##### 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, 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 September 30, 2007 and December 31, 2006
    
    
    2Consolidated Statements of Income for the Three
Months and Nine Months Ended September 30, 2007 and 2006
    
    
    3Consolidated Statements of Changes in Stockholders
Equity and Comprehensive Income for the Nine Months
Ended September 30, 2007 and 2006
    
    
    4Consolidated Statements of Cash Flows for the Nine
Months Ended September 30, 2007 and 2006
    
    
    5Notes to Unaudited Consolidated Financial Statements
    
    
    6Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    27Item 4. Controls and Procedures
    
    
    27PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    28Item 1A. Risk Factors
    
    
    28Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    28Item 3. Defaults upon Senior Securities
    
    
    28Item 4. Submission of Matters to a Vote of Security Holders
    
    
    28Item 5. Other information
    
    
    29Item 6. Exhibits
    
    
    29SIGNATURES
    
    
    29Certification of the Chief Executive OfficerCertification of the Senior VP and Chief Financial OfficerCertification of the CEO and Senior VP and CFO
  1




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##### Table of Contents



PART I. Financial Information
 
 Item 1. Financial Statements
 First Business Financial Services, Inc.
 
 Consolidated Balance Sheets
 September 30,
    
    
    December 31,2007
    
    
    2006(In Thousands, Except Share Data)(Unaudited)AssetsCash and due from banks
    
    $
    13,786
    
    
    $
    19,215Short-term investments
    
    
    65
    
    
    
    246Cash and cash equivalents
    
    
    13,851
    
    
    
    19,461Securities available-for-sale, at fair value
    
    
    93,163
    
    
    
    100,008Loans and leases receivable, net of allowance for loan and lease losses of $10,196 and
$8,296, respectively
    
    
    748,563
    
    
    
    639,867Leasehold improvements and equipment, net
    
    
    1,090
    
    
    
    1,051Cash surrender value of bank-owned life insurance
    
    
    14,574
    
    
    
    13,469Investment in Federal Home Loan Bank stock, at cost
    
    
    2,367
    
    
    
    2,024Goodwill and other intangibles
    
    
    2,794
    
    
    
    2,817Accrued interest receivable and other assets
    
    
    11,265
    
    
    
    9,626Total assets
    
    $
    887,667
    
    
    $
    788,323Liabilities and Stockholders EquityDeposits
    
    $
    749,914
    
    
    $
    640,266Securities sold under agreement to repurchase
    
    
    
    
    
    
    451Federal Home Loan Bank and other borrowings
    
    
    76,639
    
    
    
    92,519Accrued interest payable and other liabilities
    
    
    12,649
    
    
    
    9,331Total liabilities
    
    
    839,202
    
    
    
    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, 2,575,831 and 2,516,193
shares issued, 2,552,195 and 2,493,578 outstanding in 2007 and 2006, respectively
    
    
    26
    
    
    
    25Additional paid-in capital
    
    
    23,336
    
    
    
    23,029Retained earnings
    
    
    26,088
    
    
    
    24,237Accumulated other comprehensive loss
    
    
    (434
    )
    
    
    (1,005
    )Treasury stock (23,636 and 22,615 shares in 2007 and 2006, respectively), at cost
    
    
    (551
    )
    
    
    (530
    )Total stockholders equity
    
    
    48,465
    
    
    
    45,756Total liabilities and stockholders equity
    
    $
    887,667
    
    
    $
    788,323
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##### Table of Contents



First Business Financial Services, Inc.
 
 Consolidated Statements of Income (Unaudited)
 For the Three Months Ended
    
    
    For the Nine Months Ended,September 30,
    
    
    September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In Thousands, Except Share Data)Interest income:Loans and leases
    
    $
    14,177
    
    
    $
    11,097
    
    
    $
    40,277
    
    
    $
    31,415Securities income, taxable
    
    
    1,032
    
    
    
    1,026
    
    
    
    3,162
    
    
    
    2,974Short-term investments
    
    
    66
    
    
    
    42
    
    
    
    140
    
    
    
    123Total interest income
    
    
    15,275
    
    
    
    12,165
    
    
    
    43,579
    
    
    
    34,512Interest expense:Deposits
    
    
    8,464
    
    
    
    6,571
    
    
    
    23,962
    
    
    
    18,087Notes payable and other borrowings
    
    
    949
    
    
    
    617
    
    
    
    2,736
    
    
    
    1,616Junior subordinated debentures
    
    
    
    
    
    
    260
    
    
    
    
    
    
    
    762Total interest expense
    
    
    9,413
    
    
    
    7,448
    
    
    
    26,698
    
    
    
    20,465Net interest income
    
    
    5,862
    
    
    
    4,717
    
    
    
    16,881
    
    
    
    14,047Provision for loan and lease losses
    
    
    596
    
    
    
    413
    
    
    
    1,873
    
    
    
    484Net interest income after
provision for loan and
lease losses
    
    
    5,266
    
    
    
    4,304
    
    
    
    15,008
    
    
    
    13,563Non-interest income:Service charges on deposits
    
    
    175
    
    
    
    186
    
    
    
    522
    
    
    
    563Credit, merchant and debit card fees
    
    
    51
    
    
    
    51
    
    
    
    154
    
    
    
    129Loan fees
    
    
    128
    
    
    
    181
    
    
    
    466
    
    
    
    472Increase in cash surrender value of bank-owned life
insurance
    
    
    175
    
    
    
    154
    
    
    
    515
    
    
    
    452Trust and investment services fee income
    
    
    524
    
    
    
    361
    
    
    
    1,415
    
    
    
    1,022Change in fair value of interest rate swaps
    
    
    
    
    
    
    (68
    )
    
    
    
    
    
    
    (239
    )Net cash settlement of interest rate swaps
    
    
    
    
    
    
    74
    
    
    
    
    
    
    
    92Other
    
    
    48
    
    
    
    65
    
    
    
    187
    
    
    
    183Total non-interest income
    
    
    1,101
    
    
    
    1,004
    
    
    
    3,259
    
    
    
    2,674Non-interest expense:Compensation
    
    
    3,171
    
    
    
    2,508
    
    
    
    9,136
    
    
    
    7,524Occupancy
    
    
    262
    
    
    
    247
    
    
    
    783
    
    
    
    743Equipment
    
    
    130
    
    
    
    117
    
    
    
    367
    
    
    
    364Data processing
    
    
    264
    
    
    
    228
    
    
    
    760
    
    
    
    673Marketing
    
    
    260
    
    
    
    237
    
    
    
    788
    
    
    
    657Professional fees
    
    
    291
    
    
    
    331
    
    
    
    1,054
    
    
    
    913Other
    
    
    566
    
    
    
    465
    
    
    
    1,719
    
    
    
    1,309Total non-interest expense
    
    
    4,944
    
    
    
    4,133
    
    
    
    14,607
    
    
    
    12,183Income before income tax expense
    
    
    1,423
    
    
    
    1,175
    
    
    
    3,660
    
    
    
    4,054Income tax expense
    
    
    538
    
    
    
    309
    
    
    
    1,318
    
    
    
    1,252Net income
    
    $
    885
    
    
    $
    866
    
    
    $
    2,342
    
    
    $
    2,802Earnings per share:Basic
    
    $
    0.36
    
    
    $
    0.35
    
    
    $
    0.95
    
    
    $
    1.15Diluted
    
    
    0.36
    
    
    
    0.35
    
    
    
    0.95
    
    
    
    1.14Dividends declared per share
    
    
    0.065
    
    
    
    0.06
    
    
    
    0.195
    
    
    
    0.18
  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
    
    
    
    
    
    
    
    
    
    
    2,802
    
    
    
    
    
    
    
    
    
    
    
    2,802Unrealized
securities losses
arising during the
period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (14
    )
    
    
    
    
    
    
    (14
    )Unrealized
derivatives gains
arising during the
period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    4
    
    
    
    
    
    
    
    4Reclassification
adjustment for
realized loss on
derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    86
    
    
    
    
    
    
    
    86Income tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    2Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,880Share-based compensation  restricted
shares
    
    
    1
    
    
    
    117
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    118Cash dividends ($0.18 per share)
    
    
    
    
    
    
    
    
    
    
    (446
    )
    
    
    
    
    
    
    
    
    
    
    (446
    )Treasury stock purchased (869 shares)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21
    )
    
    
    (21
    )Stock options exercised (9,280 shares)
    
    
    
    
    
    
    136
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    136Balance at September 30, 2006
    
    $
    25
    
    
    $
    22,965
    
    
    $
    23,441
    
    
    $
    (1,391
    )
    
    $
    (530
    )
    
    $
    44,510
 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
    
    
    
    
    
    
    
    
    
    
    2,342
    
    
    
    
    
    
    
    
    
    
    
    2,342Unrealized
securities gains
arising during the
period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    875
    
    
    
    
    
    
    
    875Unrealized
derivative losses
arising during the
period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4
    )
    
    
    
    
    
    
    (4
    )Reclassification
adjustment for
realized losses on
derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    2Income tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (302
    )
    
    
    
    
    
    
    (302
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,913Share-based compensation  restricted
shares
    
    
    1
    
    
    
    270
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    271Cash dividends ($0.195 per share)
    
    
    
    
    
    
    
    
    
    
    (491
    )
    
    
    
    
    
    
    
    
    
    
    (491
    )Treasury stock purchased (1,021 shares)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (21
    )
    
    
    (21
    )Stock options exercised (3,128 shares)
    
    
    
    
    
    
    37
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    37Balance at September 30, 2007
    
    $
    26
    
    
    $
    23,336
    
    
    $
    26,088
    
    
    $
    (434
    )
    
    $
    (551
    )
    
    $
    48,465
  4




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##### Table of Contents



First Business Financial Services, Inc.
 
 Consolidated Statements of Cash Flows (Unaudited)
 For the Nine Months EndedSeptember 30,2007
    
    
    2006(In Thousands)Operating activitiesNet income
    
    $
    2,342
    
    
    $
    2,802Adjustments to reconcile net income to net cash provided by
operating activities:Deferred income taxes, net
    
    
    (782
    )
    
    
    276Provision for loan and lease losses
    
    
    1,873
    
    
    
    484Depreciation, amortization and accretion, net
    
    
    354
    
    
    
    459Share-based compensation
    
    
    271
    
    
    
    118Change in fair value of interest rate swaps
    
    
    
    
    
    
    239Increase in cash surrender value of bank-owned life insurance
    
    
    (515
    )
    
    
    (452
    )Origination of loans originated for sale
    
    
    (1,340
    )
    
    
    (897
    )Sale of loans originated for sale
    
    
    1,346
    
    
    
    797Gain on sale of loans originated for sale
    
    
    (6
    )
    
    
    (6
    )Increase in accrued interest receivable and other assets
    
    
    (938
    )
    
    
    (1,606
    )Increase (decrease) in accrued interest payable and other liabilities
    
    
    3,071
    
    
    
    (796
    )Net cash provided by operating activities
    
    
    5,676
    
    
    
    1,418Investing activitiesProceeds from maturities of available-for-sale securities
    
    
    16,488
    
    
    
    16,630Purchases of available-for-sale securities
    
    
    (8,811
    )
    
    
    (19,971
    )Proceeds from sale of FHLB stock
    
    
    
    
    
    
    771Purchases of FHLB stock
    
    
    (343
    )
    
    
    Net increase in loans and leases
    
    
    (110,569
    )
    
    
    (44,647
    )Purchases of leasehold improvements and equipment, net
    
    
    (319
    )
    
    
    (195
    )Purchase of bank-owned life insurance
    
    
    (590
    )
    
    
    Net cash used in investing activities
    
    
    (104,144
    )
    
    
    (47,412
    )Financing activitiesNet increase in deposits
    
    
    109,648
    
    
    
    37,330Net decrease in FHLB line of credit
    
    
    (17,048
    )
    
    
    Repayment of FHLB advances
    
    
    (7
    )
    
    
    (6
    )Proceeds from FHLB advances
    
    
    15,000
    
    
    
    7,000Net decrease in short-term borrowed funds
    
    
    (24,276
    )
    
    
    (497
    )Proceeds from subordinated notes payable
    
    
    10,000
    
    
    
    6,000Termination of interest rate swaps
    
    
    
    
    
    
    (1,384
    )Exercise of stock options
    
    
    37
    
    
    
    136Cash dividends paid
    
    
    (475
    )
    
    
    (443
    )Purchase of treasury stock
    
    
    (21
    )
    
    
    (21
    )Net cash provided by financing activities
    
    
    92,858
    
    
    
    48,115Net (decrease) increase in cash and cash equivalents
    
    
    (5,610
    )
    
    
    2,121Cash and cash equivalents at the beginning of the period
    
    
    19,461
    
    
    
    16,707Cash and cash equivalents at the end of the period
    
    $
    13,851
    
    
    $
    18,828Supplementary cash flow informationInterest paid on deposits and borrowings
    
    $
    24,726
    
    
    $
    19,407Income taxes paid
    
    
    1,885
    
    
    
    2,851Transfer 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
    
    
    (3,128
    )
    
    
    11.91Forfeited
    
    
    (2,500
    )
    
    
    25.00Outstanding at end of period
    
    
    160,540
    
    
    
    22.16
    
    
    
    6.09Options exercisable at September 30, 2007
    
    
    126,887
    
    
    
    21.61
    
    
    
    5.67
 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
    
    
    56,885
    
    
    
    20.29Vested
    
    
    (10,024
    )
    
    
    23.18Forfeited
    
    
    (375
    )
    
    
    23.20Nonvested balance as of September 30, 2007
    
    
    91,611
    
    
    
    21.33
  8




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##### Table of Contents



Note 5  Earnings Per Share.
  For the Three Months
    
    
    For the Nine MonthsEnded September 30,
    
    
    Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006Income available to common stockholders
    
    $
    885,021
    
    
    $
    866,302
    
    
    $
    2,342,185
    
    
    $
    2,801,980Basic average shares
    
    
    2,457,885
    
    
    
    2,447,122
    
    
    
    2,455,005
    
    
    
    2,443,045Dilutive effect of share-based awards
    
    
    2,970
    
    
    
    15,948
    
    
    
    6,004
    
    
    
    16,009Dilutive average shares
    
    
    2,460,855
    
    
    
    2,463,070
    
    
    
    2,461,009
    
    
    
    2,459,054Earnings per share:Basic
    
    $
    0.36
    
    
    $
    0.35
    
    
    $
    0.95
    
    
    $
    1.15Diluted
    
    $
    0.36
    
    
    $
    0.35
    
    
    $
    0.95
    
    
    $
    1.14
 Note 6  Securities.
  As of September 30, 2007Gross
    
    
    GrossAmortized
    
    
    unrealized
    
    
    unrealized
    
    
    Estimatedcost
    
    
    holding gains
    
    
    holding losses
    
    
    fair value(In Thousands)Securities available-for-saleU.S. Government corporations and
agencies
    
    $
    1,499
    
    
    $
    
    
    
    $
    (10
    )
    
    $
    1,489Municipals
    
    
    85
    
    
    
    
    
    
    
    
    
    
    
    85Collateralized mortgage obligations
    
    
    92,233
    
    
    
    138
    
    
    
    (782
    )
    
    
    91,589$
    93,817
    
    
    $
    138
    
    
    $
    (792
    )
    
    $
    93,163
 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
 9




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##### Table of Contents



As of September 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
    
    $
    
    
    
    $
    
    
    
    $
    1,489
    
    
    $
    10
    
    
    $
    1,489
    
    
    $
    10Collateralized
mortgage
obligations
    
    
    12,445
    
    
    
    42
    
    
    
    54,428
    
    
    
    740
    
    
    
    66,873
    
    
    
    782$
    12,445
    
    
    $
    42
    
    
    $
    55,917
    
    
    $
    750
    
    
    $
    68,362
    
    
    $
    792
 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
   10




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##### Table of Contents



Note 7  Loans, Leases and Allowance for Loan and Lease Losses.
  September 30,
    
    
    December 31,2007
    
    
    2006(In Thousands)First mortgage loans:Commercial real estate
    
    $
    322,808
    
    
    $
    274,262Construction
    
    
    97,400
    
    
    
    78,257Multi-family
    
    
    35,202
    
    
    
    34,6351-4 family
    
    
    48,158
    
    
    
    35,721503,568
    
    
    
    422,875Commercial and industrial loans
    
    
    208,974
    
    
    
    176,701Direct financing leases, net
    
    
    26,138
    
    
    
    23,203Home equity loans
    
    
    9,874
    
    
    
    8,859Credit card and other
    
    
    10,321
    
    
    
    16,712758,875
    
    
    
    648,350Less:Allowance for loan and lease losses
    
    
    10,196
    
    
    
    8,296Deferred loan fees
    
    
    116
    
    
    
    187Loans and lease receivables, net
    
    $
    748,563
    
    
    $
    639,867
  NineMonths Ended
    
    
    Year EndedSeptember 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
    
    
    4
    
    
    
    4Commercial
    
    
    23
    
    
    
    Lease
    
    
    
    
    
    
    Consumer
    
    
    
    
    
    
    Total recoveries
    
    
    27
    
    
    
    4Net recoveries
    
    
    27
    
    
    
    4Provision for loan and lease losses
    
    
    1,873
    
    
    
    1,519Allowance at end of period
    
    $
    10,196
    
    
    $
    8,296Allowance to gross loans and leases
    
    
    1.34
    %
    
    
    1.28
    %
 11




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##### Table of Contents



Note 8  Deposits.
  September 30, 2007
    
    
    December 31, 2006Weighted
    
    
    
    
    
    
    WeightedBalance
    
    
    average rate
    
    
    Balance
    
    
    average rate(In Thousands)Transaction accounts:Demand deposits
    
    $
    43,641
    
    
    
    0.00
    %
    
    $
    45,171
    
    
    
    0.00
    %Negotiable order of
withdrawal (NOW)
accounts
    
    
    63,821
    
    
    
    4.41
    
    
    
    58,927
    
    
    
    4.26107,462
    
    
    
    
    
    
    
    104,098Money market accounts
    
    
    166,752
    
    
    
    4.66
    
    
    
    171,996
    
    
    
    4.57Certificates of deposit
    
    
    475,700
    
    
    
    4.97
    
    
    
    364,172
    
    
    
    4.63$
    749,914
    
    
    
    
    
    
    $
    640,266
 Note 9  Borrowings.
  September 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
    
    $
    11,100
    
    
    $
    11,704
    
    
    
    5.43
    %
    
    $
    33,751
    
    
    $
    13,875
    
    
    
    5.12
    %FHLB advances
    
    
    34,529
    
    
    
    22,827
    
    
    
    4.87
    
    
    
    36,584
    
    
    
    19,059
    
    
    
    4.83Junior subordinated
debentures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,915
    
    
    
    12.52Line of credit
    
    
    10
    
    
    
    3,406
    
    
    
    7.16
    
    
    
    1,635
    
    
    
    3,167
    
    
    
    6.82Subordinated notes
payable
    
    
    31,000
    
    
    
    21,147
    
    
    
    7.83
    
    
    
    21,000
    
    
    
    6,929
    
    
    
    7.58Other
    
    
    
    
    
    
    33
    
    
    
    7.00
    
    
    
    
    
    
    
    
    
    
    
    $
    76,639
    
    
    $
    59,117
    
    
    
    6.17
    
    
    $
    92,970
    
    
    $
    52,945
    
    
    
    6.82Short-term borrowings
    
    $
    27,120
    
    
    
    
    
    
    
    
    
    
    $
    52,443Long-term borrowings
    
    
    49,519
    
    
    
    
    
    
    
    
    
    
    
    40,527$
    76,639
    
    
    
    
    
    
    
    
    
    
    $
    92,970
  12




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##### Table of Contents



Item 2.  Managements Discussion and Analysis of Financial Condition and Results of Operations
 General
   Cautionary Factors
 Item 1A. Risk Factors
 Overview
  Results of Operations
 General.
 13




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##### Table of Contents



Top Line Revenue
  For the Three Months Ended
    
    
    For the Nine Months EndedSeptember 30,
    
    
    September 30,2007
    
    
    2006
    
    
    Change
    
    
    2007
    
    
    2006
    
    
    Change(In Thousands)Net interest income
    
    $
    5,862
    
    
    $
    4,717
    
    
    
    24.3
    %
    
    $
    16,881
    
    
    $
    14,047
    
    
    
    20.2
    %Non-interest income
    
    
    1,101
    
    
    
    1,004
    
    
    
    9.7
    
    
    
    3,259
    
    
    
    2,674
    
    
    
    21.9Total top line revenue
    
    $
    6,963
    
    
    $
    5,721
    
    
    
    21.7
    
    
    $
    20,140
    
    
    $
    16,721
    
    
    
    20.4
 14




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Net Interest Income.
 For the three months ended September 30, 2007
    
    
    For the nine months ended September 30, 2007Rate/
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Rate/Rate
    
    
    Volume
    
    
    Volume
    
    
    Net
    
    
    Rate
    
    
    Volume
    
    
    Volume
    
    
    Net(In Thousands)Interest-Earning AssetsCommercial real estate and
other mortgage loans
    
    $
    177
    
    
    $
    2,156
    
    
    $
    55
    
    
    $
    2,388
    
    
    $
    783
    
    
    $
    5,488
    
    
    $
    221
    
    
    $
    6,492Commercial and industrial
loans
    
    
    (139
    )
    
    
    812
    
    
    
    (30
    )
    
    
    643
    
    
    
    49
    
    
    
    2,161
    
    
    
    10
    
    
    
    2,220Leases
    
    
    (45
    )
    
    
    108
    
    
    
    (16
    )
    
    
    47
    
    
    
    (109
    )
    
    
    279
    
    
    
    (31
    )
    
    
    139Consumer loans
    
    
    (1
    )
    
    
    3
    
    
    
    
    
    
    
    2
    
    
    
    (4
    )
    
    
    15
    
    
    
    
    
    
    
    11Total loans and leases
receivable
    
    
    (8
    )
    
    
    3,079
    
    
    
    9
    
    
    
    3,080
    
    
    
    719
    
    
    
    7,943
    
    
    
    200
    
    
    
    8,862Mortgage-related securities
    
    
    58
    
    
    
    (37
    )
    
    
    (2
    )
    
    
    19
    
    
    
    208
    
    
    
    19
    
    
    
    1
    
    
    
    228Investment securities
    
    
    4
    
    
    
    (14
    )
    
    
    (2
    )
    
    
    (12
    )
    
    
    10
    
    
    
    (44
    )
    
    
    (5
    )
    
    
    (39
    )Other investments
    
    
    (7
    )
    
    
    2
    
    
    
    (1
    )
    
    
    (6
    )
    
    
    (11
    )
    
    
    (11
    )
    
    
    2
    
    
    
    (20
    )Fed funds sold and other
    
    
    
    
    
    
    
    
    
    
    28
    
    
    
    28
    
    
    
    
    
    
    
    39
    
    
    
    (5
    )
    
    
    34Short-term investments
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    6
    
    
    
    (4
    )
    
    
    
    
    
    
    2Total net change in
income on
interest-earning assets
    
    
    48
    
    
    
    3,030
    
    
    
    32
    
    
    
    3,110
    
    
    
    932
    
    
    
    7,942
    
    
    
    193
    
    
    
    9,067Interest-Bearing LiabilitiesNOW accounts
    
    
    (12
    )
    
    
    190
    
    
    
    (4
    )
    
    
    174
    
    
    
    82
    
    
    
    560
    
    
    
    29
    
    
    
    671Money market
    
    
    (77
    )
    
    
    173
    
    
    
    (7
    )
    
    
    89
    
    
    
    195
    
    
    
    829
    
    
    
    33
    
    
    
    1,057Certificates  regular
    
    
    216
    
    
    
    1,215
    
    
    
    73
    
    
    
    1,504
    
    
    
    943
    
    
    
    2,776
    
    
    
    261
    
    
    
    3,980Certificates  large
    
    
    21
    
    
    
    101
    
    
    
    4
    
    
    
    126
    
    
    
    182
    
    
    
    (14
    )
    
    
    (1
    )
    
    
    167Total deposits
    
    
    148
    
    
    
    1,679
    
    
    
    66
    
    
    
    1,893
    
    
    
    1,402
    
    
    
    4,151
    
    
    
    322
    
    
    
    5,875Junior subordinated
debentures
    
    
    
    
    
    
    (260
    )
    
    
    
    
    
    
    (260
    )
    
    
    
    
    
    
    (762
    )
    
    
    
    
    
    
    (762
    )FHLB advances
    
    
    2
    
    
    
    59
    
    
    
    1
    
    
    
    62
    
    
    
    12
    
    
    
    174
    
    
    
    3
    
    
    
    189Other borrowings
    
    
    48
    
    
    
    197
    
    
    
    25
    
    
    
    270
    
    
    
    182
    
    
    
    631
    
    
    
    118
    
    
    
    931Total net change in
expense on
interest-bearing
liabilities
    
    
    198
    
    
    
    1,675
    
    
    
    92
    
    
    
    1,965
    
    
    
    1,596
    
    
    
    4,194
    
    
    
    443
    
    
    
    6,233Net change in net
interest income
    
    $
    (150
    )
    
    $
    1,355
    
    
    $
    (60
    )
    
    $
    1,145
    
    
    $
    (664
    )
    
    $
    3,748
    
    
    $
    (250
    )
    
    $
    2,834
   15




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16




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17




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Average Interest-Earning Assets, Average Interest-Bearing Liabilities and Interest Rate Spread.
 For the Three Months Ended September 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)
    
    $
    493,953
    
    
    $
    9,279
    
    
    
    7.51
    %
    
    $
    376,230
    
    
    $
    6,891
    
    
    
    7.33
    %Commercial and industrial
loans(1)
    
    
    203,071
    
    
    
    4,490
    
    
    
    8.84
    
    
    
    167,696
    
    
    
    3,847
    
    
    
    9.18Leases
    
    
    23,935
    
    
    
    361
    
    
    
    6.03
    
    
    
    17,818
    
    
    
    314
    
    
    
    7.05Consumer loans
    
    
    2,949
    
    
    
    47
    
    
    
    6.38
    
    
    
    2,740
    
    
    
    45
    
    
    
    6.57Total loans and leases
receivable(1)
    
    
    723,908
    
    
    
    14,177
    
    
    
    7.83
    
    
    
    564,484
    
    
    
    11,097
    
    
    
    7.86Mortgage-related securities(2)
    
    
    89,048
    
    
    
    1,016
    
    
    
    4.56
    
    
    
    92,487
    
    
    
    997
    
    
    
    4.31Investment securities(2)
    
    
    1,701
    
    
    
    16
    
    
    
    3.76
    
    
    
    3,409
    
    
    
    28
    
    
    
    3.29Federal Home Loan Bank stock
    
    
    2,328
    
    
    
    16
    
    
    
    2.75
    
    
    
    2,127
    
    
    
    22
    
    
    
    4.14Fed funds sold and other
    
    
    2,104
    
    
    
    28
    
    
    
    5.32
    
    
    
    
    
    
    
    
    
    
    
    0.00Short-term investments
    
    
    1,760
    
    
    
    22
    
    
    
    5.00
    
    
    
    1,755
    
    
    
    21
    
    
    
    4.79Total interest-earning assets
    
    
    820,849
    
    
    
    15,275
    
    
    
    7.44
    
    
    
    664,262
    
    
    
    12,165
    
    
    
    7.33Non-interest-earning assets
    
    
    32,947
    
    
    
    
    
    
    
    
    
    
    
    30,807Total assets
    
    
    853,796
    
    
    
    
    
    
    
    
    
    
    
    695,069Interest-Bearing LiabilitiesNOW accounts
    
    
    65,806
    
    
    
    717
    
    
    
    4.36
    %
    
    
    48,755
    
    
    
    543
    
    
    
    4.45
    %Money market
    
    
    170,170
    
    
    
    1,960
    
    
    
    4.61
    
    
    
    155,794
    
    
    
    1,871
    
    
    
    4.80Certificates  regular
    
    
    404,661
    
    
    
    5,139
    
    
    
    5.08
    
    
    
    303,267
    
    
    
    3,635
    
    
    
    4.79Certificates  large
    
    
    50,217
    
    
    
    648
    
    
    
    5.16
    
    
    
    42,095
    
    
    
    522
    
    
    
    4.96Total deposits
    
    
    690,854
    
    
    
    8,464
    
    
    
    4.90
    
    
    
    549,911
    
    
    
    6,571
    
    
    
    4.79Junior subordinated debentures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,310
    
    
    
    260
    
    
    
    10.09FHLB advances
    
    
    24,471
    
    
    
    300
    
    
    
    4.90
    
    
    
    19,605
    
    
    
    238
    
    
    
    4.86Other borrowings
    
    
    36,171
    
    
    
    649
    
    
    
    7.18
    
    
    
    23,816
    
    
    
    379
    
    
    
    6.37Total interest-bearing liabilities
    
    
    751,496
    
    
    
    9,413
    
    
    
    5.01
    
    
    
    603,642
    
    
    
    7,448
    
    
    
    4.94Non-interest-bearing liabilities
    
    
    54,757
    
    
    
    
    
    
    
    
    
    
    
    47,944Total liabilities
    
    
    806,253
    
    
    
    
    
    
    
    
    
    
    
    651,586Stockholders equity
    
    
    47,543
    
    
    
    
    
    
    
    
    
    
    
    43,483Total liabilities and stockholders
equity
    
    $
    853,796
    
    
    
    
    
    
    
    
    
    
    $
    695,069Net interest income/interest rate spread
    
    
    
    
    
    $
    5,862
    
    
    
    2.43
    %
    
    
    
    
    
    $
    4,717
    
    
    
    2.39
    %Net interest-earning assets
    
    $
    69,353
    
    
    
    
    
    
    
    
    
    
    $
    60,620Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.86
    %
    
    
    
    
    
    
    
    
    
    
    2.84
    %Average interest-earning assets to
average interest-bearing liabilities
    
    
    109.23
    %
    
    
    
    
    
    
    
    
    
    
    110.00
    %Return on average assets
    
    
    0.41
    
    
    
    
    
    
    
    
    
    
    
    0.50Return on average equity
    
    
    7.45
    
    
    
    
    
    
    
    
    
    
    
    7.97Average equity to average assets
    
    
    5.57
    
    
    
    
    
    
    
    
    
    
    
    6.26Non-interest expense to average assets
    
    
    2.32
    
    
    
    
    
    
    
    
    
    
    
    2.38
 
 (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. 18




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For the Nine Months Ended September 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)
    
    $
    467,544
    
    
    $
    25,845
    
    
    
    7.37
    %
    
    $
    364,253
    
    
    $
    19,353
    
    
    
    7.08
    %Commercial and industrial
loans(1)
    
    
    194,431
    
    
    
    13,164
    
    
    
    9.03
    
    
    
    162,372
    
    
    
    10,944
    
    
    
    8.99Leases
    
    
    23,434
    
    
    
    1,118
    
    
    
    6.36
    
    
    
    18,230
    
    
    
    979
    
    
    
    7.16Consumer loans
    
    
    3,093
    
    
    
    150
    
    
    
    6.47
    
    
    
    2,793
    
    
    
    139
    
    
    
    6.64Total loans and leases
receivable(1)
    
    
    688,502
    
    
    
    40,277
    
    
    
    7.80
    
    
    
    547,648
    
    
    
    31,415
    
    
    
    7.65Mortgage-related securities(2)
    
    
    92,350
    
    
    
    3,116
    
    
    
    4.50
    
    
    
    91,749
    
    
    
    2,888
    
    
    
    4.20Investment securities(2)
    
    
    1,661
    
    
    
    46
    
    
    
    3.69
    
    
    
    3,439
    
    
    
    85
    
    
    
    3.30Federal Home Loan Bank stock
    
    
    2,184
    
    
    
    46
    
    
    
    2.81
    
    
    
    2,607
    
    
    
    66
    
    
    
    3.38Fed funds sold and other
    
    
    895
    
    
    
    36
    
    
    
    5.36
    
    
    
    44
    
    
    
    2
    
    
    
    4.98Short-term investments
    
    
    1,582
    
    
    
    58
    
    
    
    4.89
    
    
    
    1,696
    
    
    
    56
    
    
    
    4.40Total interest-earning assets
    
    
    787,174
    
    
    
    43,579
    
    
    
    7.38
    
    
    
    647,183
    
    
    
    34,512
    
    
    
    7.11Non-interest-earning assets
    
    
    32,263
    
    
    
    
    
    
    
    
    
    
    
    31,043Total assets
    
    
    819,437
    
    
    
    
    
    
    
    
    
    
    
    678,226Interest-Bearing LiabilitiesNOW accounts
    
    
    68,250
    
    
    
    2,257
    
    
    
    4.41
    %
    
    
    50,442
    
    
    
    1,586
    
    
    
    4.19
    %Money market
    
    
    172,617
    
    
    
    6,039
    
    
    
    4.66
    
    
    
    147,989
    
    
    
    4,982
    
    
    
    4.49Certificates  regular
    
    
    376,800
    
    
    
    14,000
    
    
    
    4.95
    
    
    
    295,057
    
    
    
    10,020
    
    
    
    4.53Certificates  large
    
    
    43,466
    
    
    
    1,666
    
    
    
    5.11
    
    
    
    43,863
    
    
    
    1,499
    
    
    
    4.56Total deposits
    
    
    661,133
    
    
    
    23,962
    
    
    
    4.83
    
    
    
    537,351
    
    
    
    18,087
    
    
    
    4.49Junior subordinated debentures
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10,310
    
    
    
    762
    
    
    
    9.85FHLB advances
    
    
    22,827
    
    
    
    834
    
    
    
    4.87
    
    
    
    17,981
    
    
    
    645
    
    
    
    4.78Other borrowings
    
    
    36,290
    
    
    
    1,902
    
    
    
    6.99
    
    
    
    21,994
    
    
    
    971
    
    
    
    5.89Total interest-bearing liabilities
    
    
    720,250
    
    
    
    26,698
    
    
    
    4.94
    
    
    
    587,636
    
    
    
    20,465
    
    
    
    4.64Non-interest-bearing liabilities
    
    
    52,260
    
    
    
    
    
    
    
    
    
    
    
    47,841Total liabilities
    
    
    772,510
    
    
    
    
    
    
    
    
    
    
    
    635,477Stockholders equity
    
    
    46,927
    
    
    
    
    
    
    
    
    
    
    
    42,749Total liabilities and stockholders
equity
    
    $
    819,437
    
    
    
    
    
    
    
    
    
    
    
    678,226Net interest income/interest rate spread
    
    
    
    
    
    $
    16,881
    
    
    
    2.44
    %
    
    
    
    
    
    $
    14,047
    
    
    
    2.47
    %Net interest-earning assets
    
    $
    66,924
    
    
    
    
    
    
    
    
    
    
    
    59,547Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.86
    %
    
    
    
    
    
    
    
    
    
    
    2.89
    %Average interest-earning assets to
average interest-bearing liabilities
    
    
    109.29
    %
    
    
    
    
    
    
    
    
    
    
    110.13
    %Return on average assets
    
    
    0.38
    
    
    
    
    
    
    
    
    
    
    
    0.55Return on average equity
    
    
    6.65
    
    
    
    
    
    
    
    
    
    
    
    8.74Average equity to average assets
    
    
    5.73
    
    
    
    
    
    
    
    
    
    
    
    6.30Non-interest expense to average assets
    
    
    2.38
    
    
    
    
    
    
    
    
    
    
    
    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. 19




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##### Table of Contents



Non-Interest Income.
  Provision for Loan and Lease Losses. Asset Quality
 Non-Interest Expense.
  20




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##### Table of Contents



Income Taxes.
 Financial Condition
 General.
 Securities.
 21




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##### Table of Contents



Loans and Leases Receivable.
 Asset Quality
 Deposits.
 Borrowings.
 22




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##### Table of Contents



Asset Quality
 Non-performing Assets.
   September 30,
    
    
    December 31,2007
    
    
    2006(In Thousands)Non-accrual loans
    
    $
    3,122
    
    
    $
    1,109Non-accrual leases
    
    
    
    
    
    
    Total non-accrual loans and leases
    
    
    3,122
    
    
    
    1,109Foreclosed properties and repossessed assets
    
    
    660
    
    
    
    Total non-performing assets
    
    $
    3,782
    
    
    $
    1,109Performing troubled debt restructurings
    
    $
    
    
    
    $
    Total non-accrual loans and leases to total loans and leases
    
    
    0.41
    %
    
    
    0.17
    %Total non-performing assets to total assets
    
    
    0.43
    
    
    
    0.14Allowance for loan and lease losses to total loans and leases
    
    
    1.34
    
    
    
    1.28Allowance for loan and lease losses to non-accrual loans and leases
    
    
    326.59
    
    
    
    748.06
 23




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##### Table of Contents



As of and for
    
    
    As of and forthe Nine
    
    
    the YearMonths Ended
    
    
    EndedSeptember 30,
    
    
    December 31,2007
    
    
    2006(In Thousands)Impaired loans and leases with no impairment reserves required
    
    $
    420
    
    
    $
    683Impaired loans and leases with impairment reserves required
    
    
    2,702
    
    
    
    1,404Total impaired loans and leases
    
    
    3,122
    
    
    
    2,087Less:Impairment reserve (included in allowance for loan and lease
loss)
    
    
    1,432
    
    
    
    863Net impaired loans and leases
    
    $
    1,690
    
    
    $
    1,224Average impaired loans and leases
    
    $
    2,850
    
    
    $
    1,444Foregone interest income attributable to impaired loans and leases
    
    $
    278
    
    
    $
    210Interest income recognized on impaired loans and leases
    
    
    28
    
    
    
    217Net foregone interest income on impaired loans and leases
    
    $
    250
    
    
    $
    (7
    )
  For the Three Months Ended
    
    
    For the Nine MonthsSeptember 30,
    
    
    Ended September 30,2007
    
    
    2006
    
    
    2007
    
    
    2006(In Thousands)Allowance at beginning of period
    
    $
    9,598
    
    
    $
    6,846
    
    
    $
    8,296
    
    
    $
    6,773Recoveries:Commercial real estate and
other mortgage
    
    
    2
    
    
    
    1
    
    
    
    4
    
    
    
    Commercial
    
    
    
    
    
    
    
    
    
    
    23
    
    
    
    3Total recoveries
    
    
    2
    
    
    
    1
    
    
    
    27
    
    
    
    3Provision for loan and lease loss
    
    
    596
    
    
    
    413
    
    
    
    1,873
    
    
    
    484Allowance at end of period
    
    $
    10,196
    
    
    $
    7,260
    
    
    $
    10,196
    
    
    $
    7,260Allowance to average loans and
leases
    
    
    1.41
    %
    
    
    1.24
    %
    
    
    1.48
    %
    
    
    1.24
    %
  Liquidity and Capital Resources
  24




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##### Table of Contents



25




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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 September 30, 2007Total capital
(to risk-weighted assets)Consolidated
    
    $
    87,302
    
    
    
    10.58
    %
    
    $
    66,044
    
    
    
    8.00
    %
    
    
    N/A
    
    
    
    N/AFirst Business Bank
    
    
    74,435
    
    
    
    10.19
    
    
    
    58,421
    
    
    
    8.00
    
    
    $
    73,026
    
    
    
    10.00
    %First Business Bank 
Milwaukee
    
    
    9,919
    
    
    
    10.65
    
    
    
    7,451
    
    
    
    8.00
    
    
    
    9,314
    
    
    
    10.00Tier 1 capital
(to risk-weighted assets)Consolidated
    
    $
    46,106
    
    
    
    5.58
    %
    
    
    33,022
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/AFirst Business Bank
    
    
    66,761
    
    
    
    9.14
    
    
    
    29,211
    
    
    
    4.00
    
    
    $
    43,816
    
    
    
    6.00
    %First Business Bank 
Milwaukee
    
    
    8,738
    
    
    
    9.38
    
    
    
    3,725
    
    
    
    4.00
    
    
    
    5,588
    
    
    
    6.00Tier 1 capital
(to average assets)Consolidated
    
    $
    46,106
    
    
    
    5.41
    %
    
    
    34,108
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/AFirst Business Bank
    
    
    66,761
    
    
    
    9.01
    
    
    
    29,640
    
    
    
    4.00
    
    
    $
    37,050
    
    
    
    5.00
    %First Business Bank 
Milwaukee
    
    
    8,738
    
    
    
    7.79
    
    
    
    4,488
    
    
    
    4.00
    
    
    
    5,610
    
    
    
    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
 26




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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
  27




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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)
    
    The following transactions occurred during the quarter ended September 30, 2007 pursuant to the
1993 Equity Incentive Plan. On July 20, 2007, 3,128 shares of FBFS common stock were sold for
$37,254.48. This transaction was entered into pursuant to the exemption provided by Rule 701.(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
    
    ProgramsJuly 1  31, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    N/AAugust 1  31, 2007
    
    
    166
    
    
    $
    19.07
    
    
    
    
    
    
    
    N/ASeptember 1  30, 2007
    
    
    388
    
    
    $
    19.00
    
    
    
    
    
    
    
    N/A
 
 Item 3.  Defaults Upon Senior Securities
  
 Item 4.  Submission of Matters to a Vote of Security Holders
  28




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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 OfficerOctober 25, 2007
 29