on
      securities available for sale                        -                 -           4,543             4,543
    Reclassification adjustment for
      gains (losses) realized in
      net income                                           -                 -          (7,687)           (7,687)
    Income tax effect                                      -                 -           1,226             1,226
                                                                                                      ----------
        Total Comprehensive Income                                                                       329,459
                                                                                                      ----------
  5% Stock dividend                                  690,333          (690,333)              -                 -
  Issuance of 437 new shares of stock for
    the exercise of stock options                      5,385                 -               -             5,385
                                                  ----------       -----------        --------        ----------

BALANCES - December 31, 1998                       8,417,117        (2,196,449)        (22,524)        6,198,144
                                                                                                      ----------
  Comprehensive income
    Net income - 1999                                      -           479,178               -           479,178
    Unrealized gains (losses) on
      securities available for sale                        -                 -         (10,687)          (10,687)
    Reclassification adjustment for
      gains (losses) realized in
      net income                                           -                 -         (15,402)          (15,402)
    Income tax effect                                      -                 -          10,175            10,175
                                                                                                      ----------
        Total Comprehensive Income                                                                       463,264
                                                  ----------       -----------        --------        ----------

BALANCES - DECEMBER 31, 1999                      $8,417,117       $(1,717,271)       $(38,438)       $6,661,408
                                                  ==========       ===========        ========        ==========
</TABLE>


          See accompanying notes to consolidated financial statements.



                                       28
<PAGE>


<TABLE>
               RIDGESTONE FINANCIAL SERVICES, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                  Years Ended December 31, 1999, 1998 and 1997



<CAPTION>
                                                                              1999            1998              1997
                                                                              ----            ----              ----
<S>                                                                       <C>              <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES
  Net income                                                              $  479,178       $  331,377       $    41,633
                                                                          ----------       ----------       -----------
  Adjustments to reconcile net income to net cash flows
    provided by (used in) operating activities
      Depreciation                                                           152,026          170,166           184,473
      Provision for loan losses                                              282,500           65,000           290,000
      Provision (benefit) for deferred taxes                                (375,035)        (202,500)                -
      (Gain) loss on sale of investment securities                            15,402            7,687          (571,382)
      Loss on sale of other real estate owned                                 80,986                -                 -
      Amortization and accretion of bond
        premiums and discounts - net                                             562             (839)           (1,752)
      Amortization of organizational costs                                         -                -             2,120
      Net decrease in mortgage loans held for sale                           123,000          442,250           143,850
      Net increase in cash surrender value of life insurance                (145,519)      (1,797,153)                -
      (Increase) decrease in other assets                                    (98,031)          33,992          (249,573)
      Increase (decrease) in accrued expenses
        and other liabilities                                                 97,889         (138,237)          483,903
                                                                          ----------       ----------       -----------
          Total Adjustments                                                  133,780       (1,419,634)          281,639
                                                                          ----------       ----------       -----------
            Net Cash Flows Provided By
              (Used In) Operating Activities                                 612,958       (1,088,257)          323,272
                                                                          ----------       ----------       -----------

CASH FLOWS FROM INVESTING ACTIVITIES
  Net (increase) decrease in interest-bearing deposits in banks             (261,375)           1,536           180,452
  Net (increase) decrease in federal funds and securities
    purchased under agreements to resell                                   7,992,827       (4,531,000)        5,265,000
  Activity in available for sale securities:
    Sales                                                                     55,548          391,316         2,701,397
    Maturities, prepayments and calls                                      1,465,000                -                 -
    Purchases                                                             (1,064,688)        (138,200)       (1,994,683)
  Activity in held to maturity securities:
    Maturities, prepayments and calls                                      1,000,000        2,500,000           750,000
    Purchases                                                               (250,000)               -                 -
  Purchase of office building, leasehold improvements
    and equipment                                                           (128,361)        (143,744)          (76,333)
  Net expenditures on other real estate owned                               (622,589)        (186,681)       (1,125,790)
  Proceeds from sales of other real estate owned                             933,500          663,335                 -
  Net increase in loans                                                   (3,015,467)      (3,438,299)      (27,665,473)
                                                                          ----------       ----------       -----------
            Net Cash Flows Provided by
              (Used In) Investing Activities                               6,104,395       (4,881,737)      (21,965,430)
                                                                          ----------       ----------       -----------
</TABLE>



                                       29
<PAGE>


<TABLE>
               RIDGESTONE FINANCIAL SERVICES, INC. AND SUBSIDIARY

                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (Concluded)
                  Years Ended December 31, 1999, 1998 and 1997



<CAPTION>
                                                               1999            1998             1997
                                                               ----            ----             ----
<S>                                                        <C>               <C>             <C>
CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from stock options exercised                             -            5,385                -
  Net increase (decrease) in deposits                      (7,058,465)       6,035,231       22,818,965
                                                          -----------      -----------      -----------
          Net Cash Flows Provided By
            (Used In) Financing Activities                 (7,058,465)       6,040,616       22,818,965
                                                          -----------      -----------      -----------

               Net Increase (Decrease) in Cash
                 and Due from Banks                          (341,112)          70,622        1,176,807

CASH AND DUE FROM BANKS - Beginning of Year                 2,741,672        2,671,050        1,494,243
                                                          -----------      -----------      -----------

     CASH AND DUE FROM BANKS - END OF YEAR                $ 2,400,560      $ 2,741,672      $ 2,671,050
                                                          ===========      ===========      ===========
Supplemental cash flow disclosures
  Cash paid during the year for
    Interest                                              $ 2,641,890      $ 2,862,321      $ 1,865,394
    Income taxes                                          $        50      $    10,297      $    30,096
  Noncash transactions
    Transfer of foreclosed assets
      from loans to other assets                          $         -      $         -      $   648,699
</TABLE>


          See accompanying notes to consolidated financial statements.



                                       30
<PAGE>


                       RIDGESTONE FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1999 and 1998

--------------------------------------------------------------------------------

NOTE 1 - Summary of Significant Accounting Policies

     A.  Consolidation

The consolidated  financial  statements of RidgeStone  Financial Services,  Inc.
(the "Company") include the accounts of its wholly owned subsidiary,  RidgeStone
Bank (the "subsidiary  Bank"). The consolidated  financial  statements have been
prepared in conformity with generally accepted accounting principles and conform
to general practices within the banking industry.  All significant  intercompany
accounts and  transactions  have been eliminated in the  consolidated  financial
statements.

     B.  Nature of Banking Activities

The  consolidated  income  of the  Company  is  principally  from  income of its
subsidiary.  The subsidiary Bank grants commercial,  installment and residential
loans and accepts deposits from customers  primarily in southeastern  Wisconsin.
The subsidiary Bank is subject to competition from other financial  institutions
and nonfinancial  institutions providing financial products.  Additionally,  the
Company  and the  subsidiary  Bank are  subject  to the  regulations  of certain
regulatory  agencies  and  undergo  periodic  examinations  by those  regulatory
agencies.

     C.  Use of Estimates

In preparing  consolidated  financial  statements in conformity  with  generally
accepted  accounting  principles,  management is required to make  estimates and
assumptions that affect the reported amounts of assets and liabilities as of the
date of the balance sheet and reported  amounts of revenues and expenses  during
the reporting period. Actual results could differ from those estimates. Material
estimates that are  particularly  susceptible to significant  change in the near
term relate to the determination of the allowance for loan losses, the valuation
of foreclosed real estate and deferred tax assets.

     D.  Cash and Cash Equivalents

For purposes of reporting cash flows,  cash and cash  equivalents are defined as
those amounts included in the balance sheet caption "cash and due from banks".

The subsidiary Bank maintains amounts due from banks which, at times, may exceed
federally insured limits.  The subsidiary Bank has not experienced any losses in
such accounts.

     E.  Reclassifications

Certain  1997 and 1998  amounts  have been  reclassified  to conform to the 1999
presentation.  The  reclassifications  have no effect on reported amounts of net
income or equity.

     F.  Available for Sale Securities

Securities  classified as available for sale are those debt  securities that the
Company and its subsidiary Bank intend to hold for an indefinite period of time,
but not necessarily to maturity.  Any decision to sell a security  classified as
available  for sale would be based on  various  factors,  including  significant
movements  in interest  rates,  changes in the  maturity  mix of the  subsidiary
Bank's   assets   and   liabilities,   liquidity   needs,   regulatory   capital
consideration, and other similar factors. Securities classified as available for
sale are  carried at fair  value.  Unrealized  gains or losses are  reported  as
increases or decreases in comprehensive  income, net of the related deferred tax
effect.  Realized  gains  or  losses,  determined  on the  basis  of the cost of
specific securities sold, are included in earnings.



                                       31
<PAGE>


                       RIDGESTONE FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1999 and 1998

--------------------------------------------------------------------------------

NOTE 1 - Summary of Significant Accounting Policies (continued)

     G.  Held to Maturity Securities

Securities  classified as held to maturity are those debt securities the Company
and its  subsidiary  Bank have both the intent and  ability to hold to  maturity
regardless  of  changes  in market  conditions,  liquidity  needs or  changes in
general economic conditions.  These securities are carried at cost, adjusted for
amortization  of premium and  accretion  of  discount,  computed by the interest
method over their contractual  lives. The sale of a security within three months
of its maturity date or after collection of at least 85 percent of the principal
outstanding  at the time the security was acquired is  considered a maturity for
purposes of classification and disclosure.

     H.  Loans

Loans that  management  has the intent and  ability to hold for the  foreseeable
future  or until  maturity  or  payoff  are  reported  at the  amount  of unpaid
principal,  reduced  by the  allowance  for loan  losses.  Interest  on loans is
calculated  by  using  the  simple  interest  method  on daily  balances  of the
principal amount  outstanding.  The accrual of interest income on impaired loans
is discontinued when, in the opinion of management, there is reasonable doubt as
to the  borrower's  ability to meet payment of interest or  principal  when they
become due. When interest accrual is  discontinued,  all unpaid accrued interest
is  reversed.  Cash  collections  on  impaired  loans are  credited  to the loan
receivable  balance,  and no interest  income is recognized on those loans until
the principal balance is current.  Accrual of interest is generally resumed when
the  customer is current on all  principal  and  interest  payments and has been
paying on a timely basis for a period of time.

Loan fees and certain direct loan  origination  costs are deferred,  and the net
fee or cost is recognized as an adjustment to interest income using the interest
method  over  the  contractual  life  of  the  loans,   adjusted  for  estimated
prepayments based on the subsidiary Bank's historical prepayment experience.

     I.   Mortgage Loans Held for Sale

Mortgage  loans  originated  and intended for sale in the  secondary  market are
carried at the lower of cost or  estimated  market value in the  aggregate.  Net
unrealized  losses are  recognized  through a valuation  allowance by charges to
income. All sales are made without recourse.

     J.   Allowance for Loan Losses

The allowance for loan losses is established through a provision for loan losses
charged to expense. Loans are charged against the allowance for loan losses when
management  believes that the  collectibility of the principal is unlikely.  The
allowance for loan losses is adequate to cover probable  credit losses  relating
to specifically  identified loans, as well as probable credit losses inherent in
the balance of the loan  portfolio.  In  accordance  with  Financial  Accounting
Standards Board  Statements 5 and 114, the allowance is provided for losses that
have been  potentially  incurred as of the balance sheet date.  The allowance is
based on past events and current economic  conditions,  and does not include the
effects of expected losses on specific loans or groups of loans that are related
to future events or expected  changes in economic  conditions.  While management
uses the best information  available to make its evaluation,  future adjustments
to the allowance may be necessary if there are  significant  changes in economic
conditions.  Impaired  loans are measured based on the present value of expected
future cash flows  discounted  at the loan's  effective  interest  rate or, as a
practical expedient,  at the loan's observable market price or the fair value of
the collateral if the loan is collateral  dependent.  A loan is impaired when it
is probable the creditor will be unable to collect all contractual principal and
interest payments due in accordance with the terms of the loan agreement.



                                       32
<PAGE>


                       RIDGESTONE FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1999 and 1998

--------------------------------------------------------------------------------

NOTE 1 - Summary of Significant Accounting Policies (continued)

     J.  Allowance for Loan Losses (Continued)

In addition,  various regulatory agencies  periodically review the allowance for
loan losses. These agencies may require the subsidiary Bank to make additions to
the allowance for loan losses based on their judgments of  collectibility  based
on information available to them at the time of their examination.

     K.  Office Building, Leasehold Improvements and Equipment

Depreciable assets are stated at cost less accumulated depreciation.  Provisions
for depreciation are computed on straight-line and accelerated  methods over the
estimated  useful lives of the assets,  which are 39 years for office  buildings
and leasehold improvements and 3 to 7 years for equipment.

     L.  Other Real Estate Owned

Other real estate  owned,  acquired  through  partial or total  satisfaction  of
loans,  is carried at the lower of cost or fair value less cost to sell.  At the
date of acquisition losses are charged to the allowance for loan losses. Revenue
and expenses from operations and changes in the valuation allowance are included
in losses on foreclosed real estate.

     M.  Profit-Sharing Plan

The Company has established a trusteed  contributory 401(k)  profit-sharing plan
for  qualified  employees.  The  Company's  policy is to fund  contributions  as
accrued.

     N.  Income Taxes

The  Company  files a  consolidated  federal  income tax  return and  individual
subsidiary state income tax returns. Accordingly,  amounts equal to tax benefits
of those  companies  having taxable  federal losses or credits are reimbursed by
the other companies that incur federal tax liabilities.

Amounts  provided  for  income  tax  expense  are based on income  reported  for
financial statement purposes and do not necessarily  represent amounts currently
payable under tax laws.  Deferred income tax assets and liabilities are computed
annually for differences between the financial statement and tax bases of assets
and liabilities that will result in taxable or deductible  amounts in the future
based on  enacted  tax laws and rates  applicable  to the  periods  in which the
differences  are expected to affect  taxable  income.  As changes in tax laws or
rates are enacted,  deferred tax assets and liabilities are adjusted through the
provision for income taxes.  The differences  relate  principally to the reserve
for loan  losses,  operating  loss  carryforwards  and fixed  assets.  Valuation
allowances are  established  when necessary to reduce deferred tax assets to the
amount expected to be realized.

     O.  Off-Balance-Sheet Financial Instruments

In the  ordinary  course of  business,  the  subsidiary  Bank has  entered  into
off-balance-sheet  financial  instruments  consisting of  commitments  to extend
credit, commitments under credit card arrangements, commercial letters of credit
and standby  letters of credit.  Such financial  instruments are recorded in the
financial  statements  when they are  funded or  related  fees are  incurred  or
received.



                                       33
<PAGE>


                       RIDGESTONE FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1999 and 1998

--------------------------------------------------------------------------------

NOTE 1 - Summary of Significant Accounting Policies (continued)

     P.  Earnings Per Share Data

Earnings  per common  share  data have been  computed  based  upon the  weighted
average number of shares  outstanding  during the period.  In the computation of
diluted  earnings  per share,  all  dilutive  stock  options  are  assumed to be
exercised  at the  beginning  of each year and the proceeds are used to purchase
shares of the  Company's  common  stock at the average  market  price during the
year.

     Q.  Fair Value of Financial Instruments

Financial Accounting Standards Board Statement No. 107,  "Disclosures About Fair
Value of Financial  Instruments,"  requires disclosure of fair value information
about financial instruments, whether or not recognized in the balance sheet, for
which it is  practicable  to estimate  that value.  In cases where quoted market
prices are not available, fair values are based on estimates using present value
or other valuation  techniques.  Those techniques are significantly  affected by
the assumptions  used,  including the discount rate and estimates of future cash
flows. In that regard,  the derived fair value estimates cannot be substantiated
by comparison to independent  markets and, in many cases,  could not be realized
in immediate  settlement of the instrument.  Statement No. 107 excludes  certain
financial  instruments  from  its  disclosure  requirements.   Accordingly,  the
aggregate fair value amounts  presented do not represent the underlying value of
the Company.

The following methods and assumptions were used by the Company in estimating the
fair value of its financial instruments:

     Carrying   Amounts   Approximate  Fair  Values  for  the
     Following Instruments

         Cash and cash equivalents
         Federal funds sold and securities purchased under
           agreements to resell
         Interest-bearing deposits in banks
         Available for sale securities
         Variable rate loans that reprice frequently where no
           significant change in credit risk has occurred
         Mortgage loans held for sale
         Accrued interest receivable
         Cash surrender value of life insurance
         Demand deposits
         Variable rate money market accounts
         Variable rate certificates of deposit
         Accrued interest payable

     Quoted Market Prices

     Where  available,  or if not  available,  based on quoted  market prices of
     comparable instruments for the following instrument:

         Held to maturity securities

     Discounted Cash Flows

     Using interest rates  currently  being offered on instruments  with similar
     terms and with similar credit quality:

         All loans except variable rate loans described above
         Fixed rate certificates of deposit



                                       34
<PAGE>


                       RIDGESTONE FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1999 and 1998

--------------------------------------------------------------------------------

NOTE 1 - Summary of Significant Accounting Policies (continued)

     Q.  Fair Value of Financial Instruments (continued)

         Quoted Fees Currently Being Charged for Similar Instruments

         Taking into account the remaining terms of the agreements and the
         counterparties' credit standing:

             Off-Balance-Sheet Instruments

                 Guarantees
                 Letters of credit
                 Lending commitments

Since the majority of the Company's  off-balance-sheet  instruments  consists of
non-fee-producing, variable rate commitments, the Company has determined it does
not have a distinguishable fair value.

--------------------------------------------------------------------------------

NOTE 2 - Cash and Due from Banks

The subsidiary Bank is required to maintain vault cash or reserve  balances with
Federal  Reserve Banks based upon a percentage of deposits.  These  requirements
approximated $158,000 and $112,000 at December 31, 1999 and 1998, respectively.

--------------------------------------------------------------------------------

NOTE 3 - Securities Purchased Under Agreements to Resell

The bank  enters  into  purchases  of  securities  under  agreements  to  resell
substantially  identical securities.  These agreements are classified as secured
loans.  Securities  purchased  under  agreements  to resell at December 31, 1999
consist of SBA Loans.  There were no securities  purchased  under  agreements to
resell at December 31, 1998.

The amounts  advanced  under these  agreements  are  reflected  as assets in the
consolidated  balance  sheet.  It  is  the  subsidiary  Bank's  policy  to  take
possession of securities  purchased under agreements to resell.  Agreements with
third  parties  specify  the  subsidiary  Bank's  rights to  request  additional
collateral,  based  on  its  monitoring  of the  fair  value  of the  underlying
securities on a daily basis.  The securities are delivered by appropriate  entry
into a third-party custodian's account designated by the subsidiary Bank under a
written  custodial  agreement that explicitly  recognizes the subsidiary  Bank's
interest in the securities. At December 31, 1999 these agreements matured within
90 days and no material amount of agreements to resell securities  purchased was
outstanding with any individual dealer.



                                       35
<PAGE>


                       RIDGESTONE FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1999 and 1998

--------------------------------------------------------------------------------

NOTE 4 - Available for Sale Securities

Amortized  costs and fair values of available for sale securities as of December
31, 1999 and 1998 are summarized as follows:

                                                 December 31, 1999
                                   ---------------------------------------------
                                                 Gross        Gross
                                   Amortized   Unrealized   Unrealized   Fair
                                     Cost        Gains        Losses     Value
                                   ---------   ----------   ----------   -----

Corporate securities               $ 45,000       $ -        $     -    $ 45,000
Equity securities                   121,938         -         38,438      83,500
                                   --------       ---        -------    --------

                                   $166,938       $ -        $38,438    $128,500
                                   ========       ===        =======    ========




                                                 December 31, 1998
                                   ---------------------------------------------
                                                 Gross        Gross
                                   Amortized   Unrealized   Unrealized    Fair
                                     Cost        Gains        Losses      Value
                                   ---------   ----------   ----------    -----

U.S. Treasury securities           $249,608      $  470      $     -    $250,078
Obligations of other U.S.
  government agencies and           250,000       1,406            -     251,406
  corporations                     --------      ------      -------    --------
                                    499,608       1,876            -     501,484
                                    138,200           -       24,400     113,800
Equity securities                  --------      ------      -------    --------

                                   $637,808      $1,876      $24,400    $615,284
                                   ========      ======      =======    ========

Expected  maturities  will differ from  contractual  maturities in corporate and
other  equity  securities  since  the  anticipated  maturities  are not  readily
determinable.



                                       36
<PAGE>


                       RIDGESTONE FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1999 and 1998

--------------------------------------------------------------------------------

NOTE 4 - Available for Sale Securities (continued)

Realized gains and losses on sale of available for sale securities for the years
ended December 31, 1999, 1998 and 1997 are as follows:

                                               Years Ended December 31,
                                        ----------------------------------------
                                          1999          1998            1997
                                          ----          ----            ----
Proceeds from sales of
  available for sale securities         $ 55,548      $ 391,316      $2,701,397
                                        ========      =========      ==========

Gross gains on sales                    $      -      $  23,748      $  574,885
Gross losses on sales                    (15,402)       (31,435)         (3,503)
                                        --------      ---------      ----------

                                        $(15,402)     $  (7,687)     $  571,382
                                        ========      =========      ==========

Related income taxes (benefit)          $ (6,084)     $  (3,036)     $   34,276
                                        ========      =========      ==========

--------------------------------------------------------------------------------

NOTE 5 - Held to Maturity Securities

Amortized  costs and fair values of held to maturity  securities  as of December
31, 1999 and 1998 are summarized as follows:

<TABLE>
                                                                   December 31, 1999
                                                   -------------------------------------------------
<CAPTION>
                                                                   Gross         Gross
                                                   Amortized     Unrealized    Unrealized     Fair
                                                      Cost         Gains         Losses       Value
                                                   ---------     ----------    ----------     -----

<S>                                                <C>             <C>           <C>        <C>
U.S. Treasury securities                           $749,381        $2,572        $    -     $751,953
Obligations of other U.S. government
  agencies and corporations                         250,000             -         6,750      243,250
                                                   --------        ------        ------     --------

                                                   $999,381        $2,572        $6,750     $995,203
                                                   ========        ======        ======     ========



                                                                   December 31, 1998
                                                   -------------------------------------------------
<CAPTION>
                                                                   Gross         Gross
                                                   Amortized     Unrealized    Unrealized      Fair
                                                      Cost         Gains         Losses        Value
                                                   ---------     ----------    ----------      -----

U.S. Treasury securities                           $1,000,335      $21,931       $    -     $1,022,266
Obligations of other U.S. government
  agencies and corporations                           750,000        8,434            -        758,434
                                                   ----------      -------       ------     ----------

                                                   $1,750,335      $30,365       $    -     $1,780,700
                                                   ==========      =======       ======     ==========
</TABLE>



                                       37
<PAGE>


                       RIDGESTONE FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1999 and 1998

--------------------------------------------------------------------------------

NOTE 5 - Held to Maturity Securities (continued)

The amortized cost and fair value of held to maturity  securities as of December
31, 1999, by contractual maturity, are shown below:

                                                       December 31, 1999
                                                    -------------------------
                                                    Amortized         Fair
                                                      Cost            Value
                                                    ---------         -----

Due in one year or less                             $749,381         $751,953
Due after one year through 5 years                         -                -
Due after 5 years through 10 years                   250,000          243,250
                                                    --------         --------

                                                    $999,381         $995,203
                                                    ========         ========


--------------------------------------------------------------------------------

NOTE 6 - Loans

Major classifications of loans are as follows:

                                                         December 31,
                                              ----------------------------------
                                                  1999                  1998
                                                  ----                  ----

Commercial                                    $16,956,230           $10,011,324
Real estate
Construction                                    4,321,625             3,592,246
Commercial                                     14,927,167            21,033,369
Residential                                    10,809,939             9,854,421
Installment and consumer                        4,677,606             4,377,717
                                              -----------           -----------
                                               51,692,567            48,869,077
Less: Allowance for loan losses                  (653,270)             (562,747)
                                              -----------           -----------

Net Loans                                     $51,039,297           $48,306,330
                                              ===========           ===========

Impaired  loans  at  December  31,  1999  and  1998 of  $325,055  and  $492,540,
respectively,  have been recognized in conformity with FASB Statement No. 114 as
amended by FASB Statement No. 118. The average  recorded  investment in impaired
loans during 1999 and 1998 was $320,466 and  $365,672,  respectively.  The total
allowance  for loan  losses  related  to these  loans was  $28,023  and $-0- for
December 31, 1999 and 1998,  respectively.  Interest income on impaired loans of
$8,499 and $64,157 was recognized  for cash payments  received in 1999 and 1998,
respectively.

Certain directors, executive officers and principal shareholders of the Company,
and their related  interests,  had loans outstanding in the aggregate amounts of
$2,109,415  and $3,576,818 at December 31, 1999 and 1998,  respectively.  During
1999,  $1,069,424 of new loans were made with  $2,536,827 of  repayments.  These
loans were made on substantially  the same terms,  including  interest rates and
collateral,  as those  prevailing at the same time for  comparable  transactions
with other persons and did not involve more than normal risks of  collectibility
or present other unfavorable features.



                                       38
<PAGE>


                       RIDGESTONE FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1999 and 1998

--------------------------------------------------------------------------------

NOTE 7 - Allowance for Loan Losses

The allowance for loan losses reflected in the consolidated financial statements
represents the allowance available to absorb loan losses. An analysis of changes
in the allowance is presented in the following tabulation:

                                                             December 31,
                                                     ---------------------------
                                                       1999              1998
                                                       ----              ----

BALANCE - Beginning of Year                          $ 562,747        $  72,200
  Change-offs                                         (191,977)        (126,993)
  Provision charged to operations                      282,500           65,000
                                                     ---------        ---------

BALANCE - END OF YEAR                                $ 653,270        $ 562,747
                                                     =========        =========



--------------------------------------------------------------------------------

NOTE 8 - Office Building, Leasehold Improvements and Equipment

Office  building,  leasehold  improvements and equipment are stated at cost less
accumulated depreciation and amortization and are summarized as follows:

                                                               December 31,
                                                         -----------------------
                                                             1999         1998
                                                             ----         ----

Land                                                     $   72,200   $   72,200
Building and leasehold improvements                       1,041,147    1,034,147
Furniture and equipment                                   1,021,974      900,613
                                                         ----------   ----------
                                                          2,135,321    2,006,960
  Less: Accumulated depreciation and amortization           782,326      630,300
                                                         ----------   ----------
    Total Office Building, Leasehold
      Improvements and Equipment                         $1,352,995   $1,376,660
                                                         ==========   ==========

Depreciation  and  amortization  expense  amounted  to  $152,026,  $170,166  and
$184,473 in 1999, 1998 and 1997, respectively.



                                       39
<PAGE>


                       RIDGESTONE FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1999 and 1998

--------------------------------------------------------------------------------

NOTE 9 - Deposits

The  aggregate  amount of other  Time  deposits  (including  CD's),  each with a
minimum  denomination  of $100,000,  was  $4,254,004  and $4,103,776 in 1999 and
1998, respectively.

At December  31, 1999 the  scheduled  maturities  of other Time  deposits are as
follows:

          2000                                 $14,368,533
          2001                                   1,521,569
          2002                                     856,398
          2003                                      32,050
          2004                                     140,302
                                               -----------

Total                                          $16,918.852
                                               ===========


--------------------------------------------------------------------------------

NOTE 10 - Income Taxes

The  provision  for  income  taxes  included  in the  accompanying  consolidated
financial statements consists of the following:

                                                    Years Ended December 31,
                                               ---------------------------------
                                                  1999         1998       1997
                                                  ----         ----       ----
Current Taxes
  Federal                                      $       -    $       -    $     -
  State                                                -       10,297     34,276
                                               ---------    ---------    -------
                                                       -       10,297     34,276
                                               ---------    ---------    -------
Deferred Income Taxes (Benefit)
  Federal                                       (324,045)    (170,100)         -
  State                                          (50,990)     (32,400)         -
                                               ---------    ---------    -------
                                                (375,035)    (202,500)         -
                                               ---------    ---------    -------

  Total Provision (Benefit)
  for Income Taxes                             $(375,035)   $(192,203)   $34,276
                                               =========    =========    =======

At December 31, 1999,  the Company had a net  operating  loss  carryforward  for
income tax purposes of  approximately  $810,000 which, if not utilized to reduce
taxable income in future periods, will expire as follows:

       December 31,
          2011                                   $ 707,000
          2013                                     103,000
                                                 ---------

                                                 $ 810,000
                                                 =========



                                       40
<PAGE>


                       RIDGESTONE FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1999 and 1998

--------------------------------------------------------------------------------

NOTE 10 - Income Taxes (continued)

The following amounts make up the deferred tax assets and liabilities:

                                                           December 31,
                                                    ----------------------------
                                                      1999               1998
                                                      ----               ----
Deferred Tax Assets
  Allowance for loan losses                         $216,797           $143,989
  Startup costs                                       36,171             75,633
  Net operating loss carryforward                    318,829            433,280
  Deferred compensation                               69,919             19,478
  Other                                               16,656                  -
Deferred Tax Liabilities
  Depreciation                                        (8,598)            (2,280)
  Other                                                    -            (10,151)
Valuation                                                  -           (385,210)
                                                    --------          ---------

                                                    $649,774          $ 274,739
                                                    ========          =========

Management  believes  it is more  likely  than not that the gross  deferred  tax
assets as of December 31, 1999 will be fully realized. A valuation allowance was
recorded as of  December  31,  1998 to reduce the  deferred  tax assets to their
realizable value.

<TABLE>
                                                                  Years Ended December 31,
                                          ----------------------------------------------------------------------
                                                  1999                       1998                   1997
                                                  ----                       ----                   ----
<CAPTION>
                                                          % of                      % of                   % of
                                                         Pretax                    Pretax                 Pretax
                                           Amount        Income       Amount       Income     Amount      Income
                                           ------        ------       ------       ------     ------      ------
<S>                                       <C>             <C>       <C>           <C>        <C>          <C>
Reconciliation of statutory to
  effective taxes
    Federal income taxes at
      statutory rate                      $  35,409       34.0%     $  47,319       34.0%    $ 25,809      34.0%
    Adjustments for
      Increases in taxes
      resulting from state
      income taxes                                -         -           6,178        4.4       22,622      29.8
    Increase in cash
      surrender value of
      life insurance                        (35,643)     (34.2)           -           -             -         -
    Reduction of deferred tax
      valuation allowance                  (385,211)    (369.9)      (235,179)    (162.5)     (14,155)    (18.6)
    Other - net                              10,410       10.0        (10,521)     (14.0)           -         -
                                          ---------     ------      ---------     --------   --------     ------

    Effective Income
      Taxes - Operations                  $(375,035)    (360.1)%    $(192,203)    (138.1)%   $ 34,276      45.2%
                                          =========     ======      =========     ========   ========     ======
</TABLE>



                                       41
<PAGE>


                      RIDGESTONE FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1999 and 1998


--------------------------------------------------------------------------------

NOTE 11 - Profit-Sharing Plan

The Company has a trusteed 401(k) plan. The Company contributed $32,938, $20,592
and $28,700 in 1999, 1998 and 1997, respectively.



--------------------------------------------------------------------------------
NOTE 12 - Salary Continuation Agreement

During  1998,  the Company  entered  into salary  continuation  agreements  with
various executive officers.  The agreements provide for the payment of specified
amounts upon the employees  retirement or death.  The payments are being accrued
over the  employees'  anticipated  remaining  period of  employment.  The salary
continuation  accrual  balance was $183,818 and $49,500 at December 31, 1999 and
1998, respectively.  Agreement expense for the years ended December 31, 1999 and
1998 was $141,877 and $49,500, respectively.

Although not part of the agreements,  the Company purchased paid-up split dollar
life  insurance on the  officers.  The insurance  could provide  funding for the
payments  of  benefits.  The cash  surrender  value of the  life  insurance  was
$1,942,672 and $1,797,153 at December 31, 1999 and 1998, respectively.



--------------------------------------------------------------------------------
NOTE 13 - Facilities Lease

Lease expense for the years ended December 31, 1999, 1998 and 1997 was $113,167,
$94,235 and $81,936,  respectively. The lease term, which is accounted for as an
operating lease,  expires on May 31, 2000 and has two five-year renewal options.
Monthly  rental  payments of $8,878 are  required  under the terms of the lease.
During 1999,  the Company  exercised an option to lease  additional  space which
required  additional  monthly payments of $1,018 per month. The Company also has
the  option of  purchasing  the  building  upon the  fourth  anniversary  of the
commencement of the lease for $1,000,000.

In connection with the lease of the subsidiary  Bank's main office,  the Company
paid broker's  commissions to an entity whose principals are an organizer of the
subsidiary Bank and a director of the Company,  in the amount of $4,158,  $3,812
and $4,518 in 1999, 1998 and 1997,  respectively.  Additional commissions may be
payable if the Company  exercises its options for further lease terms and if the
Company later  purchases the shopping mall in which the subsidiary Bank premises
are located.

Minimum future rental payments under the noncancelable operating lease are:

     Year Ending December 31,
               2000                                 $ 49,479
                                                    ========



                                       42
<PAGE>


                      RIDGESTONE FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1999 and 1998


--------------------------------------------------------------------------------

NOTE 14 - Commitments and Contingencies

In the normal  course of  business,  the Company is  involved  in various  legal
proceedings.  In the opinion of  management,  any liability  resulting from such
proceedings  would  not  have a  material  adverse  effect  on the  consolidated
financial statements.

The Company is party to financial instruments with off-balance-sheet risk in the
normal course of business to meet the financing  needs of its  customers.  These
financial instruments include commitments to extend credit, financial guarantees
and standby letters of credit.  They involve,  to varying  degrees,  elements of
credit risk in excess of amounts recognized on the consolidated balance sheet.

The  Company's  exposure  to credit loss in the event of  nonperformance  by the
other party to the financial  instrument  for  commitments  to extend credit and
standby letters of credit is represented by the  contractual  notional amount of
those  instruments.  The  Company  uses  the  same  credit  policies  in  making
commitments  and  issuing  letters  of  credit  as it does for  on-balance-sheet
instruments.

A summary of the  contract  or  notional  amount of the  Company's  exposure  to
off-balance-sheet risk as of December 31 is as follows:

                                                       1999              1998
Financial instruments whose contract                   ----              ----
  amounts represent credit risk:
      Commitments to extend credit                 $12,497,170       $12,754,818
      Credit card commitments                      $   916,854       $   781,350
      Standby letters of credit                    $   109,200       $    28,700

Commitments  to extend  credit are  agreements  to lend to a customer as long as
there is no violation of any condition established in the contract.  Commitments
generally  have fixed  expiration  dates or other  termination  clauses  and may
require  payment of a fee. Since many of the  commitments are expected to expire
without  being  drawn  upon,  the total  commitment  amounts do not  necessarily
represent  future cash  requirements.  Standby letters of credit are conditional
commitments  issued to guarantee the performance of a customer to a third party.
Those  guarantees are primarily  issued to support public and private  borrowing
arrangements.  The  credit  risk  involved  in  issuing  letters  of  credit  is
essentially the same as that involved in extending loan facilities to customers.
The Company evaluates each customer's credit worthiness on a case-by-case basis.
The amount of  collateral  obtained,  if deemed  necessary  by the Company  upon
extension  of  credit,  is  based  on  management's  credit  evaluation  of  the
counterparty.  Collateral  held  varies  but may  include  accounts  receivable,
inventory,  property and equipment, and income-producing  commercial properties.
Credit card commitments are unsecured.

The Company and the  subsidiary  Bank do not engage in the use of interest  rate
swaps, futures, forwards or option contracts.



                                       43
<PAGE>


                      RIDGESTONE FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1999 and 1998


--------------------------------------------------------------------------------

NOTE 15 - Concentration of Credit Risk

Practically all of the subsidiary Bank's loans, commitments,  and commercial and
standby  letters of credit  have been  granted to  customers  in the  subsidiary
Bank's  market  area.  Although  the  subsidiary  Bank  has a  diversified  loan
portfolio,  the ability of its debtors to honor their  contracts is dependent on
the economic  conditions of the counties  surrounding  the subsidiary  Bank. The
concentration of credit by type of loan is set forth in Note 6.



--------------------------------------------------------------------------------

NOTE 16 - Stockholders' Equity

The  RidgeStone  Financial  Services,  Inc.  1996 Stock Option Plan (the "Plan")
provides for the granting of options to purchase up to 500,000  shares of common
stock to key officers and  employees  of the  Company.  Options  granted to date
under the Plan have been granted at the fair market value of the common stock on
the date of the grant.  Options  granted to date under the Plan may be exercised
33.33%  per year  beginning  one year  after  the date of the  grant and must be
exercised within a ten year period.

Activity of the Plan is summarized in the following table:

<TABLE>
<CAPTION>
                                                Weighted-
                                                 Average                                                     Weighted-
                                                Fair Value                                                    Average
                                                of Option       Options                          Options     Exercise
                                                 Granted       Available      Exercisable     Outstanding     Price
                                                ----------     ---------      -----------     -----------    ---------

<S>                                            <C>            <C>                <C>             <C>          <C>
BALANCE - December 31, 1996                                      50,975               -          49,025       $ 11.75
  Granted                                         $ 3.92        (49,000)                         49,000         14.63
  Canceled                                                        1,150                          (1,150)        12.50
                                                                -------                         -------

BALANCE - December 31, 1997                                       3,125          16,057          96,875         13.20
  Additional stock options authorized                           400,000                               -
  Stock dividend                                                 20,153                           4,847         13.20
  Exercise of stock options                                           -                            (437)        12.32
  Granted                                         $ 6.06        (52,050)                         52,050         18.50
  Canceled                                                        2,923                          (2,923)        17.24
                                                                -------                         -------

BALANCE - December 31, 1998                                     374,151          50,174         150,412         14.96
  Granted                                          $5.48        (63,300)                         63,300         11.00
  Canceled                                                          675                            (675)        14.37
                                                                -------                         -------

BALANCE - DECEMBER 31, 1999                                     311,526          99,824         213,037        $13.78
                                                                =======                         =======

</TABLE>



                                       44
<PAGE>


                      RIDGESTONE FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1999 and 1998


--------------------------------------------------------------------------------

NOTE 16 - Stockholders' Equity (continued)

The following table summarizes information about fixed stock options outstanding
at December 31, 1999:

                      Options Outstanding                 Options Exercisable
           ------------------------------------------   -----------------------
                            Weighted-       Weighted-                 Weighted-
                             Average         Average                   Average
Exercise     Number         Remaining       Exercise       Number     Exercise
 Price     Outstanding   Contractual Life    Price      Exercisable    Price
--------   -----------   ----------------   ---------   -----------   ---------

 $11.75       49,798        6.5 years        $11.75       49,798      $ 11.75
  14.63       50,139        7.3 years         14.63       33,428        14.63
  18.50       49,800        8.3 years         18.50       16,598        18.50
  11.00       63,300        9.5 years         11.00           -         11.00
             -------                                      ------

             213,037                                      99,824
             =======                                      ======


The Company applies APB Opinion 25 and related  interpretation in accounting for
its Plan.  Accordingly,  no compensation  cost has been recognized for the Plan.
Had compensation  cost for the Plan been determined based upon the fair value at
the grant  dates for awards  under the Plan  consistent  with the method of FASB
Statement  123, the Company's net income and earnings per share would be reduced
to the pro forma amounts indicated below:

                                                   Years Ended December 31,
                                               -------------------------------
                                                 1999        1998        1997
                                                 ----        ----        ----

Net income - as reported                       $479,178    $331,337    $41,633
  Pro forma                                    $336,501    $248,306    $ 1,692
Basic earnings per share - as reported         $   0.55    $   0.38    $  0.05
  Pro forma                                    $   0.38    $   0.28    $     -
Diluted earnings per share - as reported       $   0.55    $   0.37    $  0.05
  Pro forma                                    $   0.38    $   0.28    $     -



                                       45
<PAGE>


                      RIDGESTONE FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1999 and 1998


--------------------------------------------------------------------------------

NOTE 16 - Stockholders' Equity (continued)

The fair value of each option  grant is estimated on the date of grant using the
Black-Scholes   option-pricing   model  with  the   following   weighted-average
assumptions used for grants in 1999, 1998 and 1997, respectively: dividend yield
of $-0-,  $- 0-, and $-0-;  expected  volatility  of  25.93%,  24.22% and 13.4%,
risk-free  interest  rates of 7.04%,  5.35% and 5.59%;  and expected  lives of 8
years, 8 years and 8 years, respectively.

A  reconciliation  of the numerators and the  denominators of earnings per share
and earnings per share assuming dilutions are:

                                                                       Per Share
                                               Income        Shares      Amount
                                               ------        ------    ---------
1999
  Earnings per share                           $479,178      876,492      $0.55
  Effect of options                                   -            -     ======
                                               --------      -------

    Earnings Per Share - Assuming Dilution     $479,178      876,492      $0.55
                                               ========     ========     ======

1998
  Earnings per share                           $331,337      876,239      $0.38
  Effect of options                                   -       13,118     ======
                                               --------      -------

    Earnings Per Share - Assuming Dilution     $331,337      889,357      $0.37
                                               ========     ========     ======

1997
  Earnings per share                           $ 41,633      834,340      $0.05
  Effect of options                                   -       12,056     ======
                                               --------      -------

    Earnings Per Share - Assuming Dilution     $ 41,633      846,396      $0.05
                                               ========     ========     ======



--------------------------------------------------------------------------------

NOTE 17 - Retained Earnings and Restriction on Dividends

The principal  source of income and funds of the Company will be dividends  from
the subsidiary Bank. Under Wisconsin law, the subsidiary Bank will be restricted
as to the  maximum  amount  of  dividends  it may  pay on its  common  stock.  A
Wisconsin  bank  may not pay  dividends  except  out of net  earnings.  A bank's
ability to pay  dividends  may also be  restricted  in the event that  losses in
excess of undivided  profits have been charged against surplus.  Unless exempted
by the Wisconsin  Department of Financial  Institutions,  Division of Banking, a
state bank may not pay or declare dividends on capital stock in excess of 50% of
its net earnings  until its surplus fund is fully restored to an amount equal to
100% of the bank's capital stock.  Federal regulators have authority to prohibit
a bank from  engaging in any action  deemed by them to  constitute  an unsafe or
unsound practice, including the payment of dividends.

Federal Reserve Board policy provides that a bank holding company should not pay
dividends  unless (i) the  dividends  can be fully funded out of net income from
the Company's net earnings over the prior year and (ii) the prospective  rate of
earnings  retention  appears  consistent with the Company's (and its subsidiary)
capital needs, asset quality and overall financial conditions.



                                       46
<PAGE>


                     RIDGESTONE FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1999 and 1998


--------------------------------------------------------------------------------

NOTE 18 - Regulatory Capital Requirements

The Company (on a  consolidated  basis) and the  subsidiary  Bank are subject to
various  regulatory capital  requirements  administered by the federal and state
banking  agencies.  Failure to meet minimum  capital  requirements  can initiate
certain mandatory, and possibly additional discretionary,  actions by regulators
that, if undertaken,  could have a direct  material  effect on the Company's and
the subsidiary Bank's financial  statements.  Under capital adequacy  guidelines
and the regulatory  framework for prompt corrective  action, the Company and the
subsidiary Bank must meet specific capital guidelines that involve  quantitative
measures of their assets,  liabilities,  and certain  off-balance-sheet items as
calculated  under  regulatory  accounting  practices.  The  capital  amounts and
classification are also subject to qualitative judgments by the regulators about
components,  risk-  weightings,  and other  factors.  Prompt  corrective  action
provisions are not applicable to bank holding companies.

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require the  Company and the  subsidiary  Bank to maintain  minimum  amounts and
ratios (set forth in the table below) of total and Tier 1 capital (as defined in
the regulations) to risk-weighted  assets (as defined) and of Tier 1 capital (as
defined) to average assets (as defined). Management believes, as of December 31,
1999 and 1998,  the Company  and the  subsidiary  Bank met all capital  adequacy
requirements to which they are subject.

As of December  31,  1999,  the most  recent  notification  from the  regulatory
agencies   categorized  the  subsidiary  Bank  as  well-capitalized   under  the
regulatory  framework  for  prompt  corrective  action.  To  be  categorized  as
well-capitalized, the institution must maintain minimum total risk-based, Tier I
risk-based,  and Tier 1 leverage  ratios as set forth in the  following  tables.
There  are no  conditions  or  events  since the  notification  that  management
believes have changed the subsidiary Bank's category.



                                       47
<PAGE>


                     RIDGESTONE FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1999 and 1998


--------------------------------------------------------------------------------

NOTE 18 - Regulatory Capital Requirements (continued)

The  Company  and  subsidiary  Bank's  actual  capital  amounts and ratios as of
December 31, 1999 and 1998 are also presented in the table.

<TABLE>
<CAPTION>
                                                                                                 To Be Well
                                                                          For Capital         Capitalized Under
                                                                           Adequacy           Prompt Corrective
                                                     Actual                Purposes           Action Provision
                                               -------------------    -------------------    -------------------
                                                 Amount      Ratio      Amount      Ratio      Amount      Ratio
                                               ----------    -----    ----------    -----    ----------    -----
<S>                                            <C>           <C>      <C>           <C>      <C>           <C>
As of December 31, 1999
  Total capital (to risk-weighted assets)
    RidgeStone Financial
      Services, Inc.                           $6,936,116    12.4%    $4,476,857    8.0%        N/A
    RidgeStone Bank                            $6,534,774    11.7%    $4,465,039    8.0%     $5,581,298    10.0%
  Tier I capital (to risk-weighted assets)
    RidgeStone Financial
      Services, Inc.                           $6,282,846    11.2%    $2,238,428    4.0%        N/A
    RidgeStone Bank                            $5,881,504    10.5%    $2,232,519    4.0%     $3,348,778     6.0%
  Tier I capital (to average assets)
    RidgeStone Financial
      Services, Inc.                           $6,282,846     9.5%    $2,631,706    4.0%        N/A
    RidgeStone Bank                            $5,881,504     9.0%    $2,626,440    4.0%     $3,283,050     5.0%

As of December 31, 1998
  Total capital (to risk-weighted assets)
    RidgeStone Financial
      Services, Inc.                           $6,783,415    12.4%    $4,372,779    8.0%        N/A
    RidgeStone Bank                            $6,281,463    11.6%    $4,349,713    8.0%     $5,437,141    10.0%
  Tier I capital (to risk-weighted assets)
    RidgeStone Financial
      Services, Inc.                           $6,220,668    11.4%    $2,186,389    4.0%        N/A
    RidgeStone Bank                            $5,718,716    10.5%    $2,147,856    4.0%     $3,262,285     6.0%
  Tier I capital (to average assets)
    RidgeStone Financial
      Services, Inc.                           $6,220,668     8.2%    $3,047,520    4.0%        N/A
    RidgeStone Bank                            $5,718,716     8.2%    $2,791,280    4.0%     $3,489,100     5.0%
</TABLE>



--------------------------------------------------------------------------------
NOTE 19 - Regulatory Restriction

RidgeStone Financial Services, Inc. (Holding Company only) has made a commitment
to the Federal  Reserve  Bank,  Chicago not to incur any debt until the later of
August  31,  2000 or five  years  from the date of  consummation  of  operation,
(December 7, 1995) without prior approval from the Federal Reserve Bank.



                                       48
<PAGE>


                     RIDGESTONE FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1999 and 1998


--------------------------------------------------------------------------------

NOTE 20 - Fair Values of Financial Instruments

The estimated fair values of the Company's financial instruments are as follows:

<TABLE>
<CAPTION>
                                            December 31, 1999            December 31, 1998
                                         ------------------------     -----------------------
                                          Carrying     Estimated      Carrying     Estimated
                                           Amount      Fair Value      Amount      Fair Value
                                          --------     ----------     --------     ----------
FINANCIAL ASSETS

<S>                                      <C>           <C>           <C>           <C>
  Cash and due from banks                $ 2,400,560   $ 2,400,560   $ 2,741,672   $ 2,741,672
                                         ===========   ===========   ===========   ===========

  Interest bearing deposits in banks     $   264,024   $   264,024   $     2,649   $     2,649
                                         ===========   ===========   ===========   ===========

  Federal funds sold                     $ 4,532,173   $ 4,532,173   $12,525,000   $12,525,000
                                         ===========   ===========   ===========   ===========

  Available for sale securities          $   128,500   $   128,500   $   615,284   $   615,284
                                         ===========   ===========   ===========   ===========

  Held to maturity securities            $   999,381   $   995,203   $ 1,750,335   $ 1,780,700
                                         ===========   ===========   ===========   ===========

  Net loans                              $51,039,297   $51,216,732   $48,306,330   $48,614,751
                                         ===========   ===========   ===========   ===========

  Mortgage loans held for sale           $   136,000   $   136,000   $   259,000   $   259,000
                                         ===========   ===========   ===========   ===========

  Cash surrender value of life           $ 1,942,672   $ 1,942,672   $ 1,797,153   $ 1,797,153
    insurance                            ===========   ===========   ===========   ===========

  Accrued interest receivable            $   401,784   $   401,784   $   394,273   $   394,273
                                         ===========   ===========   ===========   ===========

FINANCIAL LIABILITIES

  Deposits                               $57,464,391   $57,472,425   $64,522,856   $64,561,674
                                         ===========   ===========   ===========   ===========

  Accrued interest payable               $   309,503   $   309,503   $   533,454   $   533,454
                                         ===========   ===========   ===========   ===========
</TABLE>


The estimated fair value of fee income on letters of credit at December 31, 1999
and 1998 is insignificant. Loan commitments on which the committed interest rate
is less than the current market rate are also insignificant at December 31, 1999
and 1998.

The Company  assumes  interest  rate risk (the risk that general  interest  rate
levels  will  change) as a result of its normal  operations.  As a result,  fair
values of the  Company's  financial  instruments  will change when interest rate
levels  change and that change may be either  favorable  or  unfavorable  to the
Company.  Management  attempts to match  maturities of assets and liabilities to
the extent believed necessary to minimize interest rate risk. However, borrowers
with  fixed  rate  obligations  are less  likely  to  prepay  in a  rising  rate
environment and more likely to prepay in a falling rate environment. Conversely,
depositors  who are  receiving  fixed rates are more  likely to  withdraw  funds
before  maturity  in a rising  rate  environment  and less  likely to do so in a
falling rate environment. Management monitors rates and maturities of assets and
liabilities  and attempts to minimize  interest rate risk by adjusting  terms of
new loans and deposits and by investing in  securities  with terms that mitigate
the Company's overall interest rate risk.



                                       49
<PAGE>


                     RIDGESTONE FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1999 and 1998


--------------------------------------------------------------------------------

NOTE 21 - RidgeStone  Financial  Services,  Inc. (Parent Company Only) Financial
          Information

<TABLE>
                            CONDENSED BALANCE SHEETS
                                                                               December 31,
<CAPTION>
                                                                     ----------------------------
                                                                         1999             1998
                                                                         ----             ----
<S>                                                                  <C>              <C>
ASSETS
  Cash                                                               $    8,740       $  274,880
  Interest-bearing deposits in banks                                    258,165            2,649
  Available for sale securities                                          83,500          113,800
  Investment in subsidiary                                            6,298,503        5,720,592
  Other real estate                                                           -           81,222
  Other assets                                                           12,500           14,119
                                                                     ----------        ---------

     TOTAL ASSETS                                                    $6,661,408       $6,207,262
                                                                     ==========       ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
  Other liabilities                                                  $        -       $    9,118
                                                                     ----------       ----------

STOCKHOLDERS' EQUITY
  Preferred stock, no par value; 2,000,000 shares authorized,
    no shares issued and outstanding                                                          -
  Common stock, no par value; 10,000,000 shares authorized,
    and 876,492 shares issued and outstanding.                        8,417,117        8,417,117
  Retained deficit                                                   (1,717,271)      (2,196,449)
                                                                     ----------       ----------
                                                                      6,699,846        6,220,668
  Accumulated other comprehensive loss                                  (38,438)         (22,524)
                                                                     ----------       ----------
     Total Stockholders' Equity                                       6,661,408        6,198,144
                                                                     ----------       ----------

          TOTAL LIABILITIES AND
          STOCKHOLDERS' EQUITY                                       $6,661,408       $6,207,262
                                                                     ==========       ==========
</TABLE>



                                       50
<PAGE>


                       RIDGESTONE FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1999 and 1998


--------------------------------------------------------------------------------

NOTE 21 - RidgeStone  Financial  Services,  Inc. (Parent Company Only) Financial
          Information (continued)

<TABLE>
                         CONDENSED STATEMENTS OF INCOME

                                                           Years Ended December 31,
                                                     -----------------------------------------
<CAPTION>
                                                        1999            1998           1997
                                                        ----            ----           ----
<S>                                                  <C>             <C>             <C>
INCOME
  Interest                                           $   6,025       $   7,553       $  15,742
  Gain (loss) on sale of securities                    (15,402)         (7,687)        569,429
  Other                                                  4,765           3,364              --
                                                     ---------       ---------       ---------
     Total Income (Expense)                             (4,612)          3,230         585,171
                                                     ---------       ---------       ---------

EXPENSES
  Salaries and employee benefits                            --           2,827           9,532
  Other                                                 95,973          42,889          41,914
                                                     ---------       ---------       ---------
     Total Expenses                                     95,973          45,716          51,446
                                                     ---------       ---------       ---------
          Income (Loss) Before Income Taxes and
            Equity in Undistributed Net Income
            (Loss) of Subsidiary                      (100,585)        (42,486)        533,725

INCOME TAXES                                                25           7,797          34,251
                                                     ---------       ---------       ---------

  Income (Loss) Before Equity in Undistributed
    Net Income (Loss) of Subsidiary                   (100,610)        (50,283)        499,474

EQUITY IN UNDISTRIBUTED NET INCOME
  (LOSS) OF SUBSIDIARY                                 579,788         381,660        (457,841)
                                                     ---------       ---------       ---------

     NET INCOME                                      $ 479,178       $ 331,377       $  41,633
                                                     =========       =========       =========
</TABLE>



                                       51
<PAGE>


                       RIDGESTONE FINANCIAL SERVICES, INC.
                                 AND SUBSIDIARY

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                           December 31, 1999 and 1998


--------------------------------------------------------------------------------

NOTE 21 - RidgeStone  Financial  Services,  Inc. (Parent Company Only) Financial
          Information (continued)

<TABLE>
<CAPTION>
                                                           1999            1998            1997
                                                           ----            ----            ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S>                                                     <C>             <C>             <C>
  Net income                                            $ 479,178       $ 331,377       $  41,633
                                                        ---------       ---------       ---------
  Adjustments to reconcile net income to net
    cash flows used in operating activities
      (Gain) loss on sale of investment securities         15,402           7,687        (569,429)
      Loss on sale of other real estate owned              54,497            --                --
      Amortization of organizational costs                     --              --           2,120
      Increase (decrease) in other assets                   1,620          (2,500)           (265)
      Increase (decrease) in other liabilities             (9,118)              1             264
      Equity in undistributed (income) loss
        of subsidiary                                    (579,788)       (381,660)        457,841
                                                        ---------       ---------       ---------
          Total Adjustments                              (517,387)       (376,472)       (109,469)
                                                        ---------       ---------       ---------
            Net Cash Flows Used in
              Operating Activities                        (38,209)        (45,095)        (67,836)
                                                        ---------       ---------       ---------

CASH FLOWS FROM INVESTING ACTIVITIES
  Net (increase) decrease in interest-bearing
    deposits in banks                                    (255,516)          1,536         180,452
  Activity in available for sale securities
    Sales                                                  55,548              --              --
    Purchases                                             (54,688)             --              --
  Investment in subsidiary Bank                                --        (495,000)       (500,000)
  Proceeds from sale of office building and
    equipment to subsidiary Bank                               --              --          32,933
  Proceeds from sales of other real estate owned           32,015         430,778              --
  Net expenditures on other real estate owned              (5,290)             --              --
  Purchase of other real estate from subsidiary Bank           --              --        (512,000)
                                                        ---------       ---------       ---------
      Net Cash Flows
        Used in Investing Activities                     (227,931)        (62,686)       (798,615)
                                                        ---------       ---------       ---------

CASH FLOWS FROM FINANCING ACTIVITIES
  Proceeds from stock options exercised                        --           5,385              --
                                                        ---------       ---------       ---------

      Decrease in Cash                                   (266,140)       (102,396)       (866,451)

Cash - Beginning of Year                                  274,880         374,160         283,898
                                                        ---------       ---------       ---------

      CASH (DEFICIT) - END OF YEAR                      $   8,740       $ 271,764       $(582,553)
                                                        =========       =========       =========
</TABLE>



                                       52
<PAGE>


Item 8   Changes  In  and  Disagreements  With  Accountants  on  Accounting  and
         Financial Disclosure

There have been no changes in or  disagreements  with the Company's  independent
auditors regarding  accounting and financial  disclosure required to be reported
pursuant to this Item.



Item 9.  Directors,   Executive  Officers,   Promoters   and   Control  Persons;
         Compliance With Section 16(a) of the Exchange Act

The information required by this Item is hereby incorporated by reference to the
information  under the captions  entitled  "Election of  Directors,"  "Executive
Officers" and  "Miscellaneous  - Section 16(a)  Beneficial  Ownership  Reporting
Compliance" set forth in the Company's  definitive  Proxy Statement for its 2000
Annual Meeting of Shareholders (the "Proxy Statement").

Item 10. Executive Compensation

The information required by this Item is hereby incorporated by reference to the
information   under  the  captions  entitled  "Board  of  Directors  -  Director
Compensation" and "Executive Compensation" set forth in the Proxy Statement.

Item 11. Security Ownership of Certain Beneficial Owners and Management

The information required by this Item is hereby incorporated by reference to the
information under the caption entitled "Principal Shareholders" set forth in the
Proxy Statement.

Item 12. Certain Relationships and Related Transactions

The information required by this Item is hereby incorporated by reference to the
information under the caption entitled  "Certain  Transactions" set forth in the
Proxy Statement.

Item 13. Exhibits and Reports on Form 8-K

         (a)  Exhibits

         Reference is made to the separate exhibit  index  contained on page E-1
         hereof.

         (b)  Reports on Form 8-K

         No reports  on Form 8-K were filed by the  Company  during the  quarter
         ended December 31, 1999.



                                       53
<PAGE>


                                   SIGNATURES

          In accordance with Section 13 or 15(d) of the Securities  Exchange Act
of 1934,  the  Registrant  caused  this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on March 16, 2000.

                                    RIDGESTONE FINANCIAL SERVICES, INC.


                                    By:  /s/ Paul E. Menzel
                                       ---------------------------------------
                                         Paul E. Menzel
                                         President and Chief Executive Officer


          In accordance with the requirements of the Securities  Exchange Act of
1934,  this report has been signed below by the  following  persons on behalf of
the Registrant in the capacities indicated on March 16, 2000:


            Signatures                              Title


/s/ Paul E. Menzel                  President, Chief Executive Officer and
--------------------------------    Director (Principal Executive Officer)
Paul E. Menzel

/s/ William R. Hayes                Vice President, Treasurer and Director
--------------------------------    (Principal Financial and Accounting Officer)
William R. Hayes

/s/ Christine V. Lake               Vice President, Secretary and Director
--------------------------------
Christine V. Lake

/s/ Charles N. Ackley               Director
--------------------------------
Charles N. Ackley

/s/ Gregory J. Hoesly               Director
--------------------------------
Gregory J. Hoesly

/s/ John E. Horning                 Director
--------------------------------
John E. Horning

/s/ William F. Krause, Jr.          Director
--------------------------------
William F. Krause, Jr.

/s/ Charles G. Niebler              Director
--------------------------------
Charles G. Niebler

/s/ Bernard E. Adee                 Director
--------------------------------
Bernard E. Adee

/s/ James E. Renner                 Director
--------------------------------
James E. Renner

/s/ Richard A. Streff               Director
--------------------------------
Richard A. Streff

/s/ William J. Tetzlaff             Director
--------------------------------
William J. Tetzlaff



                                       54
<PAGE>


                                INDEX TO EXHIBITS


    Exhibit No.                        Exhibit Description
    -----------                        -------------------

       3.1          Articles of Incorporation of Ridgestone  Financial Services,
                    Inc., as amended.  [Incorporated by reference to Exhibit 4.4
                    to  Ridgestone   Financial  Services,   Inc.'s  Registration
                    Statement on Form S-8 (Registration No. 333-52323)]

       3.2          By-Laws of Ridgestone Financial Services,  Inc., as amended.
                    [Incorporated  by  reference  to Exhibit  4.6 to  Ridgestone
                    Financial Services,  Inc.'s  Registration  Statement on Form
                    S-8 (Registration No. 333-52323)]

       10.1         Lease  Agreement  between CDJLT  Investments  and Ridgestone
                    Financial  Services,  Inc.  dated  as  of  March  31,  1995.
                    [Incorporated  by reference  to Exhibit  10.2 to  Ridgestone
                    Financial Services,  Inc.'s  Registration  Statement on Form
                    SB-2 (Registration No. 33-97644)]

       *10.2        Ridgestone Financial Services,  Inc. 1996 Stock Option Plan,
                    as amended.  [Incorporated  by  reference  to Exhibit 4.1 to
                    Ridgestone Financial Services, Inc.'s Registration Statement
                    on Form S-8 (Registration No. 333-52323)]

       *10.3        Form of Stock Option  Agreement used in conjunction with the
                    Ridgestone Financial Services,  Inc. 1996 Stock Option Plan,
                    as amended.  [Incorporated  by  reference  to Exhibit 4.2 to
                    Ridgestone Financial Services, Inc.'s Registration Statement
                    on Form S-8 (Registration No. 333-52323)]

       *10.4        Employment Agreement, dated as of December 31, 1996, between
                    Ridgestone  Financial  Services,  Inc.  and Paul E.  Menzel.
                    [Incorporated  by reference  to Exhibit  10.6 to  Ridgestone
                    Financial Services,  Inc.'s Annual Report on Form 10-KSB for
                    the fiscal year ended December 31, 1996 (File No. 0-27984)]

       *10.5        First  Amendment  to  Employment  Agreement,   dated  as  of
                    December 31, 1997,  between Ridgestone  Financial  Services,
                    Inc.  and Paul E.  Menzel.  [Incorporated  by  reference  to
                    Exhibit 10.8 to Ridgestone Financial Services, Inc.'s Annual
                    Report on Form 10-KSB for the fiscal year ended December 31,
                    1997 (File No. 0-27984)]

       *10.6        Employment Agreement, dated as of December 31, 1996, between
                    Ridgestone  Financial  Services,  Inc. and William R. Hayes.
                    [Incorporated  by reference  to Exhibit  10.7 to  Ridgestone
                    Financial Services,  Inc.'s Annual Report on Form 10-KSB for
                    the fiscal year ended December 31, 1996 (File No. 0-27984)]

       *10.7        First  Amendment  to  Employment  Agreement,   dated  as  of
                    December 31, 1997,  between Ridgestone  Financial  Services,
                    Inc.  and William R. Hayes.  [Incorporated  by  reference to
                    Exhibit  10.10  to  Ridgestone  Financial  Services,  Inc.'s
                    Annual  Report on Form  10-KSB  for the  fiscal  year  ended
                    December 31, 1997 (File No. 0-27984)]

       *10.8        Employment Agreement, dated as of December 31, 1996, between
                    Ridgestone  Financial Services,  Inc. and Christine V. Lake.
                    [Incorporated  by reference  to Exhibit  10.8 to  Ridgestone
                    Financial Services,  Inc.'s Annual Report on Form 10-KSB for
                    the fiscal year ended December 31, 1996 (File No. 0-27984)]



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<PAGE>


       *10.9        First  Amendment  to  Employment  Agreement,   dated  as  of
                    December 31, 1997,  between Ridgestone  Financial  Services,
                    Inc. and  Christine V. Lake.  [Incorporated  by reference to
                    Exhibit  10.12  to  Ridgestone  Financial  Services,  Inc.'s
                    Annual  Report on Form  10-KSB  for the  fiscal  year  ended
                    December 31, 1997 (File No. 0-27984)]

       *10.10       Salary  Continuation  Agreement,  dated October 20, 1998, by
                    and   between   Ridgestone   Bank   and   Paul  E.   Menzel.
                    [Incorporated  by reference  to Exhibit  10.1 to  Ridgestone
                    Financial  Services,  Inc.'s Quarterly Report on Form 10-QSB
                    for the quarter ended September 30, 1998 (File No. 0-27984)]

       *10.11       Split  Dollar  Agreement,  dated  October 20,  1998,  by and
                    between Ridgestone Bank and Paul E. Menzel. [Incorporated by
                    reference to Exhibit 10.2 to Ridgestone  Financial Services,
                    Inc.'s Quarterly Report on Form 10-QSB for the quarter ended
                    September 30, 1998 (File No. 0-27984)]

       *10.12       Split  Dollar  Agreement,  dated  October 20,  1998,  by and
                    between Ridgestone Bank and Paul E. Menzel. [Incorporated by
                    reference to Exhibit 10.3 to Ridgestone  Financial Services,
                    Inc.'s Quarterly Report on Form 10-QSB for the quarter ended
                    September 30, 1998 (File No. 0-27984)]

       *10.13       Form of  Executive  Incentive  Retirement  Agreement,  dated
                    October 20, 1998, by and between Ridgestone Bank and each of
                    Christine  V. Lake and  William R. Hayes.  [Incorporated  by
                    reference to Exhibit 10.4 to Ridgestone  Financial Services,
                    Inc.'s Quarterly Report on Form 10-QSB for the quarter ended
                    September 30, 1998 (File No. 0-27984)]

       *10.14       Form of Split Dollar  Agreement,  dated October 20, 1998, by
                    and between  Ridgestone  Bank and each of  Christine V. Lake
                    and William R. Hayes.  [Incorporated by reference to Exhibit
                    10.5 to  Ridgestone  Financial  Services,  Inc.'s  Quarterly
                    Report on Form 10-QSB for the quarter  ended  September  30,
                    1998 (File No. 0-27984)]

       21           Subsidiaries   of  Ridgestone   Financial   Services,   Inc.
                    [Incorporated  by reference  to Exhibit  21.1 to  Ridgestone
                    Financial Services,  Inc.'s  Registration  Statement on Form
                    SB-2 (Registration No. 33-97644)]

       23           Independent Auditor's Consent

       27           Financial Data Schedule (EDGAR version only)

       99           Definitive  Proxy  Statement for the  Company's  2000 annual
                    meeting of  shareholders  scheduled  to he held on April 25,
                    2000 (previously  filed with the Commission under Regulation
                    14A on March 15, 2000 and  incorporated by reference  herein
                    to extent indicated in this Form 10-KSB).


          *This  exhibit  is a  management  contract  or  compensatory  plan  or
arrangement  required to be filed as an exhibit to this Form 10-KSB  pursuant to
Item 13(a) of Form 10-KSB.



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