##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
 For the quarterly period ended June 30, 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
    
    Smaller reporting company þ(Do not check if a smaller reporting company)
  o þ




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##### 



FIRST BUSINESS FINANCIAL SERVICES, INC.
INDEX  FORM 10-Q
 PART I. Financial Information
    
    
    4Item 1. Financial Statements
    
    
    4Consolidated Balance Sheets
    
    
    4Consolidated Statements of Operations (Unaudited)
    
    
    5Consolidated Statements of Changes in Stockholders Equity and Comprehensive Income (Unaudited)
    
    
    6Consolidated Statements of Cash Flows (Unaudited)
    
    
    7Notes to Unaudited Consolidated Financial Statements
    
    
    8Item 2.  Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    27Item 3.  Quantitative and Qualitative Disclosures about Market Risk
    
    
    44Item 4T.  Controls and Procedures
    
    
    45Part II. Other Information
    
    
    45Item 1.  Legal Proceedings
    
    
    45Item 1A.  Risk Factors
    
    
    45Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    46Item 3.  Defaults Upon Senior Securities
    
    
    46Item 4.  Reserved
    
    
    46Item 5.  Other Information
    
    
    46Item 6.  Exhibits
    
    
    46Signatures
    
    
    47Exhibit 31.1Exhibit 31.2Exhibit 32
   3




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PART I. Financial Information
 
 Item 1. Financial Statements
 First Business Financial Services, Inc.
 
 Consolidated Balance Sheets
 (Unaudited)June 30,
    
    
    December 31,2010
    
    
    2009(In Thousands, Except Share Data)AssetsCash and due from banks
    
    $
    8,622
    
    
    $
    8,566Short-term investments
    
    
    52,860
    
    
    
    104,171Cash and cash equivalents
    
    
    61,482
    
    
    
    112,737Securities available-for-sale, at fair value
    
    
    141,475
    
    
    
    122,286Loans and leases receivable, net of allowance for loan and lease losses of $15,091 and
$14,124, respectively
    
    
    829,252
    
    
    
    839,807Leasehold improvements and equipment, net
    
    
    1,071
    
    
    
    1,189Foreclosed properties
    
    
    1,322
    
    
    
    1,671Cash surrender value of bank-owned life insurance
    
    
    16,594
    
    
    
    16,254Investment in Federal Home Loan Bank stock, at cost
    
    
    2,367
    
    
    
    2,367Goodwill and other intangibles
    
    
    41
    
    
    
    2,740Accrued interest receivable and other assets
    
    
    20,335
    
    
    
    18,385Total assets
    
    $
    1,073,939
    
    
    $
    1,117,436Liabilities and Stockholders EquityDeposits
    
    $
    938,626
    
    
    $
    984,374Federal Home Loan Bank and other borrowings
    
    
    57,510
    
    
    
    57,515Junior subordinated notes
    
    
    10,315
    
    
    
    10,315Accrued interest payable and other liabilities
    
    
    13,175
    
    
    
    10,839Total liabilities
    
    
    1,019,626
    
    
    
    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, 2,618,010 and 2,616,010
shares issued, 2,539,724 and 2,539,306 outstanding at 2010 and 2009, respectively
    
    
    26
    
    
    
    26Additional paid-in capital
    
    
    24,992
    
    
    
    24,731Retained earnings
    
    
    28,600
    
    
    
    29,582Accumulated other comprehensive income
    
    
    2,200
    
    
    
    1,544Treasury stock (78,286 and 76,704 shares at 2010 and 2009, respectively), at cost
    
    
    (1,505
    )
    
    
    (1,490
    )Total stockholders equity
    
    
    54,313
    
    
    
    54,393Total liabilities and stockholders equity
    
    $
    1,073,939
    
    
    $
    1,117,436
   4




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First Business Financial Services, Inc.
 
 Consolidated Statements of Operations 
(Unaudited)
 For the Three Months Ended,
    
    
    For the Six Months Ended,June 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(In Thousands, Except Share Data)Interest income:Loans and leases
    
    $
    12,742
    
    
    $
    12,807
    
    
    $
    25,933
    
    
    $
    25,363Securities
    
    
    1,166
    
    
    
    1,206
    
    
    
    2,300
    
    
    
    2,445Short-term investments
    
    
    32
    
    
    
    18
    
    
    
    73
    
    
    
    28Total interest income
    
    
    13,940
    
    
    
    14,031
    
    
    
    28,306
    
    
    
    27,836Interest expense:Deposits
    
    
    5,213
    
    
    
    6,175
    
    
    
    10,724
    
    
    
    12,639Notes payable and other borrowings
    
    
    759
    
    
    
    734
    
    
    
    1,493
    
    
    
    1,312Junior subordinated notes
    
    
    277
    
    
    
    277
    
    
    
    552
    
    
    
    552Total interest expense
    
    
    6,249
    
    
    
    7,186
    
    
    
    12,769
    
    
    
    14,503Net interest income
    
    
    7,691
    
    
    
    6,845
    
    
    
    15,537
    
    
    
    13,333Provision for loan and lease losses
    
    
    1,069
    
    
    
    1,647
    
    
    
    2,413
    
    
    
    3,844Net interest income after
provision for loan and
lease losses
    
    
    6,622
    
    
    
    5,198
    
    
    
    13,124
    
    
    
    9,489Non-interest income:Trust and investment services income
    
    
    599
    
    
    
    471
    
    
    
    1,167
    
    
    
    905Service charges on deposits
    
    
    414
    
    
    
    378
    
    
    
    812
    
    
    
    712Increase in cash surrender value of bank-owned life
insurance
    
    
    171
    
    
    
    190
    
    
    
    332
    
    
    
    370Loan fees
    
    
    235
    
    
    
    192
    
    
    
    486
    
    
    
    464Credit, merchant and debit card fees
    
    
    57
    
    
    
    51
    
    
    
    107
    
    
    
    98Other
    
    
    209
    
    
    
    157
    
    
    
    411
    
    
    
    451Total non-interest income
    
    
    1,685
    
    
    
    1,439
    
    
    
    3,315
    
    
    
    3,000Non-interest expense:Compensation
    
    
    3,402
    
    
    
    3,071
    
    
    
    6,897
    
    
    
    6,255Occupancy
    
    
    376
    
    
    
    380
    
    
    
    748
    
    
    
    741Equipment
    
    
    115
    
    
    
    131
    
    
    
    260
    
    
    
    300Data processing
    
    
    297
    
    
    
    286
    
    
    
    595
    
    
    
    566Marketing
    
    
    182
    
    
    
    127
    
    
    
    378
    
    
    
    332Professional fees
    
    
    321
    
    
    
    422
    
    
    
    840
    
    
    
    936FDIC Insurance
    
    
    756
    
    
    
    926
    
    
    
    1,538
    
    
    
    1,260Collateral liquidation costs
    
    
    333
    
    
    
    293
    
    
    
    558
    
    
    
    855Goodwill impairment
    
    
    2,689
    
    
    
    
    
    
    
    2,689
    
    
    
    (Gain) loss on foreclosed properties, net
    
    
    (95
    )
    
    
    (12
    )
    
    
    18
    
    
    
    (12
    )Other
    
    
    845
    
    
    
    613
    
    
    
    1,245
    
    
    
    1,164Total non-interest expense
    
    
    9,221
    
    
    
    6,237
    
    
    
    15,766
    
    
    
    12,397Income (loss) before income tax expense
    
    
    (914
    )
    
    
    400
    
    
    
    673
    
    
    
    92Income tax expense
    
    
    611
    
    
    
    140
    
    
    
    1,299
    
    
    
    26Net income (loss)
    
    $
    (1,525
    )
    
    $
    260
    
    
    $
    (626
    )
    
    $
    66Earnings (losses) per common share:Basic
    
    $
    (0.60
    )
    
    $
    0.10
    
    
    $
    (0.25
    )
    
    $
    0.03Diluted
    
    
    (0.60
    )
    
    
    0.10
    
    
    
    (0.25
    )
    
    
    0.03Dividends declared per share
    
    
    0.07
    
    
    
    0.07
    
    
    
    0.14
    
    
    
    0.14
   5




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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
    
    
    
    
    
    
    
    
    
    
    66
    
    
    
    
    
    
    
    
    
    
    
    66Unrealized
securities gains
arising during the
period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    794
    
    
    
    
    
    
    
    794Unrealized
derivative losses
arising during the
period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )Reclassification
adjustment for
realized losses on
derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    3Income tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (312
    )
    
    
    
    
    
    
    (312
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    550Share-based compensation  restricted
shares
    
    
    
    
    
    
    328
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    328Cash dividends ($0.14 per share)
    
    
    
    
    
    
    
    
    
    
    (356
    )
    
    
    
    
    
    
    
    
    
    
    (356
    )Treasury stock purchased (1,494 shares)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (19
    )
    
    
    (19
    )Balance at June 30, 2009
    
    $
    26
    
    
    $
    24,416
    
    
    $
    28,962
    
    
    $
    1,549
    
    
    $
    (1,444
    )
    
    $
    53,509
 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 loss
    
    
    
    
    
    
    
    
    
    
    (626
    )
    
    
    
    
    
    
    
    
    
    
    (626
    )Unrealized
securities gains
arising during the
period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,093
    
    
    
    
    
    
    
    1,093Income tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (437
    )
    
    
    
    
    
    
    (437
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    30Share-based compensation  restricted
shares
    
    
    
    
    
    
    261
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    261Cash dividends ($0.14 per share)
    
    
    
    
    
    
    
    
    
    
    (356
    )
    
    
    
    
    
    
    
    
    
    
    (356
    )Treasury stock purchased (1,582 shares)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (15
    )
    
    
    (15
    )Balance at June 30, 2010
    
    $
    26
    
    
    $
    24,992
    
    
    $
    28,600
    
    
    $
    2,200
    
    
    $
    (1,505
    )
    
    $
    54,313
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First Business Financial Services, Inc.
 
 Consolidated Statements of Cash Flows

(Unaudited)
 For the Six Months EndedJune 30,2010
    
    
    2009(In Thousands)Operating activitiesNet (loss) income
    
    $
    (626
    )
    
    $
    66Adjustments to reconcile net income to net cash provided by
operating activities:Deferred income taxes, net
    
    
    (1,717
    )
    
    
    (472
    )Provision for loan and lease losses
    
    
    2,413
    
    
    
    3,844Depreciation, amortization and accretion, net
    
    
    669
    
    
    
    324Share-based compensation
    
    
    261
    
    
    
    328Increase in cash surrender value of bank-owned life insurance
    
    
    (332
    )
    
    
    (371
    )Origination of loans for sale
    
    
    (250
    )
    
    
    (2,756
    )Sale of loans originated for sale
    
    
    250
    
    
    
    2,762Gain on sale of loans originated for sale
    
    
    
    
    
    
    (6
    )Loss (gain) on foreclosed properties and repossessed assets
    
    
    18
    
    
    
    (12
    )Goodwill impairment
    
    
    2,689
    
    
    
    (Increase) decrease in accrued interest receivable and other assets
    
    
    (565
    )
    
    
    1,131Increase (decrease) in accrued interest payable and other liabilities
    
    
    2,336
    
    
    
    (2,235
    )Net cash provided by operating activities
    
    
    5,146
    
    
    
    2,603Investing activitiesProceeds from maturities of available-for-sale securities
    
    
    17,422
    
    
    
    15,644Purchases of available-for-sale securities
    
    
    (35,941
    )
    
    
    (22,715
    )Proceeds from sale of foreclosed properties and repossessed assets
    
    
    908
    
    
    
    175Net decrease (increase) in loans and leases
    
    
    7,564
    
    
    
    (9,683
    )Investment in Aldine Capital Fund, L.P.
    
    
    (150
    )
    
    
    Purchases of leasehold improvements and equipment, net
    
    
    (72
    )
    
    
    (165
    )Premium payment on bank owned life insurance policies
    
    
    (8
    )
    
    
    (8
    )Net cash used in investing activities
    
    
    (10,277
    )
    
    
    (16,752
    )Financing activitiesNet (decrease) increase in deposits
    
    
    (45,748
    )
    
    
    83,457Repayment of FHLB advances
    
    
    (5
    )
    
    
    (15,005
    )Net decrease in short-term borrowed funds
    
    
    
    
    
    
    (22,000
    )Proceeds from other borrowings
    
    
    
    
    
    
    31,000Repayment of other borrowings
    
    
    
    
    
    
    (31,000
    )Cash dividends paid
    
    
    (356
    )
    
    
    (356
    )Purchase of treasury stock
    
    
    (15
    )
    
    
    (19
    )Net cash (used in) provided by financing activities
    
    
    (46,124
    )
    
    
    46,077Net (decrease) increase in cash and cash equivalents
    
    
    (51,255
    )
    
    
    31,928Cash and cash equivalents at the beginning of the period
    
    
    112,737
    
    
    
    23,684Cash and cash equivalents at the end of the period
    
    $
    61,482
    
    
    $
    55,612Supplementary cash flow informationInterest paid on deposits and borrowings
    
    $
    13,232
    
    
    $
    16,178Income taxes paid
    
    
    2,375
    
    
    
    169Transfer to foreclosed properties and repossessed assets
    
    
    577
    
    
    
    640
   7




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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.
  8




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Consolidation.
 Fair Value Measurements and Disclosures.
 Derivatives and Hedging
 Note 4  Goodwill and Intangible assets
   9




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As of and for the six
    
    
    As of and for the yearmonths ended June 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 (Losses) Per Share
   For the Three Months
    
    
    For the Six MonthsEnded June 30,
    
    
    Ended June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Distributed earnings allocated to common stockholders
    
    $
    173,319
    
    
    $
    171,282
    
    
    $
    346,497
    
    
    $
    342,586Undistributed (losses) earnings allocated to common
stockholders
    
    
    (1,659,926
    )
    
    
    78,872
    
    
    
    (956,502
    )
    
    
    (278,687
    )(Loss) income available to common stockholders for
basic earnings per share
    
    
    (1,486,607
    )
    
    
    250,154
    
    
    
    (610,005
    )
    
    
    63,899Reallocation of undistributed earnings for diluted
earnings per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (Loss) income available to common stockholders for
diluted earnings per share
    
    $
    (1,486,607
    )
    
    $
    250,154
    
    
    $
    (610,005
    )
    
    $
    63,899Basic average shares
    
    
    2,476,109
    
    
    
    2,448,659
    
    
    
    2,474,840
    
    
    
    2,447,276Dilutive effect of share-based awards
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Dilutive average shares
    
    
    2,476,109
    
    
    
    2,448,659
    
    
    
    2,474,840
    
    
    
    2,447,276(Losses) earnings per common share:Basic
    
    $
    (0.60
    )
    
    $
    0.10
    
    
    $
    (0.25
    )
    
    $
    0.03Diluted
    
    
    (0.60
    )
    
    
    0.10
    
    
    
    (0.25
    )
    
    
    0.03
  11




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Note 6  Share-Based Compensation
  Stock Options
  WeightedAverageRemainingWeighted
    
    
    ContractualOptions
    
    
    Average 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
    
    
    
    3.66Options exercisable at December 31, 2009
    
    
    142,790
    
    
    
    
    
    
    
    3.66Outstanding as of December 31, 2009
    
    
    142,790
    
    
    $
    22.01
    
    
    
    3.66Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited
    
    
    
    
    
    
    Outstanding at June 30, 2010
    
    
    142,790
    
    
    
    22.01
    
    
    
    3.16Options exercisable at June 30, 2010
    
    
    142,790
    
    
    
    22.01
    
    
    
    3.16
 Restricted Shares
   12




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##### Table of Contents



Number of
    
    
    Weighted AverageGrant-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
    
    
    (9,042
    )
    
    
    22.46Forfeited
    
    
    
    
    
    
    Nonvested balance as of June 30, 2010
    
    
    63,220
    
    
    $
    17.03
  Note 7  Securities
  As of June 30, 2010Gross
    
    
    Grossunrealized
    
    
    unrealized
    
    
    EstimatedAmortized cost
    
    
    holding gains
    
    
    holding losses
    
    
    fair value(In Thousands)Collateralized
mortgage obligations 
government agencies
    
    $
    136,479
    
    
    $
    3,554
    
    
    $
    (37
    )
    
    $
    139,996Collateralized
mortgage obligations
 government-sponsored
enterprises
    
    
    1,455
    
    
    
    24
    
    
    
    
    
    
    
    1,479$
    137,934
    
    
    $
    3,578
    
    
    $
    (37
    )
    
    $
    141,475
 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
  13




---



##### Table of Contents



EstimatedAmortized Cost
    
    
    Fair Value(In Thousands)Due in one year or less
    
    $
    
    
    
    $
    Due in one year through five years
    
    
    835
    
    
    
    878Due in five through ten years
    
    
    3,005
    
    
    
    3,083Due in over ten years
    
    
    134,094
    
    
    
    137,514$
    137,934
    
    
    $
    141,475
   As of June 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
    
    $
    2,847
    
    
    $
    37
    
    
    $
    
    
    
    $
    
    
    
    $
    2,847
    
    
    $
    37$
    2,847
    
    
    $
    37
    
    
    $
    
    
    
    $
    
    
    
    $
    2,847
    
    
    $
    37
  14




---



##### Table of Contents



As of December 31, 2009Less than 12 months
    
    
    12 months or longer
    
    
    TotalUnrealized
    
    
    
    
    
    
    Unrealized
    
    
    
    
    
    
    UnrealizedFair value
    
    
    losses
    
    
    Fair value
    
    
    losses
    
    
    Fair value
    
    
    losses(In Thousands)Collateralized
mortgage
obligations 
government agencies
    
    $
    17,220
    
    
    $
    215
    
    
    $
    
    
    
    $
    
    
    
    $
    17,220
    
    
    $
    215$
    17,220
    
    
    $
    215
    
    
    $
    
    
    
    $
    
    
    
    $
    17,220
    
    
    $
    215
   Note 8  Loans and Leases
  June 30,
    
    
    December 31,2010
    
    
    2009(In Thousands)First mortgage loans:Commercial real estate
    
    $
    442,078
    
    
    $
    441,806Construction and land development
    
    
    57,772
    
    
    
    64,194Multi-family
    
    
    42,066
    
    
    
    43,9591-4 family
    
    
    55,954
    
    
    
    56,131Total first mortgage loans
    
    
    597,870
    
    
    
    606,090Commercial and industrial loans
    
    
    207,164
    
    
    
    199,661Direct financing leases, net
    
    
    23,270
    
    
    
    27,607Home equity loans and second mortgage
    
    
    6,141
    
    
    
    7,879Consumer and other
    
    
    10,510
    
    
    
    13,260Loans and leases receivable, gross
    
    
    844,955
    
    
    
    854,497Less:Allowance for loan and lease losses
    
    
    15,091
    
    
    
    14,124Deferred loan fees
    
    
    612
    
    
    
    566Loans and leases receivable, net
    
    $
    829,252
    
    
    $
    839,807
   15




---



##### Table of Contents



June 30,
    
    
    December 31,2010
    
    
    2009(Dollars In Thousands)Non-accrual loans and leasesFirst mortgage loans:Commercial real estate
    
    $
    11,040
    
    
    $
    8,482Construction and land development
    
    
    3,073
    
    
    
    3,317Multi-family
    
    
    1,703
    
    
    
    1,7601-4 family
    
    
    3,698
    
    
    
    3,015Total first mortgage loans
    
    
    19,514
    
    
    
    16,574Commercial and industrial
    
    
    8,008
    
    
    
    7,086Direct financing leases, net
    
    
    
    
    
    
    1Home equity and second mortgage
    
    
    1,040
    
    
    
    872Consumer and other
    
    
    2,894
    
    
    
    3,292Total non-accrual loans and leases
    
    
    31,456
    
    
    
    27,825Foreclosed properties and repossessed assets, net
    
    
    1,322
    
    
    
    1,671Total non-performing assets
    
    $
    32,778
    
    
    $
    29,496Performing troubled debt restructurings
    
    $
    
    
    
    $
    Total non-accrual loans and leases to gross loans and leases
    
    
    3.72
    %
    
    
    3.26
    %Total non-performing assets to total assets
    
    
    3.05
    
    
    
    2.64Allowance for loan lease losses to gross loans and leases
    
    
    1.79
    
    
    
    1.65Allowance for loan and lease losses to non-accrual loans and leases
    
    
    47.98
    
    
    
    50.76
  16




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##### Table of Contents



Note 9  Allowance for Loan and Lease Losses
  For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(Dollars In Thousands)Allowance at beginning of period
    
    $
    15,342
    
    
    $
    12,935
    
    
    $
    14,124
    
    
    $
    11,846Charge-offs:Commercial real estate and
other mortgage
    
    
    (751
    )
    
    
    (928
    )
    
    
    (876
    )
    
    
    (928
    )Commercial and industrial
    
    
    (246
    )
    
    
    (700
    )
    
    
    (248
    )
    
    
    (1,810
    )Direct financing leases
    
    
    
    
    
    
    (231
    )
    
    
    
    
    
    
    (231
    )Home equity and second mortgage
    
    
    
    
    
    
    (27
    )
    
    
    
    
    
    
    (27
    )Consumer and other
    
    
    (327
    )
    
    
    (8
    )
    
    
    (327
    )
    
    
    (8
    )Total charge-offs
    
    
    (1,324
    )
    
    
    (1,894
    )
    
    
    (1,451
    )
    
    
    (3,004
    )Recoveries:Commercial real estate and
other mortgage
    
    
    4
    
    
    
    
    
    
    
    4
    
    
    
    Commercial and industrial
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    2Direct financial leases
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Home equity and second mortgage
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    2Consumer and other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total recoveries
    
    
    4
    
    
    
    2
    
    
    
    5
    
    
    
    4Net charge-offs
    
    
    (1,320
    )
    
    
    (1,892
    )
    
    
    (1,446
    )
    
    
    (3,000
    )Provision for loan and lease losses
    
    
    1,069
    
    
    
    1,647
    
    
    
    2,413
    
    
    
    3,844Allowance at end of period
    
    $
    15,091
    
    
    $
    12,690
    
    
    $
    15,091
    
    
    $
    12,690
  As of and for
    
    
    As of and forthe Six Months
    
    
    the YearEnded
    
    
    EndedJune 30,
    
    
    December 31,2010
    
    
    2009(In Thousands)Impaired loans and leases with no impairment reserves required
    
    $
    15,660
    
    
    $
    13,243Impaired loans and leases with impairment reserves required
    
    
    15,796
    
    
    
    14,582Total impaired loans and leases
    
    
    31,456
    
    
    
    27,825Less:Impairment reserve (included in allowance for loan and lease
losses)
    
    
    3,000
    
    
    
    1,846Net impaired loans and leases
    
    $
    28,456
    
    
    $
    25,979Average net impaired loans and leases
    
    $
    28,821
    
    
    $
    20,395Foregone interest income attributable to impaired loans and leases
    
    $
    1,103
    
    
    $
    1,758Interest income recognized on impaired loans and leases
    
    
    (36
    )
    
    
    (149
    )Net foregone interest income on impaired loans and leases
    
    $
    1,067
    
    
    $
    1,609
  17




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##### Table of Contents



Note 10  Deposits
  June 30, 2010
    
    
    December 31, 2009Weighted
    
    
    
    
    
    
    WeightedBalance
    
    
    average rate
    
    
    Balance
    
    
    average rate(Dollars In Thousands)Transaction accounts:Demand deposits
    
    $
    57,029
    
    
    
    
    %
    
    $
    87,687
    
    
    
    
    %Negotiable order of withdrawal
(NOW) accounts
    
    
    85,839
    
    
    
    0.43
    
    
    
    65,191
    
    
    
    0.40Total transaction accounts
    
    
    142,868
    
    
    
    
    
    
    
    152,878Money market accounts
    
    
    227,403
    
    
    
    1.16
    
    
    
    262,276
    
    
    
    1.38Certificates of deposit
    
    
    83,655
    
    
    
    2.13
    
    
    
    98,431
    
    
    
    2.34Brokered certificates of deposit
    
    
    484,700
    
    
    
    3.46
    
    
    
    470,789
    
    
    
    3.98Total deposits
    
    $
    938,626
    
    
    
    
    
    
    $
    984,374
 Note 11  Borrowings
  June 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
    
    
    18,500
    
    
    
    18,502
    
    
    
    4.70
    
    
    
    18,505
    
    
    
    18,873
    
    
    
    4.66Senior line of credit
    
    
    10
    
    
    
    10
    
    
    
    4.02
    
    
    
    10
    
    
    
    38
    
    
    
    4.41Subordinated notes
payable
    
    
    39,000
    
    
    
    39,000
    
    
    
    5.40
    
    
    
    39,000
    
    
    
    39,000
    
    
    
    4.92Junior subordinated
notes
    
    
    10,315
    
    
    
    10,315
    
    
    
    10.70
    
    
    
    10,315
    
    
    
    10,315
    
    
    
    10.78$
    67,825
    
    
    $
    67,827
    
    
    
    6.03
    
    
    $
    67,830
    
    
    $
    69,926
    
    
    
    5.61Short-term borrowings
    
    $
    18,010
    
    
    
    
    
    
    
    
    
    
    $
    16,010Long-term borrowings
    
    
    49,815
    
    
    
    
    
    
    
    
    
    
    
    51,820$
    67,825
    
    
    
    
    
    
    
    
    
    
    $
    67,830
   18




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##### Table of Contents



Note 12  Fair Value Disclosures
  Level 1
 Level 2
 Level
3
   Fair Value Measurements UsingJune 30, 2010
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Total(In Thousands)Assets:Collateralized
mortgage
obligations 
government agencies
    
    $
    
    
    
    $
    139,996
    
    
    $
    
    
    
    $
    139,996Collateralized
mortgage
obligations 
government
sponsored
enterprises
    
    
    
    
    
    
    1,479
    
    
    
    
    
    
    
    1,479Interest rate swaps
    
    
    
    
    
    
    3,150
    
    
    
    
    
    
    
    3,150Liabilities:Interest rate swaps
    
    $
    
    
    
    $
    3,150
    
    
    
    
    
    
    $
    3,150
  19




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##### Table of Contents



Fair Value Measurements UsingDecember 31, 2009
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    Total(In Thousands)Assets:Collateralized
mortgage
obligations 
government agencies
    
    $
    
    
    
    $
    118,509
    
    
    $
    
    
    
    $
    118,509Collateralized
mortgage
obligations 
government
sponsored
enterprises
    
    
    
    
    
    
    3,777
    
    
    
    
    
    
    
    3,777Interest rate swaps
    
    
    
    
    
    
    1,297
    
    
    
    
    
    
    
    1,297Liabilities:Interest rate swaps
    
    $
    
    
    
    $
    1,297
    
    
    $
    
    
    
    $
    1,297
   As of and for the six months ended June 30, 2010TotalBalance at
    
    
    Fair Value Measurements Using
    
    
    GainsJune 30, 2010
    
    
    Level 1
    
    
    Level 2
    
    
    Level 3
    
    
    (Losses)(In Thousands)Impaired loans
    
    $
    20,299
    
    
    $
    
    
    
    $
    15,343
    
    
    $
    4,956
    
    
    $
    Foreclosed properties
    
    
    1,322
    
    
    
    
    
    
    
    1,322
    
    
    
    
    
    
    
    (121
    )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
    )
    20




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##### Table of Contents



Fair Value of Financial Instruments
  June 30, 2010
    
    
    December 31, 2009Carrying
    
    
    
    
    
    
    CarryingAmount
    
    
    Fair Value
    
    
    Amount
    
    
    Fair Value(In Thousands)Financial assets:Cash and cash equivalents
    
    $
    61,482
    
    
    $
    61,482
    
    
    $
    112,737
    
    
    $
    112,737Securities available-for-sale
    
    
    141,475
    
    
    
    141,475
    
    
    
    122,286
    
    
    
    122,286Loans and lease receivables
    
    
    829,252
    
    
    
    828,011
    
    
    
    839,807
    
    
    
    820,286Federal Home Loan Bank stock
    
    
    2,367
    
    
    
    2,367
    
    
    
    2,367
    
    
    
    2,367Cash surrender value of life
insurance
    
    
    16,594
    
    
    
    16,594
    
    
    
    16,254
    
    
    
    16,254Accrued interest receivable
    
    
    3,263
    
    
    
    3,263
    
    
    
    3,212
    
    
    
    3,212Interest rate swaps
    
    
    3,150
    
    
    
    3,150
    
    
    
    1,297
    
    
    
    1,297Financial liabilities:Deposits
    
    $
    938,626
    
    
    $
    955,866
    
    
    $
    984,374
    
    
    $
    1,000,027Federal Home Loan Bank and
other borrowings
    
    
    57,510
    
    
    
    57,769
    
    
    
    57,515
    
    
    
    58,125Junior subordinated notes
    
    
    10,315
    
    
    
    7,115
    
    
    
    10,315
    
    
    
    7,237Interest rate swaps
    
    
    3,150
    
    
    
    3,150
    
    
    
    1,297
    
    
    
    1,297Accrued interest payable
    
    
    3,895
    
    
    
    3,895
    
    
    
    4,359
    
    
    
    4,359Off balance sheet items:Standby letters of credit
    
    
    17
    
    
    
    17
    
    
    
    38
    
    
    
    38Commitments to extend credit
    
    
    
    
    
    
    *
    
    
    
    
    
    
    
    *
 *
    
    Not meaningful   21




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##### 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:
  22




---



##### Table of Contents



Limitations:
  Note 13  Derivative Financial Instruments
    23




---



##### 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 instrumentsJune 30, 2010
    
    Other assets
    
    $
    3,150
    
    
    Other liabilities
    
    $
    3,150December 31, 2009
    
    Other assets
    
    $
    1,297
    
    
    Other liabilities
    
    $
    1,297
  For the three months ended June 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
    
    $
    1,361Interest rate swaps
non-hedge
    
    $
    
    
    
    
    N/A
    
    
    $
    
    
    
    Other noninterest income
    
    $
    (1,361
    )
 For the three months ended June 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
    
    $
    (1,743
    )Interest rate swaps non-hedge
    
    $
    
    
    
    
    N/A
    
    
    $
    
    
    
    Other noninterest income
    
    $
    1,798
  24




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##### Table of Contents



For the six months ended June 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
    
    $
    2,020Interest rate swaps
 non hedge
    
    $
    
    
    
    
    N/A
    
    
    $
    
    
    
    Other noninterest income
    
    $
    (2,020
    )
 For the six months ended June 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
    
    
    (1,053
    )Interest rate swaps  non
hedge
    
    
    
    
    
    N/A
    
    
    
    
    
    Other noninterest income
    
    
    1,332
 Note 14  Stockholders Equity
     25




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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 June 30, 2010Total capital
(to risk-weighted assets)Consolidated
    
    $
    104,538
    
    
    
    11.48
    %
    
    $
    72,860
    
    
    
    8.00
    %
    
    
    N/A
    
    
    
    N/AFirst Business Bank
    
    
    97,444
    
    
    
    12.04
    
    
    
    64,749
    
    
    
    8.00
    
    
    $
    80,937
    
    
    
    10.00
    %First Business Bank 
Milwaukee
    
    
    14,227
    
    
    
    14.28
    
    
    
    7,973
    
    
    
    8.00
    
    
    
    9,966
    
    
    
    10.00Tier 1 capital
(to risk-weighted assets)Consolidated
    
    $
    62,072
    
    
    
    6.82
    %
    
    $
    36,430
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/AFirst Business Bank
    
    
    87,293
    
    
    
    10.79
    
    
    
    32,375
    
    
    
    4.00
    
    
    $
    48,562
    
    
    
    6.00
    %First Business Bank 
Milwaukee
    
    
    12,969
    
    
    
    13.01
    
    
    
    3,986
    
    
    
    4.00
    
    
    
    5,980
    
    
    
    6.00Tier 1 capital
(to average assets)Consolidated
    
    $
    62,072
    
    
    
    5.74
    
    
    $
    43,240
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/AFirst Business Bank
    
    
    87,293
    
    
    
    9.55
    
    
    
    36,576
    
    
    
    4.00
    
    
    $
    45,719
    
    
    
    5.00
    %First Business Bank 
Milwaukee
    
    
    12,969
    
    
    
    7.82
    
    
    
    6,634
    
    
    
    4.00
    
    
    
    8,293
    
    
    
    5.00
  26




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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
   27




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##### Table of Contents



General
  Overview
  General Overview
 
    
    Total assets were $1.074 billion as of June 30, 2010 compared to $1.117 billion as of
December 31, 2009.
 
    
    Net loss for the three months ended June 30, 2010 was $1.5 million compared to net
income of $260,000 for the three months ended June 30, 2009. Net loss for the six months
ended June 30, 2010 was $626,000 compared to net income $66,000 for the six months ended
June 30, 2009. During the three months ended June 30, 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.
 
    
    Excluding the impact of the goodwill impairment, net income for the three months ended
June 30, 2010 was $1.2 million, an increase of 347.7%, from $260,000 for the three months
ended June 30, 2009 and, net income for the six months ended June 30, 2010 was $2.1
million compared to $66,000 for the six months ended June 30, 2009.
 
    
    Diluted losses per common share for the three months ended June 30, 2010 was $0.60
compared to diluted earnings per common share of $0.10 for the three months ended June 30,
2009. Diluted losses per common share for the six months ended June 30, 2010 was $0.25
compared to diluted earnings per share of $0.03 for the six months ended June 30, 2009.
Diluted loss per common share for the three and six months ended June 30, 2010 includes a
$1.06 per share goodwill impairment charge. Excluding the impairment of goodwill, diluted
earnings per common share was $0.46 and $0.81 for the three and six months ended June 30,
2010.
 
    
    Net interest margin increased to 2.96% for the three months ended June 30, 2010
compared to 2.72% for the three months ended June 30, 2009. Net interest margin increased
to 2.98% for the six months ended June 30, 2010 compared to 2.69% for the six months ended
June 30, 2009.
 
    
    Top line revenue increased 15.4% to $18.9 million for the six months ended June 30,
2010 compared to $16.3 million for the six months ended June 30, 2009.
  28




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##### Table of Contents




    
    Loan and lease loss provision was $1.1 million for the three months ended June 30, 2010
compared to $1.6 million for same time period in the prior year. Loan and lease loss
provision
was $2.4 million for the six months ended June 30, 2010 compared to $3.8 million for the
six months ended June 30, 2009. Allowance for loan and lease loss as a percentage of gross
loans and leases was 1.79% at June 30, 2010 compared to 1.65% at December 31, 2009.
 
    
    Annualized return on average equity and return on average assets were (10.77)% and
(0.56)%, respectively, for the three month period ended June 30, 2010, compared to 1.91%
and 0.10%, respectively, for the same time period in 2009. Annualized return on average
equity and return on average assets were (2.23)% and (0.11)%, respectively for the six
month period ended June 30, 2010, compared to 0.24% and 0.01%, respectively, for the six
months ended June 30, 2009. Excluding the goodwill impairment, annualized returns on
average assets were 0.43% and 0.38% for the three and six months ended June 30, 2010.
Excluding the goodwill impairment, annualized returns on average equity were 8.22% and
7.35% for the three and six months ended June 30, 2010.
  Results of Operations
 Top Line Revenue
 For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    Change
    
    
    2010
    
    
    2009
    
    
    Change(Dollars In Thousands)Net interest income
    
    $
    7,691
    
    
    $
    6,845
    
    
    
    12.4
    %
    
    $
    15,537
    
    
    $
    13,333
    
    
    
    16.5
    %Non-interest income
    
    
    1,685
    
    
    
    1,439
    
    
    
    17.1
    
    
    
    3,315
    
    
    
    3,000
    
    
    
    10.5Total top line
revenue
    
    $
    9,376
    
    
    $
    8,284
    
    
    
    13.2
    
    
    $
    18,852
    
    
    $
    16,333
    
    
    
    15.4
 Adjusted Net Income
  29




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##### Table of Contents



For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    Change
    
    
    2010
    
    
    2009
    
    
    Change(Dollars In Thousands)Net (loss) income,
presented under US GAAP
    
    $
    (1,525
    )
    
    $
    260
    
    
    
    (686.5
    )%
    
    $
    (626
    )
    
    $
    66
    
    
    
    *Add back:Provision for loan and
lease losses, after tax
    
    
    650
    
    
    
    1,001
    
    
    
    (35.1
    )
    
    
    1,467
    
    
    
    2,337
    
    
    
    (37.2
    )%Goodwill impairment
    
    
    2,689
    
    
    
    
    
    
    
    *
    
    
    
    2,689
    
    
    
    
    
    
    
    *Less:Net charge-offs, after tax
    
    
    802
    
    
    
    1,150
    
    
    
    (30.3
    )
    
    
    879
    
    
    
    1,824
    
    
    
    (51.8
    )Adjusted net income
    
    $
    1,012
    
    
    $
    111
    
    
    
    811.7
    
    
    $
    2,651
    
    
    $
    579
    
    
    
    357.9
 *
    
    Not meaningful Return on Equity
 Net Interest Income.
  30




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##### Table of Contents



Three Months
    
    
    Six MonthsRate/
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Rate/Rate
    
    
    Volume
    
    
    Volume
    
    
    Net
    
    
    Rate
    
    
    Volume
    
    
    Volume
    
    
    Net(In Thousands)Interest-Earning AssetsCommercial real estate and
other mortgage loans
    
    $
    9
    
    
    $
    21
    
    
    $
    1
    
    
    $
    31
    
    
    $
    195
    
    
    $
    410
    
    
    $
    5
    
    
    $
    610Commercial loans
    
    
    87
    
    
    
    (15
    )
    
    
    
    
    
    
    72
    
    
    
    773
    
    
    
    (423
    )
    
    
    (42
    )
    
    
    308Direct financing leases
    
    
    53
    
    
    
    (95
    )
    
    
    (11
    )
    
    
    (53
    )
    
    
    49
    
    
    
    (157
    )
    
    
    (8
    )
    
    
    (116
    )Consumer loans
    
    
    (78
    )
    
    
    (53
    )
    
    
    16
    
    
    
    (115
    )
    
    
    (166
    )
    
    
    (96
    )
    
    
    30
    
    
    
    (232
    )Total loans and leases
receivable
    
    
    71
    
    
    
    (142
    )
    
    
    6
    
    
    
    (65
    )
    
    
    851
    
    
    
    (266
    )
    
    
    (15
    )
    
    
    570Mortgage-related securities
    
    
    (245
    )
    
    
    258
    
    
    
    (53
    )
    
    
    (40
    )
    
    
    (509
    )
    
    
    460
    
    
    
    (96
    )
    
    
    (145
    )Federal Home Loan Bank Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Short-term investments
    
    
    2
    
    
    
    11
    
    
    
    1
    
    
    
    14
    
    
    
    (1
    )
    
    
    49
    
    
    
    (3
    )
    
    
    45Total net change in income on
interest-earning assets
    
    
    (172
    )
    
    
    127
    
    
    
    (46
    )
    
    
    (91
    )
    
    
    341
    
    
    
    243
    
    
    
    (114
    )
    
    
    470Interest-Bearing LiabilitiesNOW accounts
    
    
    7
    
    
    
    3
    
    
    
    
    
    
    
    10
    
    
    
    5
    
    
    
    22
    
    
    
    1
    
    
    
    28Money market
    
    
    (192
    )
    
    
    141
    
    
    
    (38
    )
    
    
    (89
    )
    
    
    (98
    )
    
    
    415
    
    
    
    (34
    )
    
    
    283Certificates of deposit
    
    
    (124
    )
    
    
    (211
    )
    
    
    36
    
    
    
    (299
    )
    
    
    (321
    )
    
    
    (407
    )
    
    
    85
    
    
    
    (643
    )Brokered certificates of deposit
    
    
    (761
    )
    
    
    213
    
    
    
    (36
    )
    
    
    (584
    )
    
    
    (1,634
    )
    
    
    62
    
    
    
    (11
    )
    
    
    (1,583
    )Total deposits
    
    
    (1,070
    )
    
    
    146
    
    
    
    (38
    )
    
    
    (962
    )
    
    
    (2,048
    )
    
    
    92
    
    
    
    41
    
    
    
    (1,915
    )FHLB advances
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    15
    
    
    
    (17
    )
    
    
    
    
    
    
    (2
    )Other borrowings
    
    
    25
    
    
    
    
    
    
    
    
    
    
    
    25
    
    
    
    275
    
    
    
    (71
    )
    
    
    (21
    )
    
    
    183Junior subordinated notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total net change in expense
on interest-bearing
liabilities
    
    
    (1,045
    )
    
    
    146
    
    
    
    (38
    )
    
    
    (937
    )
    
    
    (1,758
    )
    
    
    4
    
    
    
    20
    
    
    
    (1,734
    )Net change in net interest
income
    
    $
    873
    
    
    $
    (19
    )
    
    $
    (8
    )
    
    $
    846
    
    
    $
    2,099
    
    
    $
    239
    
    
    $
    (134
    )
    
    $
    2,204
  31




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##### Table of Contents



For the Three Months Ended June 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)
    
    $
    593,798
    
    
    $
    8,209
    
    
    
    5.53
    %
    
    $
    592,222
    
    
    $
    8,178
    
    
    
    5.52
    %Commercial and industrial
loans(1)
    
    
    213,950
    
    
    
    3,968
    
    
    
    7.42
    
    
    
    214,798
    
    
    
    3,896
    
    
    
    7.26Direct financing leases(1)
    
    
    24,558
    
    
    
    421
    
    
    
    6.86
    
    
    
    30,731
    
    
    
    474
    
    
    
    6.17Consumer loans
    
    
    17,434
    
    
    
    144
    
    
    
    3.30
    
    
    
    21,921
    
    
    
    259
    
    
    
    4.73Total loans and leases
receivable(1)
    
    
    849,740
    
    
    
    12,742
    
    
    
    6.00
    
    
    
    859,672
    
    
    
    12,807
    
    
    
    5.96Mortgage-related securities(2)
    
    
    134,613
    
    
    
    1,166
    
    
    
    3.46
    
    
    
    110,928
    
    
    
    1,206
    
    
    
    4.35Federal Home Loan Bank stock
    
    
    2,367
    
    
    
    
    
    
    
    
    
    
    
    2,367
    
    
    
    
    
    
    
    Short-term investments
    
    
    52,010
    
    
    
    32
    
    
    
    0.25
    
    
    
    31,994
    
    
    
    18
    
    
    
    0.23Total interest-earning assets
    
    
    1,038,730
    
    
    
    13,940
    
    
    
    5.37
    
    
    
    1,004,961
    
    
    
    14,031
    
    
    
    5.58Non-interest-earning assets
    
    
    48,067
    
    
    
    
    
    
    
    
    
    
    
    38,784Total assets
    
    $
    1,086,797
    
    
    
    
    
    
    
    
    
    
    $
    1,043,745Interest-Bearing LiabilitiesNOW accounts
    
    $
    85,774
    
    
    
    97
    
    
    
    0.45
    
    
    $
    83,357
    
    
    
    87
    
    
    
    0.42Money market
    
    
    250,021
    
    
    
    634
    
    
    
    1.01
    
    
    
    209,313
    
    
    
    723
    
    
    
    1.38Certificates of deposits
    
    
    80,708
    
    
    
    438
    
    
    
    2.17
    
    
    
    113,004
    
    
    
    737
    
    
    
    2.55Brokered certificates of deposit
    
    
    476,642
    
    
    
    4,044
    
    
    
    3.39
    
    
    
    455,656
    
    
    
    4,628
    
    
    
    4.08Total interest-bearing deposits
    
    
    893,145
    
    
    
    5,213
    
    
    
    2.34
    
    
    
    861,330
    
    
    
    6,175
    
    
    
    2.87FHLB advances
    
    
    18,501
    
    
    
    219
    
    
    
    4.73
    
    
    
    18,512
    
    
    
    219
    
    
    
    4.73Other borrowings
    
    
    39,010
    
    
    
    540
    
    
    
    5.54
    
    
    
    39,010
    
    
    
    515
    
    
    
    5.58Junior subordinated notes
    
    
    10,315
    
    
    
    277
    
    
    
    10.74
    
    
    
    10,315
    
    
    
    277
    
    
    
    10.74Total interest-bearing liabilities
    
    
    960,971
    
    
    
    6,249
    
    
    
    2.60
    
    
    
    929,167
    
    
    $
    7,186
    
    
    
    3.09Non-interest-bearing liabilities
    
    
    69,202
    
    
    
    
    
    
    
    
    
    
    
    60,419Total liabilities
    
    
    1,030,173
    
    
    
    
    
    
    
    
    
    
    
    989,586Stockholders equity
    
    
    56,624
    
    
    
    
    
    
    
    
    
    
    
    54,159Total liabilities and stockholders
equity
    
    $
    1,086,797
    
    
    
    
    
    
    
    
    
    
    $
    1,043,745Net interest income/interest rate spread
    
    
    
    
    
    $
    7,691
    
    
    
    2.77
    %
    
    
    
    
    
    
    6,845
    
    
    
    2.49
    %Net interest-earning assets
    
    $
    77,759
    
    
    
    
    
    
    
    
    
    
    $
    75,794Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.96
    %
    
    
    
    
    
    
    
    
    
    
    2.72
    %Average interest-earning assets to
average interest-bearing liabilities
    
    
    108.09
    %
    
    
    
    
    
    
    
    
    
    
    108.16
    %Return on average assets
    
    
    (0.56
    )
    
    
    
    
    
    
    
    
    
    
    0.10Return on average equity
    
    
    (10.77
    )
    
    
    
    
    
    
    
    
    
    
    1.91Average equity to average assets
    
    
    5.21
    
    
    
    
    
    
    
    
    
    
    
    5.19Non-interest expense to average assets
    
    
    3.39
    
    
    
    
    
    
    
    
    
    
    
    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 basis of assets available for sale.  32




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33




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For the Six Months Ended June 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)
    
    $
    598,718
    
    
    $
    16,677
    
    
    
    5.57
    %
    
    $
    583,815
    
    
    $
    16,067
    
    
    
    5.50
    %Commercial and industrial
loans(1)
    
    
    209,251
    
    
    
    8,124
    
    
    
    7.76
    
    
    
    221,243
    
    
    
    7,816
    
    
    
    7.07Direct financing leases(1)
    
    
    25,561
    
    
    
    836
    
    
    
    6.54
    
    
    
    30,595
    
    
    
    952
    
    
    
    6.22Consumer loans
    
    
    18,043
    
    
    
    296
    
    
    
    3.28
    
    
    
    22,072
    
    
    
    528
    
    
    
    4.78Total loans and leases
receivable(1)
    
    
    851,573
    
    
    
    25,933
    
    
    
    6.09
    
    
    
    857,725
    
    
    
    25,363
    
    
    
    5.91Mortgage-related securities(2)
    
    
    130,218
    
    
    
    2,300
    
    
    
    3.53
    
    
    
    109,616
    
    
    
    2,445
    
    
    
    4.46Federal Home Loan Bank stock
    
    
    2,367
    
    
    
    
    
    
    
    
    
    
    
    2,367
    
    
    
    
    
    
    
    Short-term investments
    
    
    59,164
    
    
    
    73
    
    
    
    0.25
    
    
    
    21,535
    
    
    
    28
    
    
    
    0.26Total interest-earning assets
    
    
    1,043,322
    
    
    
    28,306
    
    
    
    5.43
    
    
    
    991,243
    
    
    
    27,836
    
    
    
    5.62Non-interest-earning assets
    
    
    47,699
    
    
    
    
    
    
    
    
    
    
    
    38,352Total assets
    
    $
    1,091,021
    
    
    
    
    
    
    
    
    
    
    $
    1,029,595Interest-Bearing LiabilitiesNOW accounts
    
    $
    79,237
    
    
    
    169
    
    
    
    0.43
    
    
    $
    68,682
    
    
    
    141
    
    
    
    0.41Money market
    
    
    258,840
    
    
    
    1,503
    
    
    
    1.16
    
    
    
    193,152
    
    
    
    1,220
    
    
    
    1.26Certificates of deposits
    
    
    84,460
    
    
    
    899
    
    
    
    2.13
    
    
    
    114,732
    
    
    
    1,542
    
    
    
    2.69Brokered certificates of deposit
    
    
    470,682
    
    
    
    8,153
    
    
    
    3.46
    
    
    
    467,714
    
    
    
    9,736
    
    
    
    4.16Total interest-bearing deposits
    
    
    893,219
    
    
    
    10,724
    
    
    
    2.40
    
    
    
    844,280
    
    
    
    12,639
    
    
    
    2.99FHLB advances
    
    
    18,502
    
    
    
    435
    
    
    
    4.70
    
    
    
    19,245
    
    
    
    437
    
    
    
    4.54Other borrowings
    
    
    39,010
    
    
    
    1,058
    
    
    
    5.42
    
    
    
    42,439
    
    
    
    875
    
    
    
    4.12Junior subordinated notes
    
    
    10,315
    
    
    
    552
    
    
    
    10.70
    
    
    
    10,315
    
    
    
    552
    
    
    
    10.70Total interest-bearing liabilities
    
    
    961,046
    
    
    
    12,769
    
    
    
    2.66
    
    
    
    916,279
    
    
    
    14,503
    
    
    
    3.17Non-interest-bearing liabilities
    
    
    73,831
    
    
    
    
    
    
    
    
    
    
    
    59,333Total liabilities
    
    
    1,034,877
    
    
    
    
    
    
    
    
    
    
    
    975,612Stockholders equity
    
    
    56,144
    
    
    
    
    
    
    
    
    
    
    
    53,983Total liabilities and stockholders
equity
    
    $
    1,091,021
    
    
    
    
    
    
    
    
    
    
    $
    1,029,595Net interest income/interest rate spread
    
    
    
    
    
    $
    15,537
    
    
    
    2.77
    %
    
    
    
    
    
    $
    13,333
    
    
    
    2.45
    %Net interest-earning assets
    
    $
    82,276
    
    
    
    
    
    
    
    
    
    
    $
    74,964Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.98
    %
    
    
    
    
    
    
    
    
    
    
    2.69
    %Average interest-earning assets to
average interest-bearing liabilities
    
    
    108.56
    %
    
    
    
    
    
    
    
    
    
    
    108.18
    %Return on average assets
    
    
    (0.11
    )
    
    
    
    
    
    
    
    
    
    
    0.01Return on average equity
    
    
    (2.23
    )
    
    
    
    
    
    
    
    
    
    
    0.24Average equity to average assets
    
    
    5.15
    
    
    
    
    
    
    
    
    
    
    
    5.24Non-interest expense to average assets
    
    
    2.89
    
    
    
    
    
    
    
    
    
    
    
    2.41
 (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.  34




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Provision for Loan and Lease Losses.
  35




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##### Table of Contents



For the three months ended
    
    
    For the six months endedJune 30,
    
    
    June 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
    
    $
    634
    
    
    $
    363
    
    
    $
    1,901
    
    
    $
    993Increase in allowance for loan and lease
loss reserve due to subjective factor
changes
    
    
    
    
    
    
    67
    
    
    
    
    
    
    
    660Charge-offs in excess of specific reserves
    
    
    572
    
    
    
    1,266
    
    
    
    699
    
    
    
    2,177Change in inherent risk of the loan and
lease portfolio
    
    
    (137
    )
    
    
    (49
    )
    
    
    (187
    )
    
    
    14Total provision for loan and lease losses
    
    $
    1,069
    
    
    
    1,647
    
    
    $
    2,413
    
    
    $
    3,844
 Asset Quality
 Non-Interest Income.
     36




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Non-Interest Expense.
      37




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Income Taxes.
  38




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Financial Condition
 General.
 Short-term investments.
 Securities.
  Loans and Leases Receivable.
   39




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Asset Quality
 Deposits.
 Asset Quality
 Non-performing Assets.
  40




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June 30,
    
    
    December 31,2010
    
    
    2009(Dollars In Thousands)Non-accrual loans and leasesFirst mortgage loans:Commercial real estate
    
    $
    11,040
    
    
    $
    8,482Construction and land development
    
    
    3,073
    
    
    
    3,317Multi-family
    
    
    1,703
    
    
    
    1,7601-4 family
    
    
    3,698
    
    
    
    3,015Total first mortgage loans
    
    
    19,514
    
    
    
    16,574Commercial and industrial
    
    
    8,008
    
    
    
    7,086Direct financing leases, net
    
    
    
    
    
    
    1Home equity and second mortgage
    
    
    1,040
    
    
    
    872Consumer and other
    
    
    2,894
    
    
    
    3,292Total non-accrual loans and leases
    
    
    31,456
    
    
    
    27,825Foreclosed properties and repossessed assets
    
    
    1,322
    
    
    
    1,671Total non-performing assets
    
    $
    32,778
    
    
    $
    29,496Performing troubled debt restructurings
    
    $
    
    
    
    $
    Total non-accrual loans and leases to gross loans and leases
    
    
    3.72
    %
    
    
    3.26
    %Total non-performing assets to total assets
    
    
    3.05
    
    
    
    2.64Allowance for loan and lease losses to gross loans and leases
    
    
    1.79
    
    
    
    1.65Allowance for loan and lease losses to non-accrual loans and leases
    
    
    47.98
    
    
    
    50.76
  Non-accrual loans as of December 31, 2009
    
    $
    27,825Loans transferred into non-accrual status
    
    
    12,021Loans returned to accrual status
    
    
    (1,500
    )Loans transferred to foreclosed properties
    
    
    (577
    )Loans charged-off
    
    
    (1,446
    )Loans fully paid-off
    
    
    (1,192
    )Principal payments applied to non-accrual loans
    
    
    (3,675
    )Non-accrual loans as of June 30, 2010
    
    $
    31,456
  Foreclosed properties as of December 31, 2009
    
    $
    1,671Loans transferred to foreclosed properties
    
    
    577Proceeds from sale of foreclosed properties
    
    
    (908
    )Gain on sale of foreclosed properties
    
    
    103Impairment valuation
    
    
    (121
    )Foreclosed properties as of June 30, 2010
    
    $
    1,322
  41




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As of and for
    
    
    As of and forthe Six Months
    
    
    the YearEnded
    
    
    EndedJune 30,
    
    
    December 31,2010
    
    
    2009(In Thousands)Impaired loans and leases with no impairment reserves required
    
    $
    15,660
    
    
    $
    13,243Impaired loans and leases with impairment reserves required
    
    
    15,796
    
    
    
    14,582Total impaired loans and leases
    
    
    31,456
    
    
    
    27,825Less:Impairment reserve (included in allowance for loan and lease
losses)
    
    
    3,000
    
    
    
    1,846Net impaired loans and leases
    
    $
    28,456
    
    
    $
    25,979Average impaired loans and leases
    
    $
    28,821
    
    
    $
    20,395Foregone interest income attributable to impaired loans and leases
    
    $
    1,103
    
    
    $
    1,758Interest income recognized on impaired loans and leases
    
    
    (36
    )
    
    
    (149
    )Net foregone interest income on impaired loans and leases
    
    $
    1,067
    
    
    $
    1,609
    42




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For the Three Months Ended
    
    
    For the Six Months EndedJune 30,
    
    
    June 30,2010
    
    
    2009
    
    
    2010
    
    
    2009(In Thousands)Allowance at beginning of period
    
    $
    15,342
    
    
    $
    12,935
    
    
    $
    14,124
    
    
    $
    11,846Charge-offs:Commercial real estate and
other mortgage
    
    
    (751
    )
    
    
    (928
    )
    
    
    (876
    )
    
    
    (928
    )Commercial and industrial
    
    
    (246
    )
    
    
    (700
    )
    
    
    (248
    )
    
    
    (1,810
    )Direct financing leases
    
    
    
    
    
    
    (231
    )
    
    
    
    
    
    
    (231
    )Home equity and second mortgage
    
    
    
    
    
    
    (27
    )
    
    
    
    
    
    
    (27
    )Consumer and other
    
    
    (327
    )
    
    
    (8
    )
    
    
    (327
    )
    
    
    (8
    )Total charge-offs
    
    
    (1,324
    )
    
    
    (1,894
    )
    
    
    (1,451
    )
    
    
    (3,004
    )Recoveries:Commercial real estate and
other mortgage
    
    
    4
    
    
    
    
    
    
    
    4
    
    
    
    Commercial and industrial
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    2Direct financial leases
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Home equity and second mortgage
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    2Consumer and other
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total recoveries
    
    
    4
    
    
    
    2
    
    
    
    5
    
    
    
    4Net charge-offs
    
    
    (1,320
    )
    
    
    (1,892
    )
    
    
    (1,446
    )
    
    
    (3,000
    )Provision for loan and lease losses
    
    
    1,069
    
    
    
    1,647
    
    
    
    2,413
    
    
    
    3,844Allowance at end of period
    
    $
    15,091
    
    
    $
    12,690
    
    
    $
    15,091
    
    
    $
    12,690
 Liquidity and Capital Resources
    43




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Contractual Obligations and Off-balance Sheet Arrangements
  
 Item 3.  Quantitative and Qualitative Disclosures about Market Risk
    44




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##### Table of Contents



Item 4T.  Controls and Procedures
   
 Part II. Other Information
 
 Item 1.  Legal Proceedings
  
 Item 1A.  Risk Factors
   45




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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
    
    
    
    
    
    
    Publicly
    
    
    Purchased UnderShares
    
    
    Average Price Paid
    
    
    Announced Plans
    
    
    the Plans orPeriod
    
    Purchased(1)
    
    
    Per Share
    
    
    or Programs
    
    
    Programs(2)April 1, 2010  April 30, 2010
    
    
    367
    
    
    
    9.93
    
    
    
    
    
    
    $
    177,150May 1, 2010  May 31, 2010
    
    
    50
    
    
    
    10.50
    
    
    
    
    
    
    
    177,150June 1, 2010  June 30, 2010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    177,150
 (1)
    
    The shares in this column represent the 417 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 June 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 June 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.
  46




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Signatures
  FIRST BUSINESS FINANCIAL
SERVICES, INC.August 13, 2010
    /s/ Corey A. ChambasCorey A. ChambasChief Executive OfficerAugust 13, 2010
    /s/ James F. RopellaJames F. RopellaChief Financial Officer  47




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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
 
  48