Washington, D.C. 20549








Form 10-Q





x
Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the quarterly period ended September 30, 2003oro
Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934For the transition period from ______________________ to ______________________








Commission File Number 1-018166










STATE FINANCIAL SERVICES CORPORATION


(Exact name of registrant as specified in its charter)








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








815 NORTH WATER STREET, MILWAUKEE, WISCONSIN 53202-3526


(Address and Zip Code of principal executive offices)











(414) 425-1600


(Registrant's telephone number, including area code)





Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No





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





As of November 12 , 2003 , there were 7,051,709 shares of Registrant's $0.10 Par Value Common Stock outstanding.










FORM 10-QSTATE FINANCIAL SERVICES CORPORATIONINDEXPART I - FINANCIAL INFORMATIONPage No.Item 1.
Financial Statements (Unaudited)Consolidated Statements of Financial Condition as of September 30, 2003 and December 31, 2002 (audited)
3Consolidated Statements of Income for theThree Months ended September 30, 2003 and 2002
4Consolidated Statements of Income for theNine Months ended September 30, 2003 and 2002
5Consolidated Statements of Cash Flows for the Nine Months ended September 30, 2003 and 2002
6Notes to Consolidated Financial Statements
7Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
9Item 3.
Quantitative and Qualitative Disclosures About Market Risk
18Item 4.
Controls and Procedures
18PART II - OTHER INFORMATIONItem 1.
Legal Proceedings
19Item 2.
Exhibits and Reports on Form 8-K
19Item 4.
Submission of Matters to a Vote of Security Holders
19Signatures

20Exhibits

Exhibit Index





Part I. Financial Information


Item 1. Financial Statements





STATE FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES


Consolidated Statements of Financial Condition


September 30,
2003
(unaudited)
December 31,
2002
(audited)ASSETSCash and due from banks

$
41,723,339

$
56,767,916Interest-bearing bank balances


5,281,647


2,040,592Federal funds sold


2,620,958


8,708,297Cash and cash equivalents


49,625,944


67,516,805Investment securitiesAvailable-for-sale (at fair value)


396,035,172


422,081,645Held-to-maturity (fair value of$1,145,240  September 30, 2003 and $1,551,666 - December 31, 2002)


1,116,110


1,505,269Loans (net of allowance for loan losses of $10,365,329  September 30, 2003 and $8,805,000 December 31, 2002)


771,686,974


703,968,455Loans held for sale


4,810,691


31,750,135Premises and equipment


26,930,721


27,789,893Accrued interest receivable


5,417,204


7,789,746Goodwill


27,465,062


27,465,062Bank owned life insurance


20,804,533


20,258,388Other assets


11,355,067


6,698,985TOTAL ASSETS

$
1,315,247,478

$
1,316,824,383LIABILITIES AND SHAREHOLDERS' EQUITYDeposits:Demand


158,373,425


163,036,430Savings


231,053,465


228,312,579Money market


212,107,261


221,142,347Time deposits in excess of $100,000


94,043,137


88,001,266Other time deposits


211,204,069


240,381,060TOTAL DEPOSITS


906,781,357


940,873,682Federal Home Loan Bank advances


77,400,000


92,400,000Notes payable


16,100,000


15,700,000Trust preferred securities


15,000,000


15,000,000Securities sold under agreements to repurchase


177,817,658


126,636,913Federal funds purchased


3,500,000


10,000,000Accrued expenses and other liabilities


6,876,938


9,089,417Accrued interest payable


1,783,710


2,191,711TOTAL LIABILITIES


1,205,259,663


1,211,891,723Shareholders' Equity:Preferred stock, $1 par value; authorized--100,000 shares;
issued and outstandingnone


--


--Common stock, $0.10 par value; authorized--25,000,000 shares; issued 9,491,182 shares in 2003 and 9,406,321 shares in 2002, outstanding 7,026,842 shares in 2003 and 6,946,981 shares in 2002


949,118


940,632Additional paid in capital


84,239,823


83,157,808Retained earnings


60,697,618


54,288,325Accumulated other comprehensive income


3,951,656


6,518,045Unearned shares held by ESOP


(3,946,310
)

(4,160,060
)TreasuryStock  2,464,340 shares in 2003 and 2,459,340 in 2002


(35,904,090
)

(35,812,090
)TOTAL SHAREHOLDERS' EQUITY


109,987,815


104,932,660TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$
1,315,247,478

$
1,316,824,383


See notes to unaudited consolidated financial statements.










STATE FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES


Consolidated Statements of Income (Unaudited)





Three Months Ended September 30,2003
2002INTEREST INCOME:Loans

$
11,427,984

$
11,606,922Investment securities:Taxable


3,293,913


4,739,741Tax-exempt


553,689


669,844Federal funds sold and other short-term investments


38,714


217,803TOTAL INTEREST INCOME


15,314,300


17,234,310INTEREST EXPENSE:Deposits


3,003,273


4,550,169Notes payable and other borrowings


1,623,110


1,377,236TOTAL INTEREST EXPENSE


4,626,383


5,927,405NET INTEREST INCOME


10,687,917


11,306,905Provision for loan losses


600,000


1,050,000NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES


10,087,917


10,256,905OTHER INCOME:Service charges on deposit accounts


741,877


665,705ATM and merchant service fees


406,395


785,314Security commissions and management fees


131,986


136,002Investment securities gains, net


187,210


(24,085
)Gain on sale of loans


1,406,750


734,588Bank owned life insurance


236,388


33,334Mortgage origination fees


129,698


59,375Gain on sale or fixed assets


723


670,390Other


343,973


312,511TOTAL OTHER INCOME


3,585,000


3,373,134OTHER EXPENSES:Salaries and employee benefits


4,918,055


4,688,880Net occupancy expense


663,356


677,256Equipment rentals, depreciation and maintenance


982,621


972,029Data processing


505,097


519,490Legal and professional


398,603


232,848ATM and merchant services


219,837


580,375Advertising


224,738


300,036Delivery & postage


274,779


252,901Other


958,647


1,263,736TOTAL OTHER EXPENSES


9,145,733


9,487,551INCOME BEFORE INCOME TAXES


4,527,184


4,142,488Income tax expense


1,406,104


1,266,501NET INCOME

$
3,121,080

$
2,875,987Basic earnings per common share

$
0.47

$
0.39Diluted earnings per common share


0.46


0.39Dividends per common share


0.13


0.12








See notes to unaudited consolidated financial statements.










STATE FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES


Consolidated Statements of Income (Unaudited)




Nine Months Ended September 30,2003
2002INTEREST INCOME:Loans

$
35,092,350

$
35,944,970Investment securities:Taxable


10,327,351


12,985,373Tax-exempt


1,739,515


2,022,021Federal funds sold and other short-term investments


100,780


449,631TOTAL INTEREST INCOME


47,259,996


51,401,995INTEREST EXPENSE:Deposits


9,415,102


13,481,217Notes payable and other borrowings


5,291,821


3,974,958TOTAL INTEREST EXPENSE


14,706,923


17,456,175NET INTEREST INCOME


32,553,073


33,945,820Provision for loan losses


2,025,000


1,950,000NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES


30,528,073


31,995,820OTHER INCOME:Service charges on deposit accounts


2,121,757


1,955,313ATM and merchant service fees


1,857,241


2,313,301Security commissions and management fees


327,297


377,009Investment securities gains, net


322,680


465,035Gain on sale of loans


4,053,950


1,789,309Gain on sale of merchant processing


1,300,000


0Bank owned life insurance


1,044,476


33,334Mortgage origination fees


395,312


141,392Gain on sale of fixed assets


37,372


702,391Other


979,375


1,017,957TOTAL OTHER INCOME


12,439,460


8,795,041OTHER EXPENSES:Salaries and employee benefits


15,058,052


13,581,828Net occupancy expense


2,052,527


2,082,879Equipment rentals, depreciation and maintenance


2,939,402


2,877,682Data processing


1,424,830


1,558,832Legal and professional


1,212,789


1,424,241ATM and merchant services


1,185,273


1,635,466Advertising


842,655


904,243Delivery & postage


825,656


783,589Provision for merchant chargebacks


300,000


0Merchant processing exit fee


150,000


0Efficiency consulting expense


570,000


0Severance charges


180,114


0Other


3,540,606


3,949,442TOTAL OTHER EXPENSES


30,281,904


28,798,202INCOME BEFORE INCOME TAXES


12,685,629


11,992,659Income tax expense


3,675,750


3,699,904NET INCOME

$
9,009,879

$
8,292,755Basic earnings per common share

$
1.35

$
1.12Diluted earnings per common share


1.33


1.11Dividends per common share


0.39


0.36





See notes to unaudited consolidated financial statements.










STATE FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES


Consolidated Statements of Cash Flows (Unaudited)




Nine Months Ended
September 30,2003
2002OPERATING ACTIVITIESNet income

$
9,009,879

$
8,292,755Adjustments to reconcile net income to net cash provided by operating activities:Provision for loan losses


2,025,000


1,950,000Depreciation


2,114,838


2,109,294Amortization of premiums and accretion of discounts on investment securities


934,318


1,943,476Income from bank owned life insurance


(546,145
)

0Decrease (increase) in accrued interest receivable


2,372,542


(1,117,566
)Decrease in accrued interest payable


(408,001
)

(532,180
)Realized investment securities gains


(322,680
)

(465,035
)Other


(5,546,485
)

897,341NET CASH PROVIDED BY OPERATING ACTIVITIES


9,633,266


13,078,085INVESTING ACTIVITIESProceeds from maturities or principal payments of investment securities held-to-maturity


390,000


350,500Purchases of securities available-for-sale


(698,147,945
)

(317,030,268
)Proceeds from maturities and sales of investment securities available-for-sale


719,693,474


159,069,068Net (increase) decrease in loans


(42,804,075
)

65,910,793Purchase of bank owned life insurance


0


(20,000,000
)Net purchases of premises and equipment


(1,255,666
)

(1,393,533
)NET CASH USED IN INVESTING ACTIVITIES


(22,124,212
)

(113,093,440
)FINANCING ACTIVITIESNet (decrease) increase in deposits


(34,092,325
)

36,760,592Repayment of notes payable


(10,710,000
)

0Proceeds of notes payable


11,110,000


2,167,224Increase in securities sold under agreements to repurchase


51,180,745


70,015,328Decrease in Federal Home Loan Bank advances


(15,000,000
)

(20,200,000
)Decrease in guaranteed ESOP obligation


213,750


0Cash dividends


(2,600,586
)

(2,656,842
)Repayments of federal funds purchased


(6,500,000
)

0Purchase of treasury stock


(92,000
)

(1,946,871
)Proceeds from exercise of stock options and restricted stock awards


1,090,501


92,002NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES


(5,399,915
)

84,231,433DECREASE IN CASH AND CASH EQUIVALENTS


(17,890,861
)

(15,783,922
)CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD


67,516,805


94,549,518CASH AND CASH EQUIVALENTS AT END OF PERIOD

$
49,625,944

$
78,765,596Supplemental information:Interest paid

$
15,114,924

$
17,988,355Income taxes paid


3,318,092


4,416,836Conversion of mortgage loans into fixed rate securities


0


101,567,223





See notes to unaudited consolidated financial statements.










STATE FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES


Notes to Unaudited Consolidated Financial Statements


September 30, 2003





NOTE ABASIS OF PRESENTATION





The accompanying unaudited consolidated financial statements include the accounts of State Financial Services Corporation (the "Company" or "State") and its subsidiaries. All significant intercompany balances and transactions have been eliminated. The unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles for complete financial statements have been condensed or omitted pursuant to such rules and regulations. In the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation have been included. Interim operating results are not necessarily indicative of the results that may be expected for the year. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's Annual Report on Form 10-K for the year ended December 31, 2002.





NOTE BACCOUNTING CHANGES





FIN No. 46  Consolidation of Variable Interest Entities





In January 2003, the FASB issued FASB Interpretation No. 46, "Consolidation of Variable Interest Entities" (FIN No. 46). The objective of this interpretation is to provide guidance on how to identify a variable interest entity (VIE) and determine when the assets, liabilities, non-controlling interest, and results of operations of a VIE need to be included in a companys consolidated financial statements. Because the Company does not have interest in any VIEs, the Company does not expect the adoption of FIN No. 46 to have a material impact on its results of operations, financial position, or liquidity.


FASB Statement No. 150
 
 In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity". This Statement establishes standards for classifying and measuring as liabilities certain financial instruments that embody obligations of the issuer and have characteristics of both liabilities and equity. Statement 150 represents a change in practice in the accounting for a number of financial instruments, including mandatorily redeemable equity instruments and certain equity derivatives that frequently are used in connection with share repurchase programs. The provisions of this statement are not expected to have a material impact on the Corporations consolidated financial statements.
 
  
 NOTE CEARNINGS PER SHARE





Basic earnings per share is computed by dividing net income by the weighted-average common shares outstanding during the period less unearned ESOP shares. Diluted earnings per share is computed by dividing net income by the weighted-average common shares outstanding during the period less unallocated ESOP shares plus the assumed conversion of all potentially dilutive securities. The denominators for the earnings per share amounts are as follows:




**Three months ended**

**Nine months ended**Sept. 30,
2003


Sept. 30,
2002


Sept. 30,
2003


Sept. 30,
2002Basic:Weighted-average number of shares outstanding


7,014,434


7,677,618


6,978,545


7,745,788Less: weighted-average number of unearned ESOP shares


(322,599
)

(349,184
)

(322,599
)

(349,184
)Denominator for basic earnings per share


6,691,835


7,328,434


6,655,946


7,396,604Fully diluted:Denominator for basic earnings per share


6,691,835


7,328,434


6,655,946


7,396,604Add: assumed conversion of stock options using treasury stock method


147,066


69,725


121,357


61,750Denominator for fully diluted earnings per share


6,838,901


7,398,159


6,777,303


7,458,354








NOTE DCOMPREHENSIVE INCOME





Comprehensive income is the total of reported net income and all other revenues, expenses, gains and losses that under generally accepted accounting principles are not included in reported net income but are instead reflected directly in shareholders equity.





Three months ended
Nine months endedSept. 30,
2003


Sept. 30,
2002


Sept. 30,
2003


Sept. 30,
2002Net Income

$
3,121,080

$
2,875,987

$
9,009,879

$
8,292,755Other comprehensive income:Change in unrealized securities gains (losses), net of tax


(1,842,117
)

821,455


(2,370,232
)

4,761,840Reclassification adjustment for realized gains (losses) included in net income, net of tax


(113,805
)

14,641


(196,157
)

(282,695
)Total comprehensive income

$
1,165,158

$
3,712,083

$
6,443,490

$
12,771,900





NOTE ESTOCK REPURCHASE PROGRAM





In December 2002, the Company completed its Dutch Auction tender offer, purchasing and retiring 716,000 shares of the Companys Common Stock at $16.50 per share.





On April 28, 2003, the Companys Board of Directors authorized the repurchase of up to 5%, or approximately 348,000 shares, of the Companys Common Stock. As of November 12, 2003 no shares have been repurchased.





NOTE F  STOCK-BASED COMPENSATION





The Company follows Accounting Principles Board Opinion No. 25 under which no compensation expense is recorded when the exercise price of the Companys employee stock options equals the market price of the underlying stock on the date of grant. The Companys pro forma information regarding net income and net income per share has been determined as if these options had been accounted for since January 1, 1995, in accordance with the fair value method of Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensation" (FAS No. 123).





The Black-Scholes option valuation model is commonly used in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including the expected stock price volatility. Since the Companys employee stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimates, in managements opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its employee stock options.





In determining compensation expense in accordance with FAS No. 123, the fair value for these options was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions for the three and nine months ended September 30, 2003 and September 30, 2002 .






Three months ended
Nine months ended**Sept. 30, 2003**

**Sept. 30, 2002**

**Sept. 30, 2003**

Sept. 30, 2002Expected life of options


6.75 years


6.75 years


6.75 years


6.75 yearsRisk-free interest rate


3.60
%

3.33
%

3.60
%

3.33
%Expected dividend yield


2.20
%

2.60
%

2.20
%

3.00
%Expected volatility factor


26.90
%

15.77
%

26.90
%

15.77
%





For purposes of pro forma disclosures, the estimated fair value of the options is amortized to expense over the options vesting period, which is three years. Options issued in the prior year vested in six months. The Companys pro forma information is as follows:





Three months ended
Nine months ended(Thousands, except per share data)

**Sept. 30, 2003**

**Sept. 30, 2002**

Sept. 30, 2003

**Sept. 30, 2002**Net income, as reported

$
3,121

$
2,876

$
9,010

$
8,293Pro forma compensation expense in accordance with SFAS No. 123, net of tax


(53
)

(99
)

(137
)

(231
)Pro forma net income

$
3,068

$
2,777

$
8,873

$
8,062Net income per common share, as reported:Basic

$
0.47

$
0.39

$
1.35

$
1.12Diluted

$
0.46

$
0.39

$
1.33

$
1.11Pro forma net income per common share:Basic

$
0.46

$
0.38

$
1.33

$
1.09Diluted

$
0.45

$
0.38

$
1.31

$
1.08





The pro forma disclosures include only the effect of options granted subsequent to January 1, 1995. Accordingly, the effects of applying the FAS No. 123 pro forma disclosures to future periods may not be indicative of future effects.





Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations





Application of Critical Accounting Policies





The Companys consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States and follow general practices within the banking industry. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the financial statements. Future changes in information may affect these estimates, assumptions, and judgments, which, in turn, may affect amounts reported in the consolidated financial statements.





All significant accounting policies are presented in Note 1 to the consolidated financial statements in the Companys 2002 Annual Report on Form 10-K. These policies, along with the disclosures presented in the other financial statement notes and in this discussion, provide information on how significant assets and liabilities are valued in the consolidated financial statements and how those values are determined.





Management has determined that its accounting policies with respect to the allowance for loan losses is the accounting area requiring subjective or complex judgments that is most important to the Companys financial position and results of operations, and therefore, is its only critical accounting policy. The allowance for loan losses represents managements estimate of probable credit losses inherent in the loan portfolio. Determining the amount of the allowance for loan losses is considered  a critical accounting estimate because it requires significant judgment and the use of estimates related to the amount and timing of expected future cash flows on impaired loans, estimated losses on pools of homogeneous loans based on historical loss experience, and consideration of current economic trends and conditions, all of which may be susceptible to significant change. The loan portfolio also represents the largest asset type on the consolidated statement of condition. Note 1 to the consolidated financial statements in the Companys 2002 Annual Report on Form 10-K describes the methodology used to determine the allowance for loan losses. In addition, a discussion of the factors driving changes in the amount of the allowance for loan losses is included in the Allowance for Loan Losses and Net Charge-offs set forth below.





Changes in Financial Condition





At September 30, 2003 and December 31, 2002, total assets were $1.3 billion. During the first three quarters of 2003, significant uses of funds consisted of a $34.1 million decrease in total deposits, $15.0 million in repayment of Federal Home Loan Bank ("FHLB") borrowings, $42.8 million increase in loans receivable, $6.5 million in repayment of federal funds purchased, $2.6 million in payment of cash dividends, and $1.3 million in purchases of premises and equipment. Funding sources for the first three quarters of 2003 came from a $9.6 million increase in net cash provided by operating activities, $21.9 million net decrease in investment securities, $51.2 million increase in securities sold under agreement to repurchase, $1.1 million in proceeds from the exercise of stock options, $0.4 million net increase in notes payable, and $0.2 million decrease in guarantee ESOP obligation.





Asset Quality





At September 30, 2003, non-performing assets were $16.4 million, an increase of $3.4 million from December 31, 2002 primarily due to an increase of $4.9 million in other real estate owned offset by a $1.5 million decrease in non-accrual loans. The increase in other real estate owned was due to one commercial property, which the Company has contracted to sell at a price to fully cover the $5.1 million included in non-performing assets. If all contingencies are satisfied, the transaction is expected to close in the fourth quarter of 2003. Total non-performing assets as a percentage of total assets were 1.24% at September 30, 2003 and 0.98% at December 31, 2002. As a percentage of total loans outstanding, the level of non-performing loans was 1.40% at September 30, 2003 compared to 1.69% at December 31, 2002. This percentage decrease was due to the decrease in non-performing loans.





When, in the opinion of management, serious doubt exists as to the collectibility of a loan, the loan is placed on non-accrual status. In all cases, however, when a loan reaches 90 days delinquent on the payment of principal or interest the loan is placed on non-accrual status. At the time a loan is classified as non-accrual, interest credited to income in the current year is reversed and interest income accrued in the prior year is charged to the allowance for loan losses. The following table summarizes non-performing assets on the dates indicated (dollars in thousands).





Sep. 30
2003
Jun. 30
2003
Mar. 31
2003
Dec. 31
2002
Sep. 30
2002Non-accrual loans

$
10,993

$
10,731

$
13,649

$
12,558

$
13,548Accruing loans past due 90 days or more


0


0


0


0


0Restructured loans


0


0


0


0


0Total non-performing and restructured loans


10,993


10,731


13,649


12,558


13,548Other real estate owned


5,381


371


346


452


253Total non-performing assets

$
16,374

$
11,102

$
13,995

$
13,010

$
13,801Ratios:Non-performing loans to total loans


1.40
%

1.34
%

1.78
%

1.69
%

1.97
%Allowance to total loans


1.32


1.23


1.22


1.18


1.25Allowance to non-performing loans


94.29


91.50


68.18


70.11


63.15Non-performing assets to total assets


1.24


0.84


1.08


0.98


1.08





Allowance for Loan Losses and Net Charge-offs





Management maintains the allowance for loan losses (the "Allowance") at a level considered adequate to provide for probable loan losses. The Allowance is increased by provisions charged to earnings and is reduced by charge-offs, net of recoveries. At September 30, 2003, the Allowance was $10.4 million, an increase of $1.6 million from the balance at December 31, 2002. The Allowance was increased primarily due to the increased number of commercial loans, which are generally higher risk, particularly during a weak economic period. As of September 30, 2003 commercial and commercial real estate loans made up 73% of the total loan portfolio, compared to 64% as of December 31, 2002. As the commercial loan portfolio has grown in size, the complexity of the commercial relationship has also increased.





As a percentage of total loans outstanding, the Allowance was 1.32% at September 30, 2003 compared to 1.18% at December 31, 2002. The determination of Allowance adequacy is based upon on-going evaluations of the Companys loan portfolio conducted by the Internal Loan Review function of its banking subsidiary, State Financial Bank, N.A. (the "Bank"), and reviewed by management. These evaluations consider a variety of factors, including, but not limited to, general economic conditions, loan portfolio size, type, and composition, previous loss experience, the borrowers financial condition, collateral adequacy, and the level of non-performing loans. Based upon its analyses, management considered the Allowance adequate to recognize the risk inherent in the loan portfolio at September 30, 2003.





The following table sets forth an analysis of the Allowance for loan losses for the periods indicated (dollars in thousands):




Nine months
ended
Sept. 30, 2003
Year ended
Dec. 31, 2002Balance at beginning of period

$
8,805

$
7,900Charge-offs:Commercial


169


1,425Real estate mortgage


170


35Installment


318


523Other


13


15Total charge-offs


670


1,998Recoveries:Commercial


121


390Real estate mortgage


15


0Installment


67


107Other


2


6Total recoveries


205


503Net charge-offs


465


1,495Additions charged to operations


2,025


2,400Balance at end of period

$
10,365

$
8,805Ratios:Net charge-offs to average loans outstanding 1


0.08
%

0.22
%Net charge-offs to total allowance 1


6.00


16.98Allowance to period end loans outstanding


1.32


1.18


1.Annualized.








Results of Operations-Comparison of the Three-Month Periods Ended September 30, 2003 and September 30, 2002.





General





For the quarter ended September 30, 2003, the Company reported net income of $3.1 million and net income per share on a fully diluted basis of $0.46, compared to net income of $2.9 million and net income per share on a fully diluted basis of $0.39 reported for the quarter ended September 30, 2002. The increase in earnings per share was mainly due to fewer shares being outstanding due to the stock repurchases effected since the second quarter of 2002.





Net Interest Income





The following table sets forth average balances, related interest income and expenses, and effective interest yields and rates for the three-month periods ended September 30, 2003 and September 30, 2002 (dollars in thousands):





Three months ended
September 30, 2003
Three months ended
September 30, 2002Average Balance
Interest
Yield/
Rate 4
Average Balance
Interest
Yield/
Rate 4ASSETSInterest-earning assets:Loans 123

$
780,713

$
11,438


5.81
%
$
658,363

$
11,626


7.01
%Taxable investment securities


361,133


3,277


3.60
%

356,523


4,705


5.24
%Tax-exempt investment securities 3


58,444


852


5.78
%

65,372


1,015


6.16
%Other short-term investments


0


0


0.00
%

1,799


10


2.19
%Interest-earnings deposits


6,463


17


1.06
%

1,819


25


5.47
%Federal funds sold


17,673


39


0.87
%

52,895


218


1.63
%Total interest-earning assets


1,224,426


15,623


5.06
%

1,136,771


17,599


6.14
%Non-interest-earnings assets:Cash and due from banks


47,845








42,547Premises and equipment, net


27,255








28,184Other assets


62,758








43,373Less: Allowance for loan losses


(10,126
)







(8,893
)TOTAL

$
1,352,158







$
1,241,982LIABILITIES AND STOCKHOLDERS EQUITYInterest-bearing liabilities:Now accounts

$
103,685

$
51


0.20
%
$
103,082

$
127


0.49
%Money market accounts


216,469


504


0.92
%

214,162


770


1.43
%Savings deposits


130,124


131


0.40
%

124,620


300


0.95
%Time deposits


309,263


2,140


2.75
%

372,068


3,353


3.58
%Notes payable


33,587


303


3.58
%

17,638


146


3.28
%FHLB borrowings


77,400


785


4.02
%

47,500


624


5.21
%Federal funds purchased


1,402


5


1.41
%

0


0


0.00
%Securities sold under agreement to repurchase


202,983


708


1.38
%

87,784


607


2.74
%Total interest-bearing liabilities


1,074,913


4,627


1.71
%

966,854


5,927


2.43
%Non-interest-bearings liabilities:Demand deposits


160,441








151,715Other


7,717








9,297Total liabilities


1,243,071








1,127,866Stockholders equity


109,087








114,116TOTAL

$
1,352,158







$
1,241,982Net interest earning and interest rate spread





$10,996


3.35
%




$11,672


3.71
%Net yield on interest-earning assets








3.56
%







4.07
%








1 For the purposes of these computations, non-accrual loans are included in the daily average loan amounts outstanding.


2 Interest earned on loans includes loan fees (which are not material in amount) and interest income that has been received from borrowers whose loans were removed from non-accrual during the period indicated.


3 Taxable-equivalent adjustments are made in calculating interest income and yields using a 35% rate for all years presented. The related adjustments were $308 thousand and $365 thousand for September 30, 2003 and September 30, 2002, respectively. The Company believes this disclosure of tax-exempt interest is more meaningful to the reader because these results are more comparable to other banks due to the impact that tax-exempt holdings have on net interest margin.


4 Annualized.










For the quarter ended September 30, 2003, the Company reported taxable-equivalent net interest income of $11.0 million, a decrease of $0.7 million, or 5.8%, from the $11.7 million reported for the quarter ended September 30, 2002. This modest decrease reflects the Companys interest rate risk management policy, which is designed to minimize the impact of interest rate changes on net interest income. The taxable-equivalent yield on interest-earning assets (net interest margin) decreased to 3.56% in the third quarter of 2003 from 4.07% in the third quarter of 2002.





The Companys taxable-equivalent total interest income decreased $2.0 million for the quarter ended September 30, 2003 compared to the same period of 2002 due to the lower interest rate environment. Average loans outstanding increased by $122.4 million, or 18.6%, in the third quarter of 2003 over the third quarter of 2002. For the quarter ended September 30, 2003, the taxable-equivalent yield on interest-earning assets was 5.06% compared to 6.14% for the quarter ended September 30, 2002. The third quarter 2003 loan yield was 5.81% compared to 7.01% in the third quarter of 2002. The Company also experienced declines in the yields earned on its investment securities. For the quarter ended September 30, 2003, the yield earned on taxable investment securities decreased to 3.60% from 5.24% for the quarter ended September 30, 2002. The taxable equivalent yields earned on tax-exempt investment securities decreased to 5.78% for the quarter ended September 30, 2003 from 6.16% for the quarter ended September 30, 2002. The decline in these yields for the third quarter of 2003 compared to the third quarter of 2002 is the result of matured or repaid securities replaced by lower yielding securities in a lower interest rate environment.








The Companys funding costs were also impacted by the lower interest rate environment prevalent over the preceding twelve months. The cost of interest-bearing liabilities decreased to 1.71% for the third quarter of 2003 from 2.43% for the third quarter of 2002. The Company uses wholesale funding sources, such as the FHLB, to balance the timing differences between its various business funding sources and to support loan origination. In the third quarter of 2003, notes payable, FHLB borrowings, federal funds purchased, and securities sold under agreements to repurchase comprised 29.3% of the Companys interest-bearing liabilities compared to 15.8% in the third quarter 2002 due to loan growth exceeding deposit growth in the period.





Provision for Loan Losses





The provision for loan losses was $600 thousand in the third quarter of 2003 compared to $1,050 thousand in the third quarter of 2002. The provision is adjusted to reflect loan growth and managements assessment of asset quality and risk inherent in the loan portfolio. This loan growth has been primarily centered in the commercial and commercial real estate loan categories, which are generally considered higher risk than other types of loans.





Other Income





Total other income increased $212 thousand in the third quarter of 2003 over the third quarter of 2002. The increase was the result of increases in service charges on deposit accounts, investment securities gains, gains on sale of residential mortgage loans, bank owned life insurance, mortgage origination fees, and other income. These increases were offset by decreases in automated teller machine (ATM) and merchant services, security commissions and management fees, and gain on sale of fixed assets. Service charges on deposit accounts increased $76 thousand due to increased fees on business accounts. Investment security gains increased $211 thousand. Gains on sale of residential mortgage loans increased $672 thousand and mortgage origination fees increased $70 thousand, both due to increased refinancing activity on residential mortgages. Bank owned life insurance increased $203 thousand due to a full quarter of income earned for the third quarter of 2003 compared to only a half a month of earned income for the third quarter of 2002. Other income increased $31 thousand. ATM and merchant services decreased $379 thousand mainly due to the sale of the merchant credit card processing business during the second quarter of 2003. Security commission and management fees decreased $4 thousand. Gain on sale of fixed assets decreased $670 thousand in the third quarter of 2003 compared to the third quarter of 2002 due to the sale of non-bank related real estate in the third quarter of 2002.





Other Expenses





Other expenses decreased $342 thousand in the third quarter of 2003 over the third quarter of 2002. The decrease was due to decreases in net occupancy and equipment expense, data processing, ATM and merchant services, advertising, and other expense. These decreases were offset by increases in personnel costs, legal and professional fees, and delivery and postage. Personnel costs increased $229 thousand mainly due to increased sales commissions as a result of the increased volume of refinancing activity on residential mortgages. Net occupancy and equipment expense decreased $3 thousand and data processing decreased $14 thousand. Legal and professional expense increased $166 thousand and other expense decreased $305 thousand, both due to reallocation of expenses. ATM and merchant services decreased $361 thousand mainly due to the sale of the merchant credit card processing business during the second quarter of 2003. Advertising decreased $75 thousand due to a more efficient use of marketing funds and delivery and postage increased $22 thousand.





Income Taxes





Income tax expense for the quarter ended September 30, 2003 was $1.4 million and was $1.3 million for the quarter ended September 30, 2002. The effective tax rate was 31.1% for the third quarter of 2003 compared to an effective rate of 30.1% for the third quarter of 2002. The increase was due to a larger portion of tax-exempt revenue in 2002 compared to 2003.





Results of Operations-Comparison of the Nine-Month Periods Ended September 30, 2003 and September 30, 2002.





General





For the nine months ended September 30, 2003, the Company reported a net income of $9.0 million and net income per share on a fully diluted basis of $1.33, compared to net income of $8.3 million and net income per share on a fully diluted basis of $1.11 reported for the nine months ended September 30, 2002. The increase in net income was mainly due to increased non-interest income including bank owned life insurance and gain on sale of mortgage loans. The increase in earnings per share was mainly due to fewer shares being outstanding due to the stock repurchases effected since the second quarter of 2002.











Net Interest Income





The following table sets forth average balances, related interest income and expenses, and effective interest yields and rates for the nine-month periods ended September 30, 2003 and September 30, 2002 (dollars in thousands):








Nine months ended
September 30, 2003
Nine months ended
September 30, 2002Average
Balance
Interest
Yield/
Rate
Average
Balance
Interest
Yield/
RateASSETSInterest-earning assets:Loans

$
768,380

$
35,131


6.11
%
$
672,447

$
36,003


7.16
%Taxable investment securities


354,916


10,291


3.88
%

322,594


12,905


5.35
%Tax-exempt investment securities


61,332


2,676


5.83
%

63,130


3,064


6.49
%Other short-term investments


0


0


0.00
%

652


10


2.03
%Interest-earning deposits


2,401


37


2.04
%

1,349


70


6.94
%Federal funds sold


13,629


101


0.99
%

37,314


450


1.61
%Total interest-earning assets


1,200,658


48,236


5.37
%

1,097,486


52,502


6.40
%Non-interest-earning assets:Cash and due from banks


39,303








43,267Premises and equipment, net


27,524








28,396Other assets


61,594








42,209Less: Allowance for loan losses


(9,554
)







(8,399
)TOTAL

$
1,319,525







$
1,202,959**LIABILITIES AND STOCKHOLDERS EQUITY**Interest-bearing liabilities:Now accounts

$
111,466

$
276


0.33
%
$
98,404

$
356


0.48
%Money market accounts


214,285


1,744


1.09
%

222,661


2,446


1.47
%Savings deposits


128,645


492


0.51
%

124,636


885


0.95
%Time deposits


317,270


6,904


2.91
%

343,845


9,794


3.81
%Notes payable


30,403


850


3.74
%

17,930


445


3.32
%FHLB borrowings


77,583


2,354


4.06
%

51,050


1,960


5.13
%Federal funds purchased


1,491


18


1.61
%

55


1


2.43
%Securities sold under agreement
to repurchase


163,246


2,070


1.70
%

78,527


1,569


2.67
%Total interest-bearing liabilities


1,044,389


14,708


1.88
%

937,108


17,456


2.49
%Non-interest-bearing liabilities:Demand deposits


157,944








146,038Other


9,029








8,405Total liabilities


1,211,362








1,091,551Stockholders equity


108,163








111,408TOTAL

$
1,319,525







$
1,202,959**Net interest earning and interest rate spread**




**$**
**33,528**


3.49
**%**



**$**
35,046


3.91
**%****Net yield on interest-earning assets**








3.73
**%**







4.27
**%**





1 For the purposes of these computations, non-accrual loans are included in the daily average loan amounts outstanding.


2 Interest earned on loans includes loan fees (which are not material in amount) and interest income that has been received from borrowers whose loans were removed from non-accrual during the period indicated.


3 Taxable-equivalent adjustments are made in calculating interest income and yields using a 35% rate for all years presented. The related adjustments were $975 thousand and $1,100 thousand for September 30, 2003 and September 30, 2002, respectively. The Company believes this disclosure of tax-exempt interest is more meaningful to the reader because these results are more comparable to other banks due to the impact that tax-exempt holdings have on net interest margin.


4 Annualized.










For the nine months ended September 30, 2003, the Company reported taxable-equivalent net interest income of $33.5 million, a decrease of $1.5 million, or 0.4%, from the $35.0 million reported for the nine months ended September 30, 2002. This modest decrease reflects the Companys interest rate risk management policy, which is designed to minimize the impact of interest rate changes on net interest income. The taxable-equivalent yield on interest-earning assets (net interest margin) decreased to 3.73% in the first three quarters of 2003 from 4.27% in the first three quarters of 2002.





The Companys taxable-equivalent total interest income decreased $4.3 million for the nine months ended September 30, 2003 compared to the same period of 2002 due to the lower interest rate environment. Average loans outstanding increased $95.9 million, or 14.3%, in the first three quarters of 2003 over the first three quarters of 2002. For the nine months ended September 30, 2003, the taxable-equivalent yield on interest-earning assets was 5.37% compared to 6.40% for the nine months ended September 30, 2002. The first three quarters of 2003 loan yield was 6.11% compared to 7.16% in the first three quarters of 2002. The Company also experienced declines in the yields earned on its investment securities. For the nine months ended September 30, 2003, the yield earned on taxable investment securities decreased to 3.88% from 5.35% for the nine months ended September 30, 2002. The taxable equivalent yields earned on tax-exempt investment securities decreased to 5.83% for the nine months ended September 30, 2003 from 6.49% for the nine months ended September 30, 2002. The decline in these yields for the nine months ended September 30, 2003 compared to the nine months ended September 30, 2002 is the result of matured or repaid securities replaced by lower yielding securities in a lower interest rate environment.





The Companys funding costs were also impacted by the lower interest rate environment prevalent over the preceding twelve months. The cost of interest-bearing liabilities decreased to 1.88% for the first three quarters of 2003 from 2.49% for the first three quarters of 2002. The Company uses wholesale funding sources, such as the FHLB, to balance the timing differences between its various business funding sources and to support loan origination. In the first three quarters of 2003, notes payable, FHLB borrowings, federal funds purchased, and securities sold under agreements to repurchase comprised 26.1% of the Companys interest-bearing liabilities compared to 15.7% in the first three quarters of 2002 due to loan growth exceeding deposit growth in the period.





Provision for Loan Losses





The provision for loan losses was $2.0 million in the first three quarters of 2003 and 2002. The provision is adjusted to reflect loan growth and managements assessment of asset quality and risk inherent in the loan portfolio. This loan growth has been primarily centered in the commercial and commercial real estate loan categories, which are generally considered higher risk than other types of loans.





Other Income





Total other income increased $3.6 million in the first three quarters of 2003 over the first three quarters of 2002. The increase was the result of increases in service charges on deposit accounts, gain on sale of residential mortgage loans, gain on sale of merchant processing, bank owned life insurance, and mortgage origination fees. These increases were offset by decreases in ATM and merchant services, security commissions and management fees, investment securities gains, and gain on sale of fixed assets, and other income. Service charges on deposit accounts increased $166 thousand due to increased fees on business accounts. Gains on sale of residential mortgage loans increased $2.3 million and mortgage origination fees increased $254 thousand. Both due to increased refinancing activity on residential mortgages. The sale of the Companys merchant credit card processing business resulted in a gain of $1.3 million. Bank owned life insurance increased $1.0 million due to a full nine months of income earned in 2003 compared to a half a month of income earned in 2002. ATM and merchant services decreased $456 thousand mainly due to the sale of the merchant credit card processing business during the second quarter of 2003. Security commission and management fees decreased $50 thousand, investment security gains decreased $142 thousand, and other income decreased $39 thousand. Gain on sale of fixed assets decreased $665 thousand due to the sale of non-bank related real estate sold in the third quarter of 2002.





Other Expenses





Other expenses increased $1.5 million in the first three quarters of 2003 over the first three quarters of 2002. The increase was due to increases in personnel costs, net occupancy and equipment expense, delivery and postage, provision for merchant chargebacks, merchant processing exit fee, efficiency consulting expense, and severance charges. These increases were offset by decreases in, data processing, legal and professional fees, ATM and merchant services, advertising, and other expense. Personnel costs increased $1.5 million mainly due to increased sales commissions as a result of the increased volume of refinancing activity on residential mortgages. Net occupancy and equipment expense increased $31 thousand, data processing decreased $134 thousand, and legal and professional expense decreased $211 thousand  . ATM and merchant services decreased $450 thousand mainly due to the sale of the merchant credit card processing business during the second quarter of 2003. Advertising decreased $62 thousand, and delivery and postage increased $42 thousand. Provision for merchant chargebacks of $300 thousand and merchant processing contract exit fee of $150 thousand were recorded as a result of the sale of its merchant credit card processing business. The Company is in the process of improving efficiency and recorded a charge of $570 thousand for efficiency consulting expense and $180 thousand for severance of management personnel. Other expense decreased $409 thousand.





Income Taxes





Income tax expense for the nine months ended September 30, 2003 and 2002 was $3.7 million. The effective tax rate was 29.0% for the first three quarters of 2003 compared to an effective rate of 30.9% for the same period in 2002. The decrease in the tax rate is due to a higher tax-exempt income as a percentage of total income.





Liquidity





The primary functions of asset/liability management are to assure adequate liquidity and maintain an appropriate balance between interest-earning assets and interest-bearing liabilities. Liquidity management involves the ability to meet the cash flow requirements of depositors and borrowers. Liquid assets (including cash deposits with banks, short-term investments, interest-earning deposits, and federal funds sold) are maintained primarily to meet customers current needs. The Company had liquid assets of $49.6 million and $67.5 million at September 30, 2003 and December 31, 2002, respectively.





Capital Resources





There are certain regulatory requirements that affect the Company's level of capital. The following table sets forth these requirements and the Company's capital levels and ratios at September 30, 2003 (dollars in thousands):





Actual
Regulatory
Minimum
Requirement )
Regulatory
Well-capitalized
RequirementAmount
Percent
Amount
Percent
Amount
PercentTier 1 leverage

$
93,430


7.1
%
$
52,912


4.0
%
$
66,140


5.0
%Tier 1 risk-based capital

$
93,430


9.7
%
$
38,448


4.0
%
$
57,673


6.0
%Risk-based capital

$
103,795


10.8
%
$
76,897


8.0
%
$
96,121


10.0
%





The Company is pursuing a policy of continued asset growth, which requires the maintenance of appropriate ratios of capital to assets. The existing capital levels allow for additional asset growth without further capital infusion. It is the Company's plan to maintain its capital position at or in excess of the "well-capitalized" definition. The Company seeks to obtain additional capital growth through earnings retention and a consistent dividend policy.





Derivative Financial Instruments and Hedging Activities





Interest rate risk, the exposure of the Companys net interest income and net fair value of its assets and liabilities, to adverse movements in interest rates, is a significant market risk exposure that can have a material effect on the Companys financial position, results of operations and cash flows. The Company has policies to ensure that neither earnings nor fair value at risk exceed established guidelines and assesses these risks by continually identifying and monitoring changes in interest rates that may adversely impact expected future earnings and fair values.





The Company has designed strategies to confine these risks within the established limits and identify appropriate risk/reward trade-offs in the financial structure of its balance sheet. These strategies include the use of interest rate swap agreements to manage fluctuations in cash flows or fair values resulting from interest rate risk.





The Company designated the current interest swap outstanding as a fair value hedge of an existing loan that qualifies for "short-cut" treatment.  Accordingly, the Company does not anticipate ineffectiveness arising from differences between the fair value of the loan and the fair value of the swap.





The following table summarizes the Companys fair value hedges at September 30, 2003 (dollars in thousands):







Hedged Item
Hedging Instrument
Notional Amount
Fair Value
Remaining Term (Years)Fixed Rate Loan
Receive Variable Swap
$4,031
$4,120
9.25





Item 3. Quantitative and Qualitative Disclosures About Market Risk





Refer to the Companys annual report on Form 10-K for the year ended December 31, 2002 for a complete discussion of the Companys market risk. There have been no material changes to the market risk information included in the Companys 2002 annual report on Form 10-K.





Item 4. Controls and Procedures





The Companys management, with participation of the Companys Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Companys disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on such evaluation, the Companys Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of such period, the Companys disclosure controls and procedures were effective in recording, processing, summarizing, and reporting, on a timely basis, information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act. There have not been any changes in the Companys internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Companys internal control over financial reporting.











Forward Looking Statements





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





Part II.  Other Information





Item 1. Legal Proceedings





From time to time, the Company and the Bank, are party to legal proceedings arising out of their general lending activities and other operations. Currently there are no material proceedings.





Item 2. Exhibits and Reports on Form 8-K







(a)  Exhibits





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 of Periodic Financial Report by the Chief Executive Officer and Chief Financial Officer pursuant to U.S.C. Section 1350.





(b) Reports on Form 8-K




The Company filed a Current Report on Form 8-K, dated July 15, 2003, furnishing under Item 12 the Companys press release dated July 15, 2003, with respect to financial results for the quarter ended June 30, 2003.





Item 4. Submission of Matters to Vote of Security Holders





None











SIGNATURES








Pursuant to the requirement of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.





**STATE FINANCIAL SERVICES CORPORATION****(Registrant)****Date:** **November 12, 2003**
****
**By: /s/** **Michael J. Falbo****Michael J. Falbo****President and Chief Executive Officer**


**Date:** **November 12, 2003**
**By: /s/** **Daniel L. Westrope****Daniel L. Westrope****Senior Vice President and****Chief Financial Officer**






















STATE FINANCIAL SERVICES CORPORATION


EXHIBIT INDEX TO FORM 10-Q


For The Quarter Ended September 30, 2003








Exhibit Number





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 of Periodic Financial Report by the Chief Executive Officer and Chief Financial Officer pursuant to U.S.C. Section 1350.