10-K/A

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K/A

(AMENDMENT NO. 3)

[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the fiscal year ended December 31, 2004

[ ]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 000-18166

STATE FINANCIAL SERVICES CORPORATION

(Exact name of registrant as specified in its charter)

Wisconsin	39-1489983
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
815 North Water Street, Milwaukee, Wisconsin 53202 (Address of principal executive offices) (Zip code)
(414) 223-8400 (Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:	None
	(Title of class)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $0.01 par value	NASDAQ National Market
Preferred Share Purchase Rights	NASDAQ National Market
	(Names of exchange on which registered)

Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X]

Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

Indicate by checkmark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). [X]

The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $168,580,648 as of June 30, 2004.

As of March 11, 2005, there were 6,922,626 shares of Common Stock issued and outstanding

DOCUMENTS INCORPORATED BY REFERENCE

None.

1

EXPLANATORY NOTE

State Financial Services Corporation (the “Company” or “SFSC”) hereby amends Part II, Item 8 of its Annual Report on Form 10-K for the fiscal year ended December 31, 2004 (the “Form 10-K”) solely to correct information provided in Note 14 - Income Taxes to the Notes to Consolidated Financial Statement appearing only in the EDGAR version of the Form 10-K filed with the Securities and Exchange Commission (the “Commission”). The changes made to Note 14 correct an error in the accounting for income taxes related to purchase accounting for prior year acquisitions. This Amendment on Form 10-K/A does not change in any other way the financial statements and notes thereto included in Part II, Item 8 of the Form 10-K.

In accordance with Rule 12b-15 under the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), the complete text of Item 8 of the Form 10-K, which Item contained Note 14 - Income Taxes to the Notes to Consolidated Financial Statement, has been restated in its entirety in this Amendment on Form 10-K/A. Under Rule 12b-15, the Company is restating in its entirety Part IV, Item 15 of the Form 10-K to file as exhibits updated certifications pursuant to Rule 13a-15(e)/15d-15(e) under the Exchange Act and 18 U.S.C. Section 1350 and an updated consent of the Company’s independent registered public accounting firm. The remainder of the Form 10-K is unchanged and is not reproduced in this Amendment No. 3. This Amendment on Form 10-K/A reflects only the changes discussed above and does not reflect any events occurring after the filing of the Form 10-K. No other information included in the Form 10-K has been modified or updated in any way.

This Amendment on Form 10-K/A constitutes Amendment No. 3 to the Form 10-K. Amendment No. 1 to the Form 10-K was filed with the Commission on April 16, 2005. Amendment No. 2 to the Form 10-K was filed with the Commission on May 4, 2005.

2

PART II

ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Management’s Annual Report on Internal Control Over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company’s internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Company’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2004 using the criteria set forth in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, the Company’s management believes that, as of December 31, 2004, the Company’s internal control over financial reporting was effective based on those criteria.

The Company’s auditors, Ernst & Young LLP, have issued an attestation report on management’s assessment of the Company’s internal control over financial reporting. That attestation report is included on the following page.

By: /s/ Michael J. Falbo
Michael J. Falbo

Chairman of the Board and Chief Executive Officer

By: /s/ Daniel L. Westrope

Daniel L. Westrope

Executive Vice President, Chief Financial Officer, Treasurer, and Corporate Secretary

3

Attestation Report of Ernst & Young, LLP, Independent Registered Accounting Firm

Board of Directors and Shareholders

State Financial Services Corporation

We have audited management’s assessment, included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting, that State Financial Services Corporation maintained effective internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). State Financial Services Corporation’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the company’s internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, management’s assessment that State Financial Services Corporation maintained effective internal control over financial reporting as of December 31, 2004, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, State Financial Services Corporation maintained, in all material respects, effective internal control over financial reporting as of December 31, 2004, based onthe COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 2004 consolidated financial statementsof State Financial Services Corporation and our report dated March 11, 2005 expressed anunqualified opinion thereon.

By: /s/ Ernst & Young LLP

Chicago, Illinois

March 11, 2005

4

Report of Ernst & Young LLP, Independent Registered Accounting Firm

Board of Directors and Shareholders

State Financial Services Corporation

We have audited the accompanying consolidated statements of financial condition of State Financial Services Corporation and subsidiaries as of December 31, 2004 and 2003, and the related consolidated statements of income, shareholders’ equity and cash flows for the three years in the period ended December 31, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of State Financial Services Corporation and subsidiaries at December 31, 2004 and 2003, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of State Financial Services Corporation’s internal control over financial reporting as of December 31, 2004, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated March 11, 2005 expressed an unqualified opinion thereon.

By: /s/ Ernst & Young LLP

Chicago, Illinois

March 11, 2005

5

State Financial Services Corporation and Subsidiaries

Consolidated Statements of Financial Condition

	December 31
	2004			2003
Assets
Cash and due from banks	$	34,864,395		$	55,824,050
Interest-bearing bank balances		5,170,383			4,399,723
Federal funds sold		14,968,937			18,144,353
Cash and cash equivalents		55,003,715			78,368,126
Investment securities:
Available-for-sale (at fair value)		387,077,866			397,061,108
Held-to-maturity (fair value of $279,511-2004 and $988,006-2003)		274,947			964,662
Loans (net of allowance for loan losses of $12,347,154-2004 and $10,706,350-2003)		922,668,520			863,323,685
Loans held for sale		3,129,775			1,900,438
Premises and equipment		32,941,598			32,918,853
Accrued interest receivable		5,690,553			5,246,660
Goodwill		35,354,252			37,626,045
Core deposit intangible		4,642,708			5,158,565
Bank owned life insurance		21,920,248			21,029,985
Other assets		7,178,719			9,331,295
Total Assets	$	1,475,882,901		$	1,452,929,422
Liabilities and Shareholders’ Equity
Deposits		1,083,866,755			1,029,113,124
Securities sold under agreement to repurchase		143,723,944			175,592,887
Federal Home Loan Bank advances		67,300,000			67,800,000
Note payable		15,790,000			16,200,000
Subordinated debt		14,000,000			14,000,000
Junior subordinated debentures owed to unconsolidated subsidiary trust		30,000,000			15,000,000
Accrued expenses and other liabilities		4,137,478			21,071,418
Accrued interest payable		2,182,398			1,957,473
Total Liabilities		1,361,000,575			1,340,734,902
Shareholders’ Equity:
Preferred stock, $1 par value; authorized-100,000 shares; issued and outstanding-none		-			-
Common stock, $.10 par value; authorized 25,000,000 shares; issued 9,623,301 shares in 2004 and 9,527,489 shares in 2003, outstanding 6,900,461 shares in 2004 and 7,043,149 shares in 2003		962,330			952,749
Additional paid-in capital		86,885,929			84,739,420
Retained earnings		73,313,612			63,152,966
Accumulated other comprehensive income		1,054,948			3,763,835
Unearned shares held by ESOP		(3,981,303	)		(3,981,360	)
Treasury stock-2,722,840 shares in 2004 and 2,484,340 shares in 2003		(43,353,190	)		(36,433,090	)
Total Shareholders’ Equity		114,882,326			112,194,520
Total Liabilities and Shareholders’ Equity	$	1,475,882,901		$	1,452,929,422

See accompanying notes to consolidated financial statements.

6

State Financial Services Corporation and Subsidiaries

Consolidated Statements of Income

	Year ended December 31
	2004		2003		2002
Interest income:
Loans	$	53,689,280	$	46,947,262	$	47,119,572
Investment securities:
Taxable		14,956,779		14,062,707		17,887,812
Tax-exempt		2,184,955		2,274,852		2,707,780
Federal funds sold and other short-term investments		175,343		141,074		472,867
Total interest income		71,006,357		63,425,895		68,188,031
Interest expense:
Deposits		13,399,036		12,198,322		17,676,849
Securities sold under agreements to repurchase		2,882,915		2,775,207		721,078
Federal Home Loan Bank advances		3,149,424		3,130,450		2,296,563
Other borrowings		2,511,890		1,196,859		2,704,948
Total interest expense		21,943,265		19,300,838		23,399,438
Net interest income		49,063,092		44,125,057		44,788,593
Provision for loan losses		2,381,000		2,625,000		2,400,000
Net interest income after provision for loan losses		46,682,092		41,500,057		42,388,593
Other income:
Service charges on deposit accounts		3,220,661		2,849,346		2,625,713
ATM and merchant services		997,129		2,069,567		3,056,944
Security commissions and management fees		626,978		448,227		468,254
Investment securities gains, net		1,064,631		565,017		509,180
Gain on sale of loans		1,667,160		4,418,990		3,151,300
Bank owned life insurance income		890,263		1,269,928		258,387
Gain on sale of merchant processing		-		1,320,000		-
Other		2,787,237		1,828,658		2,287,917
		11,254,059		14,769,733		12,357,695
Other expenses:
Salaries and employee benefits		18,148,386		18,874,600		18,563,570
Net occupancy expense		2,994,110		2,739,638		2,702,797
Equipment rentals, depreciation and maintenance		4,102,622		3,932,303		3,826,646
Data processing		2,446,549		2,041,591		2,170,150
Legal and professional		1,681,934		2,116,477		1,901,249
Advertising		1,410,083		1,064,811		1,130,759
ATM and merchant services		260,696		1,267,075		2,140,395
Delivery and postage		918,694		831,928		988,267
Telephone		670,034		790,518		735,167
Other		4,993,365		5,031,645		4,640,572
		37,626,473		38,690,586		38,799,572
Income before income taxes		20,309,678		17,579,204		15,946,716
Income taxes		6,168,922		5,240,450		4,793,893
Net income	$	14,140,756	$	12,338,754	$	11,152,823
Basic earnings per share	$	2.12	$	1.84	$	1.52
Diluted earnings per share		2.07		1.80		1.51

See accompanying notes to consolidated financial statements.

7

State Financial Services Corporation and Subsidiaries

Consolidated Statements of Shareholders’ Equity

	Common Stock			Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income			Unearned ESOP Shares			Treasury Stock			Total
Balance at January 1, 2002	$	1,010,877		$	94,797,858		$	46,587,268		$	2,302,673		$	(4,473,357	)	$	(33,865,219	)	$	106,360,100
Comprehensive income:
Net income		-			-			11,152,823			-			-			-			11,152,823
Change in net unrealized gain on securities available-for-sale, net of deferred income tax liability of $2,171,554		-			-			-			4,215,372			-			-			4,215,372
Total comprehensive income		-			-			11,152,823			4,215,372			-			-			15,368,195
Cash dividends declared -$0.48 per share		-			-			(3,451,766	)		-			-			-			(3,451,766	)
Issuance of 13,247 shares under stock plans		1,325			106,286			-			-			-			-			107,611
Repurchase of 715,695 shares		(71,570	)		(11,737,398	)		-			-			-			-			(11,808,968	)
Purchase of 136,300 shares of treasury stock		-			-			-			-			-			(1,946,871	)		(1,946,871	)
ESOP shares earned		-			(8,938	)		-			-			313,297			-			304,359
Balance at December 31, 2002	$	940,632		$	83,157,808		$	54,288,325		$	6,518,045		$	(4,160,060	)	$	(35,812,090	)	$	104,932,660
Comprehensive income:
Net income		-			-			12,338,754			-			-			-			12,338,754
Change in net unrealized gain on securities available-for-sale, net of deferred income tax benefit of $1,418,839		-			-			-			(2,754,210	)		-			-			(2,754,210	)
Total comprehensive income		-			-			12,338,754			(2,754,210	)		-			-			9,584,544
Cash dividends declared -$0.52 per share		-			-			(3,474,113	)		-			-			-			(3,474,113	)
Issuance of 121,168 shares under stock plans		12,117			1,546,562			-			-			-			-			1,558,679
Purchase of 25,000 shares of treasury stock		-			-			-			-			-			(621,000	)		(621,000	)
ESOP shares earned		-			35,050			-			-			178,700			-			213,750
Balance at December 31, 2003	$	952,749		$	84,739,420		$	63,152,966		$	3,763,835		$	(3,981,360	)	$	(36,433,090	)	$	112,194,520
Comprehensive income:
Net income		-			-			14,140,756			-			-			-			14,140,756
Fair market value adjustment on cash flow hedges, net of deferred income tax benefit of $42,492		-			-			-			(65,906	)		-			-			(65,906	)
Change in net unrealized gain on securities available-for-sale, net of deferred income tax benefit of $1,348,358		-			-			-			(2,642,981	)		-			-			(2,642,981	)
Total comprehensive income		-			-			14,140,756			(2,708,887	)		-			-			11,431,869
Cash dividends declared -$0.60 per share		-			-			(3,980,110	)		-			-			-			(3,980,110	)
Issuance of 95,812 shares under stock plans		9,581			1,394,067			-			-			-			-			1,403,648
Purchase of 238,500 shares of treasury stock		-			-			-			-			-			(6,920,100	)		(6,920,100	)
ESOP shares earned		-			752,442			-			-			57			-			752,499
Balance at December 31, 2004	$	962,330		$	86,885,929		$	73,313,612		$	1,054,948		$	(3,981,303	)	$	(43,353,190	)	$	114,882,326
See accompanying notes to consolidated financial statements.

8

State Financial Services Corporation and Subsidiaries Consolidated Statements of Cash Flows
	Year ended December 31
	2004			2003			2002
Operating activities:
Net income	$	14,140,756		$	12,338,754		$	11,152,823
Adjustments to reconcile net income to net cash provided by operating activities:
Provision for loan losses		2,381,000			2,625,000			2,400,000
Depreciation		2,971,835			2,816,181			2,793,799
Amortization of premiums and accretion of discounts on investment securities		822,795			1,087,088			2,295,880
Amortization of deferred loan (fees) costs		(821,356	)		(197,255	)		275,433
Deferred income tax provision		(2,203,817	)		(481,484	)		(508,000	)
Market adjustment for committed ESOP shares		752,442			35,050			(8,938	)
Income from bank owned life insurance		(890,263	)		(771,597	)		(258,388	)
Net change in loans held for sale		(1,229,337	)		29,849,697			(8,558,002	)
Decrease (increase) in accrued interest receivable		(443,893	)		3,204,294			(2,189,866	)
Increase (decrease) in accrued interest payable		224,925			(476,402	)		(257,771	)
Realized investment securities gains		(1,064,631	)		(565,017	)		(509,180	)
Other		(8,207,444	)		6,132,808			2,094,206
Net cash provided by operating activities		6,433,012			55,597,117			8,721,996
Investing activities:
Proceeds from maturities or principal payments of investment securities held-to-maturity		690,001			541,500			400,499
Purchases of securities available-for-sale		(729,849,501	)		(743,840,849	)		(395,815,592	)
Proceeds from maturities and sales of investment securities available-for-sale		736,082,953			778,010,634			238,174,475
Net decrease (increase) in loans		(60,904,479	)		(55,402,615	)		15,949,531
Net purchases of premises and equipment		(2,994,580	)		(4,998,793	)		(1,889,044	)
Business acquisitions, net of cash acquired of $13,655,541 in 2003		-			(4,772,378	)		-
Purchase of bank owned life insurance		-			-			(20,000,000	)
Net cash used in investing activities		(56,975,606	)		(30,462,501	)		(163,180,131	)
Financing activities:
Net increase (decrease) in deposits		54,753,631			(32,381,535	)		(13,585,066	)
Repayment of notes payable		(24,760,000	)		(14,710,000	)		(1,700,000	)
Proceeds of notes payable		24,350,000			26,610,000			1,747,224
Proceeds from trust preferred securities		14,700,000			-			15,000,000
Net decrease in guaranteed ESOP obligation		57			178,700			313,297
Increase (decrease) in securities sold under agreements to repurchase		(31,868,943	)		48,955,974			108,049,961
Federal Home Loan Bank repayments		(500,000	)		(35,400,000	)		-
Federal Home Loan Bank advances		-			5,000,000			24,700,000
Cash dividends paid on common stock		(3,980,110	)		(3,474,113	)		(3,451,766	)
Proceeds (repayments) of federal funds purchased		-			(10,000,000	)		10,000,000
Purchase of treasury stock		(6,920,100	)		(621,000	)		(1,946,871	)
Repurchase of common stock		-			-			(11,808,968	)
Proceeds from exercise of stock options and restricted stock awards		1,403,648			1,558,679			107,611
Net cash provided by (used in) financing activities		27,178,183			(14,283,295	)		127,425,422
Increase (decrease) in cash and cash equivalents		(23,364,411	)		10,851,321			(27,032,713	)
Cash and cash equivalents at beginning of year		78,368,126			67,516,805			94,549,518
Cash and cash equivalents at end of year	$	55,003,715		$	78,368,126		$	67,516,805
Supplementary information:
Interest paid	$	21,718,340		$	19,535,076		$	23,657,209
Income taxes paid		6,577,762			4,693,092			5,606,836
Conversion of mortgage loans into fixed rate securities		-			-			101,567,223
See accompanying notes to consolidated financial statements.

9

1. Summary of Significant Accounting Policies

The accounting policies followed by State Financial Services Corporation (the Company) and the methods of applying those principles which materially affect the determination of its financial position, cash flows or results of operations are summarized below.

Organization

The Company is a financial services company operating through twenty-nine locations in southeastern Wisconsin and northeastern Illinois. Through its banking network, the Company provides commercial and retail banking products, long-term fixed-rate secondary market mortgage origination and investment brokerage activities.

The Company and its subsidiaries are subject to competition from other financial institutions and financial service providers, and are subject to certain federal and state regulations and undergo periodic examinations by regulatory agencies.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company and its subsidiaries. All significant intercompany transactions have been eliminated.

Use of Estimates

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

Cash and Cash Equivalents

Cash and cash equivalents include cash and due from banks, interest-bearing bank balances and federal funds sold, all with an original maturity of three months or less.

Investment Securities

Securities classified as available-for-sale are reported at fair value, with unrealized gains and losses, net of tax, excluded from earnings and reported as other comprehensive income.

Securities classified as held-to-maturity are reported at amortized cost as management has the intent and ability to hold the securities to maturity.

The amortized cost of debt securities is adjusted for amortization of premiums and accretion of discounts to maturity, or in the case of mortgage related securities, over the estimated life of the security. Such amortization is calculated using the level-yield method, adjusted for prepayments and is included in interest income from investments. Realized gains and losses, and declines in value judged to be other than temporary are included in net investment securities gains and losses. Gains and losses on the sale of securities are recorded on the trade date basis and are determined using the specific identification method.

In estimating other-than-temporary impairment losses, management considers (1) the length of time and the extent to which fair value has been less than cost, (2) the financial condition and near-term prospects of the issuer, and (3) the intent and ability of the Company to retain its investment in the issuer for a period of time sufficient to allow for any anticipated recovery in fair value.

10

Loans

The Company grants commercial, commercial real estate, real estate mortgage, and consumer loans to customers. The loan portfolio is represented by loans throughout Wisconsin and Illinois. The ability of the Company’s debtors to honor their contracts is dependent upon the real estate and general economic conditions in the area. Loans are generally reported at the principal amount outstanding.

It is the policy of the Company to review each credit in order to determine an adequate level of collateral to obtain prior to making a loan. The type of collateral, when required, will vary in ranges from liquid assets to real estate. The Company’s access to collateral, in the event of a borrower default, is assured through adherence to state lending laws and the Company’s lending standards and credit monitoring procedures. There are no significant concentrations of loans where the customers’ ability to honor loan terms are dependent upon a single economic sector.

Interest income on loans is accrued on the unpaid principal balance. The accrual of interest income is generally discontinued when a loan becomes 90 days past due as to principal or interest and/or when, in the opinion of management, full collection is questionable. When interest accruals are discontinued, unpaid interest credited to income in the current year is reversed and unpaid interest accrued in the prior year is charged to the allowance for loan losses. Interest received on nonaccrual loans is either applied against principal or reported as interest income according to management’s judgment regarding the collectibility of principal. Generally, loans are restored to accrual status when the obligation is brought current, has performed in accordance with the contractual terms for a reasonable period of time and the ultimate collectibility of the total contractual principal and interest is no longer in doubt.

Loan origination and commitment fees and certain direct loan origination costs are deferred and the net amounts are amortized as an adjustment of the related loan yield. The Company generally amortizes these amounts using the level-yield method over the contractual life of the related loans. Fees related to standby letters of credit are recognized over the commitment period.

Loans Held for Sale

Loans held for sale consist of residential mortgages and are carried at the lower of cost or aggregate market value as determined by aggregate outstanding commitments from investors or current investor yield requirements.

Allowance for Loan Losses

The allowance for loan losses (the “allowance”) is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance.

The allowance is composed of specific and general valuation allowances. Management maintains the allowance using an allocation methodology, plus an unallocated portion, as determined by economic conditions and other qualitative and quantitative factors affecting the loan portfolio. Management allocates the allowance by internally determined risk ratings. Commercial loan allocations are based on ongoing reviews of individual loans, loan types and industries. Mortgage and consumer loan allocations are based primarily on analysis of historical loss and delinquency trends. Minimum loss factors for criticized loan categories are consistent with regulatory agency factors. Loss factors for non-criticized loan categories are based primarily on loan type, historical loss experience, and industry statistics.

Financial Accounting Standards Board Statement No. 114 defines a loan as impaired if, based on current information or events, it is probable that a creditor will not be able to collect all amounts (both contractual principal and interest) due in accordance with the terms of the original loan agreement. Impairment is measured as the amount the carrying amount of the loan exceeds the present value of the expected future cash flows, discounted at the loan’s original effective interest rate, or the fair value of the underlying collateral. The Company establishes specific valuation allowances on loans considered impaired equal to the amount of the impairment. Large groups of homogeneous loans are collectively evaluated for impairment. Accordingly, the Company does not separately identify individual consumer and mortgage loans for impairment disclosures, unless such loans are the subject of a restructuring agreement.

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General valuation allowances are based on an evaluation of the various risk components that are inherent in the loan portfolio. The risk components that are evaluated include past loan loss experience; the level of nonperforming and classified loans; current economic conditions; volume, growth, concentrations, and composition of the loan portfolio; adverse situations that may affect the borrower’s ability to repay; peer group comparisons; regulatory guidance; and other relevant factors. These risk components are evaluated in determining loss factors which are then applied toward the Company’s internally graded loans in calculating general valuation allowances. The allowance is increased by provisions charged to earnings and reduced by charge-offs, net of recoveries. Management may transfer reserves between specific and general valuation allowances as considered necessary.

The allowance reflects management’s best estimate of the reserves needed to provide for the estimated losses in the portfolio. The allowance is evaluated on a regular basis by management on a risk model developed and implemented by management. Actual results could differ from estimates and future additions to the allowance may be necessary based on unforeseen changes in economic conditions and as more information becomes available. In addition, federal regulators annually review the loan portfolio and the allowance. Such regulators have the authority to require the Company to recognize additions to the allowance at the time of their examination.

Premises and Equipment

Premises and equipment are carried at cost less accumulated depreciation. The provision for depreciation is computed using both accelerated and straight-line methods over the estimated useful lives of the respective assets. Leasehold improvements are amortized using both accelerated and straight-line methods over the shorter of the useful life of the leasehold asset or lease term. Land is carried at cost.

Derivative Instruments

The Company enters into certain derivative transactions as part of its overall interest rate risk management process. SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” as amended, requires a company to recognize all derivative instruments at fair value on its statement of financial condition. The accounting for changes in fair value (i.e., gains or losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and further, on the type of hedging relationship.

Derivative instruments designated in a hedge relationship to mitigate exposure to changes in the fair value of an asset, liability, or firm commitment are considered fair value hedges. Derivative instruments designated in a hedge relationship to mitigate exposure to variability in expected future cash flows, or other types of forecasted transactions, are considered cash flow hedges. The Company formally documents all relationships between hedging instruments and hedged items, as well as its risk-management objective and strategy for undertaking each hedge transaction.

Fair value hedges are accounted for by recording the fair value of the derivative instrument and the fair value related to the hedged asset or liability on the consolidated statements of financial condition with corresponding offsets recorded in the consolidated statements of income. The adjustment to the hedged asset or liability is included in the basis of the hedged item, while the fair value of the derivative is recorded as a freestanding asset or liability. Actual cash receipts or payments and related amounts accrued during the period on derivatives, included in a fair value hedge relationship, are recorded as offsets to the related interest income or expense recorded on the hedged asset or liability.

Cash flow hedges are accounted for by recording the fair value of the derivative instrument on the consolidated statements of financial condition as either a freestanding asset or liability, with a corresponding offset recorded in other comprehensive income within shareholders’ equity, net of tax. Amounts are reclassified from other comprehensive income to the consolidated statements of income in the period that the hedged forecasted transaction affects earnings.

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Under both the fair value and cash flow hedge methods, any ineffective portion of the hedge is recognized immediately in the consolidated statements of income. The Company discontinues hedge accounting prospectively when it is determined the derivative is no longer effective in offsetting changes in the fair value of the hedged item, the derivative expires or is sold, terminated, or exercised, the derivative is dedesignated as a hedging instrument, or management determines that designation of the derivative as a hedging instrument is no longer appropriate. When hedge accounting is discontinued because it is determined the derivative no longer qualifies as an effective hedge, the Company continues to carry the derivative on the balance sheet at its fair value and no longer adjusts the hedged asset or liability for changes in fair value. The adjustment of the carrying amount of the hedged asset or liability is accounted for in the same manner as other components of the carrying amount of that asset or liability.

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 or fair values resulting from interest rate risk.

The Company designated the current interest rate swaps outstanding as fair value and cash flow hedges that qualify for “short-cut” treatment because the critical terms of the derivative and the hedged item are the same. Accordingly, the Company does not anticipate ineffectiveness arising from differences between the fair value of the hedged item and the fair value of the swap. The hedges are monitored on a quarterly basis to verify there have been no changes in the derivative or the hedged item that would invalidate this conclusion. The Company does not hold or issue derivative financial instruments for trading purposes.

The following table summarizes the Company’s fair value and cash flow hedges at December 31, 2004 (dollars in thousands):

Hedged Item	Hedging Instrument		Notional Amount		Fair Value			Remaining Term (Years)
Fixed Rate Loan		Receive Variable Swap	$	3,822	$	(10	)		8.00
Variable Rate Borrowing		Pay Fixed Swap	$	15,000	$	(108	)		4.33

Mortgage Servicing Rights

The Company originates and sells mortgage loans with servicing rights released. Income from the sale of the servicing rights is included in gain on sale of loans in the Consolidated Statements of Income.

Impairment of Long-Lived Assets

Long-lived depreciable assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Impairment exists when the expected undiscounted future cash flows of a long-lived asset are less than its carrying value. In that event, the Company recognizes a loss for the difference between the carrying amount and the estimated fair value of the asset based on a quoted market price, if applicable, or a discounted cash flow analysis. Impairment losses are recorded in other noninterest expense on the consolidated statements of income.

Off-Balance Sheet Credit Related Financial Instruments

In the ordinary course of business, the Company has entered into commitments to extend credit, including commitments under lines of credit and letters of credit. Such financial instruments are recorded when they are funded.

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Goodwill and Core Deposit Intangible Assets

The excess of the purchase price over the fair value of net assets of companies acquired is recorded as goodwill. Goodwill is not amortized, but is subject to annual impairment testing and interim testing if facts and circumstances suggest it may be impaired. If this review indicates there is impairment, the carrying amount of goodwill is reduced by the difference between the implied fair value and the carrying value of goodwill and the amount of impairment is recorded to operating expense.

The Company has performed the required impairment tests of goodwill as of October 31, 2003 and October 31, 2004. As a result of these tests, the Company has determined there is no impairment to its goodwill. The Company will perform the required impairment tests of goodwill annually to determine what the effect of these tests will be, if any, on the earnings and financial position of the Company.

Core deposit intangible assets have finite lives and are amortized on a straight-line basis to expense over the estimated useful lives, generally ten years. The Company reviews core deposit intangible assets for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not be recoverable, in which case an impairment charge would be recorded. The weighted average amortization period of the remaining core deposit intangible assets is nine years at December 31, 2004. Expected annual amortization expense is approximately $516,000 per year for the next five years. A summary of core deposit intangible assets is as follows:

	December 31,
	2004		2003
Gross carrying amount at beginning of year	$	5,158,565	$	-
Accumulated amortization		515,857		-
Net book value at end of year	$	4,642,708	$	5,158,565
Additions during the year		-	$	5,158,565
Amortization during the year	$	515,857	$	-

Bank Owned Life Insurance (BOLI)

The Company purchased bank owned life insurance on the lives of certain officers. The Company is the beneficiary of the insurance policies. Increases in the cash value of the policies and insurance proceeds received are recorded in non-interest income, and are not subject to income taxes, as long as the Company has the intent and ability to hold the policies until expiration.

Securities Sold Under Agreements to Repurchase

Securities sold under agreements to repurchase are generally accounted for as collateralized financing transactions and are recorded at the amounts at which the securities were sold plus accrued interest. Securities, generally U.S. government and Federal agency securities, pledged as collateral under these financing arrangements cannot be sold or repledged by the secured party. The fair value of collateral either received from or provided to a third party is continually monitored, and additional collateral is obtained or requested to be returned as appropriate.

Treasury Stock

Common stock purchased for treasury is recorded at cost. At the date of subsequent reissueance, the treasury stock account is reduced by the cost of such stock on a first-in, first-out basis.

Employee Stock Ownership Plan (ESOP)

Compensation expense under the ESOP is equal to the fair value of common shares released or committed to be released to participants in the ESOP in each respective period. Common stock purchased by the ESOP and not committed to be released to participants is included in the consolidated statements of financial condition at cost as a reduction of shareholders’ equity.

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Earnings Per Share

Basic earnings per share is computed by dividing net income by the weighted-average common shares outstanding less unearned ESOP shares. Diluted earnings per share are computed by dividing net income by the weighted-average common shares outstanding less unallocated ESOP shares plus the assumed conversion of all potentially dilutive securities using the treasury stock method.

The denominators for the earnings per share amounts are as follows:

	2004			2003			2002
Basic:
Weighted-average number of shares outstanding		6,939,369			6,992,321			7,685,460
Less: weighted-average number of unearned ESOP shares		(281,237	)		(302,523	)		(346,781	)
Denominator for basic earnings per share		6,658,132			6,689,798			7,338,679
Fully diluted:
Denominator for basic earnings per share		6,658,132			6,689,798			7,338,679
Add: assumed conversion of stock options using the treasury stock method		179,854			169,759			64,882
Denominator for fully diluted earnings per share		6,837,986			6,859,557			7,403,561

Stock-Based Compensation

The Company follows Accounting Principles Board (“APB”) 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 in accordance with the fair value method of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation.”

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 SFAS 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 2004, 2003, and 2002.

	Year ended December 31,
	2004			2003			2002
Expected life of options		6.20 years			6.75 years			6.75 years
Risk-free interest rate		3.4	%		3.6	%		1.6	%
Expected dividend yield		2.2	%		2.2	%		3.0	%
Expected volatility factor		17.56	%		26.90	%		15.77	%

Pursuant to SFAS No. 123 disclosure requirements, pro forma net income and earnings per share are presented below as if compensation cost for stock options was determined under the fair value method and amortized to expense over the options’ vesting period, which is generally three years. The Company’s pro forma information is as follows:

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	Year ended December 31,
(Thousands, except per share data)	2004			2003			2002
Net income, as reported	$	14,141		$	12,339		$	11,153
Pro forma compensation expense
in accordance with SFAS No. 123, net of tax		(435	)		(195	)		(241	)
Pro forma net income	$	13,706		$	12,144		$	10,912
Net income per common share, as reported:
Basic	$	2.12		$	1.84		$	1.52
Diluted	$	2.07		$	1.80		$	1.51
Pro forma net income per common share:
Basic	$	2.06		$	1.81		$	1.49
Diluted	$	2.00		$	1.77		$	1.47

Income Taxes

The Company accounts for income taxes using the liability method. Deferred income tax assets and liabilities are adjusted regularly to amounts estimated to be receivable or payable based on current tax law and the Company’s tax status. Valuation allowances are established for deferred tax assets for amounts for which it is more likely than not that they will be realized.

Business Combinations

Business combinations are accounted for under the purchase method of accounting. Under the purchase method, assets and liabilities of the business acquired are recorded at their estimated fair values as of the date of acquisition with any excess of the cost of the acquisition over the fair value of the net tangible and intangible assets acquired recorded as goodwill. Results of operations of the acquired businesses are included in the income statement from the date of acquisition.

New Accounting Pronouncements

On December 16, 2004, the Financial Accounting Standards Board (FASB) issued FASB Statement No. 123 (revised 2004), Share-Based Payment (“Statement 123 (R)”), which is a revision of FASB Statement No. 123, Accounting for Stock-Based Compensation. Statement 123 (R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees, and amends FASB Statement No. 95, Statement of Cash Flows. Generally, the approach in Statement 123 (R) is similar to the approach described in Statement 123. However, Statement 123 (R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Statement 123 (R) is effective for interim and annual reporting periods beginning after June 15, 2005. We expect to adopt Statement 123 (R) beginning on July 1, 2005.

Statement 123 (R) permits public companies to adopt its requirements using one of two methods: a “modified prospective” method which compensation cost is recognized beginning with the effective date based on the requirements of Statement 123 (R) for all share-based payments granted after the effective date and all awards granted to employees prior to the effective date of Statement 123 (R) that remain unvested on the effective date or a “modified retrospective” method which includes the requirements of the modified prospective method described above, but also permits entities to restate based on the amounts previously recognized under Statement 123 for purposes of pro forma disclosures either (a) all prior periods presented or (b) prior interim periods of the year of adoption. The Company plans to adopt Statement 123 (R) using the modified-prospective method.

As permitted by Statement 123, the Company currently accounts for share-based payments to employees using APB Opinion 25’s intrinsic value method and, as such, generally recognized no compensation cost for employee stock options. Accordingly, the adoption of Statement 123 (R)’s fair value method will have a significant impact on the Company’s results of operations, although it will have no impact on the overall financial position. The impact of adoption of Statement 123 (R) cannot be predicted at this time because it depends on the levels of share-based payments granted in the future. However, had we adopted Statement 123 (R) in prior periods, the impact of that standard would have approximated the impact of Statement 123 as described in the disclosure of pro forma net income and earnings per share in Note 1 to the consolidated financial statements.

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On March 9, 2004, the SEC issued Staff Accounting Bulleting No. 105, Application of Accounting Principles to Loan Commitments (“SAB 105”), to advise registrants of the staff’s view that fair value of the recorded loan commitments, that are required to follow derivative accounting under Statement of Financial Accounting Standards (“SFAS 133”), Accounting for Derivative Instruments and Hedging Activities, should not take into consideration the expected future cash flows related to the associated servicing of the future loan. The staff indicated its belief that incorporating expected future cash flows related to the associated servicing of the loan essentially results in the immediate recognition of a servicing asset, which is only appropriate once the servicing asset has been contractually separated from the underlying loan by sale or by securitization of the loan with servicing retained. Furthermore, no other internally developed intangible assets, such as customer relationship intangibles, should be recorded as part of the loan commitment derivative. The staff noted that recognition of such assets is only appropriate in the event of a third-party transaction, such as the purchase of a loan commitment either individually, in a portfolio, or in a business combination.

In addition, SAB 105 requires registrants to disclose their accounting policy for loan commitments pursuant to APB Opinion No. 22 including methods and assumptions used to estimate fair value and any associated hedging strategies, as required by SFAS 107, SFAS 133, and Item 305 of Regulation S-K, Qualitative and Quantitative Disclosures about Market Risk.

SAB 105 does not explicitly require banks that apply derivative accounting to their loan commitments to treat the loan commitments only as liabilities. Rather, the staff appears to be deferring to the FASB to address this aspect of the fair value issue in its loan commitment project.

The provisions of SAB 105 must be applied to loan commitments accounted for as derivatives that are entered into after March 31, 2004. The staff has stated that it will not object to the application of existing accounting practices to loan commitments accounted for as derivatives that are entered into on or before March 31,2004, with appropriate disclosures.

The issuance of SAB 105 has not had a material impact on the Company’s financial position or results of operations as the loan commitments are generally not accounted for as derivatives.

In March 2004, the Financial Accounting Standards Board (“FASB”) ratified the consensus reached by the Emerging Issues Task Force in Issue 03-1, “The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments” (“EITF 03-1”). EITF 03-1 provides guidance for determining when an investment is considered impaired, whether that impairment is other-than-temporary, and measurement of an impairment loss. An investment is considered impaired if the fair value of the investment is less than its cost. Generally, an impairment is considered other-than-temporary unless: (a) the investor has the ability and intent to hold an investment for a reasonable period of time sufficient for a forecasted recovery of fair value up to (or beyond) the cost of the investment; and (b) evidence indicating that the cost of the investment is recoverable within a reasonable period of time outweighs evidence to the contrary. If impairment is determined to be other-than-temporary, then an impairment loss is recognized equal to the difference between the investment’s cost and its fair value. The guidance also includes accounting considerations subsequent to recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments.

With the release of EITF 03-1-1 on September 30, 2004, the FASB staff delayed the effective date of the other-than-temporary impairment evaluation guidance of EITF 03-1 (which was initially to be applied prospectively to all current and future investments in interim and annual reporting periods beginning after June 15, 2004). EITF 03-1-1 delays the effective date of the measurement and recognition guidance until certain implementation issues are addressed and a final FASB Staff Position (“FSP”) providing implementation guidance is issued. The disclosure requirements of the EITF 03-1 remain in effect. The amount of any other-than-temporary impairment that may need to be recognized in the future will be dependent on market conditions, the occurrence of certain events or changes in circumstances relative to an investee, and the Company’s intent and ability to hold the impaired investments at the time of the valuation.

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2. Subsequent Event

On January 13, 2005, the Company acquired an 80% interest in M2 Lease Funds, LLC (“M2”) for $3.6 million in cash. M2 has offices in Brookfield and Madison, Wisconsin and is engaged in the business of leasing, primarily machinery and equipment, to commercial and industrial businesses accounted for as direct financing lease contracts.

3. Acquisitions

On December 6, 2003, the Company acquired Hawthorn Corporation (“Hawthorn”) and its wholly-owned subsidiary Hawthorn Bank, Mundelein, Illinois. The Company purchased all of the outstanding common stock of Hawthorn for $6.4 million in cash. This “in-market” acquisition increased the Company’s share of the Illinois banking market. Hawthorn Bank has been merged into State Financial Bank, N.A.

On December 6, 2003, the Company acquired Lakes Region Bancorp, Inc. (“Lakes Region”) and its wholly-owned subsidiary Anchor Bank, Grayslake, Illinois. The Company purchased all of the outstanding common stock of Lakes Region for $13.4 million in cash. This “in-market” acquisition increased the Company’s share of the Illinois banking market. Anchor Bank has been merged into State Financial Bank, N.A.

Application of purchase accounting requires the inclusion of Hawthorn’s and Lakes Region’s operating results in the consolidated statements of income from the date of acquisition. Accordingly, Hawthorn’s and Lakes Region’s operating results are included in the Company’s consolidated statement of income for twelve months ended December 31, 2004 and the period December 6, 2003 through December 31, 2003 are included in the Company’s consolidated statement of income for twelve months ended December 31, 2003. Hawthorn’s and Lakes Region’s financial condition is included in the Company’s consolidated balance sheet dated December 31, 2004 and December 31, 2003.

The following table summarizes the estimated fair value of the assets acquired and liabilities assumed at the date of acquisition (dollars in thousands):

	Hawthorn		Lakes Region		Total
Cash and due from banks	$	3,191	$	1,291	$	4,482
Investments		14,544		8,482		23,026
Net loans		17,337		89,044		106,381
Other assets		774		170		944
Core deposit intangible		1,381		3,777		5,158
Goodwill		2,844		7,317		10,161
Total assets acquired		40,071		110,081		150,152
Deposits		33,241		86,984		120,225
Long-term debt		300		4,093		4,393
Other liabilities		134		5,608		5,742
Total liabilities assumed		33,675		96,685		130,360
Net assets acquired	$	6,396	$	13,396	$	19,792

On a pro forma basis, total income, net income, basic and fully diluted earnings per share for the twelve months ended December 31, 2003 and December 31, 2002, after giving effect to the acquisition of Hawthorn and Lakes Region as if it had occurred on January 1, 2002 are as follows (dollars in thousands):

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	Year ended December 31,
	2003		2002
Interest income	$	70,613	$	75,865
Interest expense		21,961		26,691
Net interest income		48,652		49,174
Provision for loan losses		2,706		2,568
Other income		15,218		12,877
Other expense		44,517		43,634
Net income before tax		16,647		15,849
Income taxes		5,350		4,841
Net income		11,297		11,008
Basic earnings per share	$	1.69	$	1.50
Diluted earnings per share	$	1.65	$	1.49

4. Restrictions on Cash and Due From Bank Accounts

State Financial Bank, N.A. (Bank) is required to maintain reserve balances with the Federal Reserve Bank. The average amount of reserve balances for the years ended December 31, 2004 and 2003 was approximately $17.7 million and $21.8 million, respectively.

5. Investment Securities

The amortized cost and estimated fair values of investment securities follow:

	Amortized Cost		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
Held-to-Maturity
December 31, 2004:
Obligations of state and political subdivisions	$	274,947	$	4,564	$	-		$	279,511
December 31, 2003:
Obligations of state and political subdivisions	$	804,662	$	23,344	$	-		$	828,006
Other securities		160,000		-		-			160,000
	$	964,662	$	23,344	$	-		$	988,006
Available-for-Sale
December 31, 2004:
U.S. Treasury securities and obligations of U.S. government agencies	$	55,241,465	$	37,994	$	(6,426	)	$	55,273,033
Obligations of state and political subdivisions		53,758,492		1,821,338		(138,940	)		55,440,890
Mortgage-related securities		187,455,845		1,063,039		(1,769,495	)		186,749,389
Other securities		88,910,626		952,730		(248,802	)		89,614,554
	$	385,366,428	$	3,875,101	$	(2,163,663	)	$	387,077,866
December 31, 2003:
U.S. Treasury securities and obligations of U.S. government agencies	$	163,958,912	$	315,478	$	(396,132	)	$	163,878,258
Obligations of state and political subdivisions		53,970,537		2,447,034		(6,408	)		56,411,163
Mortgage-related securities		78,194,762		2,006,153		(164,310	)		80,036,605
Other securities		95,234,119		1,801,373		(300,410	)		96,735,082
	$	391,358,330	$	6,570,038	$	(867,260	)	$	397,061,108

The amortized cost and estimated fair value of investment securities at December 31, 2004, by contractual maturity, are as follows:

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	Held-to-Maturity				Available-for-Sale
	Amortized Cost		Estimated Fair Value		Amortized Cost		Estimated Fair Value
Due in one year or less	$	-	$	-	$	51,914,076	$	52,333,386
Due after one year through five years		224,947		229,351		136,538,736		137,317,909
Due after five years through ten years		50,000		50,160		97,467,296		97,906,014
Due after ten years		-		-		99,446,320		99,520,557
	$	274,947	$	279,511	$	385,366,428	$	387,077,866

Expected maturities may differ from contractual maturities because borrowers or issuers may have the right to call or prepay obligations with or without call or prepayment penalties. The Company’s investments in mortgage-related securities have been allocated to the various maturity categories based on expected maturities using current prepayment estimates.

Proceeds from sales of investments in available-for-sale securities were approximately $429.0 million, $375.2 million, and $84.7 million during 2004, 2003, and 2002 respectively. Gross gains of approximately $1.4 million, $0.7 million and $1.2 million were realized on the 2004, 2003, and 2002 sales, respectively. Gross losses of $0.4 million, $0.1 million, and $0.7 million were recognized on investment security sales in 2004, in 2003, and 2002, respectively.

At December 31, 2004, 2003, and 2002 investment securities with a carrying value of approximately $262.3 million, $243.0 million, and $165.2 million respectively, were pledged as collateral to secure repurchase agreements, public deposits and for other purposes.

A schedule of the changes in unrealized gains (losses) on available-for-sale securities is as follows:

	2004
	Before Tax Amount			Tax (Benefit) Expense			Net-of- Tax Amount
Unrealized gains on available-for-sale securities	$	(2,926,708	)	$	(930,916	)	$	(1,995,792	)
Less: reclassification adjustment for gains realized in net income		(1,064,631	)		(417,442	)		(647,189	)
Changes in unrealized gains	$	(3,991,339	)	$	(1,348,358	)	$	(2,642,981	)

	2003
	Before Tax Amount			Tax (Benefit) Expense			Net-of- Tax Amount
Unrealized gains on available-for-sale securities	$	(3,608,032	)	$	(1,197,296	)	$	(2,410,736	)
Less: reclassification adjustment for gains realized in net income		(565,017	)		(221,543	)		(343,474	)
Changes in unrealized gains	$	(4,173,049	)	$	(1,418,839	)	$	(2,754,210	)

	2002
	Before Tax Amount			Tax (Benefit) Expense			Net-of- Tax Amount
Unrealized gains on available-for-sale securities	$	6,896,106		$	2,371,203		$	4,524,903
Less: reclassification adjustment for gains realized in net income		(509,180	)		(199,649	)		(309,531	)
Changes in unrealized gains	$	6,386,926		$	2,171,554		$	4,215,372

The following table shows the Company’s investments’ gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position at December 31, 2004. The securities have an unrealized loss, relative to book carrying value due to a combination of factors, including interest rates, structure of the security, historical cost, and length to maturity. In no case is the loss position related to credit quality or considered to be other than temporary. The Company has both the intent and ability to hold these securities for a period of time necessary to recover their amortized cost (dollars in thousands). Management evaluates securities for other-than-temporary impairment at least on a quarterly basis, and more frequently when economic or market conditions warrant such evaluation.

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	Less than 12 months				12 months or more				Total
Description of Securities	Fair Value		Unrealized Loss		Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
U.S. Treasury securities and obligations of U.S. government agencies	$	1,739	$	6	$	-	$	-	$	1,739	$	6
Obligations of state and political subdivisions		5,511		115		3,559		24		9,070		139
Mortgage-related securities		138,891		1,766		429		3		139,320		1,769
Other securities		200		2		14,125		247		14,325		249
Total temporarily impaired securities	$	146,341	$	1,889	$	18,113	$	274	$	164,454	$	2,163

6. Loans

A summary of loans outstanding at December 31, 2004 and 2003 is as follows:

	2004		2003
Commercial	$	161,788,415	$	165,637,395
Commercial real estate		587,611,665		478,686,923
Real estate mortgage		160,200,948		183,415,926
Consumer		24,632,936		41,586,583
Other		4,848,330		7,187,327
Total loans		939,082,294		876,514,154
Less:
Allowance for loan losses		12,347,154		10,706,350
Loans held for sale		3,129,775		1,900,438
Unearned income		936,845		583,681
Loans, net	$	922,668,520	$	863,323,685

7. Allowance for Loan Losses

Changes in the allowance for loan losses for each of the three years in the period ended December 31, 2004 are as follows:

	2004			2003			2002
Balance at beginning of year	$	10,706,350		$	8,805,000		$	7,899,922
Allowance from acquired banks		-			919,427			-
Provision for loan losses		2,381,000			2,625,000			2,400,000
Charge-offs		(1,233,312	)		(1,860,279	)		(1,997,625	)
Recoveries		493,116			217,202			502,703
Net charge-offs		(740,196	)		(1,643,077	)		(1,494,922	)
Balance at end of year	$	12,347,154		$	10,706,350		$	8,805,000

Management defines impaired loans as all commercial and commercial real estate loans on non-accrual. Large groups of homogeneous loans, including mortgage and consumer, are collectively evaluated for impairment, and therefore are not included in the impaired loan disclosure below. The average investment in impaired loans was $6.9 million, $8.3 million, and $7.0 million for the years ended December 31, 2004, 2003, and 2002, respectively. The following is a summary of information pertaining to impaired and non-accrual loans.

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	December 31,
	2004		2003
Impaired loans without a valuation allowance	$	-	$	5,451,424
Impaired loans with a valuation allowance		5,174,627		1,475,482
Total impaired loans	$	5,174,627	$	6,926,906
Valuation allowance related to impaired loans	$	881,900	$	512,500
Total non-accrual loans		6,767,000		10,332,000

8. Loans to Related Parties and Related Party Agreements

Loans to Related Parties

In the ordinary course of business the Bank extends credit to directors, principal shareholders and executive officers of the Bank, the Company and its subsidiaries, and to the related interests of the aforementioned persons. “Related interest,” means a company, or political or campaign committee, that is directly or indirectly controlled by a director, principal shareholder or executive officer. All of these individuals and related interests, collectively, are called insiders.

Credit extended to insiders must be on substantially the same terms, including interest rate, collateral and repayment, as those prevailing for comparable transactions with unrelated persons. Insider credit may not involve more than the normal risk associated with lending money.

The Bank may extend aggregated credit to any one insider up to the Bank’s legal lending limit. The Bank may not extend credit to an insider unless that credit, when aggregated with extensions of credit to all Bank insiders, does not exceed the Bank’s unimpaired capital and unimpaired surplus.

The combined balance of loans outstanding and commitments to lend to insiders as of December 31, 2004 and 2003 was $34.3 million and $27.0 million, respectively. The increase of $7.3 million for December 31, 2004 compared to December 31, 2003 was due to combined new advances of $10.5 million and combined repayments of $3.2 million.

Executive Employment and Consulting Agreement

The Company has an Executive Employment and Consulting Agreement with Jerome J. Holz, Chairman Emeritus of the Board of the Company. Under the agreement, Mr. Holz will serve as a consultant to the Company for life beginning January 1, 2001, and the Company will pay Mr. Holz an annual consulting payment of $225,000 (subject to downward adjustment) and provide supplemental Medicare insurance coverage and prescription medication coverage for each year during such consulting period. The agreement also provides that in the event of a change in control of the Company, Mr. Holz shall receive one lump sum payment equal to the then present value of the remaining consulting compensation for the remainder of Mr. Holz's then actuarial life expectancy. The agreement uses the same definition of a “change of control” as the transition agreements described under “Compensation of Executive Officers - Agreements with Named Executive Officers.”

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9. Premises and Equipment

A summary of premises and equipment at December 31, 2004 and 2003, is as follows:

	Estimated Useful Lives		2004			2003
Buildings		39 years	$	32,942,635		$	30,525,250
Furniture and equipment		5 years		17,092,694			17,757,305
Leasehold improvements		5-15 years		4,711,064			3,602,843
				54,746,393			51,885,398
Less accumulated depreciation				(28,322,629	)		(25,509,239	)
Land				6,517,834			6,542,694
			$	32,941,598		$	32,918,853

The Company rents space for some of its banking facilities under operating leases. Certain leases include renewal options and provide for the payment of building operating expenses and additional rentals based on adjustments due to inflation. Rent expense under operating leases totaled approximately $627,000, $749,000, and $815,000 in 2004, 2003, and 2002, respectively.

Future minimum payments for the years indicated under noncancellable operating leases with initial terms of one year or more consisted of the following at December 31, 2004:

2005	$	492,000
2006		350,000
2007		282,000
2008		178,000
2009		185,000
Thereafter		47,000
	$	1,534,000

Minimum rentals for 2005-2007 include $110,000 each year for space used by the Company, which is leased from a partnership, two partners of which are also directors of the Company.

10. Deposits

The distribution of deposits at December 31 is as follows (dollars in thousands):

	December 31,
	2004		2003
Demand	$	179,237	$	180,873
Savings		240,990		253,202
Money market		288,291		233,003
Time deposits in excess of $100,000		163,858		126,127
Other time deposits		211,491		235,908
Total deposits	$	1,083,867	$	1,029,113

Aggregate annual maturities of all time deposits at December 31, 2004 are as follows (dollars in thousands):

2005	$	253,256
2006		74,926
2007		21,736
2008		15,901
2009 and thereafter		9,530
	$	375,349

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11. Federal Home Loan Bank advances and other Short-Term Borrowings

Federal Home Loan Bank and other Short-term borrowings at December 31, 2004 and 2003 are as follows:

	2004					2003
	Balance		Weighted Average Rate			Balance		Weighted Average Rate
Maturities of FHLB advances:
2004		-		-		$	12,800,000		4.43	%
2005	$	31,700,000		4.53	%		26,900,000		4.89
2006		2,000,000		4.68			2,000,000		4.68
2007		6,100,000		3.80			6,100,000		3.80
2009		7,500,000		4.16			-		-
2011		20,000,000		4.55			20,000,000		4.55
Total FHLB advances	$	67,300,000		4.43		$	67,800,000		4.60
Securities sold under repurchase agreements	$	143,723,944		2.40		$	175,592,887		1.65
Note payable		15,790,000		3.77			16,200,000		2.53
Total	$	226,813,944		3.10	%	$	259,592,887		2.48	%

The Company has a collateral pledge agreement with the FHLB whereby it agrees to pledge listed performing one-to-four family residential loans and multi-family loans with principal balances aggregating 143% of the outstanding FHLB advances. All stock in the Federal Home Loan Bank of Chicago, as well as certain securities, are also pledged as additional collateral for advances. The Company pledged as collateral loans of $94.9 million and securities of $14.7 million and loans of $89.4 million and securities of $14.6 million at December 31, 2004 and 2003, respectively.

The Company has a $40 million line of credit available through May 31, 2005, at 90-day LIBOR plus 1.35% with a financial institution. Outstanding advances under this line were approximately $15.8 million and $16.2 million on December 31, 2004 and December 31, 2003, respectively.

Securities sold under agreements to repurchase are entered into with customers and nationally recognized securities dealers. Securities sold under agreements to repurchase can have varying maturities. In exchange for the loan, the Company pledges designated collateral, which consists generally of investment securities, to the customer or securities dealer.

12. Long-term Debt

Long-term debt at December 31, 2004 and 2003 is summarized as follows:

	2004					2003
	Balance		Weighted Average Rate			Balance		Weighted Average Rate
Junior subordinated debentures	$	30,000,000		5.35	%	$	15,000,000		4.63	%
Subordinated debt		14,000,000		5.16			14,000,000		4.02
Total	$	44,000,000		5.29	%	$	29,000,000		4.34	%

The Company, on December 5, 2003, incurred subordinated debt in the amount of $14 million to partially fund the acquisitions of Lakes Region Bancorp and Hawthorn Corporation. The note is junior and subordinate to the Company’s senior indebtedness. It bears interest at 30-day LIBOR plus 2.85% and is due in full on December 5, 2010. For regulatory capital purposes this indebtedness is included in Tier 2 capital.

In the first quarter of 2004 and the fourth quarter of 2002, the Company formed SFSC Capital Trust II and I, respectively, wholly-owned subsidiaries, which each issued and sold $15 million of junior subordinated debentures owed to unconsolidated subsidiary trust (“junior debentures”). The securities are reported on the consolidated statement of financial condition as trust preferred debt and qualify as tier 1 capital under Federal Reserve Board guidelines. Interest expense on the junior debentures is also deductible for income tax purposes.

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The junior debentures accrue and pay distributions semi-annually at a variable dividend rate adjusted quarterly based on the 90-day LIBOR plus 2.80% and 3.45%, which was 4.96% and 5.74%, at December 31, 2004, for SFSC Capital Trust II and I, respectively. The junior debentures have a stated final maturity of April 23, 2034 and November 7, 2032, respectively, and are redeemable at the Company’s option, at par, on January 23, 2009 and November 7, 2007, respectively, and quarterly thereafter.

13. Employee Benefit Plans

In 2004, the Company terminated its noncontributory money purchase defined contribution pension plan. The assets of the pension plan were transferred to the State Financial Services Corporation 401(k) Savings Plan (“401(k) savings plan”) during 2004. Company contributions amounted to $0 in 2004, $539,000 in 2003, and $464,000 in 2002.

The Company sponsors a 401(k) savings plan which covers all full-time employees who have completed certain minimum age and service requirements. The Company matches 100% of an employee’s first 3% of salary contributed and 50% of an employee’s next 3% of salary contributed. Company contributions are subject to discretionary review annually. The Company contributed $196,000 in 2004, but did not make any contributions in 2003 or 2002.

The Company has an Employee Stock Ownership Plan (ESOP) for the benefit of employees meeting certain minimum age and service requirements. Company contributions to the ESOP trust, which was established to fund the plan, are made on a discretionary basis and are expensed to operations in the year committed. The number of shares released to participants is determined based on the annual contribution amount plus any dividends paid on unearned shares divided by the market price of the stock at the contribution date.

The aggregate activity in the number of unearned ESOP shares, considering the allocation of those shares committed to be released as of December 31, are as follows:

	2004		2003		2002
Balance at beginning of year		281,288		297,507		322,602
Shares committed to be released		18,722		16,219		25,095
Balance at end of year		262,516		281,288		297,507

At December 31, 2004, and 2003, the fair value of unearned ESOP shares was $7.9 million and $7.5 million, respectively. Total ESOP expense recognized for the years ended December 31, 2004, 2003, and 2002, was $191,000, $373,000, and $425,000, respectively.

14. Income Taxes

The Company and its subsidiaries file a consolidated federal income tax return. The subsidiaries provide for income taxes on a separate-return basis and remit to the Company amounts determined to be currently payable or realize the benefit they would be entitled to on such a basis. The Company and subsidiaries file separate state income tax returns for Wisconsin and a combined state return for Illinois.

Significant components of the provision for income taxes are as follows:

	2004			2003			2002
Current tax provision:
Federal	$	5,205,992		$	5,095,695		$	4,663,893
State		1,074,930			756,755			638,000
		6,280,922			5,852,450			5,301,893
Deferred tax benefit:
Federal		(98,000	)		(578,000	)		(425,000	)
State		(14,000	)		(34,000	)		(83,000	)
		(112,000	)		(612,000	)		(508,000	)
	$	6,168,922		$	5,240,450		$	4,793,893

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Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities as of December 31, 2004 and 2003 are as follows:

	2004			2003
Deferred tax assets:
Federal net operating loss carryforwards	$	905,179		$	73,088
State net operating loss carryforwards		1,058,879			994,560
Allowance for loan loss		4,940,683			4,167,971
Accumulated depreciation		391,339			331,946
Other		813,532			472,897
Total deferred tax assets		8,109,612			6,040,462
Valuation allowance for deferred tax assets		(1,066,608	)		(996,506	)
Net deferred tax assets		7,043,004			5,043,956
Deferred tax liabilities:
Unrealized gain on available-for-sale securities		622,326			1,938,938
FHLB dividends		1,422,944			1,000,460
Purchase accounting adjustments		2,130,264			3,197,870
Other		446,875			206,380
Total deferred tax liabilities		4,622,409			6,343,648
Net deferred tax asset (liability)	$	2,420,595		$	(1,299,692	)

Income tax expense differs from that computed at the federal statutory corporate tax rate as follows:

	2004			2003			2002
Income before income taxes	$	20,309,678		$	17,579,204		$	15,946,716
Income tax expense at the federal statutory rate	$	7,108,387		$	5,976,929		$	5,421,883
Increase (decrease) resulting from:
Tax-exempt interest income		(774,752	)		(780,592	)		(916,000	)
State income taxes, net of federal income tax benefit		689,605			478,643			366,000
Bank owned life insurance		(311,592	)		(456,921	)		(102,000	)
Other		(542,726	)		22,391			24,010
Income taxes	$	6,168,922		$	5,240,450		$	4,793,893

At December 31, 2004, the Company and its consolidated subsidiaries had federal net operating loss carryforwards of approximately $2.6 million and state net operating loss carryforwards of approximately $20.6 million. The federal net operating loss carryforwards are subject to an annual limitation of approximately $0.3 million and are available to reduce future tax expense through the year ending December 31, 2020. The remaining state net operating loss carryforwards expire in years 2005 through 2019.

The Company has provided a full valuation allowance against the tax benefit of its state loss carryforwards as management believes it more likely than not that these state loss carryforwards will not be utilized before the end of their expiration period. Accordingly, the Company’s consolidated financial statements will not be impacted if these state loss carryforwards expire.

15. Restrictions on Subsidiary Dividends, Loans or Advances

Dividends paid by the Company are derived, mainly, from dividends provided by the Bank. Certain restrictions exist limiting the ability of the Bank to transfer funds to the Company in the form of cash dividends, loans or advances. The Bank’s primary regulator must approve the payment of dividends in excess of certain levels of the Bank’s retained earnings. As of December 31, 2004, the Bank had net retained earnings of approximately $4.8 million, available for distribution to the Company without prior regulatory approval.

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Federal Reserve Bank regulations place limits on loans to affiliates, including the Company, unless such loans are collateralized by specific obligations. The aggregate limit for any one affiliate is 10% of the Bank’s capital stock and surplus. In the case of all affiliates, the aggregate amount to all affiliates may not exceed 20% of the capital stock and surplus of the Bank.

16. Shareholders’ Equity - Preferred Share Purchase Rights

On July 27, 1999, the Board of Directors of the Company declared a dividend of one preferred share purchase right (a Right) for each outstanding share of common stock, $.10 par value, of the Company. Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Class A Preferred Stock, $1.00 par value (the Preferred Shares), of the Company at a price of $70 per one one-thousandth of a Preferred Share, subject to adjustment. The Rights are not exercisable until the earlier to occur of (i) a public announcement that a person or group of affiliated or associated persons has acquired beneficial ownership of 15% or more of the outstanding Common Shares or (ii) ten business days following the commencement of, or announcement of an intention to make, a tender offer or exchange offer the consummation of which would result in the beneficial ownership by a person or group of 15% or more of such outstanding Common Shares. The Rights will expire on July 27, 2009.

Each Preferred Share will be entitled to a minimum preferential quarterly dividend payment of $10.00 per share but will be entitled to an aggregate dividend of 1,000 times the dividend declared per Common Share. In the event of liquidation, the holders of the Preferred Shares will be entitled to a minimum preferential liquidation payment of $1,000 per share but will be entitled to an aggregate payment of 1,000 times the payment made per Common Share. Each Preferred Share will have 1,000 votes, voting together with the Common Shares. Finally, in the event of any merger, consolidation or other transaction in which Common Shares are exchanged, each Preferred Share will be entitled to receive 1,000 times the amount received per Common Share. These rights are protected by customary antidilution provisions. Because of the nature of the Preferred Shares’ dividend, voting and liquidation rights, the value of the one one-thousandth interest in a Preferred Share purchasable upon exercise of each Right should approximate the value of one Common Share.

17. Financial Instruments With Off-Balance-Sheet Risk

Loan commitments and standby letters of credit are credit facilities the Bank offers to its customers. These facilities commit the Bank to lend money to, or make payments on behalf of its customers if certain specified events occur at a future date. Both facilities are subject to credit risk. Management recognizes this risk and requires that all requests be underwritten following the Bank’s standard credit underwriting guidelines.

The following financial instruments were outstanding whose contract amount represents credit risk at December 31, 2004 and 2003:

	2004		2003
	(in millions)
Commitments to extend credit	$	265.1	$	245.7
Standby letters of credit		18.2		13.6

18. Commitments and Contingent Liabilities

The Company is involved in various legal actions arising in the normal course of business. Management, after taking into consideration legal counsel's evaluation of such actions, is of the opinion that the outcome of these matters will not have a material adverse effect on the financial position or operations of the Company.

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19. Regulatory Capital

National banks and bank holding companies are subject to various capital guidelines as set forth by regulation. Under the capital adequacy guidelines and the regulatory framework for prompt corrective action, banks and holding companies must meet specific standards that involve quantitative measures of the bank’s assets, liabilities and certain off-balance sheet items as calculated under accepted accounting practices. These assets and liabilities of the Company and Bank are also subject to qualitative assessment by regulators.

Minimum capital standards are established by regulation, however, the Office of the Comptroller of the Currency (OCC) is authorized to establish minimum capital requirements for a bank, at its discretion, that it deems appropriate in light of the particular circumstances for a given bank. In either case, the OCC will implement mandatory corrective action if capital ratios fall below the minimum standards.

Quantitative measures require the Bank and Company to maintain minimum amounts and ratios of total and Tier I capital to risk-weighted assets, and Tier I capital to average assets (as defined in the regulations and set forth in the table below). Management believes that, as of December 31, 2004 and 2003, the Bank and the Company met or exceeded all regulatory capital adequacy requirements.

In 2004 the Bank’s regulators provided a notification that categorized the Bank and Company as “well capitalized” under the regulatory framework. The categories are set forth in the following table. There have been no changes in the financial condition of the Bank or Company, since receiving the notification that would cause a change in the category of either entity.

The Bank’s and Company’s “minimum,” “well capitalized” and actual capital amounts and ratios are presented in the table (dollars in thousands):

	Actual					Well Capitalized For Capital Adequacy Purposes					Minimum For Capital Adequacy Purposes
	Amount		Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2004:
Total Capital (to Risk Weighted Assets):
Consolidated	$	130,178		11.6	%	$	111,947		10	%		89,557		8	%
Bank		128,980		11.7			110,550		10			88,440		8
Tier I Capital (to Risk Weighted Assets):
Consolidated		103,830		9.3			67,168		6			44,779		4
Bank		116,633		10.6			66,330		6			44,220		4
Tier I Capital (to Average Assets):
Consolidated		103,830		7.2			72,557		5			58,045		4
Bank		116,633		8.1			71,676		5			57,341		4
As of December 31, 2003:
Total Capital (to Risk Weighted Assets):
Consolidated	$	105,243		10.1	%	$	104,715		10	%		83,772		8	%
Bank		119,611		11.6			103,378		10			82,702		8
Tier I Capital (to Risk Weighted Assets):
Consolidated		80,537		7.7			62,829		6			41,886		4
Bank		108,905		10.5			62,027		6			41,351		4
Tier I Capital (to Average Assets):
Consolidated		80,537		6.1			65,746		5			52,597		4
Bank		108,905		8.4			64,841		5			51,873		4

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20. Stock Plans and Options

The Company’s Stock Incentive Plan allows for grants of restricted stock, incentive stock options and nonqualified stock options to officers, directors, and key consultants of the Company. Options are exercisable at a price equal to the fair market value of the shares at the time of the grant. Options must be exercised within ten years after grant.

A summary of all restricted stock and stock option transactions follows:

	Restricted Stock Outstanding		Average Restricted Stock Vesting Price		Stock Options Outstanding		Weighted Average Exercise Price		Total Number of Shares
Balance at January 1, 2002		1,920		-		457,340	$	13.78		459,260
Granted		-		-		170,430		13.00		170,430
Vested restricted stock		630	$	17.46		-		-		630
Exercised		-		-		13,247		7.67		13,247
Canceled		-		-		7,876		12.30		7,876
Balance at December 31, 2002		1,290		-		606,647	$	13.71		607,937
Granted		-		-		199,580		18.69		199,580
Vested restricted stock		690	$	17.84		-		-		690
Exercised		-		-		121,168		12.73		121,168
Canceled		-		-		92,685		16.57		92,685
Balance at December 31, 2003		600		-		592,374	$	15.14		592,974
Granted		-		-		215,154		27.00		215,154
Exercised		-		-		95,812		13.05		95,812
Canceled		-		-		92,345		16.17		92,345
Balance at December 31, 2004		600	$	-		619,371	$	19.36		619,971

The following table summarizes information about the Company’s stock options outstanding at December 31, 2004:

	Stock Options Outstanding		Weighted Average Exercise Price		Remaining Life (years)		Options Exercisable
Range of Exercise Prices:
$5.63 - $10.13		68,962	$	9.87		3.2		68,962
$13.00 - $16.21		171,049	$	14.35		3.0		171,049
$18.69 - $21.88		166,956	$	18.69		8.1		40,244
$27.00		212,404	$	27.00		9.1		-
		619,371	$	19.36		6.5		280,255

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21. Fair Values of Financial Instruments

Fair value information about financial instruments, whether or not recognized in the consolidated statements of financial condition, for which it is practicable to estimate that value follows. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows.

In that regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. Certain financial instruments and all nonfinancial instruments are excluded from the following disclosures. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

The Company does not routinely measure the market value of financial instruments, because such measurements represent point-in-time estimates of value. It is not the intent of the Company to liquidate and therefore realize the difference between market value and carrying value and, even if it were, there is no assurance that the estimated market values could be realized. Thus, the information presented is not particularly relevant to predicting the Company’s future earnings or cash flows.

The following methods and assumptions were used by the Company to estimate its fair value disclosures for financial instruments:

Cash and Cash Equivalents.The carrying amounts reported in the consolidated statements of financial condition for cash and cash equivalents approximate those assets’ fair values.

Investment Securities. Fair values for investment securities are based on quoted market prices, where available.

Loans. For variable-rate mortgage loans that reprice frequently and with no significant change in credit risk, fair values are based on carrying values. The fair values for commercial, commercial real estate and fixed-rate mortgage, consumer and other loans are estimated using discounted cash flow analyses, using interest rates currently being offered for loans with similar terms to borrowers of similar credit quality.

Deposits. The fair values disclosed for interest and noninterest checking accounts, savings accounts, and money market accounts are, by definition, equal to the amount payable on demand at the reporting date (i.e., their carrying amounts). The fair values for fixed-rate certificates of deposit are estimated using a discounted cash flow calculation that applies interest rates currently being offered on certificates to a schedule of aggregated expected monthly maturities of the outstanding certificates of deposit.

Securities Sold Under Agreement to Repurchase and Federal Funds Purchased. The carrying amounts of securities sold under agreement to repurchase and federal funds purchased approximate their fair value.

Accrued Interest Receivable and Payable. The carrying amounts reported in the consolidated statements of financial condition for accrued interest receivable and payable approximate their fair values.

Note Payable. The carrying values of the Company’s note payable approximate fair value.

Off-Balance-Sheet Instruments. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and generally require payment of a fee. As a consequence, the estimated fair value of the commitments is approximately equal to the related fee received, which is not material.

Interest Rate Swap Agreements. The fair value of interest rate swap agreements are obtained from dealer quotes. These values represent the estimated amount the Company would receive or pay to terminate the agreements, taking into account current interest rates and, when appropriate, the current creditworthiness of the counterparties.

30

The carrying amounts and fair values of the Company’s financial instruments consist of the following at December 31, 2004 and 2003:

	2004						2003
	Carrying Amount			Fair Value			Carrying Amount		Fair Value
Financial Assets:
Cash and due from banks	$	34,864,395		$	34,864,395		$	55,824,050	$	55,824,050
Interest-bearing bank balances		5,170,383			5,170,383			4,399,723		4,399,723
Federal funds sold		14,968,937			14,968,937			18,144,353		18,144,353
Investment securities		387,352,813			387,357,377			398,025,770		398,049,114
Loans		922,668,520			918,292,519			863,323,685		867,995,191
Loans held for sale		3,129,775			3,129,775			1,900,438		1,900,438
Accrued interest receivable		5,690,553			5,690,553			5,246,660		5,246,660
Financial Liabilities:
Deposits		1,083,866,755			1,084,917,165			1,029,113,124		1,033,737,203
Securities sold under agreement to repurchase		143,723,944			143,723,944			175,592,887		175,592,887
Federal Home Loan Bank advances		67,300,000			66,654,785			67,800,000		67,800,000
Note payable		15,790,000			15,790,000			16,200,000		16,200,000
Subordinated debt		14,000,000			14,000,000			14,000,000		14,000,000
Junior debentures		30,000,000			30,000,000			15,000,000		15,000,000
Accrued interest payable		2,182,398			2,182,398			1,957,473		1,957,473
Derivative financial instrument: Interest rate swap agreements		(118,263	)		(118,263	)		18,441		18,411

31

22. State Financial Services Corporation (Parent Company Only) Financial Information

Financial statements of the Parent Company Only are as follows:

STATEMENTS OF CONDITION

	December 31
	2004			2003
Assets
Cash and cash equivalents	$	3,368,471		$	1,932,080
Investments:
Available-for-sale		10,193,702			11,778,119
Held-to-maturity		-			60,000
Investment in subsidiaries		157,265,799			155,354,812
Income taxes receivable		2,709,744			1,842,709
Fixed assets		309,290			129,066
Other assets		2,975,169			1,817,991
Total assets	$	176,822,175		$	172,914,777
Liabilities
Accrued expenses and other liabilities	$	2,149,849		$	15,520,257
Note payable		15,790,000			16,200,000
Subordinated debt		14,000,000			14,000,000
Junior subordinated debentures owed to unconsolidated subsidiary trust		30,000,000			15,000,000
Total liabilities		61,939,849			60,720,257
Shareholders’ equity
Common stock		962,330			952,749
Additional paid-in capital		86,885,929			84,739,420
Retained earnings		73,313,612			63,152,966
Accumulated other comprehensive income		1,054,948			3,763,835
Unearned shares held by ESOP		(3,981,303	)		(3,981,360	)
Treasury stock		(43,353,190	)		(36,433,090	)
Total shareholders’ equity		114,882,326			112,194,520
Total liabilities and shareholders’ equity	$	176,822,175		$	172,914,777

32

22. State Financial Services Corporation (Parent Company Only) Financial Information (continued)

STATEMENTS OF INCOME

	Year ended December 31
	2004		2003		2002
Income:
Dividends	$	10,700,000	$	8,100,000	$	5,000,000
Interest		1,181,698		1,033,688		424,292
Management fees		1,969,644		2,040,671		2,266,294
Other		1,101,978		464,470		335,555
Total income		14,953,320		11,638,829		8,026,141
Expenses:
Interest		2,649,864		1,349,756		907,105
Other		4,042,522		4,163,098		4,250,770
Total expenses		6,692,386		5,512,854		5,157,875
Income before income tax credit and equity in undistributed net income of subsidiaries		8,260,934		6,125,975		2,868,266
Income tax credit		1,064,091		675,622		684,846
		9,325,025		6,801,597		3,553,112
Equity in undistributed net income of subsidiaries		4,815,731		5,537,157		7,599,711
Net income	$	14,140,756	$	12,338,754	$	11,152,823

33

22. State Financial Services Corporation (Parent Company Only) Financial Information (continued)

STATEMENTS OF CASH FLOWS

	Year ended December 31
	2004			2003			2002
Operating activities:
Net income	$	14,140,756		$	12,338,754		$	11,152,823
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed income		(4,815,731	)		(5,537,157	)		(7,599,711	)
Depreciation		74,568			57,328			81,862
Decrease (increase) in income tax receivable		(867,035	)		267,108			(1,011,189	)
Realized investment securities gains, net		(1,010,636	)		(400,307	)		(286,178	)
Other		(13,533,337	)		13,102,164			303,145
Net cash provided by (used in) operating activities		(6,011,415	)		19,827,890			2,640,752
Investing activities:
Purchases of securities available-for-sale		(3,592,135	)		(10,111,473	)		(3,400,150	)
Maturities of securities held-to-maturity		60,000			40,000			-
Sales of securities available for sale		6,179,473			3,648,777			2,544,509
Purchases of premises and equipment		(254,792	)		(47,934	)		(35,299	)
Acquisition of subsidiaries		-			(24,322,840	)		-
Proceeds from dissolution of subsidiaries		261,763			-			-
Net cash provided by (used in) investing activities		2,654,309			(30,793,470	)		(890,940	)
Financing activities:
Repayment of note payable		(24,760,000	)		(12,110,000	)		(1,700,000	)
Proceeds of note payable		24,350,000			12,610,000			1,747,224
Proceeds of trust preferred securities		14,700,000			-			15,000,000
Proceeds of subordinated debt		-			14,000,000			-
Decrease in guaranteed ESOP obligation		57			178,700			304,359
Cash dividends paid on common stock		(3,980,110	)		(3,474,113	)		(3,451,768	)
Purchase of treasury stock		(6,920,100	)		(621,000	)		(1,946,871	)
Repurchase of common stock		-			-			(11,808,968	)
Proceeds from exercise of stock options		1,403,650			1,558,679			107,611
Net cash provided by (used in) financing activities		4,793,497			12,142,266			(1,748,413	)
Increase in cash and cash equivalents		1,436,391			1,176,686			1,399
Cash and cash equivalents at beginning of year		1,932,080			755,394			753,995
Cash and cash equivalents at end of year	$	3,368,471		$	1,932,080		$	755,394

34

PART IV

ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a) (1) Financial Statements. The Consolidated Financial Statements of the Company and subsidiaries, for the year ended December 31, 2004, are set forth in Item 8.

(2) Financial Statement Schedules. Schedules to the Consolidated Financial Statements required by Article 9 of Regulation S-X are not required under the related instructions or are inapplicable, and therefore have been omitted.

(3) Exhibits. See Exhibit Index, which is filed with this Form 10-K following the signature page and is incorporated herein by reference.

(b) See (a)(3) above.

(c)None.

35

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this amendment to be signed on its behalf by the undersigned, thereunto duly authorized.

Date:May 19, 2005

STATE FINANCIAL SERVICES CORPORATION

By: /s/ Daniel L. Westrope

Daniel L. Westrope,

Executive Vice President, Chief Financial Officer, Treasurer, and Secretary

36

STATE FINANCIAL SERVICES CORPORATION

EXHIBIT INDEX

TO

ANNUAL REPORT ON FORM 10-K/A

FOR YEAR ENDED December 31, 2004

NOTE: To maintain a set of exhibit reference numbers consistent with Registrant’s prior filings under the Securities Act of 1933 and the Securities Act of 1934, Registrant has intentionally omitted exhibit reference numbers which pertain to exhibits which are not applicable or in effect. Except as specifically noted below, all of the exhibits identified are filed herewith. The Registrant’s Securities and Exchange Commission File No. is 0-018166.

Exhibit Number	Description
3.1	Articles of Incorporation of the Registrant as Amended and Restated. (8)
3.2	Amended and Restated Bylaws of Registrant, as amended through December 1, 2004.#
4.1	Rights Agreement between State Financial Services Corporation and American Stock Transfer & Trust Company (as successor Rights Agent to Firstar Bank, N.A.) dated July 27, 1999. (7)
4.2	Amended and Restated Certificate of Trust, dated October 29, 2002, among Registrant, as Sponsor, Wilmington Trust Company, as Delaware Trustee and Institutional Trustee, the administrators named therein and the holders, from time to time, of undivided beneficial interests in the assets of SFSC Capital Trust I. (11)
4.3	Indenture, dated October 29, 2002, between Registrant and Wilmington Trust Company, as Trustee. (11)
4.4	Guarantee, dated October 29, 2002, between Registrant, as Guarantor, and Wilmington Trust Company, as Guarantee Trustee. (11)
4.5	Amended and Restated Certificate of Trust, dated February 13, 2004, among Registrant, as Sponsor, Wilmington Trust Company, as Delaware Trustee and Institutional Trustee, the administrators named therein and the holders, from time to time, of undivided beneficial interests in the assets of SFSC Capital Trust II. (10)
4.6	Indenture, dated February 13, 2004, between Registrant and Wilmington Trust Company, as Trustee. (10)
4.7	Guarantee, dated February 13, 2004, between Registrant, as Guarantor, and Wilmington Trust Company, as Guarantee Trustee. (10)
10.1	Lease between SFB (formerly State Bank, Hales Corners) and Hales Corners Development Corporation (10708 West Janesville Road, Hales Corners, Wisconsin). (2)
10.2	Lease between SFB (formerly State Bank, Hales Corners) and Hales Corners Development Corporation (S76 W17655 Janesville Road, Muskego, Wisconsin). (3)
10.3	Lease between SFB (formerly Edgewood Bank) and Edgewood Plaza Joint Venture (4811 South 76th Street, Greenfield, Wisconsin). (3)
10.4	Lease between SFB (formerly University National Bank) and Northeast Corporate Center (7020 North Port Washington Road, Milwaukee, Wisconsin). (3)
10.5	Lease between SFB (formerly University National Bank) and Downer Investments (2650 North Downer Avenue, Milwaukee, Wisconsin) (4)
10.6	Lease between SFB-Waterford and Mangold Investments, LLP (1050 North Milwaukee Avenue, Burlington, Wisconsin). (6)
10.7	State Financial Services Corporation 1990 Stock Option/Stock Appreciation Rights and Restricted Stock Plan for Key Officers and Employees, as amended on March 10, 1993. (1)
10.8	State Financial Services Corporation 1990 Director Stock Option Plan, as amended March 10, 1993. (1)
10.9	State Financial Services Corporation Supplemental Executive Retirement Plan for Michael J. Falbo effective November 22, 1994. (5)
10.10	State Financial Services Corporation 1998 Stock Incentive Plan, as amended. (8)
10.11	Liberty Bank 1994 Stock Option Plan. (9)
10.12	Executive Employment and Consulting Agreement between State Financial Services Corporation and Jerome J. Holz. (8)
10.13	Form of Key Executive Employment and Severance Agreement between State Financial Services Corporation and each of Michael J. Falbo, Robert J. Cera, and Daniel L. Westrope. (8)
10.14	Form of Key Executive Employment and Severance Agreement between State Financial Services Corporation and each of John B. Beckwith, Jeryl M Sturino, Donna M. Bembenek, Thomas A. Lilly, and David G. Towe. (8)
10.15	Form of State Financial Services Corporation Supplemental Executive Retirement Plan for Robert J. Cera, Daniel L. Westrope and John B. Beckwith. (10)
10.16	Form of ISO Option Agreement State Financial Services Corporation 1998 Stock Incentive Plan (12)
10.17	Form of NQO Option Agreement State Financial Services Corporation 1998 Stock Incentive Plan (13)
21	Subsidiaries of Registrant.#
23.1	Consent of Ernst & Young LLP.
31.1	Certification by the Chief Executive Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934.
31.2	Certification by the Chief Financial Officer pursuant to Rule 13a-14(a) or 15d-14(a) under the Securities Exchange Act of 1934.
32.1	Certification Statement of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. §1350.

37

(1)	Incorporated by reference from Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1992.
(2)	Incorporated by reference from Registrant’s registration statement on Form S-1, Registration Number 33-31517, dated October 11, 1989.
(3)	Incorporated by reference from Amendment No. 1 to the Registrant’s registration statement on Form S-1, dated December 6, 1989.
(4)	Incorporated by reference from Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1991.
(5)	Incorporated by reference from Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1994.
(6)	Incorporated by reference from Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1996.
(7)	Incorporated by reference from Registrant’s Current Report on Form 8-K, dated July 27, 1999.
(8)	Incorporated by reference from Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 1999.
(9)	Incorporated by reference from Registrant’s registration statement on Form S-8, Registration Number 333-67486, dated September 14, 2001.
(10)	Incorporated by reference from Exhibit 2.7 to Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2000.
(11)	Incorporated by reference from Registrant’s Tender Offer Statement on Schedule TO, Dated November 1, 2002.
(12)	Incorporated by reference to Exhibit 10.1 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004
(13)	Incorporated by reference to Exhibit 10.2 of the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2004

^#Previously filed.

Exhibits 10.7 through 10.17 are management contracts or compensatory plans or arrangements.

The issuer, State Financial Services Corporation, will furnish a copy of any exhibit described above upon request and upon reimbursement to the issuer of its reasonable expenses of furnishing such exhibit, which shall be limited to a photocopying charge of $0.25 per page and, if mailed to the requesting party, the cost of first-class postage.

38

EX-23.1

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

We consent to the incorporation by reference in the following documents of our report dated March 11, 2005, with respect to the consolidated financial statements of State Financial Services Corporation included in the Annual Report (Form 10-K A) for the year ended December 31, 2004:

·   Registration Statement (Form S-8 No. 333-69563) pertaining to the State Financial Services Corporation 401 (k) Savings Plan.

·   Registration Statement (Form S-8 No. 333-69565) pertaining to the State Financial Services Corporation 1998 Stock Incentive Plan.

·   Registration Statement (Form S-8 No. 333-70257) pertaining to the Home Bancorp of Elgin, Inc. 1997 Stock Option Plan.

·   Registration Statement (Form S-8 No. 333-00235) pertaining to the State Financial Services Corporation 1990 Director Stock Option Plan and the State Financial Services Corporation 1990 Stock Option, Stock Appreciation Rights and Restricted Stock Plan for Key Officers and Employees.

·   Registration Statement (Form S-8 No. 333-67488) pertaining to the State Financial Services Corporation 1998 Stock Incentive Plan, as amended.

·   Registration Statement (Form S-8 No. 333-67486) pertaining to the Liberty Bank 1994 Stock Option Plan.

By: /s/ Ernst & Young LLP

Chicago, Illinois

May 17, 2005

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Michael J. Falbo, certify that:

1. I have reviewed this annual report on Form 10-K of State Financial Services Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation, of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors(or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 19, 2005

By: /s/ Michael J. Falbo

Michael J. Falbo

Chairman and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Daniel L. Westrope, certify that:

1. I have reviewed this annual report on Form 10-K of State Financial Services Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant's other certifying officer(s) and I have disclosed, based on our most recent evaluation, of internal control over financial reporting, to the registrant's auditors and the audit committee of registrant's board of directors(or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b)Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date: May 19, 2005

By: /s/ Daniel L. Westrope

Daniel L. Westrope

Executive Vice President, Chief Financial Officer, Treasurer, and Secretary

EX-32.1

CERTIFICATION PURSUANT TO 18 U.S.C. Section 1350,

As ADOPTED PURSUANT TO SECTION 906 OF

THE SARBANES-OXLEY ACT OF 2002

Solely for the purposes of complying with 18 U.S.C. Section 1350, each of the undersigned, the Chairman and Chief Executive Officer and the Executive Vice President, Chief Financial Officer, Treasurer, and Secretary, respectively, of State Financial Services Corporation (the “Company”), hereby certifies, based on his knowledge, that the Annual Report on Form 10-K of the Company for the year ended December 31, 2004 (the “Report”) fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934 and that information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

By: /s/ Michael J. Falbo

Michael J. Falbo

May 19, 2005

By: /s/ Daniel L. Westrope

Daniel L. Westrope

May 19, 2005