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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549


Form 10 - Q

(X)
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended March 31, 2004
 
or
( )
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 
For the transition period from ______________________ to ______________________


Commission File Number 1-018166



STATE FINANCIAL SERVICES CORPORATION
(Exact name of registrant as specified in its charter)


WISCONSIN
(State or other jurisdiction of
incorporation or organization)
39-1489983
(I.R.S. Employer identification No.)


815 NORTH WATER STREET, MILWAUKEE, WISCONSIN 53202-3526
(Address and Zip Code of principal executive offices)



(414) 223-8400
(Registrant's telephone number, including area code)



Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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. [X]

Indicate by check mark whether the registrant is an accelerated filer (as defined by Rule 12b-2 of the Exchange Act).
Yes [X] No [ ]

As of May 7, 2004, there were 6,939,674 shares of Registrant's $0.10 Par Value Common Stock outstanding.
 
  1  
 

 
FORM 10-Q
 
 
STATE FINANCIAL SERVICES CORPORATION
 
 
INDEX
 
 
PART I - FINANCIAL INFORMATION
 
 
 
Page No.
Item 1.
Financial Statements. (Unaudited)
 
 
Consolidated Statements of Financial Condition as of
March 31, 2004 (unaudited) and December 31, 2003 (audited)
 
3
 
Consolidated Statements of Income for the
Three Months ended March 31, 2004 and March 31, 2003
 
4
 
Consolidated Statements of Cash Flows for the
Three Months ended March 31, 2004 and March 31, 2003
 
5
 
Notes to Consolidated Financial Statements
6
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations.
 
9
Item 3.
Quantitative and Qualitative Disclosures About Market Risk.
15
Item 4.
Controls and Procedures.
15
 
PART II - OTHER INFORMATION
 
Item 1.
Legal Proceedings.
16
Item 2.
Changes in Securities, Use of Proceeds and Issuer Purchases of Equity Securities.
16
Item 3.
Default Upon Senior Securities.
16
Item 4.
Submission of Matters to a Vote of Security Holders.
16
Item 5.
Other Information.
16
Item 6.
Exhibits and Reports on Form 8-K.
16
Signatures
 
17
Exhibit Index
 
18
 
  2  
 
Part I.   Financial Information
  Item 1.   Financial Statements.

State Financial Services Corporation And Subsidiaries
Consolidated Statements of Financial Condition
 
  
March 31,
2004
(unaudited)
December 31,
2003
(audited)
   
 
 
Assets
    
 
    
 
  
Cash and due from banks
  
$
49,195,008
  
$
55,824,050
  
Interest-bearing bank balances
    
4,093,501
    
4,399,723
  
Federal funds sold
    
20,674,022
    
18,144,353
  
Cash and cash equivalents
    
73,962,531
    
78,368,126
  
Investment securities
    
 
    
 
  
Available-for-sale (at fair value)
    
424,247,663
    
397,061,108
  
Held-to-maturity (fair value of $788,759 - 2004 and $988,006 - 2003)
    
769,621
    
964,662
  
Loans (net of allowance for loan losses of $11,175,685-2004 and $10,706,350-2003)
    
869,552,665
    
863,323,685
  
Loans held for sale
    
20,252,226
    
1,900,438
  
Premises and equipment
    
33,018,532
    
32,918,853
  
Accrued interest receivable
    
5,586,398
    
5,246,660
  
Goodwill
    
37,646,354
    
37,626,045
  
Core deposit intangible
    
5,029,601
    
5,158,565
  
Bank owned life insurance
    
21,244,735
    
21,029,985
  
Other assets
    
10,398,307
    
9,331,295
  
   
 
 
Total Assets
  
$
1,501,708,633
  
$
1,452,929,422
  
   
 
 
 
    
 
    
 
  
Liabilities And Shareholders' Equity
    
 
    
 
  
Deposits:
    
 
    
 
  
Demand
    
172,637,609
    
180,872,397
  
Savings
    
254,829,393
    
253,202,071
  
Money market
    
242,583,034
    
233,003,329
  
Time deposits in excess of $100,000
    
153,065,742
    
126,127,203
  
Other time deposits
    
229,263,963
    
235,908,124
  
   
 
 
Total deposits
    
1,052,379,741
    
1,029,113,124
 
 
    
 
    
 
  
Federal Home Loan Bank advances
    
67,800,000
    
67,800,000
  
Notes payable
    
31,400,000
    
30,200,000
  
Trust preferred securities
    
30,000,000
    
15,000,000
  
Securities sold under agreements to repurchase
    
198,724,466
    
175,592,887
  
Federal funds purchased
    
-
    
-
  
Accrued expenses and other liabilities
    
7,601,136
    
21,071,418
  
Accrued interest payable
    
2,314,357
    
1,957,473
  
   
 
 
Total Liabilities
    
1,390,219,700
    
1,340,734,902
  
 
    
 
    
 
  
Shareholders' Equity:
    
 
    
 
  
Preferred stock, $1 par value; authorized-100,000 shares;
issued and outstanding-none
    
-
    
-
  
Common stock, $0.10 par value; authorized-25,000,000 shares; issued 9,565,854 shares in 2004 and 9,527,489 shares in 2003, outstanding 6,938,014 shares in 2004 and 7,043,149 shares in 2003
    
956,585
    
952,749
  
Additional paid in capital
    
85,253,468
    
84,739,420
  
Retained earnings
    
65,396,389
    
63,152,966
  
Accumulated other comprehensive income
    
4,455,291
    
3,763,835
  
Unearned shares held by ESOP
    
(3,981,360
)
  
(3,981,360
)
Treasury Stock - 2,627,840 shares in 2004 and 2,484,340 in 2003
    
(40,591,440
)
  
(36,433,090
)
   
 
 
Total Shareholders' Equity
    
111,488,933
    
112,194,520
  
   
 
 
Total Liabilities And Shareholders' Equity
  
$
1,501,708,633
  
$
1,452,929,422
  
   
 
 

See notes to unaudited consolidated financial statements.
 
  3  
 
State Financial Services Corporation And Subsidiaries
Consolidated Statements of Income (Unaudited)

 
  
Three Months Ended March 31,
   
 
  
2004
2003
   
Interest income:
    
 
    
 
  
Loans
  
$
12,863,766
  
$
11,763,240
  
Investment securities:
    
 
    
 
  
Taxable
    
3,461,179
    
3,764,267
  
Tax-exempt
    
544,337
    
613,777
  
Federal funds sold and other short-term investments
    
48,145
    
20,219
  
   
 
 
Total interest income
    
16,917,427
    
16,161,503
  
 
    
 
    
 
  
Interest expense:
    
 
    
 
  
Deposits
    
3,185,396
    
3,381,852
  
Notes payable and other borrowings
    
2,103,648
    
1,740,880
  
   
 
 
Total interest expense
    
5,289,044
    
5,122,732
  
   
 
 
Net interest income
    
11,628,383
    
11,038,771
  
 
    
 
    
 
  
Provision for loan losses
    
600,000
    
600,000
  
   
 
 
Net interest income after provision for loan losses
    
11,028,383
    
10,438,771
  
 
    
 
    
 
  
Other income:
    
 
    
 
  
Service charges on deposit accounts
    
845,864
    
688,950
  
ATM and merchant service fees
    
215,063
    
691,608
  
Security commissions and management fees
    
173,139
    
93,388
  
Investment securities gains, net
    
219,380
    
55,196
  
Gain on sale of loans
    
412,586
    
1,323,771
  
Other
    
913,761
    
699,921
  
   
 
 
Total other income
    
2,779,793
    
3,552,834
  
 
    
 
    
 
  
Other expenses:
    
 
    
 
  
Salaries and employee benefits
    
4,366,611
    
5,116,069
  
Net occupancy expense
    
807,932
    
687,044
  
Equipment rentals, depreciation and maintenance
    
995,209
    
952,329
  
Data processing
    
594,159
    
529,721
  
Legal and professional
    
276,372
    
402,998
  
ATM and merchant services
    
75,523
    
461,006
  
Advertising
    
320,577
    
350,350
  
Other
    
1,594,988
    
1,532,296
  
   
 
 
Total other expenses
    
9,031,371
    
10,031,813
  
 
    
 
    
 
  
Income before income taxes
    
4,776,805
    
3,959,792
  
Income tax expense
    
1,535,051
    
1,107,638
  
   
 
 
Net income
  
$
3,241,754
  
$
2,852,154
  
   
 
 
 
    
 
    
 
  
Basic earnings per common share
  
$
0.48
  
$
0.43
  
Diluted earnings per common share
    
0.47
    
0.42
  
Dividends per common share
    
0.15
    
0.13
  


See notes to unaudited consolidated financial statements.
 
  4  
 
State Financial Services Corporation And Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
 
  
Three Months Ended
March 31,
 
  
2004
2003
Operating Activities
    
 
    
 
  
Net income
  
$
3,241,754
  
$
2,852,154
  
  Adjustments to reconcile net income to net cash provided by (used in) operating activities:
    
 
    
 
  
Provision for loan losses
    
600,000
    
600,000
  
Depreciation
    
737,000
    
698,342
  
      Amortization of premiums and accretion of discounts on investment securities
    
138,255
    
380,973
  
Income from bank owned life insurance
    
(214,750
)
  
(220,161
)
Increase in accrued interest receivable
    
(339,738
)
  
1,544,724
  
Increase (decrease) in accrued interest payable
    
356,884
    
(308,812
)
Realized investment securities gains
    
(219,380
)
  
(55,196
)
Payment to Lakes Region Bancorp’s shareholders for acquisition
    
(13,416,729
)
  
0
  
Other
    
(1,368,110
)
  
(724,524
)
   
 
 
Net cash provided by (used in) operating activities
    
(10,484,814
)