##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
 For the quarterly period ended June 30, 2007
 Commission file number 000-51028
 FIRST BUSINESS FINANCIAL SERVICES, INC.
  Wisconsin
    
    39-1576570(State or jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 401 Charmany Drive Madison, WI
    
    53719(Address of Principal Executive Offices)
    
    (Zip Code)
  
   þ o
  o o þ
  o þ




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##### 



FIRST BUSINESS FINANCIAL SERVICES, INC.
INDEX  FORM 10-Q
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)Consolidated Balance Sheets as of June 30, 2007 and December 31, 2006
    
    
    2Consolidated Statements of Income for the Three Months and Six Months Ended June 30, 2007 and 2006
    
    
    3Consolidated Statements of Changes in Stockholders Equity and Comprehensive Income for the Six Months Ended June 30, 2007 and 2006
    
    
    4Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2007 and 2006
    
    
    5Notes to Unaudited Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    12Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    26Item 4. Controls and Procedures
    
    
    26PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    27Item 1A. Risk Factors
    
    
    27Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    27Item 3. Defaults upon Senior Securities
    
    
    27Item 4. Submission of Matters to a Vote of Security Holders
    
    
    27Item 5. Other information
    
    
    28Item 6. Exhibits
    
    
    28SIGNATURES
    
    
    28Certification of Chief Executive OfficerCertification of Chief Financial OfficerCertification Pursuant to 18 U.S.C. Section 1350
  1




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##### Table of Contents



PART I. Financial Information
 
 Item 1. Financial Statements
 First Business Financial Services, Inc.
 
 Consolidated Balance Sheets
 June 30,
    
    
    December 31,2007
    
    
    2006(In Thousands, Except Share Data)(Unaudited)AssetsCash and due from banks
    
    $
    14,466
    
    
    $
    19,215Short-term investments
    
    
    76
    
    
    
    246Cash and cash equivalents
    
    
    14,542
    
    
    
    19,461Securities available-for-sale, at fair value
    
    
    90,166
    
    
    
    100,008Loans and leases receivable, net of allowance for loan and lease losses of $9,598 and
$8,296, respectively
    
    
    702,350
    
    
    
    639,867Leasehold improvements and equipment, net
    
    
    1,106
    
    
    
    1,051Cash surrender value of bank-owned life insurance
    
    
    14,399
    
    
    
    13,469Investment in Federal Home Loan Bank stock, at cost
    
    
    2,313
    
    
    
    2,024Goodwill and other intangibles
    
    
    2,801
    
    
    
    2,817Accrued interest receivable and other assets
    
    
    11,623
    
    
    
    9,626Total assets
    
    $
    839,300
    
    
    $
    788,323Liabilities and Stockholders EquityDeposits
    
    $
    736,495
    
    
    
    640,266Securities sold under agreement to repurchase
    
    
    
    
    
    
    451Federal Home Loan Bank and other borrowings
    
    
    45,721
    
    
    
    92,519Accrued interest payable and other liabilities
    
    
    10,429
    
    
    
    9,331Total liabilities
    
    
    792,645
    
    
    
    742,567Commitments and contingenciesStockholders equity:Preferred stock, $10 par value, 10,000 Series A shares and 10,000 Series B shares
authorized, none issued or outstanding
    
    
    
    
    
    
    Common stock, $0.01 par value, 8,000,000 shares authorized, 2,525,278 and 2,516,193
shares issued, 2,502,196 and 2,493,578 outstanding in 2007 and 2006, respectively
    
    
    25
    
    
    
    25Additional paid-in capital
    
    
    23,172
    
    
    
    23,029Retained earnings
    
    
    25,369
    
    
    
    24,237Accumulated other comprehensive loss
    
    
    (1,371
    )
    
    
    (1,005
    )Treasury stock (23,082 and 22,615 shares in 2007 and 2006, respectively), at cost
    
    
    (540
    )
    
    
    (530
    )Total stockholders equity
    
    
    46,655
    
    
    
    45,756Total liabilities and stockholders equity
    
    $
    839,300
    
    
    $
    788,323
  2




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##### Table of Contents



First Business Financial Services, Inc.
 
 Consolidated Statements of Income (Unaudited)
 For the Three Months Ended
    
    
    For the Six Months Ended,June 30,
    
    
    June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In Thousands, Except Share Data)Interest income:Loans and leases
    
    $
    13,407
    
    
    $
    10,509
    
    
    $
    26,100
    
    
    $
    20,318Securities income, taxable
    
    
    1,044
    
    
    
    982
    
    
    
    2,130
    
    
    
    1,948Short-term investments
    
    
    37
    
    
    
    45
    
    
    
    74
    
    
    
    81Total interest income
    
    
    14,488
    
    
    
    11,536
    
    
    
    28,304
    
    
    
    22,347Interest expense:Deposits
    
    
    7,914
    
    
    
    5,950
    
    
    
    15,498
    
    
    
    11,516Notes payable and other borrowings
    
    
    936
    
    
    
    526
    
    
    
    1,787
    
    
    
    999Junior subordinated debentures
    
    
    
    
    
    
    254
    
    
    
    
    
    
    
    502Total interest expense
    
    
    8,850
    
    
    
    6,730
    
    
    
    17,285
    
    
    
    13,017Net interest income
    
    
    5,638
    
    
    
    4,806
    
    
    
    11,019
    
    
    
    9,330Provision for loan and lease losses
    
    
    701
    
    
    
    71
    
    
    
    1,277
    
    
    
    71Net interest income after
provision for loan and
lease losses
    
    
    4,937
    
    
    
    4,735
    
    
    
    9,742
    
    
    
    9,259Non-interest income:Service charges on deposits
    
    
    167
    
    
    
    181
    
    
    
    347
    
    
    
    377Credit, merchant and debit card fees
    
    
    52
    
    
    
    41
    
    
    
    103
    
    
    
    78Loan fees
    
    
    195
    
    
    
    143
    
    
    
    338
    
    
    
    291Increase in cash surrender value of bank-owned life
insurance
    
    
    177
    
    
    
    146
    
    
    
    340
    
    
    
    298Trust and investment services fee income
    
    
    500
    
    
    
    359
    
    
    
    891
    
    
    
    661Change in fair value of interest rate swaps
    
    
    
    
    
    
    (12
    )
    
    
    
    
    
    
    (171
    )Net cash settlement of interest rate swaps
    
    
    
    
    
    
    44
    
    
    
    
    
    
    
    18Other
    
    
    66
    
    
    
    34
    
    
    
    139
    
    
    
    118Total non-interest income
    
    
    1,157
    
    
    
    936
    
    
    
    2,158
    
    
    
    1,670Non-interest expense:Compensation
    
    
    3,055
    
    
    
    2,483
    
    
    
    5,965
    
    
    
    5,016Occupancy
    
    
    259
    
    
    
    257
    
    
    
    521
    
    
    
    496Equipment
    
    
    115
    
    
    
    125
    
    
    
    237
    
    
    
    247Data processing
    
    
    252
    
    
    
    229
    
    
    
    496
    
    
    
    445Marketing
    
    
    248
    
    
    
    213
    
    
    
    528
    
    
    
    420Professional fees
    
    
    308
    
    
    
    334
    
    
    
    763
    
    
    
    582Other
    
    
    550
    
    
    
    419
    
    
    
    1,153
    
    
    
    844Total non-interest expense
    
    
    4,787
    
    
    
    4,060
    
    
    
    9,663
    
    
    
    8,050Income before income tax expense
    
    
    1,307
    
    
    
    1,611
    
    
    
    2,237
    
    
    
    2,879Income tax expense
    
    
    448
    
    
    
    532
    
    
    
    780
    
    
    
    943Net income
    
    $
    859
    
    
    $
    1,079
    
    
    $
    1,457
    
    
    $
    1,936Earnings per share:Basic
    
    $
    0.35
    
    
    $
    0.44
    
    
    $
    0.59
    
    
    $
    0.79Diluted
    
    
    0.35
    
    
    
    0.44
    
    
    
    0.59
    
    
    
    0.79Dividends declared per share
    
    
    0.065
    
    
    
    0.06
    
    
    
    0.13
    
    
    
    0.12
  3




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##### Table of Contents



First Business Financial Services, Inc.
 
 Consolidated Statements of Changes in Stockholders Equity and Comprehensive Income (Unaudited)
 AccumulatedAdditional
    
    
    
    
    
    
    otherCommon
    
    
    paid-in
    
    
    Retained
    
    
    comprehensive
    
    
    Treasurystock
    
    
    capital
    
    
    earnings
    
    
    loss
    
    
    stock
    
    
    Total(In Thousands, Except Share Data)Balance at December 31, 2005
    
    $
    24
    
    
    $
    22,712
    
    
    $
    21,085
    
    
    $
    (1,469
    )
    
    $
    (509
    )
    
    $
    41,843Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    1,936
    
    
    
    
    
    
    
    
    
    
    
    1,936Unrealized securities
losses arising during
the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,036
    )
    
    
    
    
    
    
    (1,036
    )Unrealized
derivatives gains
arising during the
period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    10Reclassification
adjustment for
realized loss on
derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    65
    
    
    
    
    
    
    
    65Income tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    352
    
    
    
    
    
    
    
    352Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,327Share-based compensation  restricted shares
    
    
    
    
    
    
    71
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    71Cash dividends ($0.06 per share)
    
    
    
    
    
    
    
    
    
    
    (296
    )
    
    
    
    
    
    
    
    
    
    
    (296
    )Treasury stock purchased (712 shares)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (17
    )
    
    
    (17
    )Stock options exercised (9,280 shares)
    
    
    1
    
    
    
    90
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    91Balance at June 30, 2006
    
    $
    25
    
    
    $
    22,873
    
    
    $
    22,725
    
    
    $
    (2,078
    )
    
    $
    (526
    )
    
    $
    43,019
 AccumulatedAdditional
    
    
    
    
    
    
    otherCommon
    
    
    paid-in
    
    
    Retained
    
    
    comprehensive
    
    
    Treasurystock
    
    
    capital
    
    
    earnings
    
    
    loss
    
    
    stock
    
    
    Total(In Thousands, Except Share Data)Balance at December 31, 2006
    
    $
    25
    
    
    $
    23,029
    
    
    $
    24,237
    
    
    $
    (1,005
    )
    
    $
    (530
    )
    
    $
    45,756Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    1,457
    
    
    
    
    
    
    
    
    
    
    
    1,457Unrealized securities
losses arising during
the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (563
    )
    
    
    
    
    
    
    (563
    )Unrealized derivative
gains arising during
the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    2Reclassification
adjustment for
realized losses on
derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1Income tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    194
    
    
    
    
    
    
    
    194Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,091Share-based compensation  restricted shares
    
    
    
    
    
    
    143
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    143Cash dividends ($0.13 per share)
    
    
    
    
    
    
    
    
    
    
    (325
    )
    
    
    
    
    
    
    
    
    
    
    (325
    )Treasury stock purchased (467 shares)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10
    )
    
    
    (10
    )Balance at June 30, 2007
    
    $
    25
    
    
    $
    23,172
    
    
    $
    25,369
    
    
    $
    (1,371
    )
    
    $
    (540
    )
    
    $
    46,655
  4




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##### Table of Contents



First Business Financial Services, Inc.
 
 Consolidated Statements of Cash Flows (Unaudited)
 For the Six Months EndedJune 30,2007
    
    
    2006(In Thousands)Operating activitiesNet income
    
    $
    1,457
    
    
    $
    1,936Adjustments to reconcile net income to net cash provided by
operating activities:Deferred income taxes, net
    
    
    (740
    )
    
    
    (180
    )Provision for loan and lease losses
    
    
    1,277
    
    
    
    71Depreciation, amortization and accretion, net
    
    
    239
    
    
    
    346Share-based compensation
    
    
    143
    
    
    
    71Change in fair value of interest rate swaps
    
    
    
    
    
    
    171Increase in cash surrender value of bank-owned life insurance
    
    
    (340
    )
    
    
    (298
    )Origination of loans originated for sale
    
    
    (1,340
    )
    
    
    (457
    )Sale of loans originated for sale
    
    
    1,346
    
    
    
    461Gain on sale of loans originated for sale
    
    
    (6
    )
    
    
    (4
    )(Increase) decrease in accrued interest receivable and other assets
    
    
    (1,049
    )
    
    
    92Increase (decrease) in accrued interest payable and other liabilities
    
    
    1,088
    
    
    
    (1,235
    )Net cash provided by operating activities
    
    
    2,075
    
    
    
    974Investing activitiesProceeds from maturities of available-for-sale securities
    
    
    10,244
    
    
    
    9,660Purchases of available-for-sale securities
    
    
    (1,001
    )
    
    
    (14,936
    )Proceeds from sale of FHLB stock
    
    
    
    
    
    
    771Purchases of FHLB stock
    
    
    (289
    )
    
    
    Net increase in loans and leases
    
    
    (63,760
    )
    
    
    (9,359
    )Purchases of leasehold improvements and equipment, net
    
    
    (256
    )
    
    
    (148
    )Purchase of bank-owned life insurance
    
    
    (590
    )
    
    
    Net cash used in investing activities
    
    
    (55,652
    )
    
    
    (14,012
    )Financing activitiesNet increase in deposits
    
    
    96,229
    
    
    
    7,309Net decrease in FHLB line of credit
    
    
    (17,048
    )
    
    
    Repayment of FHLB advances
    
    
    (5
    )
    
    
    (4
    )Proceeds from FHLB advances
    
    
    
    
    
    
    7,000Net decrease in short-term borrowed funds
    
    
    (30,196
    )
    
    
    (4,291
    )Termination of interest rate swaps
    
    
    
    
    
    
    (1,384
    )Exercise of stock options
    
    
    
    
    
    
    91Cash dividends paid
    
    
    (312
    )
    
    
    (295
    )Purchase of treasury stock
    
    
    (10
    )
    
    
    (17
    )Net cash provided by financing activities
    
    
    48,658
    
    
    
    8,409Net decrease in cash and cash equivalents
    
    
    (4,919
    )
    
    
    (4,629
    )Cash and cash equivalents at the beginning of the period
    
    
    19,461
    
    
    
    16,707Cash and cash equivalents at the end of the period
    
    $
    14,542
    
    
    $
    12,078Supplementary cash flow informationInterest paid on deposits and borrowings
    
    $
    16,194
    
    
    $
    12,885Income taxes paid
    
    
    1,783
    
    
    
    1,616Transfer to other real estate owned
    
    
    660
    
    
    
    
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##### Table of Contents



NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 Note 1  Principles of Consolidation.
  Note 2  Basis of Presentation.
 Accounting for Uncertainty in Income Taxes.
  Note 3
 Recent Accounting Changes.
 Accounting for Uncertainty in Income Taxes
 Fair Value Option for Financial Assets and Financial Liabilities. The Fair Value Option for
Financial Assets and Liabilities  Including an Amendment of SFAS No. 115 Accounting for Certain Investments in Debt and Equity Securities,
 6




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##### Table of Contents



Fair Value Measurements
 Note 4  Share-Based Compensation.
  Stock Options
  WeightedAverageRemainingWeighted
    
    ContractualOptions
    
    Average Price
    
    Life (Years)Outstanding at December 31, 2006
    
    
    166,168
    
    
    $
    21.97
    
    
    
    6.68Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (2,500
    )
    
    
    25.00Outstanding
at June 30, 2007
    
    
    163,668
    
    
    $
    21.92
    
    
    
    6.09Options exercisable at June 30, 2007
    
    
    129,613
    
    
    $
    21.38
 7




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##### Table of Contents



Restricted Shares
  WeightedNumber of
    
    AverageRestricted
    
    Grant-DateShares
    
    Fair ValueNonvested balance as of December 31, 2006
    
    
    45,125
    
    
    $
    23.08Granted
    
    
    9,085
    
    
    
    21.53Vested
    
    
    (7,183
    )
    
    
    23.13Forfeited
    
    
    
    
    
    
    Nonvested balance as of June 30, 2007
    
    
    47,027
    
    
    $
    22.77
  Note 5  Earnings Per Share.
  For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Income available to common stockholders
    
    $
    858,532
    
    
    $
    1,079,025
    
    
    $
    1,457,164
    
    
    $
    1,935,678Basic average shares
    
    
    2,455,156
    
    
    
    2,443,574
    
    
    
    2,454,117
    
    
    
    2,440,973Dilutive effect of share-based awards
    
    
    6,611
    
    
    
    18,035
    
    
    
    7,329
    
    
    
    15,749Dilutive average shares
    
    
    2,461,767
    
    
    
    2,461,609
    
    
    
    2,461,446
    
    
    
    2,456,722Earnings per share:Basic
    
    $
    0.35
    
    
    $
    0.44
    
    
    $
    0.59
    
    
    $
    0.79Diluted
    
    $
    0.35
    
    
    $
    0.44
    
    
    $
    0.59
    
    
    $
    0.79
 8




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##### Table of Contents



Note 6  Securities.
  As of June 30, 2007Gross
    
    
    GrossAmortized
    
    
    unrealized
    
    
    unrealized
    
    
    Estimatedcost
    
    
    holding gains
    
    
    holding losses
    
    
    fair value(In Thousands)Securities available-for-saleU.S. Government corporations
and agencies
    
    $
    1,498
    
    
    $
    
    
    
    $
    (20
    )
    
    $
    1,478Municipals
    
    
    85
    
    
    
    
    
    
    
    (1
    )
    
    
    84Collateralized mortgage obligations
    
    
    90,675
    
    
    
    
    
    
    
    (2,071
    )
    
    
    88,604$
    92,258
    
    
    $
    
    
    
    $
    (2,092
    )
    
    $
    90,166
 As of December 31, 2006Gross
    
    
    GrossAmortized
    
    
    unrealized
    
    
    unrealized
    
    
    Estimatedcost
    
    
    holding gains
    
    
    holding losses
    
    
    fair value(In Thousands)Securities available-for-saleU.S. Government corporations
and agencies
    
    $
    1,497
    
    
    $
    
    
    
    $
    (30
    )
    
    $
    1,467Municipals
    
    
    185
    
    
    
    
    
    
    
    (3
    )
    
    
    182Collateralized mortgage obligations
    
    
    99,855
    
    
    
    85
    
    
    
    (1,581
    )
    
    
    98,359$
    101,537
    
    
    $
    85
    
    
    $
    (1,614
    )
    
    $
    100,008
   As of June 30, 2007Less than 12 months
    
    
    12 months or longer
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedFair value
    
    
    losses
    
    
    Fair value
    
    
    losses
    
    
    Fair value
    
    
    losses(In Thousands)U.S.
Government
corporations and
agencies
    
    $
    
    
    
    $
    
    
    
    $
    1,478
    
    
    $
    20
    
    
    $
    1,478
    
    
    $
    20Municipals
    
    
    
    
    
    
    
    
    
    
    84
    
    
    
    1
    
    
    
    84
    
    
    
    1Collateralized
mortgage
obligations
    
    
    28,290
    
    
    
    458
    
    
    
    60,314
    
    
    
    1,613
    
    
    
    88,604
    
    
    
    2,071$
    28,290
    
    
    $
    458
    
    
    $
    61,876
    
    
    $
    1,634
    
    
    $
    90,166
    
    
    $
    2,092
 9




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##### Table of Contents



As of December 31, 2006Less than 12 months
    
    
    12 months or longer
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedFair value
    
    
    losses
    
    
    Fair value
    
    
    losses
    
    
    Fair value
    
    
    losses(In Thousands)U.S.
Government
corporations and
agencies
    
    $
    
    
    
    $
    
    
    
    $
    1,467
    
    
    $
    30
    
    
    $
    1,467
    
    
    $
    30Municipals
    
    
    
    
    
    
    
    
    
    
    182
    
    
    
    3
    
    
    
    182
    
    
    
    3Collateralized
mortgage
obligations
    
    
    14,451
    
    
    
    107
    
    
    
    69,021
    
    
    
    1,474
    
    
    
    83,472
    
    
    
    1,581$
    14,451
    
    
    $
    107
    
    
    $
    70,670
    
    
    $
    1,507
    
    
    $
    85,121
    
    
    $
    1,614
   Note 7  Loans, Leases and Allowance for Loan and Lease Losses.
  June 30,
    
    
    December 31,2007
    
    
    2006(In Thousands)First mortgage loans:Commercial real estate
    
    $
    306,064
    
    
    $
    274,262Construction
    
    
    94,759
    
    
    
    78,257Multi-family
    
    
    35,180
    
    
    
    34,6351-4 family
    
    
    40,208
    
    
    
    35,721476,211
    
    
    
    422,875Commercial business loans
    
    
    189,953
    
    
    
    176,701Direct financing leases, net
    
    
    23,532
    
    
    
    23,203Home equity loans
    
    
    10,288
    
    
    
    8,859Credit card and other
    
    
    12,143
    
    
    
    16,712712,127
    
    
    
    648,350Less:Allowance for loan and lease losses
    
    
    9,598
    
    
    
    8,296Deferred loan fees
    
    
    179
    
    
    
    187Loans and lease receivables, net
    
    $
    702,350
    
    
    $
    639,867
 10




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##### Table of Contents



SixMonths Ended
    
    
    Year EndedJune 30,
    
    
    December 31,2007
    
    
    2006(In Thousands)Allowance at beginning of period
    
    $
    8,296
    
    
    $
    6,773Charge-offs:Commercial real estate and other mortgage
    
    
    
    
    
    
    Commercial
    
    
    
    
    
    
    Lease
    
    
    
    
    
    
    Consumer
    
    
    
    
    
    
    Total charge-offs
    
    
    
    
    
    
    Recoveries:Commercial real estate and other mortgage
    
    
    2
    
    
    
    4Commercial
    
    
    23
    
    
    
    Lease
    
    
    
    
    
    
    Consumer
    
    
    
    
    
    
    Total recoveries
    
    
    25
    
    
    
    4Net recoveries (charge-offs)
    
    
    25
    
    
    
    4Provision for loan and lease losses
    
    
    1,277
    
    
    
    1,519Allowance at end of period
    
    $
    9,598
    
    
    $
    8,296Allowance to gross loans and leases
    
    
    1.35
    %
    
    
    1.28
    %
 Note 8  Deposits.
  June 30, 2007
    
    
    December 31, 2006Weighted
    
    
    
    
    
    
    WeightedBalance
    
    
    average rate
    
    
    Balance
    
    
    average rate(In Thousands)Transaction accounts:Demand deposits
    
    $
    45,808
    
    
    
    0.00
    %
    
    $
    45,171
    
    
    
    0.00
    %Negotiable order of
withdrawal (NOW) accounts
    
    
    67,600
    
    
    
    4.43
    
    
    
    58,927
    
    
    
    4.26113,408
    
    
    
    
    
    
    
    104,098Money market accounts
    
    
    166,779
    
    
    
    4.69
    
    
    
    171,996
    
    
    
    4.57Certificates of deposit
    
    
    456,308
    
    
    
    4.91
    
    
    
    364,172
    
    
    
    4.63$
    736,495
    
    
    
    
    
    
    $
    640,266
 11




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Note 9  Borrowings.
  June 30, 2007
    
    
    December 31, 2006Weighted
    
    
    Weighted
    
    
    
    
    
    
    Weighted
    
    
    Weightedaverage
    
    
    average
    
    
    
    
    
    
    average
    
    
    averageBalance
    
    
    balance
    
    
    rate
    
    
    Balance
    
    
    balance
    
    
    rate(In Thousands)Fed funds
purchased and
securities sold
under agreements to
repurchase
    
    $
    
    
    
    $
    12,776
    
    
    
    5.43
    %
    
    $
    33,751
    
    
    $
    13,875
    
    
    
    5.12
    %FHLB advances
    
    
    19,531
    
    
    
    21,991
    
    
    
    4.86
    
    
    
    36,584
    
    
    
    19,059
    
    
    
    4.83Junior subordinated
debentures
    
    
    
    
    
    
    
    
    
    
    0.00
    
    
    
    
    
    
    
    9,915
    
    
    
    12.52Line of credit
    
    
    5,190
    
    
    
    2,525
    
    
    
    7.12
    
    
    
    1,635
    
    
    
    3,167
    
    
    
    6.82Subordinated notes
payable
    
    
    21,000
    
    
    
    21,000
    
    
    
    7.77
    
    
    
    21,000
    
    
    
    6,929
    
    
    
    7.58Other
    
    
    
    
    
    
    50
    
    
    
    7.00
    
    
    
    
    
    
    
    
    
    
    
    0.00$
    45,721
    
    
    $
    58,342
    
    
    
    6.13
    
    
    $
    92,970
    
    
    $
    52,945
    
    
    
    6.82Short-term borrowings
    
    $
    11,200
    
    
    
    
    
    
    
    
    
    
    $
    52,443Long-term borrowings
    
    
    34,521
    
    
    
    
    
    
    
    
    
    
    
    40,527$
    45,721
    
    
    
    
    
    
    
    
    
    
    $
    92,970
  
 Item 2.  Managements Discussion and Analysis of Financial Condition and Results of Operations
 General
   12




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Cautionary Factors
 Item 1A. Risk Factors
 Overview
  Results of Operations
 General.
  Top Line Revenue
  13




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##### Table of Contents



For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2006
    
    
    Change
    
    
    2007
    
    
    2006
    
    
    ChangeNet interest income
    
    $
    5,638
    
    
    $
    4,806
    
    
    
    17.3
    %
    
    $
    11,019
    
    
    $
    9,330
    
    
    
    18.1
    %Non-interest income
    
    
    1,157
    
    
    
    936
    
    
    
    23.6
    
    
    
    2,158
    
    
    
    1,670
    
    
    
    29.2Total top line revenue
    
    $
    6,795
    
    
    $
    5,742
    
    
    
    18.3
    
    
    $
    13,177
    
    
    $
    11,000
    
    
    
    19.8
 Net Interest Income.
 For the three months ended June 30, 2007
    
    
    For the six months ended June 30, 2007Rate/
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Rate/Rate
    
    
    Volume
    
    
    Volume
    
    
    Net
    
    
    Rate
    
    
    Volume
    
    
    Volume
    
    
    NetInterest-Earning
AssetsCommercial real estate and
other mortgage loans
    
    $
    158
    
    
    $
    1,905
    
    
    $
    46
    
    
    $
    2,109
    
    
    $
    604
    
    
    $
    3,339
    
    
    $
    161
    
    
    $
    4,104Commercial loans
    
    
    30
    
    
    
    783
    
    
    
    6
    
    
    
    819
    
    
    
    190
    
    
    
    1,350
    
    
    
    37
    
    
    
    1,577Leases
    
    
    (107
    )
    
    
    102
    
    
    
    (27
    )
    
    
    32
    
    
    
    (63
    )
    
    
    171
    
    
    
    (16
    )
    
    
    92Consumer loans
    
    
    (2
    )
    
    
    5
    
    
    
    (1
    )
    
    
    2
    
    
    
    (2
    )
    
    
    12
    
    
    
    (1
    )
    
    
    9Total loans and leases
receivable
    
    
    79
    
    
    
    2,795
    
    
    
    24
    
    
    
    2,898
    
    
    
    729
    
    
    
    4,872
    
    
    
    181
    
    
    
    5,782Mortgage-related securities
    
    
    64
    
    
    
    11
    
    
    
    1
    
    
    
    76
    
    
    
    150
    
    
    
    55
    
    
    
    4
    
    
    
    209Investment securities
    
    
    2
    
    
    
    (15
    )
    
    
    (1
    )
    
    
    (14
    )
    
    
    6
    
    
    
    (30
    )
    
    
    (3
    )
    
    
    (27
    )Other investments
    
    
    (5
    )
    
    
    (5
    )
    
    
    2
    
    
    
    (8
    )
    
    
    (4
    )
    
    
    (11
    )
    
    
    1
    
    
    
    (14
    )Fed funds sold and other
    
    
    1
    
    
    
    (1
    )
    
    
    (1
    )
    
    
    (1
    )
    
    
    
    
    
    
    6
    
    
    
    
    
    
    
    6Short-term investments
    
    
    3
    
    
    
    (2
    )
    
    
    
    
    
    
    1
    
    
    
    5
    
    
    
    (4
    )
    
    
    
    
    
    
    1Total net change in
income on
interest-earning assets
    
    
    144
    
    
    
    2,783
    
    
    
    25
    
    
    
    2,952
    
    
    
    886
    
    
    
    4,888
    
    
    
    183
    
    
    
    5,957Interest-Bearing LiabilitiesNOW accounts
    
    
    21
    
    
    
    204
    
    
    
    8
    
    
    
    233
    
    
    
    94
    
    
    
    370
    
    
    
    33
    
    
    
    497Money market
    
    
    43
    
    
    
    273
    
    
    
    7
    
    
    
    323
    
    
    
    268
    
    
    
    645
    
    
    
    55
    
    
    
    968Certificates  regular
    
    
    322
    
    
    
    936
    
    
    
    91
    
    
    
    1,349
    
    
    
    723
    
    
    
    1,575
    
    
    
    179
    
    
    
    2,479Certificates  large
    
    
    56
    
    
    
    3
    
    
    
    
    
    
    
    59
    
    
    
    161
    
    
    
    (103
    )
    
    
    (17
    )
    
    
    41Total deposits
    
    
    442
    
    
    
    1,416
    
    
    
    106
    
    
    
    1,964
    
    
    
    1,246
    
    
    
    2,487
    
    
    
    249
    
    
    
    3,982Junior subordinated
debentures
    
    
    
    
    
    
    (254
    )
    
    
    
    
    
    
    (254
    )
    
    
    
    
    
    
    (502
    )
    
    
    
    
    
    
    (502
    )FHLB advances
    
    
    5
    
    
    
    37
    
    
    
    
    
    
    
    42
    
    
    
    10
    
    
    
    116
    
    
    
    1
    
    
    
    127Other borrowings
    
    
    39
    
    
    
    290
    
    
    
    39
    
    
    
    368
    
    
    
    134
    
    
    
    429
    
    
    
    98
    
    
    
    661Total net change in
expense on
interest-bearing
liabilities
    
    
    486
    
    
    
    1,489
    
    
    
    145
    
    
    
    2,120
    
    
    
    1,390
    
    
    
    2,530
    
    
    
    348
    
    
    
    4,268Net change in net
interest income
    
    $
    (342
    )
    
    $
    1,294
    
    
    $
    (120
    )
    
    $
    832
    
    
    $
    (504
    )
    
    $
    2,358
    
    
    $
    (165
    )
    
    $
    1,689
  14




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15




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##### Table of Contents



16




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Average Interest-Earning Assets, Average Interest-Bearing Liabilities and Interest Rate Spread.
 For the Three Months Ended June 30,2007
    
    
    2006Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Averagebalance
    
    
    Interest
    
    
    yield/cost
    
    
    balance
    
    
    Interest
    
    
    yield/cost(In Thousands)Interest-Earning AssetsCommercial real estate and other
mortgage loans(1)
    
    $
    467,957
    
    
    $
    8,534
    
    
    
    7.29
    %
    
    $
    360,951
    
    
    $
    6,425
    
    
    
    7.12
    %Commercial loans(1)
    
    
    192,297
    
    
    
    4,451
    
    
    
    9.26
    
    
    
    158,210
    
    
    
    3,632
    
    
    
    9.18Leases
    
    
    23,456
    
    
    
    372
    
    
    
    6.34
    
    
    
    18,721
    
    
    
    404
    
    
    
    8.63Consumer loans
    
    
    3,102
    
    
    
    50
    
    
    
    6.45
    
    
    
    2,831
    
    
    
    48
    
    
    
    6.78Total loans and leases
receivable(1)
    
    
    686,812
    
    
    
    13,407
    
    
    
    7.81
    
    
    
    540,713
    
    
    
    10,509
    
    
    
    7.77Mortgage-related securities(2)
    
    
    92,115
    
    
    
    1,030
    
    
    
    4.47
    
    
    
    91,083
    
    
    
    954
    
    
    
    4.19Investment securities(2)
    
    
    1,630
    
    
    
    14
    
    
    
    3.44
    
    
    
    3,454
    
    
    
    28
    
    
    
    3.24Federal Home Loan Bank stock
    
    
    2,195
    
    
    
    14
    
    
    
    2.55
    
    
    
    2,804
    
    
    
    22
    
    
    
    3.14Fed funds sold and other
    
    
    44
    
    
    
    1
    
    
    
    5.21
    
    
    
    113
    
    
    
    2
    
    
    
    5.02Short-term investments
    
    
    1,715
    
    
    
    22
    
    
    
    5.13
    
    
    
    1,864
    
    
    
    21
    
    
    
    4.51Total interest-earning assets
    
    
    784,511
    
    
    
    14,488
    
    
    
    7.39
    
    
    
    640,031
    
    
    
    11,536
    
    
    
    7.21Non-interest-earning assets
    
    
    32,140
    
    
    
    
    
    
    
    
    
    
    
    30,263Total assets
    
    
    816,651
    
    
    
    
    
    
    
    
    
    
    
    670,294Interest-Bearing LiabilitiesNOW accounts
    
    
    70,343
    
    
    
    768
    
    
    
    4.37
    
    
    
    50,926
    
    
    
    535
    
    
    
    4.20Money market
    
    
    170,849
    
    
    
    1,974
    
    
    
    4.62
    
    
    
    146,573
    
    
    
    1,651
    
    
    
    4.51Certificates  regular
    
    
    374,515
    
    
    
    4,632
    
    
    
    4.95
    
    
    
    291,451
    
    
    
    3,283
    
    
    
    4.51Certificates  large
    
    
    42,213
    
    
    
    540
    
    
    
    5.12
    
    
    
    41,967
    
    
    
    481
    
    
    
    4.58Total deposits
    
    
    657,920
    
    
    
    7,914
    
    
    
    4.81
    
    
    
    530,917
    
    
    
    5,950
    
    
    
    4.48Junior subordinated debentures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,310
    
    
    
    254
    
    
    
    9.85FHLB advances
    
    
    22,581
    
    
    
    277
    
    
    
    4.91
    
    
    
    19,552
    
    
    
    235
    
    
    
    4.81Other borrowings
    
    
    38,512
    
    
    
    659
    
    
    
    6.84
    
    
    
    19,297
    
    
    
    291
    
    
    
    6.03Total interest-bearing liabilities
    
    
    719,013
    
    
    
    8,850
    
    
    
    4.92
    
    
    
    580,076
    
    
    
    6,730
    
    
    
    4.64Non-interest-bearing liabilities
    
    
    50,667
    
    
    
    
    
    
    
    
    
    
    
    47,498Total liabilities
    
    
    769,680
    
    
    
    
    
    
    
    
    
    
    
    627,574Stockholders equity
    
    
    46,971
    
    
    
    
    
    
    
    
    
    
    
    42,720Total liabilities and stockholders
equity
    
    $
    816,651
    
    
    
    
    
    
    
    
    
    
    $
    670,294Net interest income/interest rate spread
    
    
    
    
    
    $
    5,638
    
    
    
    2.47
    %
    
    
    
    
    
    $
    4,806
    
    
    
    2.57
    %Net interest-earning assets
    
    $
    65,498
    
    
    
    
    
    
    
    
    
    
    $
    59,955Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.87
    %
    
    
    
    
    
    
    
    
    
    
    3.00
    %Average interest-earning assets to
average interest-earning liabilities
    
    
    109.11
    %
    
    
    
    
    
    
    
    
    
    
    110.34
    %Return on average assets
    
    
    0.42
    %
    
    
    
    
    
    
    
    
    
    
    0.64
    %Return on average equity
    
    
    7.31
    %
    
    
    
    
    
    
    
    
    
    
    10.10
    %Average equity to average assets
    
    
    5.75
    %
    
    
    
    
    
    
    
    
    
    
    6.37
    %Non-interest expense to average assets
    
    
    2.34
    %
    
    
    
    
    
    
    
    
    
    
    2.42
    %
 
 (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. 17




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For the Six Months Ended June 30,2007
    
    
    2006Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Averagebalance
    
    
    Interest
    
    
    yield/cost
    
    
    balance
    
    
    Interest
    
    
    yield/cost(In Thousands)Interest-Earning AssetsCommercial real estate and other
mortgage loans(1)
    
    $
    454,119
    
    
    $
    16,566
    
    
    
    7.30
    %
    
    $
    358,166
    
    
    $
    12,462
    
    
    
    6.96
    %Commercial loans(1)
    
    
    190,040
    
    
    
    8,674
    
    
    
    9.13
    
    
    
    159,666
    
    
    
    7,097
    
    
    
    8.89Leases
    
    
    23,180
    
    
    
    757
    
    
    
    6.53
    
    
    
    18,439
    
    
    
    665
    
    
    
    7.21Consumer loans
    
    
    3,167
    
    
    
    103
    
    
    
    6.50
    
    
    
    2,820
    
    
    
    94
    
    
    
    6.67Total loans and leases
receivable(1)
    
    
    670,506
    
    
    
    26,100
    
    
    
    7.79
    
    
    
    539,091
    
    
    
    20,318
    
    
    
    7.54Mortgage-related securities(2)
    
    
    94,028
    
    
    
    2,100
    
    
    
    4.47
    
    
    
    91,373
    
    
    
    1,891
    
    
    
    4.14Investment securities(2)
    
    
    1,641
    
    
    
    30
    
    
    
    3.66
    
    
    
    3,455
    
    
    
    57
    
    
    
    3.30Federal Home Loan Bank stock
    
    
    2,110
    
    
    
    30
    
    
    
    2.84
    
    
    
    2,851
    
    
    
    44
    
    
    
    3.09Fed funds sold and other
    
    
    280
    
    
    
    8
    
    
    
    5.24
    
    
    
    66
    
    
    
    2
    
    
    
    4.95Short-term investments
    
    
    1,492
    
    
    
    36
    
    
    
    4.83
    
    
    
    1,665
    
    
    
    35
    
    
    
    4.20Total interest-earning assets
    
    
    770,057
    
    
    
    28,304
    
    
    
    7.35
    
    
    
    638,501
    
    
    
    22,347
    
    
    
    7.00Non-interest-earning assets
    
    
    31,914
    
    
   
    
    
    
    
    
    
    
    31,163Total assets
    
    
    801,971
    
    
    
    
    
    
    
    
    
    
    
    669,664Interest-Bearing LiabilitiesNOW accounts
    
    
    69,492
    
    
    
    1,540
    
    
    
    4.43
    
    
    
    51,300
    
    
    
    1,043
    
    
    
    4.07Money market
    
    
    173,860
    
    
    
    4,079
    
    
    
    4.69
    
    
    
    144,022
    
    
    
    3,111
    
    
    
    4.32Certificates  regular
    
    
    362,639
    
    
    
    8,861
    
    
    
    4.89
    
    
    
    290,884
    
    
    
    6,385
    
    
    
    4.39Certificates  large
    
    
    40,035
    
    
    
    1,018
    
    
    
    5.09
    
    
    
    44,762
    
    
    
    977
    
    
    
    4.37Total deposits
    
    
    646,026
    
    
    
    15,498
    
    
    
    4.80
    
    
    
    530,968
    
    
    
    11,516
    
    
    
    4.34Junior subordinated debentures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,310
    
    
    
    502
    
    
    
    9.74FHLB advances
    
    
    21,991
    
    
    
    534
    
    
    
    4.86
    
    
    
    17,156
    
    
    
    407
    
    
    
    4.74Other borrowings
    
    
    36,351
    
    
    
    1,253
    
    
    
    6.89
    
    
    
    21,068
    
    
    
    592
    
    
    
    5.62Total interest-bearing liabilities
    
    
    704,368
    
    
    
    17,285
    
    
    
    4.91
    
    
    
    579,502
    
    
    
    13,017
    
    
    
    4.49Non-interest-bearing liabilities
    
    
    50,989
    
    
    
    
    
    
    
    
    
    
    
    47,786Total liabilities
    
    
    755,357
    
    
    
    
    
    
    
    
    
    
    
    627,288Stockholders equity
    
    
    46,614
    
    
    
    
    
    
    
    
    
    
    
    42,376Total liabilities and stockholders
equity
    
    $
    801,971
    
    
    
    
    
    
    
    
    
    
    $
    669,664Net interest income/interest rate spread
    
    
    
    
    
    $
    11,019
    
    
    
    2.44
    %
    
    
    
    
    
    $
    9,330
    
    
    
    2.51
    %Net interest-earning assets
    
    $
    65,689
    
    
    
    
    
    
    
    
    
    
    $
    58,999Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.86
    %
    
    
    
    
    
    
    
    
    
    
    2.92
    %Average interest-earning assets to
average interest-earning liabilities
    
    
    109.33
    %
    
    
    
    
    
    
    
    
    
    
    110.18
    %Return on average assets
    
    
    0.36
    %
    
    
    
    
    
    
    
    
    
    
    0.58
    %Return on average equity
    
    
    6.25
    %
    
    
    
    
    
    
    
    
    
    
    9.14
    %Average equity to average assets
    
    
    5.81
    %
    
    
    
    
    
    
    
    
    
    
    6.33
    %Non-interest expense to average assets
    
    
    2.41
    %
    
    
    
    
    
    
    
    
    
    
    2.40
    %
 
 (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. Non-Interest Income.
 18




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##### Table of Contents



Provision for Loan and Lease Losses. Asset
Quality
 Non-Interest Expense.
 19




---



##### Table of Contents



Income Taxes.
  Financial Condition
 General.
 Securities.
 20




---



##### Table of Contents



Loans and Leases Receivable.
 Asset Quality
 Deposits.
 Borrowings.
 21




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##### Table of Contents



Asset Quality
 Non-performing Assets.
   June 30,
    
    
    December 31,2007
    
    
    2006Non-accrual loans
    
    $
    3,181
    
    
    $
    1,109Non-accrual leases
    
    
    
    
    
    
    Total non-accrual loans and leases
    
    
    3,181
    
    
    
    1,109Foreclosed properties and repossessed assets
    
    
    660
    
    
    
    Total non-performing assets
    
    $
    3,841
    
    
    $
    1,109Performing troubled debt restructurings
    
    $
    
    
    
    $
    Total non-accrual loans and leases to total loans and leases
    
    
    0.45
    %
    
    
    0.17
    %Total non-performing assets to total assets
    
    
    0.46
    
    
    
    0.14Allowance for loan and lease losses to total loans and leases
    
    
    1.35
    
    
    
    1.28Allowance for loan and lease losses to non-accrual loans and leases
    
    
    301.73
    
    
    
    748.06
 22




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##### Table of Contents



As of and for
    
    
    As of and forthe Six Months
    
    
    the Yearended
    
    
    EndedJune 30,
    
    
    December 31,2007
    
    
    2006Impaired loans and leases with no impairment reserves required
    
    $
    1,050
    
    
    $
    683Impaired loans and leases with impairment reserves required
    
    
    2,136
    
    
    
    1,404Total impaired loans and leases
    
    
    3,186
    
    
    
    2,087Less:Impairment reserve (included in allowance for loan and lease
loss)
    
    
    1,369
    
    
    
    863Net impaired loans and leases
    
    $
    1,817
    
    
    $
    1,224Average impaired loans and leases
    
    $
    2,710
    
    
    $
    1,444Foregone interest income attributable to impaired loans and leases
    
    $
    188
    
    
    $
    210Interest income recognized on impaired loans and leases
    
    
    27
    
    
    
    217Net foregone interest income on impaired loans and leases
    
    $
    161
    
    
    $
    (7
    )
  For the Three Months Ended
    
    
    For the Six MonthsJune 30,
    
    
    Ended June 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In Thousands)Allowance at beginning of period
    
    $
    8,896
    
    
    $
    6,774
    
    
    
    8,296
    
    
    $
    6,773Recoveries:Commercial real estate and other
mortgage
    
    
    1
    
    
    
    1
    
    
    
    2
    
    
    
    2Commercial
    
    
    
    
    
    
    
    
    
    
    23
    
    
    
    Total recoveries
    
    
    1
    
    
    
    1
    
    
    
    25
    
    
    
    2Provision for loan and lease loss
    
    
    701
    
    
    
    71
    
    
    
    1,277
    
    
    
    71Allowance at end of period
    
    $
    9,598
    
    
    $
    6,846
    
    
    
    9,598
    
    
    $
    6,846Allowance to average loans and leases
    
    
    1.40
    %
    
    
    1.27
    %
    
    
    1.43
    %
    
    
    1.27
    %
  Liquidity and Capital Resources
  23




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##### Table of Contents



24




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##### Table of Contents



Minimum Required to beWell Capitalized UnderMinimum Required for
    
    Prompt Corrective ActionActual

    
    Capital Adequacy Purposes
    
    RequirementsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio(In Thousands)As of June 30, 2007Total capital
(to risk-weighted assets)
Consolidated
    
    $
    75,824
    
    
    
    9.80
    %
    
    $
    61,866
    
    
    
    8.00
    %
    
    
    N/A
    
    
    
    N/AFirst Business Bank
    
    
    69,210
    
    
    
    10.14
    
    
    
    54,582
    
    
    
    8.00
    
    
    $
    68,228
    
    
    
    10.00
    %First Business Bank 
Milwaukee
    
    
    9,900
    
    
    
    11.05
    
    
    
    7,168
    
    
    
    8.00
    
    
    
    8,960
    
    
    
    10.00Tier 1 capital
(to risk-weighted assets)
Consolidated
    
    $
    45,226
    
    
    
    5.85
    %
    
    $
    30,933
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/AFirst Business Bank
    
    
    62,025
    
    
    
    9.09
    
    
    
    27,291
    
    
    
    4.00
    
    
    $
    40,937
    
    
    
    6.00
    %First Business Bank 
Milwaukee
    
    
    8,764
    
    
    
    9.78
    
    
    
    3,584
    
    
    
    4.00
    
    
    
    5,376
    
    
    
    6.00Tier 1 capital
(to average assets)
Consolidated
    
    $
    45,226
    
    
    
    5.55
    %
    
    $
    32,603
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/AFirst Business Bank
    
    
    62,025
    
    
    
    8.77
    
    
    
    28,292
    
    
    
    4.00
    
    
    $
    35,365
    
    
    
    5.00
    %First Business Bank 
Milwaukee
    
    
    8,764
    
    
    
    7.84
    
    
    
    4,470
    
    
    
    4.00
    
    
    
    5,588
    
    
    
    5.00
    %
 Minimum Required to beWell Capitalized UnderMinimum Required for
    
    Prompt Corrective ActionActual
    
    Capital Adequacy Purposes
    
    RequirementsAmount
    
    Ratio
    
    Amount
    
    Ratio
    
    Amount
    
    Ratio(In Thousands)As of December 31, 2006Total capital
(to risk-weighted assets)
Consolidated
    
    $
    73,241
    
    
    
    10.40
    %
    
    $
    56,360
    
    
    
    8.00
    %
    
    
    N/A
    
    
    
    N/AFirst Business Bank
    
    
    64,443
    
    
    
    10.49
    
    
    
    49,144
    
    
    
    8.00
    
    
    $
    61,430
    
    
    
    10.00
    %First Business Bank 
Milwaukee
    
    
    10,205
    
    
    
    11.31
    
    
    
    7,218
    
    
    
    8.00
    
    
    
    9,022
    
    
    
    10.00Tier 1 capital
(to risk-weighted assets)
Consolidated
    
    $
    43,944
    
    
    
    6.24
    %
    
    $
    28,180
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/AFirst Business Bank
    
    
    57,838
    
    
    
    9.42
    
    
    
    24,572
    
    
    
    4.00
    
    
    $
    36,858
    
    
    
    6.00
    %First Business Bank 
Milwaukee
    
    
    9,070
    
    
    
    10.05
    
    
    
    3,609
    
    
    
    4.00
    
    
    
    5,413
    
    
    
    6.00
    %Tier 1 capital
(to average assets)
Consolidated
    
    $
    43,944
    
    
    
    5.99
    %
    
    $
    29,331
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/AFirst Business Bank
    
    
    57,838
    
    
    
    9.22
    
    
    
    25,086
    
    
    
    4.00
    
    
    $
    31,358
    
    
    
    5.00
    %First Business Bank 
Milwaukee
    
    
    9,070
    
    
    
    8.50
    
    
    
    4,269
    
    
    
    4.00
    
    
    
    5,336
    
    
    
    5.00
 25




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##### Table of Contents



Contractual Obligations and Off-balance Sheet Arrangements
 Accounting for
Uncertainty in Income Taxes
 
 Item 3.  Quantitative and Qualitative Disclosures about Market Risk
     
 Item 4.  Controls and Procedures
  26




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##### Table of Contents



Part II. Other Information
 
 Item 1.  Legal Proceedings
  
 Item 1A.  Risk Factors
  
 Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
 (a)
    
    None.(b)
    
    None.(c)
    
    Issuer Purchases of Equity Securities
 Total Number of
    
    Maximum NumberShares Purchased
    
    that May Yet beas Part of Publicly
    
    Purchased UnderTotal Number of
    
    Average Price Paid
    
    Announced Plans
    
    the Plans orPeriod
    
    Shares Purchased
    
    Per Share
    
    or Programs
    
    ProgramsApril 1  30, 2007
    
    
    50
    
    
    $
    22.00
    
    
    
    
    
    
    
    N/AMay 1  30, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    N/AJune 1  30, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    N/A
 
 Item 3.  Defaults Upon Senior Securities
  
 Item 4.  Submission of Matters to a Vote of Security Holders
  Number of SharesFor
    
    Against
    
    Abstained
    
    Withheld
    
    Non-VotesElection of
Directors for a
three-year term
expiring in 2010:Jan A. Eddy
    
    
    1,884,438
    
    
    
    
    
    
    
    
    
    
    
    18,037
    
    
    
    John M. Silseth
    
    
    1,886,919
    
    
    
    
    
    
    
    
    
    
    
    15,556
    
    
    
    Dean W. Voeks
    
    
    1,876,468
    
    
    
    
    
    
    
    
    
    
    
    26,007
    
    
    
    
 27




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##### Table of Contents



Item 5.  Other Information.
  
 Item 6.  Exhibits.
 
 
 Signatures
  FIRST BUSINESS FINANCIAL SERVICES, INC.By:
    
    /s/ Corey A. ChambasCorey A. ChambasChief Executive OfficerJuly 26, 2007
 28