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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-K
 (Mark One)
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2010
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from  to
 Commission file number 001-34095
 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)
   Title of each class
    
    Name of each exchange on which registeredCommon Stock, $0.01 par value
    
    NASDAQ Stock ExchangeCommon Share Purchase Rights
    
    NASDAQ Stock Exchange
 None
 o þ
 o þ
 þ o
 o o
 o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
 o þ
   DOCUMENTS INCORPORATED BY REFERENCE




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Table of Contents
 PART I
    
    
    4Item 1. Business
    
    
    4Item 1A. Risk Factors
    
    
    13Item 1B. Unresolved Staff Comments
    
    
    18Item 2. Properties
    
    
    19Item 3. Legal Proceedings
    
    
    19Item 4. Reserved
    
    
    19PART II
    
    
    19Item 5. Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    19Item 6. Selected Financial Data
    
    
    22Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    23Item 7A. Quantitative and Qualitative Disclosures about Market Risk
    
    
    50Item 8. Financial Statements and Supplementary Data
    
    
    52Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure
    
    
    97Item 9A(T). Controls and Procedures
    
    
    97Item 9B. Other Information
    
    
    97PART III
    
    
    97Item 10. Directors, Executive Officers and Corporate Governance
    
    
    97Item 11. Executive Compensation
    
    
    98Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    98Item 13. Certain Relationships and Related Transactions, and Director Independence
    
    
    98Item 14. Principal Accountant Fees and Services
    
    
    98PART IV
    
    
    98Item 15. Exhibits, Financial Statements Schedules
    
    
    98Signatures
    
    
    99Exhibit 23Exhibit 31.1Exhibit 31.2Exhibit 32
  
  3




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Item 1.
    
    Business
 General
 Item 7, Managements Discussion and Analysis of Financial Condition and Results of
Operations  Loans and Leases.
      4




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Available Information
 www.firstbusiness.com www.sec.gov
 Employees
  Competition
  Supervision and Regulation
  General
    5




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The Corporation
     Emergency Economic Stabilization Act of 2008.
 
    
    Capital Purchase Program (CPP). Pursuant to this program, the UST, on behalf of
the U.S. government, was authorized to purchase preferred stock, along with warrants to
purchase common stock, from certain financial institutions, including bank holding
companies, savings and loan holding companies and banks or savings associations not
controlled by a holding company. We received approval from the UST to participate in
this program. We chose not to participate in the program. Refer to Item 7 
Managements Discussion and Analysis of Financial Condition and Results of Operations
 Liquidity and Capital Resourcesfor further discussion.
 
    
    Temporary Liquidity Guarantee Program. The program contained both (i) a debt
guarantee component, whereby the FDIC will guarantee until June 30, 2012, the senior
unsecured debt issued by eligible financial institutions between October 14, 2008 and
June 30, 2009 (of which we did not issue any qualifying debt) and (ii) a transaction
account guarantee program (TAGP), whereby the FDIC
will insure 100% of certain transaction accounts held at eligible financial institutions
through December 31, 2009 and further extended to December 31, 2010. We elected to
fully participate in this program.
  6




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Dodd-Frank Wall Street Reform and Consumer Protection Act.
   Changes in FDIC insurance.
 Regulation of derivatives.
 Bank capital.
  7




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Leverage and risk-based capital requirements.
  The Banks
  Insurance of Deposits.
       8




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Regulatory Capital Requirements
 Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations 
Liquidity and Capital Resources.
 Prompt Corrective Action
    9




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Total Capital to Risk
    
    Tier 1 Capital to RiskCategory
    
    Weighted Assets
    
    Weighted Assets
    
    Tier 1 Leverage RatioWell capitalized
    
    ≥ 10%
    
    ≥ 6%
    
    ≥ 5%Adequately capitalized
    
    ≥ 8%
    
    ≥ 4%
    
    ≥ 4%*Undercapitalized
    
    < 8%
    
    < 4%
    
    < 4%*Significantly undercapitalized
    
    < 6%
    
    < 3%
    
    < 3%Critically undercapitalized
    
    Ratio of tangible equity to total assets ≤ 2%
 *
    
    3% if the bank receives the highest rating under the uniform system. Limitations on Dividends and Other Capital Distributions
   Liquidity
 Item 7, Managements Discussion and Analysis of Financial
Condition and Results of Operations  Liquidity and Capital Resources
 Federal Reserve System
  Federal Home Loan Bank System
    10




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Item 7  Managements Discussion and
Analysis of Financial Condition and Results of Operations  Liquidity and Capital Resources
 Transactions with Affiliates
  Privacy
  Community Reinvestment Act Requirements
  Anti  Money Laundering
  Commercial Real Estate Guidance
   11




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Interagency Appraisal and Evaluation Guidelines
  Processing of Deposit Accounts in the Event of an Insured Depository Institution Failure
  Other Regulations
  Changing Regulatory Structure
   Monetary Policy
   12




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Executive Officers of the Registrant
  Corey A. Chambas
 James F. Ropella
 Michael J. Losenegger
 Barbara M. Conley
 Mark J. Meloy
 Joan A. Burke
 Charles H. Batson
 David J. Vetta
 
 Item 1A.
    
    Risk Factors
   13




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Adverse changes in economic conditions, particularly a continuing or worsening slowdown in Dane,
Waukesha and Outagamie counties where our business is concentrated, could harm our business.
   Declines in fair market values of commercial real estate or equipment provided as collateral could
increase our exposure to future probable losses.
  Our loan portfolio has a concentration of commercial real estate loans.
   14




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Our allowance for loan and lease losses may not be adequate to cover actual losses.
  
    
    current economic conditions and their estimated effects on specific
borrowers and collateral values;
 
    
    an evaluation of the existing relationships among loans and leases,
probable loan and lease losses and the present level of the allowance for loan and
lease losses;
 
    
    results of examinations of our loan and lease portfolios by regulatory
agencies; and
 
    
    our managements internal review of the loan and lease portfolios.
  To maintain adequate capital levels, we may be required to raise additional capital in the future,
but that capital may not be available when it is needed and could be dilutive to our existing
shareholders.
  The Corporation Is a Bank Holding Corporation and Its Sources of Funds Are Limited.
  The Corporation May Be Adversely Affected by the Soundness of Other Financial Institutions.
   15




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We rely, in part, on external financing to fund our operations and the lack of availability of such
funds in the future could adversely affect our operations.
  Our financial condition and results of operations could be negatively affected if we fail to
effectively execute our strategic plan.
  Competition from other financial institutions could adversely affect our profitability.
   We rely on our management, and the loss of one or more of those managers may harm our business.
  Variations in interest rates may harm our financial results.
   16




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We are subject to extensive regulation, and changes in banking laws and regulations could adversely
affect our business.
 See Item 1, Business  Supervision and Regulation.
 Our trust operations subject us to financial and reputational risks.
  If we are unable to keep pace with technological advances in our industry, our ability to attract
and retain clients could be adversely affected.
  Our business continuity plans or data security systems could prove to be inadequate, resulting in a
material interruption in or disruption to, our business and a negative impact on our results of
operations.
  A breach in security of our systems or our third party service providers communications and
information technologies could have a material adverse effect on our business.
   17




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Our stock is thinly traded.
  
    
    our operating performance;
 
    
    limited research analysis performed on our Corporation;
 
    
    operating results and stock price performance of other companies that investors deem
comparable to us;
 
    
    news reports relating to trends, concerns and other issues in the financial services
industry;
 
    
    perceptions in the marketplace regarding us and/or our competitors; and
 
    
    changes in government regulations.
  Our framework for managing risks may not be effective in mitigating risk and loss to us.
  Changes in accounting standards may materially impact our financial statements.
  
 Item 1B.
    
    Unresolved Staff Comments
   18




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Item 2.
    
    Properties
  ExpirationLocation
    
    Function
    
    Date401 Charmany Drive, Madison, WI
    
    Full service banking location of First Business Bank and office of First Business Financial Services, Inc.
    
    202818500 W. Corporate Drive, Brookfield, WI
    
    Full service banking location of First Business Bank - Milwaukee
    
    20203913 West Prospect Avenue,
Appleton, WI
    
    Loan production office of First Business Bank
    
    2017230 Ohio Street, Oshkosh, WI
    
    Loan production office of First Business Bank
    
    2017300 N. Broadway, Green Bay, WI
    
    Loan production office of First Business Bank
    
    2014
  
 Item 3.
    
    Legal Proceedings
  
 Item 4.
    
    Reserved
 
 PART II.
 
 Item 5.
    
    Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
   19




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High
    
    
    Low
    
    
    Dividend Declared20101st Quarter
    
    $
    10.35
    
    
    $
    9.60
    
    
    $
    0.072nd Quarter
    
    
    11.00
    
    
    
    9.70
    
    
    
    0.073rd Quarter
    
    
    9.70
    
    
    
    8.67
    
    
    
    0.074th Quarter
    
    
    14.90
    
    
    
    8.80
    
    
    
    0.0720091st Quarter
    
    $
    15.08
    
    
    $
    10.50
    
    
    $
    0.072nd Quarter
    
    
    13.95
    
    
    
    10.45
    
    
    
    0.073rd Quarter
    
    
    11.72
    
    
    
    7.70
    
    
    
    0.074th Quarter
    
    
    10.42
    
    
    
    9.10
    
    
    
    0.07
 Refer to Item 1,
Business  Supervision and Regulation
  Equity Compensation Plan InformationNumber of securitiesremaining available forfuture issuance underNumber of securities to
    
    
    Weighted-average
    
    
    equity compensationbe issued upon exercise
    
    
    exercise price of
    
    
    plans (excludingof outstanding options,
    
    
    outstanding options,
    
    
    securities reflected inPlan category
    
    warrants, and rights.
    
    
    warrants, and rights
    
    
    column (a))(a)
    
    
    (b)
    
    
    (c)Equity compensation
plans approved by
security holders
    
    
    138,766
    
    
    $
    22.09
    
    
    
    74,507
  20




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Issuer Purchases of SecuritiesApproximateTotal Number of
    
    
    Dollar Value ofShares Purchased
    
    
    Shares that Mayas Part of Publicly
    
    
    Yet Be PurchasedTotal Number of
    
    
    Average Price Paid
    
    
    Announced Plans
    
    
    Under the Plans orPeriod
    
    Shares Purchased(1)
    
    
    Per Share
    
    
    or Programs
    
    
    Programs(2)October 1  31, 2010
    
    
    333
    
    
    $
    9.05
    
    
    
    
    
    
    $
    177,150November 1  30, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    177,150December 1  31, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    177,150
 
 (1)
    
    The shares in this column represent the 333 shares that were surrendered to us to
satisfy income tax withholding obligations in connection with the vesting of restricted
shares during the three months ended December 31, 2010.(2)
    
    On November 20, 2007, the Corporation publicly announced a stock repurchase program
whereby the Corporation would repurchase up to approximately $1,000,000 of the
Corporations outstanding stock. As of December 31, 2010, approximately $177,150 remains
available to repurchase the Corporations outstanding stock. There currently is no
expiration date to this stock repurchase program.  21




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Item 6.
    
    Selected Financial Data
  As of and for the Year Ended December 31,2010
    
    
    2009
    
    
    2008(Dollars In Thousands, Except Share Data)FOR THE YEAR:Interest income
    
    $
    56,626
    
    
    $
    56,356
    
    
    $
    59,773Interest expense
    
    
    24,675
    
    
    
    28,322
    
    
    
    33,515Net interest income
    
    
    31,951
    
    
    
    28,034
    
    
    
    26,258Provision for loan and lease losses
    
    
    7,044
    
    
    
    8,225
    
    
    
    4,299Non-interest income
    
    
    6,743
    
    
    
    6,450
    
    
    
    5,105Non-interest expense
    
    
    25,465
    
    
    
    23,810
    
    
    
    20,841Goodwill impairment
    
    
    2,689
    
    
    
    
    
    
    
    Loss on foreclosed properties
    
    
    206
    
    
    
    691
    
    
    
    1,043Income tax expense
    
    
    2,349
    
    
    
    717
    
    
    
    2,056Net income
    
    $
    941
    
    
    $
    1,041
    
    
    $
    3,124Yield on earning assets
    
    
    5.39
    %
    
    
    5.57
    %
    
    
    6.39
    %Cost of funds
    
    
    2.57
    
    
    
    3.03
    
    
    
    3.89Interest rate spread
    
    
    2.82
    
    
    
    2.53
    
    
    
    2.50Net interest margin
    
    
    3.04
    
    
    
    2.77
    
    
    
    2.81Return on average assets
    
    
    0.09
    
    
    
    0.10
    
    
    
    0.32Return on average equity
    
    
    1.67
    
    
    
    1.90
    
    
    
    6.11ENDING BALANCE SHEET:Total assets
    
    $
    1,107,057
    
    
    $
    1,117,436
    
    
    $
    1,010,786Securities
    
    
    153,379
    
    
    
    122,286
    
    
    
    109,124Loans and leases, net
    
    
    860,935
    
    
    
    839,807
    
    
    
    840,546Deposits
    
    
    988,298
    
    
    
    984,374
    
    
    
    838,874FHLB advances and other borrowings
    
    
    41,504
    
    
    
    57,515
    
    
    
    94,526Junior subordinated notes
    
    
    10,315
    
    
    
    10,315
    
    
    
    10,315Stockholders equity
    
    
    55,335
    
    
    
    54,393
    
    
    
    53,006FINANCIAL CONDITION ANALYSIS:Allowance for loan and lease losses to
year-end loans
    
    
    1.85
    %
    
    
    1.65
    %
    
    
    1.39
    %Allowance to non-accrual loans and leases
    
    
    42.37
    
    
    
    50.76
    
    
    
    72.74Net charge-offs to average loans and leases
    
    
    0.57
    
    
    
    0.69
    
    
    
    0.28Non-accrual loans to gross loans and leases
    
    
    4.37
    
    
    
    3.26
    
    
    
    1.91Average equity to average assets
    
    
    5.11
    
    
    
    5.19
    
    
    
    5.27STOCKHOLDERS DATA:Basic earnings per common share(1)
    
    $
    0.37
    
    
    $
    0.41
    
    
    $
    1.24Diluted earnings per common share(1)
    
    
    0.37
    
    
    
    0.41
    
    
    
    1.24Book value per share at end of period
    
    
    21.30
    
    
    
    21.42
    
    
    
    20.82Dividend declared per share
    
    
    0.28
    
    
    
    0.28
    
    
    
    0.28Dividend payout ratio
    
    
    75.68
    %
    
    
    68.29
    %
    
    
    22.58
    %Shares outstanding
    
    
    2,597,820
    
    
    
    2,539,306
    
    
    
    2,545,546
 (1)
    
    Basic and diluted earnings per share reflect earnings per common share as calculated under
the two-class method due to the existence of participating securities.  22




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Item 7.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
 Forward-Looking Statements
 Item
1A  Risk Factors
    Overview
    23




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Operational highlights
 
    
    Our total assets decreased slightly to $1.107 billion as of December 31, 2010, a 0.9%
decrease, from $1.117 billion at December 31, 2009. We experienced moderate growth in our
loan and lease portfolio. Net loans and leases receivable increased $21.1 million, or
2.5%, to $860.9 million as of December 31, 2010 from $839.8 million as of December 31,
2009. We also experienced growth in our investment portfolio. Securities available for
sale increased $31.1 million, or 25.4%, to $153.4 million at December 31, 2010 from $122.3
million at December 31, 2009. The growth in these asset classes is primarily offset by a
reduction of our on-balance sheet liquidity.
 As of December 31, 2010, our short-term investments, which consists primarily of interest
bearing deposits held at the Federal Reserve Bank of Chicago (FRB), was $41.4 million.
This is a decline of 60.3% from $104.2 million at December 31, 2009. We used short-term
investments for a variety of purposes including asset growth as well as not replacing
Federal Home Loan Bank advances that matured. We continue to view liquidity and safety and
soundness to be a priority; however, have taken measures to balance that priority and
profitability.
 
    
    Net income for the year ended December 31, 2010 was $941,000 compared to $1.0 million
for the year ending December 31, 2009. During the year ended December 31, 2010,
specifically in June 2010, we recorded an impairment of goodwill in an amount of $2.7
million. The goodwill impairment is an accounting adjustment that does not affect cash
flows, liquidity, regulatory capital, regulatory capital ratios, or the future operations
of our Corporation. Also, the goodwill impairment is not deductible for income tax
purposes, so there is no income tax benefit associated with the impairment.
 
    
    Net income excluding the impact of goodwill impairment for the year ended December 31,
2010 was $3.6 million, an increase of $2.6 million, from $1.0 million for the year ended
December 31, 2009. The increase in net income excluding the impact of goodwill impairment
is primarily attributable to improved net interest revenue and lower provision for loan and
lease losses partially offset by increases in FDIC insurance expense and compensation
expense.
 
    
    Diluted earnings per common share for the year ended December 31, 2010 was $0.37
compared to diluted earnings per common share of $0.41 for the year ended December 31,
2009. Diluted earnings per share for the year ended December 31, 2010 includes a $1.05 per
share goodwill impairment charge. Excluding the impairment of goodwill, diluted earnings
per common share was $1.42 for the year ended December 31, 2010. Return on average equity
was 1.67% in 2010 compared to 1.90% in 2009. Excluding the goodwill impairment, return on
average equity was 6.46% for the year ended December 31, 2010.
  24




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
    
    Top line revenue, which consists of net interest revenue and non-interest income,
increased 12.2% to $38.7 million for the year ended December 31, 2010 compared to $34.5
million for the year ended December 31, 2009.
 
    
    Our net interest margin increased to 3.04% for the year ended December 31, 2010 as
compared to 2.77% for the year ended December 31, 2009.
 
    
    Provision for loan and lease losses was $7.0 million for the year ended
December 31, 2010 compared to $8.2 million for the year ended December 31, 2009. Allowance
for loan and lease losses as a percentage of total loans was 1.85% as of December 31, 2010
as compared to 1.65% as of December 31, 2009.
 
    
    Non-accrual loans and leases increased approximately $10.6 million, or 38.0%, to $38.4
million as of December 31, 2010 from $27.8 million as of December 31, 2009.
 
    
    Our average in market deposits increased $31.3 million, or 6.9% to $486.6 million for
the year ended December 31, 2010 from $455.3 million for the year ended December 31, 2009.
  Results of Operations
 Comparison of the Years Ended December 31, 2010 and 2009
 Top Line Revenue
 For the Year EndedDecember 31,2010
    
    
    2009
    
    
    Change(Dollars In Thousands)Net interest income
    
    $
    31,951
    
    
    $
    28,034
    
    
    
    14.0
    %Non-interest income
    
    
    6,743
    
    
    
    6,450
    
    
    
    4.5Total top line revenue
    
    $
    38,694
    
    
    $
    34,484
    
    
    
    12.2
 Adjusted Net Income.
  25




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For the Year Ended December 31,2010
    
    
    2009
    
    
    Change(Dollars in Thousands)Net income, presented under US GAAP
    
    $
    941
    
    
    $
    1,041
    
    
    
    (9.6
    )%Add back:Provision for loan and lease losses,
after tax
    
    
    4,346
    
    
    
    5,000
    
    
    
    (13.1
    )Goodwill impairment
    
    
    2,689
    
    
    
    
    
    
    
    *Less:Net charge-offs, net of tax
    
    
    3,021
    
    
    
    3,616
    
    
    
    (16.5
    )Adjusted net income
    
    $
    4,955
    
    
    $
    2,425
    
    
    
    104.3
    %
 *
    
    Not meaningful Return on Equity.
 Net Interest Income.
  26




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Rate/Volume Analysis
 Increase (Decrease) for the Year Ended December 31,2010 Compared to 2009Rate/Rate
    
    
    Volume
    
    
    Volume
    
    
    Net(In Thousands)Interest-Earning AssetsCommercial real estate and other
mortgage loans
    
    $
    574
    
    
    $
    120
    
    
    $
    2
    
    
    $
    696Commercial and industrial loans
    
    
    91
    
    
    
    525
    
    
    
    3
    
    
    
    619Direct financing leases
    
    
    30
    
    
    
    (384
    )
    
    
    (6
    )
    
    
    (360
    )Other loans
    
    
    (273
    )
    
    
    (217
    )
    
    
    59
    
    
    
    (431
    )Total loans and leases receivable
    
    
    422
    
    
    
    44
    
    
    
    58
    
    
    
    524Mortgage-related securities
    
    
    (1,087
    )
    
    
    1,030
    
    
    
    (233
    )
    
    
    (290
    )Investment securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    FHLB Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Short-term investments
    
    
    (1
    )
    
    
    37
    
    
    
    
    
    
    
    36Total net change in income on
interest-earning assets
    
    
    (666
    )
    
    
    1,111
    
    
    
    (175
    )
    
    
    270Interest-Bearing LiabilitiesNOW accounts
    
    
    (33
    )
    
    
    31
    
    
    
    (4
    )
    
    
    (6
    )Money market
    
    
    (623
    )
    
    
    603
    
    
    
    (128
    )
    
    
    (148
    )Certificates of deposit
    
    
    (373
    )
    
    
    (864
    )
    
    
    113
    
    
    
    (1,124
    )Brokered certificates of deposit
    
    
    (3,038
    )
    
    
    797
    
    
    
    (132
    )
    
    
    (2,373
    )Total deposits
    
    
    (4,067
    )
    
    
    567
    
    
    
    (151
    )
    
    
    (3,651
    )FHLB advances
    
    
    21
    
    
    
    (255
    )
    
    
    (5
    )
    
    
    (239
    )Other borrowings
    
    
    339
    
    
    
    (82
    )
    
    
    (14
    )
    
    
    243Junior subordinated notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total net change in expense on
interest-bearing liabilities
    
    
    (3,707
    )
    
    
    230
    
    
    
    (170
    )
    
    
    (3,647
    )Net change in net interest income
    
    $
    3,041
    
    
    $
    881
    
    
    $
    (5
    )
    
    $
    3,917
  27




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##### Table of Contents



For the Year Ended December 31,2010
    
    
    2009Average
    
    
    
    
    
    
    
    
    
    
    AverageAverage
    
    
    
    
    
    
    yield/
    
    
    Average
    
    
    
    
    
    
    yield/balance
    
    
    Interest
    
    
    cost
    
    
    balance
    
    
    Interest
    
    
    cost(Dollars In Thousands)Interest-Earning AssetsCommercial real estate and other
mortgage loans
    
    $
    598,068
    
    
    $
    33,490
    
    
    
    5.60
    %
    
    $
    595,885
    
    
    $
    32,794
    
    
    
    5.50
    %Commercial and industrial loans
    
    
    221,323
    
    
    
    16,441
    
    
    
    7.43
    
    
    
    214,212
    
    
    
    15,822
    
    
    
    7.39Direct financing leases
    
    
    23,429
    
    
    
    1,487
    
    
    
    6.35
    
    
    
    29,577
    
    
    
    1,847
    
    
    
    6.24Other loans
    
    
    16,914
    
    
    
    574
    
    
    
    3.39
    
    
    
    21,583
    
    
    
    1,005
    
    
    
    4.66Total loans and leases
receivable(1)
    
    
    859,734
    
    
    
    51,992
    
    
    
    6.05
    
    
    
    861,257
    
    
    
    51,468
    
    
    
    5.98Mortgage-related securities(2)
    
    
    138,637
    
    
    
    4,513
    
    
    
    3.26
    
    
    
    114,151
    
    
    
    4,803
    
    
    
    4.21Federal Home Loan Bank stock
    
    
    2,367
    
    
    
    
    
    
    
    
    
    
    
    2,367
    
    
    
    
    
    
    
    Short-term investments
    
    
    49,878
    
    
    
    121
    
    
    
    0.24
    
    
    
    34,762
    
    
    
    85
    
    
    
    0.24Total interest-earning assets
    
    
    1,050,616
    
    
    
    56,626
    
    
    
    5.39
    
    
    
    1,012,537
    
    
    
    56,356
    
    
    
    5.57Non-interest-earning assets
    
    
    48,813
    
    
    
    
    
    
    
    
    
    
    
    40,779Total assets
    
    $
    1,099,429
    
    
    
    
    
    
    
    
    
    
    $
    1,053,316Interest-Bearing LiabilitiesNOW accounts
    
    $
    74,784
    
    
    
    260
    
    
    
    0.35
    
    
    $
    67,061
    
    
    
    266
    
    
    
    0.40Money market
    
    
    258,569
    
    
    
    2,805
    
    
    
    1.08
    
    
    
    214,751
    
    
    
    2,953
    
    
    
    1.38Certificates of deposit
    
    
    84,828
    
    
    
    1,723
    
    
    
    2.03
    
    
    
    121,801
    
    
    
    2,847
    
    
    
    2.34Brokered certificates of deposit
    
    
    480,709
    
    
    
    15,959
    
    
    
    3.32
    
    
    
    460,691
    
    
    
    18,332
    
    
    
    3.98Total interest-bearing deposits
    
    
    898,890
    
    
    
    20,747
    
    
    
    2.31
    
    
    
    864,304
    
    
    
    24,398
    
    
    
    2.82FHLB advances
    
    
    13,414
    
    
    
    641
    
    
    
    4.78
    
    
    
    18,873
    
    
    
    880
    
    
    
    4.66Other borrowings
    
    
    39,010
    
    
    
    2,175
    
    
    
    5.58
    
    
    
    40,738
    
    
    
    1,932
    
    
    
    4.74Junior subordinated notes
    
    
    10,315
    
    
    
    1,112
    
    
    
    10.78
    
    
    
    10,315
    
    
    
    1,112
    
    
    
    10.78Total interest-bearing liabilities
    
    
    961,629
    
    
    
    24,675
    
    
    
    2.57
    
    
    
    934,230
    
    
    
    28,322
    
    
    
    3.03Demand deposits
    
    
    68,430
    
    
    
    
    
    
    
    
    
    
    
    51,665Non-interest-bearing liabilities
    
    
    13,153
    
    
    
    
    
    
    
    
    
    
    
    12,733Total liabilities
    
    
    1,043,212
    
    
    
    
    
    
    
    
    
    
    
    998,628Stockholders equity
    
    
    56,217
    
    
    
    
    
    
    
    
    
    
    
    54,688Total liabilities and stockholders
equity
    
    $
    1,099,429
    
    
    
    
    
    
    
    
    
    
    $
    1,053,316Net interest income
    
    
    
    
    
    $
    31,951
    
    
    
    
    
    
    
    
    
    
    $
    28,034Net interest spread
    
    
    
    
    
    
    
    
    
    
    2.82
    %
    
    
    
    
    
    
    
    
    
    
    2.53
    %Net interest-earning assets
    
    $
    88,987
    
    
    
    
    
    
    
    
    
    
    $
    78,307Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.04
    %
    
    
    
    
    
    
    
    
    
    
    2.77
    %Average interest-earning assets to
average interest-bearing liabilities
    
    
    109.25
    %
    
    
    
    
    
    
    
    
    
    
    108.38
    %Return on average assets
    
    
    0.09
    
    
    
    
    
    
    
    
    
    
    
    0.10Return on average equity
    
    
    1.67
    
    
    
    
    
    
    
    
    
    
    
    1.90Average equity to average assets
    
    
    5.11
    
    
    
    
    
    
    
    
    
    
    
    5.19Non-interest expense to average assets
    
    
    2.58
    
    
    
    
    
    
    
    
    
    
    
    2.33
 (1)
    
    The average balances of loans and leases include non-performing loans and leases. Interest
income related to non-performing loans and leases is recognized when collected.(2)
    
    Includes amortized cost of basis of assets held and available for sale.   28




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##### Table of Contents



Provision for Loan and Lease Losses.
  For the year endedDecember 31,2010
    
    
    2009Changes in the provision for loan and lease losses associated with:Establishment/modification of specific reserves on impaired loans, net
    
    $
    3,323
    
    
    $
    1,581Subjective factor changes
    
    
    213
    
    
    
    1,118Charge-offs in excess of specific reserves
    
    
    3,499
    
    
    
    4,951Recoveries
    
    
    (313
    )
    
    
    (155
    )Change in inherent risk of the loan and lease portfolio
    
    
    322
    
    
    
    730Total provision for loan and lease losses
    
    $
    7,044
    
    
    $
    8,225
 Allowance for Loan and Lease Losses
 Non-Interest Income.
  29




---



##### Table of Contents



Non-Interest Expense.
    30




---



##### Table of Contents



Income Taxes.
 Financial Condition  December 31, 2010
 General.
 Short-term investments.
  31




---



##### Table of Contents



Securities.
      32




---



##### Table of Contents



As of December 31,2010
    
    
    2009Amortized cost
    
    
    Fair value
    
    
    Amortized cost
    
    
    Fair value(In Thousands)Securities available-for-saleCollateralized mortgage obligations  government agencies
    
    $
    149,948
    
    
    $
    152,776
    
    
    $
    116,109
    
    
    $
    118,509Collateralized mortgage obligations  government
sponsored enterprises
    
    
    591
    
    
    
    603
    
    
    
    3,729
    
    
    
    3,777$
    150,539
    
    
    $
    153,379
    
    
    $
    119,838
    
    
    $
    122,286
  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-saleCollateralized
mortgage obligations
 government
agencies
    
    $
    
    
    
    
    
    %
    
    $
    626
    
    
    
    5.14
    %
    
    $
    1,553
    
    
    
    3.21
    %
    
    $
    150,597
    
    
    
    3.34
    %
    
    $
    152,776Collateralized
mortgage obligations
 government
sponsored enterprises
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    603
    
    
    
    3.42
    
    
    
    
    
    
    
    
    
    
    
    603$
    
    
    
    
    
    
    
    $
    626
    
    
    
    5.14
    
    
    $
    2,156
    
    
    
    3.27
    
    
    $
    150,597
    
    
    
    3.34
    
    
    $
    153,379
  Derivative Activities.
   33




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##### Table of Contents



Loans and Leases Receivable.
 Item 1A  Risk
Factors Our loan portfolio has a concentration of commercial real estate.
  34




---



##### Table of Contents



Loan Portfolio Composition.
 As of December 31,2010
    
    
    2009
    
    
    2008Percent of
    
    
    
    
    
    
    Percent of
    
    
    
    
    
    
    Percent ofAmount
    
    
    Total
    
    
    Amount
    
    
    Total
    
    
    Amount
    
    
    Total(Dollars In Thousands)Commercial real estate loans:Owner occupied
    
    $
    152,560
    
    
    
    17.38
    %
    
    $
    170,477
    
    
    
    19.95
    %
    
    $
    158,107
    
    
    
    18.54
    %Non-owner occupied
    
    
    307,307
    
    
    
    35.00
    
    
    
    271,329
    
    
    
    31.75
    
    
    
    231,987
    
    
    
    27.20Construction and land development
    
    
    61,645
    
    
    
    7.02
    
    
    
    64,194
    
    
    
    7.51
    
    
    
    84,778
    
    
    
    9.94Multi-family
    
    
    43,012
    
    
    
    4.90
    
    
    
    43,959
    
    
    
    5.14
    
    
    
    42,514
    
    
    
    4.991-4 family
    
    
    53,849
    
    
    
    6.13
    
    
    
    56,131
    
    
    
    6.58
    
    
    
    51,542
    
    
    
    6.04Total commercial real estate loans
    
    
    618,373
    
    
    
    70.43
    
    
    
    606,090
    
    
    
    70.93
    
    
    
    568,928
    
    
    
    66.71Commercial and industrial
    
    
    225,921
    
    
    
    25.73
    
    
    
    199,661
    
    
    
    23.66
    
    
    
    232,350
    
    
    
    27.24Direct financing leases, net
    
    
    19,288
    
    
    
    2.20
    
    
    
    27,607
    
    
    
    3.24
    
    
    
    29,722
    
    
    
    3.48Consumer and other loans:Home equity and second mortgage
    
    
    5,091
    
    
    
    0.58
    
    
    
    7,879
    
    
    
    0.92
    
    
    
    7,386
    
    
    
    0.87Consumer and other
    
    
    9,315
    
    
    
    1.06
    
    
    
    13,260
    
    
    
    1.55
    
    
    
    14,445
    
    
    
    1.69Total consumer and other loans
    
    
    14,406
    
    
    
    1.64
    
    
    
    21,139
    
    
    
    2.47
    
    
    
    21,831
    
    
    
    2.56Gross loans and leases receivable
    
    
    877,988
    
    
    
    100.00
    %
    
    
    854,497
    
    
    
    100.00
    %
    
    
    852,831
    
    
    
    100.00
    %Contras to loans and leases:Allowance for loan and lease
losses
    
    
    (16,271
    )
    
    
    
    
    
    
    (14,124
    )
    
    
    
    
    
    
    (11,846
    )Deferred loan fees
    
    
    (782
    )
    
    
    
    
    
    
    (566
    )
    
    
    
    
    
    
    (439
    )Loans and leases receivable, net
    
    $
    860,935
    
    
    
    
    
    
    $
    839,807
    
    
    
    
    
    
    $
    840,546
  Amounts Due
    
    
    Interest terms on amounts due
after one yearAfter OneIn One Year
    
    
    Year through
    
    
    After Fiveor Less
    
    
    Five Years
    
    
    Years
    
    
    Total
    
    
    Fixed Rate
    
    
    Variable Rate(In Thousands)Commercial real estateOwner-occupied
    
    $
    40,746
    
    
    $
    88,771
    
    
    $
    23,043
    
    
    $
    152,560
    
    
    $
    80,837
    
    
    $
    30,977Non-owner occupied
    
    
    72,511
    
    
    
    176,385
    
    
    
    58,411
    
    
    
    307,307
    
    
    
    168,541
    
    
    
    66,255Construction and land
development
    
    
    33,752
    
    
    
    22,243
    
    
    
    5,650
    
    
    
    61,645
    
    
    
    13,251
    
    
    
    14,642Multi-family
    
    
    19,527
    
    
    
    18,042
    
    
    
    5,443
    
    
    
    43,012
    
    
    
    13,617
    
    
    
    9,8681-4 family
    
    
    30,600
    
    
    
    18,781
    
    
    
    4,468
    
    
    
    53,849
    
    
    
    22,043
    
    
    
    1,206Commercial and industrial
    
    
    115,694
    
    
    
    101,189
    
    
    
    9,038
    
    
    
    225,921
    
    
    
    51,125
    
    
    
    59,102Direct Financing Leases
    
    
    2,031
    
    
    
    16,429
    
    
    
    828
    
    
    
    19,288
    
    
    
    17,257
    
    
    
    Consumer and other
    
    
    9,646
    
    
    
    4,760
    
    
    
    
    
    
    
    14,406
    
    
    
    4,586
    
    
    
    174$
    324,507
    
    
    $
    446,600
    
    
    $
    106,881
    
    
    $
    877,988
    
    
    $
    371,257
    
    
    $
    182,224
  35




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##### Table of Contents



Commercial Real Estate Loans.
 Commercial and Industrial Loans.
  Leases.
  Consumer and Other Mortgage Loans.
 Net Fee Income from Lending Activities.
 Loan and Lease Delinquencies.
  36




---



##### Table of Contents



As of December 31,2010
    
    
    2009
    
    
    2008% ofGross
    
    
    
    
    
    
    % of Gross
    
    
    
    
    
    
    % of GrossLoans and
    
    
    
    
    
    
    Loans and
    
    
    
    
    
    
    Loans andDays past due
    
    Balance
    
    
    Leases
    
    
    Balance
    
    
    Leases
    
    
    Balance
    
    
    Leases(Dollars in Thousands)30 to 59 days
    
    $
    1,712
    (2)
    
    
    0.19
    %
    
    $
    9,162
    (4)
    
    
    1.07
    %
    
    $
    2,512
    
    
    
    0.29
    %60 to 89 days
    
    
    2,173
    (3)
    
    
    0.25
    
    
    
    
    
    
    
    0.00
    
    
    
    175
    
    
    
    0.0290 days and over
(1)
    
    
    13,064
    
    
    
    1.49
    
    
    
    3,938
    
    
    
    0.46
    
    
    
    4,316
    
    
    
    0.51$
    16,949
    
    
    
    1.93
    
    
    $
    13,100
    
    
    
    1.53
    %
    
    $
    7,003
    
    
    
    0.82
    %
 (1)
    
    Includes loans and leases contractually 90 days past due and which were placed on
non-accrual status.(2)
    
    Approximately $1.0 million of the outstanding balance of this category was considered
impaired as of December 31, 2010.(3)
    
    Approximately $1.7 million of the outstanding balance of this category was considered
impaired as of December 31, 2010.(4)
    
    Approximately $3.9 million of the outstanding balance of this category was considered
impaired as of December 31, 2009 Non-performing Assets and Impaired Loans and Leases.
    37




---



##### Table of Contents



As of      December 31,2010
    
    
    2009
    
    
    2008(Dollars In Thousands)Non-accrual loans and leasesCommercial real estate:Owner occupied
    
    $
    6,283
    
    
    $
    7,996
    
    
    $
    Non-owner occupied
    
    
    5,144
    
    
    
    486
    
    
    
    2,979Construction and land development
    
    
    9,275
    
    
    
    3,317
    
    
    
    5,279Multi-family
    
    
    4,186
    
    
    
    1,760
    
    
    
    1-4 family
    
    
    4,237
    
    
    
    3,015
    
    
    
    2,082Total commercial real estate
    
    
    29,125
    
    
    
    16,574
    
    
    
    10,340Commercial and industrial
    
    
    6,436
    
    
    
    7,086
    
    
    
    5,412Direct financing leases, net
    
    
    
    
    
    
    1
    
    
    
    24Home equity and second mortgage
    
    
    939
    
    
    
    872
    
    
    
    379Consumer and other loans
    
    
    1,906
    
    
    
    3,292
    
    
    
    130Total non-accrual loans and leases
    
    
    38,406
    
    
    
    27,825
    
    
    
    16,285Foreclosed properties, net
    
    
    1,750
    
    
    
    1,671
    
    
    
    3,011Total non-performing assets
    
    $
    40,156
    
    
    $
    29,496
    
    
    $
    19,296Performing troubled debt restructurings
    
    $
    718
    
    
    $
    
    
    
    $
    Total non-accrual loans and leases to total loans and leases
    
    
    4.37
    %
    
    
    3.26
    %
    
    
    1.91
    %Total non-performing assets to total assets
    
    
    3.63
    
    
    
    2.64
    
    
    
    1.91Allowance for loan and lease losses to total loans and leases
    
    
    1.85
    
    
    
    1.65
    
    
    
    1.39Allowance for loan and lease losses to non-accrual loans and
leases
    
    
    42.37
    
    
    
    50.76
    
    
    
    72.74
  As of December 31,2010
    
    
    2009(In Thousands)Impaired loans and leases with no impairment reserves
    
    $
    19,749
    
    
    $
    13,243Impaired loans and leases with impairment reserves required
    
    
    19,375
    
    
    
    14,582Total impaired loans and leases
    
    
    39,124
    
    
    
    27,825Less:Impairment reserve (included in allowance for loan and lease
losses)
    
    
    3,459
    
    
    
    1,846Net impaired loans and leases
    
    $
    35,665
    
    
    $
    25,979Average impaired loans and leases
    
    
    29,714
    
    
    $
    20,395
 For the years ended December 31,2010
    
    
    2009(In Thousands)Interest income attributable to impaired loans and leases
    
    $
    2,702
    
    
    $
    1,758Interest income recognized on impaired loans and leases
    
    
    (102
    )
    
    
    (149
    )Net foregone interest income on impaired loans and leases
    
    $
    2,600
    
    
    $
    1,609
  38




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##### Table of Contents



Allowance for Loan and Lease Losses.
      39




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##### Table of Contents



Year Ended December 31,2010
    
    
    2009
    
    
    2008(Dollars In Thousands)Allowance at beginning of period
    
    $
    14,124
    
    
    $
    11,846
    
    
    $
    9,854Charge-offs:Commercial real estate
    
    
    (4,023
    )
    
    
    (3,647
    )
    
    
    (1,160
    )Commercial and industrial
    
    
    (352
    )
    
    
    (2,031
    )
    
    
    (1,202
    )Direct financing leases, net
    
    
    
    
    
    
    (231
    )
    
    
    Home equity loans and second mortgage
    
    
    (142
    )
    
    
    (157
    )
    
    
    (33
    )Consumer and other
    
    
    (693
    )
    
    
    (36
    )
    
    
    (1
    )Total charge-offs
    
    
    (5,210
    )
    
    
    (6,102
    )
    
    
    (2,396
    )Recoveries:Commercial real estate
    
    
    39
    
    
    
    
    
    
    
    86Commercial and industrial
    
    
    265
    
    
    
    147
    
    
    
    3Direct financing leases, net
    
    
    8
    
    
    
    
    
    
    
    Home equity loans and second mortgage
    
    
    1
    
    
    
    8
    
    
    
    Total recoveries
    
    
    313
    
    
    
    155
    
    
    
    89Net charge-offs
    
    
    (4,897
    )
    
    
    (5,947
    )
    
    
    (2,307
    )Provision for loan and lease losses
    
    
    7,044
    
    
    
    8,225
    
    
    
    4,299Allowance at end of period
    
    $
    16,271
    
    
    $
    14,124
    
    
    $
    11,846Allowance to gross loans and leases
    
    
    1.85
    %
    
    
    1.65
    %
    
    
    1.39
    %
   40




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##### Table of Contents



As of December 31,2010
    
    
    2009
    
    
    2008Percent of
    
    
    
    
    
    
    Percent of
    
    
    
    
    
    
    Percent ofAllowance
    
    
    loans in
    
    
    Allowance
    
    
    loans in
    
    
    Allowance
    
    
    loans infor loan
    
    
    each
    
    
    for loan
    
    
    each
    
    
    for loan
    
    
    eachand lease
    
    
    category to
    
    
    and lease
    
    
    category to
    
    
    and lease
    
    
    category tolosses
    
    
    total loans
    
    
    losses
    
    
    total loans
    
    
    losses
    
    
    total loans(Dollars In Thousands)Loan segments:Commercial real estate
    
    $
    11,206
    
    
    
    70.4
    %
    
    $
    8,890
    
    
    
    70.9
    %
    
    $
    7,187
    
    
    
    66.7
    %Commercial and industrial
    
    
    4,277
    
    
    
    25.7
    
    
    
    4,131
    
    
    
    23.4
    
    
    
    3,984
    
    
    
    27.2Consumer and other
    
    
    543
    
    
    
    1.7
    
    
    
    746
    
    
    
    2.5
    
    
    
    345
    
    
    
    2.6Direct financing leases, net
    
    
    245
    
    
    
    2.2
    
    
    
    357
    
    
    
    3.2
    
    
    
    330
    
    
    
    3.5Total
    
    $
    16,271
    
    
    
    100.0
    %
    
    $
    14,124
    
    
    
    100.00
    %
    
    $
    11,846
    
    
    
    100.00
    %
    2010
    
    
    2009(In Thousands)Balance at the beginning of the period
    
    $
    1,671
    
    
    $
    3,011Transfer of loans to foreclosed properties, at
lower of cost or fair value
    
    
    1,842
    
    
    
    2,251Impairment adjustments
    
    
    (326
    )
    
    
    (525
    )Net book value of properties sold
    
    
    (1,437
    )
    
    
    (3,066
    )Balance at the end of the period
    
    $
    1,750
    
    
    $
    1,671
  41




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##### Table of Contents



Deposits.
    Over three months
    
    
    Over six monthsThree months
    
    
    through
    
    
    through
    
    
    OverInterest rate
    
    and less
    
    
    six months
    
    
    twelve months
    
    
    twelve months
    
    
    Total(In Thousands)0.00% to 1.99%
    
    $
    17,108
    
    
    $
    13,017
    
    
    $
    40,861
    
    
    $
    88,570
    
    
    $
    159,5562.00% to 2.99%
    
    
    9,323
    
    
    
    5,458
    
    
    
    3,011
    
    
    
    224,559
    
    
    
    242,3513.00% to 3.99%
    
    
    19,933
    
    
    
    641
    
    
    
    1,638
    
    
    
    32,978
    
    
    
    55,1904.00% to 4.99%
    
    
    4,287
    
    
    
    27,525
    
    
    
    49,001
    
    
    
    17,709
    
    
    
    98,5225.00% and greater
    
    
    236
    
    
    
    10,968
    
    
    
    9,461
    
    
    
    2,309
    
    
    
    22,974$
    50,887
    
    
    $
    57,609
    
    
    $
    103,972
    
    
    $
    366,125
    
    
    $
    578,593
    42




---



##### Table of Contents



Borrowings.
  As of December 31,2010
    
    
    2009Weighted
    
    
    Weighted
    
    
    
    
    
    
    Weighted
    
    
    WeightedAverage
    
    
    Average
    
    
    
    
    
    
    Average
    
    
    AverageBalance
    
    
    Balance
    
    
    Rate
    
    
    Balance
    
    
    Balance
    
    
    Rate(Dollars In Thousands)Federal funds purchased
    
    $
    
    
    
    $
    
    
    
    
    
    %
    
    $
    
    
    
    $
    1,700
    
    
    
    0.61
    %FHLB advances
    
    
    2,494
    
    
    
    13,414
    
    
    
    4.78
    
    
    
    18,505
    
    
    
    18,873
    
    
    
    4.66Junior subordinated notes
    
    
    10,315
    
    
    
    10,315
    
    
    
    10.78
    
    
    
    10,315
    
    
    
    10,315
    
    
    
    10.78Line of credit
    
    
    10
    
    
    
    10
    
    
    
    4.06
    
    
    
    10
    
    
    
    38
    
    
    
    4.41Subordinated notes
payable
    
    
    39,000
    
    
    
    39,000
    
    
    
    5.55
    
    
    
    39,000
    
    
    
    39,000
    
    
    
    4.92$
    51,819
    
    
    $
    62,739
    
    
    
    6.26
    
    
    $
    67,830
    
    
    $
    69,926
    
    
    
    5.61Short-term borrowings
    
    $
    2,010
    
    
    
    
    
    
    
    
    
    
    $
    16,010Long-term borrowings
    
    
    49,809
    
    
    
    
    
    
    
    
    
    
    
    51,820$
    51,819
    
    
    
    
    
    
    
    
    
    
    $
    67,830
    Note 10
  43




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##### Table of Contents



Year Ended December 31,2010
    
    
    2009(In Thousands)Maximum month-end balance:FHLB advances
    
    $
    18,504
    
    
    $
    18,515Federal funds purchased
    
    
    
    
    
    
    14,650
 Stockholders Equity.
 Non-bank Consolidated Subsidiaries
 First Madison Investment Corporation.
 First Business Capital Corp.
  44




---



##### Table of Contents



FMCC Nevada Corp.
 First Business Equipment Finance, LLC.
 FBB Real Estate, LLC
 FBB-Milwaukee Real Estate LLC.
 Liquidity and Capital Resources
   45




---



##### Table of Contents



Minimum Required to beWell Capitalized UnderMinimum Required for
    
    
    Prompt Corrective ActionActual
    
    
    Capital Adequacy Purposes
    
    
    RequirementsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio(Dollars In Thousands)As of December 31, 2010Total capital
(to risk-weighted assets)
Consolidated
    
    $
    107,263
    
    
    
    11.23
    %
    
    $
    76,438
    
    
    
    8.00
    %
    
    
    N/A
    
    
    
    N/AFirst Business Bank
    
    
    100,203
    
    
    
    11.72
    
    
    
    68,390
    
    
    
    8.00
    
    
    $
    85,488
    
    
    
    10.00
    %First Business Bank 
Milwaukee
    
    
    14,496
    
    
    
    14.62
    
    
    
    7,930
    
    
    
    8.00
    
    
    
    9,913
    
    
    
    10.00Tier 1 capital
(to risk-weighted assets)
Consolidated
    
    $
    63,511
    
    
    
    6.65
    %
    
    $
    38,219
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/AFirst Business Bank
    
    
    89,478
    
    
    
    10.47
    
    
    
    34,195
    
    
    
    4.00
    
    
    $
    51,293
    
    
    
    6.00
    %First Business Bank 
Milwaukee
    
    
    13,243
    
    
    
    13.36
    
    
    
    3,965
    
    
    
    4.00
    
    
    
    5,948
    
    
    
    6.00Tier 1 capital
(to average assets)
Consolidated
    
    $
    63,511
    
    
    
    5.68
    %
    
    $
    44,732
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/AFirst Business Bank
    
    
    89,478
    
    
    
    9.34
    
    
    
    38,335
    
    
    
    4.00
    
    
    $
    47,918
    
    
    
    5.00
    %First Business Bank 
Milwaukee
    
    
    13,243
    
    
    
    8.30
    
    
    
    6,381
    
    
    
    4.00
    
    
    
    7,976
    
    
    
    5.00
 Minimum Required to beWell Capitalized UnderMinimum Required for
    
    
    Prompt Corrective ActionActual
    
    
    Capital Adequacy Purposes
    
    
    RequirementsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio(Dollars in Thousands)As of December 31, 2009Total capital
(to risk-weighted assets)
Consolidated
    
    $
    101,571
    
    
    
    11.16
    %
    
    $
    72,797
    
    
    
    8.00
    %
    
    
    N/A
    
    
    
    N/AFirst Business Bank
    
    
    94,251
    
    
    
    11.62
    
    
    
    64,906
    
    
    
    8.00
    
    
    $
    81,132
    
    
    
    10.00
    %First Business Bank 
Milwaukee
    
    
    14,246
    
    
    
    14.69
    
    
    
    7,757
    
    
    
    8.00
    
    
    
    9,696
    
    
    
    10.00Tier 1 capital
(to risk-weighted assets) 
Consolidated
    
    $
    60,109
    
    
    
    6.61
    %
    
    $
    36,386
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/AFirst Business Bank
    
    
    84,082
    
    
    
    10.36
    
    
    
    32,453
    
    
    
    4.00
    
    
    $
    48,679
    
    
    
    6.00
    %First Business Bank 
Milwaukee
    
    
    13,027
    
    
    
    13.44
    
    
    
    3,878
    
    
    
    4.00
    
    
    
    5,818
    
    
    
    6.00Tier 1 capital
(to average assets) 
Consolidated
    
    $
    60,109
    
    
    
    5.53
    %
    
    $
    43,485
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/AFirst Business Bank
    
    
    84,082
    
    
    
    9.08
    
    
    
    37,042
    
    
    
    4.00
    
    
    $
    46,302
    
    
    
    5.00
    %First Business Bank 
Milwaukee
    
    
    13,027
    
    
    
    8.13
    
    
    
    6,406
    
    
    
    4.00
    
    
    
    8,007
    
    
    
    5.00
  46




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##### Table of Contents



Item 1, Business Supervision and Regulation
   47




---



##### Table of Contents



Off-balance Sheet Arrangements
 Note 17
  Contractual Obligations
  Payments Due by PeriodLess than 1
    
    
    
    
    
    
    
    
    
    
    More than 5Total
    
    
    Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    Years(In Thousands)Operating lease obligations
    
    $
    10,165
    
    
    $
    704
    
    
    $
    1,295
    
    
    $
    1,329
    
    
    $
    6,837Time deposits
    
    
    578,593
    
    
    
    212,468
    
    
    
    255,473
    
    
    
    79,087
    
    
    
    31,565Line of credit
    
    
    10
    
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    Junior subordinated notes
    
    
    10,315
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,315Subordinated debt
    
    
    39,000
    
    
    
    
    
    
    
    
    
    
    
    8,000
    
    
    
    31,000FHLB advances
    
    
    2,494
    
    
    
    2,012
    
    
    
    482
    
    
    
    
    
    
    
    Total contractual obligations
    
    $
    640,577
    
    
    $
    215,194
    
    
    $
    257,250
    
    
    $
    88,416
    
    
    $
    79,717
 Recent Developments and Other Income Tax Matters
    48




---



##### Table of Contents



Critical Accounting Policies and Estimates
 Note 1
 Allowance for Loan and Lease Losses. Note 1
  Income Taxes.
  49




---



##### Table of Contents



Note 16
 Goodwill and Other Intangible Assets.
 
 Item 7A.
    
    Quantitative and Qualitative Disclosures about Market Risk
    Change in interest rates in basis points-50
    
    
    0
    
    
    +50
    
    
    +100
    
    
    +200
    
    
    +300Impact on net interest income
    
    
    (0.18
    )%
    
    
    
    
    
    
    (1.69
    )%
    
    
    (2.43
    )%
    
    
    (1.73
    )%
    
    
    3.27
    %
   50




---



##### Table of Contents



Estimated Maturity or Repricing at December 31, 2010Within 3months
    
    
    3-12 months
    
    
    1-5 years
    
    
    After 5 years
    
    
    Total(Dollars In Thousands)Assets:Short-term investments
    
    $
    41,369
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    41,369Investment securities
    
    
    5,880
    
    
    
    27,180
    
    
    
    79,270
    
    
    
    41,049
    
    
    
    153,379Commercial loans
    
    
    75,445
    
    
    
    21,588
    
    
    
    38,057
    
    
    
    1,622
    
    
    
    136,712Real estate loans
    
    
    233,175
    
    
    
    63,227
    
    
    
    217,949
    
    
    
    64,766
    
    
    
    579,117Asset-based loans
    
    
    102,969
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    102,969Lease receivables
    
    
    1,073
    
    
    
    5,667
    
    
    
    10,457
    
    
    
    2,091
    
    
    
    19,288Consumer loans
    
    
    1,096
    
    
    
    168
    
    
    
    86
    
    
    
    38
    
    
    
    1,388Total earning assets
    
    $
    461,007
    
    
    $
    117,830
    
    
    $
    345,819
    
    
    $
    109,566
    
    
    $
    1,034,222LiabilitiesInterest-bearing checking
    
    $
    44,428
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    44,428Money market accounts
    
    
    276,748
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    276,748Time deposits under $100,000
    
    
    29,296
    
    
    
    150,252
    
    
    
    328,255
    
    
    
    31,565
    
    
    
    539,368Time deposits $100,000 and over
    
    
    4,343
    
    
    
    28,466
    
    
    
    6,416
    
    
    
    
    
    
    
    39,225FHLB advances
    
    
    2,000
    
    
    
    
    
    
    
    494
    
    
    
    
    
    
    
    2,494Short-term borrowings
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10Long-term debt
    
    
    39,000
    
    
    
    
    
    
    
    
    
    
    
    10,315
    
    
    
    49,315Total interest-bearing liabilities
    
    $
    395,825
    
    
    $
    178,718
    
    
    $
    335,165
    
    
    $
    41,880
    
    
    $
    951,588Interest rate gap
    
    $
    65,182
    
    
    $
    (60,888
    )
    
    $
    10,654
    
    
    $
    67,686
    
    
    $
    82,634Cumulative interest rate gap
    
    $
    65,182
    
    
    $
    4,294
    
    
    $
    14,948
    
    
    $
    82,634Cumulative interest rate gap to
total earning assets
    
    
    6.30
    %
    
    
    0.42
    %
    
    
    1.45
    %
    
    
    7.99
    %
  51




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##### Table of Contents



Item 8.
    
    Financial Statements and Supplementary Data
 INDEX TO CONSOLIDATED FINANCIAL STATEMENTS OF FIRST BUSINESS FINANCIAL SERVICES
  Consolidated Financial Statements
    
    Page No.Consolidated Balance Sheets as of December 31, 2010 and 2009
    
    
    53Consolidated Statements of Income for the Years Ended December 31, 2010 and 2009
    
    
    54Consolidated Statements of Changes in Stockholders Equity and Comprehensive Income for the Years Ended December 31, 2010 and 2009
    
    
    55Consolidated Statements of Cash Flows for the Years Ended December 31, 2010 and 2009
    
    
    56Notes to Consolidated Financial Statements
    
    
    57Report of Independent Registered Public Accounting Firm
    
    
    96
  52




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##### Table of Contents



First Business Financial Services, Inc.
 
 Consolidated Balance Sheets
 December 31,2010
    
    
    2009(In Thousands, Except Share Data)AssetsCash and due from banks
    
    $
    9,450
    
    
    $
    8,566Short-term investments
    
    
    41,369
    
    
    
    104,171Cash and cash equivalents
    
    
    50,819
    
    
    
    112,737Securities available-for-sale, at fair value
    
    
    153,379
    
    
    
    122,286Loans and leases receivable, net of allowance for
loan and lease losses of $16,271 and $14,124,
respectively
    
    
    860,935
    
    
    
    839,807Leasehold improvements and equipment, net
    
    
    974
    
    
    
    1,189Foreclosed properties, net
    
    
    1,750
    
    
    
    1,671Cash surrender value of bank-owned life insurance
    
    
    16,950
    
    
    
    16,254Investment in Federal Home Loan Bank stock, at cost
    
    
    2,367
    
    
    
    2,367Goodwill and other intangibles
    
    
    32
    
    
    
    2,740Accrued interest receivable and other assets
    
    
    19,851
    
    
    
    18,385Total assets
    
    $
    1,107,057
    
    
    $
    1,117,436Liabilities and Stockholders EquityDeposits
    
    $
    988,298
    
    
    $
    984,374Federal Home Loan Bank and other borrowings
    
    
    41,504
    
    
    
    57,515Junior subordinated notes
    
    
    10,315
    
    
    
    10,315Accrued interest payable and other liabilities
    
    
    11,605
    
    
    
    10,839Total liabilities
    
    
    1,051,722
    
    
    
    1,063,043Commitments and contingenciesStockholders equityPreferred stock, $0.01 par value, 2,500,000 shares
authorized, none issued or outstanding at December
31, 2010 and 2009
    
    
    
    
    
    
    Common stock, $0.01 par value, 25,000,000 shares
authorized at December 31, 2010 and 2009,
respectively, 2,680,360 and 2,616,010 shares
issued, 2,597,820 and 2,539,306 outstanding in
2010 and 2009, respectively
    
    
    27
    
    
    
    26Additional paid-in capital
    
    
    25,253
    
    
    
    24,731Retained earnings
    
    
    29,808
    
    
    
    29,582Accumulated other comprehensive income
    
    
    1,792
    
    
    
    1,544Treasury stock (82,540 and 76,704 shares in 2010
and 2009, respectively), at cost
    
    
    (1,545
    )
    
    
    (1,490
    )Total stockholders equity
    
    
    55,335
    
    
    
    54,393Total liabilities and stockholders equity
    
    $
    1,107,057
    
    
    $
    1,117,436
   53




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##### Table of Contents



First Business Financial Services, Inc.
 
 Consolidated Statements of Income
 For the Years Ended December 31,2010
    
    
    2009(In Thousands, Except Share Data)Interest income:Loans and leases
    
    $
    51,992
    
    
    $
    51,468Securities income, taxable
    
    
    4,513
    
    
    
    4,803Short-term investments
    
    
    121
    
    
    
    85Total interest income
    
    
    56,626
    
    
    
    56,356Interest expense:Deposits
    
    
    20,747
    
    
    
    24,398Notes payable and other borrowings
    
    
    2,816
    
    
    
    2,812Junior subordinated notes
    
    
    1,112
    
    
    
    1,112Total interest expense
    
    
    24,675
    
    
    
    28,322Net interest income
    
    
    31,951
    
    
    
    28,034Provision for loan and lease losses
    
    
    7,044
    
    
    
    8,225Net interest income after provision for loan and lease losses
    
    
    24,907
    
    
    
    19,809Non-interest income:Trust and investment services fee income
    
    
    2,334
    
    
    
    1,906Service charges on deposits
    
    
    1,672
    
    
    
    1,538Loan fees
    
    
    1,238
    
    
    
    1,107Increase in cash surrender value of bank-owned life insurance
    
    
    663
    
    
    
    697Credit, merchant and debit card fees
    
    
    219
    
    
    
    197Gain on sale of securities available for sale
    
    
    
    
    
    
    322Other
    
    
    617
    
    
    
    683Total non-interest income
    
    
    6,743
    
    
    
    6,450Non-interest expense:Compensation
    
    
    13,286
    
    
    
    12,382Occupancy
    
    
    1,465
    
    
    
    1,486Professional fees
    
    
    1,461
    
    
    
    1,653Data processing
    
    
    1,188
    
    
    
    1,128Marketing
    
    
    749
    
    
    
    634Equipment
    
    
    506
    
    
    
    573FDIC insurance
    
    
    3,130
    
    
    
    2,165Collateral liquidation costs
    
    
    1,167
    
    
    
    1,339Loss on foreclosed properties
    
    
    206
    
    
    
    691Goodwill impairment
    
    
    2,689
    
    
    
    Other
    
    
    2,513
    
    
    
    2,450Total non-interest expense
    
    
    28,360
    
    
    
    24,501Income before income tax expense
    
    
    3,290
    
    
    
    1,758Income tax expense
    
    
    2,349
    
    
    
    717Net income
    
    $
    941
    
    
    $
    1,041Earnings per share:Basic
    
    $
    0.37
    
    
    $
    0.41Diluted
    
    
    0.37
    
    
    
    0.41Dividends declared per share
    
    
    0.28
    
    
    
    0.28
   54




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##### 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
    
    
    stock
    
    
    Total(In Thousands, Except Share Data)Balance at December 31, 2008
    
    $
    26
    
    
    $
    24,088
    
    
    $
    29,252
    
    
    $
    1,065
    
    
    $
    (1,425
    )
    
    $
    53,006Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    1,041
    
    
    
    
    
    
    
    
    
    
    
    1,041Unrealized securities gains
arising during the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,142
    
    
    
    
    
    
    
    1,142Unrealized derivative losses
arising during the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )Reclassification adjustment for
realized gains on securities
available for sale
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (322
    )
    
    
    
    
    
    
    (322
    )Reclassification adjustment for
realized losses on derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    3Income tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (343
    )
    
    
    
    
    
    
    (343
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,520Share-based compensation 
restricted shares
    
    
    
    
    
    
    643
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    643Cash dividends ($0.28 per share)
    
    
    
    
    
    
    
    
    
    
    (711
    )
    
    
    
    
    
    
    
    
    
    
    (711
    )Treasury stock purchased (5,826
shares)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (65
    )
    
    
    (65
    )Balance at December 31, 2009
    
    $
    26
    
    
    $
    24,731
    
    
    $
    29,582
    
    
    $
    1,544
    
    
    $
    (1,490
    )
    
    $
    54,393Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    941
    
    
    
    
    
    
    
    
    
    
    
    941Unrealized securities gains
arising during the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    392
    
    
    
    
    
    
    
    392Income tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (144
    )
    
    
    
    
    
    
    (144
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,189Share-based compensation 
restricted shares
    
    
    1
    
    
    
    522
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    523Cash dividends ($0.28 per share)
    
    
    
    
    
    
    
    
    
    
    (715
    )
    
    
    
    
    
    
    
    
    
    
    (715
    )Treasury stock purchased (5,836
shares)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (55
    )
    
    
    (55
    )Balance at December 31, 2010
    
    $
    27
    
    
    $
    25,253
    
    
    $
    29,808
    
    
    $
    1,792
    
    
    $
    (1,545
    )
    
    $
    55,335
   55




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##### Table of Contents



First Business Financial Services, Inc.
 
 Consolidated Statements of Cash Flows
 For the Years Ended December 31,2010
    
    
    2009(In Thousands)Operating activitiesNet income
    
    $
    941
    
    
    $
    1,041Adjustments to reconcile net income to net cash provided by operating activities:Deferred income taxes, net
    
    
    (2,421
    )
    
    
    (570
    )Provision for loan and lease losses
    
    
    7,044
    
    
    
    8,225Depreciation, amortization and accretion, net
    
    
    1,593
    
    
    
    847Share-based compensation
    
    
    523
    
    
    
    643Increase in cash surrender value of bank-owned life insurance
    
    
    (663
    )
    
    
    (697
    )Origination of loans held for sale
    
    
    (657
    )
    
    
    (3,164
    )Sale of loans held for sale
    
    
    659
    
    
    
    3,173Gain on sale of loans held for sale
    
    
    (2
    )
    
    
    (9
    )Loss on foreclosed properties
    
    
    206
    
    
    
    691Gain on sale of securities available for sale
    
    
    
    
    
    
    (322
    )Goodwill impairment
    
    
    2,689
    
    
    
    Decrease (Increase) in accrued interest receivable and other assets
    
    
    1,140
    
    
    
    (5,667
    )(Decrease) Increase in accrued interest payable and other liabilities
    
    
    762
    
    
    
    (3,224
    )Net cash provided by operating activities
    
    
    11,814
    
    
    
    967Investing activitiesProceeds from maturities of available-for-sale securities
    
    
    42,416
    
    
    
    32,720Proceeds from sale of available for sale securities
    
    
    
    
    
    
    15,004Purchases of available-for-sale securities
    
    
    (74,259
    )
    
    
    (60,024
    )Net increase in loans and leases
    
    
    (30,013
    )
    
    
    (9,736
    )Proceeds from sale of foreclosed properties
    
    
    1,557
    
    
    
    2,900Investment in limited partnerships
    
    
    (450
    )
    
    
    (300
    )Distributions from limited partnerships
    
    
    34
    
    
    
    30Purchases of leasehold improvements and equipment, net
    
    
    (131
    )
    
    
    (188
    )Premium payments of bank-owned life insurance
    
    
    (33
    )
    
    
    (33
    )Net cash used in investing activities
    
    
    (60,879
    )
    
    
    (19,627
    )Financing activitiesNet increase in deposits
    
    
    3,924
    
    
    
    145,500Net decrease in FHLB line of credit
    
    
    
    
    
    
    (15,000
    )Repayment of FHLB advances
    
    
    (16,011
    )
    
    
    (11
    )Net decrease in short-term borrowed funds
    
    
    
    
    
    
    (22,000
    )Repayment of subordinated notes payable
    
    
    
    
    
    
    (31,000
    )Proceeds from subordinated notes payable
    
    
    
    
    
    
    31,000Cash dividends paid
    
    
    (711
    )
    
    
    (711
    )Purchase of treasury stock
    
    
    (55
    )
    
    
    (65
    )Net cash (used in) provided by financing activities
    
    
    (12,853
    )
    
    
    107,713Net (decrease) increase in cash and cash equivalents
    
    
    (61,918
    )
    
    
    89,053Cash and cash equivalents at the beginning of the period
    
    
    112,737
    
    
    
    23,684Cash and cash equivalents at the end of the period
    
    $
    50,819
    
    
    $
    112,737Supplementary cash flow informationInterest paid on deposits and borrowings
    
    $
    25,391
    
    
    $
    30,665Income taxes paid
    
    
    4,997
    
    
    
    967Transfer of loans to other real estate owned
    
    
    1,842
    
    
    
    2,251
   56




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##### 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.
 Basis of Financial Statement Presentation.
  Cash and Cash Equivalents.
 Securities Available-for-Sale.
   57




---



##### Table of Contents



Loans and Leases.
     58




---



##### Table of Contents



Allowance for Loan and Lease Losses.
     Loans Held for Sale.
  59




---



##### Table of Contents



Net Investment in Direct Financing Leases.
 Leasehold Improvements and Equipment.
 Operating Leases.
 Foreclosed Properties.
 Bank-Owned Life Insurance.
 Federal Home Loan Bank Stock.
  60




---



##### Table of Contents



Goodwill and Other Intangible Assets.
  Other Investments.
 Derivative Instruments.
   Income Taxes.
  61




---



##### Table of Contents



Earnings Per Share.
 Segments and Related Information.
 Stock Options.
  Reclassifications.
  62




---



##### Table of Contents



Recent Accounting Changes.
 Transfers and Servicing of Financial Assets
 Consolidation of Variable Interest Entities.
 
    
    The power to direct the activities of a variable interest entity that most significantly
impact the entitys economic performance; and
 
    
    The obligation to absorb losses of the entity that could potentially be significant to
the variable interest entity or the right to receive benefits from the entity that could
potentially be significant to the variable interest entity.
  Consolidation.
 Fair Value Measurements and Disclosures.
  63




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##### Table of Contents



Derivatives and Hedging.
 Allowance for Credit Losses. .
 Note 2  Shareholder Rights Plan
  Note 3  Cash and Due From Banks.
  Note 4  Securities
  As of December 31, 2010Gross
    
    
    GrossAmortized
    
    
    unrealized
    
    
    unrealized
    
    
    Estimatedcost
    
    
    holding gains
    
    
    holding losses
    
    
    fair value(In Thousands)Collateralized
mortgage obligations
 government
agencies
    
    $
    149,948
    
    
    $
    3,255
    
    
    $
    (427
    )
    
    $
    152,776Collateralized
mortgage obligations
 government
sponsored enterprises
    
    
    591
    
    
    
    12
    
    
    
    
    
    
    
    603$
    150,539
    
    
    $
    3,267
    
    
    $
    (427
    )
    
    $
    153,379
  64




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##### Table of Contents



As of December 31, 2009Gross
    
    
    GrossAmortized
    
    
    unrealized
    
    
    unrealized
    
    
    Estimatedcost
    
    
    holding gains
    
    
    holding losses
    
    
    fair value(In Thousands)Collateralized
mortgage obligations
 government
agencies
    
    $
    116,109
    
    
    $
    2,615
    
    
    $
    (215
    )
    
    $
    118,509Collateralized
mortgage obligations
 government
sponsored enterprises
    
    
    3,729
    
    
    
    48
    
    
    
    
    
    
    
    3,777$
    119,838
    
    
    $
    2,663
    
    
    $
    (215
    )
    
    $
    122,286
     EstimatedAmortized cost
    
    
    fair value(In Thousands)Due in one year or less
    
    $
    
    
    
    $
    Due in one year through five years
    
    
    596
    
    
    
    626Due in five through ten years
    
    
    2,103
    
    
    
    2,156Due in over ten years
    
    
    147,840
    
    
    
    150,597$
    150,539
    
    
    $
    153,379
   65




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##### Table of Contents



As of December 31, 2010Less than 12 months
    
    
    12 months or longer
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedFair value
    
    
    losses
    
    
    Fair value
    
    
    losses
    
    
    Fair value
    
    
    losses(In Thousands)Collateralized
mortgage obligations
 government issued
    
    $
    31,862
    
    
    $
    427
    
    
    $
    
    
    
    $
    
    
    
    $
    31,862
    
    
    $
    427$
    31,862
    
    
    $
    427
    
    
    $
    
    
    
    $
    
    
    
    $
    31,862
    
    
    $
    427
 As of December 31, 2009Less than 12 months
    
    
    12 months or longer
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedFair value
    
    
    losses
    
    
    Fair value
    
    
    losses
    
    
    Fair value
    
    
    losses(In Thousands)Collateralized
mortgage obligations
 government
agencies
    
    $
    17,220
    
    
    $
    215
    
    
    $
    
    
    
    $
    
    
    
    $
    17,220
    
    
    $
    215$
    17,220
    
    
    $
    215
    
    
    $
    
    
    
    $
    
    
    
    $
    17,220
    
    
    $
    215
 Note 5  Loan and Lease Receivables, Impaired Loans and Leases and Allowance for Loan and Lease
Losses
  December 31,2010
    
    
    2009(In Thousands)Commercial real estate loans:Commercial real estate  owner occupied
    
    $
    152,560
    
    
    $
    211,986Commercial real estate  non-owner occupied
    
    
    307,307
    
    
    
    229,820Construction and land development
    
    
    61,645
    
    
    
    64,194Multi-family
    
    
    43,012
    
    
    
    43,9591-4 family
    
    
    53,849
    
    
    
    56,131Total commercial real estate loans
    
    
    618,373
    
    
    
    606,090Commercial and industrial loans
    
    
    225,921
    
    
    
    199,661Direct financing leases, net
    
    
    19,288
    
    
    
    27,607Home equity loans and second mortgage loans
    
    
    5,091
    
    
    
    7,879Consumer and other
    
    
    9,315
    
    
    
    13,260Total gross loans and lease receivables
    
    
    877,988
    
    
    
    854,497Less:Allowance for loan and lease losses
    
    
    16,271
    
    
    
    14,124Deferred loan fees
    
    
    782
    
    
    
    566Loans and lease receivables, net
    
    $
    860,935
    
    
    $
    839,807
   66




---



##### Table of Contents



CategoryI
    
    
    II
    
    
    III
    
    
    IV
    
    
    Total(Dollars in Thousands)Commercial real estate:Commercial real estate  owner occupied
    
    $
    113,002
    
    
    $
    25,777
    
    
    $
    6,780
    
    
    $
    7,001
    
    
    $
    152,560Commercial real estate  non-owner occupied
    
    
    232,868
    
    
    
    36,128
    
    
    
    33,167
    
    
    
    5,144
    
    
    
    307,307Construction and land development
    
    
    39,662
    
    
    
    7,838
    
    
    
    4,870
    
    
    
    9,275
    
    
    
    61,645Multi-family
    
    
    31,472
    
    
    
    6,049
    
    
    
    1,305
    
    
    
    4,186
    
    
    
    43,0121-4 family
    
    
    33,310
    
    
    
    11,973
    
    
    
    4,329
    
    
    
    4,237
    
    
    
    53,849Commercial and industrial
    
    
    183,051
    
    
    
    24,460
    
    
    
    11,974
    
    
    
    6,436
    
    
    
    225,921Direct financing leases, net
    
    
    12,666
    
    
    
    6,403
    
    
    
    219
    
    
    
    
    
    
    
    19,288Consumer and other:Home equity and second mortgages
    
    
    3,726
    
    
    
    134
    
    
    
    292
    
    
    
    939
    
    
    
    5,091Other
    
    
    7,359
    
    
    
    50
    
    
    
    
    
    
    
    1,906
    
    
    
    9,315Total portfolio
    
    $
    657,116
    
    
    $
    118,812
    
    
    $
    62,936
    
    
    $
    39,124
    
    
    $
    877,988Rating as a % of total portfolio
    
    
    74.84
    %
    
    
    13.53
    %
    
    
    7.17
    %
    
    
    4.46
    %
    
    
    100.00
    %
     67




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##### Table of Contents



Greater30-59
    
    
    60-89
    
    
    than 90days past
    
    
    days past
    
    
    days past
    
    
    Total
    
    
    
    
    
    
    Totaldue(1)
    
    
    due(2)
    
    
    due(3)
    
    
    past due
    
    

Current(4)
    
    
    loans(Dollars In Thousands)Commercial Real Estate:Owner occupied
    
    $
    
    
    
    $
    
    
    
    $
    2,949
    
    
    $
    2,949
    
    
    $
    149,611
    
    
    $
    152,560Non-owner occupied
    
    
    
    
    
    
    448
    
    
    
    2,222
    
    
    
    2,670
    
    
    
    304,637
    
    
    
    307,307Construction and land development
    
    
    850
    
    
    
    421
    
    
    
    1,136
    
    
    
    2,407
    
    
    
    59,238
    
    
    
    61,645Multi-family
    
    
    
    
    
    
    
    
    
    
    1,041
    
    
    
    1,041
    
    
    
    41,971
    
    
    
    43,0121-4 family
    
    
    678
    
    
    
    
    
    
    
    1,900
    
    
    
    2,578
    
    
    
    51,271
    
    
    
    53,849Commercial & Industrial
    
    
    180
    
    
    
    1,304
    
    
    
    1,702
    
    
    
    3,186
    
    
    
    222,735
    
    
    
    225,921Direct financing leases, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,288
    
    
    
    19,288Consumer and other:Home equity and second mortgages
    
    
    
    
    
    
    
    
    
    
    257
    
    
    
    257
    
    
    
    4,834
    
    
    
    5,091Other
    
    
    4
    
    
    
    
    
    
    
    1,857
    
    
    
    1,861
    
    
    
    7,454
    
    
    
    9,315Total
    
    $
    1,712
    
    
    $
    2,173
    
    
    $
    13,064
    
    
    $
    16,949
    
    
    $
    861,039
    
    
    $
    877,988Percent of portfolio
    
    
    0.19
    %
    
    
    0.25
    %
    
    
    1.49
    %
    
    
    1.93
    %
    
    
    98.07
    %
 (1)
    
    As of December 31, 2010, $1.0 million of loans and leases in this
category were considered impaired.(2)
    
    As of December 31, 2010, $1.7 million of loans and lease in this category
were considered impaired.(3)
    
    As of December 31, 2010, all of the loans in this category were considered
impaired.(4)
    
    As of December 31, 2010, $23.3 million of loans and leases
in this category were considered impaired.   68




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##### Table of Contents



December 31,2010
    
    
    2009(Dollars In Thousands)Non-accrual loans and leasesCommercial real estate:Commercial real estate  owner occupied
    
    $
    6,283
    
    
    $
    7,996Commercial real estate  non-owner occupied
    
    
    5,144
    
    
    
    486Construction and land development
    
    
    9,275
    
    
    
    3,317Multi-family
    
    
    4,186
    
    
    
    1,7601-4 family
    
    
    4,237
    
    
    
    3,015Total non-accrual commercial real estate
    
    
    29,125
    
    
    
    16,574Commercial and industrial
    
    
    6,436
    
    
    
    7,086Direct financing leases, net
    
    
    
    
    
    
    1Consumer and other:Home equity and second mortgage
    
    
    939
    
    
    
    872Other
    
    
    1,906
    
    
    
    3,292Total non-accrual consumer and other loans
    
    
    2,845
    
    
    
    4,164Total non-accrual loans and leases
    
    
    38,406
    
    
    
    27,825Foreclosed properties, net
    
    
    1,750
    
    
    
    1,671Total non-performing assets
    
    $
    40,156
    
    
    $
    29,496Performing troubled debt restructurings
    
    $
    718
    
    
    $
    Total non-accrual loans and leases to gross loans and leases
    
    
    4.37
    %
    
    
    3.26
    %Total non-performing assets to total assets
    
    
    3.63
    
    
    
    2.64Allowance for loan and lease losses to gross loans and leases
    
    
    1.85
    
    
    
    1.65Allowance for loan and lease losses to non-accrual loans and leases
    
    
    42.37
    
    
    
    50.76
   69




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##### Table of Contents



Impaired Loans and LeasesFor the Year Ended December 31, 2010NetUnpaid
    
    
    
    
    
    
    Average
    
    
    Foregone
    
    
    Interest
    
    
    ForegoneRecorded
    
    
    principal
    
    
    Impairment
    
    
    recorded
    
    
    interest
    
    
    income
    
    
    Interestinvestment
    
    
    balance
    
    
    reserve
    
    
    investment(1)
    
    
    income
    
    
    recognized
    
    
    Income(In Thousands)With no impairment reserve
recorded:Commercial real estate:Owner occupied
    
    $
    5,180
    
    
    $
    5,364
    
    
    $
    
    
    
    $
    5,620
    
    
    $
    405
    
    
    $
    18
    
    
    $
    387Non-owner occupied
    
    
    380
    
    
    
    380
    
    
    
    
    
    
    
    160
    
    
    
    20
    
    
    
    
    
    
    
    20Construction and land development
    
    
    2,932
    
    
    
    4,499
    
    
    
    
    
    
    
    2,389
    
    
    
    246
    
    
    
    
    
    
    
    246Multi-family
    
    
    1,214
    
    
    
    1,769
    
    
    
    
    
    
    
    1,926
    
    
    
    211
    
    
    
    
    
    
    
    2111-4 family
    
    
    3,153
    
    
    
    3,397
    
    
    
    
    
    
    
    3,128
    
    
    
    273
    
    
    
    
    
    
    
    273Commercial and industrial
    
    
    4,460
    
    
    
    5,396
    
    
    
    
    
    
    
    5,975
    
    
    
    405
    
    
    
    83
    
    
    
    322Direct financing leases, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    (1
    )Consumer and other:Home equity loans and second
mortgages
    
    
    555
    
    
    
    596
    
    
    
    
    
    
    
    586
    
    
    
    43
    
    
    
    
    
    
    
    43Other
    
    
    1,875
    
    
    
    2,106
    
    
    
    
    
    
    
    2,913
    
    
    
    197
    
    
    
    
    
    
    
    197With impairment reserve recorded:Commercial real estate:Owner occupied
    
    $
    1,821
    
    
    $
    1,821
    
    
    $
    103
    
    
    $
    1,838
    
    
    $
    142
    
    
    $
    
    
    
    $
    142Non-owner occupied
    
    
    4,764
    
    
    
    4,764
    
    
    
    1,414
    
    
    
    1,831
    
    
    
    226
    
    
    
    
    
    
    
    226Construction and land development
    
    
    6,343
    
    
    
    7,764
    
    
    
    177
    
    
    
    658
    
    
    
    157
    
    
    
    
    
    
    
    157Multi-family
    
    
    2,972
    
    
    
    3,796
    
    
    
    521
    
    
    
    1,228
    
    
    
    167
    
    
    
    
    
    
    
    1671-4 family
    
    
    1,084
    
    
    
    1,084
    
    
    
    364
    
    
    
    612
    
    
    
    38
    
    
    
    
    
    
    
    38Commercial and industrial
    
    
    1,976
    
    
    
    1,976
    
    
    
    679
    
    
    
    448
    
    
    
    138
    
    
    
    
    
    
    
    138Direct financing leases, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Consumer and other:Home equity loans and second
mortgages
    
    
    384
    
    
    
    384
    
    
    
    169
    
    
    
    383
    
    
    
    33
    
    
    
    
    
    
    
    33Other
    
    
    31
    
    
    
    31
    
    
    
    32
    
    
    
    19
    
    
    
    1
    
    
    
    
    
    
    
    1Total:Commercial real estate:Owner occupied
    
    $
    7,001
    
    
    $
    7,185
    
    
    $
    103
    
    
    $
    7,458
    
    
    $
    547
    
    
    $
    18
    
    
    $
    529Non-owner occupied
    
    
    5,144
    
    
    
    5,144
    
    
    
    1,414
    
    
    
    1,991
    
    
    
    246
    
    
    
    
    
    
    
    246Construction and land development
    
    
    9,275
    
    
    
    12,263
    
    
    
    177
    
    
    
    3,047
    
    
    
    403
    
    
    
    
    
    
    
    403Multi-family
    
    
    4,186
    
    
    
    5,565
    
    
    
    521
    
    
    
    3,154
    
    
    
    378
    
    
    
    
    
    
    
    3781-4 family
    
    
    4,237
    
    
    
    4,481
    
    
    
    364
    
    
    
    3,740
    
    
    
    311
    
    
    
    
    
    
    
    311Commercial and industrial
    
    
    6,436
    
    
    
    7,372
    
    
    
    679
    
    
    
    6,423
    
    
    
    543
    
    
    
    83
    
    
    
    460Direct financing leases, net
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    (1
    )Consumer and other:Home equity loans and second
mortgages
    
    
    939
    
    
    
    980
    
    
    
    169
    
    
    
    969
    
    
    
    76
    
    
    
    
    
    
    
    76Other
    
    
    1,906
    
    
    
    2,137
    
    
    
    32
    
    
    
    2,932
    
    
    
    198
    
    
    
    
    
    
    
    198Grand total
    
    $
    39,124
    
    
    $
    45,127
    
    
    $
    3,459
    
    
    $
    29,714
    
    
    $
    2,702
    
    
    $
    102
    
    
    $
    2,600
 (1)
    
    Average recorded investment is calculated primarily using daily average
balances.   70




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As of andAs of December 31, 2010
    
    
    for the yearCommercial
    
    
    
    
    
    
    Direct
    
    
    
    
    
    
    endedCommercial
    
    
    and
    
    
    Consumer
    
    
    Financing
    
    
    
    
    
    
    Decemberreal estate
    
    
    industrial
    
    
    and other
    
    
    Lease, Net
    
    
    Total
    
    
    31, 2009(Dollars in Thousands)Allowance for credit losses:Beginning balance
    
    $
    8,828
    
    
    $
    4,283
    
    
    $
    659
    
    
    $
    354
    
    
    $
    14,124
    
    
    $
    11,846Charge-offs
    
    
    (4,023
    )
    
    
    (352
    )
    
    
    (835
    )
    
    
    
    
    
    
    (5,210
    )
    
    
    (6,102
    )Recoveries
    
    
    39
    
    
    
    265
    
    
    
    1
    
    
    
    8
    
    
    
    313
    
    
    
    155Provision
    
    
    6,423
    
    
    
    81
    
    
    
    657
    
    
    
    (117
    )
    
    
    7,044
    
    
    
    8,225Ending Balance
    
    $
    11,267
    
    
    $
    4,277
    
    
    $
    482
    
    
    $
    245
    
    
    $
    16,271
    
    
    $
    14,124Ending balance: individually
evaluated for impairment
    
    $
    2,579
    
    
    $
    679
    
    
    $
    201
    
    
    $
    
    
    
    $
    3,459
    
    
    $
    1,846Ending balance: collectively
evaluated for impairment
    
    $
    8,628
    
    
    $
    3,598
    
    
    $
    341
    
    
    $
    245
    
    
    $
    12,812
    
    
    $
    12,278Ending balance: loans acquired
with deteriorated credit
quality
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Loans and lease receivables:Ending balance, gross
    
    $
    618,373
    
    
    $
    225,921
    
    
    $
    14,406
    
    
    $
    19,288
    
    
    $
    877,988
    
    
    $
    854,497Ending balance: individually
evaluated for impairment
    
    $
    29,843
    
    
    $
    6,436
    
    
    $
    2,845
    
    
    $
    
    
    
    $
    39,124
    
    
    $
    27,825Ending balance: collectively
evaluated for impairment
    
    $
    588,530
    
    
    $
    219,485
    
    
    $
    11,561
    
    
    $
    19,288
    
    
    $
    838,864
    
    
    $
    826,672Ending balance: loans acquired
with deteriorated credit
quality
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Allowance as % of gross loans
    
    
    1.82
    %
    
    
    1.89
    %
    
    
    3.35
    %
    
    
    1.27
    %
    
    
    1.85
    %
    
    
    1.65
    %
  As of December 31,2010
    
    
    2009(In Thousands)Minimum lease payments receivable
    
    $
    15,161
    
    
    $
    23,473Estimated unguaranteed residual values in leased property
    
    
    6,083
    
    
    
    7,490Initial direct costs
    
    
    48
    
    
    
    107Less unearned lease and residual income
    
    
    (2,004
    )
    
    
    (3,463
    )Investment in commercial direct financing leases
    
    $
    19,288
    
    
    $
    27,607
   71




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##### Table of Contents



Maturities during year ended December 31,2011
    
    $
    6,6142012
    
    
    4,4402013
    
    
    2,7012014
    
    
    1,0882015
    
    
    288Thereafter
    
    
    30$
    15,161
 Note 6  Leasehold Improvements and Equipment
  As of December 31,2010
    
    
    2009(In Thousands)Leasehold improvements
    
    $
    1,308
    
    
    $
    1,300Furniture and equipment
    
    
    2,845
    
    
    
    2,8054,153
    
    
    
    4,105Less: accumulated depreciation
    
    
    (3,179
    )
    
    
    (2,916
    )Total leasehold improvements and equipment
    
    $
    974
    
    
    $
    1,189
 Note 7  Goodwill and Intangible Assets.
    72




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As of and for the year
    
    
    As of and for the yearended December 31,
    
    
    ended December 31,2010
    
    
    2009(In thousands)Balance at the beginning of the period
    
    $
    2,689
    
    
    $
    2,689Goodwill impairment
    
    
    (2,689
    )
    
    
    Balance at the end of the period
    
    $
    
    
    
    $
    2,689
  73




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##### Table of Contents



Year Ended December 31,2010
    
    
    2009(In Thousands)Core deposit intangibles:Gross carrying amount
    
    $
    145
    
    
    $
    145Accumulated amortization
    
    
    (125
    )
    
    
    (118
    )Net book value
    
    $
    20
    
    
    $
    27Amortization during the period
    
    $
    (7
    )
    
    $
    (10
    )Other intangibles:Gross carrying amount
    
    $
    120
    
    
    $
    120Accumulated amortization
    
    
    (108
    )
    
    
    (96
    )Net book value
    
    $
    12
    
    
    $
    24Amortization during the period
    
    $
    (12
    )
    
    $
    (12
    )
  Core deposit
    
    
    Otherintangibles
    
    
    intangibles
    
    
    Total(In Thousands)Estimate for the year ended December 31,2011
    
    $
    5
    
    
    $
    12
    
    
    $
    172012
    
    
    4
    
    
    
    
    
    
    
    42013
    
    
    3
    
    
    
    
    
    
    
    32014
    
    
    2
    
    
    
    
    
    
    
    22015
    
    
    2
    
    
    
    
    
    
    
    2Thereafter
    
    
    4
    
    
    
    
    
    
    
    4$
    20
    
    
    $
    12
    
    
    $
    32
 Note 8  Other Assets
   74




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##### Table of Contents



As of December 31,2010
    
    
    2009(In thousands)Accrued interest receivable
    
    $
    3,405
    
    
    $
    3,212Deferred tax assets, net
    
    
    4,897
    
    
    
    2,604Investment in limited partnerships
    
    
    1,592
    
    
    
    1,454Investment in Trust II
    
    
    315
    
    
    
    315Fair value of interest rate swaps
    
    
    2,841
    
    
    
    1,297Prepaid expenses
    
    
    3,464
    
    
    
    6,496Other
    
    
    3,337
    
    
    
    3,007Total
    
    $
    19,851
    
    
    $
    18,385
  Note 9  Deposits
  December 31, 2010
    
    
    December 31, 2009Weighted
    
    
    
    
    
    
    WeightedBalance
    
    
    average rate
    
    
    Balance
    
    
    average rate(Dollars In Thousands)Transaction accounts:Demand deposits
    
    $
    88,529
    
    
    
    0.00
    %
    
    $
    87,687
    
    
    
    0.00
    %Negotiable order of withdrawal
(NOW) accounts
    
    
    44,428
    
    
    
    0.35
    
    
    
    65,191
    
    
    
    0.40Total transaction accounts
    
    
    132,957
    
    
    
    
    
    
    
    152,878Money market accounts
    
    
    276,748
    
    
    
    1.08
    
    
    
    262,276
    
    
    
    1.38Certificates of deposit
    
    
    79,491
    
    
    
    2.03
    
    
    
    98,431
    
    
    
    2.34Brokered certificates of deposit
    
    
    499,102
    
    
    
    3.32
    
    
    
    470,789
    
    
    
    3.98$
    988,298
    
    
    
    2.14
    
    
    $
    984,374
    
    
    
    2.82
  75




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##### Table of Contents



Maturities during year ended December 31,2011
    
    $
    212,4682012
    
    
    134,1942013
    
    
    121,2792014
    
    
    48,3172015
    
    
    30,770Thereafter
    
    
    31,565$
    578,593
  Note 10  FHLB Advances and Other Borrowings
  As of December 31,2010
    
    
    2009Weighted
    
    
    Weighted
    
    
    
    
    
    
    Weighted
    
    
    WeightedAverage
    
    
    Average
    
    
    
    
    
    
    Average
    
    
    AverageBalance
    
    
    Balance
    
    
    Rate
    
    
    Balance
    
    
    Balance
    
    
    Rate(Dollars In Thousands)Federal funds purchased
    
    $
    
    
    
    $
    
    
    
    
    
    %
    
    $
    
    
    
    $
    1,700
    
    
    
    0.61
    %FHLB advances
    
    
    2,494
    
    
    
    13,414
    
    
    
    4.78
    
    
    
    18,505
    
    
    
    18,873
    
    
    
    4.66Junior subordinated notes
    
    
    10,315
    
    
    
    10,315
    
    
    
    10.78
    
    
    
    10,315
    
    
    
    10,315
    
    
    
    10.78Line of credit
    
    
    10
    
    
    
    10
    
    
    
    4.06
    
    
    
    10
    
    
    
    38
    
    
    
    4.41Subordinated notes
payable
    
    
    39,000
    
    
    
    39,000
    
    
    
    5.55
    
    
    
    39,000
    
    
    
    39,000
    
    
    
    4.92$
    51,819
    
    
    $
    62,739
    
    
    
    6.26
    
    
    $
    67,830
    
    
    $
    69,926
    
    
    
    5.61Short-term borrowings
    
    $
    2,010
    
    
    
    
    
    
    
    
    
    
    $
    16,010Long-term borrowings
    
    
    49,809
    
    
    
    
    
    
    
    
    
    
    
    51,820$
    51,819
    
    
    
    
    
    
    
    
    
    
    $
    67,830
  (In Thousands)Repayments during year ended December 31,2011
    
    $
    2,0122012
    
    
    132013
    
    
    469$
    2,494
    76




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##### Table of Contents



Note 11  Stockholders Equity
   77




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##### Table of Contents



Minimum Required to be WellCapitalized Under PromptMinimum Required for Capital
    
    
    Corrective ActionActual
    
    
    Adequacy Purposes
    
    
    RequirementsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio(Dollars In Thousands)As of December 31, 2010Total capital
(to risk-weighted assets) 
Consolidated
    
    $
    107,263
    
    
    
    11.23
    %
    
    $
    76,438
    
    
    
    8.00
    %
    
    
    N/A
    
    
    
    N/AFirst Business Bank
    
    
    100,203
    
    
    
    11.72
    
    
    
    68,390
    
    
    
    8.00
    
    
    $
    85,488
    
    
    
    10.00
    %First Business Bank 
Milwaukee
    
    
    14,496
    
    
    
    14.62
    
    
    
    7,930
    
    
    
    8.00
    
    
    
    9,913
    
    
    
    10.00Tier 1 capital
(to risk-weighted assets) 
Consolidated
    
    $
    63,511
    
    
    
    6.65
    
    
    $
    38,219
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/AFirst Business Bank
    
    
    89,478
    
    
    
    10.47
    
    
    
    34,195
    
    
    
    4.00
    
    
    $
    51,293
    
    
    
    6.00
    %First Business Bank 
Milwaukee
    
    
    13,243
    
    
    
    13.36
    
    
    
    3,965
    
    
    
    4.00
    
    
    
    5,948
    
    
    
    6.00Tier 1 capital
(to average assets) 
Consolidated
    
    $
    63,511
    
    
    
    5.68
    
    
    $
    44,732
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/AFirst Business Bank
    
    
    89,748
    
    
    
    9.34
    
    
    
    38,335
    
    
    
    4.00
    
    
    $
    47,918
    
    
    
    5.00
    %First Business Bank 
Milwaukee
    
    
    13,243
    
    
    
    8.30
    
    
    
    6,381
    
    
    
    4.00
    
    
    
    7,976
    
    
    
    5.00
  78




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##### Table of Contents



Minimum Required to be WellCapitalized Under PromptMinimum Required for Capital
    
    
    Corrective ActionActual
    
    
    Adequacy Purposes
    
    
    RequirementsAmount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio
    
    
    Amount
    
    
    Ratio(Dollars In Thousands)As of December 31, 2009Total capital
(to risk-weighted assets) 
Consolidated
    
    $
    101,571
    
    
    
    11.16
    %
    
    $
    72,797
    
    
    
    8.00
    %
    
    
    N/A
    
    
    
    N/AFirst Business Bank
    
    
    94,251
    
    
    
    11.62
    
    
    
    64,906
    
    
    
    8.00
    
    
    $
    81,132
    
    
    
    10.00
    %First Business Bank 
Milwaukee
    
    
    14,246
    
    
    
    14.69
    
    
    
    7,757
    
    
    
    8.00
    
    
    
    9,696
    
    
    
    10.00Tier 1 capital
(to risk-weighted assets) 
Consolidated
    
    $
    60,109
    
    
    
    6.61
    
    
    $
    36,386
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/AFirst Business Bank
    
    
    84,082
    
    
    
    10.36
    
    
    
    32,453
    
    
    
    4.00
    
    
    $
    48,679
    
    
    
    6.00
    %First Business Bank 
Milwaukee
    
    
    13,027
    
    
    
    13.44
    
    
    
    3,878
    
    
    
    4.00
    
    
    
    5,818
    
    
    
    6.00Tier 1 capital
(to average assets) 
Consolidated
    
    $
    60,109
    
    
    
    5.53
    
    
    $
    43,485
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/AFirst Business Bank
    
    
    84,082
    
    
    
    9.08
    
    
    
    37,042
    
    
    
    4.00
    
    
    $
    46,302
    
    
    
    5.00
    %First Business Bank 
Milwaukee
    
    
    13,027
    
    
    
    8.13
    
    
    
    6,406
    
    
    
    4.00
    
    
    
    8,007
    
    
    
    5.00
  As of December 31,2010
    
    
    2009(In Thousands)Stockholders equity of the Corporation
    
    $
    55,335
    
    
    $
    54,393Unrealized and accumulated gains and losses on
specific items and disallowed goodwill and
intangible assets
    
    
    (1,824
    )
    
    
    (4,284
    )Trust preferred securities
    
    
    10,000
    
    
    
    10,000Tier 1 capital
    
    
    63,511
    
    
    
    60,109Allowable general valuation allowances and
subordinated debt
    
    
    43,752
    
    
    
    41,462Risk-based capital
    
    $
    107,263
    
    
    $
    101,571
   79




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##### Table of Contents



Note 12  Earnings per Share
  For the year ended December 31,2010
    
    
    2009Distributed earnings allocated to common stockholders
    
    $
    696,677
    
    
    $
    687,633Undistributed earnings allocated to common stockholders
    
    
    220,550
    
    
    
    318,480Income available to common stockholders for basic earnings per share
    
    
    917,227
    
    
    
    1,006,113Reallocation of undistributed earnings for diluted earnings per share
    
    
    
    
    
    
    Income available to common stockholders for diluted earnings per
share
    
    $
    917,227
    
    
    $
    1,006,113Basic average shares
    
    
    2,483,650
    
    
    
    2,456,257Dilutive effect of share-based awards
    
    
    
    
    
    
    Dilutive average shares
    
    
    2,483,650
    
    
    
    2,456,257Earnings per share:Basic
    
    $
    0.37
    
    
    $
    0.41Diluted
    
    
    0.37
    
    
    
    0.41
  Note 13  Equity Incentive Plans
  Stock Options
   80




---



##### Table of Contents



For the Years Ended December 31,2010
    
    
    2009Weighted
    
    
    
    
    
    
    WeightedOptions
    
    
    average price
    
    
    Options
    
    
    average priceOutstanding at beginning of year
    
    
    142,790
    
    
    
    22.01
    
    
    
    157,290
    
    
    $
    22.07Granted
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Expired
    
    
    (4,024
    )
    
    
    19.38
    
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    
    
    
    
    (14,500
    )
    
    
    22.63Outstanding at end of year
    
    
    138,766
    
    
    
    22.09
    
    
    
    142,790
    
    
    
    22.01Options exercisable at end of
year
    
    
    138,766
    
    
    
    
    
    
    
    142,790
  Options OutstandingWeighted
    
    
    
    
    
    
    Exercisableaverage
    
    
    Weighted
    
    
    
    
    
    
    Weightedremaining
    
    
    average
    
    
    
    
    
    
    averagecontractual
    
    
    exercise
    
    
    
    
    
    
    exerciseRange of exercise prices
    
    Shares
    
    
    life (Years)
    
    
    price
    
    
    Shares
    
    
    price$15.00  $17.50
    
    
    9,984
    
    
    
    3.04
    
    
    $
    15.33
    
    
    
    9,984
    
    
    $
    15.33$17.51  $20.00
    
    
    13,732
    
    
    
    0.81
    
    
    
    19.00
    
    
    
    13,732
    
    
    
    19.00$20.01  $22.50
    
    
    61,050
    
    
    
    2.14
    
    
    
    22.00
    
    
    
    61,050
    
    
    
    22.00$22.51  $25.00
    
    
    54,000
    
    
    
    3.87
    
    
    
    24.22
    
    
    
    54,000
    
    
    
    24.22138,766
    
    
    
    
    
    
    
    
    
    
    
    138,766
 Restricted Shares
   81




---



##### Table of Contents



2010
    
    
    2009Weighted
    
    
    
    
    
    
    WeightedNumber of
    
    
    average
    
    
    Number of
    
    
    averagerestricted
    
    
    grant-date
    
    
    restricted
    
    
    grant-dateshares
    
    
    fair value
    
    
    shares
    
    
    fair valueNonvested balance at beginning of year
    
    
    70,262
    
    
    $
    17.88
    
    
    
    104,949
    
    
    $
    19.12Granted
    
    
    64,725
    
    
    
    13.97
    
    
    
    6,500
    
    
    
    10.07Vested
    
    
    (33,430
    )
    
    
    19.28
    
    
    
    (34,273
    )
    
    
    19.77Forfeited
    
    
    (375
    )
    
    
    14.55
    
    
    
    (6,914
    )
    
    
    19.99Nonvested balance as of end of year
    
    
    101,182
    
    
    
    14.93
    
    
    
    70,262
    
    
    
    17.88
  Note 14  Employee Benefit Plans
    Note 15  Leases
   82




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##### Table of Contents



2011
    
    $
    7042012
    
    
    6362013
    
    
    6592014
    
    
    6602015
    
    
    669Thereafter
    
    
    6,837$
    10,165
 Note 16  Income Taxes
  Year Ended December 31,2010
    
    
    2009(In Thousands)Current:Federal
    
    $
    4,269
    
    
    $
    782State
    
    
    501
    
    
    
    5054,770
    
    
    
    1,287Deferred:Federal
    
    
    (2,702
    )
    
    
    (397
    )State
    
    
    281
    
    
    
    (173
    )(2,421
    )
    
    
    (570
    )Total income tax expense
    
    $
    2,349
    
    
    $
    717
   83




---



##### Table of Contents



At December 31,2010
    
    
    2009(In Thousands)Deferred tax assets:Allowance for loan and lease losses
    
    $
    6,232
    
    
    $
    5,539Deferred compensation
    
    
    726
    
    
    
    517State net operating loss carryforwards
    
    
    2,023
    
    
    
    2,576Write-down of foreclosed properties
    
    
    58
    
    
    
    138Non-accrual loan interest
    
    
    838
    
    
    
    410Capital loss carryforwards
    
    
    35
    
    
    
    Other
    
    
    1,637
    
    
    
    1,32011,549
    
    
    
    10,500Valuation allowance
    
    
    (1,259
    )
    
    
    (1,264
    )Total deferred tax assets
    
    
    10,290
    
    
    
    9,236Deferred tax liabilities:Leasing and fixed asset activities
    
    
    4,045
    
    
    
    5,399Unrealized gain on securities
    
    
    1,088
    
    
    
    960Other
    
    
    260
    
    
    
    273Total deferred tax liabilities
    
    
    5,393
    
    
    
    6,632Net deferred tax asset
    
    $
    4,897
    
    
    $
    2,604
  At December 31,2010
    
    
    2009(In Thousands)Change in net deferred tax assets
    
    $
    (2,293
    )
    
    $
    (171
    )Deferred taxes allocated to OCI
    
    
    (128
    )
    
    
    (399
    )Deferred income tax benefit
    
    $
    (2,421
    )
    
    $
    (570
    )
    84




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##### Table of Contents



Year Ended December 31,2010
    
    
    2009(In Thousands)Income before income tax expense
    
    $
    3,290
    
    
    $
    1,758Tax expense at statutory federal rate of
34% applied to income before income tax
expense
    
    $
    1,119
    
    
    $
    598State income tax, net of federal effect
    
    
    197
    
    
    
    114Goodwill impairment
    
    
    914
    
    
    
    Change in valuation allowance
    
    
    (3
    )
    
    
    (11
    )Bank-owned life insurance
    
    
    (225
    )
    
    
    (237
    )Interest on prior uncertain tax positions
    
    
    169
    
    
    
    160Enactment of combined reporting
    
    
    
    
    
    
    (37
    )Other
    
    
    178
    
    
    
    130Total income tax expense
    
    $
    2,349
    
    
    $
    717Effective tax rate
    
    
    71.40
    %
    
    
    40.78
    %
     85




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##### Table of Contents



Year Ended December 31,2010
    
    
    2009(In Thousands)Unrecognized tax benefits at beginning of year
    
    $
    2,428
    
    
    $
    2,440Additions based on tax positions related to current
year
    
    
    4
    
    
    
    10Reductions for tax positions related to current year
    
    
    (7
    )
    
    
    (2
    )Additions for tax positions of prior years
    
    
    8
    
    
    
    3Reductions for tax positions of prior years
    
    
    (1
    )
    
    
    (23
    )Settlements
    
    
    
    
    
    
    Unrecognized tax benefits at end of year
    
    $
    2,432
    
    
    $
    2,428
  Note 17  Derivative Financial Instruments
    86




---



##### Table of Contents



Interest Rate Swap ContractsAsset Derivatives
    
    
    Liability DerivativesBalance Sheet
    
    
    
    
    
    Balance SheetLocation
    
    Fair Value
    
    
    Location
    
    Fair Value(In Thousands)Derivatives
not designated as
hedging instrumentsDecember 31, 2010
    
    Other assets
    
    $
    2,841
    
    
    Other liabilities
    
    $
    2,841December 31, 2009
    
    Other assets
    
    $
    1,297
    
    
    Other liabilities
    
    $
    1,297
  For the year ended December 31, 2010AmountRecognized in
    
    
    
    
    
    
    AmountOther
    
    
    
    
    
    
    reclassified fromComprehensive
    
    
    
    
    
    
    AccumulatedIncome on
    
    
    Income
    
    
    Other
    
    
    Income
    
    Amount ofDerivative
    
    
    Statement
    
    
    Comprehensive
    
    
    Statement
    
    Gain/(Loss)Gain/(Loss)
    
    
    Location
    
    
    Income
    
    
    Location
    
    RecordedInstrument
    
    Effective Portion
    
    
    Effective Portion
    
    
    Effective Portion
    
    
    Ineffective Portion
    
    Ineffective Portion(In Thousands)Interest rate swaps  non-hedge
    
    $
    
    
    
    
    N/A
    
    
    $
    
    
    
    Other noninterest income
    
    $
    1,711Interest rate swaps  non-hedge
    
    $
    
    
    
    
    N/A
    
    
    $
    
    
    
    Other noninterest income
    
    $
    (1,711
    )
 For the year ended December 31, 2009AmountRecognized in
    
    
    
    
    AmountOther
    
    
    
    
    reclassified fromComprehensive
    
    
    
    
    AccumulatedIncome on
    
    
    Income
    
    Other
    
    
    Income
    
    Amount ofDerivative
    
    
    Statement
    
    Comprehensive
    
    
    Statement
    
    Gain/(Loss)Gain/(Loss)
    
    
    Location
    
    Income
    
    
    Location
    
    RecordedInstrument
    
    Effective Portion
    
    
    Effective Portion
    
    Effective Portion
    
    
    Ineffective Portion
    
    Ineffective Portion(In Thousands)Interest rate swaps  hedge
    
    $
    (1
    )
    
    Interest expense
    
    $
    (3
    )
    
    N/A
    
    $
    Interest rate swaps  non-hedge
    
    $
    
    
    
    N/A
    
    $
    
    
    
    Other noninterest income
    
    $
    (667
    )Interest
rate swaps  non-hedge
    
    $
    
    
    
    N/A
    
    $
    
    
    
    Other noninterest income
    
    $
    946
  87




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##### Table of Contents



Note 18  Commitments, Contingencies, and Financial Instruments with Off-Balance Sheet Risk
    At December 31,2010
    
    
    2009(In Thousands)Commitments to extend credit, primarily
commercial loans
    
    $
    230,619
    
    
    $
    255,140Standby letters of credit
    
    
    6,793
    
    
    
    7,015
      88




---



##### Table of Contents



Note 19  Fair Value
  Level 1
 Level 2
 Level 3
   Fair Value Measurements UsingDecember 31, 2010
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Total(In Thousands)Assets:Collateralized
mortgage
obligations 
government agencies
    
    $
    
    
    
    $
    152,776
    
    
    $
    
    
    
    $
    152,776Collateralized
mortgage
obligations 
government
sponsored
enterprises
    
    
    
    
    
    
    603
    
    
    
    
    
    
    
    603Interest rate swaps
    
    
    
    
    
    
    2,841
    
    
    
    
    
    
    
    2,841Liabilities:Interest rate swaps
    
    $
    
    
    
    $
    2,841
    
    
    $
    
    
    
    $
    2,841
  89




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##### Table of Contents



Fair Value Measurements UsingDecember 31, 2009
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Total(In Thousands)Assets:Collateralized mortgage  obligations government agencies
    
    $
    
    
    
    $
    118,509
    
    
    $
    
    
    
    $
    118,509Collateralized
mortgage
obligations 
government
sponsored
enterprises
    
    
    
    
    
    
    3,777
    
    
    
    
    
    
    
    3,777Interest rate swaps
    
    
    
    
    
    
    1,297
    
    
    
    
    
    
    
    1,297Liabilities:Interest rate swaps
    
    $
    
    
    
    $
    1,297
    
    
    $
    
    
    
    $
    1,297
   TotalBalance at
    
    
    Fair Value Measurements Using
    
    
    GainsDecember 31, 2010
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    (Losses)(In Thousands)Impaired loans
    
    $
    22,241
    
    
    $
    
    
    
    $
    18,112
    
    
    $
    4,129
    
    
    $
    Foreclosed properties
    
    
    1,750
    
    
    
    
    
    
    
    1,660
    
    
    
    90
    
    
    
    (326
    )Goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,689
    )
 TotalBalance at
    
    
    Fair Value Measurements Using
    
    
    GainsDecember 31, 2009
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    (Losses)(In Thousands)Impaired loans
    
    $
    17,596
    
    
    $
    
    
    
    $
    14,820
    
    
    $
    2,775
    
    
    
    Foreclosed properties
    
    
    1,671
    
    
    
    
    
    
    $
    1,671
    
    
    
    
    
    
    
    (525
    )
    90




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##### Table of Contents



As of and for the year endedDecember 31,2010
    
    
    2009(In Thousands)Balance at the beginning of the period
    
    $
    1,671
    
    
    $
    3,011Transfer of loans to foreclosed
properties, at lower of cost or fair value
    
    
    1,842
    
    
    
    2,251Impairment adjustments
    
    
    (326
    )
    
    
    (525
    )Proceeds from sale of properties
    
    
    (1,557
    )
    
    
    (2,900
    )Gain (loss) on sale of properties
    
    
    120
    
    
    
    (166
    )Balance at the end of the period
    
    $
    1,750
    
    
    $
    1,671
 Fair Value of Financial Instruments
  December 31, 2010
    
    
    December 31, 2009Carrying
    
    
    
    
    
    
    CarryingAmount
    
    
    Fair Value
    
    
    Amount
    
    
    Fair Value(In Thousands)Financial assets:Cash and cash equivalents
    
    $
    50,819
    
    
    $
    50,819
    
    
    $
    112,737
    
    
    $
    112,737Securities available-for-sale
    
    
    153,379
    
    
    
    153,379
    
    
    
    122,286
    
    
    
    122,286Loans and lease receivables, net
    
    
    860,935
    
    
    
    852,790
    
    
    
    839,807
    
    
    
    820,286Federal Home Loan Bank stock
    
    
    2,367
    
    
    
    2,367
    
    
    
    2,367
    
    
    
    2,367Cash surrender value of life
insurance
    
    
    16,950
    
    
    
    16,950
    
    
    
    16,254
    
    
    
    16,254Accrued interest receivable
    
    
    3,405
    
    
    
    3,405
    
    
    
    3,212
    
    
    
    3,212Interest rate swaps
    
    
    2,841
    
    
    
    2,841
    
    
    
    1,297
    
    
    
    1,297Financial liabilities:Deposits
    
    $
    988,298
    
    
    $
    998,713
    
    
    $
    984,374
    
    
    $
    1,000,027Federal Home Loan Bank and
other borrowings
    
    
    41,504
    
    
    
    41,567
    
    
    
    57,515
    
    
    
    58,125Junior subordinated notes
    
    
    10,315
    
    
    
    7,224
    
    
    
    10,315
    
    
    
    7,237Interest rate swaps
    
    
    2,841
    
    
    
    2,841
    
    
    
    1,297
    
    
    
    1,297Accrued interest payable
    
    
    3,643
    
    
    
    3,643
    
    
    
    4,359
    
    
    
    4,359Off balance sheet items:Standby letters of credit
    
    
    41
    
    
    
    41
    
    
    
    38
    
    
    
    38Commitments to extend credit
    
    
    
    
    
    
    *
    
    
    
    
    
    
    
    *
 *
    
    Not meaningful  91




---



##### Table of Contents



Securities:
 Loans and Leases:
 Federal Home Loan Bank Stock:
 Cash Surrender Value of Life Insurance:
 Deposits:
 Borrowed Funds:
 Financial Instruments with Off-Balance Sheet Risks:
  Interest Rate Swaps:
  92




---



##### Table of Contents



Limitations:
  Note 20  Condensed Parent Only Financial Information
  Condensed Balance Sheets
 At December 31,2010
    
    
    2009(In Thousands)AssetsCash and cash equivalents
    
    $
    308
    
    
    $
    1,941Investments in subsidiaries, at equity
    
    
    104,861
    
    
    
    101,709Leasehold improvements and equipment, net
    
    
    480
    
    
    
    587Other assets
    
    
    940
    
    
    
    807Total assets
    
    $
    106,589
    
    
    $
    105,044Liabilities and Stockholders EquityBorrowed funds
    
    $
    49,325
    
    
    $
    49,325Other liabilities
    
    
    1,929
    
    
    
    1,326Total liabilities
    
    
    51,254
    
    
    
    50,651Stockholders equity
    
    
    55,335
    
    
    
    54,393Total liabilities and stockholders equity
    
    $
    106,589
    
    
    $
    105,044
  93




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##### Table of Contents



Condensed Statements of Income
 Year Ended December 31,2010
    
    
    2009(In Thousands)Interest income
    
    $
    
    
    
    $
    12Interest expense
    
    
    3,288
    
    
    
    3,034Net interest expense
    
    
    (3,288
    )
    
    
    (3,022
    )Non-interest incomeConsulting and rental income from consolidated subsidiaries
    
    
    7,873
    
    
    
    7,746Other
    
    
    141
    
    
    
    153Total non-interest income
    
    
    8,014
    
    
    
    7,899Non-interest expense
    
    
    7,285
    
    
    
    7,106Loss before tax benefit and equity in undistributed net income
of consolidated subsidiaries
    
    
    (2,559
    )
    
    
    (2,229
    )Income tax benefit
    
    
    (934
    )
    
    
    (836
    )Loss before equity in undistributed net income of consolidated
subsidiaries
    
    
    (1,625
    )
    
    
    (1,393
    )Equity in undistributed net income of consolidated subsidiaries
    
    
    2,566
    
    
    
    2,434Net income
    
    $
    941
    
    
    $
    1,041
 Condensed Statements of Cash Flows
 Year Ended December 31,2010
    
    
    2009(In Thousands)Operating activitiesNet income
    
    $
    941
    
    
    $
    1,041Adjustments to reconcile net income to net cash used in
operating activities:Equity in undistributed earnings of consolidated subsidiaries
    
    
    (2,566
    )
    
    
    (2,434
    )Share-based compensation
    
    
    185
    
    
    
    245Increase in liabilities
    
    
    599
    
    
    
    227Other, net
    
    
    (26
    )
    
    
    246Net cash used in operating activities
    
    
    (867
    )
    
    
    (675
    )Investing activitiesPayments for investment in and advances to subsidiaries
    
    
    
    
    
    
    Net cash used in investing activities
    
    
    
    
    
    
    Financing activitiesProceeds from issuance of long-term debt
    
    
    
    
    
    
    31,000Repayment of long-term debt
    
    
    
    
    
    
    (31,000
    )Purchase of treasury stock
    
    
    (55
    )
    
    
    (65
    )Dividends paid
    
    
    (711
    )
    
    
    (711
    )Net cash provided by financing activities
    
    
    (766
    )
    
    
    (776
    )Decrease in cash and cash equivalents
    
    
    (1,633
    )
    
    
    (1,451
    )Cash and cash equivalents at beginning of year
    
    
    1,941
    
    
    
    3,392Cash and cash equivalents at end of year
    
    $
    308
    
    
    $
    1,941
  94




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##### Table of Contents



Note 21  Condensed Quarterly Earnings (unaudited)
 2010
    
    
    2009First
    
    
    Second
    
    
    Third
    
    
    Fourth
    
    
    First
    
    
    Second
    
    
    Third
    
    
    FourthQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter
    
    
    Quarter(Dollars in Thousands, Except per share data)Interest income
    
    $
    14,366
    
    
    $
    13,940
    
    
    $
    14,176
    
    
    $
    14,144
    
    
    $
    13,805
    
    
    $
    14,031
    
    
    $
    14,235
    
    
    $
    14,285Interest expense
    
    
    (6,519
    )
    
    
    (6,249
    )
    
    
    (6,016
    )
    
    
    (5,891
    )
    
    
    (7,317
    )
    
    
    (7,186
    )
    
    
    (6,902
    )
    
    
    (6,917
    )Net interest income
    
    
    7,847
    
    
    
    7,691
    
    
    
    8,160
    
    
    
    8,253
    
    
    
    6,488
    
    
    
    6,845
    
    
    
    7,333
    
    
    
    7,368Provision for loan losses
    
    
    (1,344
    )
    
    
    (1,069
    )
    
    
    (1,954
    )
    
    
    (2,677
    )
    
    
    (2,197
    )
    
    
    (1,647
    )
    
    
    (1,378
    )
    
    
    (3,003
    )Non-interest income
    
    
    1,629
    
    
    
    1,685
    
    
    
    1,671
    
    
    
    1,758
    
    
    
    1,562
    
    
    
    1,455
    
    
    
    1,889
    
    
    
    1,544Non-interest expense
    
    
    (6,544
    )
    
    
    (6,532
    )
    
    
    (6,379
    )
    
    
    (6,216
    )
    
    
    (6,161
    )
    
    
    (6,253
    )
    
    
    (5,528
    )
    
    
    (6,559
    )Goodwill impairment
    
    
    
    
    
    
    (2,689
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income before income taxes
    
    
    1,588
    
    
    
    (914
    )
    
    
    1,498
    
    
    
    1,118
    
    
    
    (308
    )
    
    
    400
    
    
    
    2,316
    
    
    
    (650
    )Income taxes
    
    
    (689
    )
    
    
    (611
    )
    
    
    (529
    )
    
    
    (520
    )
    
    
    115
    
    
    
    (140
    )
    
    
    (963
    )
    
    
    271Net income
    
    $
    899
    
    
    $
    (1,525
    )
    
    $
    969
    
    
    $
    598
    
    
    $
    (193
    )
    
    $
    260
    
    
    $
    1,353
    
    
    $
    (379
    )Per common share data:Basic earnings per share
    
    $
    0.35
    
    
    $
    (0.60
    )
    
    $
    0.38
    
    
    $
    0.24
    
    
    $
    (0.08
    )
    
    $
    0.10
    
    
    $
    0.53
    
    
    $
    (0.14
    )Diluted earnings per share
    
    
    0.35
    
    
    
    (0.60
    )
    
    
    0.38
    
    
    
    0.24
    
    
    
    (0.08
    )
    
    
    0.10
    
    
    
    0.53
    
    
    
    (0.14
    )Dividends
    
    
    0.07
    
    
    
    0.07
    
    
    
    0.07
    
    
    
    0.07
    
    
    
    0.07
    
    
    
    0.07
    
    
    
    0.07
    
    
    
    0.07
  95




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##### Table of Contents



Report of Independent Registered Public Accounting Firm
 
     
  96




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##### 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
  Managements Annual Report on Internal Control over Financial Reporting
    Changes in Internal Control over Financial Reporting
  
 Item 9B.
    
    Other Information
  
 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 16, 2011 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 1
of 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.firstbusiness.com
  97




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##### Table of Contents



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 Independence
  
 Item 14.
    
    Principal Accountant Fees and Services
  
 PART IV.
 
 Item 15.
    
    Exhibits, Financial Statements Schedules
 Item 7  Financial
Statements and Supplementary Data
 Exhibits
  98




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##### Table of Contents



Signatures
  FIRST BUSINESS FINANCIAL SERVICES, INC.March 11, 2011
    
    /s/ Corey A. Chambas

Corey A. ChambasChief Executive OfficerMarch 11, 2011
    
    /s/ James F. Ropella

James F. RopellaChief Financial OfficerMarch 11, 2011
    
    /s/ Shauna M. Gnorski

Shauna M. GnorskiChief Accounting OfficerMarch 11, 2011
    
    /s/ Jerome J. Smith

Jerome J. SmithChairman of the Board of DirectorsMarch 11, 2011
    
    /s/ Leland C. Bruce

Leland C. BruceDirectorMarch 11, 2011
    
    /s/ Mark D. Bugher

Mark D. BugherDirectorMarch 11, 2011
    
    /s/ Jam A. Eddy

Jan A. EddyDirectorMarch 11, 2011
    
    /s/ John M. Silseth

John M. SilsethDirectorMarch 11, 2011
    
    /s/ Barbara H. Stephens

Barbara H. StephensDirectorMarch 11, 2011
    
    /s/ Dean W. Voeks

Dean W. VoeksDirectorMarch 11, 2011
    
    /s/ Gary E. Zimmerman

Gary E. ZimmermanDirector
  99




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##### Table of Contents



Exhibit No.
    
    Exhibit Name3.1
    
    
    Amended and Restated Articles of Incorporation of First Business
Financial Services, Inc., as amended (incorporated by reference to
Exhibit 3.1 to the Annual Report on Form 10-K filed on March 12,
2010)3.2
    
    
    Amended and Restated Bylaws of First Business Financial Services,
Inc., as amended (incorporated by reference to Exhibit 3.2 to the
Annual Report on Form 10-K filed on March 12, 2010)4.1
    
    
    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
Annual Report on Form 10-K. No such instrument authorizes securities
in excess of 10% of the total assets of the Registrant.4.2
    
    
    Rights Agreement, dated as of June 5, 2008, between the Registrant
and Computershare Investor Services, Inc. (incorporated by reference
to Exhibit 4.1 to the Registration Statement on Form 8-A of the
Registrant, dated as of June 6, 2008)10.1
    
    
    1993 Incentive Stock Option Plan (incorporated by reference to the
Registration Statement on Form S-8 filed September 28, 2006)10.2
    
    
    2001 Equity Incentive Plan (incorporated by reference to Exhibit
10.1 to the Amended Registration Statement on Form 10 filed April 28,
2005)10.3
    
    
    Form of Stock Option Agreement (incorporated by reference to Exhibit
10.2 to the Amended Registration Statement on Form 10 filed April 28,
2005)10.4
    
    
    2006 Equity Incentive Plan (incorporated by reference to Appendix B
to the Companys Proxy Statement for the 2006 Annual Meeting of
Shareholders filed on March 31, 2006)10.5
    
    
    Form of Restricted Stock Agreement (incorporated by reference to
Exhibit 4.4 to 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 (incorporated by reference to 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 (previously
filed as Exhibits 10.1 and 10.2 and incorporated by reference to
Exhibits 10.1 and 10.2 to the current report on Form 8-K filed on
December 20, 2005)
Form of Executive Change-in-Control and Severance Agreement
(incorporated by reference to the current report on Form 8-K filed on
February 10, 2006)10.8
    
    
    Restated Employment Agreement dated November 7, 2006 between the
Registrant and Corey A. Chambas (incorporated by reference to Exhibit
10.1 to the current report on Form 8-K filed on November 13, 2006)10.9
    
    
    Annual Incentive Bonus Program (incorporated by reference to Exhibit
10.1 to the current report on Form 8-K filed on January 27, 2011)21
    
    
    Subsidiaries of the Registrant (incorporated by reference to Exhibit
21 to 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, 2010; except to the extent 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)
  100