##### 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 September 30, 2010
 OR
 o
    
    Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 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)
 Telephone number
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer o
(Do not check if a smaller reporting company)
    
    Smaller reporting company þ
 o þ




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2




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##### 



FIRST BUSINESS FINANCIAL SERVICES, INC.
INDEX  FORM 10-Q
 PART I. Financial Information
    
    
    1Item 1. Financial Statements
    
    
    1Consolidated Balance Sheets
    
    
    1Consolidated
Statements of Income (Unaudited)
    
    
    2Consolidated Statements of Changes in Stockholders Equity and Comprehensive
Income (Unaudited)
    
    
    3Consolidated Statements of Cash Flows (Unaudited)
    
    
    4Notes to Unaudited Consolidated Financial Statements
    
    
    5Item 2.  Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    25Item 3.  Quantitative and Qualitative Disclosures about Market Risk
    
    
    42Item 4T.  Controls and Procedures
    
    
    43PART II. Other Information
    
    
    43Item 1.  Legal Proceedings
    
    
    43Item 1A.  Risk Factors
    
    
    43Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    44Item 3.  Defaults Upon Senior Securities
    
    
    44Item 4.  Reserved
    
    
    44Item 5.  Other Information
    
    
    44Item 6.  Exhibits
    
    
    44Signatures
    
    
    45Exhibit 31.1Exhibit 31.2Exhibit 32
   3




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##### Table of Contents



PART I. Financial Information
 
 Item 1. Financial Statements
 First Business Financial Services, Inc.
 
 Consolidated Balance Sheets
 (Unaudited)September 30,
    
    
    December 31,2010
    
    
    2009(In Thousands, Except Share Data)AssetsCash and due from banks
    
    $
    11,097
    
    
    $
    8,566Short-term investments
    
    
    53,407
    
    
    
    104,171Cash and cash equivalents
    
    
    64,504
    
    
    
    112,737Securities available-for-sale, at fair value
    
    
    152,803
    
    
    
    122,286Loans and leases receivable, net of allowance for loan and lease losses of $15,684 and
$14,124, respectively
    
    
    863,391
    
    
    
    839,807Leasehold improvements and equipment, net
    
    
    1,010
    
    
    
    1,189Foreclosed properties
    
    
    1,247
    
    
    
    1,671Cash surrender value of bank-owned life insurance
    
    
    16,760
    
    
    
    16,254Investment in Federal Home Loan Bank stock, at cost
    
    
    2,367
    
    
    
    2,367Goodwill and other intangibles
    
    
    36
    
    
    
    2,740Accrued interest receivable and other assets
    
    
    20,696
    
    
    
    18,385Total assets
    
    $
    1,122,814
    
    
    $
    1,117,436Liabilities and Stockholders EquityDeposits
    
    $
    998,130
    
    
    $
    984,374Federal Home Loan Bank and other borrowings
    
    
    41,507
    
    
    
    57,515Junior subordinated notes
    
    
    10,315
    
    
    
    10,315Accrued interest payable and other liabilities
    
    
    17,351
    
    
    
    10,839Total liabilities
    
    
    1,067,303
    
    
    
    1,063,043Commitments and contingenciesStockholders equity:Preferred stock, $0.01 par value, 2,500,000 shares authorized, none issued or
outstanding
    
    
    
    
    
    
    Common stock, $0.01 par value, 25,000,000 shares authorized, 2,617,635 and 2,616,010
shares issued, 2,535,428 and 2,539,306 shares outstanding at 2010 and 2009,
respectively
    
    
    26
    
    
    
    26Additional paid-in capital
    
    
    25,117
    
    
    
    24,731Retained earnings
    
    
    29,391
    
    
    
    29,582Accumulated other comprehensive income
    
    
    2,519
    
    
    
    1,544Treasury stock (82,207 and 76,704 shares at 2010 and 2009, respectively), at cost
    
    
    (1,542
    )
    
    
    (1,490
    )Total stockholders equity
    
    
    55,511
    
    
    
    54,393Total liabilities and stockholders equity
    
    $
    1,122,814
    
    
    $
    1,117,436
   1




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First Business Financial Services, Inc.
 
 Consolidated
Statements of Income (Unaudited)
 For the Three Months Ended,
    
    
    For the Nine Months Ended,September 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(In Thousands, Except Share Data)Interest income:Loans and leases
    
    $
    13,031
    
    
    $
    13,025
    
    
    $
    38,964
    
    
    $
    38,388Securities
    
    
    1,120
    
    
    
    1,191
    
    
    
    3,420
    
    
    
    3,636Short-term investments
    
    
    25
    
    
    
    19
    
    
    
    98
    
    
    
    48Total interest income
    
    
    14,176
    
    
    
    14,235
    
    
    
    42,482
    
    
    
    42,072Interest expense:Deposits
    
    
    5,011
    
    
    
    5,874
    
    
    
    15,735
    
    
    
    18,514Notes payable and other borrowings
    
    
    725
    
    
    
    748
    
    
    
    2,217
    
    
    
    2,060Junior subordinated notes
    
    
    280
    
    
    
    280
    
    
    
    832
    
    
    
    832Total interest expense
    
    
    6,016
    
    
    
    6,902
    
    
    
    18,784
    
    
    
    21,406Net interest income
    
    
    8,160
    
    
    
    7,333
    
    
    
    23,698
    
    
    
    20,666Provision for loan and lease losses
    
    
    1,954
    
    
    
    1,378
    
    
    
    4,367
    
    
    
    5,222Net interest income after
provision for loan and
lease losses
    
    
    6,206
    
    
    
    5,955
    
    
    
    19,331
    
    
    
    15,444Non-interest income:Trust and investment services income
    
    
    572
    
    
    
    489
    
    
    
    1,738
    
    
    
    1,394Service charges on deposits
    
    
    423
    
    
    
    402
    
    
    
    1,236
    
    
    
    1,114Increase in cash surrender value of bank-owned life
insurance
    
    
    166
    
    
    
    167
    
    
    
    498
    
    
    
    538Loan fees
    
    
    252
    
    
    
    316
    
    
    
    737
    
    
    
    780Credit, merchant and debit card fees
    
    
    56
    
    
    
    49
    
    
    
    163
    
    
    
    147Gain on sale of available-for-sale securities
    
    
    
    
    
    
    322
    
    
    
    
    
    
    
    322Other
    
    
    202
    
    
    
    136
    
    
    
    614
    
    
    
    587Total non-interest income
    
    
    1,671
    
    
    
    1,881
    
    
    
    4,986
    
    
    
    4,882Non-interest expense:Compensation
    
    
    3,434
    
    
    
    2,992
    
    
    
    10,331
    
    
    
    9,250Occupancy
    
    
    360
    
    
    
    373
    
    
    
    1,108
    
    
    
    1,113Equipment
    
    
    115
    
    
    
    138
    
    
    
    375
    
    
    
    438Data processing
    
    
    294
    
    
    
    275
    
    
    
    889
    
    
    
    841Marketing
    
    
    180
    
    
    
    135
    
    
    
    557
    
    
    
    467Professional fees
    
    
    335
    
    
    
    404
    
    
    
    1,175
    
    
    
    1,340FDIC Insurance
    
    
    791
    
    
    
    397
    
    
    
    2,329
    
    
    
    1,657Collateral liquidation costs
    
    
    287
    
    
    
    120
    
    
    
    845
    
    
    
    975Goodwill impairment
    
    
    
    
    
    
    
    
    
    
    2,689
    
    
    
    (Gain) loss on foreclosed properties, net
    
    
    (6
    )
    
    
    193
    
    
    
    12
    
    
    
    181Other
    
    
    589
    
    
    
    493
    
    
    
    1,836
    
    
    
    1,656Total non-interest expense
    
    
    6,379
    
    
    
    5,520
    
    
    
    22,146
    
    
    
    17,918Income before income tax expense
    
    
    1,498
    
    
    
    2,316
    
    
    
    2,171
    
    
    
    2,408Income tax expense
    
    
    529
    
    
    
    963
    
    
    
    1,828
    
    
    
    989Net income
    
    $
    969
    
    
    $
    1,353
    
    
    $
    343
    
    
    $
    1,419Earnings per common share:Basic
    
    $
    0.38
    
    
    $
    0.53
    
    
    $
    0.14
    
    
    $
    0.56Diluted
    
    
    0.38
    
    
    
    0.53
    
    
    
    0.14
    
    
    
    0.56Dividends declared per share
    
    
    0.07
    
    
    
    0.07
    
    
    
    0.21
    
    
    
    0.21
   2




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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
    
    
    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
    
    
    
    
    
    
    
    
    
    
    1,419
    
    
    
    
    
    
    
    
    
    
    
    1,419Unrealized securities
gains arising during
the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,551
    
    
    
    
    
    
    
    1,551Unrealized derivative
losses arising during
the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )Reclassification
adjustment for
realized gains on
securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (322
    )
    
    
    
    
    
    
    (322
    )Reclassification
adjustment for
realized losses on
derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    3Income tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (483
    )
    
    
    
    
    
    
    (483
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,167Share-based compensation  restricted
shares
    
    
    
    
    
    
    481
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    481Cash dividends ($0.21 per share)
    
    
    
    
    
    
    
    
    
    
    (534
    )
    
    
    
    
    
    
    
    
    
    
    (534
    )Treasury stock purchased (5,826 shares)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (65
    )
    
    
    (65
    )Balance at September 30, 2009
    
    $
    26
    
    
    $
    24,569
    
    
    $
    30,137
    
    
    $
    1,813
    
    
    $
    (1,490
    )
    
    $
    55,055
 AccumulatedAdditional
    
    
    
    
    
    
    otherCommon
    
    
    paid-in
    
    
    Retained
    
    
    comprehensive
    
    
    Treasurystock
    
    
    capital
    
    
    earnings
    
    
    income
    
    
    stock
    
    
    Total(In Thousands, Except Share Data)Balance at December 31, 2009
    
    $
    26
    
    
    $
    24,731
    
    
    $
    29,582
    
    
    $
    1,544
    
    
    $
    (1,490
    )
    
    $
    54,393Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    343
    
    
    
    
    
    
    
    
    
    
    
    343Unrealized securities
gains arising during
the period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,624
    
    
    
    
    
    
    
    1,624Income tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (649
    )
    
    
    
    
    
    
    (649
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,318Share-based compensation  restricted
shares
    
    
    
    
    
    
    386
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    386Cash dividends ($0.21 per share)
    
    
    
    
    
    
    
    
    
    
    (534
    )
    
    
    
    
    
    
    
    
    
    
    (534
    )Treasury stock purchased (5,503 shares)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (52
    )
    
    
    (52
    )Balance at September 30, 2010
    
    $
    26
    
    
    $
    25,117
    
    
    $
    29,391
    
    
    $
    2,519
    
    
    $
    (1,542
    )
    
    $
    55,511
   3




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First Business Financial Services, Inc.
 
 Consolidated Statements of Cash Flows (Unaudited)
 For the Nine Months EndedSeptember 30,2010
    
    
    2009(In Thousands)Operating activitiesNet income
    
    $
    343
    
    
    $
    1,419Adjustments to reconcile net income to net cash provided by
operating activities:Deferred income taxes, net
    
    
    (2,125
    )
    
    
    (586
    )Provision for loan and lease losses
    
    
    4,367
    
    
    
    5,222Depreciation, amortization and accretion, net
    
    
    1,102
    
    
    
    565Share-based compensation
    
    
    386
    
    
    
    481Increase in cash surrender value of bank-owned life insurance
    
    
    (498
    )
    
    
    (538
    )Gain on sale of available-for-sale securities
    
    
    
    
    
    
    (322
    )Origination of loans for sale
    
    
    (657
    )
    
    
    (3,164
    )Sale of loans originated for sale
    
    
    659
    
    
    
    3,173Gain on sale of loans originated for sale
    
    
    (2
    )
    
    
    (9
    )Loss on foreclosed properties and repossessed assets
    
    
    12
    
    
    
    181Goodwill impairment
    
    
    2,689
    
    
    
    (Increase) decrease in accrued interest receivable and other assets
    
    
    (758
    )
    
    
    213Increase in accrued interest payable and other liabilities
    
    
    6,513
    
    
    
    32Net cash provided by operating activities
    
    
    12,031
    
    
    
    6,667Investing activitiesProceeds from maturities of available-for-sale securities
    
    
    27,575
    
    
    
    24,106Proceeds from sales of available-for-sale securities
    
    
    
    
    
    
    15,003Purchases of available-for-sale securities
    
    
    (57,214
    )
    
    
    (49,019
    )Proceeds from sale of foreclosed properties and repossessed assets
    
    
    990
    
    
    
    296Net increase in loans and leases
    
    
    (28,528
    )
    
    
    (23,051
    )Investment in Aldine Capital Fund, L.P.
    
    
    (150
    )
    
    
    Purchases of leasehold improvements and equipment, net
    
    
    (91
    )
    
    
    (182
    )Premium payment on bank owned life insurance policies
    
    
    (8
    )
    
    
    (8
    )Net cash used in investing activities
    
    
    (57,426
    )
    
    
    (32,855
    )Financing activitiesNet increase in deposits
    
    
    13,756
    
    
    
    97,798Repayment of FHLB advances
    
    
    (16,008
    )
    
    
    (15,008
    )Net decrease in short-term borrowed funds
    
    
    
    
    
    
    (22,000
    )Proceeds from other borrowings
    
    
    
    
    
    
    31,000Repayment of other borrowings
    
    
    
    
    
    
    (31,000
    )Cash dividends paid
    
    
    (534
    )
    
    
    (534
    )Purchase of treasury stock
    
    
    (52
    )
    
    
    (65
    )Net cash (used in) provided by financing activities
    
    
    (2,838
    )
    
    
    60,191Net (decrease) increase in cash and cash equivalents
    
    
    (48,233
    )
    
    
    34,003Cash and cash equivalents at the beginning of the period
    
    
    112,737
    
    
    
    23,684Cash and cash equivalents at the end of the period
    
    $
    64,504
    
    
    $
    57,687Supplementary cash flow informationInterest paid on deposits and borrowings
    
    $
    18,738
    
    
    $
    22,132Income taxes paid
    
    
    3,798
    
    
    
    188Transfer to foreclosed properties and repossessed assets
    
    
    578
    
    
    
    640
   4




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Notes to Unaudited Consolidated Financial Statements
 Note 1  Principles of Consolidation
  Note 2  Basis of Presentation
   Note 3  Recent Accounting Pronouncements
 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.
  5




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##### Table of Contents



Consolidation.
 Fair Value Measurements and Disclosures.
 Derivatives and Hedging.
 Allowance
for Credit Losses.
  6




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##### Table of Contents



Note 4  Goodwill and Intangible assets
       7




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As of and for the ninemonths ended
    
    
    As of and for the yearSeptember 30,
    
    
    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
  Note 5  Earnings Per Share
   8




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For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Distributed earnings allocated to common stockholders
    
    $
    174,178
    
    
    $
    172,234
    
    
    $
    520,702
    
    
    $
    514,723Undistributed earnings allocated to common
stockholders
    
    
    776,535
    
    
    
    1,140,335
    
    
    
    (185,938
    )
    
    
    854,372Income available to common stockholders for basic
earnings per share
    
    
    950,713
    
    
    
    1,312,569
    
    
    
    334,764
    
    
    
    1,369,095Reallocation of undistributed earnings for diluted
earnings per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Income available to common stockholders for diluted
earnings per share
    
    $
    950,713
    
    
    $
    1,312,569
    
    
    $
    334,764
    
    
    $
    1,369,095Basic average shares
    
    
    2,489,278
    
    
    
    2,462,289
    
    
    
    2,479,706
    
    
    
    2,452,336Dilutive effect of share-based awards
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dilutive average shares
    
    
    2,489,278
    
    
    
    2,462,289
    
    
    
    2,479,706
    
    
    
    2,452,336Earnings per common share:Basic
    
    $
    0.38
    
    
    $
    0.53
    
    
    $
    0.14
    
    
    $
    0.56Diluted
    
    
    0.38
    
    
    
    0.53
    
    
    
    0.14
    
    
    
    0.56
 Note 6  Share-Based Compensation
  Stock Options
   9




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WeightedAverageWeighted
    
    
    RemainingAverage
    
    
    ContractualOptions
    
    
    Exercise Price
    
    
    Life (Years)Outstanding at December 31, 2008
    
    
    157,290
    
    
    $
    22.07
    
    
    
    4.67Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (14,500
    )
    
    
    22.63Outstanding at December 31, 2009
    
    
    142,790
    
    
    
    22.01
    
    
    
    3.66Exercisable at December 31, 2009
    
    
    142,790
    
    
    
    
    
    
    
    3.66Outstanding as of December 31, 2009
    
    
    142,790
    
    
    $
    22.01
    
    
    
    3.66Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Expired
    
    
    (4,024
    )
    
    
    19.38Forfeited
    
    
    
    
    
    
    Outstanding at September 30, 2010
    
    
    138,766
    
    
    $
    22.08
    
    
    
    3.00Exercisable at September 30, 2010
    
    
    138,766
    
    
    $
    22.08
    
    
    
    3.00
 Restricted Shares
   Weighted AverageNumber of
    
    
    Grant-DateRestricted Shares
    
    
    Fair ValueNonvested balance as of December 31, 2008
    
    
    104,949
    
    
    $
    19.12Granted
    
    
    6,500
    
    
    
    10.07Vested
    
    
    (34,273
    )
    
    
    19.77Forfeited
    
    
    (6,914
    )
    
    
    19.99Nonvested balance as of December 31, 2009
    
    
    70,262
    
    
    $
    17.88Granted
    
    
    2,000
    
    
    
    10.15Vested
    
    
    (29,930
    )
    
    
    19.49Forfeited
    
    
    (375
    )
    
    
    14.55Nonvested balance as of September 30, 2010
    
    
    41,957
    
    
    $
    16.39
  10




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##### Table of Contents



Note 7  Securities
  As of September 30, 2010Gross
    
    
    Grossunrealized
    
    
    unrealized
    
    
    EstimatedAmortized cost
    
    
    holding gains
    
    
    holding losses
    
    
    fair value(In Thousands)U.S. Treasury bills
    
    $
    3,270
    
    
    $
    
    
    
    $
    
    
    
    $
    3,270Collateralized
mortgage obligations
 government agencies
    
    
    144,565
    
    
    
    4,077
    
    
    
    (21
    )
    
    
    148,621Collateralized
mortgage obligations
 government-sponsored
enterprises
    
    
    896
    
    
    
    16
    
    
    
    
    
    
    
    912$
    148,731
    
    
    $
    4,093
    
    
    $
    (21
    )
    
    $
    152,803
 As of December 31, 2009Gross
    
    
    Grossunrealized
    
    
    unrealized
    
    
    EstimatedAmortized cost
    
    
    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
    
    $
    3,270
    
    
    $
    3,270Due in one year through five years
    
    
    666
    
    
    
    706Due in five through ten years
    
    
    2,511
    
    
    
    2,601Due in over ten years
    
    
    142,284
    
    
    
    146,226$
    148,731
    
    
    $
    152,803
  11




---



##### Table of Contents



As of September 30, 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 agencies
    
    $
    2,385
    
    
    $
    21
    
    
    $
    
    
    
    $
    
    
    
    $
    2,385
    
    
    $
    21$
    2,385
    
    
    $
    21
    
    
    $
    
    
    
    $
    
    
    
    $
    2,385
    
    
    $
    21
 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
    12




---



##### Table of Contents



Note 8  Loans and Leases
  September 30,
    
    
    December 31,2010
    
    
    2009(In Thousands)First mortgage loans:Commercial real estate
    
    $
    456,312
    
    
    $
    441,806Construction and land development
    
    
    60,012
    
    
    
    64,194Multi-family
    
    
    42,961
    
    
    
    43,9591-4 family
    
    
    54,157
    
    
    
    56,131Total first mortgage loans
    
    
    613,442
    
    
    
    606,090Commercial and industrial loans
    
    
    229,116
    
    
    
    199,661Direct financing leases, net
    
    
    21,331
    
    
    
    27,607Home equity loans and second mortgage
    
    
    5,224
    
    
    
    7,879Other
    
    
    10,760
    
    
    
    13,260Loans and leases receivable, gross
    
    
    879,873
    
    
    
    854,497Less:Allowance for loan and lease losses
    
    
    15,684
    
    
    
    14,124Deferred loan fees
    
    
    798
    
    
    
    566Loans and leases receivable, net
    
    $
    863,391
    
    
    $
    839,807
    13




---



##### Table of Contents



September 30,
    
    
    December 31,2010
    
    
    2009(Dollars In Thousands)Non-accrual loans and leasesFirst mortgage loans:Commercial real estate
    
    $
    10,304
    
    
    $
    8,482Construction and land development
    
    
    3,290
    
    
    
    3,317Multi-family
    
    
    4,683
    
    
    
    1,7601-4 family
    
    
    3,503
    
    
    
    3,015Total first mortgage loans
    
    
    21,780
    
    
    
    16,574Commercial and industrial
    
    
    5,419
    
    
    
    7,086Direct financing leases, net
    
    
    
    
    
    
    1Home equity and second mortgage
    
    
    1,042
    
    
    
    872Other
    
    
    2,677
    
    
    
    3,292Total non-accrual loans and leases
    
    
    30,918
    
    
    
    27,825Foreclosed properties and repossessed assets, net
    
    
    1,247
    
    
    
    1,671Total non-performing assets
    
    $
    32,165
    
    
    $
    29,496Performing troubled debt restructurings
    
    
    
    
    
    $
    Total non-accrual loans and leases to gross loans and leases
    
    
    3.51
    %
    
    
    3.26
    %Total non-performing assets to total assets
    
    
    2.86
    
    
    
    2.64Allowance for loan lease losses to gross loans and leases
    
    
    1.78
    
    
    
    1.65Allowance for loan and lease losses to non-accrual loans and leases
    
    
    50.73
    
    
    
    50.76
   14




---



##### Table of Contents



Note 9  Allowance for Loan and Lease Losses
  For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(In Thousands)Allowance at beginning of period
    
    $
    15,091
    
    
    $
    12,690
    
    
    $
    14,124
    
    
    $
    11,846Charge-offs:Commercial real estate and
other first mortgage
    
    
    (1,339
    )
    
    
    (1,131
    )
    
    
    (2,214
    )
    
    
    (2,059
    )Commercial and industrial
    
    
    (89
    )
    
    
    (3
    )
    
    
    (337
    )
    
    
    (1,813
    )Direct financing leases
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (231
    )Home equity and second mortgage
    
    
    (75
    )
    
    
    (130
    )
    
    
    (75
    )
    
    
    (157
    )Other
    
    
    (135
    )
    
    
    
    
    
    
    (462
    )
    
    
    (8
    )Total charge-offs
    
    
    (1,638
    )
    
    
    (1,264
    )
    
    
    (3,088
    )
    
    
    (4,268
    )Recoveries:Commercial real estate and
other first mortgage
    
    
    13
    
    
    
    
    
    
    
    16
    
    
    
    Commercial and industrial
    
    
    264
    
    
    
    1
    
    
    
    265
    
    
    
    3Direct financing leases
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Home equity and second mortgage
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total recoveries
    
    
    277
    
    
    
    1
    
    
    
    281
    
    
    
    5Net charge-offs
    
    
    (1,361
    )
    
    
    (1,263
    )
    
    
    (2,807
    )
    
    
    (4,263
    )Provision for loan and lease losses
    
    
    1,954
    
    
    
    1,378
    
    
    
    4,367
    
    
    
    5,222Allowance at end of period
    
    $
    15,684
    
    
    $
    12,805
    
    
    $
    15,684
    
    
    $
    12,805
  As of and for
    
    
    As of and forthe Nine
    
    
    the YearMonths Ended
    
    
    EndedSeptember 30,
    
    
    December 31,2010
    
    
    2009(In Thousands)Impaired loans and leases with no impairment reserves required
    
    $
    18,192
    
    
    $
    13,243Impaired loans and leases with impairment reserves required
    
    
    12,726
    
    
    
    14,582Total impaired loans and leases
    
    
    30,918
    
    
    
    27,825Less:Impairment reserve (included in allowance for loan and lease
losses)
    
    
    2,903
    
    
    
    1,846Net impaired loans and leases
    
    $
    28,015
    
    
    $
    25,979Average net impaired loans and leases
    
    $
    29,810
    
    
    $
    20,395Foregone interest income attributable to impaired loans and leases
    
    $
    1,885
    
    
    $
    1,758Interest income recognized on impaired loans and leases
    
    
    (77
    )
    
    
    (149
    )Net foregone interest income on impaired loans and leases
    
    $
    1,808
    
    
    $
    1,609
  15




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##### Table of Contents



Note 10  Deposits
  September 30, 2010
    
    
    December 31, 2009Weighted
    
    
    Weighted
    
    
    
    
    
    
    Weighted
    
    
    Weightedaverage
    
    
    average
    
    
    
    
    
    
    average
    
    
    averageBalance
    
    
    balance
    
    
    rate
    
    
    Balance
    
    
    balance
    
    
    rate(Dollars In Thousands)Transaction
accounts:Demand deposits
    
    $
    74,558
    
    
    $
    63,741
    
    
    
    
    %
    
    $
    87,687
    
    
    $
    51,665
    
    
    
    
    %NOW accounts
    
    
    76,079
    
    
    
    78,722
    
    
    
    0.37
    
    
    
    65,191
    
    
    
    67,061
    
    
    
    0.40Total transaction
accounts:
    
    
    150,637
    
    
    
    142,463
    
    
    
    
    
    
    
    152,878
    
    
    
    118,726Money market
accounts
    
    
    268,330
    
    
    
    252,646
    
    
    
    1.11
    
    
    
    262,276
    
    
    
    214,751
    
    
    
    1.38Certificates of deposit
    
    
    87,373
    
    
    
    84,900
    
    
    
    2.09
    
    
    
    98,431
    
    
    
    121,801
    
    
    
    2.34Brokered
certificates of
deposit
    
    
    491,790
    
    
    
    476,325
    
    
    
    3.38
    
    
    
    470,789
    
    
    
    460,691
    
    
    
    3.98Total deposits
    
    $
    998,130
    
    
    $
    956,334
    
    
    
    
    
    
    $
    984,374
    
    
    $
    915,969
 Note 11  Borrowings
  September 30, 2010
    
    
    December 31, 2009Weighted
    
    
    Weighted
    
    
    
    
    
    
    Weighted
    
    
    Weightedaverage
    
    
    average
    
    
    
    
    
    
    average
    
    
    averageBalance
    
    
    balance
    
    
    rate
    
    
    Balance
    
    
    balance
    
    
    rate(Dollars In Thousands)Fed funds purchased
    
    $
    
    
    
    $
    
    
    
    
    
    %
    
    $
    
    
    
    $
    1,700
    
    
    
    0.61
    %FHLB advances
    
    
    2,497
    
    
    
    17,094
    
    
    
    4.73
    
    
    
    18,505
    
    
    
    18,873
    
    
    
    4.66Senior line of credit
    
    
    10
    
    
    
    10
    
    
    
    4.04
    
    
    
    10
    
    
    
    38
    
    
    
    4.41Subordinated notes
payable
    
    
    39,000
    
    
    
    39,000
    
    
    
    5.48
    
    
    
    39,000
    
    
    
    39,000
    
    
    
    4.92Junior subordinated
notes
    
    
    10,315
    
    
    
    10,315
    
    
    
    10.75
    
    
    
    10,315
    
    
    
    10,315
    
    
    
    10.78$
    51,822
    
    
    $
    66,419
    
    
    
    6.12
    
    
    $
    67,830
    
    
    $
    69,926
    
    
    
    5.61Short-term borrowings
    
    $
    2,010
    
    
    
    
    
    
    
    
    
    
    $
    16,010Long-term borrowings
    
    
    49,812
    
    
    
    
    
    
    
    
    
    
    
    51,820$
    51,822
    
    
    
    
    
    
    
    
    
    
    $
    67,830
   16




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##### Table of Contents



Note 12  Fair Value Disclosures
  Level 1
 Level 2
 Level 3
   Fair Value Measurements UsingLevel 1
    
    
    Level 2
    
    
    Level 3
    
    
    Total(In Thousands)September 30, 2010Assets:U.S. Treasury bills
    
    $
    
    
    
    $
    3,270
    
    
    $
    
    
    
    $
    3,270Collateralized
mortgage
obligations 
government agencies
    
    
    
    
    
    
    148,621
    
    
    
    
    
    
    
    148,621Collateralized
mortgage
obligations 
government
sponsored
enterprises
    
    
    
    
    
    
    912
    
    
    
    
    
    
    
    912Interest rate swaps
    
    
    
    
    
    
    3,967
    
    
    
    
    
    
    
    3,967Liabilities:Interest rate swaps
    
    $
    
    
    
    $
    3,967
    
    
    $
    
    
    
    $
    3,967
  17




---



##### Table of Contents



Fair Value Measurements UsingLevel 1
    
    
    Level 2
    
    
    Level 3
    
    
    Total(In Thousands)December 31, 2009Assets: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
   As of and for the nine months ended September 30, 2010TotalBalance at
    
    
    Fair Value Measurements Using
    
    
    GainsSeptember 30, 2010
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    (Losses)(In Thousands)Impaired loans
    
    $
    17,630
    
    
    $
    
    
    
    $
    14,709
    
    
    $
    2,921
    
    
    $
    Foreclosed properties
    
    
    1,247
    
    
    
    
    
    
    
    1,247
    
    
    
    
    
    
    
    (127
    )Goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,689
    )
 As of and for the year ended December 31, 2009TotalBalance 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
    )
    18




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##### Table of Contents



Fair Value of Financial Instruments
  September 30, 2010
    
    
    December 31, 2009Carrying
    
    
    
    
    
    
    CarryingAmount
    
    
    Fair Value
    
    
    Amount
    
    
    Fair Value(In Thousands)Financial assets:Cash and cash equivalents
    
    $
    64,504
    
    
    $
    64,504
    
    
    $
    112,737
    
    
    $
    112,737Securities available-for-sale
    
    
    152,803
    
    
    
    152,803
    
    
    
    122,286
    
    
    
    122,286Loans and lease receivables
    
    
    863,391
    
    
    
    860,906
    
    
    
    839,807
    
    
    
    820,286Federal Home Loan Bank stock
    
    
    2,367
    
    
    
    2,367
    
    
    
    2,367
    
    
    
    2,367Cash surrender value of life
insurance
    
    
    16,760
    
    
    
    16,760
    
    
    
    16,254
    
    
    
    16,254Accrued interest receivable
    
    
    3,287
    
    
    
    3,287
    
    
    
    3,212
    
    
    
    3,212Interest rate swaps
    
    
    3,967
    
    
    
    3,967
    
    
    
    1,297
    
    
    
    1,297Financial liabilities:Deposits
    
    $
    998,130
    
    
    $
    1,015,595
    
    
    $
    984,374
    
    
    $
    1,000,027Federal Home Loan Bank and
other borrowings
    
    
    41,507
    
    
    
    41,578
    
    
    
    57,515
    
    
    
    58,125Junior subordinated notes
    
    
    10,315
    
    
    
    7,227
    
    
    
    10,315
    
    
    
    7,237Interest rate swaps
    
    
    3,967
    
    
    
    3,967
    
    
    
    1,297
    
    
    
    1,297Accrued interest payable
    
    
    4,404
    
    
    
    4,404
    
    
    
    4,359
    
    
    
    4,359Off balance sheet items:Standby letters of credit
    
    
    47
    
    
    
    47
    
    
    
    38
    
    
    
    38Commitments to extend credit
    
    
    
    
    
    
    *
    
    
    
    
    
    
    
    *
 *
    
    Not meaningful   19




---



##### 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:
  20




---



##### Table of Contents



Limitations:
  Note 13  Derivative Financial Instruments
    21




---



##### 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 instrumentsSeptember 30, 2010
    
    Other assets
    
    
    $
    3,967
    
    
    Other liabilities
    
    
    $
    3,967December 31, 2009
    
    Other assets
    
    
    $
    1,297
    
    
    Other liabilities
    
    
    $
    1,297
  For the three months ended September 30, 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
    
    
    $
    817Interest rate swaps
non-hedge
    
    $
    
    
    
    
    N/A
    
    
    $
    
    
    
    Other noninterest income
    
    
    $
    (817
    )
 For the three months ended September 30, 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  non hedge
    
    $
    
    
    
    
    N/A
    
    
    $
    
    
    
    Other noninterest income
    
    
    $
    871Interest rate swaps
non-hedge
    
    $
    
    
    
    
    N/A
    
    
    $
    
    
    
    Other noninterest income
    
    
    $
    (871
    )
  22




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##### Table of Contents



For the nine months ended September 30, 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
    
    $
    2,837Interest rate swaps
 non hedge
    
    $
    
    
    
    
    N/A
    
    
    $
    
    
    
    Other noninterest income
    
    $
    (2,837
    )
 For the nine months ended September 30, 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
    
    
    (183
    )Interest rate swaps
 non hedge
    
    
    
    
    
    
    N/A
    
    
    
    
    
    
    Other noninterest income
    
    
    462
 Note 14  Stockholders Equity
    23




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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 September 30, 2010Total capital
(to risk-weighted assets)Consolidated
    
    $
    106,413
    
    
    
    11.15
    %
    
    $
    76,371
    
    
    
    8.00
    %
    
    
    N/A
    
    
    
    N/AFirst Business Bank
    
    
    99,148
    
    
    
    11.71
    
    
    
    67,709
    
    
    
    8.00
    
    
    $
    84,636
    
    
    
    10.00
    %First Business Bank 
Milwaukee
    
    
    14,599
    
    
    
    13.69
    
    
    
    8,533
    
    
    
    8.00
    
    
    
    10,666
    
    
    
    10.00Tier 1 capital
(to risk-weighted assets)Consolidated
    
    $
    62,956
    
    
    
    6.59
    %
    
    $
    38,185
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/AFirst Business Bank
    
    
    88,532
    
    
    
    10.46
    
    
    
    33,854
    
    
    
    4.00
    
    
    $
    50,782
    
    
    
    6.00
    %First Business Bank 
Milwaukee
    
    
    13,256
    
    
    
    12.43
    
    
    
    4,266
    
    
    
    4.00
    
    
    
    6,400
    
    
    
    6.00Tier 1 capital
(to average assets)Consolidated
    
    $
    62,956
    
    
    
    5.78
    %
    
    $
    43,552
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/AFirst Business Bank
    
    
    88,532
    
    
    
    9.45
    
    
    
    37,479
    
    
    
    4.00
    
    
    $
    46,849
    
    
    
    5.00
    %First Business Bank 
Milwaukee
    
    
    13,256
    
    
    
    8.77
    
    
    
    6,044
    
    
    
    4.00
    
    
    
    7,555
    
    
    
    5.00
  24




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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
    %
    
    $
    36,399
    
    
    
    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
 
 Item 2.  Managements Discussion and Analysis of Financial Condition and Results of Operations
 Forward-Looking Statements
 Item 1A  Risk Factors
   25




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##### Table of Contents



General
  Overview
  General Overview
 
    
    Total assets were $1.123 billion as of September 30, 2010 compared to $1.117 billion as
of December 31, 2009.
    
    Net income for the three months ended September 30, 2010 was $969,000 compared to net
income of $1.4 million for the three months ended September 30, 2009. Net income for the
nine months ended September 30, 2010 was $343,000 compared to net income of $1.4 million
for the nine months ended September 30, 2009. During the nine months ended September 30,
2010, specifically in June 2010, we recorded an impairment of goodwill in the 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.
    
    Net income excluding the impact of the goodwill impairment for the nine months ended
September 30, 2010 was $3.0 million, an increase of 113.7%, from $1.4 million for the nine
months ended September 30, 2009.
    
    Diluted income per common share for the three months ended September 30, 2010 was $0.38
compared to diluted earnings per common share of $0.53 for the three months ended
September 30, 2009. Diluted income per common share for the nine months ended September
30, 2010 was $0.14 compared to diluted earnings per share of $0.56 for the nine months
ended September 30, 2009. Diluted income per common share for the nine months ended
September 30, 2010 includes a $1.06 per share goodwill impairment charge. Excluding the
impairment of goodwill, diluted earnings per common share was $1.20 for the nine months
ended September 30, 2010.
    
    Net interest margin increased to 3.12% for the three months ended September 30, 2010
compared to 2.88% for the three months ended September 30, 2009. Net interest margin
increased to 3.03% for the nine months ended September 30, 2010 compared to 2.76% for the
nine months ended September 30, 2009.
    
    Top line revenue increased 12.3% to $28.7 million for the nine months ended September
30, 2010 compared to $25.5 million for the nine months ended September 30, 2009.
  26




---



##### Table of Contents




    
    Loan and lease loss provision was $2.0 million for the three months ended September 30,
2010 compared to $1.4 million for same time period in the prior year. Loan and lease loss
provision
was $4.4 million for the nine months ended September 30, 2010 compared to $5.2 million for
the nine months ended September 30, 2009. Allowance for loan and lease loss as a
percentage of gross loans and leases was 1.78% at September 30, 2010 compared to 1.65% at
December 31, 2009.
    
    Annualized return on average equity and return on average assets were 6.96% and 0.35%,
respectively, for the three month period ended September 30, 2010, compared to 9.88% and
0.51%, respectively, for the same time period in 2009. Annualized return on average
equity and return on average assets were 0.82% and 0.04%, respectively for the nine month
period ended September 30, 2010, compared to 3.49% and 0.18%, respectively, for the nine
months ended September 30, 2009. Excluding the goodwill impairment, annualized return on
average assets was 0.37% for the nine months ended September 30, 2010. Excluding the
goodwill impairment, annualized returns on average equity was 7.22% for the nine months
ended September 30, 2010.
  Results of Operations
 Top Line Revenue
 For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    Change
    
    
    2010
    
    
    2009
    
    
    Change(Dollars In Thousands)Net interest income
    
    $
    8,160
    
    
    $
    7,333
    
    
    
    11.3
    %
    
    $
    23,698
    
    
    $
    20,666
    
    
    
    14.7
    %Non-interest income
    
    
    1,671
    
    
    
    1,881
    
    
    
    (11.2
    )
    
    
    4,986
    
    
    
    4,882
    
    
    
    2.1Total top line revenue
    
    $
    9,831
    
    
    $
    9,214
    
    
    
    6.7
    
    
    $
    28,684
    
    
    $
    25,548
    
    
    
    12.3
 Adjusted Net Income
  27




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##### Table of Contents



For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    Change
    
    
    2010
    
    
    2009
    
    
    Change(Dollars In Thousands)
    
    
    (Dollars In Thousands)Net income, presented
under US GAAP
    
    $
    969
    
    
    $
    1,353
    
    
    
    (28.4
    )%
    
    $
    343
    
    
    $
    1,419
    
    
    
    (75.8
    )%Add back:Provision for loan and
lease losses, after tax
    
    
    1,187
    
    
    
    838
    
    
    
    41.6
    
    
    
    2,654
    
    
    
    3,174
    
    
    
    (16.4
    )Goodwill impairment
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,689
    
    
    
    
    
    
    
    *Less:Net charge-offs, after tax
    
    
    827
    
    
    
    768
    
    
    
    7.7
    
    
    
    1,706
    
    
    
    2,592
    
    
    
    (34.2
    )Adjusted net income
    
    $
    1,329
    
    
    $
    1,423
    
    
    
    (6.6
    )
    
    $
    3,980
    
    
    $
    2,001
    
    
    
    98.9
 *
    
    Not meaningful Return on Equity
 Net Interest Income.
  28




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##### Table of Contents



Three Months
    
    
    Nine MonthsRate/
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Rate/Rate
    
    
    Volume
    
    
    Volume
    
    
    Net
    
    
    Rate
    
    
    Volume
    
    
    Volume
    
    
    Net(In Thousands)Interest-Earning AssetsCommercial real estate and
other mortgage loans
    
    $
    328
    
    
    $
    (52
    )
    
    $
    (2
    )
    
    $
    274
    
    
    $
    524
    
    
    $
    353
    
    
    $
    8
    
    
    $
    885Commercial loans
    
    
    (199
    )
    
    
    166
    
    
    
    (8
    )
    
    
    (41
    )
    
    
    557
    
    
    
    (277
    )
    
    
    (13
    )
    
    
    267Direct financing leases
    
    
    (5
    )
    
    
    (107
    )
    
    
    1
    
    
    
    (111
    )
    
    
    45
    
    
    
    (265
    )
    
    
    (8
    )
    
    
    (228
    )Other loans
    
    
    (72
    )
    
    
    (61
    )
    
    
    17
    
    
    
    (116
    )
    
    
    (239
    )
    
    
    (157
    )
    
    
    48
    
    
    
    (348
    )Total loans and leases
receivable
    
    
    52
    
    
    
    (54
    )
    
    
    8
    
    
    
    6
    
    
    
    887
    
    
    
    (346
    )
    
    
    35
    
    
    
    576Mortgage-related securities
    
    
    (277
    )
    
    
    268
    
    
    
    (62
    )
    
    
    (71
    )
    
    
    (788
    )
    
    
    731
    
    
    
    (159
    )
    
    
    (216
    )Investment securities
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Federal Home Loan Bank Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Short-term investments
    
    
    1
    
    
    
    4
    
    
    
    1
    
    
    
    6
    
    
    
    
    
    
    
    50
    
    
    
    
    
    
    
    50Total net change in income on
interest-earning assets
    
    
    (224
    )
    
    
    218
    
    
    
    (53
    )
    
    
    (59
    )
    
    
    99
    
    
    
    435
    
    
    
    (124
    )
    
    
    410Interest-Bearing LiabilitiesNOW accounts
    
    
    (23
    )
    
    
    10
    
    
    
    (3
    )
    
    
    (16
    )
    
    
    (17
    )
    
    
    32
    
    
    
    (3
    )
    
    
    12Money market
    
    
    (233
    )
    
    
    84
    
    
    
    (25
    )
    
    
    (174
    )
    
    
    (320
    )
    
    
    511
    
    
    
    (83
    )
    
    
    108Certificates of deposit
    
    
    (8
    )
    
    
    (254
    )
    
    
    3
    
    
    
    (259
    )
    
    
    (355
    )
    
    
    (686
    )
    
    
    108
    
    
    
    (933
    )Brokered certificates of deposit
    
    
    (695
    )
    
    
    335
    
    
    
    (54
    )
    
    
    (414
    )
    
    
    (2,314
    )
    
    
    417
    
    
    
    (69
    )
    
    
    (1,966
    )Total deposits
    
    
    (959
    )
    
    
    175
    
    
    
    (79
    )
    
    
    (863
    )
    
    
    (3,006
    )
    
    
    274
    
    
    
    (47
    )
    
    
    (2,779
    )FHLB advances
    
    
    1
    
    
    
    (50
    )
    
    
    
    
    
    
    (49
    )
    
    
    17
    
    
    
    (66
    )
    
    
    (2
    )
    
    
    (51
    )Other borrowings
    
    
    28
    
    
    
    (1
    )
    
    
    (1
    )
    
    
    26
    
    
    
    303
    
    
    
    (78
    )
    
    
    (17
    )
    
    
    208Junior subordinated notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total net change in expense
on interest-bearing
liabilities
    
    
    (930
    )
    
    
    124
    
    
    
    (80
    )
    
    
    (886
    )
    
    
    (2,686
    )
    
    
    130
    
    
    
    (66
    )
    
    
    (2,622
    )Net change in net interest
income
    
    $
    706
    
    
    $
    94
    
    
    $
    27
    
    
    $
    827
    
    
    $
    2,785
    
    
    $
    305
    
    
    $
    (58
    )
    
    $
    3,032
  29




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##### Table of Contents



For the Three Months Ended September 30,2010
    
    
    2009Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Averagebalance
    
    
    Interest
    
    
    yield/cost
    
    
    balance
    
    
    Interest
    
    
    yield/cost(Dollars In Thousands)Interest-Earning AssetsCommercial real estate and other
mortgage loans(1)
    
    $
    599,562
    
    
    $
    8,491
    
    
    
    5.66
    %
    
    $
    603,362
    
    
    $
    8,217
    
    
    
    5.45
    %Commercial and industrial
loans(1)
    
    
    218,629
    
    
    
    4,053
    
    
    
    7.42
    
    
    
    210,102
    
    
    
    4,094
    
    
    
    7.79Direct financing leases(1)
    
    
    22,254
    
    
    
    344
    
    
    
    6.18
    
    
    
    29,124
    
    
    
    455
    
    
    
    6.25Other loans
    
    
    16,456
    
    
    
    143
    
    
    
    3.48
    
    
    
    21,487
    
    
    
    259
    
    
    
    4.82Total loans and leases
receivable(1)
    
    
    856,901
    
    
    
    13,031
    
    
    
    6.08
    
    
    
    864,075
    
    
    
    13,025
    
    
    
    6.03Mortgage-related securities(2)
    
    
    142,794
    
    
    
    1,120
    
    
    
    3.14
    
    
    
    116,550
    
    
    
    1,191
    
    
    
    4.09Investment securities(2)
    
    
    36
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Federal Home Loan Bank stock
    
    
    2,367
    
    
    
    
    
    
    
    
    
    
    
    2,367
    
    
    
    
    
    
    
    Short-term investments
    
    
    42,510
    
    
    
    25
    
    
    
    0.24
    
    
    
    34,615
    
    
    
    19
    
    
    
    0.22Total interest-earning assets
    
    
    1,044,608
    
    
    
    14,176
    
    
    
    5.43
    
    
    
    1,017,607
    
    
    
    14,235
    
    
    
    5.60Non-interest-earning assets
    
    
    48,246
    
    
    
    
    
    
    
    
    
    
    
    42,883Total assets
    
    $
    1,092,854
    
    
    
    
    
    
    
    
    
    
    $
    1,060,490Interest-Bearing LiabilitiesNOW accounts
    
    $
    77,709
    
    
    
    50
    
    
    
    0.26
    
    
    $
    67,288
    
    
    
    66
    
    
    
    0.39Money market
    
    
    240,460
    
    
    
    603
    
    
    
    1.00
    
    
    
    216,984
    
    
    
    777
    
    
    
    1.43Certificates of deposits
    
    
    85,764
    
    
    
    429
    
    
    
    2.00
    
    
    
    135,909
    
    
    
    688
    
    
    
    2.02Brokered certificates of deposit
    
    
    487,427
    
    
    
    3,929
    
    
    
    3.22
    
    
    
    452,552
    
    
    
    4,343
    
    
    
    3.84Total interest-bearing deposits
    
    
    891,360
    
    
    
    5,011
    
    
    
    2.25
    
    
    
    872,733
    
    
    
    5,874
    
    
    
    2.69FHLB advances
    
    
    14,324
    
    
    
    172
    
    
    
    4.80
    
    
    
    18,509
    
    
    
    221
    
    
    
    4.78Other borrowings
    
    
    39,010
    
    
    
    553
    
    
    
    5.67
    
    
    
    39,118
    
    
    
    527
    
    
    
    5.39Junior subordinated notes
    
    
    10,315
    
    
    
    280
    
    
    
    10.86
    
    
    
    10,315
    
    
    
    280
    
    
    
    10.86Total interest-bearing liabilities
    
    
    955,009
    
    
    
    6,016
    
    
    
    2.52
    
    
    
    940,675
    
    
    
    6,902
    
    
    
    2.93Non-interest-bearing demand deposit
accounts
    
    
    69,028
    
    
    
    
    
    
    
    
    
    
    
    53,383Other non-interest-bearing liabilities
    
    
    13,099
    
    
    
    
    
    
    
    
    
    
    
    11,642Total liabilities
    
    
    1,037,136
    
    
    
    
    
    
    
    
    
    
    
    1,005,700Stockholders equity
    
    
    55,718
    
    
    
    
    
    
    
    
    
    
    
    54,790Total liabilities and stockholders
equity
    
    $
    1,092,854
    
    
    
    
    
    
    
    
    
    
    $
    1,060,490Net interest income/interest rate spread
    
    
    
    
    
    $
    8,160
    
    
    
    2.91
    %
    
    
    
    
    
    $
    7,333
    
    
    
    2.67
    %Net interest-earning assets
    
    $
    89,599
    
    
    
    
    
    
    
    
    
    
    $
    76,932Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.12
    %
    
    
    
    
    
    
    
    
    
    
    2.88
    %Average interest-earning assets to
average interest-bearing liabilities
    
    
    109.38
    %
    
    
    
    
    
    
    
    
    
    
    108.18
    %Return on average assets
    
    
    0.35
    
    
    
    
    
    
    
    
    
    
    
    0.51Return on average equity
    
    
    6.96
    
    
    
    
    
    
    
    
    
    
    
    9.88Average equity to average assets
    
    
    5.10
    
    
    
    
    
    
    
    
    
    
    
    5.17Non-interest expense to average assets
    
    
    2.33
    
    
    
    
    
    
    
    
    
    
    
    2.08
 (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 basis of assets available for sale.  30




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31




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For the Nine Months Ended September 30,2010
    
    
    2009Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    
    
    
    Averagebalance
    
    
    Interest
    
    
    yield/cost
    
    
    balance
    
    
    Interest
    
    
    yield/cost(Dollars In Thousands)Interest-Earning AssetsCommercial real estate and other mortgage
loans(1)
    
    $
    599,002
    
    
    $
    25,168
    
    
    
    5.60
    %
    
    $
    590,412
    
    
    $
    24,283
    
    
    
    5.48
    %Commercial and industrial loans(1)
    
    
    212,411
    
    
    
    12,177
    
    
    
    7.64
    
    
    
    217,476
    
    
    
    11,910
    
    
    
    7.30Direct financing leases(1)
    
    
    24,447
    
    
    
    1,180
    
    
    
    6.44
    
    
    
    30,102
    
    
    
    1,408
    
    
    
    6.24Other loans
    
    
    17,508
    
    
    
    439
    
    
    
    3.34
    
    
    
    21,875
    
    
    
    787
    
    
    
    4.80Total loans and leases receivable(1)
    
    
    853,368
    
    
    
    38,964
    
    
    
    6.09
    
    
    
    859,865
    
    
    
    38,388
    
    
    
    5.95Mortgage-related securities(2)
    
    
    134,457
    
    
    
    3,420
    
    
    
    3.39
    
    
    
    111,953
    
    
    
    3,636
    
    
    
    4.33Investment securities
    
    
    12
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Federal Home Loan Bank stock
    
    
    2,367
    
    
    
    
    
    
    
    
    
    
    
    2,367
    
    
    
    
    
    
    
    Short-term investments
    
    
    53,552
    
    
    
    98
    
    
    
    0.24
    
    
    
    25,943
    
    
    
    48
    
    
    
    0.25Total interest-earning assets
    
    
    1,043,756
    
    
    
    42,482
    
    
    
    5.43
    
    
    
    1,000,128
    
    
    
    42,072
    
    
    
    5.61Non-interest-earning assets
    
    
    47,883
    
    
    
    
    
    
    
    
    
    
    
    39,834Total assets
    
    $
    1,091,639
    
    
    
    
    
    
    
    
    
    
    $
    1,039,962Interest-Bearing LiabilitiesNOW accounts
    
    
    78,722
    
    
    
    219
    
    
    
    0.37
    
    
    $
    68,212
    
    
    
    207
    
    
    
    0.40Money market
    
    
    252,646
    
    
    
    2,105
    
    
    
    1.11
    
    
    
    201,183
    
    
    
    1,997
    
    
    
    1.32Certificates of deposits
    
    
    84,900
    
    
    
    1,328
    
    
    
    2.09
    
    
    
    121,869
    
    
    
    2,261
    
    
    
    2.47Brokered certificates of deposit
    
    
    476,325
    
    
    
    12,083
    
    
    
    3.38
    
    
    
    462,604
    
    
    
    14,049
    
    
    
    4.05Total interest-bearing deposits
    
    
    892,593
    
    
    
    15,735
    
    
    
    2.35
    
    
    
    853,868
    
    
    
    18,514
    
    
    
    2.89FHLB advances
    
    
    17,094
    
    
    
    607
    
    
    
    4.73
    
    
    
    18,997
    
    
    
    658
    
    
    
    4.62Other borrowings
    
    
    39,010
    
    
    
    1,610
    
    
    
    5.50
    
    
    
    41,320
    
    
    
    1,402
    
    
    
    4.52Junior subordinated notes
    
    
    10,315
    
    
    
    832
    
    
    
    10.75
    
    
    
    10,315
    
    
    
    832
    
    
    
    10.75Total interest-bearing liabilities
    
    
    959,012
    
    
    
    18,784
    
    
    
    2.61
    
    
    
    924,500
    
    
    
    21,406
    
    
    
    3.09Non-interest-bearing demand deposit accounts
    
    
    63,741
    
    
    
    
    
    
    
    
    
    
    
    48,504Other non-interest-bearing liabilities
    
    
    12,885
    
    
    
    
    
    
    
    
    
    
    
    12,703Total liabilities
    
    
    1,035,638
    
    
    
    
    
    
    
    
    
    
    
    985,707Stockholders equity
    
    
    56,001
    
    
    
    
    
    
    
    
    
    
    
    54,255Total liabilities and stockholders equity
    
    $
    1,091,639
    
    
    
    
    
    
    
    
    
    
    $
    1,039,962Net interest income/interest rate spread
    
    
    
    
    
    $
    23,698
    
    
    
    2.82
    %
    
    
    
    
    
    $
    20,666
    
    
    
    2.52
    %Net interest-earning assets
    
    $
    84,744
    
    
    
    
    
    
    
    
    
    
    $
    75,628Net interest margin
    
    
    
    
    
    
    
    
    
    
    3.03
    %
    
    
    
    
    
    
    
    
    
    
    2.76
    %Average interest-earning assets to average
interest-bearing liabilities
    
    
    108.84
    %
    
    
    
    
    
    
    
    
    
    
    108.18
    %Return on average assets
    
    
    0.04
    
    
    
    
    
    
    
    
    
    
    
    0.18Return on average equity
    
    
    0.82
    
    
    
    
    
    
    
    
    
    
    
    3.49Average equity to average assets
    
    
    5.13
    
    
    
    
    
    
    
    
    
    
    
    5.22Non-interest expense to average assets
    
    
    2.70
    
    
    
    
    
    
    
    
    
    
    
    2.30
 (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 basis of assets available for sale.  32




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Provision for Loan and Lease Losses.
  33




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For the three months ended
    
    
    For the nine months endedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(In Thousands)Changes in the provision for loan and lease losses associated with:Establishment/modification of specific reserves on impaired loans, net
    
    $
    246
    
    
    $
    (119
    )
    
    $
    2,151
    
    
    $
    877Increase in allowance for loan and lease loss reserve due to
subjective factor changes
    
    
    213
    
    
    
    425
    
    
    
    213
    
    
    
    1,084Charge-offs in excess of specific reserves
    
    
    1,296
    
    
    
    936
    
    
    
    1,995
    
    
    
    3,113Recoveries
    
    
    (277
    )
    
    
    (2
    )
    
    
    (281
    )
    
    
    (4
    )Change in inherent risk of the loan and lease portfolio
    
    
    476
    
    
    
    138
    
    
    
    289
    
    
    
    152Total provision for loan and lease losses
    
    $
    1,954
    
    
    $
    1,378
    
    
    $
    4,367
    
    
    $
    5,222
 Asset Quality
 Non-interest income.
      34




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Non-interest expense.
     35




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##### Table of Contents



Income Taxes.
 Financial Condition
 General.
  36




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##### Table of Contents



Short-term investments.
 Securities.
  Loans and Leases Receivable.
   37




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##### Table of Contents



Asset Quality
 Deposits.
 Federal Home Loan Bank and other borrowings.
 Asset Quality
 Non-performing Assets.
  38




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September 30,
    
    
    December 31,2010
    
    
    2009(Dollars In Thousands)Non-accrual loans and leasesFirst mortgage loans:Commercial real estate
    
    $
    10,304
    
    
    $
    8,482Construction and land development
    
    
    3,290
    
    
    
    3,317Multi-family
    
    
    4,683
    
    
    
    1,7601-4 family
    
    
    3,503
    
    
    
    3,015Total first mortgage loans
    
    
    21,780
    
    
    
    16,574Commercial and industrial
    
    
    5,419
    
    
    
    7,086Direct financing leases, net
    
    
    
    
    
    
    1Home equity and second mortgage
    
    
    1,042
    
    
    
    872Other
    
    
    2,677
    
    
    
    3,292Total non-accrual loans and leases
    
    
    30,918
    
    
    
    27,825Foreclosed properties and repossessed assets
    
    
    1,247
    
    
    
    1,671Total non-performing assets
    
    $
    32,165
    
    
    $
    29,496Performing troubled debt restructurings
    
    $
    
    
    
    $
    Total non-accrual loans and leases to gross loans and leases
    
    
    3.51
    %
    
    
    3.26
    %Total non-performing assets to total assets
    
    
    2.86
    
    
    
    2.64Allowance for loan and lease losses to gross loans and leases
    
    
    1.78
    
    
    
    1.65Allowance for loan and lease losses to non-accrual loans and leases
    
    
    50.73
    
    
    
    50.76
  Non-accrual loans as of December 31, 2009
    
    $
    27,825Loans transferred into non-accrual status
    
    
    18,721Loans returned to accrual status
    
    
    (2,145
    )Loans transferred to foreclosed properties
    
    
    (578
    )Loans charged-off
    
    
    (2,812
    )Loans fully paid-off
    
    
    (2,885
    )Principal payments applied to non-accrual loans
    
    
    (7,208
    )Non-accrual loans as of September 30, 2010
    
    $
    30,918
  Foreclosed properties as of December 31, 2009
    
    $
    1,671Loans transferred to foreclosed properties
    
    
    578Proceeds from sale of foreclosed properties
    
    
    (990
    )Gain on sale of foreclosed properties
    
    
    115Impairment valuation
    
    
    (127
    )Foreclosed properties as of September 30, 2010
    
    $
    1,247
  39




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As of and for
    
    
    As of and forthe Nine
    
    
    the YearMonths Ended
    
    
    EndedSeptember 30,
    
    
    December 31,2010
    
    
    2009(In Thousands)Impaired loans and leases with no impairment reserves required
    
    $
    18,192
    
    
    $
    13,243Impaired loans and leases with impairment reserves required
    
    
    12,726
    
    
    
    14,582Total impaired loans and leases
    
    
    30,918
    
    
    
    27,825Less:Impairment reserve (included in allowance for loan and lease losses)
    
    
    2,903
    
    
    
    1,846Net impaired loans and leases
    
    $
    28,015
    
    
    $
    25,979Average impaired loans and leases
    
    $
    29,810
    
    
    $
    20,395Foregone interest income attributable to impaired loans and leases
    
    $
    1,885
    
    
    $
    1,758Interest income recognized on impaired loans and leases
    
    
    (77
    )
    
    
    (149
    )Net foregone interest income on impaired loans and leases
    
    $
    1,808
    
    
    $
    1,609
    40




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For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(Dollars In Thousands)Allowance at beginning of period
    
    $
    15,091
    
    
    $
    12,690
    
    
    $
    14,124
    
    
    $
    11,846Charge-offs:Commercial real estate and other first mortgage
    
    
    (1,339
    )
    
    
    (1,131
    )
    
    
    (2,214
    )
    
    
    (2,059
    )Commercial and industrial
    
    
    (89
    )
    
    
    (3
    )
    
    
    (337
    )
    
    
    (1,813
    )Direct financing leases
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (231
    )Home equity and second mortgage
    
    
    (75
    )
    
    
    (130
    )
    
    
    (75
    )
    
    
    (157
    )Other
    
    
    (135
    )
    
    
    
    
    
    
    (462
    )
    
    
    (8
    )Total charge-offs
    
    
    (1,638
    )
    
    
    (1,264
    )
    
    
    (3,088
    )
    
    
    (4,268
    )Recoveries:Commercial real estate and other first mortgage
    
    
    13
    
    
    
    
    
    
    
    16
    
    
    
    Commercial and industrial
    
    
    264
    
    
    
    1
    
    
    
    265
    
    
    
    3Direct financing leases
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Home equity and second mortgage
    
    
    
    
    
    
    
    
    
    
  
    
    
    
    2Other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total recoveries
    
    
    277
    
    
    
    1
    
    
    
    281
    
    
    
    5Net charge-offs
    
    
    (1,361
    )
    
    
    (1,263
    )
    
    
    (2,807
    )
    
    
    (4,263
    )Provision for loan and lease losses
    
    
    1,954
    
    
    
    1,378
    
    
    
    4,367
    
    
    
    5,222Allowance at end of period
    
    $
    15,684
    
    
    $
    12,805
    
    
    $
    15,684
    
    
    $
    12,805Annualized net charge-offs as a % of average
gross loans and leases
    
    
    0.64
    %
    
    
    0.58
    %
    
    
    0.43
    %
    
    
    0.66
    %
 Liquidity and Capital Resources
    41




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##### Table of Contents



Contractual Obligations and Off-balance Sheet Arrangements
  
 Item 3.  Quantitative and Qualitative Disclosures about Market Risk
    42




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##### Table of Contents



Item 4T.  Controls and Procedures
   
 PART II. Other Information
 
 Item 1.  Legal Proceedings
  
 Item 1A.  Risk Factors
   43




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##### Table of Contents



Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
 (a)
 (b)
 (c)
 ApproximateTotal Number of
    
    
    Dollar Value ofShares Purchased
    
    
    Shares that MayTotal
    
    
    
    
    
    
    as Part of
    
    
    Yet BeNumber of
    
    
    Average
    
    
    Publicly
    
    
    Purchased UnderShares
    
    
    Price Paid
    
    
    Announced Plans
    
    
    the Plans orPeriod
    
    Purchased(1)
    
    
    Per Share
    
    
    or Programs
    
    
    Programs(2)July 1, 2010  July 31, 2010
    
    
    3,403
    
    
    
    9.35
    
    
    
    
    
    
    $
    177,150August 1, 2010  August 31, 2010
    
    
    197
    
    
    
    8.91
    
    
    
    
    
    
    
    177,150September 1, 2010  September 30, 2010
    
    
    321
    
    
    
    9.05
    
    
    
    
    
    
    
    177,150
 (1)
    
    The shares in this column represent the 3,921 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 September 30, 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 September 30, 2010, approximately $177,150 remains
available to repurchase the Corporations outstanding stock. There currently is no
expiration date to this stock repurchase program. 
 Item 3.  Defaults Upon Senior Securities
  
 Item 4.  Reserved
 
 Item 5.  Other Information.
  
 Item 6.  Exhibits.
 (31.1
    )
    
    Certification of the Chief Executive Officer.(31.2
    )
    
    Certification of the Chief Financial Officer.(32
    )
    
    Certification of the Chief Executive Officer and Chief Financial Officer
pursuant to 18 U.S.C. paragraph 1350.
  44




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Signatures
  FIRST BUSINESS FINANCIAL SERVICES, INC.October 29, 2010
    
    /s/ Corey A. ChambasCorey A. ChambasChief Executive OfficerOctober 29, 2010
    
    /s/ James F. RopellaJames F. RopellaChief Financial Officer
  45




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FIRST BUSINESS FINANCIAL SERVICES, INC.
 
 Exhibit Index to Quarterly Report on Form 10-Q
 Exhibit Number31.1
    
    
    Certification of the Chief Executive Officer31.2
    
    
    Certification of the Chief Financial Officer32
    
    
    Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18
U.S.C. paragraph 1350
  46