State Financial Services Corporation Reports 14.6% Increase in Earning

    Business Editors

    MILWAUKEE--(BUSINESS WIRE)--Jan. 18, 2005--State Financial Services Corporation ("State") (Nasdaq:SFSW) today reported basic earnings per share for the fourth quarter of 2004 of $0.57, a 16.3% increase over the $0.49 reported in the fourth quarter of 2003. Diluted earnings per share in this year's fourth quarter were $0.55, compared to $0.48 in the quarter ended December 31, 2003, an increase of 14.6%.
    State's net interest income increased 10.5% in the fourth quarter of 2004, compared to the fourth quarter of 2003. In the fourth quarter of 2004, State's net interest margin was 3.85%, compared to 3.73% in the third quarter of 2004. This margin increase occurred due to the continuing effects of a balance sheet structured to take advantage of rising interest rates and seasonal reductions in a low margin local governmental tax collection program. State's core commercial/commercial real estate loans grew at an annualized rate of 17.4% in the fourth quarter of 2004. In the one year period ended December 31, 2004, commercial/commercial real estate loans increased by 16.7%.
    In the fourth quarter of 2004, State's asset quality ratios showed further improvement. The ratio of nonperforming loans to total loans declined to 0.72% as of December 31, 2004, from 1.18% on December 31, 2003 and 0.84% on September 30, 2004. On December 31, 2004, nonperforming assets equaled 0.52% of total assets, compared to 1.09% on December 31, 2003 and 0.53% as of September 30, 2004.
    For the full year ended December 31, 2004, revenues from mortgage originations were 62% less than in the year ended December 31, 2003.
    Although noninterest expenses for the full year of 2004 declined 3% from 2003, noninterest expenses in the fourth quarter of 2004 were 18% higher than the fourth quarter of 2003. The higher level of expenses was partially related to the expenses of compliance with Section 404 of the Sarbanes-Oxley Act, as well as expenses to comply with anti-money laundering regulations (applicable to the banking industry). Accounting and professional fees increased 533% in the fourth quarter of 2004 from the fourth quarter of 2003. Additionally, total personnel expenses increased 24% relative to the year ago quarter, due mainly to increased salary expense, higher employee health insurance costs, and increased performance incentives.
    Michael J. Falbo, Chairman and CEO of State, said, "2004 was an excellent year for our organization. Despite incurring significant expenses to comply with Sarbanes-Oxley and anti-money laundering requirements, we were able to grow our diluted earnings per share by 15%. At the same time, we were able to further improve our asset quality while growing our core loan portfolio. We begin 2005 excited about the quality of our balance sheet and our core earnings capability."
    State is a $1.5 billion financial services company operating through 29 full-service office locations in southeastern Wisconsin and northeastern Illinois. Through its banking network, State provides commercial and retail banking products, secondary market mortgage loan originations and investment brokerage activities. State's shares are traded on the Nasdaq National Market System under the symbol "SFSW."

    Forward Looking Statements

    Certain matters discussed in this Release are "forward-looking statements" that are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified as such because the statements generally will include words such as "believes," "anticipates," "expects," or words of similar meaning. Similarly, statements that describe future plans, objectives, outlooks, targets or goals are also forward-looking statements. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those anticipated as of the date of this Release. Factors that could cause such a variance include, but are not limited to, changes in interest rates, local market competition, customer loan and deposit preferences, governmental regulations, and other general economic conditions. Shareholders, potential investors, and other readers are urged to consider these factors in evaluating the forward-looking statements and cautioned not to place undue reliance on such forward-looking statements. The forward-looking statements included in this Release are only made as of the date of this Release, and the Company undertakes no obligation to publicly update such forward-looking statements to reflect subsequent events or circumstances.

State Financial Services Corporation Press Release Financial Highlights December 31, 2004

--------------------------------- Unaudited At or for the Three Months ended --------- December 31, --------------------------------- 2004 2003 % chg --------------------------------- For the Period: --------------- Interest Income $18,653,685 $16,165,899 15.39% Interest Expense 5,862,030 4,593,915 27.60% Net Interest Income 12,791,655 11,571,984 10.54% ---------------------------------

Provision for Loan Losses 525,000 600,000 -12.50%

Mortgage Gains and Fees 387,268 365,040 6.09% Gains on Sale of Securities 380,263 242,337 56.91% Gain on Sale of Merchant Processing 0 0 Other Non-Interest Income 2,304,277 1,740,246 32.41% --------------------------------- Total Non-Interest Income 3,071,808 2,347,623 30.85%

Provision for Merchant Chargeback 0 0 Merchant Processing Exit Fee 0 0 Efficiency Consulting Expense 0 0 Serverance Charges 0 0 Other Non-Interest Expense 9,960,087 8,426,032 18.21% --------------------------------- Total Non-Interest Expense 9,960,087 8,426,032 18.21% ---------------------------------

Net Before Tax 5,378,376 4,893,575 9.91% Income Tax 1,640,085 1,564,700 4.82% --------------------------------- Net Income $3,738,291 $3,328,875 12.30% =================================

Per Share: ---------- Net Income (basic) $0.57 $0.49 Net Income (diluted) $0.55 $0.48 Avg. Shares Outstanding (basic) 6,613,263 6,735,695 Avg. Shares Outstanding (diluted) 6,781,877 6,921,490 Dividends Declared $0.15 $0.13

End of Period: ($'s in 000's) ----------------------------- Assets $1,475,991 $1,452,929 Investment securities 402,322 416,170 Loans (net) 925,670 865,224 Allowance for loan losses 12,347 10,706 Goodwill 35,354 37,626 Deposits 1,083,867 1,029,113 Borrowed Funds 270,814 288,593 Stockholders' Equity 114,948 112,195

Per Share: ---------- Total Shares Outstanding 6,900,461 7,043,149 Book Value $16.66 $15.93 Tangible Book Value $10.86 $9.84 Market Value $30.13 $26.56

Key Ratios: ----------- Net Interest Margin 3.85% 3.85% Return on Average Assets 1.00% 0.97% Return on Average Common Equity 13.02% 11.49% Return on Average Common Tangible Equity 20.60% 15.23%

Tier 1 Leverage Ratio 7.15% 6.12% Tangible Equity to Assets 5.22% 4.91%

Loans/Deposits 85.40% 84.07% Allowance for Loan Loss/Total Loans 1.32% 1.22% Nonperforming Loans/Total Loans 0.72% 1.18% Nonperforming Assets/Total Assets 0.52% 1.09% Net Charge-offs/Avg total loans (annualized) 0.20% 0.58%

Unaudited At or for the Twelve Months ended --------- December 31, --------------------------------- 2004 2003 % chg --------------------------------- For the Period: --------------- Interest Income $71,006,357 $63,425,895 11.95% Interest Expense 21,943,265 19,300,838 13.69% Net Interest Income 49,063,092 44,125,057 11.19% ---------------------------------

Provision for Loan Losses 2,381,000 2,625,000 -9.30%

Mortgage Gains and Fees 1,667,160 4,418,990 -62.27% Gains on Sale of Securities 1,064,631 565,017 88.42% Gain on Sale of Merchant Processing 0 1,300,000 Other Non-Interest Income 8,522,268 8,485,726 0.43% --------------------------------- Total Non-Interest Income 11,254,059 14,769,733 -23.80%

Provision for Merchant Chargeback 0 300,000 Merchant Processing Exit Fee 0 150,000 Efficiency Consulting Expense 0 570,000 Serverance Charges 0 180,114 Other Non-Interest Expense 37,626,473 37,490,472 0.36% --------------------------------- Total Non-Interest Expense 37,626,473 38,690,586 -2.75% ---------------------------------

Net Before Tax 20,309,678 17,579,204 15.53% Income Tax 6,168,922 5,240,450 17.72% --------------------------------- Net Income $14,140,756 $12,338,754 14.60% =================================

Per Share: ---------- Net Income (basic) $2.12 $1.84 Net Income (diluted) $2.07 $1.80 Avg. Shares Outstanding (basic) 6,654,803 6,689,798 Avg. Shares Outstanding (diluted) 6,839,779 6,859,557 Dividends Declared $0.60 $0.52

Key Ratios: ----------- Net Interest Margin 3.71% 3.76% Return on Average Assets 0.94% 0.93% Return on Average Common Equity 12.53% 11.23% Return on Average Common Tangible Equity 20.10% 15.03%

Tier 1 Leverage Ratio 7.10% 6.26% Net Charge-offs/Avg total loans (annualized) 0.08% 0.21%

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CONTACT: State Financial Services Corporation Michael J. Falbo or Daniel L. Westrope, 414-223-8400 Facsimile: 414-223-8420

KEYWORD: WISCONSIN INDUSTRY KEYWORD: BANKING EARNINGS SOURCE: State Financial Services Corporation

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