##### Table of Contents



UNITED STATES
 SECURITIES AND EXCHANGE
    COMMISSION
 Washington, D.C. 20549
  FORM 10-K
 ANNUAL REPORT PURSUANT
    TO
 SECTION 13 OR 15(d) OF
    THE
 SECURITIES EXCHANGE ACT OF
    1934
 For the fiscal year ended
    December 31, 2006
 Commission file number 0-51028
  FIRST
    BUSINESS FINANCIAL SERVICES, INC.
   WISCONSIN

39-1576570(State or jurisdiction of
    incorporation or organization)

(I.R.S. Employer
    Identification No.)401 Charmany Drive Madison, WI

53719(Address of Principal Executive
    Offices)

(Zip Code)   (608) 238-8008
  Registrants telephone number,
    including area code
     Common
    Stock, $0.01 par value
  o þ
  o þ
  þ o
  Regulation S-K 10-K Form 10-K. o
  non-accelerated Rule 12b-2
  o o þ
  Rule 12b-2 o þ
      DOCUMENTS
    INCORPORATED BY REFERENCE




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[This page
    intentionally left blank]




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##### 



Table of
    Contents
  
  Page No.PART I.Item 1.Business


2Item 1a.Risk
    Factors


11Item 1b.Unresolved
    Staff Comments


13Item 2.Properties


13Item 3.Legal
    Proceedings


13Item 4.Submission
    of Matters to a Vote of Security Holders


13PART II.Item 5.Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities


14Item 6.Selected
    Financial Data


16Item 7.Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations


17Item 7a.Quantitative
    and Qualitative Disclosures About Market Risk


41Item 8.Financial
    Statements and Supplementary Data


44Item 9.Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure


80Item 9A.Controls
    and Procedures


80Item 9B.Other
    Information


80PART III.Item 10.Directors,
    Executive Officers and Corporate Governance


81Item 11.Executive
    Compensation


81Item 12.Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters


81Item 13.Certain
    Relationships and Related Transactions, and Director
    Independence


81Item 14.Principal
    Accountant Fees and Services


81PART IVItem 15.Exhibits
    and Financial Statements Schedules


81Signatures


82Annual Incentive Bonus PlanConsent of KPMG LLPCertification of the Chief Executive OfficerCertification of the Senior Vice President and Chief Financial OfficerCertification of the Chief Executive Officer and Senior Vice President and Chief Financial Officer Pursuant to Section 1350   1




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##### Table of Contents



PART I.  Item 1.
    Business  General
  Lending and Leasing Activities
           2




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##### Table of Contents



Note 11
  Available
    Information
  Form 10-K Form 10-K, Form 10-Q, Form 8-K
  Employees
    Supervision
    and Regulation
    General
     3




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##### Table of Contents



The
    Corporation
        Sarbanes-Oxley Act of 2002.
  n>
    Creation of the PCAOB  the Public Company
    Accounting Oversight Board. The PCAOB is empowered to set
    auditing, quality control and ethics standards, inspect public
    accounting firms, and institute disciplinary actions for those
    firms. The PCAOB is subject to oversight and review by the SEC
    and is funded by mandatory fees assessed against all public
    companies. This legislation also strengthened the Financial
    Accounting Standards Board by giving it full financial
    independence from the accounting industry.n>
    Auditor independence was strengthened, among other things,
    by limiting the scope of consulting services that auditors can
    offer their public company audit clients.n>
    The responsibility of public company directors and senior
    managers for the quality of financial reporting and disclosures
    made by their companies was heightened.n>
    A number of provisions to deter wrongdoing were contained
    in the legislation. CEOs and CFOs have to certify that company
    financial statements fairly present the companys financial
    condition and results of operations. If a restatement of
    financial results stemmed from a misleading financial statement
    resulting from misconduct, the CEO and CFO are
    required to forfeit and return to the company any bonus, stock
    or stock option compensation received 4




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##### Table of Contents



within the twelve months following the misleading financial
    report. Company officers and directors are also prohibited from
    attempting to mislead or coerce an auditor. The SEC is also
    empowered to bar certain persons from serving as officers or
    directors of a public company. The act also prohibits insider
    trading during pension fund blackout periods and
    requires the SEC to adopt rules requiring attorneys to report
    securities law violations as well as imposing civil penalties
    for the benefit of harmed investors.  n>
    A range of new corporate disclosures are also required.
    These requirements include off-balance-sheet transactions and
    conflicts as well as pro forma disclosures designed in ways that
    are not misleading or are in accordance with SEC disclosure
    requirements. Accelerated reporting requirements require that
    insider transactions be reported by the end of the second
    business day following the covered transaction and that annual
    reports filed with the SEC include a statement by management
    asserting their responsibility for creating and maintaining
    adequate controls and assessing the effectiveness of those
    controls. The act requires companies to disclose whether or not
    they have adopted an ethics code for senior financial officers,
    and, if not, why not. Companies must also disclose whether the
    audit committee includes at least one financial
    expert, as defined by the SEC in accordance with specified
    requirements. The SEC will regularly and systematically review
    corporate filings.n>
    Provisions in the legislation seek to limit and, at the
    same time, expose to public view possible conflicts of interest
    affecting securities analysts.n>
    A range of new criminal penalties for fraud and other
    wrongful acts can be brought against companies or their insiders.      The
    Banks
    Insurance of Deposits.
 5




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Regulatory Capital Requirements.
 6




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##### Table of Contents



Minimum Required tobe Well CapitalizedMinimum Required for


Under FDICActual


Capital Adequacy Purposes


RequirementsAmount


Ratio


Amount


Ratio


Amount


Ratio(Dollars in Thousands)As of December 31,
    2006:Total capital (to risk-weighted
    assets)Consolidated

$
73,241



10.40
%

$
56,360



8.00
%


N/A



N/AFirst Business Bank


64,443



10.49



49,144



8.00


$
61,430



10.00
%First Business Bank 
    Milwaukee


10,205



11.31



7,218



8.00



9,022



10.00Tier 1 capital (to
    risk-weighted assets)Consolidated

$
43,944



6.24
%

$
28,180



4.00
%


N/A



N/AFirst Business Bank


57,838



9.42



24,572



4.00


$
36,858



6.00
%First Business Bank 
    Milwaukee


9,070



10.05



3,609



4.00



5,413



6.00Tier 1 capital (to average
    assets)Consolidated

$
43,944



5.99
%

$
29,331



4.00
%


N/A



N/AFirst Business Bank


57,838



9.22



25,086



4.00


$
31,358



5.00
%First Business Bank 
    Milwaukee


9,070



8.50



4,269



4.00



5,336



5.00As of December 31,
    2005:Total capital (to risk-weighted
    assets)Consolidated

$
62,234



10.43
%

$
47,748



8.00
%


N/A



N/AFirst Business Bank


55,240



10.88



40,610



8.00


$
50,763



10.00
%First Business Bank 
    Milwaukee


9,009



10.32



6,981



8.00



8,727



10.00Tier 1 capital (to
    risk-weighted assets)Consolidated

$
50,461



8.45
%

$
23,874



4.00
%


N/A



N/AFirst Business Bank


49,713



9.79



20,305



4.00


$
30,458



6.00
%First Business Bank 
    Milwaukee


7,917



9.07



3,491



4.00



5,236



6.00Tier 1 capital (to average
    assets)Consolidated

$
50,461



7.92
%

$
25,486



4.00
%


N/A



N/AFirst Business Bank


49,713



9.14



21,746



4.00


$
27,182



5.00
%First Business Bank 
    Milwaukee


7,917



8.21



3,858



4.00



4,823



5.00   Prompt Corrective Action.
      7




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##### Table of Contents



Total Capital to Risk


Tier 1 Capital toCategory

Weighted Assets


Risk Weighted Assets


Tier 1 Leverage
    RatioWell capitalized


3 10
%


3 6
%


3 5
%Adequately capitalized


3 8
%


3 4
%


3 4
%*Undercapitalized


< 8
%


< 4
%


< 4
%*Significantly undercapitalized


< 6
%


< 3
%


< 3
%Critically undercapitalized


Tangible assets to capital of 2
%     *
    
    3% if the Banks receive the highest rating under the uniform
    system.  Limitations on Dividends and Other Capital
    Distributions.
  Liquidity.
  Federal Reserve System.
  Federal Home Loan Bank System.
      Restrictions on Transactions with
    Affiliates.
 8




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loans-to-one
    Community Reinvestment Act.
  Riegle Community Development and Regulatory Improvement Act
    of 1994.
  USA PATRIOT Act of 2001.
  Commercial Real Estate Guidance.
  Changing Regulatory Structure.
 9




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Monetary Policy.
  Executive
    Officers of the Registrant
               10




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Item 1a.
    Risk
    Factors    Competition.
  Government Regulation and Monetary Policy. Supervision and
    Regulation.
  Key Personnel.
  Technology.
  Market Area.
   11




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Loan Portfolio Risk. 1-4
  n>
    Commercial mortgage loan repayment is dependent upon cash
    flow generation sufficient to cover operating expenses and debt
    service.n>
    Commercial loan repayment is dependent upon the successful
    operation of the borrowers business.n>
    Consumer loans are collateralized, if at all, with assets
    that may not provide an adequate source of payment of the loan
    due to depreciation, damage or loss.  Environmental Risk.
  Loan and Lease Loss Allowance Risk.
  n>
    Current economic conditions and their estimated effects on
    specific borrowers;n>
    An evaluation of the existing relationships among loans
    and leases, potential loan and lease losses and the present
    level of the allowance for loan and lease losses;n>
    Results of examinations of our loan and lease portfolios
    by regulatory agencies;n>
    Managements internal review of the loan and lease
    portfolios.    Interest Rate Risk.
 12




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Trust Operations Risk. and/or
  Item 1b.
    Unresolved
    Staff Comments    Item 2.
    Properties  Note 8 Note 14
  Item 3.
    Legal
    Proceedings    Item 4.
    Submission
    of Matters to a Vote of Security Holders   13




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PART II.  Item 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchasers of Equity Securities      DividendHigh


Low


Declared20061st Quarter

$
24.00


$
21.50


$
0.062nd Quarter


24.84



22.76



0.063rd Quarter


24.50



22.02



0.064th Quarter


23.00



21.51



0.0620051st Quarter

$
25.00


$
24.50


$
-2nd Quarter


25.00



25.00



0.1153rd Quarter


26.00



22.10



-4th Quarter


29.73



23.70



0.06   Item 1 of Part I
   14




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Performance
    Graph
    
  Period EndingIndex

10/07/05


12/31/05


03/31/06


06/30/06


09/30/06


12/31/06First Business Financial Services,
    Inc.

$
100.00


$
91.39


$
91.77


$
93.01


$
87.23


$
88.94NASDAQ Composite


100.00



105.74



112.48



104.60



108.94



116.73SNL NASDAQ Bank Index


100.00



104.71



110.79



109.54



112.60



117.55  15




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Item 6.
    Selected
    Consolidated Financial Data  Five Year
    Comparison of Selected Consolidated Financial Data
  At or For the Year Ended December 31,2006


2005


2004


2003


2002(Dollars in Thousands, Except Share Data)FOR THE YEAR:Interest income

$
47,660


$
36,509


$
28,136


$
27,005


$
27,643Interest expense


28,689



18,733



11,273



11,677



14,966Net interest income


18,971



17,776



16,863



15,328



12,677Provision for loan and lease losses


1,519



400



(540
)


200



3,614Gain on sale of 50% owned joint
    venture*


-



973



-



-



-Non-interest income


3,674



3,266



3,261



2,205



(1
)Written option income (expense)


-



-



7



1,361



(39
)Non-interest expense


15,698



14,403



13,148



11,432



10,525Minority interest in (income) loss
    of consolidated subsidiary


-



-



(9
)


(741
)


787Income tax expense (benefit)


1,681



2,455



3,255



873



(528
)Net income (loss)

$
3,747


$
4,757


$
4,259


$
5,648


$
(187
)Yield on earning assets


7.21
%


6.22
%


5.42
%


5.65
%


6.42
%Cost of funds


4.77



3.59



2.49



2.77



3.94Interest rate spread


2.44



2.62



2.93



2.88



2.47Net interest margin


2.87



3.03



3.25



3.21



2.94Return on average assets


0.54



0.78



0.79



1.14



(0.04
)Return on average equity


8.65



11.79



13.81



24.09



(0.87
)ENDING BALANCE SHEET:Total assets

$
788,323


$
669,249


$
562,951


$
518,472


$
480,061Securities


100,008



92,055



66,445



63,571



48,406Loans and leases, net


639,867



532,716



469,938



433,105



409,227Deposits


640,266



567,464



474,677



436,886



414,407Borrowed funds


92,970



39,758



29,981



30,812



19,474Junior subordinated debentures


-



10,310



10,310



-



-Guaranteed trust preferred
    securities


-



-



-



10,000



10,000Option liability


-



-



-



661



2,022Minority interest in consolidated
    subsidiary


-



-



-



4,353



3,562Stockholders equity


45,756



41,843



38,141



25,990



20,824FINANCIAL CONDITION
    ANALYSIS:Allowance for loan losses to
    year-end loans


1.28
%


1.25
%


1.34
%


1.55
%


1.42
%Allowance to non-accrual loans


748.06



438.67



281.83



423.57



192.69Net charge-offs (recoveries) to
    average loans


-



-



(0.02
)


(0.17
)


0.84Non-accrual loans to gross loans


0.17



0.29



0.47



0.37



0.73Average equity to average assets


6.26



6.61



5.74



4.75



4.80STOCKHOLDERS
    DATA:Basic earnings (loss) per share

$
1.51


$
1.96


$
1.89


$
2.81


$
(0.09
)Diluted earnings (loss) per share


1.50



1.93



1.83



2.02



(0.09
)Book value per share at end of
    period


18.35



17.18



15.81



12.86



10.49Dividends declared per share


0.24



0.175



0.21



0.25



0.15Dividend payout ratio


15.89
%


8.93
%


11.11
%


8.90
%


N.M.Shares outstanding


2,493,578



2,435,008



2,412,409



2,021,033



1,985,466  16




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Item 7. Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Forward-Looking
    Statements
  Form 10-K
        Overview
     17




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Item 8  Financial Statements and
    Supplementary Data.
  Recent
    Developments
  Tax Audit. out-of-state out-of-state
    Critical
    Accounting Policies and Estimates
  Note 1
  Allowance for Loan and Lease Losses.
 18




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Note 7
      Income Taxes. Note 15
   19




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Accounting for Income
    Taxes
    Valuation of Securities. available-for-sale Available-for-sale other-than-temporary other-than-temporary Note 6
    Lease Residuals. other-than-temporary Note 7
 20




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Derivatives.
  Accounting for Derivative Instruments
    and Hedging Activities,
          Note 18
    Goodwill and Other Intangible Assets. Note 4
 21




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Results
    of Operations Comparison
    of the Years Ended December 31, 2006 and 2005
  General. 2
  Net Interest Income.
     22




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Provision for Loan and Lease Losses.
  Non-Interest Income. 2 Note 2
 23




---



##### Table of Contents



Non-Interest Expense.
  Income Taxes.
  Comparison
    of the Years Ended December 31, 2005 and 2004
  General.
  Net Interest Income.
     24




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Provision for Loan and Lease Losses.
  Non-Interest Income. Note 2
  Non-Interest Expense.
  Minority Interest.
 25




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##### Table of Contents



Income Taxes. Note 15
   26




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##### Table of Contents



Net
    Interest Income Information
  Average Interest-Earning Assets, Average Interest Bearing
    Liabilities, Interest Rate Spread, and Net Interest
    Margin.
  Year Ended December 31,2006


2005


2004Average








Average








AverageAverage





Yield/


Average





Yield/


Average





Yield/Balance


Interest


Cost


Balance


Interest


Cost


Balance


Interest


Cost(Dollars in Thousands)Interest-Earning
    AssetsMortgage
    loans(2)

$
373,731


$
26,776



7.16
%

$
328,959


$
20,663



6.28
%

$
296,078


$
15,890



5.37
%Commercial loans


165,473



15,158



9.16



143,007



11,167



7.81



129,164



8,346



6.46Leases


18,730



1,330



7.10



21,674



1,149



5.30



25,030



1,481



5.92Consumer loans


2,823



189



6.70



2,727



163



5.98



3,206



144



4.49Total loans and leases
    receivable(1)


560,757



43,453



7.75



496,367



33,142



6.68



453,478



25,861



5.70Mortgage-related
    securities(2)


92,444



3,922



4.24



82,305



3,050



3.71



57,134



1,929



3.38Investment
    securities(2)


3,297



110



3.34



3,517



111



3.16



5,188



188



3.62Federal Home Loan Bank stock


2,474



82



3.31



2,830



138



4.88



2,494



146



5.85Fed funds sold and other


33



2



6.06



1,265



36



2.85



254



4



1.57Short-term investments


1,980



91



4.60



1,134



32



2.82



826



8



0.97Total interest-earning assets


660,985



47,660



7.21



587,418



36,509



6.22



519,374



28,136



5.42Non-interest-earning assets


31,292











22,866











17,844Total assets

$
692,277










$
610,284










$
537,218Interest-Bearing
    LiabilitiesNOW accounts

$
51,048


$
2,173



4.26


$
49,114


$
1,402



2.85


$
43,233


$
500



1.16Money market


153,978



7,035



4.57



114,653



3,549



3.10



75,137



1,004



1.34Certificates  regular


300,601



13,886



4.62



276,174



10,304



3.73



252,780



7,352



2.91Certificates  large


42,377



1,982



4.68



43,360



1,387



3.20



40,827



782



1.92Total deposits


548,004



25,076



4.58



483,301



16,642



3.44



411,977



9,638



2.34Junior subordinated debentures


9,915



1,241



12.52



10,310



946



9.18



10,310



893



8.66FHLB advances


19,059



920



4.83



11,427



419



3.67



22,807



436



1.91Other borrowings


23,971



1,452



6.06



16,359



726



4.44



7,896



306



3.88Total interest-bearing liabilities


600,949



28,689



4.77



521,397



18,733



3.59



452,990



11,273



2.49Non-interest-bearing liabilities


47,992











48,518











51,613Total liabilities


648,941











569,915











504,603Minority interest in consolidated
    subsidiary


-











-











1,775Stockholders equity


43,336











40,369











30,840Total liabilities and
    stockholders equity

$
692,277










$
610,284










$
537,218Net interest income/interest rate
    spread





$
18,971



2.44
%





$
17,776



2.62
%





$
16,863



2.93
%Net interest-earning assets

$
60,036










$
66,021










$
66,384Net interest margin










2.87
%










3.03
%










3.25
%Ratio of average interest-earning
    assets to average interest-earning liabilities


1.10











1.13











1.15Return on average assets


0.54
%










0.78
%










0.79
%Return on average equity


8.65
%










11.79
%










13.81
%Average equity to average assets


6.26
%










6.61
%










5.74
%Non-interest expense to average
    assets


2.27
%










2.36
%










2.45
%     (1)
    
    The average balances of loans and leases include non-performing
    loans and lease. Interest income related to non-performing loans
    and leases is recognized when collected.(2)
    
    Includes amortized cost basis of assets held and available for
    sale. 27




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##### Table of Contents



Rate/Volume
    Analysis
    Increase (Decrease) for the Year Ended December 31,2006 Compared To 2005


2005 Compared To 2004Rate/











Rate/Rate


Volume


Volume


Net


Rate


Volume


Volume


Net(In Thousands)Interest-Earning
    AssetsMortgage loans

$
2,906


$
2,812


$
395


$
6,113


$
2,707


$
1,765


$
301


$
4,773Commercial loans


1,933



1,754



304



3,991



1,740



894



187



2,821Leases


390



(156
)


(53
)


181



(154
)


(199
)


21



(332
)Consumer loans


19



6



1



26



48



(22
)


(7
)


19Total loans and leases receivable


5,248



4,416



647



10,311



4,341



2,438



502



7,281Mortgage-related securities


442



376



54



872



188



850



83



1,121Investment securities


6



(7
)


-



(1
)


(24
)


(61
)


8



(77
)Other investments


(45
)


(17
)


6



(56
)


(25
)


20



(3
)


(8
)Fed funds sold


41



(35
)


(40
)


(34
)


3



16



13



32Short-term investments


20



24



15



59



15



3



6



24Total net change in income on
    interest-earning assets


5,712



4,757



682



11,151



4,498



3,266



609



8,373Interest-Bearing
    LiabilitiesNOW accounts


688



55



27



771



734



68



100



902Money market


1,690



1,217



579



3,486



1,322



528



695



2,545Certificates  regular


2,454



911



217



3,582



2,080



680



192



2,952Certificates  large


641



(31
)


(15
)


595



523



49



33



605Total deposits


5,473



2,152



808



8,434



4,659



1,325



1,020



7,004Junior subordinated debentures


344



(36
)


(13
)


295



53



-



-



53FHLB advances


132



280



89



501



401



(218
)


(200
)


(17
)Other borrowings


265



338



123



726



44



328



48



420Total net change in expense on
    interest-bearing liabilities


6,215



2,734



1,007



9,956



5,157



1,435



868



7,460Net change in net interest income

$
(503
)

$
2,023


$
(325
)

$
1,195


$
(659
)

$
1,831


$
(259
)

$
913  28




---



##### Table of Contents



Financial
    Condition December 31,
    2006
  General.
  Securities. available-for-sale
  Loans and Leases Receivable.
  Non-performing Assets.
  Lending
    and Leasing Activities
  General.
     29




---



##### Table of Contents



Loan Portfolio Composition.
  December 31,2006


2005


2004


2003


2002Percent





Percent





Percent





Percent





PercentAmount


of Total


Amount


of Total


Amount


of Total


Amount


of Total


Amount


of Total(Dollars in Thousands)Mortgage loans:Commercial real estate

$
274,262



42.30
%

$
249,133



46.16
%

$
215,605



45.25
%

$
210,708



47.86
%

$
195,634



47.13
%Construction


78,257



12.07



50,619



9.38



41,910



8.80



38,621



8.77



35,858



8.64Multi-family


34,635



5.34



22,115



4.10



17,786



3.73



19,005



4.32



18,327



4.421-4 family


35,721



5.51



26,513



4.91



22,814



4.79



17,070



3.88



11,796



2.84Total mortgage loans


422,875



65.22



348,380



64.55



298,115



62.57



285,404



64.83



261,615



63.03Commercial loans and leases:Commercial


125,256



19.32



102,482



18.98



93,041



19.52



87,012



19.77



86,883



20.93Asset-based


51,445



7.93



49,206



9.12



43,441



9.12



32,254



7.33



34,844



8.39Direct financing leases, net


23,203



3.58



17,852



3.31



25,583



5.37



22,955



5.21



22,658



5.46Total commercial loans and leases


199,904



30.83



169,540



31.41



162,065



34.01



142,221



32.31



144,385



34.78Consumer loans:Home equity and second mortgage


8,859



1.37



8,231



1.53



5,563



1.17



5,558



1.26



3,734



0.90Credit card


785



0.12



560



0.10



580



0.12



605



0.14



663



0.16Personal


1,248



0.19



860



0.16



884



0.18



1,834



0.42



1,225



0.29Other


14,679



2.27



12,159



2.25



9,279



1.95



4,600



1.04



3,480



0.84Total consumer loans


25,571



3.95



21,810



4.04



16,306



3.42



12,597



2.86



9,102



2.19Gross loans and leases receivable


648,350



100.00
%


539,730



100.00
%


476,486



100.00
%


440,222



100.00
%


415,102



100.00
%Contras to loans and leases:Allowance for loan and lease losses


(8,296
)






(6,773
)






(6,375
)






(6,811
)






(5,875
)Deferred loan fees


(187
)






(241
)






(310
)






(306
)






-Loan and lease receivables, net

$
639,867






$
532,716






$
469,801






$
433,105






$
409,227     Asset-basedLoans and


ConsumerCommercial Real


Commercial


Construction and


Lease


and 1-4Estate Loans


Loans


Multi-family


Receivables


Family


Total(In Thousands)Amounts due:In one year or less

$
49,855


$
70,743


$
34,777


$
12,362


$
34,679


$
202,416After one year through five years


188,833



50,854



54,510



54,868



26,346



375,411After five years


35,574



3,659



23,605



7,418



267



70,523$
274,262


$
125,256


$
112,892


$
74,648


$
61,292


$
648,350Interest rate terms on amounts due
    after one year:Fixed

$
190,504


$
43,923


$
52,285


$
21,426


$
24,151


$
332,289Adjustable

$
33,903


$
10,590


$
25,830


$
40,860


$
2,462


$
113,645   Commercial Real Estate.
 30




---



##### Table of Contents



Commercial Loans.
  Construction and Multi-family Loans.
    Asset-Based Loans and Leases. and/or on-site
  time-to-time,
   31




---



##### Table of Contents



Consumer and 1-4 Family Loans.
    Net Fee Income from Lending Activities.
  Loan and Lease Delinquencies.
    December 31,2006


2005


2004


2003


2002% of





% of





% of





% of





% ofGross





Gross





Gross





Gross





GrossLoans and





Loans and





Loans and





Loans and





Loans andDays Past Due

Balance


Leases


Balance


Leases


Balance


Leases


Balance


Leases


Balance


Leases(Dollars in Thousands)30 to 59 days

$
5,860



0.90
%

$
389



0.07
%

$
230



0.05
%

$
96



0.02
%

$
514



0.12
%60 to 89 days


-



0.00



99



0.02



2



0.00



-



0.00



230



0.0690 days and over


455



0.07



721



0.13



-



0.00



14



0.00



-



0.00Total

$
6,315



0.97
%

$
1,209



0.22
%

$
232



0.06
%

$
110



0.02
%

$
744



0.18
%     Non-performing Assets and Impaired Loans and
    Leases.
  32




---



##### Table of Contents



Year Ended December 31,2006


2005


2004


2003


2002(Dollars in Thousands)Non-accrual loans

$
1,109


$
1,454


$
696


$
891


$
3,049Non-accrual leases


-



90



1,566



717



-Total non-accrual loans and leases


1,109



1,544



2,262



1,608



3,049Foreclosed properties and
    repossessed assets, net


-



-



665



708



-Total non-performing assets

$
1,109


$
1,544


$
2,927


$
2,316


$
3,049Performing troubled debt
    restructurings

$
-


$
-


$
-


$
-


$
-Total non-accrual loans and leases
    to total loans and leases


0.17
%


0.29
%


0.47
%


0.37
%


0.73
%Total non-performing assets to
    total assets


0.14



0.23



0.52



0.45



0.64Allowance for loan and lease
    losses to total loans and leases


1.28



1.25



1.34



1.55



1.42Allowance for loan and lease
    losses to non-accrual loans and leases


748.06



438.67



281.83



423.57



192.69       As of December 31,2006


2005


2004(In Thousands)Impaired loans and leases with no
    impairment reserves required

$
683


$
811


$
1,235Impaired loans and leases with
    impairment reserves required


1,404



733



1,027Less:Impairment reserve (included in
    allowance for loan and lease losses)


863



399



470Net impaired loans and leases

$
1,224


$
1,145


$
1,792Average impaired loans and leases

$
1,444


$
1,790


$
2,112Foregone interest income
    attibutable to impaired loans and leases

$
210


$
177


$
177Interest income recognized on
    impaired loans and leases

$
217


$
65


$
85     Allowance for Loan and Lease
    Losses.
 33




---



##### Table of Contents



34




---



##### Table of Contents



Years Ended December 31,2006


2005


2004


2003


2002(In Thousands)Allowance at beginning of period

$
6,773


$
6,375


$
6,811


$
5,875


$
5,523Charge-offs:Mortgage






-



-



-



-Commercial


-



-



(25
)


(37
)


(2,876
)Lease


-



-



-



-



(480
)Consumer


-



(10
)


(6
)


-



(2
)Total charge-offs


-



(10
)


(31
)


(37
)


(3,358
)Recoveries:Mortgage


-



4



9



-



96Commercial


4



4



4



773



-Lease


-



-



122



-



-Consumer


-



-



-



-



-Total recoveries


4



8



135



773



96Net recoveries (charge-offs)


4



(2
)


104



736



(3,262
)Provision


1,519



400



(540
)


200



3,614Allowance at end of period

$
8,296


$
6,773


$
6,375


$
6,811


$
5,875Allowance to gross loans and leases


1.28
%


1.25
%


1.34
%


1.55
%


1.42
%       December 31,2006


2005


2004


2003


2002Allowance


Percent of


Allowance


Percent of


Allowance


Percent of


Allowance


Percent of


Allowance


Percent offor Loan


Loans in


for Loan


Loans in


for Loan


Loans in


for Loan


Loans in


for Loan


Loans inand Lease


Each Category


and Lease


Each Category


and Lease


Each Category


and Lease


Each Category


and Lease


Each CategoryLosses


to Total Loans


Losses


to Total Loans


Losses


to Total Loans


Losses


to Total Loans


Losses


to Total Loans(Dollars in Thousands)Commercial real estate

$
2,998



42.30
%

$
2,777



46.16
%

$
2,787



45.25
%

$
1,709



47.86
%

$
1,151



47.13
%Construction


826



12.07



553



9.38



461



8.80



314



8.77



189



8.64Multi-family


340



5.34



231



4.10



187



3.73



135



4.32



134



4.421-4 family


369



5.51



291



4.91



311



4.79



166



3.88



71



2.84Commercial


3,115



27.25



2,414



28.10



2,061



28.64



2,662



27.10



3,401



29.32Lease receivables


380



3.58



268



3.31



445



5.37



887



5.21



281



5.46Consumer and other


268



3.95



237



4.04



123



3.42



193



2.86



122



2.19Unallocated


-



0.00



-



0.00



-



0.00



745



0.00



526



0.00Total

$
8,296



100.00
%

$
6,773



100.00
%

$
6,375



100.00
%

$
6,811



100.00
%

$
5,875



100.00
%    35




---



##### Table of Contents



Securities 
    General
        available-for-sale, held-to-maturity Available-for-sale held-to-maturity
    available-for-sale held-to-maturity
    available-for-sale
      36




---



##### Table of Contents



December 31,2006


2005


2004Amortized


Fair


Amortized


Fair


Amortized


FairCost


Value


Cost


Value


Cost


Value(In Thousands)Securities
    available-for-saleU.S. Government corporations
    and agencies


1,497



1,467



3,264



3,184



3,275



3,253Municipals


185



182



275



272



-



-Collateralized mortgage obligations


99,855



98,359



90,601



88,599



60,873



60,381$
101,537


$
100,008


$
94,140


$
92,055


$
64,148


$
63,634     Less than One Year


One to Five Years


Five to Ten Years


Over Ten YearsWeighted





Weighted





Weighted





WeightedAverage





Average





Average





AverageBalance


Yield


Balance


Yield


Balance


Yield


Balance


Yield


Total(Dollars in Thousands)Available for saleU.S. Government corporations
    and agencies

$
-



0.00
%

$
1,467



3.41
%

$
-



0.00
%

$
-



0.00
%

$
1,467Municipals


-



0.00
%


182



5.75
%


-



0.00
%






0.00
%


182Collateralized mortgage obligations


18



6.50
%


600



4.11
%


23,843



3.80
%


73,897



4.61
%


98,359$
18



6.50
%

$
2,249



3.78
%

$
23,843



3.80
%

$
73,897



4.61
%

$
100,008   Derivative Activities. Item 7 Note 1
  Deposits.
     37




---



##### Table of Contents



Over SixOver Three


MonthsMonths


ThroughThree Months


Through


Twelve


Over TwelveInterest Rate

and Less


Six Months


Months


Months


Total(In Thousands)0.00% to 1.99%

$
-


$
-


$
-


$
-


$
-2.00% to 2.99%


119



-



-



20



1393.00% to 3.99%


1,531



15,391



18,812



532



36,2664.00% and greater


35,229



31,400



28,182



232,956



327,767$
36,879


$
46,791


$
46,994


$
233,508


$
364,172     Borrowings.
      Note 11
 38




---



##### Table of Contents



December 31,2006


2005


2004Weighted


Weighted





Weighted


Weighted





Weighted


WeightedAverage


Average





Average


Average





Average


AverageBalance


Balance


Rate


Balance


Balance


Rate


Balance


Balance


Rate(Dollars in Thousands)Fed funds purchased and securities
    sold under agreement to repurchase

$
33,751


$
13,875



5.12
%

$
19,463


$
9,021



3.45
%

$
678


$
2,231



2.20
%FHLB advances


36,584



19,059



4.83



12,545



11,427



3.67



23,803



22,807



1.91Junior subordinated debentures


-



9,915



12.52



10,310



10,310



9.18



10,310



10,310



8.67Line of credit


1,635



3,167



6.82



2,750



2,338



5.39



500



665



3.76Subordinated notes payable


21,000



6,929



7.58



5,000



5,000



5.75



5,000



5,000



4.62$
92,970


$
52,945



6.82
%

$
50,068


$
38,096



5.49
%

$
40,291


$
41,013



3.99
%Short-term borrowings

$
52,443










$
22,222










$
23,434Long-term borrowings
    (due beyond one year)


40,527











27,846











16,857$
92,970










$
50,068










$
40,291     Year Ended December 31,2006


2005


2004(In Thousands)Maximum month-end balance:FHLB advances

$
36,584


$
23,503


$
32,309Fed funds purchased and securities
    sold under agreement to repurchase


33,751



25,127



7,271   Stockholders Equity.
  Non-bank
    Subsidiaries
  First Madison Investment Corporation.
  First Business Capital Corp.
 39




---



##### Table of Contents



First Business Leasing, LLC.
  Liquidity
    and Capital Resources
  Note 12
         40




---



##### Table of Contents



Item 1 Supervision and Regulation.
    Off-balance
    Sheet Arrangements
  Note 16 Note 18
  Contractual
    Obligations
    Payment Due by PeriodLess Than








More ThanContractual
    Obligations

Total


1 Year


1-3 Years


4-5 Years


5 Years(Dollars in Thousands)Operating lease obligations

$
4,829


$
574


$
1,141


$
1,044


$
2,070Fed funds purchased and securities
    sold under repurchase agreements


33,751



33,751



-



-



-Time deposits


364,172



130,664



150,724



80,829



1,955Line of Credit


1,635



1,635



-



-



-Subordinated debt


21,000



-



-



-



21,000FHLB advances


36,584



17,058



6,021



13,023



482Total contractual obligations

$
461,971


$
183,682


$
157,886


$
94,896


$
25,507   Recently
    Issued Accounting Pronouncements
  Note 1-
    Summary of Significant Accounting Policies and Nature of
    Operations, Recent Accounting Changes
  Item 7a.
    Quantitative
    and Qualitative Disclosures About Market Risk   41




---



##### Table of Contents



Change in interest rates in basis points−200


−100


0


+100


+200Impact on net interest income


3.57
%


1.76
%


-



−1.82
%


−3.65
%     and/or
 42




---



##### Table of Contents



Estimated Maturity or Repricing at December 31, 2006Within


3-12


1-5


After3 Months


Months


Years


5 Years


Total(In Thousands)Assets:Investment securities

$
8,420


$
20,682


$
62,788


$
11,827


$
103,717Commercial loans


78,457



12,980



47,013



194



138,643Real estate loans


137,000



26,872



201,166



54,299



419,336Asset based loans


63,808



-



-



-



63,808Lease receivables


1,200



3,600



18,439



-



23,239Consumer loans


1,117



830



84



90



2,121Total Earning Assets

$
290,001


$
64,965


$
329,489


$
66,409


$
750,864Liabilities:Interest-bearing checking

$
58,927


$
-


$
-


$
-


$
58,927Money market accounts


171,996



-



-



-



171,996Time deposits under $100,000


22,301



75,585



228,348



1,955



328,189Time deposits $100,000 and over


14,018



18,707



3,258



-



35,983Securities sold under agreements
    to repurchase


451



-



-



-



451Federal Home Loan Bank
    advances


17,051



9



19,048



476



36,584Short term borrowings


34,935



-



-



-



34,935Long term debt


21,000



-



-



-



21,000Interest rate swaps


(575
)


128



447



-



-Total Interest-bearing Liabilities

$
340,104


$
94,429


$
251,100


$
2,431


$
688,065Interest rate gap

$
(50,104
)

$
(29,464
)

$
78,389


$
63,978


$
62,799Cummulative interest rate gap

$
(50,104
)

$
(79,568
)

$
(1,179
)

$
62,799Cummulative interest rate gap to
    total earning assets


(6.67
%)


(10.60
%)


(0.16
%)


8.36
%  43




---



##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Data  INDEX TO
    CONSOLIDATED FINANCIAL STATEMENTS OF FIRST BUSINESS FINANCIAL
    SERVICES
  The
    following financial statements are included in this Annual
    Report on Form
    10-K:
  Consolidated Financial
    Statements

PageConsolidated
    Balance Sheets as of December 31, 2006 and 2005


45Consolidated
    Statements of Income for the Years Ended December 31, 2006,
    2005, and 2004


46Consolidated
    Statements of Changes in Stockholders Equity and
    Comprehensive Income for the Years Ended December 31, 2006,
    2005, and 2004


47Consolidated
    Statements of Cash Flows for the Years Ended December 31,
    2006, 2005, and 2004


48Notes to
    Consolidated Financial Statements


49Report of
    Independent Registered Public Accounting Firm


79  44




---



##### Table of Contents



First
    Business Financial Services, Inc.
 Consolidated
    Balance Sheets  December 31,


December 31,2006


2005(In Thousands, Except Share Data)AssetsCash and due from banks

$
19,215


$
16,568Short-term investments


246



139Cash and cash equivalents


19,461



16,707Securities
    available-for-sale,
    at fair value


100,008



92,055Loans and leases receivable, net


639,867



532,716Leasehold improvements and
    equipment, net


1,051



1,155Cash surrender value of bank-owned
    life insurance


13,469



12,856Investment in Federal Home
    Loan Bank stock, at cost


2,024



2,898Goodwill and other intangibles


2,817



2,852Accrued interest receivable and
    other assets


9,626



8,010Total assets

$
788,323


$
669,249Liabilities and
    Stockholders EquityDeposits

$
640,266


$
567,464Securities sold under agreement to
    repurchase


451



713Federal Home Loan Bank and
    other borrowings


92,519



39,045Junior subordinated debentures


-



10,310Accrued interest payable and other
    liabilities


9,331



9,874Total liabilities


742,567



627,406Commitments and contingencies


-



-Stockholders Equity:Preferred stock, $10 par
    value, 10,000 Series A shares and 10,000 Series B
    shares authorized, none issued and outstanding


-



-Common stock, $.01 par value,
    8,000,000 shares authorized, 2,516,193 and
    2,456,754 shares issued, 2,493,578 and 2,435,008
    outstanding in 2006 and 2005, respectively


25



24Additional paid-in capital


23,029



22,712Retained earnings


24,237



21,085Accumulated other comprehensive
    loss


(1,005
)


(1,469
)Treasury stock (22,615 and
    21,746 shares in 2006 and 2005, respectively), at cost


(530
)


(509
)Total stockholders equity


45,756



41,843Total liabilities and
    stockholders equity

$
788,323


$
669,249  45




---



##### Table of Contents



First
    Business Financial Services, Inc.
 Consolidated
    Statements of Income  Years Ended December 31,2006


2005


2004(In Thousands, Except PerShare Data)Interest income:Loans and leases

$
43,452


$
33,142


$
25,861Securities income:Taxable


4,033



3,161



2,124Short-term investments


175



206



151Total interest income


47,660



36,509



28,136Interest expense:Deposits


25,076



16,642



9,638Notes payable and other borrowings


2,372



1,145



742Junior subordinated debentures


1,241



946



893Total interest expense


28,689



18,733



11,273Net interest income


18,971



17,776



16,863Provision for loan and lease losses


1,519



400



(540
)Net interest income after
    provision for loan and lease losses


17,452



17,376



17,403Non-interest income:Service charges on deposits


756



845



1,004Credit, merchant and debit card
    fees


176



157



145Loan fees


630



626



600Gain on sale of 50% owned joint
    venture


-



973



-Increase in cash surrender value
    of bank-owned life insurance


614



415



255Trust and investment services fee
    income


1,356



1,045



732Change in fair value of interest
    rate swaps


(283
)


1



976Net cash settlement of interest
    rate swaps


120



(119
)


(829
)Other


305



296



385Total non-interest income


3,674



4,239



3,268Non-interest expense:Compensation


9,280



8,502



7,935Occupancy


993



943



894Equipment


518



439



518Data processing


994



802



672Marketing


936



797



688Professional fees


1,299



1,401



1,021Other


1,678



1,519



1,420Total non-interest expense


15,698



14,403



13,148Minority interest in net income of
    consolidated subsidiary


-



-



(9
)Income before income tax expense


5,428



7,212



7,514Income tax expense


1,681



2,455



3,255Net income

$
3,747


$
4,757


$
4,259Earnings per share:Basic

$
1.51


$
1.96


$
1.89Diluted


1.50



1.93



1.83Dividends declared per share


0.24



0.175



0.21    46




---



##### Table of Contents



First
    Business Financial Services, Inc.
 Consolidated
    Statements of Changes in Stockholders Equity and
    Comprehensive Income  AccumulatedAdditional





OtherCommon


Paid-in


Retained


Comprehensive


TreasuryStock


Capital


Earnings


Income (Loss)


Stock


Total(Dollars in Thousands, except share data)Balance at January 1, 2004

$
20


$
14,108


$
13,000


$
(1,103
)

$
(35
)

$
25,990Comprehensive income:Net income

$
-


$
-


$
4,259


$
-


$
-


$
4,259Net unrealized securities losses
    arising during the year


-



-



-



(70
)


-



(70
)Unrealized derivatives gains
    arising during the year


-



-



-



4



-



4Reclassification adjustment for
    realized loss on derivatives


-



-



-



540



-



540Income tax effect


-



-



-



(48
)


-



(48
)Comprehensive income






















4,685Cash dividends ($0.21 per
    share)


-



-



(507
)


-



-



(507
)Treasury stock purchased
    (15,173 shares)


-



-



-



-



(349
)


(349
)Issuance of shares for BBG option
    exercise (336,205 shares)


3



7,730



-



-



-



7,733Stock options exercised
    (70,344 shares)


1



588



-



-



-



589Balance at December 31, 2004

$
24


$
22,426


$
16,752


$
(677
)

$
(384
)

$
38,141Comprehensive income:Net income

$
-


$
-


$
4,757


$
-


$
-


$
4,757Net unrealized securities losses
    arising during the year


-



-



-



(1,571
)


-



(1,571
)Unrealized derivatives gains
    arising during the year


-



-



-



13



-



13Reclassification adjustment for
    realized loss on derivatives


-



-



-



235



-



235Income tax effect


-



-



-



531



-



531Comprehensive income






















3,965Cash dividends ($0.175 per
    share)


-



-



(424
)


-



-



(424
)Treasury stock purchased
    (4,973 shares)


-



-



-



-



(125
)


(125
)Stock options exercised
    (27,572 shares)


-



286



-



-



-



286Balance at December 31, 2005

$
24


$
22,712


$
21,085


$
(1,469
)

$
(509
)

$
41,843Comprehensive income:Net income

$
-


$
-


$
3,747


$
-


$
-


$
3,747Net Uunrealized securities gains
    arising during the year


-



-



-



549



-



549Reclassification adjustment for
    realized loss on securities


-



-



-



7



-



7Unrealized derivatives gains
    arising during the year


-



-



-



5



-



5Reclassification adjustment for
    realized loss on derivatives


-



-



-



99



-



99Income tax effect


-



-



-



(196
)


-



(196
)Comprehensive income






















4,211Share based
    compensation  restricted shares


1



181



-



-



-



182Cash dividends ($0.24 per
    share)


-



-



(595
)


-



-



(595
)Treasury stock purchased
    (869 shares)


-



-



-



-



(21
)


(21
)Stock options exercised
    (14,314 shares)


-



136



-



-



-



136Balance at December 31, 2006

$
25


$
23,029


$
24,237


$
(1,005
)

$
(530
)

$
45,756    47




---



##### Table of Contents



First
    Business Financial Services, Inc.
 Consolidated
    Statements of Cash Flows  Years Ended December 31,2006


2005


2004(In Thousands)Operating ActivitiesNet income

$
3,747


$
4,757


$
4,259Adjustments to reconcile net income
    to net cash provided by operating activities:Deferred income taxes, net


(836
)


(3,824
)


2,594Provision for loan and lease losses


1,519



400



(540
)Depreciation, amortization and
    accretion, net


602



959



1,181Share based compensation


182



-



-Change in fair value of interest
    rate swaps


283



1



(976
)Increase in cash surrender value of
    bank-owned life insurance


(613
)


(415
)


(255
)Origination of loans originated for
    sale


(1,082
)


(861
)


(4,434
)Sale of loans originated for sale


1,089



998



4,297Gain on sale of loans originated
    for sale


(7
)


(6
)


(16
)Loss on sale of
    available-for-sale
    securities


7



-



-Gain on sale of 50% owned joint
    venture


-



(973
)


-Minority interest in net income of
    consolidated subsidiaries


-



-



9(Increase) decrease in accrued
    interest receivable and other assets


(950
)


(825
)


2,739Increase (Decrease) in accrued
    expenses and other liabilities


604



2,430



(4,604
)Net cash provided by operating
    activities


4,545



2,641



4,254Investing activitiesProceeds from maturities of
    available-for-sale
    securities


22,480



26,528



15,484Proceeds from sale of
    available-for-sale
    securities


749



-



-Proceeds from sale of 50% owned
    joint venture


-



2,082



-Purchases of
    available-for-sale
    securities


(30,780
)


(56,794
)


(18,315
)Proceeds from sale of FHLB stock


1,125



-



-Increase in investment in FHLB stock


(251
)


(138
)


(458
)Net increase in loans and leases


(108,671
)


(63,308
)


(36,184
)Purchases of leasehold improvements
    and equipment, net


(283
)


(327
)


(304
)Purchase of cash surrender value of
    life insurance


-



(5,000
)


(5,000
)Net cash used in investing
    activities


(115,631
)


(96,957
)


(44,777
)Financing activitiesNet increase in deposits


72,802



92,788



37,791Net increase (decrease) in FHLB
    line of credit


17,048



(10,750
)


(2,725
)Repayment of FHLB advances


(9
)


(11,509
)


(4,308
)Proceeds from FHLB advances


7,000



11,000



11,000Repayment of long-term borrowed
    funds


(5,000
)


-



-Proceeds from long-term borrowed
    funds


21,000



-



-Repayment of junior subordinated
    debentures


(10,310
)


-



-Net increase (decrease) in
    short-term borrowed funds


13,173



21,036



(4,798
)Minority interest investment in
    subsidiaries


-



-



19Termination of interest rate swaps


(1,384
)


-



-Exercise of stock options


136



286



589Cash dividends


(595
)


(424
)


(507
)Purchase of treasury stock


(21
)


(125
)


(349
)Net cash provided by financing
    activities


113,840



102,302



36,712Net increase in cash and cash
    equivalents


2,754



7,986



(3,811
)Cash and cash equivalents at
    beginning of year


16,707



8,721



12,532Cash and cash equivalents at end of
    year

$
19,461


$
16,707


$
8,721Supplementary cash flow
    informationCash paid or credited to accounts:Interest on deposits and borrowings

$
27,639


$
15,907


$
11,691Income taxes


2,385



5,347



701Non-cash transactions:Deconsolidation of trust preferred
    securities


-



-



10,310Acquisition of minority shares of
    BBG:Increase in common stock and
    paid-in capital


-



-



7,733Elimination of minority interest


-



-



(4,392
)Settlement of written option
    liability


-



-



(654
)Increase in goodwill and other
    intangible assets


-



-



(2,689
)Other


-



-



2    48




---



##### Table of Contents



First
    Business Financial Services, Inc.
 NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS  Note 1 
    Summary of Significant Accounting Policies and Nature of
    Operations
  Nature of Operations. Note 2
  Basis of Financial Statement Presentation.
    Cash and Cash Equivalents.
  Securities
    Available-for-Sale. available-for-sale, held-to-maturity held-to-maturity held-to-maturity available-for-sale. Available-for-sale held-to-maturity
    Federal Home Loan Bank Stock.
 49




---



##### Table of Contents



Loans and Leases.
  Loans Held for Sale.
  Net Investment in Direct Financing Leases.
  Operating Leases.
  Interest on Loans.
  Loan and Lease Origination Fees.
 50




---



##### Table of Contents



Foreclosed Properties and Repossessed
    Assets.
  Allowance for Loan and Lease Losses. loan-by-loan
         51




---



##### Table of Contents



Derivative Instruments.
            Goodwill and Other Intangible Assets.
 52




---



##### Table of Contents



Note 4
  Leasehold Improvements and Equipment.
  Other Investments.
  Bank-Owned Life Insurance.
  Advertising Costs.
  Income Taxes.
   53




---



##### Table of Contents



Earnings Per Share.
  Segments and Related Information.
  Defined Contribution Plan.
  Stock Options.
  Share-Based Payment
  Reclassifications.
  Recent
    Accounting Changes.
  Fair Value Measurements. Fair Value
    Measurements
 54




---



##### Table of Contents



Accounting for Defined Benefit Pension and Other
    Postretirement Plans. , Employers Accounting for
    Defined Benefit Pension and Other Postretirement Plans Employers Accounting for
    Pensions, Employers
    Accounting for Settlements and Curtailments of Defined Benefit
    Pension Plans and for Termination Benefits Employers Accounting for
    Postretirement Benefits Other Than Pensions Employers
    Disclosures about Pensions and Other Postretirement Benefits,
  Accounting for Uncertainty in Income Taxes. Accounting for
    Uncertainty in Income Taxes Accounting for Income Taxes.
  Consideration of the Effects of Prior Year Misstatements on
    Current Year Financial Statements. Considering the Effects of Prior Year
    Misstatements when Quantifying Misstatements in Current Year
    Financial Statements
  Fair Value Option for Financial Assets and Financial
    Liabilities. The Fair Value Option for Financial
    Assets and Liabilities  Including an Amendment of
    SFAS No. 115 . not-for-profit Accounting for Certain Investments in Debt and Equity
    Securities, available-for-sale
  not-for-profit
   55




---



##### Table of Contents



Note 2  Sale of 50% Owned Joint
    Venture.
  Note 3  Acquisition of Minority
    Shares.
    Note 19
    Note 4 
    Goodwill and Intangible Assets.
  Goodwill is not amortized.
  Year Ended December 31,2006


2005


2004(In Thousands)Balance at beginning of year

$
2,689


$
2,689


$
-Goodwill acquired


-



-



2,689Balance at end of period

$
2,689


$
2,689


$
2,689    56




---



##### Table of Contents



Year Ended December 31,2006


2005


2004(In Thousands)Core deposit intangibles:Gross carrying amount

$
145


$
145


$
145Accumulated amortization


(77
)


(54
)


(22
)Net book value

$
68


$
91


$
123Additions during the year

$
-


$
-


$
145Amortization during the period

$
(23
)

$
(32
)

$
(22
)Other intangibles:Gross carrying amount

$
120


$
120


$
120Accumulated amortization


(60
)


(48
)


(36
)Net book value

$
60


$
72


$
84Additions during the year

$
-


$
-


$
-Amortization during the period

$
(12
)

$
(12
)

$
(12
)     CoreDeposit


OtherIntangibles


Intangibles


Total(In Thousands)Estimate for the year ended
    December 31,2007

$
18


$
12


$
302008


13



12



252009


10



12



222010


7



12



192011


4



12



16$
52


$
60


$
112    Note 5  Cash and Due From
    Banks.
  Note 6 
    Securities
  available-for-sale
  As of December 31, 2006Gross


GrossUnrealized


UnrealizedAmortized


Holding


Holding


EstimatedSecurities Available-for-Sale

Cost


Gains


Losses


Fair Value(In Thousands)U.S. Government corporations
    and agencies

$
1,497


$
-


$
(30
)

$
1,467Municipals


185



-



(3
)


182Collateralized mortgage obligations


99,855



85



(1,581
)


98,359$
101,537


$
85


$
(1,614
)

$
100,008   57




---



##### Table of Contents



As of December 31, 2005Gross


GrossUnrealized


UnrealizedAmortized


Holding


Holding


EstimatedSecurities Available-for-Sale
    Fair Value

Cost


Gains


Losses


Fair Value(In thousands)U.S. Government corporations
    and agencies

$
3,264


$
-


$
(80
)

$
3,184Municipals


275



-



(3
)


272Collateralized mortgage obligations


90,601



2



(2,004
)


88,599$
94,140


$
2


$
(2,087
)

$
92,055   available-for-sale available-for-sale
      available-for-sale
  Amortized


EstimatedCost


Fair Value(In Thousands)Due in one year or less

$
18


$
18Due in one year through five years


2,288



2,250Due in five through ten years


24,330



23,843Due in over ten years


74,901



73,897$
101,537


$
100,008  58




---



##### Table of Contents



other-than-temporarily other-than-temporarily
  As of December 31, 2006Less than 12 Months


12 Months or Longer


TotalFair Value


Unrealized Loss


Fair Value


Unrealized Loss


Fair Value


Unrealized Loss(In Thousands)U.S. Government corporations
    and agencies

$
-


$
-


$
1,467


$
30


$
1,467


$
30Municipals


-



-



182



3



182



3Collateralized mortgage obligations


14,451



107



69,021



1,474



83,472



1,581$
14,451


$
107


$
70,670


$
1,507


$
85,121


$
1,614   As of December 31, 2005Less than 12 Months


12 Months or Longer


TotalFair Value


Unrealized Loss


Fair Value


Unrealized Loss


Fair Value


Unrealized Loss(In Thousands)U.S. Government corporations
    and agencies

$
1,452


$
43


$
1,732


$
37


$
3,184


$
80Municipals


272



3



-



-



272



3Collateralized mortgage obligations


34,073



606



53,269



1,398



87,342



2,004$
35,797


$
652


$
55,001


$
1,435


$
90,798


$
2,087  59




---



##### Table of Contents



Note 7 
    Loan and Lease Receivables and Allowance for Loan and Lease
    Losses
    As of December 31,2006


2005(In Thousands)First mortgage loans:Commercial real estate

$
274,262


$
249,133Construction


78,257



50,619Multi-family


34,635



22,1151-4 family


35,721



26,513422,875



348,380Commercial business loans


176,701



151,688Direct financing leases, net


23,203



17,852Second mortgage loans


8,859



8,231Credit card and other


16,712



13,579648,350



539,730Less:Allowance for loan and lease losses


8,296



6,773Deferred loan fees


187



241$
639,867


$
532,716       Years Ended December 31,2006


2005


2004(In Thousands)Allowance at beginning of period

$
6,773


$
6,375


$
6,811Charge-offs:Mortgage






-



-Commercial


-



-



(25
)Lease


-



-



-Consumer


-



(10
)


(6
)Total charge-offs


-



(10
)


(31
)Recoveries:Mortgage


-



4



9Commercial


4



4



4Lease


-



-



122Consumer


-



-



-Total recoveries


4



8



135Net recoveries (charge-offs)


4



(2
)


104Provision


1,519



400



(540
)Allowance at end of period

$
8,296


$
6,773


$
6,375Allowance to gross loans and leases


1.28
%


1.25
%


1.34
%    60




---



##### Table of Contents



Year Ended December 31,2006


2005


2004(Dollars in Thousands)Non-accrual loans

$
1,109


$
1,454


$
696Non-accrual leases


-



90



1,566Total non-accrual loans and leases


1,109



1,544



2,262Foreclosed properties and
    repossessed assets, net


-



-



665Total non-performing assets

$
1,109


$
1,544


$
2,927Performing troubled debt
    restructurings

$
-


$
-


$
-     As of December 31,2006


2005


2004(In Thousands)Impaired loans and leases with no
    impairment reserves required

$
683


$
811


$
1,235Impaired loans and leases with
    impairment reserves required


1,404



733



1,027Less:Impairment reserve (included in
    allowance for loan and lease losses)


863



399



470Net impaired loans and leases

$
1,224


$
1,145


$
1,792Average impaired loans and leases

$
1,444


$
1,790


$
2,112Foregone interest income
    attibutable to impaired loans and leases

$
210


$
177


$
177Interest income recognized on
    impaired loans and leases

$
217


$
65


$
85       December 31,2006


2005(Dollars in Thousands)Minimum lease payments receivable

$
21,184


$
15,063Estimated unguaranteed residual
    values of leased property


5,544



4,993Initial direct costs


273



363Less unearned lease and residual
    income


(3,798
)


(2,567
)Investment in commercial direct
    financing leases

$
23,203


$
17,852       2007

$
5,9142008


4,7402009


4,0762010


3,3402011


2,335Thereafter


779$
21,184  61




---



##### Table of Contents



Note 8 
    Leasehold Improvements and Equipment
    At December 31,2006


2005(In Thousands)Leasehold improvements

$
892


$
762Furniture and equipment


2,124



2,035Purchases in progress


-



603,016



2,857Less: accumulated depreciation


(1,965
)


(1,702
)$
1,051


$
1,155   Note 9 
    Other Assets
      Note 10 
    Deposits
    December 31,2006


2005Weighted





WeightedBalance


Average Rate


Balance


Average Rate(Dollars in Thousands)Transaction accounts:Demand deposits

$
45,171



0.00
%

$
46,766



0.00
%Negotiable order of withdrawal
    (NOW) accounts


58,927



4.26



46,962



2.85104,098







93,728Money market accounts


171,996



4.67



138,442



3.10Certificates of deposit


364,172



4.63



335,294



3.95$
640,266






$
567,464  62




---



##### Table of Contents



Maturities
    during the Year Ended December 31
  2007


130,6642008


100,0172009


50,7072010


57,1422011


23,687Thereafter


1,955$
364,172     Note 11 
    Borrowed Funds
    December 31,2006


2005Weighted


Weighted





Weighted


WeightedAverage


Average





Average


AverageBalance


Balance


Rate


Balance


Balance


Rate(Dollars in Thousands)Fed funds purchased and securities
    sold under agreement to repurchase

$
33,751


$
13,875



5.12
%

$
19,463


$
9,021



3.45
%FHLB advances


36,584



19,059



4.83



12,545



11,427



3.67Junior subordinated debentures


-



9,915



12.52



10,310



10,310



9.18Line of credit


1,635



3,167



6.82



2,750



2,338



5.39Subordinated notes payable


21,000



6,929



7.58



5,000



5,000



5.75$
92,970


$
52,945



6.82
%

$
50,068


$
38,096



5.49
%Short-term borrowings

$
52,443










$
22,222Long-term borrowings (due beyond
    one year)


40,527











27,846$
92,970










$
50,068      63




---



##### Table of Contents



Maturities
    during Year Ended December 31,
  2007

$
17,0582008


6,0102009


112010


11,0112011


2,012Thereafter


482$
36,584             Note 12 
    Stockholders Equity
   64




---



##### Table of Contents



MinimumRequired to beMinimum Required for Capital


Well CapitalizedAdequacy


Under FDICActual


Purposes


RequirementsAmount


Ratio


Amount


Ratio


Amount


Ratio(Dollars in Thousands)As of December 31,
    2006:Total capital (to risk-weighted
    assets)Consolidated

$
73,241



10.40
%

$
56,360



8.00
%


N/A



N/AFirst Business Bank


64,443



10.49



49,144



8.00


$
61,430



10.00
%First Business Bank 
    Milwaukee


10,205



11.31



7,218



8.00



9,022



10.00Tier 1 capital (to
    risk-weighted assets)Consolidated

$
43,944



6.24
%

$
28,180



4.00
%


N/A



N/AFirst Business Bank


57,838



9.42



24,572



4.00


$
36,858



6.00
%First Business Bank 
    Milwaukee


9,070



10.05



3,609



4.00



5,413



6.00Tier 1 capital (to average
    assets)Consolidated

$
43,944



5.99
%

$
29,331



4.00
%


N/A



N/AFirst Business Bank


57,838



9.22



25,086



4.00


$
31,358



5.00
%First Business Bank 
    Milwaukee


9,070



8.50



4,269



4.00



5,336



5.00As of December 31,
    2005:Total capital (to risk-weighted
    assets)Consolidated

$
62,234



10.43
%

$
47,748



8.00
%


N/A



N/AFirst Business Bank


55,240



10.88



40,610



8.00


$
50,763



10.00
%First Business Bank 
    Milwaukee


9,009



10.32



6,981



8.00



8,727



10.00Tier 1 capital (to
    risk-weighted assets)Consolidated

$
50,461



8.45
%

$
23,874



4.00
%


N/A



N/AFirst Business Bank


49,713



9.79



20,305



4.00


$
30,458



6.00
%First Business Bank 
    Milwaukee


7,917



9.07



3,491



4.00



5,236



6.00Tier 1 capital (to average
    assets)Consolidated

$
50,461



7.92
%

$
25,486



4.00
%


N/A



N/AFirst Business Bank


49,713



9.14



21,746



4.00


$
27,182



5.00
%First Business Bank 
    Milwaukee


7,917



8.21



3,858



4.00



4,823



5.00  65




---



##### Table of Contents



December 31,2006


2005Stockholders equity of the
    Corporation

$
45,756


$
41,843Unrealized and accumulated gains
    and losses on specific items, minority interest in qualifying
    trust preferred securities and other disallowed goodwill and
    intangible assets


(1,811
)


8,618Tier 1 Capital


43,945



50,461Plus: Allowable general valuation
    allowances and subordinated debt


29,296



11,773Risk-based capital

$
73,241


$
62,234   and/or
  Note 13 
    Employee Benefit Plans
        Note 14 
    Leases
   66




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##### Table of Contents



2007

$
5742008


5702009


5712010


5642011


480Thereafter


2,070$
4,829   Note 15 
    Income Taxes
    Year Ended December 31,2006


2005


2004(In Thousands)Current:Federal

$
2,180


$
6,005


$
(369
)State


337



274



1,0302,517



6,279



661Deferred:Federal


(564
)


(3,780
)


2,317State


(272
)


(44
)


277(836
)


(3,824
)


2,594Total income tax expense

$
1,681


$
2,455


$
3,255       At December 31,2006


2005(In Thousands)Deferred tax assets:Allowance for loan and lease losses

$
3,179


$
2,452Deferred compensation


751



737Unrealized loss on securities


527



720Unrealized losses on interest rate
    swaps


2



432Federal and state net operating
    loss carryforwards


2,058



2,008Other


794



5837,311



6,932Valuation allowance


(857
)


(672
)Total deferred tax assets


6,454



6,260Deferred tax liabilities:Leasing and fixed asset activities


3,581



3,943Other


188



272Total deferred tax liabilities


3,769



4,215Net deferred tax asset

$
2,685


$
2,045  67




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##### Table of Contents



At December 31,2006


2005(In Thousands)Change in net deferred tax assets

$
640


$
4,355Deferred taxes allocated to OCI


196



(531
)Deferred income tax benefit

$
836


$
3,824       Note 3  Acquisition of
    Minority Shares.
        Year Ended December 31,2006


2005


2004(In Thousands)Income before minority interest in
    net income of consolidated subsidiary and income tax expense

$
5,428


$
7,212


$
7,523Tax expense at statutory federal
    rate of 34% applied to income before minority interest in net
    income of consolidated subsidiary and income tax expense

$
1,846


$
2,452


$
2,558State income tax, net of Federal
    effect


43



152



863Low income housing tax credits


(68
)


(80
)


(80
)Bank-owned life insurance


(209
)


(141
)


(86
)Other


69



72



-Total income tax expense

$
1,681


$
2,455


$
3,255Effective tax rate


30.97
%


34.04
%


43.32
%   out-of-state
 68




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##### Table of Contents



out-of-state
    Note 16 
    Commitments, Contingencies, and Financial Instruments with
    Off-Balance Sheet Risk
        December 31,2006


2005(Dollars in Thousands)Commitments to extend credit,
    primarily commercial loans

$
211,611


$
168,798Standby letters of credit and
    other credit substitutes


12,211



18,969   case-by-case
 69




---



##### Table of Contents



Note 17 
    Fair Value of Financial Instruments
      Securities:
  Loans and Leases:
  Federal Home Loan Bank stock:
  Cash surrender value of life insurance:
  Deposits:
   70




---



##### Table of Contents



Securities sold under agreement to
    repurchase:
  Borrowed funds:
  Junior subordinated debentures:
  Financial instruments with off-balance sheet
    risks:
    Interest rate swaps:
  Limitations:
      71




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##### Table of Contents



December 31,2006


2005Carrying





CarryingAmount


Fair Value


Amount


Fair Value(In Thousands)Financial assets:Cash and cash equivalents

$
19,461


$
19,461


$
16,707


$
16,707Securities
    available-for-sale


100,008



100,008



92,055



92,055Loans and lease receivables


639,867



636,436



532,716



530,002Federal Home Loan Bank stock


2,024



2,024



2,898



2,898Cash surrender value of life
    insurance


13,469



13,469



12,856



12,856Accrued interest receivable


3,407



3,407



2,697



2,697Financial liabilities:Deposits


640,226



637,700



567,464



563,860Federal funds purchased


33,300



33,300



18,750



18,750Securities sold under agreement to
    repurchase


451



451



713



713Federal Home Loan Bank and
    other borrowings


59,219



58,634



20,295



20,069Junior subordinated debentures


-



-



10,310



10,310Interest rate swaps


5



5



1,542



1,542Accrued interest payable


3,993



3,993



2,943



2,943Off-balance sheet items:Standby letters of credit


55



55



49



49Commitments to extend credit


-



*



-



*     *
    
    Amounts not material  Note 18 
    Derivative and Hedging Activities
     72




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##### Table of Contents



As of December 31,2006


2005Notional


Maturity


Fixed


Variable


Notional


Maturity

Fixed


VariableAmount


Date


Rate


Rate


Amount


Date

Rate


Rate(In Thousands)Cash Flow Hedge:Pay-fixed interest rate swap

$
618



April, 2009



5.24
%


5.04
%

$
789


April, 2009


5.24
%


3.97
%Other Derivatives:Pay-fixed interest rate swap


-







-



-



10,000


October, 2006


3.94



4.08Pay-fixed interest rate swap


-







-



-



10,000


November, 2006


3.75



4.12Pay-fixed interest rate swap


-







-



-



10,000


December, 2006


4.94



4.50Callable receive-fixed interest
    rate swap


-







-



-



10,000


January, 2010


4.25



4.44Callable receive-fixed interest
    rate swap


-







-



-



10,000


February, 2010


4.35



4.39Callable receive-fixed interest
    rate swap


-







-



-



10,000


February, 2010


4.10



4.42Callable receive-fixed interest
    rate swap


-







-



-



10,000


November, 2010


4.00



4.41Pay-fixed interest rate swap


-







-



-



4,742


June, 2011


5.49



4.20$
618














$
75,531           Note 19 
    Written Option
     73




---



##### Table of Contents



Note 22
  Note 20 
    Equity Incentive Plans
        Stock
    Options
   74




---



##### Table of Contents



Year Ended December 31,2006


2005


2004Weighted





Weighted





WeightedAverage





Average





AverageOptions


Price


Options


Price


Options


PriceOutstanding at beginning of year


201,532


$
21.05



228,654


$
19.62



219,739


$
15.01Granted


-



-



15,750



25.00



83,059



22.44Exercised


(14,314
)


9.50



(27,572
)


10.37



(70,344
)


8.36Forfeited


(21,050
)


21.71



(15,300
)


22.98



(3,800
)


22.44Outstanding at end of year


166,168


$
21.97



201,532


$
21.05



228,654


$
19.62Options exercisable at year end


106,445







101,772







90,531     Options Outstanding


ExercisableWeighted





OptionsAverage


Weighted





WeightedRemaining


Average





AverageContractual


Exercise





ExerciseRange of Exercise
    Prices

Shares


Life (Years)


Price


Shares


Price$11.91


3,128



1



11.91



3,128



11.9119.38


4,024



4



19.38



3,219



19.3819.00


14,332



5



19.00



14,332



19.0022.00


69,450



6



22.00



52,087



22.0015.33 & 24.00


59,484



8



22.54



29,742



22.5425.00


15,750



8



25.00



3,937



25.00166,168











106,445   Note 19.
    Restricted
    Shares
   75




---



##### Table of Contents



WeightedNumber of


AverageRestricted


Grant-DateShares


Fair ValueNonvested balance as of
    January 1, 2006


-


$
-Granted


48,475



23.07Vested


-



-Forfeited


(3,350
)


23.03Nonvested balance as of
    December 31, 2006


45,125


$
23.08     Note 21 
    Condensed Parent Only Financial Information
    Condensed
    Balance Sheets
  December 31,2006


2005(In Thousands)AssetsCash and cash equivalents

$
180


$
67Investments in subsidiaries, at
    equity


68,720



60,274Leasehold and equipment, net


651



724Other


161



389Total assets

$
69,712


$
61,454Liabilities and
    Stockholders EquityBorrowed funds

$
22,635


$
7,750Junior subordinated debentures


-



10,310Other liabilities


1,321



1,551Total liabilities


23,956



19,611Stockholders equity


45,756



41,843Total liabilities and
    stockholders equity

$
69,712


$
61,454  76




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##### Table of Contents



Condensed
    Statements of Income
  For the Years Ended December 31,2006


2005


2004(In Thousands)Interest expense

$
1,981


$
1,360


$
1,149Net interest expense


(1,981
)


(1,360
)


(1,149
)Consulting and rental income from
    subsididiaries


2,030



1,941



2,009Other


109



139



28158



720



888Non-interest expense


3,928



3,747



3,241Loss before tax benefit and equity
    in undistributed net income of subsidiaries


(3,770
)


(3,027
)


(2,353
)Income tax benefit


(1,253
)


(1,058
)


(757
)Income (loss) before equity in
    undistributed net income of subsidiaries


(2,517
)


(1,969
)


(1,596
)Equity in undistributed net income
    of subsidiaries


6,264



6,726



5,855Net income

$
3,747


$
4,757


$
4,259   Condensed
    Statement of Cash Flows
  December 31,2006


2005


2004(In Thousands)Operating ActivitiesNet Income

$
3,747


$
4,757


$
4,259Adjustments to reconcile net
    income to net cash provided by operations:Equity in undistributed earnings
    of subsidiaries


(6,264
)


(6,726
)


(5,855
)Share based compensation


58



-



-Change in fair value of interest
    rate swaps


(96
)


(285
)


(361
)Decrease in liabilities


(819
)


(360
)


(550
)Other, net


1,392



208



910Net cash used in operating
    activities


(1,982
)


(2,406
)


(1,597
)Investing
    ActivitiesPayments for investment in and
    advances to subsidiaries


(2,000
)


-



(2,729
)Net cash used in investing
    activities


(2,000
)


-



(2,729
)Financing
    ActivitiesAcquisition of minority shares of
    BBG


-



-



3,341Exercise of stock options


136



286



589Proceeds from advances and other
    borrowed funds


5,585



3,250



990Repayment from advances and other
    borrowed funds


(6,700
)


(1,000
)


(500
)Proceeds from long-term borrowed
    funds


21,000



-



-Repayment of long-term borrowed
    funds


(5,000
)


-



-Repayment of junior subordinated
    debentures


(10,310
)


-



-Purchase of treasury stock


(21
)


(125
)


(349
)Cash dividends


(595
)


(424
)


(241
)Proceeds from dissolution of BBG


-



-



382Net cash provided by financing
    activities


4,095



1,987



4,212Increase (decrease) in cash and
    cash equivalents


113



(419
)


(114
)Cash and cash equivalents at
    beginning of year


67



486



600Cash and cash equivalents at end
    of year

$
180


$
67


$
486  77




---



##### Table of Contents



Note 22 
    Earnings per Share
    December 31,2006


2005


2004Numerator:

$
3,747,352


$
4,757,217


$
4,258,804Net incomeNumerator for basic earnings per
    share  income available to common stockholders


3,747,352



4,757,217



4,258,804(Income) expense option liability


-



-



(7,000
)Numerator for diluted earnings per
    share  income available to common stockholders


3,747,352



4,757,217



4,251,804Denominator:Denominator for basic earnings per
    share  weighted-average common shares outstanding


2,477,119



2,422,631



2,249,927Effect of dilutive securities:Employee stock options


15,133



41,813



54,670BBG employee stock options


-



-



1,820Option liability


-



-



12,248Denominator for diluted earnings
    per share  adjusted weighted-average common shares
    and assumed conversions


2,492,252



2,464,444



2,318,665Basic earnings per share

$
1.51


$
1.96


$
1.89Diluted earnings per share


1.50



1.93



1.83     Note 23 
    Condensed Quarterly Earnings (unaudited)
  Condensed
    Quarterly Earnings (unaudited)
  2006


2005First


Second


Third


Fourth


First


Second


Third


FourthQuarter


Quarter


Quarter


Quarter


Quarter


Quarter


Quarter


Quarter(In Thousands, Except per Share Data)Interest income

$
10,811


$
11,536


$
12,165


$
13,148


$
7,956


$
8,863


$
9,376


$
10,314Interest expense


6,287



6,730



7,448



8,223



3,693



4,365



5,041



5,635Net interest income


4,524



4,806



4,717



4,925



4,263



4,498



4,335



4,679Provision for loan losses


-



71



413



1,036



65



-



53



282Gain on sale of 50% owned joint
    venture


-



-



-



-



973



-



-



-Other non-interest income


734



936



1,004



1,000



736



1,120



616



793Non-interest expense


3,990



4,060



4,133



3,515



3,575



3,746



3,550



3,532Income before income taxes


1,268



1,611



1,175



1,374



2,332



1,872



1,348



1,658Income taxes


411



532



309



429



807



649



432



566Net income

$
857


$
1,079


$
866


$
945


$
1,525


$
1,223


$
916


$
1,092Per share data:Basic earnings

$
0.35


$
0.44


$
0.35


$
0.37


$
0.63


$
0.51


$
0.38


$
0.44Diluted earnings


0.35



0.43



0.35



0.37



0.62



0.50



0.37



0.44Dividends


0.06



0.06



0.06



0.06



-



0.115



-



0.06  78




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm           
    79




---



##### Table of Contents



Item 9.
    Changes in and Disagreements with Accountants on Accounting and
    Financial Disclosure   Item 9A.
    Controls and Procedures  Disclosure
    Controls and Procedures
  Rules 13a-15(e) 15d-15(e)
  Changes
    in Internal Control Over Financial Reporting
  Rules 13a-15(f) 15d-15(f)
 Item 9B.
    Other Information   80




---



##### Table of Contents



PART III. Item 10.
    Directors, Executive Officers and Corporate Governance  (a)
    Directors of the Registrant. Information with
    respect to the Directors of the registrant, included in the
    definitive Proxy Statement for the Annual Meeting of the
    Stockholders to be held on May 7, 2007 under the captions
    Board of Directors and Section 16(a)
    Beneficial Ownership Reporting Compliance is incorporated
    herein by reference.(b)
    Executive Officers of the Registrant. The
    information is presented in Item 1of this document.  (c)
    Code of Ethics. The Corporation has adopted a code
    of ethics applicable to all employees, including the principal
    executive and principal accounting officer of the Corporation.
    The FBFS Code of Ethics is posted on the Corporations
    website at www.fbfinancial.com Item 11.
    Executive Compensation   Item 12.
    Security Ownership of Certain Beneficial Owners and Management
    and Related Stockholder Matters   Item 13.
    Certain Relationships and Related Transactions, and Director
    Governance   Item 14.
    Principal Accountant Fees and Services   ITEM IV Item 15.
    Exhibits and Financial Statements Schedules  Item 8  Financial
    Statements and Supplementary Data Form 10-K.
  Exhibits.
 81




---



##### Table of Contents



Signatures    FIRST BUSINESS FINANCIAL SERVICES, INC.
  
      82




---



##### Table of Contents



Exhibit No.

Exhibit Name3.1

Amended and Restated Articles of
    Incorporation of First Business Financial Services, Inc.
    (previously filed as Exhibit 3.1 and incorporated by
    reference in the Amended Registration Statement on Form 10 filed
    April 28, 2005)3.2

Amended and Restated Bylaws of
    First Business Financial Services, Inc. (previously filed as
    Exhibit 3.2 and incorporated by reference in the Amended
    Registration Statement on Form 10 filed April 28, 2005)4

Pursuant to
    Item 601(b)(4)(iii) of
    Regulation S-K,
    the Registrant agrees to furnish to the Securities and Exchange
    Commission, upon request, any instrument defining the rights of
    holders of long-term debt not being registered that is not filed
    as an exhibit to this Registration Statement on Form 10. No such
    instrument authorizes securities in excess of 10% of the total
    assets of the Registrant.10.1

1993 Incentive Stock Option Plan
    (previously filed in the Registration Statement on
    Form S-8
    filed September 28, 2006)10.2

2001 Equity Incentive Plan
    (previously filed as Exhibit 10.1 and incorporated by
    reference in the Amended Registration Statement on Form 10 filed
    April 28, 2005)10.3

Form of Stock Option Agreement
    (previously filed as Exhibit 10.2 and incorporated by
    reference in the Amended Registration Statement on Form 10 filed
    April 28, 2005)10.4

2006 Equity Incentive Plan
    (previously filed in the Registration Statement on
    Form S-8
    filed September 28, 2006)10.5

Form of Restricted Stock Agreement
    (previously filed as Exhibit 4.4 in the Registration
    Statement on
    Form S-8
    filed September 28, 2006)10.6

Restated Employment Agreement
    dated December 14, 2005 between the Registrant and Jerome
    J. Smith (previously filed as Exhibit 10.1 to the current
    report on
    Form 8-K
    filed on December 16, 2005)10.7

Employment and Repayment Agreement
    between First Business Capital Corp. and Charles H. Batson,
    dated December 14, 2005 and amended February 6, 2006
    (previously filed as Exhibits 10.1 and 10.2 to the current
    reports on
    Form 8-K
    filed on December 20, 2005 and February 10, 2006)10.8

Restated Employment Agreement
    dated November 7, 2006 between the Registrant and Corey A.
    Chambas (previously filed as Exhibit 10.1 to the current
    report on
    Form 8-K
    filed on November 13, 2006)10.9

Annual Incentive Bonus Program21

Subsidiaries of the Registrant
    (previously filed as Exhibit 21 and incorporated by
    reference in the Amended Registration Statement on Form 10 filed
    April 28, 2005)23

Consent of KPMG LLP31.1

Certification of the Chief
    Executive Officer31.2

Certification of the Senior Vice
    President and Chief Financial Officer32

Certification of the Chief
    Executive Officer and Senior Vice President and Chief Financial
    Officer pursuant to 18 U.S.C. Section 135099

Proxy Statement for the Annual
    Meeting of the Stockholders (to be filed with the SEC under
    Regulation 14A within 120 days after December 31,
    2006; except to the extend specifically incorporated by
    reference, the Proxy Statement for the Annual Meeting of the
    Stockholders shall not be deemed to be filed with the SEC as
    part of this Annual Report on
    Form 10-K)  84