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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 June 30, 2003
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 39-1489983
- ------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer identification No.)
incorporation or organization)
815 NORTH WATER STREET, MILWAUKEE, WISCONSIN 53202-3526
-------------------------------------------------------
(Address and Zip Code of principal executive offices)
(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
--- ---
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 August 12, 2003, there were 7,016,307 shares of Registrant's $0.10 Par
Value Common Stock outstanding.
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
June 30, 2003 and December 31, 2002 3
Consolidated Statements of Income for the
Three Months ended June 30, 2003 and 2002 4
Consolidated Statements of Income for the
Six Months ended June 30, 2003 and 2002 5
Consolidated Statements of Cash Flows for the
Six Months ended June 30, 2003 and 2002 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures
About Market Risk 18
Item 4. Controls and Procedures 18
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 19
Item 2. Exhibits and Reports on Form 8-K 19
Item 4. Submission of Matters to a Vote of Security Holders 20
Signatures 21
Exhibits Exhibit Index
2
Part I. Financial Information
Item 1. Financial Statements
STATE FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Financial Condition
June 30, December 31,
2003 2002
(unaudited) (audited)
-----------------------------------
ASSETS
Cash and due from banks $ 56,002,389 $ 56,767,916
Interest-bearing bank balances 3,464,267 2,040,592
Federal funds sold 6,161,461 8,708,297
-----------------------------------
Cash and cash equivalents 65,628,117 67,516,805
Investment securities
Available-for-sale (at fair value) 371,157,695 422,081,645
Held-to-maturity (fair value of $1,355,829 - June 30,
2003 and $1,551,666 - December 31, 2002) 1,315,502 1,505,269
Loans (net of allowance for loan losses of $9,819,246 -
June 30, 2003 and $8,805,000 -December 31, 2002) 753,798,251 703,968,455
Loans held for sale 36,044,168 31,750,135
Premises and equipment 27,416,323 27,789,893
Accrued interest receivable 5,599,195 7,789,746
Goodwill 27,465,062 27,465,062
Bank owned life insurance 20,568,144 20,258,388
Other assets 6,108,540 6,698,985
-----------------------------------
TOTAL ASSETS $ 1,315,100,997 $ 1,316,824,383
===================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Deposits:
Demand 169,101,711 163,036,430
Savings 230,490,698 228,312,579
Money market 215,386,451 221,142,347
Time deposits in excess of $100,000 89,650,143 88,001,266
Other time deposits 220,814,025 240,381,060
-----------------------------------
TOTAL DEPOSITS 925,443,028 940,873,682
Federal Home Loan Bank advances 77,400,000 92,400,000
Notes payable 14,180,000 15,700,000
Trust preferred securities 15,000,000 15,000,000
Securities sold under agreements to repurchase 153,737,789 126,636,913
Federal funds purchased 10,500,000 10,000,000
Accrued expenses and other liabilities 7,899,092 9,089,417
Accrued interest payable 1,889,897 2,191,711
-----------------------------------
TOTAL LIABILITIES 1,206,049,806 1,211,891,723
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 9,457,180 shares in 2003 and 9,406,321
shares in 2002, outstanding 6,992,840 shares in 2003
and 6,946,981 shares in 2002 945,718 940,632
Additional pain-in capital 83,814,132 83,157,808
Retained earnings 58,447,913 54,288,325
Accumulated other comprehensive income 5,907,578 6,518,045
Unearned shares held by ESOP (4,160,060) (4,160,060)
Treasury Stock - 2,464,340 shares in 2003 and 2,459,340 in 2002 (35,904,090) (35,812,090)
-----------------------------------
TOTAL SHAREHOLDERS' EQUITY 109,051,191 104,932,660
-----------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,315,100,997 $ 1,316,824,383
===================================
See notes to unaudited consolidated financial statements.
3
STATE FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
Three Months Ended June 30,
---------------------------
2003 2002
---------------------------
INTEREST INCOME:
Loans $11,901,126 $11,206,293
Investment securities:
Taxable 3,269,171 5,186,719
Tax-exempt 572,049 664,969
Federal funds sold and other short-term
investments 41,847 85,870
---------------------------
TOTAL INTEREST INCOME 15,784,193 17,143,851
INTEREST EXPENSE:
Deposits 3,415,602 4,172,889
Notes payable and other borrowings 1,542,206 1,390,434
---------------------------
TOTAL INTEREST EXPENSE 4,957,808 5,563,323
---------------------------
NET INTEREST INCOME 10,826,385 11,580,528
Provision for loan losses 825,000 450,000
---------------------------
NET INTEREST INCOME AFTER 10,001,385 11,130,528
PROVISION FOR LOAN LOSSES
OTHER INCOME:
Service charges on deposit accounts 680,540 662,681
ATM and merchant service fees 759,238 826,291
Security commissions and management fees
101,923 139,269
Investment securities gains, net 80,274 285,111
Gain on sale of loans 1,323,429 389,491
Gain on sale of merchant processing 1,300,000 0
Other 1,056,222 334,265
---------------------------
TOTAL OTHER INCOME 5,301,626 2,637,108
OTHER EXPENSES:
Salaries and employee benefits 5,023,928 4,563,852
Net occupancy expense 702,127 663,365
Equipment rentals, depreciation and maintenance 1,004,452 941,162
Data processing 540,012 484,006
Legal and professional 411,188 534,175
ATM and merchant services 504,430 579,266
Advertising 267,567 329,832
Provision for merchant chargebacks 300,000 0
Merchant processing exit fee 150,000 0
Efficiency Consulting Expense 570,000 0
Severance Charges 180,114 0
Other 1,450,540 1,588,916
---------------------------
TOTAL OTHER EXPENSES 11,104,358 9,684,574
INCOME BEFORE INCOME TAXES 4,198,653 4,083,062
Income tax expense 1,162,008 1,279,232
---------------------------
NET INCOME $ 3,036,645 $ 2,803,830
===========================
Basic earnings per common share $ 0.46 $ 0.38
Diluted earnings per common share 0.44 0.37
Dividends per common share 0.13 0.12
See notes to unaudited consolidated financial statements.
4
STATE FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
Six Months Ended June 30,
---------------------------
2003 2002
---------------------------
INTEREST INCOME:
Loans $23,664,366 $24,338,048
Investment securities:
Taxable 7,033,438 8,245,632
Tax-exempt 1,185,826 1,352,177
Federal funds sold and other short-term
investments 62,066 231,828
---------------------------
TOTAL INTEREST INCOME 31,945,696 34,167,685
INTEREST EXPENSE:
Deposits 6,589,250 8,931,048
Notes payable and other borrowings 3,491,290 2,597,722
---------------------------
TOTAL INTEREST EXPENSE 10,080,540 11,528,770
---------------------------
NET INTEREST INCOME 21,865,156 22,638,915
Provision for loan losses 1,425,000 900,000
---------------------------
NET INTEREST INCOME AFTER 20,440,156 21,738,915
PROVISION FOR LOAN LOSSES
OTHER INCOME:
Service charges on deposit accounts 1,379,880 1,289,608
ATM and merchant service fees 1,450,846 1,527,987
Security commissions and management fees
195,311 241,007
Investment securities gains, net 135,470 489,120
Gain on sale of loans 2,647,200 1,054,721
Gain on sale of merchant processing 1,300,000 0
Other 1,745,753 819,464
---------------------------
TOTAL OTHER INCOME 8,854,460 5,421,907
OTHER EXPENSES:
Salaries and employee benefits 10,139,997 8,892,948
Net occupancy expense 1,389,171 1,405,623
Equipment rentals, depreciation and maintenance 1,956,781 1,905,653
Data processing 1,069,733 1,039,342
Legal and professional 814,186 1,191,393
ATM and merchant services 965,436 1,055,091
Advertising 617,917 604,207
Provision for merchant chargebacks 300,000 0
Merchant processing exit fee 150,000 0
Efficiency Consulting Expense 570,000 0
Severance Charges 180,114 0
Other 2,982,836 3,216,394
---------------------------
TOTAL OTHER EXPENSES 21,136,171 19,310,651
INCOME BEFORE INCOME TAXES 8,158,445 7,850,171
Income tax expense 2,269,646 2,433,403
---------------------------
NET INCOME $ 5,888,799 $ 5,416,768
===========================
Basic earnings per common share $ 0.89 $ 0.73
Diluted earnings per common share 0.87 0.72
Dividends per common share 0.26 0.24
See notes to unaudited consolidated financial statements.
5
STATE FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows (Unaudited)
Six Months Ended June 30,
------------------------------
2003 2002
------------------------------
OPERATING ACTIVITIES
Net income $ 5,888,799 $ 5,416,768
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses 1,425,000 557,496
Depreciation 1,398,325 1,419,126
Amortization of premiums and accretion of discounts
on investment securities 742,192 1,179,992
Income from bank owned life insurance (309,756) 0
Decrease (increase) in accrued interest receivable 2,190,551 (2,880,439)
Decrease in accrued interest payable (301,814) (333,362)
Realized investment securities gains (135,470) (489,120)
Other (285,397) (938,820)
------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 10,612,430 3,931,641
INVESTING ACTIVITIES
Proceeds from maturities or principal payments of
investment securities held-to-maturity 190,000 350,500
Purchases of securities available-for-sale (366,371,246) (275,531,055)
Proceeds from maturities and sales of investment securities
available-for-sale 415,763,291 112,777,188
Net (increase) decrease in loans (55,548,829) 108,785,270
Net purchases of premises and equipment (1,024,755) (1,049,735)
------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (6,991,539) (54,667,832)
FINANCING ACTIVITIES
Net decrease in deposits (15,430,654) 9,914,105
Repayment of notes payable (6,750,000) (4,800,000)
Proceeds of notes payable 5,230,000 5,427,224
Increase in securities sold under agreements to
repurchase repurchase 27,100,876 71,524,256
Decrease in Federal Home Loan Bank advances (15,000,000) (20,200,000)
Cash dividends (1,729,211) (1,779,408)
Repayments of federal funds purchased 500,000 0
Purchase of treasury stock (92,000) (952,871)
Proceeds from exercise of stock options and restricted
stock awards 661,410 52,405
------------------------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (5,509,579) 59,185,711
------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,888,688) 8,449,520
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 67,516,805 94,549,518
------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 65,628,117 $ 102,999,038
==============================
Supplemental information:
Interest paid $ 10,403,267 $ 11,862,132
Income taxes paid 2,618,092 3,306,836
Conversion of mortgage loans into fixed rate securities 0 101,567,223
See notes to unaudited consolidated financial statements.
6
STATE FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
June 30, 2003
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements include the
accounts of State Financial Services Corporation (the "Company" or "State") and
its subsidiaries. All significant intercompany balances and transactions have
been eliminated. The unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the rules and regulations of the Securities and
Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles for complete financial statements have been condensed or
omitted pursuant to such rules and regulations. In the opinion of management,
all adjustments, consisting of normal recurring accruals, considered necessary
for a fair presentation have been included. Interim operating results are not
necessarily indicative of the results that may be expected for the year. For
further information, refer to the consolidated financial statements and
footnotes thereto included in the Company's Annual Report on Form 10-K for the
year ended December 31, 2002.
NOTE B--ACCOUNTING CHANGES
FIN No. 46 - Consolidation of Variable Interest Entities
In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation
of Variable Interest Entities" (FIN No. 46). The objective of this
interpretation is to provide guidance on how to identify a variable interest
entity (VIE) and determine when the assets, liabilities, noncontrolling
interest, and results of operations of a VIE need to be included in a company's
consolidated financial statements. Because the Company does not have interest in
any VIEs, the Company does not expect the adoption of FIN No. 46 to have a
material impact on its results of operations, financial position, or liquidity.
NOTE C--EARNINGS PER SHARE
Basic earnings per share is computed by dividing net income by the
weighted-average common shares outstanding during the period less unearned ESOP
shares. Diluted earnings per share is computed by dividing net income by the
weighted-average common shares outstanding during the period less unallocated
ESOP shares plus the assumed conversion of all potentially dilutive securities.
The denominators for the earnings per share amounts are as follows:
For the three months ended For the six months ended
-----------------------------------------------------
June 30, June 30, June 30, June 30,
2003 2002 2003 2002
-----------------------------------------------------
Basic:
Weighted-average number of
shares outstanding 6,970,527 7,772,768 6,960,303 7,780,437
Less: weighted-average number of
unearned ESOP shares (322,599) (349,184) (322,599) (349,184)
-----------------------------------------------------
Denominator for basic earnings
per share 6,647,928 7,423,584 6,637,704 7,431,253
=====================================================
Fully diluted:
Denominator for basic earnings
per share 6,647,928 7,423,584 6,637,704 7,431,253
Add: assumed conversion of stock
options using treasury stock method 196,709 57,612 160,764 50,543
-----------------------------------------------------
Denominator for fully diluted
earnings per share 6,844,637 7,481,196 6,798,468 7,481,796
=====================================================
7
NOTE D--COMPREHENSIVE INCOME
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 included in reported net income but are instead reflected
directly in shareholders' equity.
For the three months ended For the six months ended
-----------------------------------------------------
June 30, June 30, June 30, June 30,
2003 2002 2003 2002
-----------------------------------------------------
Net Income $3,036,645 $2,803,830 $5,888,799 $5,416,768
Other comprehensive income:
Change in unrealized securities gains
(losses), net of tax 907,277 5,268,376 (528,115) 3,940,385
Reclassification adjustment for realized
gains included in net income, net of tax (48,799) (173,319) (82,352) (297,336)
-----------------------------------------------------
Total comprehensive income $3,895,123 $7,898,887 $5,278,332 $9,059,817
=====================================================
NOTE E--STOCK REPURCHASE PROGRAM
In December 2002, the Company completed its Dutch Auction tender offer,
purchasing and retiring 716 thousand shares of the Company's Common Stock at
$16.50 per share.
On April 28, 2003, the Company's Board of Directors authorized the
repurchase of up to 5%, or approximately 348 thousand shares, of the Company's
Common Stock.
NOTE F--STOCK-BASED COMPENSATION
The Company follows Accounting Principles Board Opinion No. 25 under which
no compensation expense is recorded when the exercise price of the Company's
employee stock options equals the market price of the underlying stock on the
date of grant. The Company's pro forma information regarding net income and net
income per share has been determined as if these options had been accounted for
since January 1, 1995, in accordance with the fair value method of Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation" (FAS No. 123).
The Black-Scholes option valuation model is commonly used in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions, including the expected stock price volatility. Since the
Company's employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimates, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
In determining compensation expense in accordance with FAS No. 123, the
fair value for these options was estimated at the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions for the three and six months ended June 30, 2003 and June 30, 2002.
Three months ended Six months ended
June 30, June 30,
--------------------------------------------------
2003 2002 2003 2002
--------------------------------------------------
Expected life of options 6.75 years 6.75 years 6.75 years 6.75 years
Risk-free interest rate 3.80% 3.33% 3.60% 3.33%
Expected dividend yield 2.2% 2.6% 2.2% 3.0%
Expected volatility factor 26.40% 15.77% 26.40% 15.77%
8
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period, which is three
years. Options issued in the prior year vested in six months. The Company's pro
forma information is as follows:
Three months ended Six months ended
--------------------------------------------
June 30, June 30, June 30, June 30,
(Thousands, except per share data) 2003 2002 2003 2002
- ------------------------------------------------------------------------------------------
Net income, as reported $ 3,037 $ 2,803 $ 5,889 $ 5,417
Pro forma compensation expense in
accordance with SFAS No. 123, net of tax (52) (66) (84) (132)
- ------------------------------------------------------------------------------------------
Pro forma net income $ 2,985 $ 2,737 $ 5,805 $ 5,285
==========================================================================================
Net income per common share, as reported:
Basic $ 0.46 $ 0.38 $ 0.89 $ 0.73
Diluted $ 0.44 $ 0.37 $ 0.87 $ 0.72
Pro forma net income per common share:
Basic $ 0.45 $ 0.37 $ 0.87 $ 0.71
Diluted $ 0.44 $ 0.37 $ 0.85 $ 0.71
The pro forma disclosures only include the effect of options granted
subsequent to January 1, 1995. Accordingly, the effects of applying the FAS No.
123 pro forma disclosures to future periods may not be indicative of future
effects.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Application of Critical Accounting Policies
The Company's consolidated financial statements are prepared in accordance
with accounting principles generally accepted in the United States and follow
general practices within the banking industry. Application of these principles
requires management to make estimates, assumptions, and judgments that affect
the amounts reported in the financial statements and accompanying notes. These
estimates, assumptions, and judgments are based on information available as of
the date of the financial statements. Future changes in information may affect
these estimates, assumptions, and judgments, which, in turn, may affect amounts
reported in the consolidated financial statements.
All significant accounting policies are presented in Note 1 to the
consolidated financial statements in the Company's 2002 Annual Report on Form
10-K. These policies, along with the disclosures presented in the other
financial statement notes and in this discussion, provide information on how
significant assets and liabilities are valued in the consolidated financial
statements and how those values are determined.
Management has determined that its accounting policies with respect to the
allowance for loan losses is the accounting area requiring subjective or complex
judgments that is most important to the Company's financial position and results
of operations, and therefore, is its only critical accounting policy. The
allowance for loan losses represents management's estimate of probable credit
losses inherent in the loan portfolio. Determining the amount of the allowance
for loan losses is considered a critical accounting estimate because it requires
significant judgment and the use of estimates related to the amount and timing
of expected future cash flows on impaired loans, estimated losses on pools of
homogeneous loans based on historical loss experience, and consideration of
current economic trends and conditions, all of which may be susceptible to
significant change. The loan portfolio also represents the largest asset type on
the consolidated statement of condition. Note 1 to the consolidated financial
statements in the Company's 2002 Annual
9
Report on Form 10-K describes the methodology used to determine the allowance
for loan losses. In addition, a discussion of the factors driving changes in the
amount of the allowance for loan losses is included in the Allowance for Loan
Losses and Net Charge-offs set forth below.
Changes in Financial Condition
At June 30, 2003 and December 31, 2002, total assets were $1.3 billion.
During the first half of 2003, significant uses of funds consisted of a $15.4
million decrease in total deposits, $15.0 million in repayment of Federal Home
Loan Bank ("FHLB") borrowings, $1.5 million net decrease in notes payable, $55.5
million increase in loans receivable, $1.7 million in payment of cash dividends,
and $1.0 million in purchases of premises and equipment. Funding sources came
from a $10.6 million increase in net cash provided by operating activities,
$49.6 million net decrease in investment securities, $27.1 million increase in
securities sold under agreement to repurchase, $0.7 million in proceeds from the
exercise of stock options, and $0.5 million in federal funds purchased.
Asset Quality
At June 30, 2003, non-performing assets were $11.1 million, a decrease of
$1.9 million from December 31, 2002 due primarily to a decrease of $1.8 million
in non-accrual loans. Total non-performing assets as a percentage of total
assets were 0.84% at June 30, 2003 and 0.99% at December 31, 2002. As a
percentage of total loans outstanding, the level of non-performing loans was
1.34% at June 30, 2003 compared to 1.69% at December 31, 2002. This percentage
decrease was due to the decrease in non-performing loans.
When, in the opinion of management, serious doubt exists as to the
collectibility of a loan, the loan is placed on non-accrual status. In all
cases, however, when a loan reaches 90 days delinquent on the payment of
principal or interest the loan is placed on non-accrual status. At the time a
loan is classified as non-accrual, interest credited to income in the current
year is reversed and interest income accrued in the prior year is charged to the
allowance for loan losses. The following table summarizes non-performing assets
on the dates indicated (dollars in thousands).
Jun. 30 Mar. 31 Dec. 31 Sep. 30 Jun. 30
2003 2003 2002 2002 2002
---------------------------------------------------
Non-accrual loans $10,731 $13,649 $12,558 $13,548 $10,907
Accruing loans past due 90 days or more 0 0 0 0 0
Restructured loans 0 0 0 0 0
---------------------------------------------------
Total non-performing and restructured loans 10,731 13,649 12,558 13,548 10,907
Other real estate owned 371 346 452 253 287
---------------------------------------------------
Total non-performing assets $11,102 $13,995 $13,010 $13,801 $11,194
===================================================
Ratios:
Non-performing loans to total loans 1.34% 1.78% 1.69% 2.00% 1.69%
Allowance to total loans 1.23 1.22 1.18 1.25 1.31
Allowance to non-performing loans 91.50 68.18 70.11 63.15 77.54
Non-performing assets to total assets 0.84 1.08 0.99 1.08 0.90
===================================================
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 probable loan losses. The Allowance is
increased by provisions charged to earnings and is reduced by charge-offs, net
of recoveries. At June 30, 2003, the Allowance was $9.8 million, an increase of
$1.0 million from the balance at December 31, 2002. The Allowance was increased
primarily due to the increased number of commercial loans, which are generally
higher risk, particularly during a weak economic period.
10
As a percentage of total loans outstanding, the Allowance was 1.23% at June
30, 2003 compared to 1.18% at December 31, 2002. The determination of Allowance
adequacy is based upon on-going evaluations of the Company's loan portfolio
conducted by the Internal Loan Review function of its banking subsidiary, State
Financial Bank, N.A. (the "Bank"), and reviewed by 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
borrowers' financial condition, collateral adequacy, and the level of
non-performing loans. Based upon its analyses, management considered the
Allowance adequate to recognize the risk inherent in the loan portfolio at June
30, 2003.
The following table sets forth an analysis of the Allowance for loan losses
for the periods indicated (dollars in thousands):
Six months
Ended Year ended
June 30, 2003 Dec. 31, 2002
-----------------------------
Balance at beginning of period $8,805 $7,900
Charge-offs:
Commercial 133 1,425
Real estate mortgage 171 35
Installment 207 523
Other 12 15
-----------------------------
Total charge-offs 523 1,998
Recoveries:
Commercial 51 390
Real estate mortgage 14 0
Installment 46 107
Other 1 6
-----------------------------
Total recoveries 112 503
-----------------------------
Net charge-offs 411 1,495
Balance of acquired allowance at date of
acquisition 0 0
Additions charged to operations 1,425 2,400
-----------------------------
Balance at end of period $9,819 $8,805
=============================
Ratios:
Net charge-offs to average loans outstanding(1) 0.11% 0.22%
Net charge-offs to total allowance1 8.4 16.98
Allowance to period end loans outstanding 1.23 1.18
- ------------------------------------------------- =============================
(1) Annualized
Results of Operations-Comparison of the Three-Month Periods Ended June 30, 2003
and June 30, 2002
General
For the quarter ended June 30, 2003, the Company reported a net income of
$3.0 million and net income per share on a fully diluted basis of $0.44,
compared to net income of $2.8 million and net income per share on a fully
diluted basis of $0.37 reported for the quarter ended June 30, 2002. The
increase in earnings per share was mainly due to fewer shares being outstanding
due to the stock repurchases effected since the second quarter of 2002.
11
Net Interest Income
The following table sets forth average balances, related interest income and expenses, and effective interest
yields and rates for the three-month periods ended June 30, 2003 and June 30, 2002 (dollars in thousands):
Three months ended Three months ended
June 30, 2003 June 30, 2002
-------------------------------- --------------------------------
Average Yield/ Average Yield/
Balance Interest Rate(4) Balance Interest Rate(4)
-------------------------------- --------------------------------
Interest-earning assets:
Loans(1)(2)(3) $ 777,927 $ 11,911 6.14% $ 628,327 $ 11,225 7.17%
Taxable investment securities 365,900 3,260 3.57% 370,784 5,178 5.60%
Tax-exempt investment securities(3) 61,084 880 5.78% 60,937 1,008 6.63%
Interest-earning deposits 3,060 10 1.31% 1,153 9 3.18%
Federal funds sold 15,677 42 1.07% 22,190 86 1.55%
-------------------------------- --------------------------------
Total interest-earning assets 1,223,648 16,103 5.28% 1,083,391 17,506 6.48%
Non-interest-earning assets:
Cash and due from banks 24,117 42,098
Premises and equipment, net 27,486 28,390
Other assets 60,331 42,330
Less: Allowance for loan losses (9,495) (8,285)
---------- ----------
TOTAL $1,326,087 $1,187,924
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Now accounts $ 126,191 $ 125 0.40% $ 97,125 $ 117 0.48%
Money market accounts 212,339 593 1.12% 220,016 810 1.48%
Savings deposits 129,455 155 0.48% 127,505 303 0.95%
Time deposits 319,998 2,334 2.93% 319,104 2,943 3.70%
Notes payable 27,480 275 4.01% 18,984 155 3.27%
FHLB borrowings 77,400 784 4.06% 47,500 613 5.18%
Federal funds purchased 923 4 1.74% 165 1 2.43%
Securities sold under agreement to
repurchase 156,006 688 1.77% 89,573 621 2.78%
-------------------------------- --------------------------------
Total interest-bearing liabilities 1,049,792 4,958 1.89% 919,972 5,563 2.42%
Non-interest-bearing liabilities:
Demand deposits 158,704 148,219
Other 8,475 8,084
---------- ----------
Total liabilities 1,216,971 1,076,275
---------- ----------
Stockholders' equity 109,116 111,649
---------- ----------
TOTAL $1,326,087 $1,187,924
========== ==========
Net interest earning and interest rate spread $ 11,145 3.39% $ 11,943 4.06%
================== ==================
Net yield on interest-earning assets 3.65% 4.42%
======= =======
- ------------------------
(1) For the purposes of these computations, non-accrual 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 that has
been received from borrowers whose loans were removed from non-accrual during the period indicated.
(3) Taxable-equivalent adjustments are made in calculating interest income and yields using a 35% rate for all
years presented. The related adjustments were $319 thousand and $362 thousand for June 30, 2003 and June 30,
2002, respectively. The Company believes this disclosure of tax-exempt interest is more meaningful to the
reader because these results are more comparable to other banks due to the impact that tax-exempt holdings
have on net interest margin.
(4) Annualized.
12
For the quarter ended June 30, 2003, the Company reported
taxable-equivalent net interest income of $11.1 million, a decrease of $0.8
million, or 6.7%, from the $11.9 million reported for the quarter ended June 30,
2002. This modest decrease reflects the Company's interest rate risk management
policy, which is designed to minimize the impact of interest rate changes on net
interest income. The taxable-equivalent yield on interest-earning assets (net
interest margin) decreased to 3.65% in the second quarter of 2003 from 4.42% in
the second quarter of 2002.
The Company's taxable-equivalent total interest income decreased $1.4
million for the quarter ended June 30, 2003 compared to the same period of 2002
due to the lower interest rate environment. Average loans outstanding increased
$149.6 million, or 23.8%, in the second quarter of 2003 over the second quarter
of 2002. For the quarter ended June 30, 2003, the taxable-equivalent yield on
interest-earning assets was 5.28% compared to 6.48% for the quarter ended June
30, 2002. The second quarter 2003 loan yield was 6.14% compared to 7.17% in the
second quarter of 2002. The Company also experienced declines in the yields
earned on its investment securities. For the quarter ended June 30, 2003, the
yield earned on taxable investment securities decreased to 3.57% from 5.60% for
the quarter ended June 30, 2002. The taxable equivalent yields earned on
tax-exempt investment securities decreased to 5.78% for the quarter ended June
30, 2003 from 6.63% for the quarter ended June 30, 2002.
The Company's funding costs were also impacted by the lower interest rate
environment prevalent over the preceding twelve months. The cost of
interest-bearing liabilities decreased to 1.89% for the second quarter of 2003
from 2.42% for the second quarter of 2002. The Company uses wholesale funding
sources, such as the FHLB, to balance the timing differences between its various
business funding sources and to support loan origination. In the second quarter
of 2003, notes payable, FHLB borrowings, federal funds purchased, and securities
sold under agreements to repurchase comprised 24.9% of the Company's
interest-bearing liabilities compared to 17.0% in the second quarter 2002 due to
loan growth exceeding deposit growth in the period.
Provision for Loan Losses
The provision for loan losses was $825 thousand in the second quarter of
2003 compared to $450 thousand in the second quarter of 2002. The increase
reflects loan growth and management's assessment of asset quality and risk
inherent in the loan portfolio. This loan growth has been primarily centered in
the commercial and commercial real estate loan categories, which are generally
considered higher risk than other types of loans.
Other Income
Total other income increased $2.7 million in the second quarter of 2003
over the second quarter of 2002. The increase was the result of increases in
service charges on deposit accounts, gains on sale of residential mortgage
loans, gain on sale of merchant processing, and other income. These increases
were offset by decreases in automated teller machine (ATM) and merchant
services, security commissions and management fees, and investment securities
gains. Service charges on deposit accounts increased $18 thousand due to
increased fees on business accounts. Gains on sale of residential mortgage loans
increased $934 thousand due to increased refinancing activity on residential
mortgages. The sale of the Company's merchant credit card processing business
resulted in a gain of $1.3 million. Other income increased $722 thousand mainly
due to income earned on bank owned life insurance. ATM and merchant services
decreased $67 thousand due to decreased volume as a result of the removal of
several ATM machines in 2002. Security commission and management fees decreased
$37 thousand, and investment security gains decreased $205 thousand.
13
Other Expenses
Other expenses increased $1.4 million in the second quarter of 2003 over
the second quarter of 2002. The increase was due to increases in personnel
costs, net occupancy and equipment expense, data processing, provision for
merchant chargebacks, merchant processing exit fee, efficiency consulting
expense, and severance charges. These increases were offset by decreases in
legal and professional fees, ATM and merchant services, advertising, and other
expense. Personnel costs increased $460 thousand due to increased sale
commissions as a result of the increased volume of refinancing activity on
residential mortgages and increased salaries due to growth. Net occupancy and
equipment expense increased $102 thousand and data processing increased $56
thousand. Provision for merchant chargebacks of $300 thousand and merchant
processing contract exit fee of $150 thousand were recorded as a result of the
sale of its merchant credit card processing business. The Company is in the
process of improving efficiency and incurred $570 thousand for efficiency
consulting expense and $180 thousand for severance of management personnel.
Legal and professional expense decreased $123 thousand due to lower legal fee
expense on several long-term legal matters that are nearing resolution. ATM and
merchant services decreased $75 thousand, advertising decreased $62 thousand and
other expense decreased $138 thousand.
Income Taxes
Income tax expense for the quarter ended June 30, 2003 was $1.2 million and
was $1.3 million for the quarter ended June 30, 2002. The effective tax rate was
27.7% for the second quarter of 2003 compared to an effective rate of 31.3% for
the second quarter of 2002. The decrease was due to a larger portion of
tax-exempt revenue in 2003 compared to 2002.
Results of Operations-Comparison of the Six-Month Periods Ended June 30, 2003
and June 30, 2002.
General
For the six months ended June 30, 2003, the Company reported a net income
of $5.9 million and net income per share on a fully diluted basis of $0.87,
compared to net income of $5.4 million and net income per share on a fully
diluted basis of $0.72 reported for the six months ended June 30, 2002. The
increase in earnings per share was mainly due to fewer shares being outstanding
due to the stock repurchases effected since the second quarter of 2002.
14
Net Interest Income
The following table sets forth average balances, related interest income and expenses, and effective interest
yields and rates for the six-month periods ended June 30, 2003 and June 30, 2002 (dollars in thousands):
Six months ended Six months ended
June 30, 2003 June 30, 2002
-------------------------------- --------------------------------
Average Yield/ Average Yield/
Balance Interest Rate(4) Balance Interest Rate(4)
-------------------------------- --------------------------------
ASSETS
Interest-earning assets:
Loans(1)(2)(3) $ 762,089 $ 23,693 6.27% $ 679,605 $ 24,376 7.23%
Taxable investment securities 350,378 7,014 4.04% 305,418 8,201 5.41%
Tax-exempt investment securities(3) 62,799 1,824 5.86% 61,991 2,049 6.66%
Interest-earning deposits 2,874 19 1.36% 1,110 45 8.16%
Federal funds sold 11,573 62 1.08% 29,394 232 1.59%
-------------------------------- --------------------------------
Total interest-earning assets 1,189,713 32,612 5.53% 1,077,518 34,903 6.53%
Non-interest-earning assets:
Cash and due from banks 33,801 43,632
Premises and equipment, net 27,666 28,504
Other assets 61,015 41,627
Less: Allowance for loan losses (9,263) (8,147)
---------- ----------
TOTAL $1,302,932 $1,183,134
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
Now accounts $ 115,414 $ 224 0.39% $ 96,027 $ 230 0.48%
Money market accounts 213,303 1,239 1.17% 227,169 1,676 1.49%
Savings deposits 127,765 361 0.57% 124,464 585 0.95%
Time deposits 321,340 4,765 2.99% 329,500 6,440 3.94%
Notes payable 28,785 547 3.83% 18,078 299 3.34%
FHLB borrowings 77,676 1,569 4.07% 52,854 1,336 5.10%
Federal funds purchased 1,536 13 1.71% 83 1 2.43%
Securities sold under agreement
to repurchase 143,048 1,363 1.92% 73,820 961 2.63%
-------------------------------- --------------------------------
Total interest-bearing liabilities 1,028,867 10,081 1.98% 921,995 11,528 2.52%
Non-interest-bearing liabilities:
Demand deposits 156,674 143,152
Other 9,702 7,950
---------- ----------
Total liabilities 1,195,243 1,073,097
---------- ----------
Stockholders' equity 107,689 110,037
---------- ----------
TOTAL $1,302,932 $1,183,134
========== ==========
Net interest earning and interest rate spread $ 22,531 3.55% $ 23,375 4.01%
================== ==================
Net yield on interest-earning assets 3.82% 4.37%
======= =======
- --------------------
(1) For the purposes of these computations, non-accrual 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 that has
been received from borrowers whose loans were removed from non-accrual during the period indicated.
(3) Taxable-equivalent adjustments are made in calculating interest income and yields using a 35% rate for all
years presented. The related adjustments were $666 thousand and $735 thousand for June 30, 2003 and June 30,
2002, respectively. The Company believes this disclosure of tax-exempt interest is more meaningful to the
reader because these results are more comparable to other banks due to the impact that tax-exempt holdings
have on net interest margin.
(4) Annualized.
15
For the six months ended June 30, 2003, the Company reported
taxable-equivalent net interest income of $22.5 million, a decrease of $0.8
million, or 0.4%, from the $23.4 million reported for the six months ended June
30, 2002. This modest decrease reflects the Company's interest rate risk
management policy, which is designed to minimize the impact of interest rate
changes on net interest income. The taxable-equivalent yield on interest-earning
assets (net interest margin) decreased to 3.82% in the first half of 2003 from
4.37% in the first half of 2002.
The Company's taxable-equivalent total interest income decreased $2.3
million for the six months ended June 30, 2003 compared to the same period of
2002 due to the lower interest rate environment. Average loans outstanding
increased $82.5 million, or 12.1%, in the first half of 2003 over the first half
of 2002. For the six months ended June 30, 2003, the taxable-equivalent yield on
interest-earning assets was 5.53% compared to 6.53% for the six months ended
June 30, 2002. The first half of 2003 loan yield was 6.27% compared to 7.23% in
the first half of 2002. The Company also experienced declines in the yields
earned on its investment securities. For the six months ended June 30, 2003, the
yield earned on taxable investment securities decreased to 4.04% from 5.41% for
the six months ended June 30, 2002. The taxable equivalent yields earned on
tax-exempt investment securities decreased to 5.86% for the six months ended
June 30, 2003 from 6.66% for the six months ended June 30, 2002.
The Company's funding costs were also impacted by the lower interest rate
environment prevalent over the preceding twelve months. The cost of
interest-bearing liabilities decreased to 1.98% for the first half of 2003 from
2.52% for the first half of 2002. The Company uses wholesale funding sources,
such as the FHLB, to balance the timing differences between its various business
funding sources and to support loan origination. In the first half of 2003,
notes payable, FHLB borrowings, federal funds purchased, and securities sold
under agreements to repurchase comprised 24.4% of the Company's interest-bearing
liabilities compared to 15.7% in the first half of 2002 due to loan growth
exceeding deposit growth in the period.
Provision for Loan Losses
The provision for loan losses was $1.4 million in the first half of 2003
compared to $900 thousand in the first half of 2002. The increase reflects loan
growth and management's assessment of asset quality and risk inherent in the
loan portfolio. This loan growth has been primarily centered in the commercial
and commercial real estate loan categories, which are generally considered
higher risk than other types of loans.
Other Income
Total other income increased $3.4 million in the first half of 2003 over
the first half of 2002. The increase was the result of increases in service
charges on deposit accounts, gains on sale of residential mortgage loans, gain
on sale of merchant processing, and other income. These increases were offset by
decreases in ATM and merchant services, security commissions and management
fees, and investment securities gains. Service charges on deposit accounts
increased $90 thousand due to increased fees on business accounts. Gains on sale
of residential mortgage loans increased $1.6 million due to increased
refinancing activity on residential mortgages. The sale of the Company's
merchant credit card processing business resulted in a gain of $1.3 million.
Other income increased $926 thousand mainly due to income earned on bank owned
life insurance. ATM and merchant services decreased $77 thousand due to
decreased volume as a result of the removal of several ATM machines in 2002.
Security commission and management fees decreased $46 thousand, and investment
security gains decreased $354 thousand.
Other Expenses
Other expenses increased $1.8 million in the first half of 2003 over the
first half of 2002. The increase was due to increases in personnel costs, net
occupancy and equipment expense, data
16
processing, advertising, provision for merchant chargebacks, merchant processing
exit fee, efficiency consulting expense, and severance charges. These increases
were offset by decreases in legal and professional fees, ATM and merchant
services, and other expense. Personnel costs increased $1.2 million mainly due
to increased sale commissions as a result of the increased volume of refinancing
activity on residential mortgages and increased salaries due to growth. Net
occupancy and equipment expense increased $35 thousand, data processing
increased $30 thousand and advertising increased $14 thousand. Provision for
merchant chargebacks of $300 thousand and merchant processing contract exit fee
of $150 thousand were recorded as a result of the sale of its merchant credit
card processing business. The Company is in the process of improving efficiency
and recorded a charge of $570 thousand for efficiency consulting expense and
$180 thousand for severance of management personnel. Legal and professional
expense decreased $377 thousand due to lower legal fee expense on several
long-term legal matters that are nearing resolution. ATM and merchant services
decreased $90 thousand, and other expense decreased $234 thousand.
Income Taxes
Income tax expense for the six months ended June 30, 2003 was $2.3 million
and was $2.4 million for the six months ended June 30, 2002. The effective tax
rate was 27.8% for the first half of 2003 compared to an effective rate of 31.0%
for the first half of 2002. The decrease was due to a larger portion of
tax-exempt revenue in 2003 compared to 2002.
Liquidity
The primary functions of asset/liability management are to assure adequate
liquidity and maintain an appropriate balance between interest-earning assets
and interest-bearing liabilities. Liquidity management involves the ability to
meet the cash flow requirements of depositors and borrowers. Liquid assets
(including cash deposits with banks, short-term investments, interest-earning
deposits, and federal funds sold) are maintained primarily to meet customers'
current needs. The Company had liquid assets of $65.6 million and $67.5 million
at June 30, 2003 and December 31, 2002, respectively.
Capital Resources
There are certain regulatory requirements that affect the Company's level
of capital. The following table sets forth these requirements and the Company's
capital levels and ratios at June 30, 2003:
Regulatory Regulatory
Minimum Well-capitalized
Actual Requirement Requirement
------------------- ------------------ ------------------
(dollars in thousands)
Amount Percent Amount Percent Amount Percent
-------- ------- ------- ------- ------- -------
Tier 1 leverage $ 90,505 7.0% $51,867 4.0% $64,834 5.0%
Tier 1 risk-based capital $ 90,505 9.4% $38,384 4.0% $57,521 6.0%
Risk-based capital $100,324 10.5% $76,695 8.0% $95,869 10.0%
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 infusion. It is
the Company's plan 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 consistent dividend policy.
17
Derivative Financial Instruments and Hedging Activities
Interest rate risk, the exposure of the Company's net interest income and
net fair value of its assets and liabilities, to adverse movements in interest
rates, is a significant market risk exposure that can have a material effect on
the Company's financial position, results of operations and cash flows. The
Company has policies to ensure that neither earnings nor fair value at risk
exceed established guidelines and assesses these risks by continually
identifying and monitoring changes in interest rates that may adversely impact
expected future earnings and fair values.
The Company has designed strategies to confine these risks within the
established limits and identify appropriate risk/reward trade-offs in the
financial structure of its balance sheet. These strategies include the use of
interest rate swap agreements to manage fluctuations in cash flows resulting
from interest rate risk.
The interest rate swaps change the fixed-rate cash flow exposure on certain
loans to variable-rate cash flows.
Ineffectiveness arising from differences between the critical terms of the
hedging instrument and hedged item are recorded in loan interest income. The
effective portion of changes in the fair value of the interest rate swap
designated as fair value hedges offset directly against the fair value of the
loan as the hedged item.
The following table summarizes the Company's fair value hedges at June 30,
2003 (dollars in thousands):
Notional Remaining
Hedged Item Hedging Instrument Amount Fair Value Term (Years)
- --------------- --------------------- -------- ---------- ------------
Fixed Rate Loan Receive Variable Swap $4,072 $4,292 12.9
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Refer to the Company's annual report on Form 10-K for the year ended
December 31, 2002 for a complete discussion of the Company's market risk. There
have been no material changes to the market risk information included in the
Company's 2002 annual report on Form 10-K.
Item 4. Controls and Procedures
The Company's management, with participation of the Company's Chief
Executive Officer and Chief Financial Officer, has evaluated the effectiveness
of the Company's disclosure controls and procedures (as such term is defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) as of the end of the period covered by this
report. Based on such evaluation, the Company's Chief Executive Officer and
Chief Financial Officer have concluded that, as of the end of such period, the
Company's disclosure controls and procedures are effective in recording,
processing, summarizing, and reporting, on a timely basis, information required
to be disclosed by the Company in the reports that it files or submits under the
Exchange Act. There have not been any changes in the Company's internal control
over financial reporting (as such term is defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act) during the fiscal quarter to which this report
relates that have materially affected, or are reasonably likely to materially
affect, the Company's internal control over financial reporting.
Forward Looking Statements
The Company intends certain matters discussed in this Report to be
"forward-looking statements" intended to qualify for the safe harbor from
liability established by the Private Securities
18
Litigation Reform Act of 1995. These forward-looking statements can generally be
identified as such because the statements will include words such as "believes,"
"anticipates," "expects," or words of similar meaning. Similarly, statements
that describe future plans, objectives, outlooks, targets or goals are also
forward-looking statements. Such forward-looking statements are subject to
certain risks and uncertainties that could cause actual results to differ
materially from those anticipated as of the date of this Report. Factors that
could cause such a variance include, but are not limited to, adequacy of the
Company's loan loss reserve, changes in interest rates, local market
competition, customer loan and deposit preferences, governmental regulations,
and other general economic conditions. Shareholders, potential investors, and
other readers are urged to consider these factors in evaluating the
forward-looking statements and cautioned not to place undue reliance on such
forward-looking statements. The forward-looking statements included in this
Report are only made of the date of this Report, and the Company undertakes no
obligation to publicly update such forward-looking statements to reflect
subsequent events or circumstances.
Part II. Other Information
Item 1. Legal Proceedings
From time to time, the Company and the Bank, are party to legal proceedings
arising out of their general lending activities and other operations. In
February 2002, an action was filed against the Company in the Circuit Court in
Rock County, Wisconsin. The plaintiffs in the litigation allege that in April
2001 an employee of the Company wrongfully issued and then the Company refused
to honor cashier's checks issued on behalf of a customer of the Bank. The
allegations arose out of an apparent scheme perpetrated by a mutual customer of
one of the plaintiffs, a credit union, and SFSC. The Company settled this matter
in July 2003 for an amount that was covered by the reserve previously
established.
Item 2. Exhibits and Reports on Form 8-K
(a) Exhibits
31.1 Certification by the Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification by the Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Periodic Financial Report by the Chief
Executive Officer and Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K, dated April 15, 2003,
furnishing under Item 12 the Company's press release dated April 15, 2003, with
respect to financial results for the quarter ended March 30, 2003. (a) Exhibits
19
Item 4. Submission of Matters to Vote of Security Holders
Annual Meeting of Shareholders. On May 7, 2003, at the Annual Meeting of the
shareholders of the Company, the Company's shareholders reelected Richard A.
Horn, Barbara E. Weis, and Robert J. Cera as directors for three-year terms
expiring on the date of the annual shareholders' meeting to be held in 2006.
Shareholder Vote with Respect to Matters Acted Upon at the Annual Meeting--
Election of Directors. Under Wisconsin law, the number of persons corresponding
to the number of director positions to be filled at the Annual Meeting who
received the highest number of votes are elected as directors. Richard A. Horn,
Barbara E. Weis, and Robert J. Cera stood for reelection as directors of the
Company at the Annual Meeting. The votes with respect to the reelection and
election of each were as follows:
Richard A. Horn
- ---------------
6,410,781 votes were cast "FOR" the reelection of Mr. Horn.
0 votes were withheld for the reelection of Mr. Horn.
96,937 votes abstained or were broker non-votes.
Barbara E. Weis
- ---------------
6,394,194 votes were cast "FOR" the reelection of Ms. Weis.
0 votes were withheld for the reelection of Ms. Weis.
113,524 votes abstained or were broker non-votes.
Robert J. Cera
- ---------------
6,368,846 votes were cast "FOR" the reelection of Mr. Cera.
0 votes were withheld for the reelection of Mr. Cera.
138,872 votes abstained or were broker non-votes.
20
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: August 12, 2003 /s/ Michael J. Falbo
---------------------------------------
Michael J. Falbo
President and Chief Executive Officer
Date: August 12, 2003 /s/ Daniel L. Westrope
---------------------------------------
Daniel L. Westrope
Senior Vice President and
Chief Financial Officer
21
STATE FINANCIAL SERVICES CORPORATION
EXHIBIT INDEX TO FORM 10-Q
For The Quarter Ended June 30, 2003
Exhibit Number
- --------------
31.1 Certification by the Chief Executive Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification by the Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Periodic Financial Report by the Chief
Executive Officer and Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002CERTIFICATIONS
22