SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

               QUARTERLY REPORT UNDER SECTION 13 or 15 (d) OF THE
                         SECURITIES EXCHANGE ACT OF 1934

For Quarter Ended                                       September 30, 1999

Commission file number                                       0-18166

                      STATE FINANCIAL SERVICES CORPORATION
             (Exact name of registrant as specified in its charter)



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



           10708 WEST JANESVILLE ROAD, HALES CORNERS, WISCONSIN 53130
           ----------------------------------------------------------
             (Address and Zip Code of principal executive offices)

                                 Not applicable
               ---------------------------------------------------
              (Former name, former address and former fiscal year,
                          if changed since last report)


                                 (414) 425-1600
                                 --------------
              (Registrant's telephone number, including area code)

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

                      APPLICABLE ONLY TO CORPORATE ISSUERS

Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date.

     As of November 8, 1999, there were 9,159,697  shares of Registrant's  $0.10
     Par Value Common Stock outstanding.


<PAGE>

                                    FORM 10-Q

                      STATE FINANCIAL SERVICES CORPORATION

                                      INDEX


                         PART I - FINANCIAL INFORMATION


                                                                       Page No.

Item 1.         Financial Statements (Unaudited)

                Consolidated Balance Sheets as of
                September 30, 1999 and December 31, 1998                    2

                Consolidated Statements of Income for the
                Three Months ended September 30, 1999 and 1998              3

                Consolidated Statements of Income for the
                Nine months ended September 30, 1999 and 1998               4

                Consolidated Statements of Cash Flows for the
                Nine months ended September 30, 1999 and 1998               5

                Notes to Consolidated Financial Statements                  6

Item 2.         Management's Discussion and Analysis of
                Financial Condition and Results of Operations              10


                           PART II - OTHER INFORMATION

Items 1-6                                                                  21

Signatures                                                                 23


<PAGE>
<TABLE>
     Part I.    Financial Information
     Item 1.    Financial Statements

STATE FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets (Unaudited)
<CAPTION>
                                                                                   September 30,             December 31,
                                                                                       1999                     1998
                                                                                -------------------      -------------------
ASSETS
<S>                                                                                  <C>                        <C>
  Cash and due from banks                                                            $   30,982,575             $ 31,028,203
  Federal funds sold                                                                      4,496,669                8,508,387
  Other short-term investments                                                            1,400,000               12,900,000
   Interest-earning deposits                                                              7,277,330               29,793,241
                                                                                -------------------      -------------------
  Cash and cash equivalents                                                              44,156,574               82,229,831
 Investment securities:
  Held-to-maturity (fair value $4,878,597 - September 30, 1999
    and $10,479,402 - December 31, 1998)                                                  4,821,560               10,290,241
  Available for sale (at fair value)                                                    202,345,158               94,704,827
 Loans (net of allowance for loan losses of $7,117,593 -September
   30, 1999 and $4,484,504 -December 31, 1998)                                          728,375,603              607,948,900
  Premises and equipment                                                                 21,539,304               13,333,369
  Accrued interest receivable                                                             6,169,119                4,485,332
  Other assets                                                                           37,437,376               15,376,023
                                                                                -------------------      -------------------
                                                                  TOTAL ASSETS       $1,044,844,694             $828,368,523
                                                                                ===================      ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
  Deposits:
    Demand                                                                              111,799,428               81,540,940
    Savings                                                                             237,808,526              199,266,311
    Money market                                                                        176,241,523              120,297,093
    Other time                                                                          296,491,090              251,800,542
                                                                                -------------------      -------------------
                                                                TOTAL DEPOSITS          822,340,567              652,904,886
  Notes payable                                                                          23,226,624                6,750,000
  Securities sold under agreements to repurchase                                          9,407,242                4,116,677
  Federal Home Loan Bank advances                                                        45,000,000               25,000,000
  Federal funds purchased                                                                15,240,000                        0
  Accrued expenses and other liabilities                                                  4,830,938                3,270,762
  Accrued interest payable                                                                1,906,243                1,688,920
                                                                                -------------------      -------------------
                                                             TOTAL LIABILITIES          921,951,614              693,731,245
Stockholders' equity:
    Preferred stock, $1 par value; authorized--100,000 shares;
      issued and outstanding--none
    Common stock, $0.10 par value; authorized--10,000,000 shares
      issued and outstanding--10,087,509 shares in 1999
      and 10,076,017 in 1998                                                              1,008,751                1,007,601
    Capital surplus                                                                      94,863,228               94,153,564
    Accumulated other comprehensive income                                               (1,642,334)               1,080,549
    Retained earnings                                                                    46,789,751               43,748,273
    Less: Guaranteed ESOP obligation                                                     (5,131,608)              (5,352,709)
           Treasury stock, at cost (767,612 and 0 shares at September
             30, 1999 and December 31, 1998, respectively)                              (12,994,708)                        0
                                                                                -------------------      -------------------
                                                    TOTAL STOCKHOLDERS' EQUITY          122,893,080              134,637,278
                                                                                -------------------      -------------------
                                    TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY       $1,044,844,694             $828,368,523
                                                                                ===================      ===================
See notes to unaudited consolidated financial statements.

</TABLE>

                                        2
<PAGE>
<TABLE>
STATE FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
<CAPTION>
                                                                                       Three months ended September 30,
                                                                                         1999                     1998
                                                                                -------------------      -------------------
INTEREST INCOME:
<S>                                                                                     <C>                      <C>
  Loans, including fees                                                                 $14,721,852              $12,258,059
  Investment securities:
    Taxable                                                                               2,814,272                1,691,098
    Tax-exempt                                                                              464,977                  361,328
  Federal funds sold                                                                         65,544                  168,412
                                                                                -------------------      -------------------
                                                         TOTAL INTEREST INCOME           18,066,645               14,478,897
INTEREST EXPENSE:
  Deposits                                                                                7,182,398                6,296,266
  Notes payable and other borrowings                                                      1,116,347                  271,181
                                                                                -------------------      -------------------
                                                        TOTAL INTEREST EXPENSE            8,298,745                6,567,447
                                                                                -------------------      -------------------
                                                           NET INTEREST INCOME            9,767,900                7,911,450

Provision for loan losses                                                                   202,500                  172,500
                                                                                -------------------      -------------------
                                                     NET INTEREST INCOME AFTER
                                                     PROVISION FOR LOAN LOSSES            9,565,400                7,738,950
OTHER INCOME:
  Service charges on deposit accounts                                                       530,655                  521,905
  Merchant service fees                                                                     405,768                  331,819
  Building rent                                                                              62,416                   70,024
  ATM fees                                                                                  158,058                  211,180
  Security transaction commissions                                                          132,586                  106,470
  Asset management fees                                                                     165,643                   30,623
  Gains on sale of loans                                                                    315,077                  258,204
  Investment security gains                                                                 246,558                   13,628
  Other                                                                                     157,380                  312,059
                                                                                -------------------      -------------------
                                                            TOTAL OTHER INCOME            2,174,141                1,855,912
OTHER EXPENSES:
  Salaries and employee benefits                                                          3,781,819                3,260,670
  Net occupancy expense                                                                     401,942                  295,452
  Equipment rentals, depreciation and maintenance                                           985,151                  663,303
  Data processing                                                                           503,191                  488,134
  Legal and professional                                                                    300,270                  204,577
  Merchant service charges                                                                  329,068                  323,069
  ATM charges                                                                               116,145                  165,882
  Advertising                                                                               301,734                  201,749
  Goodwill amortization                                                                     514,962                  159,263
  Other                                                                                   1,025,724                  831,083
                                                                                -------------------      -------------------
                                                          TOTAL OTHER EXPENSES            8,260,006                6,593,182
                                                    INCOME BEFORE INCOME TAXES            3,479,535                3,001,680
Income taxes                                                                              1,077,272                1,067,127
                                                                                -------------------      -------------------
                                                                    NET INCOME           $2,402,263               $1,934,553
                                                                                ===================      ===================

 Basic earnings per common share (see Note B)                                                $ 0.26                    $0.20
 Diluted earnings per common share (see Note B)                                                0.26                     0.20
 Dividends per common share                                                                    0.12                     0.12
</TABLE>

See notes to unaudited consolidated financial statements.


                                        3
<PAGE>
<TABLE>
STATE FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income (Unaudited)
<CAPTION>
                                                                                       Nine months ended September 30,
                                                                                         1999                     1998
                                                                                -------------------      -------------------
INTEREST INCOME:
<S>                                                                                    <C>                      <C>
  Loans, including fees                                                                $ 39,685,431             $ 36,379,155
  Investment securities:
    Taxable                                                                               6,060,916                5,249,702
    Tax-exempt                                                                            1,213,455                  989,773
  Federal funds sold                                                                        313,334                  517,292
                                                                                -------------------      -------------------
                                                         TOTAL INTEREST INCOME           47,273,136               43,135,922
INTEREST EXPENSE:
  Deposits                                                                               18,443,798               18,738,551
  Notes payable and other borrowings                                                      2,550,458                  587,063
                                                                                -------------------      -------------------
                                                        TOTAL INTEREST EXPENSE           20,994,256               19,325,614
                                                                                -------------------      -------------------
                                                           NET INTEREST INCOME           26,278,880               23,810,308

Provision for loan losses                                                                   547,500                  517,500
                                                                                -------------------      -------------------
                                                     NET INTEREST INCOME AFTER
                                                     PROVISION FOR LOAN LOSSES           25,731,380               23,292,808
OTHER INCOME:
  Service charges on deposit accounts                                                     1,513,112                1,429,083
  Merchant service fees                                                                   1,087,137                  950,394
  Building rent                                                                             188,450                  212,252
  ATM fees                                                                                  506,270                  571,354
  Security transaction commissions                                                          379,888                  289,308
  Asset management fees                                                                     465,297                   30,623
  Gains on sale of loans                                                                    732,581                  634,098
  Investment security gains                                                                 992,469                  420,817
  Other                                                                                     490,070                  655,403
                                                                                -------------------      -------------------
                                                            TOTAL OTHER INCOME            6,355,304                5,193,332
OTHER EXPENSES:
  Salaries and employee benefits                                                          9,845,296                9,770,888
  Net occupancy expense                                                                   1,046,432                  907,091
  Equipment rentals, depreciation and maintenance                                         2,434,544                2,078,478
  Data processing                                                                         1,538,370                1,446,695
  Legal and professional                                                                    810,828                  908,587
  Merchant service charges                                                                  823,866                  782,748
  ATM charges                                                                               444,021                  470,162
  Advertising                                                                               721,298                  655,878
  Goodwill amortization                                                                     872,122                  444,703
  Merger-related charge                                                                     598,292                        0
  Other                                                                                   2,854,498                2,702,197
                                                                                -------------------      -------------------
                                                          TOTAL OTHER EXPENSES           21,989,567               20,167,427
                                                    INCOME BEFORE INCOME TAXES           10,097,117                8,318,713
Income taxes                                                                              3,668,276                2,955,853
                                                                                -------------------      -------------------
                                                                    NET INCOME          $ 6,428,841              $ 5,362,860
                                                                                ===================      ===================

Basic earnings per common share                                                               $0.67                    $0.56
 Diluted earnings per common share (see Note B)                                                0.67                     0.55
 Dividends per common share (see Note B)                                                       0.36                     0.36

See notes to unaudited consolidated financial statements.
STATE FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES

</TABLE>

                                        4
<PAGE>
<TABLE>
Consolidated Statements of Cash Flows (Unaudited)
<CAPTION>
                                                                                       Nine months ended September 30,
                                                                                         1999                     1998
                                                                                -------------------      -------------------
OPERATING ACTIVITIES
<S>                                                                                     <C>                      <C>
  Net income                                                                            $ 6,428,841              $ 5,362,860
  Adjustments to reconcile net income to net
    cash provided by operating activities:
      Provision for loan losses                                                             547,500                  517,500
      Provision for depreciation                                                          1,142,471                1,163,278
      Amortization of investment security
        premiums and accretion of discounts-net                                             543,302                  122,122
      Amortization of goodwill                                                              872,122                  444,703
      Market adjustment for committed ESOP shares                                           598,291                  406,588
      Cost of Recognition and Retention Plan                                                      0                  674,736
      Increase in interest receivable                                                   (1,683,787)                (422,318)
      Increase (decrease) in interest payable                                           (2,527,677)                  247,076
      Realized investment security gains-net                                              (992,469)                (420,817)
      Other decrease (increase)                                                           1,990,976              (1,019,019)
                                                                                -------------------      -------------------
                                     NET CASH PROVIDED BY OPERATING ACTIVITIES            6,919,570                7,076,709
INVESTING ACTIVITIES
  Purchases of investment securities                                                              0                        0
  Maturities of investment securities                                                     5,435,058                7,543,783
  Purchases of securities available for sale                                           (30,781,609)             (39,451,868)
  Maturities of securities available for sale                                            22,011,294               13,953,999
  Sales of securities available for sale                                                  3,756,789               13,729,777
  Net increase in loans                                                                (35,035,756)             (33,545,838)
  Purchases of premises and equipment                                                   (2,864,358)                (425,795)
  Business acquisitions (net of cash and cash equivalents
    acquired of $7,721,000 in 1999)
    Loans                                                                              (85,938,447)                        0
    Investment securities available-for-sale                                          (105,550,000)                        0
    Premises and equipment                                                              (6,484,048)                 (68,186)
    Goodwill                                                                           (19,079,446)              (2,571,281)
    Deposits                                                                            184,989,394                        0
    Federal funds purchased                                                                 954,000                        0
    Securities sold under agreement to repurchase                                         6,000,000                        0
    Other                                                                                 (856,727)                  230,668
                                                                                -------------------      -------------------
                                         NET CASH USED BY INVESTING ACTIVITIES         (63,443,856)             (40,604,741)
FINANCING ACTIVITIES
  Increase (decrease) in deposits                                                      (15,553,713)                7,019,379
  Repayment of notes payable                                                            (6,750,000)              (4,054,902)
  Proceeds of notes payable                                                              23,226,624                        0
  Decrease in guaranteed ESOP obligation                                                    221,101                  268,349
  Net change in securities sold under agreement to repurchase                             (709,435)                3,618,211
  Increase in Federal Home Loan Bank Advances                                            20,000,000               20,000,000
  Proceeds from federal funds purchased                                                  14,286,000                        0
  Purchase of treasury stock                                                           (12,994,708)              (3,079,956)
  Cash dividends                                                                        (3,387,363)              (3,430,133)
  Issuance of common stock in acquisition                                                         0                2,410,199
  Proceeds from exercise of stock options                                                   112,523                  196,432
                                                                                -------------------      -------------------
                                     NET CASH PROVIDED BY FINANCING ACTIVITIES           18,451,029               22,947,579
                                                                                -------------------      -------------------
DECREASE IN CASH AND CASH EQUIVALENTS                                                  (38,073,257)             (10,580,453)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                         82,229,831               80,584,884
                                                                                -------------------      -------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                             $ 44,156,574             $ 70,004,431
                                                                                ===================      ===================
Supplemental information:
  Interest paid                                                                        $ 23,521,935             $ 19,079,861
  Income taxes paid                                                                       2,882,400                3,341,000
See notes to unaudited consolidated financial statements.
</TABLE>

                                        5
<PAGE>

STATE FINANCIAL SERVICES CORPORATION AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
September 30, 1999


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 - State  Financial Bank  (Wisconsin),  State  Financial Bank -
Waterford  ("Waterford"),  State Financial  Mortgage Company,  Richmond Bancorp,
Inc. ("Bancorp") Lokken, Chesnut and Cape ("LCC"), Home Federal Savings and Loan
Association of Elgin ("Home"),  and First Waukegan  Corporation  ("FWC").  State
Financial  Bank also  includes the  accounts of its wholly  owned  subsidiaries,
Hales Corners Development  Corporation and Hales Corners Investment Corporation.
Waterford also includes the accounts of its wholly owned  subsidiary,  Waterford
Investment  Corporation.  Bancorp also includes the accounts of its wholly owned
subsidiaries,  State Financial Bank  (Illinois,  "Richmond") and State Financial
Investments,  Inc.  Richmond  also  includes  the  accounts of its wholly  owned
subsidiary,  State Financial  Insurance Agency. FWC includes the accounts of its
wholly  owned  subsidiary,   Bank  of  Northern  Illinois,   N.A.  ("BNI").  All
significant intercompany balances and transactions have been eliminated.

     The  accompanying  unaudited  consolidated  financial  statements have been
prepared in accordance with generally accepted accounting principles for interim
financial  information and with the  instructions to Form 10-Q and Article 10 of
Regulation  S-X.  Accordingly,  they do not include all of the  information  and
footnotes  required by generally  accepted  accounting  principles  for complete
financial statements. In the opinion of management,  all adjustments (consisting
of normal recurring accruals)  considered necessary for a fair presentation have
been included.  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 to stockholders for the year ended December 31, 1998.

NOTE B - 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 is 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.  The  denominators  for the
earnings per share amounts are as follows:
<TABLE>
<CAPTION>
                                            For the three months ended   For the nine months ended
                                              September    September     September    September
                                                 30,          30,           30,          30,
                                                1999         1998          1999         1998
                                            -------------------------------------------------------
Basic:
Weighted-average number of
<S>                                            <C>         <C>            <C>          <C>
 shares outstanding                            9,741,102   10,074,224     9,967,332    10,119,904
Less: weighted-average number
of unearned ESOP shares                        (445,696)     (530,300)     (419,419)     (530,989)
                                            ------------ ------------ ------------- -------------
Denominator for basic earnings per share       9,295,406    9,543,924     9,547,913     9,588,915
                                            ============ ============ ============= =============

Fully diluted:
Denominator for basic earnings per share       9,295,406    9,543,924     9,547,913     9,588,915
Add: assumed conversion of  stock
options using the treasury stock method           20,877       33,947        18,380       101,051
                                            ============ ============ ============= =============
Denominator for fully diluted
 earnings per share                            9,316,283    9,577,871     9,566,293     9,689,966
                                            ============ ============ ============= =============

</TABLE>

                                        6
<PAGE>

NOTE C - ACQUISITIONS

     On June 23,  1999,  the Company  completed  its cash  acquisition  of First
Waukegan  Corporation and its subsidiary,  Bank of Northern  Illinois,  N.A. The
acquisition  was  recorded as a  purchase.  Application  of purchase  accounting
requires the inclusion of FWC's and BNI's operating  results in the consolidated
statements of income from the date of acquisition.  Accordingly, FWC's and BNI's
operating  results for the period June 23, 1999 through  September  30, 1999 are
included in the  Company's  consolidated  statements of income for the three and
nine months ended  September  30,  1999.  FWC and BNI's  financial  condition is
included in the Company's  consolidated balance sheets dated September 30, 1999.
No operating  results of FWC and BNI are included in the Company's  consolidated
statements of income for the three and nine months ended September 30, 1998.

     On a pro forma basis,  total  income,  net income,  basic and fully diluted
earnings  per share for the three and nine months ended  September  30, 1998 and
September 30, 1999,  after giving effect to the  acquisition of FWC as if it had
occurred on January 1, 1998 and January 1, 1999 are as follows:
<TABLE>
<CAPTION>
                                   For the nine     For the nine    For the three     For the three
                                   months ended     months ended    months ended      months ended
                                   September 30,    September 30,   September 30,     September 30,
                                       1999             1998            1999              1998
                                 ----------------------------------------------------------------------
<S>                                 <C>              <C>             <C>                <C>
Total income                        $ 61,209,291     $ 57,507,587    $ 23,927,415       $20,520,920
Net income                             3,880,409        4,325,767       1,843,033         1,446,855
Basic earnings per share                    0.41             0.45            0.26              0.15
Diluted earnings per share                  0.41             0.45            0.26              0.15
</TABLE>

     On September 8, 1998,  the Company  completed  its  acquisition  of LCC, an
asset management firm located in LaCrosse,  Wisconsin. The Company purchased the
outstanding  common  stock of LCC in exchange  for 113,241  shares of its common
stock valued at $21.19 per share on the transaction  date. An additional  28,310
shares of common  stock may be issued on January 31, 2002 subject to LCC meeting
or exceeding certain operating  performance targets in 1999, 2000, and 2001. The
acquisition  was  recorded as a  purchase.  Application  of purchase  accounting
requires the inclusion of LCC's operating results in the consolidated statements
of income from the date of acquisition. Accordingly, LCC's operating results for
the period  January 1, 1999  through  September  30,  1999 are  included  in the
Company's consolidated  statements of income for the three and nine months ended
September  30, 1999.  LCC's  financial  condition  is included in the  Company's
consolidated  balance sheets dated September 30, 1999.  Operating results of LCC
for the period September 8, 1998 through  September 30, 1998 are included in the
Company's consolidated  statements of income for the three and nine months ended
September  30,  1998.  Pro forma data to include  LCC  financial  results is not
presented as the effect is immaterial.

     Home was a business combination  consummated on December 15, 1998 accounted
for as a pooling-of-interests.  Accordingly,  the financial position and results
of  operations  and cash flows of the  Company  and Home have been  restated  as
though the companies were combined for all historical periods.

NOTE 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  includable  in  reported  net income but are  reflected  in
shareholders'  equity.  A  reconciliation  of net income to total  comprehensive
income follows for the periods indicated.


                                        7
<PAGE>
<TABLE>
<CAPTION>
                                              For the three months ended           For the nine months ended
                                            September 30,    September 30,     September 30,     September 30,
                                                1999             1998              1999              1998
                                        -----------------------------------------------------------------------
<S>                                           <C>              <C>               <C>               <C>
Net income                                    $2,402,263       $1,934,553        $6,428,841        $5,362,860
Other comprehensive income
Change in unrealized securities
   gains (losses), net of tax                   (893,923)         468,741        (2,119,561)          383,120
Reclassification adjustment for
     realized gains included in
     net income                                 (246,558)         (13,628)         (992,469)         (420,817)
Estimated income tax on
    realized securities gains                     96,675            5,344           389,147           165,002
                                        -----------------------------------------------------------------------
Total comprehensive income                    $1,358,457       $2,395,010        $3,705,958        $5,490,165
                                        =======================================================================
</TABLE>

NOTE E - SEGMENT INFORMATION

     The Company  evaluates  segment  performance for each subsidiary  financial
institution,  which is  differentiated  primarily by  geographic  location.  The
Company has five reportable  segments:  State Financial Bank (Wisconsin),  State
Financial  Bank -  Waterford,  State  Financial  Bank  (Illinois),  Home Federal
Savings and Loan Association of Elgin, and Bank of Northern Illinois,  N.A. Each
institution  provides a full range of retail and  commercial  banking  services.
Additionally,  State Financial Bank (Illinois)  provides insurance and brokerage
services.

     Management  evaluates the after-tax  performance  of each of the subsidiary
financial  institutions on that institution's actual earning assets,  nonearning
assets, and funding sources.  Each subsidiary financial  institution has its own
net interest  income,  provision  for loan  losses,  other  income,  noninterest
expense and income tax  provision  as captured by the  institution's  accounting
systems.  The "all other" category includes  primarily the results of the parent
company and Lokken,  Chesnut & Cape.  Intercompany and other amounts,  which are
included in "all other" are not material.

     The  following  tables  contain  profit (loss)  statements  for each of the
subsidiary  financial  institutions for the nine months ended September 30, 1999
and 1998.
<TABLE>
<CAPTION>
                                                            For the nine months ended September 30, 1999

                                                                         Home Federal
                               State                         State        Savings and
                             Financial        State         Financial        Loan          Bank of
                                Bank     Financial Bank -     Bank      Association of     Northern         All
                            (Wisconsin)     Waterford      (Illinois)        Elgin      Illinois, N.A.     Other     Consolidated
                          ---------------------------------------------------------------------------------------------------------
<S>                        <C>             <C>            <C>            <C>            <C>            <C>          <C>
Interest income            $ 15,543,649    $ 2,886,063    $ 4,126,596    $ 20,630,144   $  4,002,889   $   83,795   $   47,273,136
Interest expense              5,914,975      1,282,905      1,915,501      10,147,855      1,710,361       22,661       20,994,258
                          ---------------------------------------------------------------------------------------------------------
Net interest income           9,628,674      1,603,158      2,211,095      10,482,289      2,292,528       61,134       26,278,878
Provision for loan losses       225,000         22,500        180,000          90,000         30,000            0          547,500
                          ---------------------------------------------------------------------------------------------------------
Net interest income after
 provision for loan losses    9,403,674      1,580,658      2,031,095      10,392,289      2,262,528       61,134       25,731,378
Other income                  2,782,182        261,391        670,648         866,411        359,523    1,415,149        6,355,304
Merger-related charges                0              0              0         598,292              0            0          598,292
Other noninterest
 expense                      7,317,559      1,310,292      2,745,037       6,635,581      2,056,352    1,326,452       21,391,273
                          ---------------------------------------------------------------------------------------------------------
Income (loss) before
 income taxes                 4,868,297        531,757        (43,294)      4,024,827        565,699      149,831       10,097,117
Income taxes                  1,509,019        158,977         62,412       1,562,357        272,858      102,653        3,668,276
                          ---------------------------------------------------------------------------------------------------------
Net income (loss)           $ 3,359,278      $ 372,780    ($  105,706)    $ 2,462,470      $ 292,841     $ 47,178      $ 6,428,841
                          =========================================================================================================
Total assets               $291,270,773    $56,101,432    $76,914,220    $390,699,676   $222,578,547   $7,280,046   $1,044,844,694
                          =========================================================================================================

</TABLE>

                                        8
<PAGE>
<TABLE>
<CAPTION>
                                                       For the nine months ended September 30, 1998

                                   State                                           Home Federal
                                 Financial          State            State         Savings and
                                   Bank        Financial Bank -  Financial Bank  Loan Association    All
                                (Wisconsin)       Waterford        (Illinois)        of Elgin        Other       Consolidated
                             --------------------------------------------------------------------------------------------------
<S>                            <C>              <C>             <C>              <C>              <C>            <C>
Interest income                  15,779,685       2,855,711       4,816,020        19,675,847          8,659     $ 43,135,922
Interest expense                  6,543,301       1,391,538       2,707,949         8,638,060         44,766       19,325,614
                             --------------------------------------------------------------------------------------------------
Net interest income               9,236,384       1,464,173       2,108,071        11,037,787        (36,107)      23,810,308
Provision for loan losses           225,000          22,500         180,000            90,000              0          517,500
Net interest income after
 provision for loan losses        9,011,384       1,441,673       1,928,071        10,947,787        (36,107)      23,292,808
Other income                      2,757,743         294,738         905,310           839,743        395,798        5,193,332
Other noninterest
 expense                          6,998,061       1,324,767       2,791,341         8,572,789        480,469       20,167,427
                             --------------------------------------------------------------------------------------------------
Income before income taxes        4,771,066         411,644          42,040         3,214,741       (120,778)       8,318,713
Income taxes                      1,496,265         129,726          90,823         1,246,947     ($   7,908)       2,955,853
                             --------------------------------------------------------------------------------------------------
Net income (loss)              $  3,274,801     $   281,918     ($   48,783)     $  1,967,794     ($ 112,870)    $  5,362,860
                             ==================================================================================================
Total assets                   $275,496,214     $51,976,389     $85,088,062      $386,104,157     $1,594,958     $803,259,780
                             ==================================================================================================

</TABLE>

NOTE F - STOCK REPURCHASE PROGRAM

     On  June  15,  1999,  the  Company's  Board  of  Directors  authorized  the
repurchase  of up to 15% or  approximately  1.5 million  shares of the Company's
common stock.  The Company  commenced the stock  repurchase  program on July 19,
1999.  Through  November 8, 1999, the Company has repurchased  936,912 shares of
its common  stock at an average  price of $16.72 per share.  The 936,912  shares
represents 9.29% of the total shares  outstanding at June 15, 1999, the date the
stock  repurchase  plan was announced.  Because the Company meets the regulatory
definition  of a  well-capitalized  institution,  no  regulatory  approvals  are
necessary to complete the repurchase plan.

NOTE G - SHAREHOLDER RIGHTS PLAN

     On July 27, 1999,  the Company's  Board of Directors  adopted a Shareholder
Rights Plan which includes the  declaration of a dividend of one Preferred Share
Purchase Right (the "Right") on each  outstanding  share of the Company's common
stock.  The issuance of the rights was made to  shareholders of record as of the
close of business on August 27,  1999.  After the  dividends,  each  outstanding
share of the Company's common stock will have attached thereto one Right.

     The Rights are designed to provide  additional  protection  against abusive
takeover tactics such as partial tender offers,  selective open-market purchases
and offers  for all the  shares of the  Company at less than full value or at an
inappropriate  time.  The  Rights  are  intended  to  assure  that the  Board of
Directors has the ability to protect shareholders and the Company if efforts are
made to  gain  control  of the  Company  in a  manner  that  is not in the  best
interests of the Company and all of its  shareholders.  The Rights are not being
distributed  in  response  to any  specific  effort to  acquire  control  of the
Company, and the Board is not aware of any such effort.

     The Rights will be  exercisable  only if a person or group  acquires 15% or
more of the Company's Common Stock or announces a tender offer,  consummation of
which  would  result  in  ownership  by a person  or group of 15% or more of the
Common  Stock.  Each  Right  will  initially  entitle  shareholders  to buy  one
one-thousandth  share of the  Company's  Class A Preferred  Stock at an exercise
price of $70 per one one-thousandth share, subject to adjustment.  If any person
becomes a 15% or more  shareholder  of the Company,  each Right will entitle its
holder to  purchase,  at the Rights  then-current  exercise  price,  a number of
common  shares of the Company or of the  acquiror  having a market  value at the
time of twice the Right's exercise price.

     The  Rights  are  designed  to  permit  shareholders  to  benefit  from the
long-term  value of the  Company and to aid in  assuring  that all  shareholders
receive fair and equal  treatment  in the event of any proposed  takeover of the
Company.  The  Rights  will  expire  on July 27,  2009,  subject  to  extension.
Distribution of the Rights is not taxable to shareholders.


                                        9
<PAGE>

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
        FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Changes in Financial Condition

     At  September  30,  1999,  total  assets  were  $1,044,845,000  compared to
$828,369,000  at December 31,  1998,  an increase of  $216,476,000.  On June 23,
1999, the Company  completed its acquisition of FWC and its banking  subsidiary,
BNI, in a purchase transaction.  FWC and BNI added $222,579,000 to the Company's
consolidated  September  30, 1999 total  assets.  The Company  purchased FWC for
$27,565,000 in cash and assumed  $2,404,000 in preferred stock and $3,718,000 of
debt  outstanding at FWC. At closing,  the Company  redeemed the preferred stock
and retired FWC's debt. The Company funded the acquisition from internal sources
and through $10,000,000 in notes drawn on its line of credit.

     Other  significant  uses of funds  during  the  first  nine  months of 1999
consisted  of  $35,036,000  in  net  loan  increases,   $15,554,000  in  deposit
contraction,  $12,995,000  in  treasury  stock  purchases,  $6,750,000  in  debt
retirement,  $3,387,000  in cash  dividend  payments,  $2,864,000 in fixed asset
additions,  $709,000 in reduced repurchase agreement balances  outstanding.  Net
loan  increases  resulted from increased loan demand in the first nine months of
1999, as well as new loan products  introduced at Home subsequent to the merger.
Exclusive of the BNI acquisition, total deposits decreased during the first nine
months of 1999 mainly due to cyclical  declines in demand and now  balances  and
strategic  municipal  deposit  contraction.  Fixed asset  purchases  were mainly
related to  computer  enhancements  and the real  estate  purchased  for the new
Waukesha  and Elkhorn  branch  locations.  The Company  upgraded  its systems in
preparation for Richmond's,  Elgin's, and BNI's conversion to the Company's data
service  provider in May,  July, and October,  respectively.  In addition to the
aforementioned  $10,000,000  line of  credit  advance  for the FWC  acquisition,
additional  funding  came  from  a  $45,794,000  in  cash  and  cash  equivalent
contraction  (exclusive of the $7,721,000 in cash and equivalents  acquired with
FWC), a $20,000,000 increase in Federal Home Loan Bank Advances,  $14,286,000 in
additional  federal funds  purchased,  $13,227,000  in additional  notes payable
proceeds to fund the treasury stock purchase, $6,920,000 in net cash provided by
operating   activities,   $422,000  in  net  investment   securities  sales  and
maturities,  $221,000 in ESOP loan  repayments,  and  $112,000 in proceeds  from
exercised stock options.

     State reported asset  contraction at each of its banking  operations except
State Financial Bank  (Wisconsin)  from December 31, 1998 to September 30, 1999,
mainly  due to  contraction  in  savings  and demand  deposits.  Broken  down by
reporting segments, total assets increased $12.0 million at State Financial Bank
(Wisconsin) and decreased $4.8 million at State Financial Bank - Waterford, $6.4
million  at  State  Financial  Bank  (Illinois),   and  $6.7  million  at  Home.
Additionally,  the FWC  acquisition  added  $222.6  million in assets to State's
consolidated  footings.  State reported net loans of $728.4 million at September
30, 1999, an increase of $120.4  million over December 31, 1998,  which included
$85.9 million in loans  acquired  with FWC.  Exclusive of the  acquisition,  net
loans  increased  $34.5  million or 5.7% mainly due to  commercial  loan growth.
Total  deposits  at  September  30, 1999 grew $169.4  million  including  $185.0
million  acquired  with FWC.  Exclusive of the  acquisition,  total  deposits at
September 30, 1999 decreased $15.6 million or 2.4% from December 31, 1998. Total
stockholders'  equity  decreased to $122.9  million at  September  30, 1999 from
$134.6  million at December 31, 1998 mainly due to the Company's  $13.0 in stock
repurchases  during  third  quarter  1999  offset by earnings  retention  net of
dividends.

Asset Quality

     At September 30, 1999,  non-performing assets were $5,421,000,  an increase
of $452,000 from June 30, 1999. This increase was due to a $165,000  increase in
non-performing  loans  and a  $287,000  increase  in other  real  estate.  Total
non-performing  assets as a  percentage  of total  assets  increased to 0.52% at
September  30, 1999 from 0.47% at June 30, 1999.  As a percentage of total loans
outstanding,  the level of non-performing  loans increased to 0.67% at September
30, 1999 from 0.65% at June 30, 1999.

     At September 30, 1999,  available  information  regarding  additional loans
totaling approximately $645,000,  causes management to have serious doubts as to
the ability of such borrowers to comply with present loan repayment terms.

     The following table summarizes non-performing assets on the dates indicated
(dollars in thousands).


                                       10
<PAGE>
<TABLE>
<CAPTION>
                                                       Sept. 30       Jun. 30        Mar. 31        Dec 31        Sep. 30
                                                           1999          1999           1999          1998           1998
                                                   --------------------------------------------------------------------------
<S>                                                <C>                 <C>      <C>            <C>                 <C>
Nonaccrual loans.................................. $      4,642         4,701   $      2,904   $     3,245          2,681
Accruing loans past due 90 days or more...........          242            18            546           106            436
Restructured loans................................            0             0              0             0              0
                                                   --------------------------------------------------------------------------
Total non-performing and restructured loans               4,884         4,719          3,450         3,351          3,117
                                                   --------------------------------------------------------------------------
Other real estate owned...........................          537           250            460           572            347
                                                   --------------------------------------------------------------------------
Total non-performing assets....................... $      5,421         4,969   $      3,910   $     3,923          3,464
                                                   ==========================================================================
Ratios:
  Non-performing loans to total loans.............         0.67%         0.65%          0.65%         0.55%          0.52%
  Allowance to non-performing loans...............       145.73        147.55         133.68        133.84         143.95
  Non-performing assets to total assets...........         0.52          0.47           0.46          0.47           0.43
                                                   ==========================================================================
</TABLE>

     When,  in  the  opinion  of  management,  serious  doubt  exists  as to the
collectibility of a loan, the loan is placed on nonaccrual status. At the time a
loan is classified as nonaccrual, interest income accrued in the current year is
reversed  and  interest  income  accrued  in the prior  year is  charged  to the
allowance for loan losses.  The Company does not generally  recognize  income on
loans past due 90 days or more.

Allowance for Loan Losses and Net Charge-offs

     Management  maintains the allowance for loan losses (the  "Allowance") at a
level  considered  adequate to provide for future loan losses.  The Allowance is
increased by provisions  charged to earnings and is reduced by charge-offs,  net
of recoveries.  At September 30, 1999, the Allowance was $7,118,000, an increase
of  $2,634,000  from  the  balance  at  December  31,  1998.  Of this  increase,
$2,228,000  was due to  additional  allowance  acquired  with BNI. The remaining
$406,000 increase in the allowance was due to loan loss provisions exceeding net
charge-offs at the other four banks through the first nine months of 1999 and at
BNI since the acqusition date.

     The determination of Allowance adequacy is determined  quarterly based upon
an  evaluation  of the  Company's  loan  portfolio by the  internal  loan review
officer  and  management.  These  evaluations  consider  a variety  of  factors,
including, but not limited to, general economic conditions,  loan portfolio size
and composition,  previous loss experience,  the borrower's financial condition,
collateral  adequacy,  the  level  of  non-performing  loans,  and  management's
estimation  of  future  losses.  The  total  allowance  at  Setpember  30,  1999
represented 0.97% of total loans  outstanding  compared to 0.73% at December 31,
1998.  This  increase was due to the inclusion of BNI's  proportionately  higher
allowance as a percentage  of loans and the  increase in  non-performing  assets
over the preceeding nine months.  Based upon its analyses,  management considers
the Allowance  adequate to recognize  the risk  inherent in the  Company's  loan
portfolio at September 30, 1999.

     The allowance for loan losses is composed of specific and general valuation
allowances.   The  Company   establishes   specific   valuation   allowances  on
income-producing  real estate loans  considered  impaired.  A loan is considered
impaired (and a specific valuation allowance  established for an amount equal to
the  impairment)  when 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.

         General valuation  allowances are based on an evaluation of the various
risk components that are inherent in the credit portfolio.

     The risk components that are evaluated  include past loan loss  experience;
the level of nonperforming and classified assets,  current economic  conditions,
volume,  growth and composition of the loan portfolio,  adverse  situations that
may  affect  the  borrower's  ability  to  repay;  the  estimated  value  of any
underlying  collateral;  peer group comparisons;  regulatory guidance; and other
relevant factors.  The allowance is increased by provisions  charges to earnings
and reduced by charge-offs, net of recoveries.  Management may transfer reserves
between specific and general valuation allowances as considered  necessary.  The
adequacy of the allowance for loan losses is approved quarterly by the


                                       11
<PAGE>

Company's board of directors.  The allowance reflects management's best estimate
of the  reserves  needed  to  provide  for  the  impairment  of  commercial  and
income-producing  real  estate  loans,  as well as  other  credit  risks  of the
subsidiary  banks and is based on a risk  model  developed  and  implemented  by
management and approved by the Company's board of directors.

     The following  table sets forth an analysis of the Company's  Allowance and
actual loss experience for the periods indicated (dollars in thousands):

                                                Nine months
                                                   ended          Year ended
                                               September 30,     Dec. 31, 1998
                                                   1999
                                           -------------------------------------
Balance at beginning of period.............     $    4,485        $    4,370
Charge-offs:
   Commercial..............................             76               146
   Real estate.............................             30                39
   Installment.............................            155               465
   Other...................................             47               149
   Total charge-offs.......................            308               799
                                           -------------------------------------
Recoveries:
   Commercial..............................             57                79
   Real estate.............................             13                59
   Installment.............................             75                60
   Other...................................             20                26
   Total recoveries........................            165               224
                                           -------------------------------------
Net charge-offs............................            143               575
Balance of acquired allowance                        2,228
    at date of acquisition ................            548                 0
Additions charged to operations............                              690
Balance at end of period                        $    7,118        $    4,485
                                           =====================================
Ratios:
   Net charge-offs to
     average loans outstanding(1)..........           0.03%             0.10%
  Net charge-offs to total allowance(1)....           2.70             12.82
  Allowance to period end
     loans outstanding.....................           0.97              0.73
-------------------------------------------=====================================
(1)   Annualized

     Net  charge-offs  to average  loans  outstanding  decreased  to 0.03% on an
annualized  basis  compared  to 0.10%  for the year  ended  December  31,  1998.
Annualized  1999  commercial  loan  charge-offs  declined  mainly  due to  fewer
charge-offs  at SFB and  SFBR in the  first  nine  months  of  1999.  Annualized
installment loan  charge-offs  declined in the first nine months of 1999 as SFBR
incurred fewer write-offs on its indirect subprime auto loan portfolio.  SFBR is
no longer  engaged in  subprime  auto  lending.  The  remaining  outstanding  on
subprime auto loans at SFBR is immaterial.  The level of other loan  charge-offs
in 1998 was  primarily  impacted by credit  card  losses.  The Company  sold its
credit card portfolio in July,  1998 to an unrelated  third party.  Accordingly,
losses from credit card lending, classified with other loan charge-offs, were no
longer incurred.

Results of Operation - Comparison  of the Three Months Ended  September 30, 1999
and 1998

General

     For the quarter ended  September 30, 1999, the Company  reported net income
of $2,402,000,  a $467,000 (24.2%) increase from the $1,935,000 reported for the
quarter ended  September  30, 1998.  The increase in third quarter 1999 earnings
was mainly due to lower  noninterest  expenses and income taxes,  as well as the
inclusion of BNI's earnings.


                                       12
<PAGE>

Net Interest Income

     The following table sets forth average  balances,  related  interest income
and expenses, and effective interest yields and rates for the three months ended
September 30, 1999 and September 30, 1998 (dollars in thousands):
<TABLE>
<CAPTION>
                                                                1999                                1998
                                                 ---------------------------------- ------------------------------------
                                                          Average           Yield/         Average              Yield/
                                                          Balance   Interest Rate4         Balance    Interest  Rate4
                                                 ---------------------------------- ------------------------------------
ASSETS
Interest-earning assets:
<S>                                               <C>             <C>         <C>     <C>           <C>          <C>
  Loans 1,2,3.................................    $      730,074  $  14,754   8.02%   $    590,617  $   12,288   8.25  %
  Taxable investment securities...............           169,954      2,651   6.19          69,877       1,088   6.18
  Tax-exempt investment securities 3..........            41,425        705   6.75          31,835         547   6.82
  Other short-term investments................             1,118         15   5.39          10,534         155   5.82
  Interest-earning deposits...................            11,445        148   5.15          33,551         449   5.31
  Federal funds sold..........................             5,194         66   5.01          12,365         168   5.40
                                                ----------------------------------  ---------------------------------
Total interest-earning assets.................           959,210     18,339   7.59         748,779      14,695   7.79
Non-interest-earning assets:
  Cash and due from banks.....................            35,065                            20,892
  Premises and equipment, net.................            21,591                            13,395
  Other assets................................            41,178                            18,873
Less: Allowance for loan losses...............            (7,089)                           (4,495)
                                                ----------------                    --------------
TOTAL                                             $    1,049,955                      $    797,444
                                                ================                    ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
  Now accounts................................    $       99,200        470   1.88    $     81,111  $      488   2.39  %
  Money market accounts.......................           178,434      1,783   3.96         111,118       1,232   4.40
  Savings deposits............................           152,481        959   2.50         104,913         777   2.94
  Time deposits...............................           289,240      3,970   5.45         259,081       3,799   5.82
  Notes payable...............................            15,761        195   4.91           1,262          24   7.54
  FHLB borrowings.............................            46,120        616   5.30           8,261         123   5.91
  Federal funds purchased.....................            14,888        182   4.85              48           1   8.30
  Securities sold under
    agreement to repurchase...................            10,702        123   4.56           9,242         123   5.28
                                                ----------------------------------  ---------------------------------
Total interest-bearing liabilities............           806,826      8,298   4.08         575,036       6,567   4.53
Non-interest-bearing liabilities:
  Demand deposits.............................           106,860                            73,738
  Other.......................................             5,622                            13,648
                                                ----------------                    --------------
Total liabilities.............................           919,338                           662,422
Stockholders' equity                                     130,617                           135,022
                                                ----------------                    --------------
TOTAL                                             $    1,049,955                      $    797,444
                                                ================                    ==============
Net interest earning and interest rate spread                     $  10,040   3.50%                 $    8,129   3.26%
                                                                ====================              ======================
Net yield on interest-earning assets                                          4.15%                              4.31%
------------------------------------------------                           =========                          ==========
    1.  For the purposes of these computations, nonaccrual loans are included in the daily average loan amounts outstanding.
    2.  Interest earned on loans includes loan fees (which are not material in amount) and interest income which has been received
        from borrowers whose loans were removed from nonaccrual during the period indicated.
    3.  Taxable-equivalent  adjustments  are made in  calculating  interest  income  and  yields  using a 34%  rate for all  years
        presented.
    4.  Annualized
</TABLE>

     For  the  quarter   ended   September  30,  1999,   the  Company   reported
taxable-equivalent net interest income of $10,040,000, an increase of $1,911,000
or 23.5% from the $8,129,000  reported for the quarter ended September 30, 1998.
Third quarter 1999  taxable-equivalent  net interest income included  $2,120,000
from BNI. Exclusive of the new

                                       13

<PAGE>

acquisition, third quarter 1999 taxable-equivalent net interest income decreased
$209,000 or 2.6% over third quarter 1998. The Company's taxable-equivalent yield
on  interest-earning  assets (net  interest  margin)  declined to 4.15% in third
quarter 1999 from 4.31% in third quarter 1998. The margin decline was mainly due
to an increase in the percentage of the Company's  average  balance sheet funded
by  interest-bearing  liabilities to fund the stock repurchase  program and loan
growth  as  well  as  reduced  loan  yields   resulting  from  intense   pricing
competition.

     Taxable-equivalent  total  interest  income  increased  $3,644,000  for the
quarter ended  September  30, 1999 compared to the third quarter of 1998,  which
included   $3,690,000   in  interest   income  from  BNI.   Exclusive   of  BNI,
taxable-equivalent  total interest income decreased  $46,000 mainly due to lower
loan and  investment  yields.  For the quarter  ended  September  30, 1999,  the
Company's  loan yield  declined to 8.02% from 8.25% in third quarter 1998 mainly
due to intense  loan pricing  competition.  Investment  yields also  declined in
third  quarter 1999  compared to third  quarter  1998.  The  Company's  yield on
tax-exempt investment securities decreased 7 basis points to 6.75% for the third
quarter 1999 due to higher-rate  investments maturing into a comparatively lower
interest rate environment.  In addition,  yields on short-term investment assets
declined as other short-term  investments  decreased to 5.39%,  interest-earning
deposits declined to 5.15%, and federal funds sold declined to 5.01% from 5.82%,
5.31%,  and 5.40%,  respectively  for the third quarter of 1998.  These declines
were due to the general  decline in  short-term  interest  rates between the two
periods.  As a result of these  changes,  the  taxable-equivalent  yield fell to
7.59% in third quarter 1999 from 7.79% in third quarter 1998.

     Total interest  expense  increased  $1,731,000 in third quarter 1999, which
included  $1,570,000  in interest  expense  from BNI.  Exclusive  of BNI,  total
interest  expense  increased  $161,000 mainly due to average volume increases in
borrowed  funds  (primarily  notes  payable,  FHLB  borrowings,   federal  funds
purchased).  In the aggregate,  average notes payable, FHLB borrowings,  federal
funds purchased  increased  $67,000,000 in third quarter 1999 over third quarter
1998 as the Company relied on these sources to fund its stock repurchase program
and loan growth.  As a result,  76.8% of the Company's average balance sheet was
funded by  interest-bearing  liabilities in third quarter 1999 compared to 72.1%
in third  quarter  1998.  Although  the volume of  interest-bearing  liabilities
increased,  the average cost of funds fell to 4.08% for third  quarter 1999 from
4.53% for third quarter 1998. In fourth quarter 1998,  the Company  adjusted its
pricing on certain NOW accounts and savings  deposits given the general  decline
in short-term interest rates. As a result, the cost of NOW accounts decreased to
1.88% in third  quarter 1999 from 2.39% in third quarter  1998.  Similarly,  the
repricing of savings deposits  resulted in that deposit cost falling to 2.50% in
1999 from 2.94% in 1998. The cost of money market accounts decreased to 3.96% in
third quarter 1999 from 4.40% in third  quarter 1998 due to the general  decline
in short-term  interest  rates over the preceding  twelve  months.  Time deposit
costs also fell to 5.45% in third  quarter 1999 from 5.82% in third quarter 1998
as maturing instruments repriced into the current lower rate environment.

Provision for Loan Losses

     The provision for loan losses in third quarter 1999 increased  $30,000 over
third  quarter 1998 due to the  inclusion of BNI in the  Company's  consolidated
operating results.

Other Income

     Total other  income  increased  $318,000 in third  quarter  1999 over third
quarter 1998 due to increased  investment security gains, the inclusion of BNI's
and LCC's results,  and increased  merchant service fees, offset by decreases in
gains on mortgage  loan sales,  ATM fees,  and other  income.  BNI and LCC added
$309,000 and $135,000,  respectively, to the Company's consolidated other income
in third quarter 1999.  Investment  security gains  increased  $233,000 in third
quarter 1999 due to sales of marketable  equity securities owned by the Company.
Merchant   service  fees  increased   $74,000  due  volume   increases  and  the
introduction of these services at Home. Gains on mortgage loan sales,  exclusive
of BNI,  decreased  $173,000 due to fewer mortgage  originations and refinancing
requests  resulting  from  the  general  increase  in  interest  rates  over the
preceding  twelve  months.  ATM fees  decreased  $53,000  due to  lower  foreign
transaction  volume  at the  Company's  terminals.  Exclusive  of  the  $147,000
one-time gain  recognized on the sale of the Company's  credit card portfolio in
third quarter 1998, other income remained  virtually  unchanged  between the two
periods.

Other Expenses

     Total other expenses increased  $1,667,000 in third quarter 1999 over third
quarter 1998, which included  $2,031,000 in expenses related to the inclusion of
LCC's and BNI's  non-interest  expenses in the Company's 1999 consolidated third
quarter operating results.  Included in the additional expenses from BNI and LCC
was $356,000 in


                                       14
<PAGE>

additional goodwill amortization  resulting from the purchase accounting applied
to each acquisition.  Exclusive of BNI and LCC,  non-interest expenses decreased
$364,000 or 5.5% due mainly to lower costs for personnel,  data processing,  ATM
charges and other expenses  offset by increases in occupancy and equipment costs
and marketing.  Personnel  costs increased  $521,000.  Exclusive of LCC and BNI,
personnel costs decreased $390,000, mainly due to efficiencies realized from the
Home merger.  Data processing costs increased  $15,000 which included $95,000 in
costs from BNI. This $80,000 decline  combined with a decrease of $50,000 in ATM
charges  were  mainly the result of the  Company  renegotiating  its  processing
contract with its service  provider.  Other  expenses  increased  $195,000 which
included  $225,000  in  expenses  related  to BNI and  LCC.  Exclusive  of these
acquisitions, other expenses decreased $30,000 mainly due to lower office supply
costs.  Occupancy and equipment costs increased  $428,000 as stated and $117,000
exclusive of BNI and LCC mainly due to increased  depreciation  costs associated
with the installation of new computer equipment,  network and telecommunications
system. Advertising expense increased $100,000, the majority of which was due to
Home promoting new products and services.

Income Taxes

     Income taxes for the quarter ended September 30, 1999 increased  $10,000 on
a $478,000  increase in income before income taxes. The Company's  effective tax
rate for third quarter 1999 was 31.0% compared to 35.5% for the third quarter of
1998.  The  lower  effective  tax  rate in 1999  was  primarily  related  to BNI
benefiting from a state tax loss carryforward.


Results of Operation - Comparison  of the Nine months Ended  September  30, 1999
and 1998

General

     For the nine months  ended  September  30, 1999,  the Company  reported net
income of $6,429,000, a $1,066,000 increase over the $5,363,000 reported for the
nine months ended September 30, 1998.  Included in 1999's operating  results was
$598,000 in additional  merger-related charge stemming from the Company's merger
with Home.  This charge  resulted  solely from the dissolution of Home's ESOP in
first  quarter  1999.  Exclusive of this charge,  net income for the nine months
ended September 30, 1999 was  $7,027,000,  a 31.0% increase over the nine months
ended September 30, 1998.  Increased net interest income and non-interest income
and reduced non-interest expenses,  exclusive of the merger-related charge, were
the main reasons for this improvement.



            [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK]



                                       15
<PAGE>

Net Interest Income

     The following table sets forth average  balances,  related  interest income
and expenses,  and effective interest yields and rates for the nine months ended
September 30, 1999 and September 30, 1998 (dollars in thousands):
<TABLE>
<CAPTION>
                                                                1999                                1998
                                                 ---------------------------------- ------------------------------------
                                                          Average           Yield/         Average              Yield/
                                                          Balance   Interest Rate4         Balance    Interest  Rate4
                                                 ---------------------------------- ------------------------------------
ASSETS
Interest-earning assets:
<S>                                               <C>             <C>         <C>      <C>          <C>          <C>
  Loans 1,2,3.................................    $      663,276  $  39,781   8.02%    $   577,650  $   36,466   8.44  %
  Taxable investment securities...............           107,046      4,879   6.09          71,549       3,298   6.16
  Tax-exempt investment securities 3..........            36,081      1,839   6.81          28,908       1,500   6.94
  Other short-term investments................             9,139        354   5.17           6,692         291   5.82
  Interest-earning deposits...................            24,914        829   4.45          40,187       1,661   5.52
  Federal funds sold..........................             8,183        313   5.12          12,513         517   5.53
                                                ----------------------------------   --------------------------------
Total interest-earning assets.................           848,639     47,994   7.56         737,499      43,733   7.93
Non-interest-earning assets:
  Cash and due from banks.....................            29,169                            22,224
  Premises and equipment, net.................            16,438                            13,576
  Other assets................................            28,627                            17,466
Less: Allowance for loan losses...............            (5,359)                           (4,454)
                                                ----------------                     -------------
TOTAL                                             $      917,514                       $   786,311
                                                ================                     =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing liabilities:
  Now accounts................................    $       95,899      1,251   1.74     $    81,973  $    1,439   2.35  %
  Money market accounts.......................           143,055      4,187   3.91         107,396       3,584   4.46
  Savings deposits............................           121,865      2,316   2.54         104,112       2,300   2.95
  Time deposits...............................           263,693     10,690   5.42         262,937      11,416   5.80
  Notes payable...............................             6,371        258   5.41           1,164          67   7.70
  FHLB borrowings.............................            44,205      1,712   5.18           4,444         139   4.18
  Federal funds purchased.....................             7,306        233   4.26              76           4   7.04
  Securities sold under
    agreement to repurchase...................            10,082        347   4.60           9,471         376   5.31
                                                ----------------------------------   -----------------------------------
Total interest-bearing liabilities............           692,476     20,994   4.05         571,573      19,325   4.52
Non-interest-bearing liabilities:
  Demand deposits.............................            83,663                            71,174
  Other.......................................             7,345                             9,296
                                                ----------------                     -------------
Total liabilities.............................           783,484                           652,043
Stockholders' equity                                     134,030                           134,268
                                                ----------------                     -------------
TOTAL                                             $      917,514                       $   786,311
                                                ================                     =============
Net interest earning and interest rate spread                     $  27,000   3.51%                 $   24,408   3.41%
                                                                ==================                ===================
Net yield on interest-earning assets                                          4.25%                              4.42%
------------------------------------------------                            ======                            =======
    1.  For the purposes of these computations, nonaccrual loans are included in the daily average loan amounts outstanding.
    2.  Interest earned on loans includes loan fees (which are not material in amount) and interest income which has been received
        from borrowers whose loans were removed from nonaccrual during the period indicated.
    3.  Taxable-equivalent  adjustments  are made in  calculating  interest  income  and  yields  using a 34%  rate for all  years
        presented.
    4.  Annualized
</TABLE>

     The Company reported  taxable-equivalent net interest income of $27,000,000
for the nine months ended September 30, 1999, an increase of $2,592,000 or 10.6%
from the $24,408,000  reported for the nine months ended September 30, 1998. The
nine months ended September 30, 1999 included  $2,338,000 in  taxable-equivalent
net interest income from BNI.  Exclusive  thereof,  net interest income improved
$254,000 or 1.0% over the nine months ended  September  30, 1998.  The Company's
taxable-equivalent  yield  on  interest-earning  assets  (net  interest  margin)
declined to 4.25% for the nine months  ended  September  30, 1999 from 4.42% for
the nine months ended September


                                       16
<PAGE>

30,1998. The margin decline was mainly due to reduced loan yields resulting from
intense pricing  competition and the increase in the percentage of the Company's
average balance sheet funded by interest-bearing liabilities.

     Taxable-equivalent  total interest income increased $4,261,000 for the nine
months ended  September 30, 1999 compared to the nine months ended September 30,
1998,  which included  $4,049,000  from BNI.  Exclusive of the BNI  acquisition,
taxable-equivalent  total interest income  increased  $212,000 in the first nine
months  of  1999.  This  improvement  was  mainly  due to  volume  increases  in
interest-earning assets over the preceding twelve months exceeding interest rate
yield  declines.  The  Company's  average   interest-earning   assets  increased
$99,860,000  or 13.3% for the first nine  months of 1999  compared  to the first
nine months of 1998.  The BNI  acquisition  added  $71,203,000  to the Company's
average  year-to-date   interest-earning   assets.  Exclusive  of  BNI,  average
interest-earning  assets increased $28,657,000 or 3.8% for the nine months ended
September  30, 1999  compared to the same period in 1998.  All of the  increase,
exclusive  of BNI,  was due to average  loan  growth over the  preceding  twelve
months.  This volume increase was sufficient to offset yield declines to produce
the overall improvement in the Company's return on interest-earning  assets. For
the nine months ended,  the Company's yield on  interest-earning  assets fell to
7.56% from 7.93% for the nine months ended September 30, 1998. This decrease was
due mainly to the general decline in interest rates during the last half of 1998
and the first quarter of 1999.  The  Company's  yield on loans fell to 8.02% for
1999 from 8.44% for 1998.  This  decline was mainly due to intense  loan pricing
competition  in the  Company's  markets.  The  Company  also  experienced  yield
contraction  in its  taxable and  tax-exempt  investment  securities  due to the
reinvestment of maturing  investments  proceeds into the lower rate environment.
For the nine months ended  September 30, 1999,  the yield on taxable  investment
securities declined to 6.09% and tax-exempt  investment yields declined to 6.81%
from 6.16% and 6.94% respectively for the nine months ended September 30, 1998.

     Reduced  funding costs helped to offset the impacts of reduced asset yields
in the first  nine  months  of 1999.  The cost of  interest-bearing  liabilities
declined to 4.05% for the nine months ended September 30,1999 from 4.52% for the
nine months ended  September  30, 1998.  On a  year-to-date  basis,  the Company
likewise reported a lower funding cost on each of its  interest-bearing  deposit
liabilities  in 1999.  The cost of NOW accounts  decreased to 1.74% in the first
nine  months  of 1999  from  2.35% in the first  nine  months  of 1998.  Savings
deposits  fell to 2.54% in 1999  from  2.95%  in  1998.  Reductions  and NOW and
savings  funding  costs  were  derived  from rate  reductions  enacted  to these
products in fourth quarter 1998. The cost of money market accounts fell to 3.91%
in 1999 from 4.46% in 1998  mainly  due to the  general  decline  in  short-term
interest  rates over the last twelve  months.  Time  deposit  costs also fell to
5.42% in 1999  from  5.80% in 1998 as  maturing  instruments  repriced  into the
current  lower  rate  environment.  The  Company  relied on a greater  amount of
interest-bearing  liabilities to fund average  interest-earning  assets in 1999,
mainly due to the stock  repurchase  program,  the cash  acquisition of BNI, and
loan  growth  exceeding  deposit  growth  in  1999.  For the nine  months  ended
September  30, 1999,  interest-bearing  liabilities  comprised  75.5% of average
total  assets  compared  to 72.7% in the first nine  months of 1998.  Short-term
borrowings  (notes payable,  FHLB borrowings,  and federal funds purchased) were
the main source of this additional funding.

Provision for Loan Losses

     The provision for loan losses for the nine months ended  September 30, 1999
and  1998  increased  $30,000  due to  the  inclusion  of  BNI in the  Company's
consolidated operating results.

Other Income

     Total other income increased $1,162,000 for the nine months ended September
30, 1999 compared to the nine months ended  September 30, 1998. The inclusion of
LCC's  and BNI  accounted  for  $435,000  and  $362,000,  respectively,  of this
increase.  Exclusive of LCC & BNI, total other income increased $365,000 or 7.0%
due to increases in  investment  securities  gains,  merchant  services  income,
service charges on deposit accounts, security transaction commissions, and gains
on loan sales offset by  reductions  in rent income,  gains from  mortgage  loan
sales, ATM fees, and other income. For the nine months ended September 30, 1999,
investment securities gains increased $572,000, which included the $252,000 gain
Home realized in second  quarter 1999 from the sale of its equity  investment in
its ATM service  provider.  The remaining  increase in the Company's  investment
securities gains in 1999 came from sales of marketable  equity  securities owned
by the Company.  Merchant income  increased  $137,000 due to volume increases at
each of the banks. Services charges on deposit accounts increased $84,000 mainly
due the inclusion of BNI. Security transaction commissions increased $91,000 due
to  volume  increases  in  brokerage  activities  at SFB  and  Richmond  and the
introduction  of these services at Home.  Gains on mortgage loan sales increased
$98,000 due to the inclusion of BNI's $256,000 in mortgage sale gains. Exclusive
of BNI, gains on mortgage loan sales decreased $158,000 due to lower origination
volume in 1999  impacted by the  increase in interest  rates over the  preceding
twelve months.  Rent income decreased  $24,000 due to the Company assuming space
previously leased to outside tenants.


                                       17
<PAGE>

ATM fees  declined  $65,000 in the first nine months of 1999 due to lower volume
in foreign  transactions  at the  Company's  terminals.  Other income  decreased
$165,000 due to $147,000 in gains  recognized in 1998 from the Company's sale of
its credit card portfolio in the third quarter and fewer gains  recognized  from
other real estate sales in 1999.

Other Expenses

     Total other expenses increased  $1,822,000 in the first nine months of 1999
compared  to  the  first  nine  months  of  1998,   which  included  a  $598,000
merger-related  charge  recognized  in first  quarter  1999  resulting  from the
dissolution  of  Home's  ESOP,  as well as  $488,000  in  expenses  from LCC and
$2,059,000  in  expenses  from BNI  which  were not part of the  Company's  1998
operations  Exclusive of this  merger-related  charge, LCC, and BNI, total other
expenses  decreased  $1,323,000 or 6.6% due mainly to lower costs for personnel,
professional  fees,  data  processing,  and  credit  card  processing  expenses.
Personnel costs increased $74,000 in total, but decreased  $1,109,000  exclusive
of LCC and BNI mainly due to efficiencies realized from the merger with Home and
reduced health insurance costs. Other expenses increased $152,000 which included
$295,000  from  LCC and  BNI.  Net of  acquisitions,  other  expenses  decreased
$143,000 due to the Company no longer  incurring  credit card processing fees in
the first nine  months of 1999 due to the sale of the credit card  portfolio  in
third  quarter  1998,  as  well  as  reduced  office  supply  costs.  Legal  and
professional  fees declined $98,000 as stated and $158,000  exclusive of LCC and
BNI due to efficiencies realized from the Home merger and reduced legal costs on
collection  activities.   Data  processing  expenses  increased  $92,000,  which
included $104,000 from BNI.  Exclusive of BNI, data processing expense decreased
$12,000 mainly due to the renegotiation of the Company's  contract with its data
services  provider  and the  conversion  of Richmond  and Home to the  Company's
service provider in 1999. Goodwill amortization  increased $427,000 in the first
nine  months of 1999 due to the  purchase  accounting  impact of the LCC and BNI
acquisitions.  Occupancy expense increased  $495,000 as stated in the first nine
months of 1999, which included $391,000 in expenses from LCC and BNI.  Exclusive
of these  acquisitions,  occupancy expense increased  $104,000 in the first nine
months of 1999 mainly due to  increased  depreciation  expenses  resulting  from
computer,  network, and communications  equipment upgrades in 1999.  Advertising
expense  increased  $65,000,  the  majority  of which was due to the  additional
expenses  included from LCC and BNI. Merchant services expense increased $41,000
due to rate  adjustments  from the  Company's  service  providers  and increased
volume, mainly due to the introduction of these services at Home.

Income Taxes

     Income  taxes  for the nine  months  ended  September  30,  1999  increased
$712,000 on a $1,778,000  increase in income before income taxes.  As previously
described,  the Company incurred  $598,000 in a  merger-related  charge in first
quarter 1999 which were not tax-deductible. Excluding the merger-related charge,
income before income taxes increased  $2,376,000,  resulting in an effective tax
rate of 34.3% for nine months ended September 30, 1999 compared to 35.5% for the
nine months ended  September 30, 1998. The lower  effective tax rate in 1999 was
primarily related to state tax loss carryforward benefits at BNI.

Liquidity

     Liquidity management involves the ability to meet the cash flow requirement
of customers who may be either depositors wanting to withdraw funds or borrowers
needing  assurance that sufficient  funds will be available to meet their credit
needs.   Liquid  assets   (including   cash  deposits  with  banks,   short-term
investments,  interest-earning  deposits, and federal funds sold) are maintained
to meet  customers  needs.  The Company  had liquid  assets of  $44,157,000  and
$82,230,000 at September 30, 1999 and December 31, 1998, respectively.

Year 2000 Readiness Disclosure

     At midnight on December 31, 1999, unless the proper modifications have been
made, the program logic in many computer systems will start to produce erroneous
results  because,  among other things the systems will incorrectly read the date
"01/01/00"  as being  January 1 of the year 1900 or another  incorrect  date. In
addition,  certain systems may fail to detect that the year 2000 is a leap year.
Problems  can also  arise  earlier  than  January  1,  2000 as dates in the next
millennium are entered into non-Year 2000 compliant programs (collectively, such
issues are referred to herein as the "Year 2000  Problem").  Like most financial
service  providers,  the Company may be significantly  affected by the Year 2000
Problem due to the nature of financial information.


                                       18
<PAGE>

     Compliance  Program.  In order to  address  the Year  2000  Problem  and to
minimize its potential adverse impact, in 1997 the Company initiated a corporate
wide  project to address  the  impact of the Year 2000  Problem on its  computer
application  systems,  information  technology ("IT") related equipment,  system
software, building controls, and non-IT embedded systems found in such equipment
as security systems,  currency counters,  and elevators.  The evaluation of Year
2000 issues  included an  assessment  of the  potential  impact of the Year 2000
Problem on the Company, including monitoring significant customers, key vendors,
service  suppliers  and other  parties  material  to the  Company's  operations'
testing changes provided by these vendors; and developing  contingency plans for
any critical systems.  In the course of this evaluation,  the Company has sought
written  assurances  from  such  third  parties  as to their  state of Year 2000
readiness.  The  Company's  Year 2000  Compliance  Program is divided  into five
phases: (1) awareness; (2) assessment;  (3) renovation;  (4) validation; and (5)
implementation.

     The Company's State of Readiness.  Work on the Year 2000 Compliance Program
has been  prioritized  in accordance  with risk.  The highest  priority has been
assigned to  activities  that would  disrupt the  accuracy  and  delivery of the
Company's  banking  services  to its  customers;  next is an  assessment  of the
potential credit risk to the Company  resulting from its credit customers' state
of Year 2000  readiness,  or lack  thereof,  and the  potential  impact of those
efforts on the customers' ability to meet contractual payment  obligations;  the
lowest priority has been assigned to activities  that would cause  inconvenience
or  productivity  loss in normal  business  operations such as issues related to
internal office machinery, heating and air conditioning systems, and elevators.

     The Company has completed  all phases of the plan and is currently  working
internally and with external vendors on validating its contingency plan. Because
the Company out sources its data processing, a significant component of the Year
2000  Compliance  Program is working with  external  vendors to test and certify
that their  systems  are Year 2000  compliant.  During the weekend of October 3,
1998, the Company's primary data service provider converted State Financial Bank
and State Financial Bank - Waterford to its Year 2000-ready platform. As part of
the conversion, the Company performed a variety of tests to determine the proper
functionality of the new platform.  No problems were encountered.  The Company's
data services provider  continues to test its system for Year 2000 readiness and
has not encountered any problems as a result of their continued  testing.  SFBR,
Home,  and BNI  converted to the Company's  data services  provider in May 1999,
July 1999, and October 1999 respectively.

     The  Company's  other  external  vendors have  surveyed  their  programs to
inventory  the  necessary  changes  and the  Company  continued  correcting  the
applicable computer programs and replacing equipment.  The Company's information
systems were Year 2000 compliant and tested as of June 30, 1999. The Company has
devoted  substantial time to testing its systems prior to the arrival of the new
millennium.  As part of SFBR's  and  Home's  conversion  to the  Company's  data
services provider,  the Company installed a new wide area network connecting all
of its offices. The Company tested the wide area network for Year 2000 readiness
and compatibility with its other systems.

     The Company also conducted a survey of its significant  credit customers to
determine  their  state of Year  2000  readiness.  Surveys  were  mailed  to all
customers whose outstanding loan balance or loan commitment  exceeded  $200,000.
In addition, as part of its ongoing credit underwriting  practices,  all new and
renewed  loans must have a Year 2000 risk  assessment  completed and reported as
part of the loan  approval  process.  Based upon the  information  received from
these surveys, the Company does not expect to experience any material collection
problems resulting from its customers Year 2000 readiness, or lack thereof.

     Cost to  Address  Year  2000  Compliance  Issues.  Managing  the Year  2000
Compliance  Program  resulted in  additional  direct and  indirect  costs to the
Company.  To date,  the Company  has  incurred  approximately  $500,000 in costs
related to addressing the Year 2000 Problem, including approximately $471,000 in
hardware  purchases that the Company has  capitalized.  The Company  expects any
additional  costs  incurred  regarding  its Year 2000  Compliance  Program to be
immaterial.  If incurred, any remaining costs related to resolving the Year 2000
Problem are  expected to take place during the  remainder  of 1999.  The Company
expects to fund these expenditures through internal sources.

     The estimated  costs of, and timetable  for,  becoming Year 2000  compliant
constitute  "forward  looking  statements" as defined in the Private  Securities
Litigation  Reform Act of 1995.  Investors are cautioned that such estimates are
based on numerous assumptions by management, including assumptions regarding the
continued  availability of certain  resources,  the accuracy of  representations
made by third parties  concerning  their  compliance with Year 2000 issues,  and
other  factors.  The estimated  costs of Year 2000  compliance  also do not give
effect  to  any  future  corporate  acquisitions  made  by  the  Company  or its
subsidiaries.


                                       19
<PAGE>

     Risk of Non-Compliance  and Contingency Plans. The major applications which
pose the  greatest  risk to the Company if the  implementation  of the Year 2000
Compliance  Program is not successful  are the Company's  data services  systems
supported by third party  vendors,  loan customers  ability to meet  contractual
payment  obligations  in the  event  the Year  2000  Problem  has a  significant
negative  impact on their  business,  internal  computer  networks,  and,  items
processing  equipment  which  renders  customers  bank  statements  and  banking
transactions.  The potential  problems  which could result from the inability of
these  applications  to  correctly  process  the Year  2000  are the  inaccurate
calculation of interest income and expense,  service  delivery  interruptions to
the Company's banking customers, credit losses resulting from the Company's loan
customers  inability  to  make  contractual  credit   obligations,   interrupted
financial data gathering,  and poor customer relations resulting from inaccurate
or delayed transaction processing, respectively.

     Although  the  Company  completed  all Year 2000  remediation  and  testing
activities by June 30, 1999,  and although the Company has  initiated  Year 2000
communications with significant customers,  key vendors,  service providers, and
other parties material to the Company's operations and is diligently  monitoring
the  progress of such third  parties in their Year 2000  compliance,  such third
parties  nonetheless  represent a risk that cannot be assessed with precision or
controlled  with  certainty.   For  that  reason,   the  Company  has  developed
contingency  plans to address  alternatives in the event that Year 2000 failures
of automatic systems and equipment occur.

Forward Looking Statements

     When used in this  report,  the words  "believes,"  "expects,"  and similar
expressions are intended to identify forward-looking  statements.  The Company's
actual  results  may differ  materially  from those  described  in the  forward-
looking statements.  Factors which could cause such a variance to occur include,
but  are  not  limited  to,  changes  in  interest  rates,  levels  of  consumer
bankruptcies,  issues  associated with achieving Year 2000 compliance,  customer
loan and deposit preferences, issues related to integrating acquired operations,
and changes in other general economic conditions.

Capital Resources

     There are certain  regulatory  constraints which affect the Company's level
of capital.  The following table sets forth these requirements and the Company's
capital  levels and ratios at September 30, 1999,  including the Tier 1 leverage
ratio,  the  risk-based  capital  ratios  based upon Tier 1  capital,  and total
risk-based capital:
<TABLE>
<CAPTION>
                                                            Regulatory                   Regulatory
                                                             Minimum                  Well-capitalized
                                      Actual               Requirement                  Requirement
                                 -----------------      -------------------           ----------------
                                                      (dollars in thousands)
                                 Amount    Percent       Amount      Percent          Amount     Percent
                                 ------    -------       ------      -------          ------     -------
<S>                             <C>          <C>         <C>            <C>           <C>          <C>
Tier 1 leverage                  95,714       9.4%       40,874         4.0%          51,092        5.0%
Tier 1 risk-based capital        95,714      15.4%       24,818         4.0%          37,227        6.0%
Risk-based capital              102,833      16.6%       49,636         8.0%          62,045       10.0%

</TABLE>

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


                                       20

<PAGE>

Part II.   Other Information

Item 1.   Legal Proceedings

     As of September 30, 1999, the Company is involved in various  pending legal
proceedings consisting of ordinary routine litigation incidental to the business
of the Company. None of these proceedings is considered material, either in part
or in the aggregate,  and are therefore not expected to have a material  adverse
impact on the Company's financial condition,  results of operations, cash flows,
and capital ratios.

Item 2.   Changes in Securities

     None

Item 3.   Defaults upon Senior Securities

     None

Item 4.   Submission of Matters to Vote of Security Holders

     None

Item 5.   Other Information

     The deadline for submission of shareholder proposals pursuant to Rule 14a-8
under the  Securities  Exchange Act of 1934,  as amended,  for  inclusion in the
Company's  proxy  statement  for its 2000  Annual  Meeting  of  Shareholders  is
November 27, 1999. Additionally, if the Company receives notice of a shareholder
proposal after January 27, 2000,  the persons named in proxies  solicited by the
Board of  Directors of the Company for its 2000 Annual  Meeting of  Shareholders
may exercise discretionary voting power with respect to such proposal.

Item 6.   Exhibits and Reports on Form 8-K

     On  September 8, 1999,  the Company  filed  Amendment  No. 1 to an original
report on Form 8-K submitted on June 23, 1999 in regards to its  acquisition  of
First Waukegan Corporation and its subsidiaries.

     On July 27, 1999,  the Company filed a report on Form 8-K in regards to its
implementation of a Shareholders' Rights Plan.


                                       21
<PAGE>

                                   SIGNATURES

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


                                     STATE FINANCIAL SERVICES CORPORATION
                                     (Registrant)



Date: November 8,  1999
     ---------------------
                                     By  /s/ Michael J. Falbo
                                       ---------------------------------
                                      Michael J. Falbo
                                      President and Chief Executive Officer



Date: November 8, 1999
     ---------------------
                                     By  /s/ Michael A. Reindl
                                       ---------------------------------
                                      Michael A. Reindl
                                      Senior Vice President, Controller,
                                      and Chief Financial Officer


                                       22