# UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWashington, D.C. 20549

# FORM 10-KSB

|[X]   | ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the
fiscal year ended December 31, 2003 OR               
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------
|[   ] | TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the
transition period from ___________ to ___________

Commission file number  0-27984

Ridgestone Financial Services, Inc.
(Name of small business issuer in its charter)

|                                                                                        |                                                
|--------------------------------------------------------------------------------------- | -----------------------------------------------
|Wisconsin(State of other jurisdiction of incorporation or organization)                 | 39-1797151
(I.R.S. Employer Identification No.)
|13925 West North Avenue, Brookfield, Wisconsin
(Address of principal executive offices) | 53005
(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 10-KSB.    [X]

Issuer's revenues for its most
recent fiscal year:  $5,833,966

Aggregate market value of the voting
and non-voting common equity held by non-affiliates computed by reference to the price at
which the common equity was sold on March 1, 2004: $9,579,005

Number of shares of common stock, no
par value, outstanding on March 1, 2004:  852,574

DOCUMENTS INCORPORATED
BY REFERENCE

Proxy Statement for the 2004 Annual
Meeting (incorporated by reference into Part III to the extent indicated therein)

Transitional Small Business
Disclosure Format:       Yes   [   ]        No   [X]

---

# Ridgestone Financial
Services, Inc.

# Index to Annual Report
on Form 10-KSBFor The Fiscal Year Ended
December 31, 2003

|           |         |                                                                                                                              | Page
|---------- | ------- | ---------------------------------------------------------------------------------------------------------------------------- | ----
|Part I     |         |                                                                                                                              | 2   
|           | Item 1  | Description of Business                                                                                                      | 2   
|           | Item 2  | Description of Property                                                                                                      | 10  
|           | Item 3  | Legal Proceedings                                                                                                            | 10  
|           | Item 4  | Submission of Matters to a Vote of Security Holders                                                                          | 10  
|Part II    |         |                                                                                                                              | 10  
|           | Item 5  | Market for Common Equity and Related Stockholder Matters                                                                     | 10  
|           | Item 6  | Management's Discussion and Analysis                                                                                         | 11  
|           | Item 7  | Financial Statements                                                                                                         | 28  
|           | Item 8  | Changes In and Disagreements With Accountants on Accounting    and Financial Disclosure                                      | 59  
|           | Item 8a | Controls and Procedures                                                                                                      | 59  
|Part III   |         |                                                                                                                              | 59  
|           | Item 9  | Directors and Executive Officers of the Registrant, Promoters    and Control Persons; With Section 16(a) of the Exchange Act | 59  
|           | Item 10 | Executive Compensation                                                                                                       | 59  
|           | Item 11 | Security Ownership of Certain Beneficial Owners and    Management and Related Stockholder Matters                            | 59  
|           | Item 12 | Certain Relationships and Related Transactions                                                                               | 60  
|           | Item 13 | Exhibits and Reports on Form 8-K                                                                                             | 60  
|           | Item 14 | Principal Accountant Fees and Services                                                                                       | 61  
|SIGNATURES |         | 62                                                                                                                          

1

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# 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 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 offices of national,
regional and local commercial banks, savings banks, savings and loan institutions, credit
unions and other financial service organizations in the three-city area.

In 1996, the Bank received
regulatory approval to open its first branch at 15565 West 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. On May 31, 2000, the Company
purchased the building it had previously leased for use as the Banks main office
and the Companys headquarters at 13925 West North Avenue, Brookfield, Wisconsin.

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 Federal
Deposit Insurance Corporation (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
and borrowings. The Companys operating results are affected by deposit service
charges, secondary market loan fees, commissions generated by the investment center and
other income. 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. Operating expenses of the Company include employee
compensation and benefits, occupancy and equipment expenses, professional and data
processing fees, and other administrative expenses.

# Special Note Regarding
Forward-Looking Statements

Certain matters discussed in this
Annual Report on Form 10-KSB are forward-looking statements intended to
qualify for the safe harbors from liability established by the Private Securities
Litigation Reform Act of 1995. These forward-looking statements can generally be
identified as such because the context of the statement will include words such as the
Company believes, anticipates, expects, or other words
of similar import. Similarly, statements that describe the Companys beliefs, future
plans, objectives or goals, or the Companys expectations regarding interest rates or
general economic conditions, 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, changes in the real estate market or the
general economic climate in the United States and, in particular, in the Companys
market area, loan delinquency rates, changes in demand for loan products, increased
competition in the Companys market area, adverse changes in debt or equity capital
markets, and legislative enactments, regulatory changes or changes in fiscal policies of
the federal government or its agencies 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.

2

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# Business Strategy

The Banks strategy is to focus
on understanding its clients financial needs, goals, and banking preferences. The
Bank uses this information to deliver the services and products its clients need to meet
their goals while emphasizing high-quality service and direct access to decision-makers.
This understanding also helps Bank personnel manage time and resources, build a
high-quality reputation, increase visibility, differentiate the Bank from the competition
and attract new clients.

The Bank pursues this strategy by
attracting highly-qualified employees and emphasizing the use of technology, both in its
operations and in the services it provides its customers.

The Bank directs its marketing
efforts toward a customer base who values high-quality service while having the potential
to be highly profitable.

# Loan Products

The Bank offers a full range of
retail and commercial lending services, including commercial loans and revolving lines of
credit, residential and commercial real estate mortgage loans, a system for purchasing
and managing commercial customers accounts receivable, 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 a
maximum lending authority for each loan officer. Each loan request exceeding a loan
officers authority must be approved by one or more senior 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 of the Bank is
comprised of the Chairman of the Board, President of the Bank, a Senior Commercial Lender
and a Vice President of Credit Administration. In addition, the Loan Committee of the
Board of Directors of the Bank reviews loans over $250,000 for prior approval. On a
monthly basis, the entire Board of Directors of the Bank reviews all loans over $25,000
made in the preceding month. 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, 2003, the Bank had a legal lending limit of
approximately $1,600,000, however, management may elect to establish a lower limit as it
deems appropriate to comply with safe and sound banking practices. The Bank is able to
attract business loans beyond its lending limit by using bank participations with other
financial institutions in Wisconsin. Likewise, the Bank has purchased participation loans
from other Wisconsin area 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 periodic review
by management as a result of changing market and economic conditions.

The Banks residential mortgage
loan portfolio totaled $16,506,285 as of December 31, 2003. During fiscal year 2003, the
Bank also originated $30,775,043 in mortgage loans sold in the secondary market compared
to $21,736,512 during fiscal 2002. The 42% increase in mortgage loans sold in the
secondary market was primarily a result of a high level of refinancing activity which
stemmed from the favorable low interest rate environment for long-term mortgage loans.

The Bank also originates real estate
construction loans, which generally are short-term loans with a maturity of one year or
less. As of December 31, 2003, the Bank had $6,175,933 in real estate construction loans.

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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.

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    | (1)      

|(1) | A
loan-to-value limit has not been established for permanent mortgage or home
               equity loans on owner-occupied, 1- to 4-family residential property.
However,                residential loans exceeding 90% loan-to-value may be excluded
from FDICIA                required reporting 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, totaling $601,877 as of December 31, 2003.

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 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 $26,931,914 as of December 31, 2003, 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 are generally secured with current
assets of the borrower. Commercial loans may be written for a period of greater than one
year and are amortized over a period of one to seven years. These types of loans are used
principally for financing fixed asset expenditures and are generally secured with the
fixed assets of the borrower.

The Bank is a licensee of the
Business Manager system from Private Business Inc. (PBI). Business Manager is a complete
system for purchasing and managing the accounts receivable of a commercial customer (a
merchant) on a full recourse basis with a flexible cash collateral reserve. From the Banks
perspective, the program provides a way to service small businesses more profitably, to
offer a unique combination of funding and receivable management benefits, and to control
the risks associated with the funding of accounts receivable. From the merchants
perspective, the program unlocks the cash typically frozen in the accounts receivable,
provides ongoing cash flow as the business generates new sales, and offers the merchants
management team information to make better business decisions. The Bank typically
purchases an  insurance policy as additional
collateral on these facilities. The policy protects the Bank in the event of fraud
committed against the Bank by the merchant. The Banks Business Manager portfolio
totaled $1,869,889 as of December 31, 2003 (included in the commercial loan portfolio) and
consisted entirely of Business Manager Accounts Receivable Agreements with businesses and
professionals.

4

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Commercial Real Estate Loans.As of
December 31, 2003, the Bank had $24,910,619 of commercial real estate loans outstanding.
These loans were generally made for the purpose of purchasing manufacturing facilities,
warehouses, office buildings and multiple family commercial real estate holdings.

# Other Products and
Services

The Bank offers a broad range of
deposit services to both personal and business customers, including checking, money
market, savings, and time deposit accounts. Additional related services include safe
deposit boxes, check services, money transfer services, debit cards and ATM access cards
as well as courier deposit pick-up and lock box services for business customers. The Bank
also offers on-line banking, called RidgeStone ConnectSM, which enables the Banks
customers to access their accounts in real time, pay bills, transfer funds, access lines
of credit, and export information to financial management software. During 2003, the Bank
enhanced its on-line banking services enabling customers to view images of canceled checks
and access statements online.

The Bank also employs a licensed
investment representative who provides a variety of investment and insurance products
through arrangements with other service providers. These products include mutual fund
products, annuities, and life insurance products.

# Competition

The Company has identified as its
primary competitors, offices of commercial banks, savings banks, savings and loan
institutions, and credit unions 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 and by understanding and meeting their needs. The Bank actively solicits retail
customers and competes for deposits by offering customers personal attention,
professional service and competitive interest rates. Management believes that its
personal service philosophy and use of leading-edge technology continues to enhance its
ability to compete favorably in attracting individual and business customers.

# 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 such regulatory changes, the nature of the banking industry has changed
dramatically in recent years as increasing competition and a trend toward deregulation
has caused the traditional distinctions among different types of financial institutions
to be obscured.

5

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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 be offered in the future. 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 with
commercial affiliates; make changes to the Community Reinvestment Act of 1977; and enact
substantial new financial privacy rules. These financial privacy rules impose some
additional regulatory burden on the Bank.

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 by the Federal Reserve 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 bank holding company, 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 outstanding voting shares of such bank or bank holding
company.

As described above, the BHCA 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 Board. 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 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.

6

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The Change in Bank Control Act
prohibits, without prior notice to the Board, the acquisition of control of a
bank holding company by any person or entity, acting directly or indirectly, or through or
in concert with one or more people or entities. For bank holding companies with registered
securities, such as the Company, control is presumed if after any transaction
the acquirer will own (or have the immediately exercisable option to purchase), control,
or hold with power to vote 10% or more of any class of voting securities of the bank
holding company.

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.

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 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.

7

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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, without limitation, state usury and
consumer credit laws, state laws relating to fiduciaries, the USA Patriot Act, 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 (FIRREA), 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.

The FDIC Improvement Act of 1991,
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 mergers; however, banks may acquire a branch of a bank in another state only if
that state permits out-of-state banks to acquire in-state branches without acquiring the
entire bank.  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 by an out-of-state bank holding company, that the acquired bank, or
subsidiary banks if acquiring an in-state bank holding company, must have been in
existence for at least five years.

# Employees

As of March 1, 2004, the Company and
the Bank together employed 20 full-time and 9 part-time employees, including 4 personal
bankers, an investment officer, 6 operations specialists, 6 customer service
representatives, a cashier, a receptionist, a courier, 4 commercial loan officers, a
technology specialist, a marketing and administrative assistant, the Bank president and
the Chairman of the Board.

8

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# Directors and Executive
Officers

The directors of the Company and the
Bank as of March 1, 2004 were as follows:

|Name of Director   | Principal Occupation                                                                                                                              
|------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------
|Paul E. Menzel     | Chairman of the Board and Chief Executive Officer of the Company and Chairman 
of the Board and Chief Executive Officer of the Bank               
|Christine V. Lake  | President and Chief Operating Officer of the Company and President and Chief 
Operating Officer of the Bank                                       
|William R. Hayes   | Senior Vice President and Treasurer of the Company and Senior Vice President, 
Cashier and Controller of the Bank                                 
|Bernard E. Adee    | Senior Vice President of Marshall Financial Consulting, LLC, a financial consulting firm                                                          
|John F. Goodnow    | Co-founder of COB, LLC, a consulting firm specializing in providing turnaround and
 crisis management services to financially challenged companies
|Gregory J. Hoesly  | President of Boschert Precision Machinery, Inc., an importer of fabricating machine tools                                                         
|John E. Horning    | Retired Chairman of the Board and Chief Executive Officer of Shorewest Realtors Inc.,
 Wisconsin Mortgage Corporation, and Heritage Title Service 
|Charles G. Niebler | President of Eye Care Vision Centers, a multi-location optometry practice                                                                         
|James E. Renner    | Owner of Renner Oldsmobile and partial owner of Renner Mitsubishi                                                                                 

The executive officers of the Company
and the Bank as of March 1, 2004 were as follows:

|Name ofExecutive Director | Position                                                                                                                            
|------------------------- | ------------------------------------------------------------------------------------------------------------------------------------
|Paul E. Menzel            | Chairman of the Board and Chief Executive Officer of the Company and Chairman
  of the Board and Chief Executive Officer of the Bank
|Christine V. Lake         | President and Chief Operating Officer of the Company and President and Chief
  Operating Officer of the Bank                        
|William R. Hayes          | Senior Vice President and Treasurer of the Company and Senior Vice President, 
Cashier and Controller of the Bank                   

9

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# Item 2.   Description of
Property

On May 31, 2000, the Company
purchased the building it had previously leased for use as the Banks main office and
the Companys headquarters at 13925 West North Avenue, Brookfield, Wisconsin. The
Banks main office now occupies approximately 8,124 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 West 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, 2003.

# 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 for each quarter within the
last two fiscal years, were as follows:

|2002        | High  | Low  
|----------- | ----- | -----
|1st Quarter | $7.20 | $6.10
|2nd Quarter | $8.50 | $6.45
|3rd Quarter | $8.25 | $7.50
|4th Quarter | $8.40 | $8.00

|2003        | High    | Low    
|----------- | ------- | -------
|1st Quarter | $  9.25 | $  8.22
|2nd Quarter | $  9.50 | $  8.22
|3rd Quarter | $11.01  | $  8.50
|4th Quarter | $12.18  | $10.60 

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 March 12, 2003,
there were approximately 45 owners of record and approximately 550 beneficial owners of
the Companys common stock.

10

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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.

On June 30, 2003, RidgeStone Capital
Trust I (the Capital Trust), a Delaware business trust wholly owned by the
Company, completed the sale of $1.5 million trust preferred securities (the Trust
Preferred Securities). Capital Trust used the proceeds to purchase a like amount of
the Companys Junior Subordinated Debentures (the Debentures). Under
certain circumstances, the Company may defer the payment of interest on the junior
subordinated debentures for up to 20 consecutive quarterly periods (extension
period). To date, interest payments have been made on a current basis. While the
Company does not presently intend to defer interest payments on the junior subordinated
debentures, during any extension period, the Company may not declare or pay any dividends
or distributions on, or redeem, purchase, acquire or make a liquidation payment with
respect to, any of the Companys capital stock.

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

# Overview

Through the Bank, the Company
provides full-service commercial and consumer banking services in its primary market areas
of Brookfield, Elm Grove and Wauwatosa, Wisconsin. The Company derives income from two
categories: interest income and noninterest income. Interest income, which accounted for
approximately 85% of the Companys total revenue in 2003, includes primarily interest
payments on loans and loan fees (such as origination fees on real estate mortgage loans,
annual fees on home equity and checking lines of credit and credit card fees). Noninterest
income, which accounted for approximately 15% of the Companys total revenue in 2003,
includes primarily income from sales of loans in the secondary market, other service fees
(such as maintenance, overdraft and stop payment fees on deposit accounts, safe deposit
fees and miscellaneous fees such as wire transfers, interchange fees on debit cards,
merchant credit card income, and brokerage commissions), and the increase in cash
surrender value of certain life insurance policies owned by the Company. The
Companys primary expenses are interest paid on deposits and employee compensation
and benefits.

Operating results are affected
primarily by the Companys ability to grow while simultaneously managing the mix of
interest-bearing assets and liabilities and matching the maturities of the assets and
liabilities to reduce earnings volatility caused by changes in interest rates. Generally
speaking, when interest rates rise, the Company realizes additional interest income on
outstanding variable rate loans and originates new loans at higher rates. At the same
time, the Company realizes increased interest expense since it generally must pay higher
rates on deposits and other interest-bearing liabilities. Changes in interest rates, as
well as changes in asset and liability volume, impact the Companys net interest
income, which is the difference between interest earned on assets and the interest paid on
liabilities in a specified time frame. For example, in a rising interest rate environment,
the Company will generally realize increased net interest income if its assets re-price
faster than its interest bearing liabilities (assuming asset and liability volume remain
relatively constant) because the increase in interest income on assets resulting from
increased interest rates exceeds the corresponding increase in interest expense on
liabilities. This is referred to as a positive gap position. Conversely, in a rising
interest rate environment, the Company will generally realize decreased net interest
income if its interest bearing liabilities re-price faster than its assets (again assuming
asset and liability volume remain relatively constant) because the increase in interest
expense on liabilities resulting from increased interest rates exceeds the corresponding
increase in interest income on assets. This is referred to as a negative gap position.

11

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In 2003, interest rates generally
declined, and the Bank was generally successful in matching its asset and liability
repricing. This resulted in lower interest income from variable rate loans and new loans,
offset by lower interest rates on deposits and other interest rate liabilities which
lowered interest expense. However, average loan volume increased by 18% in 2003 compared
to 2002. As a result, the Companys net interest income increased by 17% to
$3,497,392 for the year ended December 31, 2003 compared to $2,988,346 for the year ended
December 31, 2002.

Towards the latter part of 2003 the
Bank had slower growth in the loan portfolio due to a softened economy. As a result of the
slower loan growth, the Bank had lower liquidity needs and, as a result, did not actively
pursue growth in deposits and other interest-bearing liabilities (which are used to fund
loan growth). Because of the low interest rate environment, the Bank concentrated its
efforts in the area of refinancing residential real estate mortgages in the long-term
market, thus generating a significant increase in fee income. With improving economic
conditions expected in 2004, the Bank is expecting increasing loan demand and intends to
focus its efforts in generating new business loans and retail deposits to fund those loans
while maintaining acceptable levels of net interest margin.

On June 30, 2003, Ridgestone Capital
Trust I (the Capital Trust), a Delaware business trust wholly owned by the
Company, completed the sale of $1.5 million trust preferred securities (the Trust
Preferred Securities). The Trust Preferred Securities were sold in a private
placement to institutional investors. Capital Trust used the proceeds from the offering to
purchase a like amount of the Companys Junior Subordinated Debentures (the
Debentures). The Debentures are the sole assets of the Capital Trust and are
eliminated, along with the related income statement effects, in the consolidated financial
statements.

The Trust Preferred Securities mature
in 30 years and have a 7.00% fixed rate from June 30, 2003 through June 29, 2008. The rate
resets on June 30, 2008, and every five years thereafter on June 30, to the five year rate
of the LIBOR Swap Curve (as made available on Bloomberg Financial Markets) plus 3.50
percentage points. The distribution rate for the first ten years (until June 29, 2013) may
not exceed 12%. The Trust Preferred Securities may be called in part or in full on June
30, 2008 and quarterly thereafter, with 30 days notice, in a minimum principal amount of
$500,000 and in increments of $10,000 thereafter. The Trust Preferred Securities are
mandatorily redeemable upon the maturity of the Debentures on June 30, 2033 or upon
earlier redemption as provided in the Indenture.

Under certain circumstances, the
Company may defer the payment of interest on the junior subordinated debentures for up to
20 consecutive quarterly periods (extension period). To date, interest
payments have been made on a current basis. While the Company does not presently intend to
defer interest payments on the junior subordinated debenture, during any extension period,
the Company may not declare or pay any dividends or distributions on, or redeem, purchase,
acquire or make a liquidation payment with respect to, any of the Companys capital
stock.

The Company has fully and
unconditionally guaranteed all of the obligations of Capital Trust. The guarantee covers
the quarterly distributions and payments on liquidation or redemption of the Trust
Preferred Securities, but only to the extent of funds held by the Capital Trust. The Trust
Preferred Securities qualify under the risk-based capital guidelines as Tier1 capital for
regulatory purposes.

12

---

# Critical Accounting
Policies

In preparing consolidated financial
statements in conformity with accounting principles generally accepted in the United
States, 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. The Company has identified the determination of the allowance for
loan losses and deferred tax assets as critical accounting policies that require material
estimates and that are particularly susceptible to significant change in the near term.

Allowance for Loan Losses. The
allowance for loan losses is determined using a methodology which reserves currently for
those loans in which it is determined that a loss is probable based on characteristics of
the individual loan, historical loss patterns of similar, homogeneous loans
and environmental factors unique to each measurement date. The allowance for loan losses
is determined in accordance with FASB Statements 5 and 114 and provides for losses that
have potentially been 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. The reserving methodology used by the Company has the
following components:

| | Specific
reserve.On a monthly basis, management reviews all past due loans and loans previously
classified in order to classify or reclassify loans requiring attention, or those with
potential losses. Problem loans include credits that have been identified as having
underlying problems based on assessment of the borrowers business cashflow or
collateral. Included in this group are those loans that meet the criteria as being impaired under
the definition in FASB Statement 114. A loan is considered impaired when, based on
current information and events, it is probable that the Bank will be unable to collect
the scheduled payments of principal and interest when due according to the contractual
terms of the loan agreement. Factors considered by management in determining impairment
include payment status, collateral value, and the probability of collecting scheduled
principal and interest payments when due. On a quarterly basis, impairment is measured on
a loan by loan basis for commercial loans by either the present value of expected future
cash flows discounted at the loans effective interest rate, the loans
obtainable market price, or the fair value of the collateral if the loan is collateral
dependent. Ranges of loss are determined based on best- and worst- case scenarios for
each loan.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Reserve
for homogeneous loan pools.The Company makes a significant number of loans which, due to
their underlying similar characteristics, are assessed for loss as homogeneouspools.
The homogeneous pools of loans are based on credit risk gradings. All of the loans
included in the homogeneous pools have been excluded from the specific reserve allocation
previously discussed. The Company allocates the allowance for loan losses to each loan
category based on a defined methodology. The methodology is based on historical loss
information and regulatory averages. Loan types reviewed under this methodology include
real estate and consumer loans.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Actual
loss ratios experienced in the future could vary from those projected. This uncertainty
occurs because other factors affecting the determination of probable losses inherent in
the loan portfolio may exist which are not necessarily captured by the application of
historical loss ratios. To ensure a higher degree of confidence, an unallocated allowance
is also maintained. The unallocated portion of the allowance for loan losses reflects
managements view that the allowance should have a margin that recognizes the
imprecision underlying the process of estimating expected loan losses. Determination of
the probable losses inherent in the portfolio, which are not necessarily captured by the
allocated methodology discussed above, involves the exercise of judgment. Factors
considered in the evaluation of the adequacy of the Companys unallocated allowance
include portfolio exposure due to concentration in specific industries and changes in the
economy. 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.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

13

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Deferred Taxes. 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, deferred compensation, and net operating loss carryforwards. Valuation allowances
are established when necessary to reduce deferred tax assets to the amount expected to be
realized.

# Selected Financial
Ratios

Set forth below are selected
financial ratios of the Company for the fiscal periods ending 2003, 2002 and 2001:

|                                      | 2003 |  | 2002 |       | 2001 | 
|------------------------------------- | ---- |  | ---- | ----- | ---- | 
|Return on average assets              |      |  |      | 0.75% |      | 
|Return on average equity              |      |  |      | 8.58% |      | 
|Dividend payout ratio on common stock |      |  |      | None  |      | 
|Average equity to average assets      |      |  |      | 8.74% |      | 

# Comparison of Operating
Results for the Years Ended December 31, 2003 and December 31, 2002

Net Income.Net income for the fiscal
year ended December 31, 2003 increased by 34% to $673,801, or $0.72 per diluted common
share, compared with net income of $501,434 or $0.54 per diluted common share, for fiscal
2002. The increase can be primarily attributed to higher fee income from the sale of
mortgage loans in the secondary market due to the low interest rate environment, greater
average loan volume over the prior year and improved net interest margin. While average
loan volume increased over the prior year, having a positive impact on earnings, the Bank
experienced a decline in loan volume in the fourth quarter of 2003 as a result of several
significant loan customers retiring loans near year-end in the normal course of business
and the Banks inability to immediately replace those loans. In addition, as interest
rates stabilized for home loans toward the end of 2003 the refinance market was not as
robust as the first part of 2003.

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
increased $345,245 or 8% to $4,936,563 for the year ended December 31, 2003 as compared to
$4,591,318 for the year ended December 31, 2002. This increase was primarily the result of
greater average loan volume in 2003 compared to 2002. The interest yield on average
earning assets decreased from 6.54% in fiscal 2002 to 6.09% in fiscal 2003 driven
primarily by lower interest rates in the loan portfolio reflective of the low interest
rates that prevailed throughout 2003.

Interest Expense.Interest expense
primarily represents interest paid to depositors and interest on borrowings. Interest
expense decreased to $1,439,171 in fiscal 2003 from $1,602,972 in fiscal 2002, a decrease
of $163,801 or 10%, despite an increase in average interest bearing liabilities of 12% at
year-end 2003 from year-end 2002. Included in interest expense is interest paid on other
borrowings which amounted to $254,753 in fiscal 2003 compared to $150,797 in fiscal 2002.
The decrease in interest expense occurred primarily as money market accounts and higher
cost time deposits repriced to lower interest rates due to the low interest rate
environment, partially offset by interest payments on the Debentures. Average
interest-bearing liability rates paid decreased from 2.72% in fiscal 2002 to 2.18% in
fiscal 2003.

14

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Set forth below is a summary of the
Companys average interest-bearing liabilities and the interest paid on such
liabilities during fiscal 2003 and fiscal 2002.

|                                   | 2003 |  | Average
Rate Paid | 2002       |  | Average
Rate Paid
|---------------------------------- | ---- |  | ----------------- | ---------- |  | -----------------
|Interest-bearing demand            |      |  | $                 | 2,625,309  |  |                  
|Savings accounts                   |      |  |                   | 2,391,898  |  |                  
|Money market accounts              |      |  |                   | 23,719,981 |  |                  
|Time deposits                      |      |  |                   | 30,462,377 |  |                  
|Federal funds purchased            |      |  |                   | 1,693,417  |  |                  
|Trust preferred securities         |      |  |                   | 756,164    |  |                  
|Federal Home Loan Bank borrowings  |      |  |                   | 4,500,000  |  |                  
|                                   |      |  |                   |            |  |                  
|Total interest-bearing liabilities |      |  | $                 | 66,149,146 |  |                  
|                                   |      |  |                   |            |  |                  

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 before
provision for loan losses was $3,497,392 for the year ended December 31, 2003, an increase
of $509,046 or 17% compared with net interest income of $2,988,346 for the year ended
December 31, 2002. Growth in loan volume primarily led to an improvement in the net
interest margin to 4.32% at December 31, 2003 from 4.26% at December 31, 2002.

The following table sets forth the
average balances and 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 2003 and fiscal 2002.

# Average Balance Sheet
andAnalysis of Net
Interest Income Year Ended December 31,

|                              | 2003 | 2002
|----------------------------- | ---- | ----
|
|Earning assets:               |      |     
|Deposits in bank              |      |     
|Investments (taxable)         |      |     
|Federal funds sold            |      |     
|Loans (a)                     |      |     
|                              |      |     
|Total earning assets          |      |     
|                              |      |     
|                              |      |     
|Interest-bearing liabilities: |      |     
|Interest-bearing demand       |      |     
|Savings accounts              |      |     
|Money market accounts         |      |     
|Time deposits                 |      |     
|Federal funds purchased       |      |     
|Trust preferred securities    |      |     
|FHLB borrowings               |      |     
|                              |      |     
|Total interest-bearing liabs  |      |     
|                              |      |     
|Interest spread (b)           |      |     
|                              |      |     
|Interest margin (c)           |      |     
|                              |      |     

|
|

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

15

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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 periods 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.

|                                   | Rate/Volume Analysis of Net Interest Income
Year Ended December 31, 2003
Compared to
Year Ended December 31, 2002 | 
|---------------------------------- | ----------------------------------------------------------------------------------------------------------------- | 
|
|
|Earning assets:                    |                                                                                                                   | 
|Deposits in bank                   |                                                                                                                   | 
|Investments (taxable)              |                                                                                                                   | 
|Federal funds sold                 |                                                                                                                   | 
|Loans                              |                                                                                                                   | 
|                                   |                                                                                                                   | 
|Total earning assets               |                                                                                                                   | 
|                                   |                                                                                                                   | 
|                                   |                                                                                                                   | 
|Interest-bearing liabilities:      |                                                                                                                   | 
|Interest-bearing demand            |                                                                                                                   | 
|Savings accounts                   |                                                                                                                   | 
|Money market accounts              |                                                                                                                   | 
|Time deposits                      |                                                                                                                   | 
|Federal funds purchased            |                                                                                                                   | 
|FHLB borrowings                    |                                                                                                                   | 
|Trust preferred securities         |                                                                                                                   | 
|                                   |                                                                                                                   | 
|Total interest-bearing liabilities |                                                                                                                   | 
|                                   |                                                                                                                   | 
|Net change in net interest income  |                                                                                                                   | 
|                                   |                                                                                                                   | 
|                                   |                                                                                                                   | 

Provision for Loan Losses.The
allowance for loan losses is established, as losses are estimated to have occurred,
through a provision for loan losses charged to earnings. Loan losses are charged against
the allowance when management believes the collectibility of a loan balance is unlikely.
Subsequent recoveries, if any, are credited to the allowance. The allowance for loan
losses is adequate to cover probable loan losses relating to specifically identified
loans, as well as probable loan losses inherent in the balances of the loan portfolio. In
accordance with FASB Statements 5 and 114, the allowance is provided for losses that have
been incurred as of the balance sheet date and 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. See Critical Accounting Policies  Allowance for Loan Losses
for additional factors used in determining the allowance for loan losses and provision for
loan losses.

As of December 31, 2003, the
Companys allowance for loan losses was $729,643 or 0.97% of outstanding loans
compared to $736,118 or 0.99% of outstanding loans at December 31, 2002.

During 2003, the Company made a loan
loss provision of $393,000 compared to $260,000 in 2002. During 2003, the Bank incurred
$401,329 in charge-offs related to three commercial loans and one retail loan compared to
$70,684 in charge offs during 2002. The majority of the charge-offs during 2003 related to
two failed businesses. The provision was made to bring the allowance to the amount
determined necessary by management based on the analysis performed.

16

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Noninterest Income.Total noninterest
income consisted of maintenance, overdrafts and stop payment charges on deposit accounts,
safe deposit fees, and miscellaneous fees such as wire transfers, interchange fees on
debit cards, and merchant credit card income, along with gains on sales of loans,
commission income generated by the investment center and an increase in cash surrender
value of life insurance policies. Total noninterest income was $897,403 for fiscal 2003
compared to $631,423 for fiscal 2002, an increase of $265,980 or a 42% improvement. Due to
a favorable interest rate environment for long-term mortgages during 2003, gains on sales
of loans related to long-term loans sold in the secondary market increased by $187,369 in
2003 over the prior year which was the primary factor for the increase in total
noninterest income.

Noninterest Expenses.Total
noninterest expenses consisted primarily of salaries and employee benefits, occupancy and
equipment expenses, data processing fees and professional fees. Total noninterest expenses
for fiscal 2003 were $2,972,485 compared to $2,610,467 for fiscal 2002, an increase of
$362,018 or 14%. The majority of the increase in noninterest expenses is attributed to
salary merit increases and other expenses related to employee benefit plans, higher
accounting, legal expenses, and correspondent bank service charges along with increases in
general operating expenses.

Provision for Income Taxes.The
increase in income before income taxes required a tax provision of $355,509 at a tax rate
of 34.3% in fiscal 2003 as compared to $247,868 at a tax rate of 33.5% in fiscal 2002. The
effective tax rate increased because tax-exempt income did not increase at the same rate
as total pre-tax income.

# Comparison of Operating
Results for the Years Ended December 31, 2002 and December 31, 2001

Net Income.Net income for the fiscal
year ended December 31, 2002 increased by 102% to $501,434, or $0.54 per diluted common
share, compared with net income of $247,711 or $0.28 per diluted common share, for fiscal
2001. The increase can be primarily attributed to increased loan volume and lower interest
expense combined with greater income from gain on sales of loans.

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. Although average
earning assets grew by 6% from year-end 2001 to year-end 2002, total interest income
decreased $336,486 or 7% to $4,591,318 for the year ended December 31, 2002 as compared to
$4,927,804 for the year ended December 31, 2001. This decrease was primarily the result of
lower interest rate yields on average earning assets reflective of the low interest rates
that prevailed throughout 2002. The interest yield on average earning assets decreased
from 7.46% in fiscal 2001 to 6.54% in fiscal 2002.

Interest Expense.Interest expense
primarily represents interest paid to depositors and interest on borrowings from the
Federal Home Loan Bank and federal funds purchased. Interest expense decreased to
$1,602,972 in fiscal 2002 from $2,580,020 in fiscal 2001, a decrease of $977,048 or 38%,
despite an increase in average interest bearing liabilities of 5% at year-end 2002 from
year-end 2001. Included in interest expense is interest paid on other borrowings which
amounted to $150,757 in fiscal 2002 compared to no borrowings in fiscal 2001. The decrease
in interest expense occurred primarily as money market accounts and higher cost time
deposits repriced to lower interest rates due to the low interest rate environment noted
above. Average interest liability rates paid decreased from 4.60% in fiscal 2001 to 2.72%
in fiscal 2002.

17

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Set forth below is a summary of the
Companys average interest-bearing liabilities and the interest paid on such
liabilities during fiscal 2002 and fiscal 2001.

|                                   | 2002 |  | Average
Rate Paid | 2001       |  | Average
Rate Paid
|---------------------------------- | ---- |  | ----------------- | ---------- |  | -----------------
|Interest-bearing demand            |      |  | $                 | 2,191,221  |  |                  
|Savings accounts                   |      |  |                   | 1,765,655  |  |                  
|Money market accounts              |      |  |                   | 25,185,004 |  |                  
|Time deposits                      |      |  |                   | 25,677,181 |  |                  
|Federal funds purchased            |      |  |                   | 462,767    |  |                  
|Federal Home Loan Bank borrowings  |      |  |                   | 3,729,839  |  |                  
|                                   |      |  |                   |            |  |                  
|Total interest-bearing liabilities |      |  | $                 | 59,011,667 |  |                  
|                                   |      |  |                   |            |  |                  
|                                   |      |  |                   |           

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 before
provision for loan losses was $2,988,346 for the year ended December 31, 2002, an increase
of $640,562 or 27% compared with net interest income of $2,347,784 for the year ended
December 31, 2001. The growth in earning assets, primarily in loans, and the decline
in interest expense led to an improvement in the net interest margin to 4.26% at December
31, 2002 from 3.56% at December 31, 2001.

The following table sets forth the
average balances and 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 2002 and fiscal 2001.

# Average Balance Sheet
andAnalysis of Net
Interest Income Year Ended December 31,

|                              | 2002 | 2001
|----------------------------- | ---- | ----
|
|Earning assets:               |      |     
|Deposits in bank              |      |     
|Investments (taxable)         |      |     
|Federal funds sold            |      |     
|Loans (a)                     |      |     
|                              |      |     
|Total earning assets          |      |     
|                              |      |     
|                              |      |     
|Interest-bearing liabilities: |      |     
|Interest-bearing demand       |      |     
|Savings accounts              |      |     
|Money market accounts         |      |     
|Time deposits                 |      |     
|Federal funds purchased       |      |     
|FHLB borrowings               |      |     
|                              |      |     
|Total interest-bearing liabs  |      |     
|                              |      |     
|Interest spread (b)           |      |     
|                              |      |     
|Interest margin (c)           |      |     
|                              |      |     

|
|

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

18

---

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 periods 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.

|                                   | Rate/Volume Analysis of Net Interest Income
Year Ended December 31, 2002
Compared to
Year Ended December 31, 2001 | 
|---------------------------------- | ----------------------------------------------------------------------------------------------------------------- | 
|
|
|Earning assets:                    |                                                                                                                   | 
|Deposits in bank                   |                                                                                                                   | 
|Investments (taxable)              |                                                                                                                   | 
|Federal funds sold                 |                                                                                                                   | 
|Loans                              |                                                                                                                   | 
|                                   |                                                                                                                   | 
|Total earning assets               |                                                                                                                   | 
|                                   |                                                                                                                   | 
|                                   |                                                                                                                   | 
|Interest-bearing liabilities:      |                                                                                                                   | 
|Interest-bearing demand            |                                                                                                                   | 
|Savings accounts                   |                                                                                                                   | 
|Money market accounts              |                                                                                                                   | 
|Time deposits                      |                                                                                                                   | 
|Federal funds purchased            |                                                                                                                   | 
|FHLB borrowings                    |                                                                                                                   | 
|                                   |                                                                                                                   | 
|Total interest-bearing liabilities |                                                                                                                   | 
|                                   |                                                                                                                   | 
|Net change in net interest income  |                                                                                                                   | 
|                                   |                                                                                                                   | 
|                                   |                                                                                                                   | 

Provision for Loan Losses.The
allowance for loan losses is established as losses are estimated to have occurred through
a provision for loan losses charged to earnings. Loan losses are charged against the
allowance when management believes the collectibility of a loan balance is unlikely.
Subsequent recoveries, if any, are credited to the allowance. The allowance for loan
losses is adequate to cover probable loan losses relating to specifically identified
loans, as well as probable loan losses inherent in the balances of the loan portfolio. In
accordance with FASB Statements 5 and 114, the allowance is provided for losses that have
been incurred as of the balance sheet date and 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. See Critical Accounting Policies  Allowance for Loan Losses
for additional factors used in determining the allowance for loan losses and provision for
loan losses.

During 2002, the Company made a loan
loss provision of $260,000 compared to $133,000 in 2001. The provision was made to bring
the reserve to the amount determined necessary by management based on the analysis
performed. The $127,000 increase in loan loss provision in fiscal 2002 compared to fiscal
2001 was primarily due to economic uncertainty.

As of December 31, 2002, the
Companys loan loss reserve was $736,118 or 1.00% of outstanding loans compared to
$544,804 or 0.97% of outstanding loans at December 31, 2001.

Noninterest Income.Total
noninterest income consisted of service charges on deposit accounts, gains on sales of
loans, commission income generated by the investment center and an increase in cash
surrender value of life insurance policies. Total noninterest income was $631,423 for
fiscal 2002 compared to $457,710 for fiscal 2001, an increase of $173,713 or a 38%
improvement. Due to a favorable interest rate environment for long-term mortgages during
2002, gains on sales of loans related to long-term loans sold in the secondary market
increased by $98,948 in 2002 over the prior year which was the primary factor for the
increase in total noninterest income.

19

---

Noninterest Expenses.Total
noninterest expenses consisted primarily of salaries and employee benefits, occupancy and
equipment expenses, data processing fees and professional fees. Total noninterest
expenses for fiscal 2002 were $2,610,467 compared to $2,333,807 for fiscal 2001, an
increase of $276,660 or 12%. The majority of the increase in noninterest expenses is
attributed to higher personnel costs due to additional staff, salary merit increases,
higher 401(k) expenses and increased insurance costs. A portion of the increase also
results from a gain on the sale of other real estate in 2001, which resulted in lower
expenses that year.

Provision for Income Taxes.The
increase in income before income taxes required a tax provision of $247,868 in fiscal 2002
as compared to $90,976 in fiscal 2001.

# Financial Condition

Total Assets.The Company reported
total assets of $88,322,699 at December 31, 2003, an increase of $2,355,678 or 3% from
December 31, 2002 with assets of $85,967,021. The increase in assets was primarily in
cash and cash equivalents, interest bearing deposits in banks, and available for sale
securities funded primarily with the Companys Debentures and deposit growth.

Cash and Cash Equivalents.Cash and
cash equivalents was $5,733,356 at December 31, 2003 compared to $4,431,478 at December
31, 2002 and represents cash maintained at the Bank and funds that the Bank and the
Company have deposited in other financial institutions. The Bank reported $2,278,000 of
federal funds sold (which are inter-bank funds with daily liquidity) on December 31, 2003
and no federal funds sold as of December 31, 2002. Short-term investments in commercial
paper with maturities of three months or less increased to $500,000 as of December 31,
2003 compared to no short-term investments as of December 31, 2002.

Interest Bearing Deposits.Total
interest bearing deposits in banks as of December 31, 2003 were $551,079 compared to
$87,427 as of December 31, 2002, an increase of $463,652, primarily due to an investment
of a portion of the proceeds from the Companys issuance of the Debentures on June
30, 2003.

Available for Sale Securities.The
Companys investment portfolio increased $611,600 from $138,460 as of December 31,
2002 to $750,060 at December 31, 2003. The securities were placed in the available for
sale category of the investment portfolio as the securities may be liquidated to provide
cash for operating or financing purposes. The increase from the prior period was primarily
the result of investing a portion of the proceeds from the Companys issuance of the
Debentures on June 30, 2003 and deposit growth.

The following table summarizes the
maturity dates of those securities as of December 31, 2003.

# Investment Portfolio
Repricing Schedule

|                               | 1 year or less | After 1 year
through 5 years | After 5 years | Total   
|------------------------------ | -------------- | ---------------------------- | ------------- | --------
|Available for Sale Securities: |                |                              |               |         
|Corporate Securities           | $50,060        | $0                           | $700,000      | $750,060
|Weighted Average Yield         | 9.00%          | 0%                           | 7.00%         | 7.13%   

Amortized costs and fair values of
available for sale securities are discussed in Note 3 to the Companys Consolidated
Financial Statements.

20

---

Loans.Loans
prior to the allowance for loan losses increased to $75,126,628 at December 31,
2003 from $73,986,943 at December 31, 2002, an increase of $1,139,685 or 2%.
The modest increase in loan growth is a reflection of the slowness in the
economic recovery during 2003, resulting in customers who have paid down lines
of credit. As the economy improves, management anticipates increased loan
demand, which it expects will be generated primarily through existing customers
drawing on unfunded loan commitments as well as new loan originations generated
by the Banks marketing efforts. To fund future loan growth, management
intends to seek continued growth in commercial and consumer deposits through
sales efforts directed towards the expansion of existing client relationships
and marketing efforts directed at the acquisition of new client relationships.
Also, during fiscal year 2003 the Bank originated $30,775,043 in mortgage loans
sold in the secondary market compared to $21,736,512 in secondary market loans
originated in 2002. The favorable interest rate environment for long-term
mortgage loans primarily drove the increase in secondary market loan volume.
There were $650,000 and $2,160,021 of mortgage loans held for sale at December
31, 2003 and December 31, 2002, respectively.

With the anticipation of an
increasing rate environment, the Banks emphasis in 2004 will be to expand its
commercial portfolio with short-term, interest-rate sensitive assets, which should result
in an improvement in net interest income as interest rates rise. With respect to retail
banking, the emphasis will be to increase short-term residential mortgage loans which are
held in the Banks portfolio, originate real estate loans for sale in the secondary
market to generate fee income, and increase home equity lines and loans with new and
existing customer relationships. With the anticipated loan growth in 2004, increased
emphasis will be placed on generating deposits from both commercial and personal
customers.

The following table summarizes the
distribution of the Companys loans at December 31, 2003 and December 31,
2002.

|                         | Loan Portfolio Composition
December 31, | 
|------------------------ | --------------------------------------- | 
|
|Real Estate              |                                         | 
|Construction             |                                         | 
|Commercial               |                                         | 
|Residential              |                                         | 
|Commercial               |                                         | 
|Installment and Consumer |                                         | 
|                         |                                         | 
|Total Loans              |                                         | 
|                         |                                         | 

The following table summarizes the
maturities of the Companys loan portfolio at December 31, 2003 (excluding
residential real estate, installment and consumer).

|                                    | Loan Maturities | 
|----------------------------------- | --------------- | 
|
|Commercial & Commercial Real Estate |                 | 
|Real estate-construction            |                 | 
|                                    |                 | 
|Total                               |                 | 
|                                    |                 | 
|                                    |                 | 

21

---

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, 2003 (excluding residential real
estate, installment and consumer).

|                                    | Loans Due After One Year With: | 
|----------------------------------- | ------------------------------ | 
|
|Commercial & Commercial Real Estate |                                | 
|Real estate-construction            |                                | 
|                                    |                                | 
|Total                               |                                | 
|                                    |                                | 
|                                    |                                | 

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 practices. Any past due loans and identified problem loans are reviewed with
the Board of Directors of the Bank on a monthly basis.

Each loan which becomes contractually
past due 90 days or more as to principal or interest payments is 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 and all past accrued interest would be
reversed. Cash collections on loans placed on non-accrual status are credited to the loan
receivable balance and no interest income is recognized until the principal balance is
current. Loans are returned to accrual status when principal and interest amounts
contractually due are brought current and future payments are reasonably assured.
Management has identified one commercial loan in the amount of $258,151 which is not in
nonaccrual which management considers to be impaired.

As of December 31, 2003, 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 Company had $286,770 and $59,712
nonperforming loans, respectively, as of December 31, 2003 and December 31,
2002.

There was $22,448 and $3,026 in
unrecorded interest income related to non-accruing loans as of December 31, 2003 and
December 31, 2002. The amounts of cash-basis interest income on non-accruing loans that
were included in net income for fiscal 2003 and fiscal 2002 were $0 and $6,430,
respectively.

Allowance for Loan Losses.Based on
the loss estimates described in Critical Accounting Policies  Allowance for
Loan Losses, management determines its best estimate of the required loan loss
allowance. Managements evaluation of the factors described above resulted in an
allowance for loan losses of $729,643 or 0.97% of loans at December 31, 2003 compared to
$736,118 or 0.99% of loans at December 31, 2002. The Company has allocated its allowance
for loan losses at the end of the period presented as follows:

|                                            | Amount of Allowance
for Loan Losses
Allocated as of
12/31/03 | Percent of
Allowance for
Loan Losses | Percent of
Loans to
Total Loans
|------------------------------------------- | ------------------------------------------------------------ | ------------------------------------ | -------------------------------
|Commercial and commercial real estate loans |                                                              |                                      | $                              
|Real estate - construction                  |                                                              |                                      |                                
|Real estate - residential mortgages         |                                                              |                                      |                                
|Installment loans to individuals            |                                                              |                                      |                                
|Unfunded loan commitments                   |                                                              |                                      |                                
|Unallocated                                 |                                                              |                                      | $                              
|                                            |                                                              |                                      |                                
|Total                                       |                                                              |                                      | $                              
|                                            |                                                              |                                      |                                

22

---

The resulting provisions for loan
losses are the amounts required to maintain the allowance for loan losses at levels deemed
necessary by management after taking into consideration charge-offs and recoveries. The
provisions for loan losses for the years ended December 31, 2003 and 2002 were $393,000
and $260,000, respectively. Management recognizes there are significant estimates in the
process and the ultimate losses could be significantly different from those currently
estimated.

During fiscal 2003, the Bank charged
$401,329 against the allowance for loan losses related to three commercial loans and one
retail loan and had recoveries of $1,854 related to a commercial and retail loan. This
compares to $70,684 in charge offs during 2002 and $1,998 in recoveries during 2002.

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

# Summary of Loan Loss
ExperienceAnd Loan Loss Provisions

|                                      | 2003 |  | 2002 |         | 2001 |  
|------------------------------------- | ---- |  | ---- | ------- | ---- | -
|Balance at beginning of period        |      |  | $    | 736,118 |      | $
|Charge-offs:                          |      | 
|Commercial                            |      |  | $    | 400,367 |      | $
|Real Estate:                          |      | 
|Construction                          |      |  |      | 0       |      |  
|Commercial                            |      |  |      | 0       |      |  
|Other Mortgages                       |      |  |      | 0       |      |  
|Installment-consumer                  |      |  |      | 962     |      |  
|                                      |      |  |      |         |      |  
|Total Charge-offs                     |      |  | $    | 401,329 |      | $
|Recoveries:                           |      | 
|Commercial                            |      |  |      | 1,178   |      |  
|Real Estate:                          |      | 
|Construction                          |      |  |      | 0       |      |  
|Commercial                            |      |  |      | 0       |      |  
|Other Mortgages                       |      |  |      | 0       |      |  
|Installment-consumer                  |      |  |      | 676     |      |  
|                                      |      |  |      |         |      |  
|Total Recoveries                      |      |  | $    | 1,854   |      | $
|                                      |      |  |      |         |      |  
|Net charge-offs (recoveries)          |      |  | $    | 399,475 |      | $
|Additions charged to operations       |      |  |      | 393,000 |      |  
|                                      |      |  |      |         |      |  
|Balance at end of period              |      |  | $    | 729,643 |      | $
|                                      |      |  |     
|Ratio of net charge-offs (recoveries) |      | 
|during the period to average loans    |      | 
|outstanding during the period         |      |  |      | 0.51    | %    |  

Other Assets.The Companys
office building, leasehold improvements and equipment less accumulated depreciation and
amortization was $2,501,472 at December 31, 2003 compared to $2,488,734 at December 31,
2002. Cash surrender value of life insurance at December 31, 2003 was $2,360,516 compared
to $2,252,516 at December 31, 2002. Accrued interest receivable and other assets was
$1,379,231 at December 31, 2003 compared to $1,157,560 at December 31, 2002.

Deposits.Deposits
increased by $1,470,591 from $71,185,940 as of December 31, 2002 to
$72,656,531 on December 31, 2003, resulting from growth in other time
deposits.

23

---

As of December 31, 2003, time
deposits over $100,000 totaled $14,664,070 and represented 20% of total deposits. Set
forth below is a schedule of the maturities as of December 31, 2003 for the Companys
time deposits of $100,000 or more.

# Time Deposits of
$100,000 or moreMaturity
Schedule

|                        | 3 mos
Or less | Over 3 mos.
Thru 6 mos. | Over 6 mos.
Thru 12 mos. | Over 12 months | Total      
|----------------------- | ------------- | ----------------------- | ------------------------ | -------------- | -----------
|Certificates of Deposit | $ 2,292,595   | $ 2,299,711             | $ 3,774,066              | $ 6,297,698    | $14,664,070

Other Liabilities.Accrued interest
payable and other liabilities of $1,718,084 at December 31, 2003 compared to $1,568,170 at
December 31, 2002 were primarily made up of accrued interest payable on deposit accounts,
accounts payable and deferred employee benefits.

Borrowed Funds.The Bank is a member
of the Federal Home Loan Bank (the FHLB) and has a master contract with the
FHLB which provides for borrowing up to a maximum of 60% of the book value of the
Banks first lien one- to four-family real estate loans which were approximately
$4,862,000 at December 31, 2003. The advances are collateralized by a security agreement
pledging a portion of the Banks real estate mortgages with a carrying value of
approximately $8,081,000 and $8,481,000 at December 31, 2003 and 2002, respectively, and
FHLB stock.

During fiscal 2002, the Bank
experienced strong and increasing demand for commercial loans. As a result of this demand,
in order to fund loan growth, the Bank borrowed $4,500,000 from the FHLB during fiscal
2002, with applicable interest rates ranging from 3.61% to 3.99% and with varying
maturities through May 2004. The same amount of borrowings of $4,500,000 were outstanding
as of December 31, 2003.

As of December 31, 2003, the Bank had
no federal funds purchased, which are inter-bank funds with daily maturities, compared to
$1,112,000 on December 31, 2002. Deposit growth accounted for the reduction in federal
funds sold.

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. Further, subject to
certain limits, the Company has the ability to acquire additional funds through
short-term borrowings from other financial institutions. Liquidity needs are
influenced by economic conditions, interest rates and competition. The
loan-to-deposit ratio prior to allowance for loan losses on December 31, 2003
was 103% compared to 104% on December 31, 2002.

As of December 31, 2003 the Company
had $2,955,356 in cash and due from banks, $2,278,000 in federal funds sold, and $500,000
in short-term investments plus various sources of credit available to fund loans and loan
commitments. These available credit sources include Federal Funds lines of credit, loans
from the FHLB and loans from the Federal Reserve Bank. Certain of these lines would be
collateralized with other assets of the Bank.

Net cash provided by operating
activities for the twelve months ended December 31, 2003 was $2,584,691 compared to
$81,896 used in operations in the prior period. The increase in cash from operating
activities during 2003 was primarily due to net income, a reduction in loans held for sale
and provisions for loan losses.

Net cash used in investing activities
for the twelve months ended December 31, 2003 was $2,757,773 compared to $18,148,010 in
the prior period. The net increase in cash used in investing activities during 2003
included an increase in interest bearing deposits in banks, purchase of available for sale
securities and a net increase in loans.

Net cash provided by financing
activities for the twelve months ended December 31, 2003 was $1,474,960 compared to
$13,059,422 in the prior period. In 2003, the increase in cash was primarily due to an
increase in deposits and proceeds from the issuance of the Companys Debentures
offset by a decrease in Federal Funds purchased and the purchase of treasury stock.

24

---

Off-Balance Sheet Liabilities.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, commitments under credit card arrangements,
commercial letters of credit and standby letters of credit. These financial instruments
are recorded in the financial statements when they are funded or related fees are incurred
or received. See Note 14 to the Companys Consolidated Financial Statements.

As of December 31, 2003, the Company
has $21,625,028 in unfunded loan commitments created in the normal course of business and
approved in the same manner as the other loans on the balance sheet. This compares to
$19,400,871 in unfunded loan commitments as of December 31, 2002. The following table
summarizes the Companys exposure to these off-balance sheet commitments:

|                             | 2003 |  | 2002 |           
|---------------------------- | ---- |  | ---- | ----------
|Financial instruments:       |      |  |      |           
|Commitments to extend credit |      |  | $    | 20,387,848
|Credit card commitments      |      |  |      | 1,092,182 
|Standby letters of credit    |      |  |      | 144,998   

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 creditworthiness 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.

Capital Resources.As of December 31,
2003, the most recent notification from the regulatory agencies 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 Tier 1 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 have changed the Banks category. See
Note 17 to the Companys Consolidated Financial Statements for actual ratios for
2003 and 2002.

When the Company exceeds $150,000,000
in assets, the Company will be required to meet certain regulatory capital requirements.
The Companys Debentures will be included as Tier I capital and will have a positive
effect on the Companys capital ratios.

On July 23, 2003, during the
Companys third fiscal quarter, the Company announced that its Board of Directors
authorized the repurchase of up to 50,000 shares of its outstanding common stock. As of
August 1, 2003, the Company had repurchased 50,000 shares at a weighted average purchase
price of $9.86 per share. The Company currently has no further authorization to repurchase
additional shares.

During 2003, 19,582 shares of common
stock were issued in connection with the Companys stock option plan.

25

---

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, 2003 for each major category of
interest-earning assets and interest-bearing liabilities:

|                               | Interest-Rate-Sensitive Assets and Liabilities | 
|------------------------------ | ---------------------------------------------- | 
|
|Investments                    |                                                | 
|Loans                          |                                                | 
|                              
|Total Rate Sensitive Assets    |                                                | 
|Rate Sensitive Liabilities (a) |                                                | 
|                              
|GAP                            |                                                | 
|Cumulative GAP                 |                                                | 
|GAP/Rate Sensitive Assets      |                                                | 

(a)  Savings, NOW, and
money market demand deposits are considered immediately repricable.

# 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 interest rates. Prices and interest rates do not always move
in the same direction. The 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.

26

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# DISTRIBUTION OF
ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITYAverage Balance Sheet

|                                           | 2003 |  | 2002 |           
|------------------------------------------ | ---- |  | ---- | ----------
|Cash and due from banks                    |      |  | $    | 3,748,852 
|Federal funds sold                         |      |  |      | 2,109,603 
|Interest-bearing deposits in other banks   |      |  |      | 655,320   
|Investment securities:                     |      | 
|U.S. Treasury, agency and other securities |      |  |      | 365,082   
|Loans:                                     |      | 
|Real estate mortgages                      |      |  |      | 15,533,943
|Consumer-net                               |      |  |      | 1,210,875 
|Commercial and other                       |      |  |      | 61,120,364
|                                           |      |  |      |           
|Total                                      |      |  |      | 77,865,182
|Less allowance for loan losses             |      |  |      | (758,025  
|                                           |      |  |      |           
|Net loans                                  |      |  |      | 77,107,157
|Fixed assets                               |      |  |      | 2,497,652 
|Other real estate owned                    |      |  |      | 0         
|Cash surrender value of life insurance     |      |  |      | 2,294,840 
|Other assets                               |      |  |      | 1,062,273 
|                                           |      |  |      |           
|Total assets                               |      |  | $    | 89,840,779
|                                           |      |  |      |           
|Interest-bearing deposits:                 |      | 
|Interest-bearing demand                    |      |  | $    | 2,625,309 
|Savings accounts                           |      |  |      | 2,391,898 
|Money market deposit accounts              |      |  |      | 23,719,981
|Time deposits                              |      |  |      | 30,462,377
|Federal funds purchased                    |      |  |      | 1,693,417 
|Trust preferred securities                 |      |  |      | 756,164   
|FHLB borrowings                            |      |  |      | 4,500,000 
|                                           |      |  |      |           
|Total interest-bearing deposits            |      |  |      | 66,149,146
|Demand deposits                            |      |  |      | 13,310,486
|                                           |      |  |      |           
|Total deposits                             |      |  |      | 79,459,632
|Other liabilities                          |      |  |      | 2,524,978 
|                                           |      |  |      |           
|Total liabilities                          |      |  |      | 81,984,610
|Equity capital                             |      |  |      | 7,856,169 
|                                           |      |  |      |           
|Total liabilities and capital              |      |  | $    | 89,840,779
|                                           |      |  |      |           

27

---

# Item 7.   Financial
Statements

|                                                           | Page
|---------------------------------------------------------- | ----
|Independent Auditor's Reports                              |     
|Consolidated Balance Sheets                                |     
|Consolidated Statements of Income                          |     
|Consolidated Statements of Changes in Stockholders' Equity |     
|Consolidated Statements of Cash Flows                      |     
|Notes to Consolidated Financial Statements                 |     

28

---

# [LOGO OMITTED]

Independent
Auditors Report

Board of Directors
Ridgestone Financial Services, Inc.
Brookfield, Wisconsin

We have audited the accompanying
consolidated balance sheet of Ridgestone Financial Services, Inc. and Subsidiaries as of
December 31, 2003, and the related consolidated statements of income, changes in
stockholders equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Companys management. Our responsibility is
to express an opinion on these financial statements based on our audit. The consolidated
financial statements of Ridgestone Financial Services, Inc. and Subsidiaries, as of and
for each of the two years in the period ended December 31, 2002, were audited by other
auditors whose report dated February 14, 2003, expressed an unqualified opinion on those
statements.

We conducted our audit in accordance
with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides 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 Subsidiaries as of December
31, 2003, and the results of their operations and their cash flows for the year then ended
in conformity with accounting principles generally accepted in the United States.

/s/ Wipfli LLP

Wipfli LLP

February 13, 2004
Milwaukee, Wisconsin

29

---

[LOGO OMITTED]

# INDEPENDENT AUDITORS
REPORT

Board of Directors and
ShareholdersRidgestone Financial Services, Inc.

We have audited the accompanying consolidated
balance sheet of Ridgestone Financial Services, Inc. and Subsidiaries as of December 31,
2002, and the related consolidated statements of income, changes in stockholders
equity, and cash flows for each of the two years in the period ended December 31, 2002.
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 auditing standards generally accepted in the United States of America. Those
standards require that we plan and perform the audit 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 Subsidiaries as of December
31, 2002, and the results of their operations and their cash flows for each of the two
years in the period ended December 31, 2002, in conformity with accounting principles
generally accepted in the United States of America.

| | VIRCHOW,
KRAUSE & COMPANY, LLP    
| | ----------------------------------
| | /s/ Virchow, Krause & Company, LLP

Milwaukee, Wisconsin
February 14, 2003

30

---

|Ridgestone
Financial Services, Inc. and Subsidiaries
|----------------------------------------------------
|Consolidated Balance Sheets                         
|December 31, 2003 and 2002                          

|Assets                                                                       | 2003 | 2002
|---------------------------------------------------------------------------- | ---- | ----
|Cash and due from banks                                                      |      |     
|Federal funds sold                                                           |      |     
|Short-term investments                                                       |      |     
|                                                                            
|Cash and cash equivalents                                                    |      |     
|Interest-bearing deposits                                                    |      |     
|Securities available for sale                                                |      |     
|Loans held for sale                                                          |      |     
|Loans, net of allowance for loan losses of $729,643 and $736,118 in 2003     |      |     
|and 2002, respectively                                                       |      |     
|Premises and equipment, net                                                  |      |     
|Cash surrender value of life insurance                                       |      |     
|Accrued interest receivable and other assets                                 |      |     
|                                                                            
|TOTAL ASSETS                                                                 |      |     
|                                                                            
|Liabilities and Stockholders' Equity                                         |      |     
|                                                                            
|Liabilities:                                                                 |      |     
|Demand deposits                                                              |      |     
|Savings and NOW deposits                                                     |      |     
|Other time deposits                                                          |      |     
|                                                                            
|Total deposits                                                               |      |     
|Federal funds purchased                                                      |      |     
|Other borrowings                                                             |      |     
|Guaranteed preferred beneficial interests in the Company's subordinated      |      |     
|debentures                                                                   |      |     
|Accrued interest payable and other liabilities                               |      |     
|                                                                            
|Total liabilities                                                            |      |     
|                                                                            
|Stockholders' equity:                                                        |      |     
|Preferred stock, no par value, 2,000,000 shares authorized, no shares issued |      |     
|Common stock, no par value, 10,000,000 shares authorized, 897,241            |      |     
|shares and 877,659 shares issued in 2003 and 2002, respectively              |      |     
|Accumulated deficit                                                          |      |     
|Accumulated other comprehensive income (loss)                                |      |     
|Treasury stock, at cost - 50,000 shares in 2003                              |      |     
|                                                                            
|Total stockholders' equity                                                   |      |     
|                                                                            
|TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY                                   |      |     
|                                                                            

See accompanying notes
to consolidated financial statements.

31

---

|Ridgestone
Financial Services, Inc. and Subsidiaries
|----------------------------------------------------
|Consolidated Statements of Income                   
|Ended December 31, 2003, 2002, and 2001             

|                                                    | 2003 | 2002 | 2001
|--------------------------------------------------- | ---- | ---- | ----
|Interest and dividend income:                       |      |      |     
|Loans, including fees                               |      |      | $   
|Investment securities - taxable                     |      |      |     
|Other interest and dividend income                  |      |      |     
|                                                   
|Total interest and dividend income                  |      |      |     
|                                                   
|Interest expense:                                   |      |     
|Deposits                                            |      |      |     
|Federal funds purchased                             |      |      |     
|Borrowed funds                                      |      |      |     
|                                                   
|Total interest expense                              |      |      |     
|                                                   
|Net interest income                                 |      |      |     
|Provision for loan losses                           |      |      |     
|                                                   
|Net interest income after provision for loan losses |      |      |     
|                                                   
|Noninterest income:                                 |      |     
|Customer service fees                               |      |      |     
|Net gain on sale of loans                           |      |      |     
|Increase in cash surrender value of life insurance  |      |      |     
|Gain on sale of securities available for sale       |      |      |     
|Other income                                        |      |      |     
|                                                   
|Total noninterest income                            |      |      |     
|                                                   
|Noninterest expense:                                |      |     
|Salaries                                            |      |      |     
|Employee benefits                                   |      |      |     
|Occupancy                                           |      |      |     
|Furniture and equipment                             |      |      |     
|Computer services                                   |      |      |     
|Professional fees                                   |      |      |     
|Other expenses                                      |      |      |     
|                                                   
|Total noninterest expense                           |      |      |     
|                                                   
|Income before provision for income taxes            |      |      |     
|Provision for income taxes                          |      |      |     
|                                                   
|Net income                                          |      |      | $   
|                                                   
|Basic earnings per share                            |      |      | $   
|                                                   
|Diluted earnings per share                          |      |      | $   
|                                                   

See accompanying notes
to consolidated financial statements.

32

---

|Ridgestone
Financial Services, Inc. and Subsidiaries      
|----------------------------------------------------------
|Consolidated Statements of Changes in Stockholders' Equity
|Ended December 31, 2003, 2002, and 2001                   

|                                      | Common
Stock | Accumulated
Deficit | Accumulated
Other
Comprehensive
Income (Loss) | Treasury
Stock | Total
|------------------------------------- | ------------ | ------------------- | --------------------------------------------- | -------------- | -----
|Balance, December 31, 2000            |              |                     | $                                             | 8,417,117      |      
|Comprehensive income:                 |              |                    
|Net income                            |              |                     |                                               |                |      
|Change in unrealized gains and losses |              |                    
|on securities available for sale      |              |                     |                                               |                |      
|Income tax effect                     |              |                     |                                               |                |      
|                                      |             
|Total comprehensive income            |              |                     |                                               |                |      
|                                     
|Balance, December 31, 2001            |              |                     |                                               | 8,417,117      |      
|Comprehensive income:                 |              |                    
|Net income                            |              |                     |                                               |                |      
|Change in unrealized gains and losses |              |                    
|on securities available for sale      |              |                     |                                               |                |      
|Income tax effect                     |              |                     |                                               |                |      
|                                      |             
|Total comprehensive income            |              |                     |                                               |                |      
|Issuance of 1,167 shares of common    |              |                    
|stock                                 |              |                     |                                               | 6,502          |      
|                                     
|Balance, December 31, 2002            |              |                     |                                               | 8,423,619      |      
|Comprehensive income:                 |              |                    
|Net income                            |              |                     |                                               |                |      
|Change in unrealized gains and losses |              |                    
|on securities available for sale      |              |                     |                                               |                |      
|Reclassification adjustment for gains |              |                    
|realized in income                    |              |                     |                                               |                |      
|                                      |             
|Total comprehensive income            |              |                     |                                               |                |      
|Tax benefit of nonqualified stock     |              |                    
|options exercised                     |              |                     |                                               | 41,700         |      
|Issuance of 19,582 shares of common   |              |                    
|stock                                 |              |                     |                                               | 109,384        |      
|Purchase of 50,000 shares of treasury |              |                    
|stock                                 |              |                     |                                               |                |      
|                                     
|Balance, December 31, 2003            |              |                     | $                                             | 8,574,703      |      
|                                     

See accompanying notes
to consolidated financial statements.

33

---

|Ridgestone
Financial Services, Inc. and Subsidiaries
|----------------------------------------------------
|Consolidated Statements of Cash Flows               
|Ended December 31, 2003, 2002, and 2001             

|                                                                        | 2003 |  | 2002 |            | 2001 |  
|----------------------------------------------------------------------- | ---- |  | ---- | ---------- | ---- | -
|Increase (decrease) in cash and cash equivalents:                       |      |  |      |            |      |  
|Cash flows from operating activities:                                   |      | 
|Net income                                                              |      |  | $    | 673,801    |      | $
|                                                                       
|Adjustments to reconcile net income to net cash                         |      | 
|provided by (used in) operating activities:                             |      | 
|Provision for depreciation                                              |      |  |      | 151,216    |      |  
|Gain on sale of securities available for sale                           |      |  |      | (5,290     | )    |  
|Provision for loan losses                                               |      |  |      | 393,000    |      |  
|Increase in cash surrender value of life insurance                      |      |  |      | (108,000   | )    |  
|Provision for deferred income taxes                                     |      |  |      | 39,934     |      |  
|Gain on other real estate owned                                         |      |  |      | 0          |      |  
|Changes in operating assets and liabilities:                            |      | 
|Loans held for sale                                                     |      |  |      | 1,510,021  |      |  
|Accrued interest receivable and other assets                            |      |  |      | (261,605   | )    |  
|Accrued interest payable and other liabilities                          |      |  |      | 191,614    |      |  
|                                                                       
|Total adjustments                                                       |      |  |      | 1,910,890  |      |  
|                                                                       
|Net cash provided by (used in) operating activities                     |      |  |      | 2,584,691  |      |  
|                                                                       
|Cash flows from investing activities:                                   |      | 
|Net (increase) decrease in interest-bearing deposits                    |      |  |      | (463,652   | )    |  
|Maturities, prepayments, sales, and calls of                            |      |  |      | 108,993    |      |  
|available-for-sale securities                                           |      | 
|Purchases of available-for-sale securities                              |      |  |      | (700,000   | )    |  
|Maturities, prepayments, and calls of       held-to-maturity securities |      |  |      | 0          |      |  
|Net increase in loans                                                   |      |  |      | (1,539,160 | )    |  
|Proceeds from sales of premises and equipment                           |      |  |      | 0          |      |  
|Purchases of premises and equipment                                     |      |  |      | (163,954   | )    |  
|Net disbursements on other real estate owned                            |      |  |      | 0          |      |  
|Proceeds from sales of other real estate owned                          |      |  |      | 0          |      |  
|                                                                       
|Net cash provided by (used in) investing activities                     |      |  |      | (2,757,773 | )    |  
|                                                                       

34

---

|Ridgestone
Financial Services, Inc. and Subsidiaries
|----------------------------------------------------
|Consolidated Statements of Cash Flows (Continued)   
|Ended December 31, 2003, 2002, and 2001             

|                                                     | 2003 |  | 2002 |            | 2001 |  
|---------------------------------------------------- | ---- |  | ---- | ---------- | ---- | -
|Cash flows from financing activities:                |      |  |      |            |      |  
|Net increase (decrease) in deposits                  |      |  | $    | 1,470,591  |      | $
|Net change in federal funds purchased                |      |  |      | (1,112,000 | )    |  
|Proceeds from borrowings                             |      |  |      | 0          |      |  
|Net proceeds from issuance of guaranteed             |      | 
|preferred beneficial interests in the                |      | 
|Company's subordinated debentures                    |      |  |      | 1,500,000  |      |  
|Proceeds from issuance of common stock               |      |  |      | 109,384    |      |  
|Purchase of treasury stock                           |      |  |      | (493,015   | )    |  
|                                                    
|Net cash provided by (used in) financing activities  |      |  |      | 1,474,960  |      |  
|                                                    
|Net increase (decrease) in cash and cash equivalents |      |  |      | 1,301,878  |      |  
|Cash and cash equivalents at beginning               |      |  |      | 4,431,478  |      |  
|                                                    
|Cash and cash equivalents at end                     |      |  | $    | 5,733,356  |      | $
|                                                    
|Supplemental cash flow information:                  |      | 
|Cash paid during the year for:                       |      | 
|Interest on deposits and borrowings                  |      |  | $    | 1,441,101  |      | $
|Income taxes                                         |      |  |      | 230,000    |      |  
|Noncash investing and financing activities:          |      | 
|Tax benefit of nonqualified stock options exercised  |      |  | $    | 41,700     |      | $

See accompanying notes
to consolidated financial statements.

35

---

|Ridgestone
Financial Services, Inc. and Subsidiaries
|----------------------------------------------------
|Notes to Consolidated Financial Statements          

|Note 1 | Summary of Significant Accounting Policies
|------ | ------------------------------------------

| | Consolidation The consolidated financial statements of Ridgestone Financial Services, Inc. (the
Company) include the accounts of its wholly owned subsidiaries, Ridgestone
Bank (the Bank) and Ridgestone Capital Trust I (the Capital Trust).
Ridgestone Bank includes the accounts of its wholly owned subsidiary, Ridgestone Real
Estate Divestitures, Inc. In December 2001, Ridgestone Real Estate Divestitures, Inc.
ceased operations. The consolidated financial statements have been prepared in conformity
with accounting principles generally accepted in the United States and conform to general
practices within the banking industry. All significant intercompany accounts and
transactions have been eliminated in consolidation.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Nature
of Banking ActivitiesThe consolidated income of the Company is principally from
the income of the Bank. The Bank grants commercial, residential, and consumer loans to
and accepts deposits from customers primarily in southeastern Wisconsin. The Bank is
subject to competition from other financial institutions and nonfinancial institutions
providing financial products. Additionally, the Company and the Bank are subject to the
regulations of certain regulatory agencies and undergo periodic examination by those
regulatory agencies.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Use
of Estimates In preparing consolidated financial statements in conformity with
accounting principles generally accepted in the United States, 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 revenue 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 and deferred tax assets.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Cash
and Cash Equivalents For purposes of reporting cash flows, cash and cash
equivalents include cash and balances due from banks, federal funds sold, and short-term
investments, all of which mature within 90 days. The Bank maintains amounts due from
banks which, at times, may exceed federally insured limits. The Bank has not experienced
any losses in such accounts.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Interest-Bearing
Deposits in Banks Interest-bearing deposits in banks mature within one year and
are carried at cost.
| | ----------------------------------------------------------------------------------------------------------------------

| | Securities Securities are classified as available for sale and are carried at fair value,
with unrealized gains and losses reported in other comprehensive income, net of the
related deferred tax effect. Amortization of premiums and accretion of discounts are
recognized in interest income using the interest method over the life of the securities.
Declines in fair value of securities that are deemed to be other-than-temporary, if
applicable, are reflected in earnings as realized losses. In estimating
other-than-temporary impairment losses, management considers independent price
quotations, projected target prices of investment analysts within the short term, and the
financial condition of the issuer. Gains and losses on the sale of securities are
recorded on the trade date and determined using the specific-identification method.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

36

---

|Ridgestone
Financial Services, Inc. and Subsidiaries
|----------------------------------------------------
|Notes to Consolidated Financial Statements          

|Note 1 | Summary of Significant Accounting Policies (Continued)
|------ | ------------------------------------------------------

| | Federal
Home Loan Bank StockAs a member of the Federal Home Loan Bank (FHLB) system, the
Bank is required to hold stock in the FHLB based on the anticipated amount of FHLB
borrowings to be advanced. This stock is recorded at cost, which approximates fair value.
Transfer of the stock is substantially restricted. Total FHLB stock of $248,800 and
$230,800 as of December 31, 2003 and 2002, respectively, is included in other assets.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Loans
Held for Sale 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.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 and any deferred fees or costs in originating
loans. Interest income is accrued on the unpaid principal balance. 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. Loans are returned to accrual status when the principal and
interest amounts contractually due are brought current and future payments are reasonably
assured.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Allowance
for Loan Losses The allowance for loan losses is established as losses are
estimated to have occurred through a provision for loan losses charged to earnings. Loan
losses are charged against the allowance when management believes the uncollectibility of
a loan balance is confirmed. Subsequent recoveries, if any, are credited to the
allowance. 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. The allowance is provided for losses that have been
incurred as of the balance sheet date and 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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | A
loan is considered impaired when, based on current information and events, it is probable
that the Bank will be unable to collect the scheduled payments of principal or interest
when due according to the contractual terms of the loan agreement. Factors considered by
management in determining impairment include payment status, collateral value, and the
probability of collecting scheduled principal and interest payments when due. Impairment
is measured on a loan-by-loan basis for commercial and commercial real estate loans by
the present value of expected future cash flows discounted at the loans effective
interest rate, the loans obtainable market price, or the fair value of the
collateral if the loan is collateral dependent.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

37

---

|Ridgestone
Financial Services, Inc. and Subsidiaries
|----------------------------------------------------
|Notes to Consolidated Financial Statements          

|Note 1 | Summary of Significant Accounting Policies (Continued)
|------ | ------------------------------------------------------

| | Premises
and EquipmentPremises and equipment are stated at cost, net of accumulated
depreciation. Provisions for depreciation are computed on straight-line and accelerated
methods over the estimated useful lives of the assets, which range from 15 to 40 years
for buildings and 3 to 10 years for equipment. Gains or losses on disposition of premises
and equipment are reflected in income.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 foreclosure, losses are charged to the allowance for loan losses. After
foreclosure, revenue and expenses from operations and changes in the valuation allowance
are included in income as incurred.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Income
Taxes The Company files a consolidated federal income tax return and separate
company 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 allowance for loan losses, deferred compensation, and net operating loss
carryforwards. Valuation allowances are established when necessary to reduce deferred tax
assets to the amount expected to be realized.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Stock-Based
Compensation PlanAt December 31, 2003, the Company has a stock-based employee
compensation plan which is described more fully in Note 12. The Company accounts for this
plan under the recognition and measurement principles of APB Opinion No. 25, Accounting
for Stock Issued to Employees, and related Interpretations. Accordingly, no stock-based
employee compensation cost is reflected in net income, as all options granted under this
plan had an exercise price equal to the approximate market value of the underlying common
stock on the date of grant. The following table illustrates, in accordance with Statement
of Financial Accounting Standards (SFAS) No. 148, Accounting for Stock-Based Compensation
Transition and Disclosure, the effect on net income and earnings per share if the
Company had applied the fair value recognition provisions of SFAS No. 123, Accounting for
Stock-Based Compensation, to stock-based employee compensation.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

38

---

|Ridgestone
Financial Services, Inc. and Subsidiaries
|----------------------------------------------------
|Notes to Consolidated Financial Statements          

|Note 1 | Summary of Significant Accounting Policies (Continued)
|------ | ------------------------------------------------------

|                                         | 2003 |  | 2002 |          | 2001 |  
|---------------------------------------- | ---- |  | ---- | -------- | ---- | -
|Net income - As reported                 |      |  | $    | 673,801  |      | $
|Deduct:  Total stock-based employee      |      | 
|compensation expense determined under a  |      | 
|fair value based method for all awards   |      | 
|granted, net of related tax effects      |      |  |      | (109,128 | )    |  
|                                        
|Pro forma net income                     |      |  | $    | 564,673  |      | $
|                                        
|Basic earnings per share - As reported   |      |  | $    | 0.78     |      | $
|Pro forma basic earnings per share       |      |  | $    | 0.66     |      | $
|Diluted earnings per share - As reported |      |  | $    | 0.72     |      | $
|Pro forma diluted earnings per share     |      |  | $    | 0.60     |      | $

| | Off-Balance-Sheet
Financial Instruments In the ordinary course of business, the Bank has entered
into off-balance-sheet financial instruments consisting of commitments to extend credit,
commitments under credit card arrangements, and standby letters of credit. Such financial
instruments are recorded in the consolidated financial statements when they become
payable or when related fees are incurred or received.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Rate
Lock Commitments The Company enters into commitments to originate loans whereby
the interest rate on the loan is determined prior to funding (rate lock commitments).
Rate lock commitments on mortgage loans that are intended to be sold are considered to be
derivatives. Accordingly, such commitments, along with any related fees received from
potential borrowers, are recorded at fair value in derivative assets or liabilities, with
changes in fair value recorded in the net gain or loss on sale of mortgage loans. Fair
value is based on fees currently charged to enter into similar agreements, and for
fixed-rate commitments also considers the difference between current levels of interest
rates and the committed rates. The Companys rate lock commitments were $723,200 at
December 31, 2003.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Segment
Information The Company, through its banking subsidiary, provides a full range of
consumer and commercial banking services to individuals and businesses in the Milwaukee
Metropolitan area. These services include demand, time, and savings deposits; safe
deposit services; credit cards; secured and unsecured consumer, commercial, and real
estate loans; ATM processing; cash management; and financial planning.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | While
the Companys chief decision makers monitor the revenue streams of various Company
products and services, operations are managed and financial performance is evaluated on a
companywide basis. Accordingly, all of the Companys banking operations are
considered by management to be aggregated in one reportable operating segment.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Comprehensive
IncomeComprehensive income consists of net income and other comprehensive income
(loss). Other comprehensive income (loss) includes unrealized gains and losses on
securities available for sale, net of tax, which are recognized as a separate component
of equity, accumulated other comprehensive income (loss).
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

39

---

|Ridgestone
Financial Services, Inc. and Subsidiaries
|----------------------------------------------------
|Notes to Consolidated Financial Statements          

|Note 1 | Summary of Significant Accounting Policies (Continued)
|------ | ------------------------------------------------------

| | Earnings
per Share Earnings per share are computed based upon the weighted average number
of common shares outstanding during each year. 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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | A
reconciliation of the numerators and the denominators of earnings per share assuming
dilution are:
| | ----------------------------------------------------------------------------------------------------

|                             | Income | Shares | Per Share
Amount
|---------------------------- | ------ | ------ | ----------------
|2003                         |        |        |                 
|Earnings                     |        |        | $               
|Effect of options            |        |        |                 
|                            
|Earnings - Assuming dilution |        |        | $               
|                            
|2002                         |        |        |                 
|Earnings                     |        |        | $               
|Effect of options            |        |        |                 
|                            
|Earnings - Assuming dilution |        |        | $               
|                            
|2001                         |        |        |                 
|Earnings                     |        |        | $               
|Effect of options            |        |        |                 
|                            
|Earnings - Assuming dilution |        |        | $               
|                            

| | New
Accounting PronouncementsIn December 2002, the Financial Accounting Standards
Board (FASB) issued SFAS No. 148, Accounting for Stock-Based Compensation  Transition
and Disclosure  an Amendment of SFAS 123. SFAS No. 148 permits two additional
transition methods for entities that adopt the fair value based method of accounting for
stock-based employee compensation. This statement also requires new disclosures about the
ramp-up effect of stock-based employee compensation on reported results, and requires
that those effects be disclosed more prominently by specifying the form, content, and
location of those disclosures. The transition guidance and annual disclosure provisions
of SFAS No. 148 are effective for fiscal years ending after December 15, 2002, with
earlier application permitted in certain circumstances, and have been provided herein.
The Company decided preliminarily not to adopt the fair value based method of accounting,
but will continue to monitor the accounting developments in this area.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

40

---

|Ridgestone
Financial Services, Inc. and Subsidiaries
|----------------------------------------------------
|Notes to Consolidated Financial Statements          

|Note 1 | Summary
of Significant Accounting Policies (Continued)
|------ | ------------------------------------------------------

| | New
Accounting Pronouncements (Continued) In April 2003, the FASB issued SFAS No. 149,
Amendment of Statement 133 on Derivative Instruments and Hedging Activities. SFAS No. 149
amends and clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts, and for hedging
activities under SFAS No. 133, Accounting for Derivative Instruments and Hedging
Activities. This statement amends SFAS No. 133 for decisions made as part of the
Derivatives Implementation Group process and in connection with implementation issues
raised in relation to the application of the definition of a derivative. SFAS No. 149 is
effective for contracts entered into or modified after June 30, 2003. The adoption had no
material impact on the Companys results of operations, financial position, or
liquidity.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments
With Characteristics of Both Liabilities and Equity. SFAS No. 150 establishes standards
on how an issuer classifies and measures certain financial instruments with
characteristics of both liabilities and equity. SFAS No. 150 is effective for financial
instruments entered into or modified after May 31, 2003; otherwise effective at the
beginning of the first interim period beginning after June 15, 2003. The adoption had no
material impact on the Companys results of operations, financial position, or
liquidity.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
November 2002, the FASB issued Interpretation No. 45, an interpretation of FASB
Statements No. 5, 57, and 107, Guarantors Accounting and Disclosure Requirements
for Guarantees, Including Indirect Guarantees of Indebtedness of Others(FIN 45).
This interpretation elaborates on the disclosures to be made by a guarantor in its
financial statements regarding certain guarantees that it has issued. It also clarifies
that a guarantor is required to recognize, at the inception of a guarantee, a liability
for the fair value of the obligation undertaken in issuing the guarantee. The disclosure
requirements of FIN 45 were effective as of December 31, 2002, and require disclosure of
the nature of the guarantee, the maximum potential amount of future payments that the
guarantor could be required to make under the guarantee, and the current amount of the
liability, if any, for the guarantors obligations under the guarantee. The
recognition requirements of FIN 45 were effective beginning January 1, 2003. The adoption
had no material impact on the Companys results of operations, financial position,
or liquidity.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
December 2003, FASB issued a revised Interpretation No. 46 (FIN 46R),
Consolidation of Variable Interest Entities. This interpretation provides guidance on how
to identify a variable interest entity (VIE) and determine when the assets, liabilities,
noncontrolling interests, and results of operations of a VIE need to be included in a
companys financial statements if it meets certain criteria as defined in the
interpretation. A company that holds variable interests in an entity will need to
consolidate the entity if the companys interest in the VIE is such that the company
will absorb a majority of the VIEs losses and/or receive a majority of the entitys
expected residual returns, if they occur. FIN 46R also requires additional disclosures by
primary beneficiaries and other significant variable interest holders. FIN 46R is
effective immediately for interests in an entity subject to this interpretation created
after December 31, 2003; otherwise, this interpretation is to be applied by the beginning
of the first annual period beginning after December 31, 2004. See Note 9 for the Companys
assessment of the impact the interpretation will have on the consolidated financial
statements.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Reclassifications Certain 2002 and 2001 amounts have been reclassified to conform with the 2003
presentation. The reclassifications have no effect on reported amounts of net income or
equity.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

41

---

|Ridgestone
Financial Services, Inc. and Subsidiaries
|----------------------------------------------------
|Notes to Consolidated Financial Statements          

|Note 2 | Cash
and Due From Banks
|------ | -----------------------

| | The
Bank is required to maintain vault cash and reserve balances with federal reserve banks
based upon a percentage of deposits. These requirements approximated $244,000 and
$222,000 at December 31, 2003 and 2002, respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | In
the normal course of business, the Bank maintains cash and due from bank balances with
correspondent banks which routinely exceed insured amounts. Accounts at each institution
are insured by the Federal Deposit Insurance Corporation of up to $100,000. The Bank
monitors the financial condition of correspondent banks and believes credit risk is
minimal.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Note 3 | Securities
|------ | ----------

| | Amortized
costs and estimated fair value of available-for-sale securities as of December 31,
2003 and 2002, are summarized as follows:
| | --------------------------------------------------------------------------------------------------------------------------------------

|                        | Amortized     
Cost | Gross    
Unrealized    
Gains | Gross    
Unrealized    
Losses | Estimated
Fair Value
|----------------------- | ------------------- | ------------------------------ | ------------------------------- | --------------------
|December 31, 2003       |                     |                                |                                 |                     
|Available for sale:     |                     |                               
|Capital securities      |                     |                                | $                               | 700,000             
|Other equity securities |                     |                                |                                 | 50,000              
|                       
|Total                   |                     |                                | $                               | 750,000             
|                       
|December 31, 2002       |                     |                               
|Available for sale:     |                     |                               
|Other equity securities |                     |                                | $                               | 153,703             
|                       

| | The
contractual maturities of the capital securities are greater than 15 years. Expected
maturities will differ from contractual maturities because the borrowers have the right
to call or prepay the obligations without penalties. Typically these securities are
callable after 5 years.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Following
is a summary of the proceeds from sales of investment securities available for sale, as
well as gross gains and losses for the years ended December 31:
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                 | 2003 |  | 2002 | 2001   
|-------------------------------- | ---- |  | ---- | -------
|Proceeds from sale of securities |      |  | $    | 108,993
|Gross gains on sales             |      |  | $    | 21,830 
|Gross losses on sales            |      |  | $    | 16,540 

| | There
were no securities pledged as collateral at December 31, 2003 and 2002.
| | -----------------------------------------------------------------------------

| | The
Company did not have any temporary impairment losses at December 31, 2003.
| | ------------------------------------------------------------------------------

42

---

|Ridgestone
Financial Services, Inc. and Subsidiaries
|----------------------------------------------------
|Notes to Consolidated Financial Statements          

|Note 4 | Loans
|------ | -----

| | Major
classification of loans are as follows at December 31:
| | ------------------------------------------------------------

|                                 | 2003 | 2002
|-------------------------------- | ---- | ----
|Real estate loans:               |      |     
|Construction                     |      |     
|Commercial                       |      |     
|Residential                      |      |     
|Commercial loans                 |      |     
|Installment and consumer loans   |      |     
|                                
|Subtotals                        |      |     
|Less - Allowance for loan losses |      |     
|                                
|Loans, net                       |      |     
|                                

| | The
aggregate amount of nonperforming loans was approximately $286,770 and $59,712 at
December 31, 2003 and 2002, respectively. Nonperforming loans are those that are
contractually past due 90 days or more as to interest or principal payments, on
nonaccrual of interest status, or loans the terms of which have been renegotiated to
provide a reduction or deferral of interest or principal. If nonperforming loans had been
current, approximately $20,059, $2,708, and $2,190 of interest income would have been
recognized for the years ended December 31, 2003, 2002, and 2001, respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | An
analysis of impaired loans at December 31 follows:
| | -----------------------------------------------------

|                                             | 2003 | 2002
|-------------------------------------------- | ---- | ----
|Impaired loans with a valuation allowance    |      |     
|Impaired loans without a valuation allowance |      |     
|                                            
|Total impaired loans                         |      |     
|Less - Allowance for loan losses             |      |     
|                                            
|Net investment in impaired loans             |      |     
|                                            

43

---

|Ridgestone
Financial Services, Inc. and Subsidiaries
|----------------------------------------------------
|Notes to Consolidated Financial Statements          

|Note 4 | Loans
(Continued)
|------ | -----------------

| | An
analysis of impaired loans for the years ended December 31 follows:
| | ----------------------------------------------------------------------

|                                                | 2003 |  | 2002 |         | 2001 |  
|----------------------------------------------- | ---- |  | ---- | ------- | ---- | -
|Average recorded investment                     |      |  | $    | 524,345 |      | $
|                                               
|Interest income recognized                      |      |  | $    | 20,523  |      | $
|                                               
|Interest income recognized using the cash basis |      |  | $    | 0       |      | $
|                                               

| | The
Bank, in the ordinary course of business, grants loans to the Companys executive
officers and directors, including affiliated companies in which they are principal
owners. 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.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Activity
in related-party loans during 2003 is summarized below:
| | ----------------------------------------------------------------

|                               | 
|------------------------------ | 
|Loans outstanding, January 1   | 
|Changes in related parties     | 
|New loans                      | 
|Repayments                     | 
|                              
|Loans outstanding, December 31 | 
|                              

|Note 5 | Allowance
for Loan Losses
|------ | -------------------------

| | The
allowance for loan losses reflected in the accompanying consolidated financial statements
represents the allowance available to absorb loan losses. An analysis of changes in the
allowance is presented in the following table as of December 31:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                  | 2003 |  | 2002 |          | 2001 |  
|--------------------------------- | ---- |  | ---- | -------- | ---- | -
|Balance at beginning              |      |  | $    | 736,118  |      | $
|Charge-offs                       |      |  |      | (401,329 | )    |  
|Recoveries of amounts charged off |      |  |      | 1,854    |      |  
|Provision charged to operations   |      |  |      | 393,000  |      |  
|                                 
|Balance at end                    |      |  | $    | 729,643  |      | $
|                                 

44

---

|Ridgestone
Financial Services, Inc. and Subsidiaries
|----------------------------------------------------
|Notes to Consolidated Financial Statements          

|Note 6 | Premises
and Equipment
|------ | ----------------------

| | Premises
and equipment are stated at cost less accumulated depreciation at December 31 and are
summarized as follows:
| | ---------------------------------------------------------------------------------------------------------------------

|                                                 | 2003 |  | 2002 |          
|------------------------------------------------ | ---- |  | ---- | ---------
|Land                                             |      |  | $    | 232,200  
|Buildings and leasehold improvements             |      |  |      | 2,362,254
|Furniture and equipment                          |      |  |      | 1,224,469
|                                                
|Totals                                           |      |  |      | 3,818,923
|Less - Accumulated depreciation and amortization |      |  |      | 1,317,451
|                                                
|Net depreciated value                            |      |  | $    | 2,501,472
|                                                

| | Depreciation
expense amounted to $151,216, $168,986, and $192,013 in 2003, 2002, and 2001,
respectively.
| | --------------------------------------------------------------------------------------------------------

|Note 7 | Deposits
|------ | --------

| | The
aggregate amount of time deposits, each with a minimum denomination of $100,000, was
$14,664,070 and $10,010,986 at December 31, 2003 and 2002, respectively.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

| | At
December 31, 2003, the scheduled maturities of time deposits are as follows:
| | -------------------------------------------------------------------------------

|      | 
|----- | 
|2004  | 
|2005  | 
|2006  | 
|2007  | 
|2008  | 
|     
|Total | 
|     

|Note 8 | Other
Borrowings
|------ | ----------------

| | Other
borrowings consist of the following at December 31:
| | ---------------------------------------------------------

|                                   |  | 
|---------------------------------- |  | 
|3.61% to 3.99% fixed rate FHLB     |  | 
|advances, interest payable monthly |  | 
|with principal due during 2004     |  | 
|                                  

45

---

|Ridgestone
Financial Services, Inc. and Subsidiaries
|----------------------------------------------------
|Notes to Consolidated Financial Statements          

|Note 8 | Other
Borrowings (Continued)
|------ | ----------------------------

| | The
Bank has a master contract with the FHLB which provides for borrowing up to a maximum of
60% of the book value of the Banks first lien one- to four-family real estate
loans, which were approximately $4,862,000 at December 31, 2003. The advances are
collateralized by a security agreement pledging a portion of the Banks real estate
mortgages with a carrying value of approximately $8,081,000 and $8,481,000 at December 31,
2003 and 2002, respectively, and FHLB stock.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Note 9 | Guaranteed
Preferred Beneficial Interests in the Companys Subordinated Debentures
|------ | ----------------------------------------------------------------------------------

| | On
June 30, 2003, Ridgestone Capital Trust I, a Delaware business trust wholly owned by the
Company, completed the sale of $1.5 million trust preferred securities (the Trust
Preferred Securities). The Trust Preferred Securities were sold in a private
placement to institutional investors. The Capital Trust used the proceeds from the
offering to purchase a like amount of the Companys Junior Subordinated Debentures
(the Debentures). The Debentures are the sole assets of the Capital Trust and
are eliminated, along with the related income statement effects, in the consolidated
financial statements.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Effective
in the first annual period after December 31, 2004, in accordance with recent guidance
provided on the application of FIN 46R, the Company will be required to deconsolidate the
Capital Trust from its financial statements. Accordingly, the Debentures issued by the
Company to the Capital Trust (as opposed to the Trust Preferred Securities issued by the
Capital Trust) will be reflected in the Companys consolidated balance sheet as
long-term debt. The deconsolidation of the net assets and results of operations of this
trust will have an immaterial impact on the Companys consolidated financial
statements since the Company continues to be obligated to repay the Debentures held by
the Capital Trust and guarantees repayment of the Trust Preferred Securities issued by
the Capital Trust. The consolidated long-term debt obligation related to the Capital
Trust will increase from $1,500,000 to $1,550,000 upon deconsolidation, with the
difference representing the Companys common ownership interest in the Capital
Trust.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Trust Preferred Securities mature in 30 years and have a 7.00% fixed rate from June 30,
2003 through June 29, 2008. The rate resets on June 30, 2008, and every five years
thereafter on June 30, to the five- year rate of the LIBOR Swap Curve (as made available
on Bloomberg Financial Markets) plus 3.50 percentage points. The rate for the first ten
years (until June 29, 2013) may not exceed 12%. The Trust Preferred Securities may be
called in part or in full on June 30, 2008, and quarterly thereafter, with 30 days notice,
in a minimum principal amount of $500,000 and in increments of $10,000 thereafter. The
Trust Preferred Securities are mandatorily redeemable upon the maturity of the Debentures
on June 30, 2033, or upon earlier redemption.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company has fully and unconditionally guaranteed all of the obligations of the Capital
Trust. The guarantee covers the quarterly distributions and payments on liquidation or
redemption of the Trust Preferred Securities, but only to the extent of funds held by the
Capital Trust. The Trust Preferred Securities qualify under the risk-based capital
guidelines as Tier1 capital for regulatory purposes.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
Company used the proceeds from the sales of the Debentures for general corporate
purposes.
| | ----------------------------------------------------------------------------------------------

46

---

|Ridgestone
Financial Services, Inc. and Subsidiaries
|----------------------------------------------------
|Notes to Consolidated Financial Statements          

|Note 10 | Income
Taxes
|------- | ------------

| | The
provision for income taxes included in the accompanying consolidated financial statements
consists of the following components at December 31:
| | --------------------------------------------------------------------------------------------------------------------------------------------------

|                                 | 2003 |  | 2002 |         | 2001 |  
|-------------------------------- | ---- |  | ---- | ------- | ---- | -
|Current tax expense:             |      |  |      |         |      |  
|Federal                          |      |  | $    | 268,431 |      | $
|State                            |      |  |      | 47,144  |      |  
|                                
|Total current                    |      |  |      | 315,575 |      |  
|                                
|Deferred tax expense:            |      | 
|Federal                          |      |  |      | 32,041  |      |  
|State                            |      |  |      | 7,893   |      |  
|                                
|Total deferred                   |      |  |      | 39,934  |      |  
|                                
|Total provision for income taxes |      |  | $    | 355,509 |      | $
|                                

| | The
net deferred tax assets in the accompanying consolidated balance sheets include the
following amounts of deferred tax assets and liabilities at December 31:
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

|                          | 2003 |  | 2002 |        
|------------------------- | ---- |  | ---- | -------
|Deferred tax assets       |      |  |      |        
|Allowance for loan losses |      |  | $    | 254,081
|Deferred compensation     |      |  |      | 326,989
|Other                     |      |  |      | 3,154  
|                         
|Deferred tax assets       |      |  |      | 584,224
|                         
|Deferred tax liabilities: |      | 
|Depreciation              |      |  |      | (77,519
|FHLB stock                |      |  |      | (14,705
|Prepaid expenses          |      |  |      | 0      
|                         
|Deferred tax liabilities  |      |  |      | (92,224
|                         
|Net deferred tax asset    |      |  | $    | 492,000
|                         

| | Management
believes it is more likely than not, that the gross deferred tax assets will be fully
realized. Therefore, no valuation allowance has been recorded as of December 31, 2003 and
2002.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

47

---

|Ridgestone
Financial Services, Inc. and Subsidiaries
|----------------------------------------------------
|Notes to Consolidated Financial Statements          

|Note 10 | Income
Taxes (Continued)
|------- | ------------------------

| | A
reconciliation of statutory federal income taxes based upon income before taxes to the
provision for income taxes for the years ended December 31 follows:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------

|                             | 2003 | 2002 | 2001
|---------------------------- | ---- | ---- | ----
|
|Federal income taxes at      |      |      |     
|statutory rate               |      |      | $   
|Increases in taxes resulting |      |     
|from state income taxes,     |      |     
|net of federal tax benefit   |      |      |     
|Increase in cash surrender   |      |     
|value of life insurance      |      |      |     
|Other, net                   |      |      |     
|                            
|Provision for income taxes   |      |      | $   
|                            

|Note 11 | Profit
Sharing Plan
|------- | -------------------

| | The
Company has a trusteed 401(k) plan. The plan is available to substantially all employees.
Contributions to the plan are based on the Company achieving desired profitability, and
additional discretionary contributions can be authorized by the Board of Directors.
Employees are allowed to defer a portion of their salary to the plan up to the amount
allowed by federal law. The Company contributed $28,950, $45,326, and $24,156 in 2003,
2002, and 2001, respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Note 12 | Stock
Option Plan
|------- | -----------------

| | The
Ridgestone Financial Services, Inc. 1996 Stock Option Plan as amended (the Plan)
provides for the granting of options to purchase up to 525,000 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 under the Plan may be exercised 33.33% per year, become fully vested
after three years following the date of grant, and must be exercised within a ten-year
period.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | The
fair value of the awards is estimated on the date of grant using the Black-Scholes
option-pricing model with the following weighted average assumptions in 2003, 2002, and
2001: zero percent dividend yield; expected volatility of 22.0%, 22.0%, and 22.8%,
respectively; risk-free interest rate of 4.21%, 4.00%, and 5.56%, respectively; and
expected lives that coincide with the option period of ten years.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

48

---

|Ridgestone
Financial Services, Inc. and Subsidiaries
|----------------------------------------------------
|Notes to Consolidated Financial Statements          

|Note 12 | Stock
Option Plan (Continued)
|------- | -----------------------------

| | Activity
is summarized in the following table:
| | ----------------------------------------------

|                           | 2003 | 2002 | 2001
|-------------------------- | ---- | ---- | ----
|
|Outstanding - beginning    |      |      |     
|of year                    |      |      |     
|                          
|Options:                   |      |     
|Granted                    |      |      |     
|Exercised                  |      |      |     
|Canceled or forfeited      |      |      |     
|                          
|Net change                 |      |      |     
|                          
|Outstanding - end of year  |      |      |     
|                          
|Exercisable at year-end    |      |      |     
|Weighted average fair      |      |     
|value of options granted   |      |      |     
|Available for future grant |      |     
|at year-end                |      |      |     

49

---

|Ridgestone
Financial Services, Inc. and Subsidiaries
|----------------------------------------------------
|Notes to Consolidated Financial Statements          

|Note 12 | Stock
Option Plan (Continued)
|------- | -----------------------------

| | The
following table summarizes information about Plan awards outstanding at December 31,
2003:
| | ----------------------------------------------------------------------------------------------

|  | Options Outstanding | Options Exercisable
|- | ------------------- | -------------------
|
|$ | 11.19               |                    
|$ | 13.92               |                    
|$ | 18.50               |                    
|$ | 11.00               |                    
|$ | 6.00                |                    
|$ | 5.00                |                    
|$ | 7.10                |                    
|$ | 8.70                |                    
|$ | 11.28               |                    
|  |                     |                    
|  |                     |                    
|  |                     |                    

|Note 13 | Salary
Continuation Agreement
|------- | -----------------------------

| | The
Company has entered into salary continuation agreements with various executive officers.
The agreements provide for the payment of specified amounts upon the employees
retirement or death which is being accrued over the anticipated remaining period of
employment. Amounts accrued and included within other liabilities were $823,383 and
$648,760 as of December 31, 2003 and 2002, respectively. Expenses recognized for future
benefits under these agreements totaled $185,097, $185,287, and $167,653 in 2003, 2002,
and 2001, respectively.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|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 and standby letters of credit. They
involve, to varying degrees, elements of credit risk in excess of amounts recognized in
the consolidated balance sheets.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 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 they do for on-balance-sheet instruments.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

50

---

|Ridgestone
Financial Services, Inc. and Subsidiaries
|----------------------------------------------------
|Notes to Consolidated Financial Statements          

|Note 14 | Commitments
and Contingencies (Continued)
|------- | -----------------------------------------

| | A
summary of the contract or notional amount of the Companys exposure to
off-balance-sheet risk as of December 31, 2003 and 2002, is as follows:
| | -------------------------------------------------------------------------------------------------------------------------------------------------

|                              | 2003 |  | 2002 |           
|----------------------------- | ---- |  | ---- | ----------
|Commitments to extend credit: |      |  |      |           
|Fixed                         |      |  | $    | 2,880,712 
|Variable                      |      |  |      | 17,507,136
|Credit card commitments       |      |  |      | 1,092,182 
|Standby letters of credit     |      |  |      | 144,998   

| | 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 creditworthiness 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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
of December 31, 2003, the Company does not engage in the use of interest rate swaps,
future, or option contracts.
| | --------------------------------------------------------------------------------------------------------------------

|Note 15 | Concentration
of Credit Risk
|------- | ----------------------------

| | Practically
all of the Banks loans, commitments, and standby letters of credit have been
granted to customers in the Banks market area. Although the 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 Bank. The concentration of credit by
type of loan is set forth in Note 4.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Note 16 | Retained
Earnings
|------- | -----------------

| | The
principal source of liquidity for the Company will be dividends from the Bank. Under
Wisconsin law, the Bank is 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 it to constitute an unsafe or unsound practice, including payment of dividends.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

51

---

|Ridgestone
Financial Services, Inc. and Subsidiaries
|----------------------------------------------------
|Notes to Consolidated Financial Statements          

|Note 16 | Retained
Earnings (Continued)
|------- | -----------------------------

| | 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 (and its subsidiaries).
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Note 17 | Regulatory
Capital Requirements
|------- | -------------------------------

| | The
Bank is 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 Banks financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt corrective
action, the Bank must meet specific capital guidelines that involve quantitative measures
of its 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.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Quantitative
measures established by regulation to ensure capital adequacy require the Bank to
maintain minimum amounts and ratios (set forth in the table that follows) of total and
Tier 1 capital (as defined in the regulations) to risk-weighted assets (as defined) and
Tier 1 capital (as defined) to average assets (as defined). Management believes that as
of December 31, 2003, the Bank meets all capital adequacy requirements to which it is
subject.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | As
of December 31, 2003, the most recent notification from the regulatory agencies
categorized the Bank as well capitalized under the regulatory framework for prompt
corrective action. To be categorized as well capitalized, an institution must maintain
minimum total risk-based, Tier 1 risk-based, and Tier 1 leverage ratios as set forth in
the following table. There are no conditions or events since these notifications that
management believes have changed the Banks category.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

52

---

|Ridgestone
Financial Services, Inc. and Subsidiaries
|----------------------------------------------------
|Notes to Consolidated Financial Statements          

|Note 17 | Regulatory
Capital Requirements (Continued)
|------- | -------------------------------------------

| | The
Banks actual capital amounts and ratios are presented in the following table:
| | ----------------------------------------------------------------------------------

|                                         | Actual | For Capital
Adequacy Purposes | To Be Well
Capitalized Under
Prompt Corrective
Action Provisions
|---------------------------------------- | ------ | ----------------------------- | ----------------------------------------------------------------
|
|December 31, 2003:                       |        |                               |                                                                 
|Total capital (to risk-weighted assets)  |        |                               | $                                                               
|Tier I capital (to risk-weighted assets) |        |                               | $                                                               
|Tier I capital (to average assets)       |        |                               | $                                                               
|December 31, 2002:                       |        |                              
|Total capital (to risk-weighted assets)  |        |                               | $                                                               
|Tier I capital (to risk-weighted assets) |        |                               | $                                                               
|Tier I capital (to average assets)       |        |                               | $                                                               

|Note 18 | Fair
Value of Financial Instruments
|------- | -----------------------------------

| | Current
accounting standards require that the Company disclose estimated fair values for its
financial instruments. Fair value estimates, methods, and assumptions are set forth below
for the Companys financial instruments.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Cash
and Short-Term Investments  The carrying amounts reported in the consolidated
balance sheets for cash and due from banks, interest-bearing deposits in other financial
institutions, and federal funds sold approximate the fair value of these assets.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Securities Fair values are based on quoted market prices, where available. If a quoted market
price is not available, fair value is estimated using quoted market prices for similar
securities.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Loans Fair values are estimated for portfolios of loans with similar financial
characteristics. Loans are segregated by type such as commercial, residential mortgage,
and other consumer. The fair value of loans is calculated by discounting scheduled cash
flows through the estimated maturity using estimated market discount rates that reflect
the credit and interest rate risk inherent in the loan. The estimate of maturity is based
on the Companys repayment schedules for each loan classification. In addition, for
impaired loans, marketability and appraisal values for collateral were considered in the
fair value determination.
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | FHLB
Stock and Cash Surrender Value of Life Insurance The carrying amount reported in
the consolidated balance sheets approximates the fair value of assets.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------

53

---

|Ridgestone
Financial Services, Inc. and Subsidiaries
|----------------------------------------------------
|Notes to Consolidated Financial Statements          

|Note 18 | Fair
Value of Financial Instruments (Continued)
|------- | -----------------------------------------------

| | Deposit
Liabilities The fair value of deposits with no stated maturity, such as
non-interest-bearing demand deposits, savings, NOW accounts, and money market accounts,
is equal to the amount payable on demand at the reporting date. The fair value of
certificates of deposit is based on the discounted value of contractual cash flows. The
discount rate reflects the credit quality and operating expense factors of the Company.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Federal
Funds Purchased The carrying amount reported in the consolidated balance sheets
for federal funds purchased approximates the liabilitys fair value.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Other
Borrowings The fair values of the Companys long-term borrowings (other than
deposits) are estimated using discounted cash flow analyses based on the Companys
current incremental borrowing rates for similar types of borrowing arrangements.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | Guaranteed
Preferred Beneficial Interests in the Companys Subordinated Debt The
carrying amount of accrued interest approximates its fair value.
| | --------------------------------------------------------------------------------------------------------------------------------------------------

| | Accrued
Interest The carrying amount of accrued interest approximates its fair value.
| | --------------------------------------------------------------------------------------

| | Off-Balance-Sheet
Instruments The fair value of commitments is estimated using the fees currently
charged to enter into similar agreements, taking into account the remaining terms of the
agreements, the current interest rates, and the present creditworthiness of the
counterparties. Since this amount is immaterial, no amounts for fair value are presented.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

54

---

|Ridgestone
Financial Services, Inc. and Subsidiaries
|----------------------------------------------------
|Notes to Consolidated Financial Statements          

|Note 18 | Fair
Value of Financial Instruments (Continued)
|------- | -----------------------------------------------

| | The
carrying amount and estimated fair value of financial instruments at December 31, 2003
and 2002, were as follows:
| | ---------------------------------------------------------------------------------------------------------------------

|                                | 2003 |  | 2002 |           
|------------------------------- | ---- |  | ---- | ----------
|
|Financial assets:               |      |  |      |           
|Cash and cash equivalents       |      |  | $    | 5,733,356 
|Interest-bearing deposits       |      |  |      | 551,079   
|Securities available for sale   |      |  |      | 750,060   
|FHLB stock                      |      |  |      | 248,800   
|Loans held for sale             |      |  |      | 650,000   
|Loans, net                      |      |  |      | 74,396,985
|Cash surrender value of life    |      | 
|insurance                       |      |  |      | 2,360,516 
|Accrued interest receivable     |      |  |      | 369,750   
|Financial liabilities:          |      | 
|Deposits                        |      |  |      | 72,656,531
|Federal funds purchased         |      |  |      | 0         
|Other borrowings                |      |  |      | 4,500,000 
|Guaranteed preferred beneficial |      | 
|interests in the Company's      |      | 
|subordinated debentures         |      |  |      | 1,500,000 
|Accrued interest payable        |      |  |      | 419,550   

| | Limitations Fair value estimates are made at a specific point in time based on relevant market
information and information about the financial instrument. These estimates do not
reflect any premium or discount that could result from offering for sale at one time the
Companys entire holdings of a particular financial instrument. Because no market
exists for a significant portion of the Companys financial instruments, fair value
estimates are based on judgments regarding future expected loss experience, current
economic conditions, risk characteristics of various financial instruments, and other
factors. These estimates are subjective in nature and involve uncertainties and matters
of significant judgment and therefore cannot be determined with precision. Changes in
assumptions could significantly affect the estimates. Fair value estimates are based on
existing on- and off-balance-sheet financial instruments without attempting to estimate
the value of anticipated future business and the value of assets and liabilities that are
not considered financial instruments. Significant assets and liabilities that are not
considered financial assets or liabilities include premises and equipment, goodwill and
intangibles, and other assets and other liabilities. In addition, the tax ramifications
related to the realization of the unrealized gains or losses can have a significant
effect on fair value estimates and have not been considered in the estimates.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

55

---

|Ridgestone
Financial Services, Inc. and Subsidiaries
|----------------------------------------------------
|Notes to Consolidated Financial Statements          

|Note 19 | Parent
Company Only Financial Statements
|------- | ----------------------------------------

| | Balance SheetsDecember 31, 2003 and 2002
| | ----------------------------------------

|Assets                                          | 2003 | 2002
|----------------------------------------------- | ---- | ----
|Cash and cash equivalents                       |      |     
|Interest-bearing deposits                       |      |     
|Securities available for sale                   |      |     
|Investment in subsidiaries                      |      |     
|Accrued interest receivable and other assets    |      |     
|                                               
|TOTAL ASSETS                                    |      |     
|                                               
|Liabilities and Stockholders' Equity            |      |     
|                                               
|Liabilities:                                    |      |     
|Subordinated debentures                         |      |     
|Accrued interest payable and other liabilities  |      |     
|                                               
|Total liabilities                               |      |     
|                                               
|Stockholders' equity:                           |      |     
|Preferred stock, no par value, 2,000,000 shares |      |     
|authorized, no shares issued                    |      |     
|Common stock, no par value, 10,000,000 shares   |      |     
|authorized, 897,241 shares and 877,659 shares   |      |     
|issued in 2003 and 2002, respectively           |      |     
|Treasury stock, at cost - 50,000 shares in 2003 |      |     
|Accumulated deficit                             |      |     
|Accumulated other comprehensive income (loss)   |      |     
|                                               
|Total stockholders' equity                      |      |     
|                                               
|TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY      |      |     
|                                               

56

---

|Ridgestone
Financial Services, Inc. and Subsidiaries
|----------------------------------------------------
|Notes to Consolidated Financial Statements          

|Note 19 | Parent
Company Only Financial Statements (Continued)
|------- | ----------------------------------------------------

|Statements
of Income
Years
Ended December 31, 2003, 2002, and 2001
|------------------------------------------------------------------

|                                    | 2003 |  | 2002 |          | 2001 |  
|----------------------------------- | ---- |  | ---- | -------- | ---- | -
|Income:                             |      |  |      |          |      |  
|Interest on deposits in banks       |      |  | $    | 6,410    |      | $
|Gain on sale of securities          |      |  |      | 5,290    |      |  
|Other income                        |      |  |      | 4,500    |      |  
|                                   
|Total income                        |      |  |      | 16,200   |      |  
|                                   
|Expenses:                           |      | 
|Interest on subordinated debentures |      |  |      | 54,250   |      |  
|Salaries                            |      |  |      | 7,403    |      |  
|Professional fees                   |      |  |      | 51,596   |      |  
|Other expenses                      |      |  |      | 23,262   |      |  
|                                   
|Total expenses                      |      |  |      | 136,511  |      |  
|                                   
|Loss before credit for income       |      | 
|taxes and equity in undistributed   |      | 
|earnings of subsidiary              |      |  |      | (120,311 | )    |  
|Credit for income taxes             |      |  |      | (48,000  | )    |  
|                                   
|Loss before equity in undistributed |      | 
|earnings of subsidiary              |      |  |      | (72,311  | )    |  
|Equity in undistributed earnings of |      | 
|subsidiary                          |      |  |      | 746,112  |      |  
|                                   
|Net income                          |      |  | $    | 673,801  |      | $
|                                   

57

---

|Ridgestone
Financial Services, Inc. and Subsidiaries
|----------------------------------------------------
|Notes to Consolidated Financial Statements          

|Note 19 | Parent
Company Only Financial Statements (Continued)
|------- | ----------------------------------------------------

| | Statements
of Cash Flows
| | ------------------------

| | Years
Ended December 31, 2003, 2003, and 2001
| | ---------------------------------------------

|                                                     | 2003 |  | 2002 |           | 2001 |  
|---------------------------------------------------- | ---- |  | ---- | --------- | ---- | -
|Increase (decrease) in cash and cash equivalents:    |      |  |      |           |      |  
|Cash flows from operating activities:                |      | 
|Net income                                           |      |  | $    | 673,801   |      | $
|                                                    
|Adjustments to reconcile net income to net cash      |      | 
|provided by (used in) operating activities:          |      | 
|Gain on sale of investment securities                |      |  |      | (5,290    | )    |  
|Equity in undistributed earnings of subsidiary       |      |  |      | (746,112  | )    |  
|Changes in operating assets and liabilities:         |      | 
|Accrued interest receivable and other assets         |      |  |      | (95,408   | )    |  
|Accrued interest payable and other liabilities       |      |  |      | 6,445     |      |  
|                                                    
|Total adjustments                                    |      |  |      | (840,365  | )    |  
|                                                    
|Net cash provided by (used in) operating activities  |      |  |      | (166,564  | )    |  
|                                                    
|Cash flows from investing activities:                |      | 
|Investment in subsidiary                             |      |  |      | (550,000  | )    |  
|Net (increase) decrease in interest-bearing deposits |      |  |      | (463,652  | )    |  
|Proceeds from sale of available-for-sale securities  |      |  |      | 108,993   |      |  
|Purchases of available-for sale-securities           |      |  |      | 0         |      |  
|                                                    
|Net cash used in investing activities                |      |  |      | (904,659  | )    |  
|                                                    
|Cash flows from financing activities:                |      | 
|Proceeds from issuance of subordinated debentures    |      |  |      | 1,550,000 |      |  
|Proceeds from issuance of common stock               |      |  |      | 109,384   |      |  
|Purchases of treasury stock                          |      |  |      | (493,015  | )    |  
|                                                    
|Net cash provided by financing activities            |      |  |      | 1,166,369 |      |  
|                                                    
|Net increase (decrease) in cash and cash equivalents |      |  |      | 95,146    |      |  
|Cash and cash equivalents at beginning               |      |  |      | 87,061    |      |  
|                                                    
|Cash and cash equivalents at end                     |      |  | $    | 182,207   |      | $
|                                                    
|Supplemental cash flow information:                  |      | 
|Cash paid during the year for:                       |      | 
|Interest on borrowings                               |      |  | $    | 54,250    |      | $
|Income taxes                                         |      |  |      | 0         |      |  
|Noncash investing and financing activities:          |      | 
|Tax benefit of nonqualified stock options exercised  |      |  | $    | 41,700    |      | $

58

---

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

Following recent regulatory changes
resulting from the Sarbanes-Oxley Act of 2002, the Company and its independent auditors,
Virchow, Krause & Company, LLP (Virchow), determined that Virchow would
not be able to continue to provide the internal audit outsourcing function previously
provided by Virchow while acting as the Companys independent auditors. As a result,
on March 18, 2003, Virchow informed the Audit Committee of the Board of Directors of the
Company that it would decline to stand for re-appointment as the Companys
independent auditors, and the Company engaged Wipfli LLP as its new independent
accountants, to act as the principal accountants in auditing the Companys financial
statements for fiscal 2003. The information required by Item 8 is contained in the section
entitled Item 4. Changes in Registrants Certifying Accountant on the
Companys Current Report on Form 8-K filed on March 20, 2003, and is incorporated
herein by reference.

# Item 8a.   Controls
and Procedures

The Company carried out an
evaluation, under the supervision and with the participation of the Chairman of the Board
and Chief Executive Officer of the Company and the Senior Vice President and Treasurer of
the Company, of the effectiveness of the design and operation of the Companys
disclosure controls and procedures, as defined in Exchange Act Rules 13a-14(c) and
15d-14(c), as of the end of the period covered by this Annual Report on Form 10-KSB. Based
on that evaluation, they concluded that the Companys disclosure controls and
procedures are effective to ensure that information required to be disclosed in the
Companys Exchange Act reports is recorded, processed, summarized and reported within
the time periods specified in the Securities and Exchange Commissions rules and
forms, and that such information is accumulated and communicated to them to allow timely
decisions regarding required disclosure.

There has been no change in the
Companys internal control over financial reporting that occurred during the
Companys last fiscal quarter that has materially affected, or is reasonably likely
to materially affect, the Companys internal control over financial reporting.

# Part III

# Item 9.   Directors, and
Executive Officers of the Registrant, 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, Miscellaneous
 Section 16(a) Beneficial Ownership Reporting Compliance, and
Miscellaneous  Code of Ethics set forth in the Companys definitive
Proxy Statement for its 2004 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 and Related Stockholder Matters

The information with respect to Item
403 of Regulation S-B is hereby incorporated by reference to the information under the
caption entitled Principal Shareholders set forth in the Proxy Statement.

59

---

The information with respect to Item
201(d) of Regulation S-B as of December 31, 2003, is as follows:

# Equity Compensation
Plan Information

|Plan category       | Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
(a) | Weighted-average
exercise price of
outstanding options,
warrants and rights
(b) | Number of securities
remaining available for
future issuance under
equity compensation plans
(excluding securities
reflected in column (a))
(c)
|------------------- | ----------------------------------------------------------------------------------------------- | ------------------------------------------------------------------------------- | -----------------------------------------------------------------------------------------------------------------------------------------------
|Equity compensation |                                                                                                 |                                                                                 |                                                                                                                                                
|plans approved by   |                                                                                                 |                                                                                
|security holders    |                                                                                                 |                                                                                 |                                                                                                                                                
|Equity compensation |                                                                                                 |                                                                                
|plans not approved  |                                                                                                 |                                                                                
|by security holders |                                                                                                 |                                                                                 |                                                                                                                                                
|Total               |                                                                                                 |                                                                                 |                                                                                                                                                

# 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
| | --- | -------------------

| | The
Company did not file a Current Report on Form 8-K during the quarter ended December 31,
2003. The Company furnished the following Current Reports on Form 8-K during the quarter
ended December 31, 2003.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Date of Report    | Date Furnished    | Items                                                                                                                                                                                                                                                                                                                                                                                                                                              
|----------------- | ----------------- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|October 28, 2003  | October 29, 2003  | Item 12 (including a press release announcing financial
results for the three and nine months ended September
30, 2003)                                                                                                                                                                                                                                                                                                                            
|November 14, 2003 | November 14, 2003 | Item 9 (including Consolidated Balance Sheets as of
September 30, 2003 and December 31, 2002, Consolidated
Statements of Income for the three and nine months
ended September 30, 2003 and 2002, Consolidated
Statements of Cash Flows for the nine months ended
September 30, 2003 and 2002, Consolidated Statements of
Stockholders' Equity for the nine months ended
September 30, 2003 and 2002 and Notes to Consolidated
Financial Statements.
|December 23, 2003 | December 23, 2003 | Item 9                                                                                                                                                                                                                                                                                                                                                                                                                                             

60

---

# Item 14.   Principal
Accountant Fees and Services

The information required by this Item
is hereby incorporated by reference to the information under the caption entitled
Independent Auditors  Certain Fees set forth in the Proxy Statement.

61

---

# 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 19, 2004.

| | RIDGESTONE FINANCIAL SERVICES, INC.
| | -----------------------------------
| | By:                                
| |                                    

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 19, 2004:

|Name                   | Title                                                         
|---------------------- | --------------------------------------------------------------
|/s/ Paul E. Menzel     | Chairman of the Board and Chief Executive Officer and Director
|Paul E. Menzel         | (Principal Executive Officer)                                 
|/s/ Christine V. Lake  | President, Chief Operating Officer and Director               
|Christine V. Lake      |                                                               
|/s/ William R. Hayes   | Sr. Vice President, Treasurer and Director                    
|William R. Hayes       | (Principal Financial and Accounting Officer)                  
|/s/ Bernard E. Adee    | Director                                                      
|Bernard E. Adee       
|/s/ John F. Goodnow    | Director                                                      
|John F. Goodnow       
|/s/ Gregory J. Hoesly  | Director                                                      
|Gregory J. Hoesly     
|/s/ John E. Horning    | Director                                                      
|John E. Horning       
|/s/ Charles G. Niebler | Director                                                      
|Charles G. Niebler    
|/s/ James E. Renner    | Director                                                      
|James E. Renner       

62

---

# 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 | Amendments
to the By-Laws of Ridgestone Financial Services, Inc.
|--- | ----------------------------------------------------------------

|3.3 | By-Laws
of Ridgestone Financial Services, Inc., as amended
|--- | ----------------------------------------------------------

|*10.1 | 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)]
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|*10.2 | 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)]
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|*10.3 | 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)]
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|*10.4 | 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)]
|----- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|*10.5 | 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)]
|----- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|*10.6 | 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)]
|----- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|*10.7 | 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)]
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|*10.8 | 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)]
|----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

E-1

---

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

|*10.9 | 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)]
|----- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|*10.10 | 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)]
|------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|*10.11 | 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)]
|------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|*10.12 | 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)]
|------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|*10.13 | 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)]
|------ | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|*10.14 | First
Amendment to Ridgestone Bank Incentive Retirement Agreement, dated April 24, 2002, by and
between Ridgestone Bank and Christine V. Lake. [Incorporated by reference to Exhibit 10
to Ridgestone Financial Services, Inc.s Quarterly Report on Form 10-QSB for the
quarter ended June 30, 2002 (File No. 0-27984)]
|------ | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|*10.15 | Employment
Agreement, dated as of January 1, 2003, by and between Ridgestone Bank and William R.
Hayes. [Incorporated by reference to Exhibit 10.15 to Ridgestone Financial Services, Inc.s
Annual Report on Form 10-KSB for the fiscal year ended December 31, 2002 (File No.
0-27984)]
|------ | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|21 | Subsidiaries
of Ridgestone Financial Services, Inc.  [Incorporated by reference to
                    Exhibit 21 to Ridgestone Financial Services, Inc.'s Annual Report on
Form 10-KSB for  the year ended December
31, 2001 (File No. 0-27984)]
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|23.1 | Consent
of Wipfli LLP
|---- | ---------------------

|23.2 | Consent
of Virchow, Krause & Company, LLP
|---- | -----------------------------------------

|31.1 | Certification
by Paul E. Menzel (Chairman of the Board and Chief Executive Officer)
                    pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

|31.2 | Certification
by William R. Hayes (Senior Vice President and Treasurer) pursuant to
                    Section 302 of the Sarbanes-Oxley Act of 2002.
|---- | ------------------------------------------------------------------------------------------------------------------------------------------------------

E-2

---

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

|32 | Certification
by Paul E. Menzel (Chairman of the Board and Chief Executive Officer) and  William
R. Hayes (Senior Vice President and Treasurer) pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
|-- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|99 | Definitive
Proxy Statement for the Companys 2004 annual meeting of shareholders scheduled to
he held on April 27, 2004 (previously filed with the Commission under Regulation 14A on
March 23, 2004 and incorporated by reference herein to the 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.

E-3