SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 or 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended March 31, 1999
Commission file number 0-18166
STATE FINANCIAL SERVICES CORPORATION
(Exact name of registrant as specified in its charter)
WISCONSIN 39-1489983
(State or other jurisdiction of (I.R.S. Employer identification No.)
incorporation or organization)
10708 WEST JANESVILLE ROAD, HALES CORNERS, WISCONSIN 53130
(Address and Zip Code of principal executive offices)
Not applicable
(Former name, former address and former fiscal year,
if changed since last report)
(414) 425-1600
(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. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
As of May 12, 1999, there were 10,086,214 shares of Registrant's $0.10
Par Value Common Stock outstanding.
<PAGE>
FORM 10-Q
STATE FINANCIAL SERVICES CORPORATION
INDEX
PART I - FINANCIAL INFORMATION
Page No.
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheets as of
March 31, 1999 and December 31, 1998 2
Consolidated Statements of Income for the
Three Months ended March 31, 1999 and 1998 3
Consolidated Statements of Income for the
Three Months ended March 31, 1999 and 1998 4
Consolidated Statements of Cash Flows for the
Three Months ended March 31, 1999 and 1998 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
PART II - OTHER INFORMATION
Items 1-6 16
Signatures 18
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
STATE FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------------- -----------------
ASSETS
<S> <C> <C>
Cash and due from banks $ 26,509,621 $ 31,028,203
Federal funds sold 10,411,118 8,508,387
Other short-term investments 15,720,000 12,900,000
Interest-earning deposits 39,849,239 29,793,241
----------------- -----------------
Cash and cash equivalents 92,489,978 82,229,831
----------------- -----------------
Investment securities
Held-to-maturity (fair value $8,413,000 - March 31, 1999
and $10,479,402 - December 31, 1998) 8,271,465 10,290,241
Available for sale (at fair value) 95,909,229 94,704,827
Loans (net of allowance for loan losses of $4,612,029 -March 31,
1999 and $4,484,504 -December 31, 1998) 615,134,097 607,948,900
Premises and equipment 13,719,426 13,333,369
Accrued interest receivable 4,516,456 4,485,332
Other assets 15,246,682 15,376,023
----------------- -----------------
TOTAL ASSETS $ 845,287,333 $ 828,368,523
================= =================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand 75,607,265 81,540,940
Savings 193,782,374 199,266,311
Money market 126,842,687 120,297,093
Other time 246,806,801 251,800,542
----------------- -----------------
TOTAL DEPOSITS 643,039,127 652,904,886
Notes payable -0- 6,750,000
Securities sold under agreements to repurchase 10,923,160 4,116,677
Federal Home Loan Bank advances 50,000,000 25,000,000
Accrued expenses and other liabilities 4,013,712 3,270,762
Accrued interest payable 1,881,084 1,688,920
----------------- -----------------
TOTAL LIABILITIES 709,857,083 693,731,245
Stockholders' equity:
Preferred stock, $1 par value; authorized--100,000 shares;
issued and outstanding--none
Common stock, $0.10 par value; authorized--10,000,000
shares issued and outstanding--10,081,447 shares in 1999
and 10,076,017 in 1998 1,008,145 1,007,601
Capital surplus 94,800,284 94,153,564
Accumulated other comprehensive income 732,219 1,080,549
Retained earnings 44,119,038 43,748,273
Less: Guaranteed ESOP obligation (5,229,436) (5,352,709)
----------------- -----------------
TOTAL STOCKHOLDERS' EQUITY 135,430,250 134,637,278
----------------- -----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 845,287,333 $ 828,368,523
================= =================
See notes to unaudited consolidated financial statements.
</TABLE>
2
<PAGE>
STATE FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
1999 1998
----------------- -----------------
INTEREST INCOME:
<S> <C> <C>
Loans, including fees $12,178,444 $11,964,555
Investment securities
Taxable 1,567,087 1,731,508
Tax-exempt 361,625 310,247
Federal funds sold 152,716 236,240
----------------- -----------------
TOTAL INTEREST INCOME 14,259,872 14,242,550
INTEREST EXPENSE:
Deposits 5,654,750 6,193,649
Notes payable and other borrows 646,780 163,688
----------------- -----------------
TOTAL INTEREST EXPENSE 6,301,530 6,357,337
----------------- -----------------
NET INTEREST INCOME 7,958,342 7,885,213
Provision for loan losses 172,500 172,500
----------------- -----------------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 7,785,842 7,712,713
OTHER INCOME:
Service charges on deposit accounts 476,740 437,681
Merchant service fees 315,914 309,942
Building rent 69,511 69,686
ATM fees 166,238 174,655
Security transaction commissions 117,707 89,788
Asset management fees 150,128 -0-
Gains on sale of loans 205,872 156,981
Investment security gains 208,705 202,058
Other 133,393 179,187
----------------- -----------------
TOTAL OTHER INCOME 1,844,208 1,619,978
OTHER EXPENSES:
Salaries and employee benefits 2,954,593 3,356,220
Net occupancy expense 325,921 320,579
Equipment rentals, depreciation and maintenance 729,089 711,491
Data processing 539,129 482,583
Legal and professional 239,518 396,554
Merchant service charges 228,422 219,943
ATM charges 145,017 144,403
Advertising 177,799 229,281
Goodwill amortization 177,689 140,460
Merger-related charges 598,292 -0-
Other 802,738 849,302
----------------- -----------------
TOTAL OTHER EXPENSES 6,918,207 6,850,816
INCOME BEFORE INCOME TAXES 2,711,843 2,481,875
Income taxes 1,184,788 881,636
----------------- -----------------
NET INCOME $ 1,527,055 $ 1,600,239
================= =================
Basic earnings per common share $ 016 $ 0.17
Diluted earnings per common share 0.16 0.16
Dividends per common share 0.12 0.12
Basic weighted average common shares outstanding 9,634,927 9,606,420
Diluted weighted average common shares outstanding 9,654,394 9,775,819
See notes to unaudited consolidated financial statements.
</TABLE>
3
<PAGE>
STATE FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
<TABLE>
<CAPTION>
Three months ended March 31,
1999 1998
----------------- -----------------
OPERATING ACTIVITIES
<S> <C> <C>
Net income $ 1,527,055 $ 1,600,239
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for loan losses 172,500 172,500
Provision for depreciation 357,325 383,030
Amortization of investment security
premiums and accretion of discounts-net 28,304 49,564
Amortization of goodwill 177,689 140,460
Market adjustment for committed ESOP shares 598,291 233,214
Cost of Recognition and Retention Plan -0- 224,912
Increase in interest receivable (31,124) (113,719)
Increase in interest payable 192,164 118,309
Realized investment security gains-net (208,705) (202,058)
Other 889,778 102,797
----------------- -----------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 3,703,277 2,709,248
INVESTING ACTIVITIES
Purchases of investment securities -0- -0-
Maturities of investment securities 2,005,892 706,425
Purchases of securities available for sale (10,588,946) (13,086,602)
Maturities and sales of securities available for sale 9,034,323 10,620,132
Net decrease (increase) in loans (7,357,697) 645,332
Purchases of premises and equipment (743,382) (85,267)
----------------- -----------------
NET CASH USED BY INVESTING ACTIVITIES (7,649,810) (1,199,980)
FINANCING ACTIVITIES
Increase (decrease) in deposits (9,865,759) 13,920,265
Decrease in notes payable (6,750,000) (4,400,000)
Decrease in guaranteed ESOP obligation 123,273 268,349
Net proceeds from securities sold under agreement to
repurchase 6,806,483 6,863,840
Increase (decrease) in Federal Home Loan Bank Advances 25,000,000 (5,000,000)
Cash dividends (1,156,290) (1,145,795)
Proceeds from exercise of stock options 48,973 3,135
----------------- -----------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 14,206,680 10,509,794
----------------- -----------------
INCREASE IN CASH AND CASH EQUIVALENTS 10,260,147 12,019,062
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 82,229,831 80,584,884
----------------- -----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 92,489,978 $92,603,946
================= =================
Supplemental information:
Interest paid $ 6,109,366 $ 6,239,028
Income taxes paid 786,500 272,000
See notes to unaudited consolidated financial statements.
</TABLE>
4
<PAGE>
STATE FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
March 31, 1999
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of State Financial Services Corporation (the "Company") and its
subsidiaries - State Financial Bank (Wisconsin), State Financial Bank -
Waterford ("Waterford"), State Financial Mortgage Company, Richmond Bancorp,
Inc. ("Bancorp") Lokken, Chesnut and Cape ("LCC"), and Home Federal Savings and
Loan Association of Elgin ("Home"). State Financial Bank also includes the
accounts of its wholly owned subsidiaries, Hales Corners Development Corporation
and Hales Corners Investment Corporation. Waterford also includes the accounts
of its wholly owned subsidiary, Waterford Investment Corporation. Bancorp also
includes the accounts of its wholly owned subsidiaries, State Financial Bank
(Illinois, "Richmond") and State Financial Investments, Inc. Richmond also
includes the accounts of its wholly owned subsidiary, State Financial Insurance
Agency. All significant intercompany balances and transactions have been
eliminated.
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ending March 31,
1999 are not necessarily indicative of the results that may be expected for the
year ended December 31, 1999. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's annual
report to stockholders for the year ended December 31, 1998.
NOTE B--ACQUISITIONS
On September 8, 1998, the Company completed its acquisition of LCC, an
asset management firm located in LaCrosse, Wisconsin. The Company purchased the
outstanding common stock of LCC in exchange for 113,241 shares of its common
stock valued at $21.19 per share on the transaction date. An additional 28,310
shares of common stock may be issued on January 31, 2002 subject to LCC meeting
or exceeding certain operating performance targets in 1999, 2000, and 2001. The
acquisition was recorded as a purchase. Application of purchase accounting
requires the inclusion of LCC's operating results in the consolidated statements
of income from the date of acquisition. Accordingly, LCC's operating results for
the period September 8, 1998 through March 31, 1999 are included in the
Company's consolidated statements of income for the three and three months ended
March 31, 1999. LCC's financial condition is included in the Company's
consolidated balance sheets dated March 31, 1999. No operating results of LCC
are included in the Company's consolidated statements of income for the three
and three months ended March 31, 1998. Pro forma data to include LCC financial
results is not presented as the effect is immaterial.
Home was a business combination consummated on December 15, 1998
accounted for as a pooling-of-interests. Accordingly, the financial position and
results of operations and cash flows of the Company and Home have been restated
as though the companies were combined for all historical periods.
NOTE C - COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income." This statement establishes
standards for reporting and display of comprehensive income and its components
in a complete set of financial statements. Comprehensive income is the total of
reported net income and all other revenues, expenses, gains and losses that
under generally accepted accounting principles are not includable in reported
net income but are reflected in shareholders equity. The standard permits the
statement of changes in shareholders' equity to be used to satisfy its
requirements and requires companies to report comparative totals for
comprehensive income in interim reports.
5
<PAGE>
For the three months ended
March 31, March 31,
1999 1998
----------------- ----------------
Net income $1,527,055 $1,600,239
Other comprehensive income
Change in unrealized securities
gains (losses), net of tax (139,625) 93,513
Reclassification adjustment for
realized gains included in
net income (208,705) (202,058)
----------------- ----------------
Total comprehensive income $1,178,725 $1,491,694
----------------- ----------------
NOTE D--SEGMENT INFORMATION
The Company evaluates segment performance for each subsidiary financial
institution, which is differentiated primarily by geographic location. The
Company has four reportable segments: State Financial Bank (Wisconsin), State
Financial Bank - Waterford, State Financial Bank (Illinois), and Home Federal
Savings and Loan Association of Elgin. Each institution provides a full range of
retail and commercial banking services. Additionally, State Financial Bank
(Illinois) provides insurance and brokerage services.
Management evaluates the after-tax performance of each of the subsidiary
financial institutions on that institution's actual earning assets, nonearning
assets, and funding sources. Each subsidiary financial institution has its own
net interest income, provision for loan losses, other income, noninterest
expense and income tax provision as captured by the institution's accounting
systems. The "all other" category includes primarily the results of the parent
company and Lokken, Chesnut & Cape. Intercompany and other amounts, which are
included in "all other" are not material.
The following tables contain profit (loss) statements for each of the
subsidiary financial institutions for the three months ended March 31, 1999 and
1998.
<TABLE>
<CAPTION>
For the three months ended March 31, 1999
Home
Federal
State State State Savings and
Financial Financial Financial Loan
Bank Bank - Bank Association All
(Wisconsin) Waterford (Illinois) of Elgin Other Consolidated
----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income $ 5,101,623 $ 953,774 $ 1,352,260 $ 6,825,033 $ 27,182 $ 14,259,872
Interest expense 1,990,915 436,941 670,910 3,331,679 (128,915) 6,301,530
- ----------------------------------------------------------------------------------------------------------------
Net interest income 3,110,708 516,833 681,350 3,493,354 156,097 7,958,342
Provision for loan
losses 75,000 7,500 60,000 30,000 0 172,500
- ----------------------------------------------------------------------------------------------------------------
Net interest income
after 3,035,708 509,333 621,350 3,463,354 156,097 7,785,842
provision for loan
losses 892,521 87,705 149,632 280,870 433,480 1,844,208
Other income 0 0 0 598,292 0 598,292
Merger-related charges
Other noninterest
expense 2,391,283 451,763 854,840 2,233,464 388,565 6,319,915
----------------------------------------------------------------------------------------
Income (loss) before
income taxes 1,536,946 145,275 (83,858) 912,468 201,012 2,711,843
Income taxes 477,318 41,045 (11,678) 587,313 90,790 1,184,788
----------------------------------------------------------------------------------------
Net income $ 1,059,628 104,230 ($ 72,180) $ 325,155 $ 110,222 $ 1,527,055
========================================================================================
Total assets $291,148,085 $54,868,114 $79,381,485 $411,957,014 $7,932,635 $845,287,333
========================================================================================
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
For the three months ended March 31, 1998
Home
Federal
State State State Savings and
Financial Financial Financial Loan
Bank Bank - Bank Association All
(Wisconsin) Waterford (Illinois) of Elgin Other Consolidated
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest income $ 5,237,468 $ 914,863 $ 1,655,280 $ 6,431,339 $ 3,600 $ 14,242,550
Interest expense 2,218,496 455,034 932,589 2,743,360 7,858 6,357,337
- ----------------------------------------------------------------------------------------------------------------
Net interest income 3,018,972 459,829 722,691 3,687,979 (4,258) 7,885,213
Provision for loan
losses 75,000 7,500 60,000 30,000 0 172,500
- ----------------------------------------------------------------------------------------------------------------
Net interest income
after provision for
loan losses 2,943,972 452,329 662,691 3,657,979 (4,258) 7,712,713
Other income 851,088 78,459 250,459 238,186 201,786 1,619,978
Merger-related charges 0 0 0 0 0 0
Other noninterest
expense 2,300,370 458,769 865,041 3,063,865 162,771 6,850,816
----------------------------------------------------------------------------------------
Income (loss) before
income taxes 1,494,690 72,019 48,109 832,300 34,757 2,481,875
Income taxes 472,211 18,608 49,228 322,560 19,029 881,636
----------------------------------------------------------------------------------------
Net income $ 1,022,479 $ 53,411 ($ 1,119) $ 509,740 $ 15,728 $ 1,600,239
========================================================================================
Total assets $273,701,278 $49,586,432 $91,910,313 $373,950,514 ($2,496,483) $786,652,054
========================================================================================
</TABLE>
NOTE E--PENDING ACQUISITION
On March 12, 1999, the Company executed a Definitive Agreement to acquire
all of the outstanding common stock of First Waukegan Corporation ("FWC"),
Waukegan, Illinois in exchange for $28 million in cash. FWC is the parent bank
holding company of Bank of Northern Illinois, N.A., a national commercial
banking institution which operates five offices in Waukegan, Gurnee,
Libertyville, and Glenview (2), Illinois. The merger will be accounted for as a
purchase. The acquisition, which requires approval by FWC's shareholders and
regulatory authorities is expected to close no later than the end of the third
quarter of 1999. At March 31, 1999, FWC had consolidated total assets of $207.6
million.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Changes in Financial Condition
At March 31, 1999, total assets were $845,287,000 compared to
$828,369,000 at December 31, 1998. At March 31, 1999, total deposits decreased
$9,866,000 compared to December 31, 1998 mainly due to cyclical declines in
demand and savings balances and lower time deposit balances as depositors
migrated to money market accounts in the current relatively lower interest rate
environment. Other significant uses of funds during the first three months of
1999 consisted of $10,260,000 in increased cash and cash equivalents (mainly
short-term investments and interest-earning deposits), $7,358,000 in net loan
increases, the retirement of $6,750,000 in notes payable, the payment of
$1,156,000 in cash dividends, and the purchase of $743,000 in fixed assets,
mainly in computer enhancements as the Company upgraded its system in
preparation for Richmond's and Elgin's conversion to the Company's data service
provider in May and July, respectively. Funding sources came from a $25,000,000
increase in Federal Home Loan Bank Advances, a $6,806,000 increase in securities
sold under agreements to repurchase, $3,703,000 in net cash provided by
operating activities, $451,000 in net investment securities maturities and
sales, $123,000 in ESOP loan repayments, and $49,000 in proceeds from exercised
stock options.
State reported asset growth at each of its banking operations except
State Financial Bank (Illinois). Home reported the largest asset growth,
increasing $38.0 million between March 31, 1999 and March 31, 1998, the result
of deposit growth and increased Federal Home Loan Bank borrowings used to
support mortgage loan growth. State Financial Bank and State Financial Bank -
Waterford reported total asset increases of $17.4 million and $5.3 million,
respectively. Additionally, the LCC acquisition added $2.6 million in assets to
State's consolidated footings. State Financial Bank (Illinois) experienced $12.5
million in asset contraction as management strategically reduced the level of
municipal deposits outstanding at that institution. State reported net loans of
$615.1 million at March 31, 1999, an increase of $52.8 million or 9.4% over
March 31, 1998 mainly due to increased mortgage originations at Home. Total
deposits at March 31, 1999 grew $11.1 million or 1.8% to $643.0 million from
$631.9 million at March 31, 1998. Total stockholders' equity increased to $135.4
million at March 31, 1999 from $134.8 million at March 31,1998 due to earnings
retention net of dividends, changes in the value of securities available for
sale over the preceding twelve months, the additional stock issued to complete
the acquisition of LCC in September, 1998 and Home's purchase of treasury stock
in the third and fourth quarters of 1998.
Asset Quality
At March 31, 1999, non-performing assets were $3,910,000, a decrease of
$13,000 from December 31, 1998 due to an increase of $440,000 in accruing loans
past due 90 days or more, offset by a decrease of $341,000 in nonaccrual loans
and a decrease of $112,000 in other real estate. Total non-performing assets as
a percentage of total assets decreased to 0.46% at March 31, 1999 from 0.47% at
December 31, 1998 due to the decrease in the amount of total non-performing and
restructured loans and a an increase in the level of outstanding total assets at
March 31, 1999 as compared to December 31, 1998 As a percentage of total loans
outstanding, the level of non-performing loans increased to 0.56% at March 31,
1999 from 0.55% at December 31, 1998 due to the increase in accruing loans past
due 90 days or more between March 31, 1999 and year end 1998.
At March 31, 1999, available information would suggest that additional
loans totaling approximately $500,000 would likely be included as nonaccrual,
past due or restructured during the second quarter of 1998.
8
<PAGE>
The following table summarizes non-performing assets on the dates indicated
(dollars in thousands).
<TABLE>
<CAPTION>
Mar. 31 Dec 31 Sep. 30 Jun. 30 Mar. 31
1999 1998 1998 1998 1998
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Nonaccrual loans......................... $ 2,904 $ 3,245 2,681 $ 3,151 $ 3,287
Accruing loans past due 90 days or more.. 546 106 436 118 68
Restructured loans....................... 0 0 0 0 0
----------------------------------------------------------
Total non-performing and restructured
loans 3,450 3,351 3,117 3,269 3,355
----------------------------------------------------------
Other real estate owned.................. 460 572 347 234 728
----------------------------------------------------------
Total non-performing assets.............. $ 3,910 $ 3,923 3,464 3,503 $ 4,083
============================================================
Ratios:
Non-performing loans to total loans.... 0.65% 0.55% 0.52% 0.56% 0.59%
Allowance to non-performing loans...... 133.68 133.84 143.95 137.42 133.96
Non-performing assets to total assets.. 0.46 0.47 0.43 0.45 0.0.52
============================================================
</TABLE>
When, in the opinion of management, serious doubt exists as to the
collectibility of a loan, the loan is placed on nonaccrual status. At the time a
loan is classified as nonaccrual, interest income accrued in the current year is
reversed and interest income accrued in the prior year is charged to the
allowance for loan losses. The Company does not generally recognize income on
loans past due 90 days or more.
Allowance for Loan Losses and Net Charge-offs
Management maintains the allowance for loan losses (the "Allowance") at a
level considered adequate to provide for future loan losses. The Allowance is
increased by provisions charged to earnings and is reduced by charge-offs, net
of recoveries. At March 31, 1999, the Allowance was $4,612,000, an increase of
$127,000 from the balance at December 31, 1998. This increase was due to loan
loss provisions exceeding net charge-offs through the first three months of
1999.
The determination of Allowance adequacy is determined quarterly based
upon an evaluation of the Company's loan portfolio by the internal loan review
officer and management. These evaluations consider a variety of factors,
including, but not limited to, general economic conditions, loan portfolio size
and composition, previous loss experience, the borrower's financial condition,
collateral adequacy, the level of non-performing loans, and management's
estimation of future losses. As a percentage of loans, the Allowance was 0.74%
at March 31, 1999 compared to 0.73% at December 31, 1998. Based upon its
analyses, management considers the Allowance adequate to recognize the risk
inherent in the Company's loan portfolio at March 31, 1999.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]
9
<PAGE>
The following table sets forth an analysis of the Company's Allowance and
actual loss experience for the periods indicated (dollars in thousands):
<TABLE>
<CAPTION>
Three months
ended Year ended
March 31, 1999 Dec. 31, 1998
-----------------------------------------
<S> <C> <C>
Balance at beginning of period $ 4,485 $ 4,370
Charge-offs:
Commercial 5 146
Real estate 0 39
Installment 77 465
Other 6 149
-----------------------------------------
Total charge-offs 88 799
-----------------------------------------
Recoveries:
Commercial 33 79
Real estate 1 59
Installment 8 60
Other 1 26
-----------------------------------------
Total recoveries 43 224
-----------------------------------------
Net charge-offs 45 575
Additions charged to operations 172 690
-----------------------------------------
Balance at end of period $ 4,612 $ 4,485
=========================================
Ratios:
Net charge-offs to
average loans outstanding1 0.03% 0.10%
Net charge-offs to total allowance1 3.90 12.82
Allowance to period end
loans outstanding 0.74 0.73
---------------------------------------------=========================================
1. Annualized
</TABLE>
Net charge-offs to average loans outstanding decreased to 0.03% on an
annualized basis compared to 0.10% for the year ended December 31, 1998.
Annualized 1999 commercial loan charge-offs declined mainly due to fewer
charge-offs at SFB and SFBR in the first quarter of 1999. Annualized installment
loan charge-offs declined in first quarter 1999 as SFBR incurred fewer
write-offs on its indirect subprime auto loan portfolio. The level of other loan
charge-offs in 1998 was primarily impacted by credit card losses. The Company
sold its credit card portfolio in July, 1998 to an unrelated third party.
Accordingly, losses from credit card lending, classified with other loan
charge-offs, were no longer incurred.
Results of Operation - Comparison of the Three Months Ended March 31, 1999 and
1998
General
For the quarter ended March 31, 1999, the Company reported net income of
$1,527,000, a decrease of $73,000 or 4.6% from the $1,600,000 reported for the
quarter ended March 31, 1998. Included in first quarter 1999 were $598,000 in
additional merger-related charges stemming from the Company's merger with Home.
These charges resulted solely from the dissolution of Home's ESOP in first
quarter 1999. Exclusive of these charges, net income for first quarter 1999 was
$2,125,000, a 32.8% increase over first quarter 1998. Increased net interest
income and non-interest income and reduced non-interest expenses, exclusive of
the merger-related charges, were the main reasons for this improvement.
10
<PAGE>
Net Interest Income
The following table sets forth average balances, related interest income
and expenses, and effective interest yields and rates for the three months ended
March 31, 1999 and March 31, 1998 (dollars in thousands):
<TABLE>
<CAPTION>
1999 1998
--------------------------- ---------------------------
Average Yield/ Average Yield/
Balance Interest Rate4 Balance Interest Rate4
--------------------------- ---------------------------
ASSETS
Interest-earning assets:
<S> <C> <C> <C> <C> <C> <C>
Loans 1,2,3 $617,932 12,211 8.01% $565,071 $11,991 8.61 %
Taxable investment securities 71,579 1,047 5.93 68,330 1,083 6.43
Tax-exempt investment securities 3 32,755 548 6.79 26,889 470 7.09
Other short-term investments 17,196 220 5.19 2,022 29 5.82
Interest-earning deposits 30,038 300 4.05 50,369 619 4.98
Federal funds sold 12,338 153 5.03 17,065 236 5.61
--------------------------- ---------------------------
Total interest-earning assets 781,838 14,479 7.51 729,746 14,428 8.02
Non-interest-earning assets:
Cash and due from banks 31,614 24,079
Premises and equipment, net 13,460 13,702
Other assets 19,633 17,997
Less: Allowance for loan losses (4,531) (4,416)
TOTAL $842,014 $781,108
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Now accounts $ 86,809 395 1.85% $ 83,225 471 2.30%
Money market accounts 127,943 1,192 3.78 107,129 1,202 4.55
Savings deposits 106,927 652 2.47 105,416 748 2.88
Time deposits 248,557 3,416 5.57 264,720 3,773 5.78
Notes payable 2,325 50 8.72 1,333 23 7.00
FHLB borrowings 41,667 459 4.47 1,167 17 5.91
Federal funds purchased 2,651 33 5.05 0 0 0.00
Securities sold under
agreement to repurchase 8,920 105 4.77 9,434 124 5.33
--------------------------- ---------------------------
Total interest-bearing liabilities 625,799 6,302 4.08 572,424 6,358 4.50
Non-interest-bearing liabilities:
Demand deposits 76,266 68,003
Other 4,915 6,129
--------- ---------
Total liabilities 706,980 646,556
--------- ---------
Stockholders' equity 135,934 134,552
--------- ---------
TOTAL $842,014 $781,108
========= =========
Net interest earning and interest rate
spread 8,177 3.43% $ 8,070 3.52%
=============== ================
Net yield on interest-earning assets 4.24% 4.48%
- ------------------------------------------- ========= =========
1. For the purposes of these computations, nonaccrual loans are included in
the daily average loan amounts outstanding.
2. Interest earned on loans includes loan fees (which are not material in
amount) and interest income which has been received from borrowers whose
loans were removed from nonaccrual during the period indicated.
3. Taxable-equivalent adjustments are made in calculating interest income
and yields using a 34% rate for all years presented.
4. Annualized
</TABLE>
For the quarter ended March 31, 1999, the Company reported
taxable-equivalent net interest income of $8,177,000, an increase of $107,000 or
1.3% from the $8,070,000 reported for the quarter ended March 31, 1998. The
Company's taxable-equivalent yield on interest-earning assets (net interest
margin) declined to 4.24% in first quarter 1998 from 4.48% in first quarter
1998. The margin decline was mainly due to reduced loan yields resulting from
intense pricing competition and the general decline in interest rates over the
preceding twelve months.
11
<PAGE>
Taxable-equivalent total interest income increased $51,000 for the
quarter ended March 31, 1999 compared to the first quarter of 1998. This
improvement was mainly due to volume increases in interest-earning assets over
the preceding twelve months. The Company reported a $52,092,000 or 7.1% increase
in the volume of average interest-earning assets in first quarter 1999 over
first quarter 1998. Virtually all of this increase came in increased average
loan volume resulting mainly from continued mortgage loan growth. Average loans
outstanding increased 52,861,000 or 9.4% in first quarter 1999 over first
quarter 1998. The general decline in interest rates over the preceding twelve
months offset the positive volume impacts to the Company's total interest
income. For the quarter ended March 31, 1999, the Company's taxable-equivalent
yield on interest-earning assets fell to 7.51% from 8.02% for the quarter ended
March 31, 1998. The Company's first quarter 1999 loan yield declined to 8.01%
from 8.61% in first quarter 1998. This decline was mainly due to the impacts of
intense loan pricing competition in the Company's markets and maturing loans
repricing into the comparatively lower interest rate environment prevalent in
1999. The Company also experienced yield contraction in its taxable and
tax-exempt investment securities due to the reinvestment of maturing investments
proceeds into 1999's lower rate environment. For the quarter ended March 31,
1999, the yield on taxable investment securities declined to 5.93% and
tax-exempt investment yields declined to 6.79% from 6.43% and 7.09% respectively
for the quarter ended March 31, 1998.
Reduced funding costs helped to offset the impacts of reduced asset
yields in first quarter 1999. The cost of interest-bearing liabilities declined
to 4.08% for first quarter 1999 from 4.50% for first quarter 1998. Due to the
general decline in market interest rates over the preceding twelve months, the
Company reported a lower funding cost on each of its interest-bearing deposit
liabilities in the first quarter 1999. In fourth quarter 1998, the Company
adjusted its pricing on certain NOW accounts and savings deposits given the
general decline in short-term interest rates. As a result, the cost of NOW
accounts decreased to 1.85% in first quarter 1999 from 2.30% in first quarter
1998. Similarly, the repricing of savings deposits resulted in that deposit cost
falling to 2.47% in 1999 from 2.88% in 1998. The cost of money market accounts
fell to 3.78% in first quarter 1999 from 4.55% in first quarter 1998 mainly due
to the general decline in short-term interest rates over the last twelve months.
Time deposit costs also fell to 5.57% in first quarter 1999 from 5.78% in first
quarter 1998 as maturing instruments repriced into the current lower rate
environment. Additionally, in a lower interest rate environment, a greater
percentage of time deposit customers typically move maturing balances into more
liquid deposit products, primarily money market accounts, as the yield pick-up
on fixed maturity deposits is comparatively less attractive. This is the primary
reason the Company experienced a $16,163,000 decline in the volume of
outstanding average time deposits and a $20,814,000 increase in the volume of
average money market accounts in first quarter 1999 as compared to first quarter
1998. To help fund the increase in average-interest earning assets not supported
by deposit growth, the Company relied more on FHLB borrowings to fund asset
growth in first quarter 1999. As a result, time deposits, historically the
Company's highest significant funding cost, represented a smaller percentage of
the Company's total interest-bearing liabilities in first quarter 1999 compared
to first quarter 1998, which helped to improve the Company's first quarter 1999
cost of funds. Average time deposits comprised 39.7% of average interest-bearing
liabilities in first quarter 1999 compared to 46.2% in first quarter 1998.
Provision for Loan Losses
The provision for loan losses in first quarter 1999 and first quarter
1998 remained unchanged at $172,500 in each period.
Other Income
Total other income increased $224,000 in first quarter 1999 over first
quarter 1998. The inclusion of LCC's asset management fees accounted for
$150,000 of this increase. Exclusive of LCC, total other income increased
$74,000 due to increases in gains on mortgage origination sales, service charges
on deposit accounts, security transaction commissions, merchant services, and
investment securities gains, offset by reductions in ATM fees, gains realized
from other real estate sales, and other income. For the quarter ended March 31,
1999, gains on mortgage origination sales increased $49,000 due to increased
volume resulting from continued strong mortgage demand at SFB, SFBW, and
Richmond due to the current low interest rate environment. Service charges on
deposit accounts increased $39,000 mainly due to adjustments in Home's pricing
and handling of checks returned for insufficient funds. Security transaction
commissions increased $28,000 due to volume increases in brokerage activities at
SFB and Richmond and the introduction of these services at Home in the first
quarter of 1999. Merchant services income increased $6,000 due to volume
increases. The Company recognized $209,000 in investment securities gains in
first
12
<PAGE>
quarter 1999, a $7,000 increase over first quarter 1998 due to the sale of two
marketable equity securities in first quarter 1999. Offsetting these
improvements were declines in ATM fees and other income in first quarter 1999.
ATM fees declined $8,000 in first quarter 1999 due to slightly lower volume in
foreign transactions at the Company's terminals. Other income decreased $46,000,
mainly due to lower amounts realized from other real estate sales gains
($33,000), fewer check imprinting fees ($21,000).
Other Expenses
Total other expenses increased $67,000 in first quarter 1999 over first
quarter 1998, which included $598,000 in merger-related charges recognized in
first quarter 1999 resulting from the dissolution of Home's ESOP. Exclusive of
these merger-related charges, total other expenses decreased $531,000 or 7.8%
due mainly to lower costs for personnel, professional fees, advertising, and
credit card processing expenses. Personnel costs decreased $402,000 or 12.0%
mainly due to efficiencies realized from the merger with Home and reduced health
insurance costs. The Company produced this overall improvement in personnel
expense while incurring approximately $125,000 in additional personnel expense
in first quarter 1999 due to the addition of LCC and four additional FTE's at
Home hired to introduce commercial and consumer lending to Home's markets. Legal
and professional fees declined $157,000 due to efficiencies realized from the
Home merger and reduced legal costs on collection activities. Advertising
expense decreased $51,000, all of which was due to adjustment to Home's
marketing budget post-merger. Other expenses decreased $46,000 due to the
Company no longer incurring credit card processing fees in first quarter 1999
due to the sale of the credit card portfolio in third quarter 1998, as well as
reduced office supply costs in first quarter 1999. Offsetting the aforementioned
improvements in total other expenses were increased expenses for data processing
($57,000), goodwill amortization ($37,000), occupancy and equipment ($23,000),
and merchant services ($9,000). Data processing and merchant services expense
both increased due to rate adjustments from the Company's service providers. The
increases in goodwill amortization and occupancy and equipment expenses were
related to the Company including LCC's operating results in its consolidated
1999 operating performance.
Income Taxes
Income taxes for the quarter ended March 31, 1999 increased $303,000 on a
$380,000 increase in income before income taxes. As previously described, the
Company incurred $598,000 in merger-related charges in first quarter 1999 which
were not tax-deductible. Excluding the merger-related charges, income before
income taxes increased $978,000, resulting in an effective tax rate of 34.2% for
the first quarter of 1999 compared to 35.5% for the first quarter of 1998. The
lower effective tax rate in 1999 was primarily related to an increase in
tax-exempt investment security and loan income as compared to the first quarter
of 1998.
Liquidity
Liquidity management involves the ability to meet the cash flow
requirement of customers who may be either depositors wanting to withdraw funds
or borrowers needing assurance that sufficient funds will be available to meet
their credit needs. Liquid assets (including cash deposits with banks,
short-term investments, interest-earning deposits, and federal funds sold) are
maintained to meet customers needs. The Company had liquid assets of $92,490,000
and $82,230,000 at March 31, 1999 and December 31, 1998, respectively.
Year 2000 Problem
At midnight on December 31, 1999, unless the proper modifications have
been made, the program logic in many computer systems will start to produce
erroneous results because, among other things the systems will incorrectly read
the date A01/01/00" as being January 1 of the year 1900 or another incorrect
date. In addition, certain systems may fail to detect that the year 2000 is a
leap year. Problems can also arise earlier than January 1, 2000 as dates in the
next millennium are entered into non-Year 2000 compliant programs (collectively,
such issues are referred to herein as the "Year 2000 Problem"). Like most
financial service providers, the Company may be significantly affected by the
Year 2000 Problem due to the nature of financial information.
13
<PAGE>
Compliance Program. In order to address the Year 2000 Problem and to
minimize its potential adverse impact, in 1997 the Company initiated a corporate
wide project to address the impact of the Year 2000 Problem on its computer
application systems, information technology ("IT") related equipment, system
software, building controls, and non-IT embedded systems found in such equipment
as security systems, currency counters, and elevators. The evaluation of Year
2000 issues included an assessment of the potential impact of the Year 2000
Problem on the Company, including monitoring significant customers, key vendors,
service suppliers and other parties material to the Company's operations'
testing changes provided by these vendors; and developing contingency plans for
any critical systems that are not effectively reprogrammed. In the course of
this evaluation, the Company has sought written assurances from such third
parties as to their state of Year 2000 readiness. The Company's Year 2000
Compliance Program is divided into five phases: (1) awareness; (2) assessment;
(3) renovation; (4) validation; and (5) implementation.
The Company's State of Readiness. Work on the Year 2000 Compliance
Program has been prioritized in accordance with risk. The highest priority has
been assigned to activities that would disrupt the accuracy and delivery of the
Company's banking services to its customers; next is an assessment of the
potential credit risk to the Company resulting from its credit customers' state
of Year 2000 readiness, or lack thereof, and the potential impact of those
efforts on the customers' ability to meet contractual payment obligations; the
lowest priority has been assigned to activities that would cause inconvenience
or productivity loss in normal business operations such as issues related to
internal office machinery, heating and air conditioning systems, and elevators.
The Company has substantially completed the first two phases of the plan
and is currently working internally and with external vendors on the final three
phases. Because the Company out sources its data processing, a significant
component of the Year 2000 Compliance Program is working with external vendors
to test and certify that their systems are Year 2000 compliant. During the
weekend of October 3, 1998, the Company's primary data service provider
converted State Financial Bank and State Financial Bank - Waterford to its Year
2000-ready platform. As part of the conversion, the Company performed a variety
of tests to determine the proper functionality of the new platform. No problems
were encountered. The Company's data services provider continues to test its
system for Year 2000 readiness and has not encountered any problems as a result
of their continued testing. SFBR and Home will convert to the Company's data
services provider in May, 1999 and July, 1999, respectively.
The Company's other external vendors have surveyed their programs to
inventory the necessary changes and have continue correcting the applicable
computer programs and replacing equipment so that the Company's information
systems will be Year 2000 compliant prior to March 31, 1999. The Company has
devoted substantial time to testing its systems prior to the arrival of the new
millennium. As part of SFBR's and Home's conversion to the Company's data
services provider, the Company is installing a new wide area network connecting
all of its 16 offices. The Company expects to complete the installation of the
wide area network in the middle of May and will test it for Year 2000 readiness
and compatibility with its other systems immediately following installation. The
Company expects to finish a substantial portion of its Year 2000 testing by June
30, 1999.
The Company has also conducted a survey of its significant credit
customers to determine their state of Year 2000 readiness. Surveys were mailed
to all customers whose outstanding loan balance or loan commitment exceeded
$200,000. In addition, as part of its ongoing credit underwriting practices, all
new and renewed loans must have a Year 2000 risk assessment completed and
reported as part of the loan approval process. Based upon the information
received from these surveys, the Company does not expect to experience any
material collection problems resulting from its customers Year 2000 readiness,
or lack thereof.
Cost to Address Year 2000 Compliance Issues. Managing the Year 2000
Compliance Program will result in additional direct and indirect costs to the
Company. Based upon current internal studies, as well as recently solicited bids
from various computer hardware and software vendors, the Company estimates that
the total direct cost of resolving the Year 2000 Problem will not exceed
$900,000. This estimate includes approximately $471,100 in hardware purchases
that the Company expects to capitalize. To date, the Company has incurred
approximately $400,000 in costs related to addressing the Year 2000 Problem. The
majority of the remaining costs related to resolving the Year 2000 Problem are
expected to be incurred in 1999. The Company expects to fund these expenditures
through internal sources.
The estimated costs of, and timetable for, becoming Year 2000 compliant
constitute "forward looking statements" as defined in the Private Securities
Litigation Reform Act of 1995. Investors are cautioned that such
14
<PAGE>
estimates are based on numerous assumptions by management, including assumptions
regarding the continued availability of certain resources, the accuracy of
representations made by third parties concerning their compliance with Year 2000
issues, and other factors. The estimated costs of Year 2000 compliance also do
not give effect to any future corporate acquisitions made by the Company or its
subsidiaries.
Risk of Non-Compliance and Contingency Plans. The major applications
which pose the greatest risk to the Company if the implementation of the Year
2000 Compliance Program is not successful are the Company's data services
systems supported by third party vendors, loan customers ability to meet
contractual payment obligations in the event the Year 2000 Problem has a
significant negative impact on their business, internal computer networks, and,
items processing equipment which renders customers bank statements and banking
transactions. The potential problems which could result from the inability of
these applications to correctly process the Year 2000 are the inaccurate
calculation of interest income and expense, service delivery interruptions to
the Company's banking customers, credit losses resulting from the Company's loan
customers inability to make contractual credit obligations, interrupted
financial data gathering, and poor customer relations resulting from inaccurate
or delayed transaction processing, respectively.
Although the Company intends to complete all Year 2000 remediation and
testing activities by June 30, 1999, and although the Company has initiated Year
2000 communications with significant customers, key vendors, service providers,
and other parties material to the Company's operations and is diligently
monitoring the progress of such third parties in their Year 2000 compliance,
such third parties nonetheless represent a risk that cannot be assessed with
precision or controlled with certainty. For that reason, the Company intends to
develop contingency plans to address alternatives in the event that Year 2000
failures of automatic systems and equipment occur. Preliminary discussions have
been held regarding the contingency plan and a final contingency plan is
scheduled to be completed by the end of the second quarter of 1999.
Forward Looking Statements
When used in this report, the words "believes," "expects," and similar
expressions are intended to identify forward-looking statements. The Company's
actual results may differ materially from those described in the forward-looking
statements. Factors which could cause such a variance to occur include, but are
not limited to, changes in interest rates, levels of consumer bankruptcies,
issues associated with achieving Year 2000 compliance, customer loan and deposit
preferences, issues related to integrating acquired operations, and changes in
other general economic conditions.
Capital Resources
There are certain regulatory constraints which affect the Company's level
of capital. The following table sets forth these requirements and the Company's
capital levels and ratios at March 31, 1999, including the Tier 1 leverage
ratio, the risk-based capital ratios based upon Tier 1 capital, and total
risk-based capital:
<TABLE>
<CAPTION>
Regulatory Regulatory
Minimum Well-capitalized
Actual Requirement Requirement
----------- --------------- ------------------
(dollars in
thousands)
Amount Percent Amount Percent Amount Percent
------ ------- ------ ------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Tier 1 leverage 125,216 15.0% 33,301 4.0% 41,627 5.0%
Tier 1 risk-based capital 125,216 23.6% 21,200 4.0% 31,800 6.0%
Risk-based capital 129,828 24.5% 42,400 8.0% 53,000 10.0%
</TABLE>
The Company is pursuing a policy of continued asset growth which requires
the maintenance of appropriate ratios of capital to assets. The existing capital
levels allow for additional asset growth without further capital injection. It
is the Company's desire to maintain its capital position at or in excess of the
"well-capitalized" definition. The Company seeks to obtain additional capital
growth through earnings retention and a conservative dividend policy.
15
<PAGE>
Part II. Other Information
Item 1. Legal Proceedings
As of March 31, 1999, the Company is involved in various pending legal
proceedings consisting of ordinary routine litigation incidental to the business
of the Company. None of these proceedings is considered material, either in part
or in the aggregate, and are therefore not expected to have a material adverse
impact on the Company's financial condition, results of operations, cash flows,
and capital ratios.
Item 2. Changes in Securities
None
Item 3. Defaults upon Senior Securities
None
Item 4. Submission of Matters to Vote of Security Holders
None
16
<PAGE>
Item 5. Other Information
The deadline for submission of shareholder proposals pursuant to Rule
14a-8 under the Securities Exchange Act of 1934, as amended, for inclusion in
the Company's proxy statement for its 2000 Annual Meeting of Shareholders is
November 27, 1999. Additionally, if the Company receives notice of a shareholder
proposal after January 27, 2000, the persons named in proxies solicited by the
Board of Directors of the Company for its 2000 Annual Meeting of Shareholders
may exercise discretionary voting power with respect to such proposal.
Item 6. Exhibits and Reports on Form 8-K
On March 1, 1999, the Company filed Form 8-K Amendment No. 1 to its
report on Form 8-K filed on December 30, 1999 in regards to its merger with Home
Bancorp of Elgin, Inc. and its subsidiaries.
The Company filed a report on Form 8-K on April , 1999 in regards to its
pending acquisition of First Waukegan Corporation and its subsidiaries.
17
<PAGE>
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
STATE FINANCIAL SERVICES CORPORATION
(Registrant)
Date: May 12, 1999
By /s/ Michael J. Falbo
Michael J. Falbo
President and Chief Executive Officer
Date: May 12, 1999
By /s/ Michael A. Reindl
Michael A. Reindl
Senior Vice President, Controller, and
Chief Financial Officer
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 9
<RESTATED>
[LEGEND]
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS OF STATE FINANCIAL SERVICES CORPORATION AS OF
AND FOR THE 3 MONTHS ENDED MARCH 31, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
[/LEGEND]
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 26,725,870
<INT-BEARING-DEPOSITS> 49,646,530
<FED-FUNDS-SOLD> 11,231,546
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 79,087,540
<INVESTMENTS-CARRYING> 20,371,916
<INVESTMENTS-MARKET> 20,579,000
<LOANS> 566,784,160
<ALLOWANCE> 4,427,957
<TOTAL-ASSETS> 786,652,054
<DEPOSITS> 631,914,835
<SHORT-TERM> 11,714,000
<LIABILITIES-OTHER> 7,284,389
<LONG-TERM> 900,000
1,027,919
0
<COMMON> 0
<OTHER-SE> 133,810,911
<TOTAL-LIABILITIES-AND-EQUITY> 786,652,054
<INTEREST-LOAN> 11,964,555
<INTEREST-INVEST> 2,041,755
<INTEREST-OTHER> 236,240
<INTEREST-TOTAL> 14,242,550
<INTEREST-DEPOSIT> 6,193,649
<INTEREST-EXPENSE> 6,357,337
<INTEREST-INCOME-NET> 7,885,213
<LOAN-LOSSES> 172,500
<SECURITIES-GAINS> 202,058
<EXPENSE-OTHER> 6,850,816
<INCOME-PRETAX> 2,481,875
<INCOME-PRE-EXTRAORDINARY> 1,600,239
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,600,239
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.16
<YIELD-ACTUAL> 8.02
<LOANS-NON> 3,287,000
<LOANS-PAST> 68,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 900,000
<ALLOWANCE-OPEN> 4,370,000
<CHARGE-OFFS> 155,000
<RECOVERIES> 40,000
<ALLOWANCE-CLOSE> 4,428,000
<ALLOWANCE-DOMESTIC> 4,428,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 4,428,000
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS OF STATE FINANCIAL SERVICES CORPORATION AS OF
AND FOR THE 3 MONTHS ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 26,509,621
<INT-BEARING-DEPOSITS> 39,849,239
<FED-FUNDS-SOLD> 10,411,118
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 95,909,229
<INVESTMENTS-CARRYING> 8,271,465
<INVESTMENTS-MARKET> 8,413,000
<LOANS> 619,746,126
<ALLOWANCE> 4,612,029
<TOTAL-ASSETS> 845,287,333
<DEPOSITS> 643,039,127
<SHORT-TERM> 60,923,160
<LIABILITIES-OTHER> 5,894,796
<LONG-TERM> 0
1,008,145
0
<COMMON> 0
<OTHER-SE> 134,422,105
<TOTAL-LIABILITIES-AND-EQUITY> 845,287,333
<INTEREST-LOAN> 12,178,444
<INTEREST-INVEST> 1,928,712
<INTEREST-OTHER> 152,716
<INTEREST-TOTAL> 14,259,872
<INTEREST-DEPOSIT> 5,654,750
<INTEREST-EXPENSE> 6,301,530
<INTEREST-INCOME-NET> 7,958,342
<LOAN-LOSSES> 172,500
<SECURITIES-GAINS> 208,705
<EXPENSE-OTHER> 6,918,207
<INCOME-PRETAX> 2,711,847
<INCOME-PRE-EXTRAORDINARY> 1,527,055
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,527,055
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0.16
<YIELD-ACTUAL> 7.51
<LOANS-NON> 2,904,000
<LOANS-PAST> 546,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 500,000
<ALLOWANCE-OPEN> 4,485,000
<CHARGE-OFFS> 88,000
<RECOVERIES> 43,000
<ALLOWANCE-CLOSE> 45,000
<ALLOWANCE-DOMESTIC> 4,612,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 4,612,000
</TABLE>
