##### 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 March 31, 2009
 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)
  
   þ o
  o þ
  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




---



##### Table of Contents



2




---



##### 



FIRST BUSINESS FINANCIAL SERVICES, INC.
INDEX  FORM 10-Q
  
 PagePART I. FINANCIAL INFORMATIONItem 1. Financial Statements (Unaudited)Consolidated Balance Sheets as of March 31, 2009 and December 31, 2008
    
    
    1Consolidated Statements of Income for the Three Months Ended March
31, 2009 and 2008
    
    
    2Consolidated Statements of Changes in Stockholders Equity and
Comprehensive Income for the Three Months Ended March 31, 2009 and
2008
    
    
    3Consolidated Statements of Cash Flows for the Three Months Ended
March 31, 2009 and 2008
    
    
    4Notes to Unaudited Consolidated Financial Statements
    
    
    5Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    17Item 3. Quantitative and Qualitative Disclosures about Market Risk
    
    
    31Item 4T. Controls and Procedures
    
    
    31PART II. OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    31Item 1A. Risk Factors
    
    
    32Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    32Item 3. Defaults upon Senior Securities
    
    
    32Item 4. Submission of Matters to a Vote of Security Holders
    
    
    32Item 5. Other information
    
    
    32Item 6. Exhibits
    
    
    32SIGNATURES
    
    
    33EX-31.1EX-31.2EX-32




---



##### Table of Contents



PART I. Financial Information
 
 Item 1. Financial Statements
 First Business Financial Services, Inc.
 
 Consolidated Balance Sheets
 (Unaudited)March 31,
    
    
    December 31,2009
    
    
    2008(In Thousands, Except Share Data)AssetsCash and due from banks
    
    $
    16,658
    
    
    $
    19,216Short-term investments
    
    
    14,525
    
    
    
    4,468Cash and cash equivalents
    
    
    31,183
    
    
    
    23,684Securities available-for-sale, at fair value
    
    
    108,380
    
    
    
    109,124Loans and leases receivable, net of allowance for loan and lease losses of $12,935 and
$11,846, respectively
    
    
    848,509
    
    
    
    840,546Leasehold improvements and equipment, net
    
    
    1,488
    
    
    
    1,529Foreclosed properties
    
    
    3,011
    
    
    
    3,011Cash surrender value of bank-owned life insurance
    
    
    15,680
    
    
    
    15,499Investment in Federal Home Loan Bank stock, at cost
    
    
    2,367
    
    
    
    2,367Goodwill and other intangibles
    
    
    2,756
    
    
    
    2,762Accrued interest receivable and other assets
    
    
    12,671
    
    
    
    12,264Total assets
    
    $
    1,026,045
    
    
    $
    1,010,786Liabilities and Stockholders EquityDeposits
    
    $
    890,370
    
    
    $
    838,874Federal Home Loan Bank and other borrowings
    
    
    57,523
    
    
    
    94,526Junior subordinated notes
    
    
    10,315
    
    
    
    10,315Accrued interest payable and other liabilities
    
    
    14,444
    
    
    
    14,065Total liabilities
    
    
    972,652
    
    
    
    957,780Commitments 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, 2,616,424 and 2,616,424
shares issued, 2,544,519 and 2,545,546 outstanding at 2009 and 2008, respectively
    
    
    26
    
    
    
    26Additional paid-in capital
    
    
    24,260
    
    
    
    24,088Retained earnings
    
    
    28,881
    
    
    
    29,252Accumulated other comprehensive income
    
    
    1,664
    
    
    
    1,065Treasury stock (71,905 and 70,878 shares in 2009 and 2008, respectively), at cost
    
    
    (1,438
    )
    
    
    (1,425
    )Total stockholders equity
    
    
    53,393
    
    
    
    53,006Total liabilities and stockholders equity
    
    $
    1,026,045
    
    
    $
    1,010,786
  1




---



##### Table of Contents



First Business Financial Services, Inc.
 
 Consolidated Statements of Income (Unaudited)
 For the Three Months Ended,March 31,2009
    
    
    2008(In Thousands, Except Share Data)Interest income:Loans and leases
    
    $
    12,555
    
    
    $
    13,995Securities income, taxable
    
    
    1,239
    
    
    
    1,116Short-term investments
    
    
    11
    
    
    
    42Total interest income
    
    
    13,805
    
    
    
    15,153Interest expense:Deposits
    
    
    6,464
    
    
    
    8,026Notes payable and other borrowings
    
    
    579
    
    
    
    1,065Junior subordinated notes
    
    
    274
    
    
    
    Total interest expense
    
    
    7,317
    
    
    
    9,091Net interest income
    
    
    6,488
    
    
    
    6,062Provision for loan and lease losses
    
    
    2,197
    
    
    
    553Net interest income after provision for loan and lease losses
    
    
    4,291
    
    
    
    5,509Non-interest income:Trust and investment services income
    
    
    434
    
    
    
    482Service charges on deposits
    
    
    334
    
    
    
    210Increase in cash surrender value of bank-owned life insurance
    
    
    181
    
    
    
    177Loan fees
    
    
    273
    
    
    
    136Credit, merchant and debit card fees
    
    
    47
    
    
    
    45Other
    
    
    293
    
    
    
    42Total non-interest income
    
    
    1,562
    
    
    
    1,092Non-interest expense:Compensation
    
    
    3,173
    
    
    
    3,359Occupancy
    
    
    361
    
    
    
    330Equipment
    
    
    169
    
    
    
    156Data processing
    
    
    280
    
    
    
    274Marketing
    
    
    205
    
    
    
    263Professional fees
    
    
    513
    
    
    
    375Collateral liquidation costs
    
    
    562
    
    
    
    FDIC Insurance
    
    
    335
    
    
    
    156Loss on foreclosed properties
    
    
    
    
    
    
    5Other
    
    
    563
    
    
    
    428Total non-interest expense
    
    
    6,161
    
    
    
    5,346Income (loss) before income tax expense
    
    
    (308
    )
    
    
    1,255Income tax expense (benefit)
    
    
    (115
    )
    
    
    485Net income (loss)
    
    $
    (193
    )
    
    $
    770Earnings (loss) per share:Basic
    
    $
    (0.08
    )
    
    $
    0.31Diluted
    
    $
    (0.08
    )
    
    $
    0.31Dividends declared per share
    
    $
    0.07
    
    
    $
    0.07
  2




---



##### 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
    
    
    income (loss)
    
    
    stock
    
    
    Total(In Thousands, Except Share Data)Balance at December 31, 2007
    
    $
    26
    
    
    $
    23,462
    
    
    $
    26,836
    
    
    $
    (399
    )
    
    $
    (1,373
    )
    
    $
    48,552Comprehensive income:Net income
    
    
    
    
    
    
    
    
    
    
    770
    
    
    
    
    
    
    
    
    
    
    
    770Unrealized
securities gains
arising during the
period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,329
    
    
    
    
    
    
    
    2,329Unrealized
derivative losses
arising during the
period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5
    )
    
    
    
    
    
    
    (5
    )Reclassification
adjustment for
realized losses on
derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    3Income tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (802
    )
    
    
    
    
    
    
    (802
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    2,295Share-based compensation  restricted
shares
    
    
    
    
    
    
    142
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    142Cash dividends ($0.07 per share)
    
    
    
    
    
    
    
    
    
    
    (176
    )
    
    
    
    
    
    
    
    
    
    
    (176
    )Treasury stock purchased (556 shares)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (10
    )
    
    
    (10
    )Balance at March 31, 2008
    
    $
    26
    
    
    $
    23,604
    
    
    $
    27,430
    
    
    $
    1,126
    
    
    $
    (1,383
    )
    
    $
    50,803
 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 loss
    
    
    
    
    
    
    
    
    
    
    (193
    )
    
    
    
    
    
    
    
    
    
    
    (193
    )Unrealized
securities gains
arising during the
period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    985
    
    
    
    
    
    
    
    985Unrealized
derivative losses
arising during the
period
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    
    
    
    
    (1
    )Reclassification
adjustment for
realized losses on
derivatives
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    
    
    
    
    3Income tax effect
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (388
    )
    
    
    
    
    
    
    (388
    )Comprehensive income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    406Share-based compensation  restricted
shares
    
    
    
    
    
    
    172
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    172Cash dividends ($0.07 per share)
    
    
    
    
    
    
    
    
    
    
    (178
    )
    
    
    
    
    
    
    
    
    
    
    (178
    )Treasury stock purchased (1,027 shares)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13
    )
    
    
    (13
    )Balance at March 31, 2009
    
    $
    26
    
    
    $
    24,260
    
    
    $
    28,881
    
    
    $
    1,664
    
    
    $
    (1,438
    )
    
    $
    53,393
  3




---



##### Table of Contents



First Business Financial Services, Inc.
 
 Consolidated Statements of Cash Flows (Unaudited)
 For the Three Months EndedMarch 31,2009
    
    
    2008(In Thousands)Operating activitiesNet (loss) income
    
    $
    (193
    )
    
    $
    770Adjustments to reconcile net income to net cash provided by
operating activities:Deferred income taxes, net
    
    
    (266
    )
    
    
    (222
    )Provision for loan and lease losses
    
    
    2,197
    
    
    
    553Depreciation, amortization and accretion, net
    
    
    147
    
    
    
    131Share-based compensation
    
    
    172
    
    
    
    142Increase in cash surrender value of bank-owned life insurance
    
    
    (181
    )
    
    
    (177
    )Origination of loans for sale
    
    
    (1,279
    )
    
    
    (501
    )Sale of loans originated for sale
    
    
    1,281
    
    
    
    502Gain on sale of loans originated for sale
    
    
    (2
    )
    
    
    (1
    )Loss on foreclosed properties
    
    
    
    
    
    
    5(Decrease) Increase in accrued interest receivable and other assets
    
    
    (476
    )
    
    
    95Increase in accrued interest payable and other liabilities
    
    
    381
    
    
    
    1,218Net cash provided by operating activities
    
    
    1,781
    
    
    
    2,515Investing activitiesProceeds from maturities of available-for-sale securities
    
    
    7,013
    
    
    
    7,600Purchases of available-for-sale securities
    
    
    (5,286
    )
    
    
    (7,961
    )Proceeds from sale of foreclosed property
    
    
    
    
    
    
    655Net increase in loans and leases
    
    
    (10,160
    )
    
    
    (40,667
    )Purchases of leasehold improvements and equipment, net
    
    
    (151
    )
    
    
    (227
    )Net cash used in investing activities
    
    
    (8,584
    )
    
    
    (40,600
    )Financing activitiesNet increase in deposits
    
    
    51,496
    
    
    
    53,315Net decrease in FHLB line of credit
    
    
    (15,000
    )
    
    
    Repayment of FHLB advances
    
    
    (3
    )
    
    
    (6,002
    )Net decrease in short-term borrowed funds
    
    
    (22,000
    )
    
    
    (10,775
    )Cash dividends paid
    
    
    (178
    )
    
    
    (163
    )Purchase of treasury stock
    
    
    (13
    )
    
    
    (10
    )Net cash provided by financing activities
    
    
    14,302
    
    
    
    36,365Net increase (decrease) in cash and cash equivalents
    
    
    7,499
    
    
    
    (1,720
    )Cash and cash equivalents at the beginning of the period
    
    
    23,684
    
    
    
    17,624Cash and cash equivalents at the end of the period
    
    $
    31,183
    
    
    $
    15,904Supplementary cash flow informationInterest paid on deposits and borrowings
    
    $
    7,192
    
    
    $
    7,563Income taxes paid
    
    
    15
    
    
    
    10
  4




---



##### Table of Contents



NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
 Note 1  Principles of Consolidation
  Note 2  Basis of Presentation
   Note 3  Recent Accounting Pronouncements
 Fair Value Disclosures. Fair Value Measurements, Accounting
for the Impairment or Disposal of Long-Lived Assets,
 Note 10  Fair Value Disclosure
 Derivative Instruments and Hedging Activities. Disclosures about Derivative Instruments and Hedging Activities  an
Amendment of Statement No. 133
 5




---



##### Table of Contents



Instruments Granted in Share-Based Payment Transactions as Participating Securities Determining Whether Instruments Granted in
Share-Based Payment Transactions are Participating Securities Earnings Per Share .
 Recently Issued Accounting Standards
  
    
    FASB Staff Position FAS 157-4 (FSP FAS 157-4), Determining Whether a Market Is Not
Active and a Transaction is Not Distressed. FSP FAS 157-4 provides guidance for making
fair value measurements more consistent with the principles presented in FAS 157. FSP
157-4 provides additional authoritative guidance in determining whether a market is active
or inactive, and whether a transaction is distressed. FSP 157-4 is applicable to all
assets and liabilities (i.e. financial and nonfinancial) and will require enhanced
disclosures.
    
    FASB Staff Position FAS 115-2, FAS 124-2, and EITF 99-20-2 (FSP FAS 115-2, FAS 124-2,
and EITF 99-20-2), Recognition and Presentation of Other-Than-Temporary Impairments. FSP
FAS 115-2, FAS 124-2, and EITF 99-20-2 provides additional guidance to provide greater
clarity about the credit and noncredit component of an other-than-temporary impairment
event and to more effectively communicate when an other-than-temporary impairment event
has occurred. This FSP applies to debt securities.
    
    FASB Staff Position FAS 107-1 and APB 28-1 (FSP FAS 107-1 and APB 28-1), Interim
Disclosures about Fair Value of Financial Instruments. FSP FAS 107-1 and APB 28-1 amend
SFAS No 107, Disclosures about Fair Value of Financial Instruments, to require disclosures
about fair value of financial instruments in interim as well as in annual financial
statements. This FSP also amends APB Opinion No. 28, Interim Financial Reporting, to
require those fair value disclosures in all interim financial statements.
  6




---



##### Table of Contents



Note 4  Earnings Per Share.
   For the Three MonthsEnded March 31,2009
    
    
    2008Distributed earnings allocated to common stockholders
    
    $
    171,187
    
    
    $
    169,570Undistributed earnings (losses) allocated to common
stockholders
    
    
    (357,067
    )
    
    
    573,447Income (loss) available to common stockholders for
basic earnings per share
    
    
    (185,880
    )
    
    
    743,017Reallocation of undistributed earnings for diluted
earnings per share
    
    
    
    
    
    
    5Income (loss) available to common stockholders for
diluted earnings per share
    
    $
    (185,880
    )
    
    $
    743,021Basic average shares
    
    
    2,445,880
    
    
    
    2,423,457Dilutive effect of share-based awards
    
    
    
    
    
    
    636Dilutive average shares
    
    
    2,445,880
    
    
    
    2,424,093Earnings (loss) per share:Basic
    
    $
    (0.08
    )
    
    $
    0.31Diluted
    
    $
    (0.08
    )
    
    $
    0.31
 Note 5  Share-Based Compensation
  Stock Options
  7




---



##### Table of Contents



WeightedAverageRemainingWeighted
    
    ContractualOptions
    
    Average Price
    
    Life (Years)Outstanding at December 31, 2007
    
    
    159,540
    
    
    $
    22.10Granted
    
    
    
    
    
    
    Exercised
    
    
    
    
    
    
    Forfeited
    
    
    (2,250
    )
    
    
    24.56Outstanding at December 31, 2008
    
    
    157,290
    
    
    
    22.07
    
    
    
    4.67Options exercisable at December 31, 2008
    
    
    154,290
    
    
    
    
    
    
    
    4.58Outstanding as of December 31, 2008
    
    
    157,290
    
    
    $
    22.07
    
    
    
    4.67Granted
    
    
    Exercised
    
    
    Forfeited
    
    
    Outstanding at March 31, 2009
    
    
    157,290
    
    
    $
    22.07
    
    
    
    4.42Options exercisable at March 31, 2009
    
    
    157,290
    
    
    
    
    
    
    
    4.42
 Restricted Shares
  8




---



##### Table of Contents



WeightedNumber of
    
    AverageRestricted
    
    Grant-DateShares
    
    Fair ValueNonvested balance as of December 31, 2007
    
    
    91,379
    
    
    $
    21.16Granted
    
    
    40,950
    
    
    
    16.00Vested
    
    
    (26,005
    )
    
    
    21.29Forfeited
    
    
    (1,375
    )
    
    
    20.59Nonvested balance as of December 31, 2008
    
    
    104,949
    
    
    $
    19.12Granted
    
    
    
    
    
    
    Vested
    
    
    (8,570
    )
    
    
    22.51Forfeited
    
    
    
    
    
    
    Nonvested balance as of March 31, 2009
    
    
    96,379
    
    
    $
    18.82
  Note 6  Securities.
  As of March 31, 2009Gross
    
    
    GrossAmortized
    
    
    unrealized
    
    
    unrealized
    
    
    EstimatedSecurities available-for-sale
    
    cost
    
    
    holding gains
    
    
    holding losses
    
    
    fair value(In Thousands)Collateralized mortgage
obligations  government
agencies
    
    $
    80,260
    
    
    $
    2,187
    
    
    $
    (32
    )
    
    $
    82,415Collateralized mortgage
obligations 
government-sponsored
enterprises
    
    
    25,507
    
    
    
    462
    
    
    
    (4
    )
    
    
    25,965$
    105,767
    
    
    $
    2,649
    
    
    $
    (36
    )
    
    $
    108,380
 9




---



##### Table of Contents



As of December 31, 2008Gross
    
    
    GrossAmortized
    
    
    unrealized
    
    
    unrealized
    
    
    Estimatedcost
    
    
    holding gains
    
    
    holding losses
    
    
    fair value(In Thousands)Collateralized
mortgage obligations
 government
agencies
    
    $
    81,406
    
    
    $
    1,485
    
    
    $
    (32
    )
    
    $
    82,859Collateralized
mortgage obligations 
government-sponsored
enterprises
    
    
    26,090
    
    
    
    179
    
    
    
    (4
    )
    
    
    26,265$
    107,496
    
    
    $
    1,664
    
    
    $
    (36
    )
    
    $
    109,124
    As of March 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
    
    $
    2,434
    
    
    $
    32
    
    
    $
    
    
    
    $
    
    
    
    $
    2,434
    
    
    $
    32Collateralized
mortgage obligations-
government-sponsored
enterprises
    
    
    1,470
    
    
    
    4
    
    
    
    214
    
    
    
    
    
    
    
    1,684
    
    
    
    4$
    3,904
    
    
    $
    36
    
    
    $
    214
    
    
    $
    
    
    
    $
    4,118
    
    
    $
    36
 10




---



##### Table of Contents



As of December 31, 2008Less 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
    
    $
    9,803
    
    
    $
    32
    
    
    $
    
    
    
    $
    
    
    
    $
    9,803
    
    
    $
    32Collateralized
mortgage obligations 
government-sponsored
enterprises
    
    
    1,394
    
    
    
    2
    
    
    
    534
    
    
    
    2
    
    
    
    1,928
    
    
    
    4$
    11,197
    
    
    $
    34
    
    
    $
    534
    
    
    $
    2
    
    
    $
    11,731
    
    
    $
    36
   Note 7  Loans, Leases and Allowance for Loan and Lease Losses
  March 31,
    
    
    December 31,2009
    
    
    2008(In Thousands)First mortgage loans:Commercial real estate
    
    $
    411,053
    
    
    $
    390,094Construction
    
    
    82,348
    
    
    
    84,778Multi-family
    
    
    39,394
    
    
    
    42,5141-4 family
    
    
    52,725
    
    
    
    51,542585,520
    
    
    
    568,928Commercial and industrial loans
    
    
    222,971
    
    
    
    232,350Direct financing leases, net
    
    
    31,366
    
    
    
    29,722Home equity loans
    
    
    7,060
    
    
    
    7,386Credit card and other
    
    
    15,031
    
    
    
    14,445861,948
    
    
    
    852,831Less:Allowance for loan and lease losses
    
    
    12,935
    
    
    
    11,846Deferred loan fees
    
    
    504
    
    
    
    439Loans and lease receivables, net
    
    $
    848,509
    
    
    $
    840,546
 11




---



##### Table of Contents



ThreeMonths Ended
    
    
    Year EndedMarch 31,
    
    
    December 31,2009
    
    
    2008(Dollars In Thousands)Allowance at beginning of period
    
    $
    11,846
    
    
    $
    9,854Charge-offs:Commercial real estate and other mortgage
    
    
    
    
    
    
    (1,194
    )Commercial
    
    
    (1,110
    )
    
    
    (1,202
    )Lease
    
    
    
    
    
    
    Consumer
    
    
    
    
    
    
    Total charge-offs
    
    
    (1,110
    )
    
    
    (2,396
    )Recoveries:Commercial real estate and other mortgage
    
    
    2
    
    
    
    89Commercial
    
    
    
    
    
    
    Lease
    
    
    
    
    
    
    Consumer
    
    
    
    
    
    
    Total recoveries
    
    
    2
    
    
    
    89Net charge-offs
    
    
    (1,108
    )
    
    
    (2,307
    )Provision for loan and lease losses
    
    
    2,197
    
    
    
    4,299Allowance at end of period
    
    $
    12,935
    
    
    $
    11,846Allowance to gross loans and leases
    
    
    1.50
    %
    
    
    1.39
    %
  March 31,
    
    
    December 31,2009
    
    
    2008(Dollars In Thousands)Non-accrual loans and leasesFirst mortgage loans:Commercial real estate
    
    $
    4,391
    
    
    $
    2,979Construction and land development
    
    
    5,588
    
    
    
    5,279Multi-family
    
    
    
    
    
    
    1-4 family
    
    
    3,652
    
    
    
    2,082Total first mortgage loans
    
    
    13,631
    
    
    
    10,340Commercial and industrial
    
    
    4,168
    
    
    
    5,412Direct financing leases, net
    
    
    254
    
    
    
    24Consumer
    
    
    783
    
    
    
    509Total non-accrual loans and leases
    
    
    18,836
    
    
    
    16,285Foreclosed properties
    
    
    3,011
    
    
    
    3,011Total non-performing assets
    
    $
    21,847
    
    
    $
    19,296Performing troubled debt restructurings
    
    $
    
    
    
    $
    Total non-accrual loans and leases to total loans and leases
    
    
    2.19
    %
    
    
    1.91
    %Total non-performing assets to total assets
    
    
    2.13
    
    
    
    1.91Allowance for loan and lease losses to total loans and leases
    
    
    1.50
    
    
    
    1.39Allowance for loan and lease losses to non-accrual loans and leases
    
    
    68.67
    
    
    
    72.74
 12




---



##### Table of Contents



As of and for
    
    
    As of and forthe Three
    
    
    the YearMonths Ended
    
    
    EndedMarch 31,
    
    
    December 31,2009
    
    
    2008(In Thousands)Impaired loans and leases with no impairment reserves required
    
    $
    12,038
    
    
    $
    9,986Impaired loans and leases with impairment reserves required
    
    
    6,798
    
    
    
    6,299Total impaired loans and leases
    
    
    18,836
    
    
    
    16,285Less:Impairment reserve (included in allowance for loan and lease
losses)
    
    
    1,851
    
    
    
    1,417Net impaired loans and leases
    
    $
    16,985
    
    
    $
    14,868Average impaired loans and leases
    
    $
    16,390
    
    
    $
    8,375Foregone interest income attributable to impaired loans and leases
    
    $
    337
    
    
    $
    752Interest income recognized on impaired loans and leases
    
    
    
    
    
    
    (49
    )Net foregone interest income on impaired loans and leases
    
    $
    337
    
    
    $
    703
  Note 8  Deposits
  March 31, 2009
    
    
    December 31, 2008Weighted
    
    
    
    
    
    
    WeightedBalance
    
    
    average rate
    
    
    Balance
    
    
    average rate(Dollars In Thousands)Transaction accounts:Demand deposits
    
    $
    42,192
    
    
    
    0.00
    %
    
    $
    55,388
    
    
    
    0.00
    %Negotiable order of withdrawal
(NOW) accounts
    
    
    51,051
    
    
    
    0.40
    
    
    
    51,547
    
    
    
    1.6193,243
    
    
    
    
    
    
    
    106,935Money market accounts
    
    
    201,230
    
    
    
    1.12
    
    
    
    148,366
    
    
    
    1.79Certificates of deposit
    
    
    124,487
    
    
    
    2.83
    
    
    
    105,876
    
    
    
    3.57Brokered certificates of deposit
    
    
    471,410
    
    
    
    4.24
    
    
    
    477,697
    
    
    
    4.71$
    890,370
    
    
    
    
    
    
    $
    838,874
 13




---



##### Table of Contents



Note 9  Borrowings
  March 31, 2009
    
    
    December 31, 2008Weighted
    
    
    Weighted
    
    
    
    
    
    
    Weighted
    
    
    Weightedaverage
    
    
    average
    
    
    
    
    
    
    average
    
    
    averageBalance
    
    
    balance
    
    
    rate
    
    
    Balance
    
    
    balance
    
    
    rate(Dollars In Thousands)Fed funds purchased
    
    $
    
    
    
    $
    6,895
    
    
    
    0.58
    %
    
    $
    22,000
    
    
    $
    12,888
    
    
    
    2.38
    %FHLB advances
    
    
    18,513
    
    
    
    19,987
    
    
    
    4.36
    
    
    
    33,516
    
    
    
    31,840
    
    
    
    4.34Line of credit
    
    
    10
    
    
    
    10
    
    
    
    2.52
    
    
    
    10
    
    
    
    1,461
    
    
    
    4.87Subordinated notes
payable
    
    
    39,000
    
    
    
    39,000
    
    
    
    3.59
    
    
    
    39,000
    
    
    
    35,570
    
    
    
    5.70Junior subordinated
notes
    
    
    10,315
    
    
    
    10,315
    
    
    
    10.63
    
    
    
    10,315
    
    
    
    2,734
    
    
    
    10.83$
    67,838
    
    
    $
    76,207
    
    
    
    4.48
    
    
    $
    104,841
    
    
    $
    84,493
    
    
    
    4.83Short-term
borrowings
    
    $
    10
    
    
    
    
    
    
    
    
    
    
    $
    37,010Long-term borrowings
    
    
    67,828
    
    
    
    
    
    
    
    
    
    
    
    67,831$
    67,838
    
    
    
    
    
    
    
    
    
    
    $
    104,841
 Note 10  Fair Value Disclosures
  Level 1 
 Level 2
 Level 3
 14




---



##### Table of Contents



Quoted Pricesin Active
    
    SignificantMarkets for
    
    Other
    
    SignificantBalances as of
    
    Identical
    
    Observable
    
    UnobservableMarch 31,
    
    Assets
    
    Inputs
    
    Inputs2009
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)(In Thousands)Assets:Securities available for sale
    
    $
    108,380
    
    
    $
    
    
    
    $
    108,380
    
    
    $
    Interest rate swaps
    
    
    2,487
    
    
    
    
    
    
    
    2,487
    
    
    
    Liabilities:Interest rate swaps
    
    $
    2,487
    
    
    $
    
    
    
    $
    2,487
    
    
    $
    
 Quoted Pricesin Active
    
    SignificantMarkets for
    
    Other
    
    SignificantBalances as of
    
    Identical
    
    Observable
    
    UnobservableDecember 31,
    
    Assets
    
    Inputs
    
    Inputs2008
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)(In Thousands)Assets:Securities available for sale
    
    $
    109,124
    
    
    $
    
    
    
    $
    109,124
    
    
    $
    Interest rate swaps
    
    
    1,797
    
    
    
    
    
    
    
    1,797
    
    
    
    Liabilities:Interest rate swaps
    
    $
    1,799
    
    
    $
    
    
    
    $
    1,799
    
    
    $
    
  Quoted Pricesin Active
    
    SignificantMarkets for
    
    Other
    
    SignificantBalance at
    
    Identical
    
    Observable
    
    Unobservable
    
    TotalMarch 31,
    
    Assets
    
    Inputs
    
    Inputs
    
    Gains2009
    
    (Level 1)
    
    (Level 2)
    
    (Level 3)
    
    (Losses)(In Thousands)Impaired loans
    
    $
    6,879
    
    
    $
    
    
    
    $
    1,624
    
    
    $
    5,259
    
    
    $
    
   15




---



##### Table of Contents



Note 11  Derivative Financial Instruments
    Interest Rate Swap ContractsAsset Derivatives
    
    Liability DerivativesBalance Sheet
    
    
    
    
    
    Balance SheetLocation
    
    Fair Value
    
    Location
    
    Fair Value(In Thousands)Derivatives
designated as
hedging instruments
under Statement 133March 31, 2009
    
    
    
    
    
    
    
    
    
    Other liabilities
    
    $
    December 31, 2008
    
    
    
    
    
    
    
    
    
    Other liabilities
    
    $
    2Derivatives not
designated as
hedging instruments
under Statement 133March 31, 2009
    
    Other assets
    
    $
    2,487
    
    
    Other liabilities
    
    $
    2,487December 31, 2008
    
    Other assets
    
    $
    1,797
    
    
    Other liabilities
    
    $
    1,797
 16




---



##### Table of Contents



For the three months ended March 31, 2009AmountRecognized in
    
    
    
    
    
    AmountOther
    
    
    
    
    
    reclassified fromComprehensive
    
    
    
    
    
    AccumulatedIncome on
    
    Income
    
    Other
    
    Income
    
    Amount ofDerivative
    
    Statement
    
    Comprehensive
    
    Statement
    
    Gain/(Loss)Gain/(Loss)
    
    Location
    
    Income
    
    Location
    
    RecordedInstrument
    
    Effective Portion
    
    Effective Portion
    
    Effective Portion
    
    Ineffective Portion
    
    Ineffective Portion(In Thousands)Interest rate swaps
-133
    
    $
    (1
    )
    
    Interest expense
    
    $
    (3
    )
    
    
    N/A
    
    
    $
    Interest rate swaps
    
    $
    
    
    
    
    N/A
    
    
    $
    
    
    
    Other noninterest income
    
    $
    690Interest rate swaps
    
    $
    
    
    
    
    N/A
    
    
    $
    
    
    
    Other noninterest income
    
    $
    (467
    )
 For the three months ended March 31, 2008AmountRecognized 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
-133
    
    $
    (5
    )
    
    Interest expense
    
    $
    (3
    )
    
    
    N/A
    
    
    $
    
 
 Item 2.  Managements Discussion and Analysis of Financial Condition and Results of Operations
 General
   17




---



##### Table of Contents



Item 1A. Risk Factors
  Overview
  General Overview
 
    
    Total assets were $1.03 billion as of March 31, 2009 compared to $1.01 billion as of
December 31, 2008.
    
    Net loss for the three months ended March 31, 2009 was $193,000 compared to net income
of $770,000 for the three months ended March 31, 2008.
    
    Net interest margin decreased slightly to 2.65% for the three months ended March 31,
2009 from 2.67% for the three months ended March 31, 2008.
    
    Top line revenue increased 12.5% to $8.1 million for the three months ended March 31,
2009 compared to $7.2 million for the comparable period of the prior year.
    
    Loan and lease loss provision was $2.2 million for the three months ended March 31,
2009 compared to $553,000 for same time period in the prior year. Allowance for loan and
lease loss as a percentage of total loans was 1.50% at March 31, 2009 compared to 1.39% at
December 31, 2008.
    
    Diluted losses per share were $0.08 compared to diluted earnings per share of $0.31 for
the three months ended March 31, 2008.
    
    Annualized return on average equity and return on average assets was (1.43)% and
(0.08)%, respectively for the three month period ended March 31, 2009, compared to 6.17%
and 0.33%, respectively, for the same time period in 2008.
    
    We elected not to participate in the U.S. Troubled Asset Relief Program Capital
Purchase Program.
 Results of Operations
 Top Line Revenue
  18




---



##### Table of Contents



For the Three Months EndedMarch 31,2009
    
    
    2008
    
    
    Change(Dollars In Thousands)Net interest income
    
    $
    6,488
    
    
    $
    6,062
    
    
    
    7.0
    %Non-interest income
    
    
    1,562
    
    
    
    1,092
    
    
    
    43.0Total top line revenue
    
    $
    8,050
    
    
    $
    7,154
    
    
    
    12.5
 Adjusted Net Income
   For the Three Months EndedMarch 31,2009
    
    
    2008
    
    
    Change(Dollars In Thousands)Net income (loss), presented under US GAAP
    
    $
    (193
    )
    
    $
    770
    
    
    
    (125.1
    )%Add back:Provision
for loan and lease losses, after tax
    
    
    1,335
    
    
    
    336
    
    
    
    297.3Less:Net charge-offs, after tax
    
    
    674
    
    
    
    133
    
    
    
    406.7Adjusted net income
    
    $
    468
    
    
    $
    973
    
    
    
    (51.9
    )
 Return on Equity
  Net Interest Income.
 19




---



##### Table of Contents



Rate/Rate
    
    
    Volume
    
    
    Volume
    
    
    Net(In Thousands)Interest-Earning AssetsCommercial real estate and other mortgage loans
    
    $
    (1,630
    )
    
    $
    714
    
    
    $
    (130
    )
    
    $
    (1,046
    )Commercial and industrial loans
    
    
    (571
    )
    
    
    197
    
    
    
    (26
    )
    
    
    (400
    )Leases
    
    
    (5
    )
    
    
    27
    
    
    
    
    
    
    
    22Consumer loans
    
    
    (22
    )
    
    
    6
    
    
    
    
    
    
    
    (16
    )Total loans and leases receivable
    
    
    (2,228
    )
    
    
    944
    
    
    
    (156
    )
    
    
    (1,440
    )Mortgage-related securities
    
    
    (6
    )
    
    
    138
    
    
    
    
    
    
    
    132Investment securities
    
    
    
    
    
    
    (9
    )
    
    
    
    
    
    
    (9
    )Federal Home Loan Bank Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Fed funds sold
    
    
    (21
    )
    
    
    (2
    )
    
    
    2
    
    
    
    (21
    )Short-term investments
    
    
    (16
    )
    
    
    44
    
    
    
    (38
    )
    
    
    (10
    )Total net change in income on
interest-earning assets
    
    
    (2,271
    )
    
    
    1,115
    
    
    
    (192
    )
    
    
    (1,348
    )Interest-Bearing LiabilitiesNOW accounts
    
    
    (364
    )
    
    
    (99
    )
    
    
    83
    
    
    
    (380
    )Money market
    
    
    (607
    )
    
    
    123
    
    
    
    (71
    )
    
    
    (555
    )Certificates of deposit
    
    
    (275
    )
    
    
    469
    
    
    
    (163
    )
    
    
    31Brokered certificates of deposit
    
    
    (964
    )
    
    
    369
    
    
    
    (62
    )
    
    
    (657
    )Total deposits
    
    
    (2,210
    )
    
    
    862
    
    
    
    (213
    )
    
    
    (1,561
    )Junior subordinated notes
    
    
    274
    
    
    
    274
    
    
    
    (274
    )
    
    
    274FHLB advances
    
    
    (37
    )
    
    
    (200
    )
    
    
    17
    
    
    
    (220
    )Other borrowings
    
    
    (269
    )
    
    
    4
    
    
    
    (2
    )
    
    
    (267
    )Total net change in expense on
interest-bearing liabilities
    
    
    (2,242
    )
    
    
    940
    
    
    
    (472
    )
    
    
    (1,774
    )Net change in net interest income
    
    $
    (29
    )
    
    $
    175
    
    
    $
    280
    
    
    $
    426
  20




---



##### Table of Contents



21




---



##### Table of Contents



Average Interest-Earning Assets, Average Interest-Bearing Liabilities and Interest Rate Spread.
 For the Three Months Ended March 31,2009
    
    
    2008Average
    
    
    
    
    
    
    Average
    
    
    Average
    
    
    
    

    
    
    Averagebalance
    
    
    Interest

    
    
    yield/cost
    
    
    balance
    
    
    Interest
    
    
    yield/cost(Dollars In Thousands)Interest-Earning AssetsCommercial real estate and other
mortgage loans(1)
    
    $
    575,359
    
    
    $
    7,888
    
    
    
    5.48
    %
    
    $
    532,771
    
    
    $
    8,934
    
    
    
    6.71
    %Commercial and industrial
loans(1)
    
    
    227,716
    
    
    
    3,920
    
    
    
    6.89
    
    
    
    217,807
    
    
    
    4,320
    
    
    
    7.93Leases(1)
    
    
    30,457
    
    
    
    478
    
    
    
    6.29
    
    
    
    28,740
    
    
    
    456
    
    
    
    6.36Consumer loans
    
    
    22,225
    
    
    
    269
    
    
    
    4.84
    
    
    
    21,764
    
    
    
    285
    
    
    
    5.24Total loans and leases
receivable(1)
    
    
    855,757
    
    
    
    12,555
    
    
    
    5.87
    
    
    
    801,082
    
    
    
    13,995
    
    
    
    6.99Mortgage-related securities(2)
    
    
    108,290
    
    
    
    1,239
    
    
    
    4.58
    
    
    
    96,255
    
    
    
    1,107
    
    
    
    4.60Investment securities(2)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    991
    
    
    
    9
    
    
    
    3.63Federal Home Loan Bank stock
    
    
    2,367
    
    
    
    
    
    
    
    
    
    
    
    2,367
    
    
    
    
    
    
    
    Fed funds sold and other
    
    
    3,038
    
    
    
    2
    
    
    
    0.26
    
    
    
    3,302
    
    
    
    23
    
    
    
    2.79Short-term investments
    
    
    8,258
    
    
    
    9
    
    
    
    0.44
    
    
    
    2,480
    
    
    
    19
    
    
    
    3.06Total interest-earning assets
    
    
    977,710
    
    
    
    13,805
    
    
    
    5.65
    
    
    
    906,477
    
    
    
    15,153
    
    
    
    6.69Non-interest-earning assets
    
    
    37,577
    
    
    
    
    
    
    
    
    
    
    
    32,184Total assets
    
    $
    1,015,287
    
    
    
    
    
    
    
    
    
    
    $
    938,661Interest-Bearing LiabilitiesNOW accounts
    
    $
    53,844
    
    
    
    54
    
    
    
    0.40
    
    
    $
    69,668
    
    
    
    434
    
    
    
    2.49Money market
    
    
    176,812
    
    
    
    497
    
    
    
    1.12
    
    
    
    158,316
    
    
    
    1,052
    
    
    
    2.66Certificates of deposits
    
    
    116,479
    
    
    
    823
    
    
    
    2.83
    
    
    
    73,160
    
    
    
    792
    
    
    
    4.33Brokered certificates of deposit
    
    
    479,905
    
    
    
    5,091
    
    
    
    4.24
    
    
    
    450,967
    
    
    
    5,748
    
    
    
    5.10Total deposits
    
    
    827,040
    
    
    
    6,465
    
    
    
    3.13
    
    
    
    752,111
    
    
    
    8,026
    
    
    
    4.27Junior subordinated notes
    
    
    10,315
    
    
    
    274
    
    
    
    10.63
    
    
    
    
    
    
    
    
    
    
    
    FHLB advances
    
    
    19,987
    
    
    
    218
    
    
    
    4.36
    
    
    
    36,793
    
    
    
    438
    
    
    
    4.76Other borrowings
    
    
    45,904
    
    
    
    360
    
    
    
    3.14
    
    
    
    45,592
    
    
    
    627
    
    
    
    5.50Total interest-bearing liabilities
    
    
    903,246
    
    
    
    7,317
    
    
    
    3.24
    
    
    
    834,496
    
    
    
    9,091
    
    
    
    4.36Non-interest-bearing liabilities
    
    
    58,236
    
    
    
    
    
    
    
    
    
    
    
    54,240Total liabilities
    
    
    961,482
    
    
    
    
    
    
    
    
    
    
    
    888,736Stockholders equity
    
    
    53,805
    
    
    
    
    
    
    
    
    
    
    
    49,925Total liabilities and stockholders
equity
    
    $
    1,015,287
    
    
    
    
    
    
    
    
    
    
    $
    938,661Net interest income/interest rate spread
    
    
    
    
    
    $
    6,488
    
    
    
    2.41
    
    
    
    
    
    
    $
    6,062
    
    
    
    2.33Net interest-earning assets
    
    $
    74,464
    
    
    
    
    
    
    
    
    
    
    $
    71,981Net interest margin
    
    
    
    
    
    
    
    
    
    
    2.65
    
    
    
    
    
    
    
    
    
    
    
    2.67Average interest-earning assets to
average interest-bearing liabilities
    
    
    108.24
    %
    
    
    
    
    
    
    
    
    
    
    108.63
    %Return on average assets
    
    
    (0.08
    )
    
    
    
    
    
    
    
    
    
    
    0.33Return on average equity
    
    
    (1.43
    )
    
    
    
    
    
    
    
    
    
    
    6.17Average equity to average assets
    
    
    5.30
    
    
    
    
    
    
    
    
    
    
    
    5.32Non-interest expense to average assets
    
    
    2.43
    
    
    
    
    
    
    
    
    
    
    
    2.28
 
 (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. 22




---



##### Table of Contents



Provision for Loan and Lease Losses. Asset Quality
 Non-Interest Income.
     23




---



##### Table of Contents



Non-Interest Expense.
     Income Taxes.
 24




---



##### Table of Contents



Financial Condition
 General.
 Securities.
 Loans and Leases Receivable.
 25




---



##### Table of Contents



Asset Quality
 Deposits. Liquidity and Capital Resources
 Borrowings.
 Asset Quality
 Non-performing Assets.
 26




---



##### Table of Contents



March 31,
    
    
    December 31,2009
    
    
    2008(Dollars In Thousands)Non-accrual loans and leasesFirst mortgage loans:Commercial real estate
    
    $
    4,391
    
    
    $
    2,979Construction and land development
    
    
    5,588
    
    
    
    5,279Multi-family
    
    
    
    
    
    
    1-4 family
    
    
    3,652
    
    
    
    2,082Total first mortgage loans
    
    
    13,631
    
    
    
    10,340Commercial and industrial
    
    
    4,168
    
    
    
    5,412Direct financing leases, net
    
    
    254
    
    
    
    24Consumer
    
    
    783
    
    
    
    509Total non-accrual loans and leases
    
    
    18,836
    
    
    
    16,285Foreclosed properties
    
    
    3,011
    
    
    
    3,011Total non-performing assets
    
    $
    21,847
    
    
    $
    19,296Performing troubled debt restructurings
    
    $
    
    
    
    $
    Total non-accrual loans and leases to total loans and leases
    
    
    2.19
    %
    
    
    1.91
    %Total non-performing assets to total assets
    
    
    2.13
    
    
    
    1.91Allowance for loan and lease losses to total loans and leases
    
    
    1.50
    
    
    
    1.39Allowance for loan and lease losses to non-accrual loans and
leases
    
    
    68.67
    
    
    
    72.74
  As of and for
    
    
    As of and forthe Three
    
    
    the YearMonths Ended
    
    
    EndedMarch 31,
    
    
    December 31,2009
    
    
    2008(In Thousands)Impaired loans and leases with no impairment reserves required
    
    $
    12,038
    
    
    $
    9,986Impaired loans and leases with impairment reserves required
    
    
    6,798
    
    
    
    6,299Total impaired loans and leases
    
    
    18,836
    
    
    
    16,285Less:Impairment reserve (included in allowance for loan and lease
losses)
    
    
    1,851
    
    
    
    1,417Net impaired loans and leases
    
    $
    16,997
    
    
    $
    14,868Average impaired loans and leases
    
    $
    16,390
    
    
    $
    8,375Foregone interest income attributable to impaired loans and leases
    
    $
    337
    
    
    $
    752Interest income recognized on impaired loans and leases
    
    
    
    
    
    
    (49
    )Net foregone interest income on impaired loans and leases
    
    $
    337
    
    
    $
    703
 27




---



##### Table of Contents



For the Three Months EndedMarch 31,2009
    
    
    2008(Dollars In Thousands)Allowance at beginning of period
    
    $
    11,846
    
    
    $
    9,854Charge-offs:Mortgage
    
    
    
    
    
    
    (222
    )Commercial
    
    
    (1,110
    )
    
    
    Lease
    
    
    
    
    
    
    Consumer
    
    
    
    
    
    
    Total charge-offs
    
    
    (1,110
    )
    
    
    (222
    )Recoveries:Mortgage
    
    
    2
    
    
    
    3Commercial
    
    
    
    
    
    
    Lease
    
    
    
    
    
    
    Consumer
    
    
    
    
    
    
    Total recoveries
    
    
    2
    
    
    
    3Net charge-offs
    
    
    (1,108
    )
    
    
    (219
    )Provision for loan and lease losses
    
    
    2,197
    
    
    
    553Allowance at end of period
    
    $
    12,935
    
    
    $
    10,188Allowance to gross loans and leases
    
    
    1.50
    %
    
    
    1.24
    %
 Liquidity and Capital Resources
    28




---



##### Table of Contents



29




---



##### 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 March 31, 2009Total capital
(to risk-weighted assets)Consolidated
    
    $
    109,621
    
    
    
    11.78
    %
    
    $
    74,448
    
    
    
    8.00
    %
    
    
    N/A
    
    
    
    N/AFirst Business Bank
    
    
    91,549
    
    
    
    11.01
    
    
    
    66,527
    
    
    
    8.00
    
    
    $
    83,159
    
    
    
    10.00
    %First Business Bank Milwaukee
    
    
    14,704
    
    
    
    14.31
    
    
    
    8,223
    
    
    
    8.00
    
    
    
    10,279
    
    
    
    10.00Tier 1 capital
(to risk-weighted assets)Consolidated
    
    $
    58,972
    
    
    
    6.34
    %
    
    $
    37,224
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/AFirst Business Bank
    
    
    81,145
    
    
    
    9.76
    
    
    
    33,263
    
    
    
    4.00
    
    
    $
    49,895
    
    
    
    6.00
    %First Business Bank Milwaukee
    
    
    13,413
    
    
    
    13.05
    
    
    
    4,111
    
    
    
    4.00
    
    
    
    6,167
    
    
    
    6.00Tier 1 capital
(to average assets)Consolidated
    
    $
    58,972
    
    
    
    5.84
    %
    
    $
    40,410
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/AFirst Business Bank
    
    
    81,145
    
    
    
    9.13
    
    
    
    35,569
    
    
    
    4.00
    
    
    $
    44,462
    
    
    
    5.00
    %First Business Bank Milwaukee
    
    
    13,413
    
    
    
    9.58
    
    
    
    5,602
    
    
    
    4.00
    
    
    
    7,002
    
    
    
    5.00
 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, 2008Total capital
(to risk-weighted assets)Consolidated
    
    $
    110,005
    
    
    
    12.00
    %
    
    $
    73,088
    
    
    
    8.00
    %
    
    
    N/A
    
    
    
    N/AFirst Business Bank
    
    
    91,062
    
    
    
    11.13
    
    
    
    65,448
    
    
    
    8.00
    
    
    $
    81,810
    
    
    
    10.00
    %First Business Bank Milwaukee
    
    
    14,590
    
    
    
    15.13
    
    
    
    7,714
    
    
    
    8.00
    
    
    
    9,642
    
    
    
    10.00Tier 1 capital
(to risk-weighted assets)Consolidated
    
    $
    59,178
    
    
    
    6.48
    %
    
    $
    36,544
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/AFirst Business Bank
    
    
    80,880
    
    
    
    9.89
    
    
    
    32,724
    
    
    
    4.00
    
    
    $
    49,086
    
    
    
    6.00
    %First Business Bank Milwaukee
    
    
    13,375
    
    
    
    13.87
    
    
    
    3,857
    
    
    
    4.00
    
    
    
    5,785
    
    
    
    6.00Tier 1 capital
(to average assets)Consolidated
    
    $
    59,178
    
    
    
    5.94
    %
    
    $
    39,819
    
    
    
    4.00
    %
    
    
    N/A
    
    
    
    N/AFirst Business Bank
    
    
    80,880
    
    
    
    9.23
    
    
    
    35,064
    
    
    
    4.00
    
    
    $
    43,830
    
    
    
    5.00
    %First Business Bank Milwaukee
    
    
    13,375
    
    
    
    10.61
    
    
    
    5,042
    
    
    
    4.00
    
    
    
    6,302
    
    
    
    5.00
 30




---



##### Table of Contents



Contractual Obligations and Off-balance Sheet Arrangements
  
 Item 3.  Quantitative and Qualitative Disclosures about Market Risk
     
 Item 4T.  Controls and Procedures
   
 Part II. Other Information
 
 Item 1.  Legal Proceedings
  31




---



##### Table of Contents



Item 1A.   Risk Factors
  
 Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
 (a)
    
    None.(b)
    
    None.(c)
    
    Issuer Purchases of Equity Securities
 Total Number of
    
    ApproximateShares Purchased
    
    Dollar Value ofas Part of
    
    Shares that MayPublicly
    
    Yet Be PurchasedTotal Number of
    
    Average Price
    
    Announced Plans
    
    Under the PlansPeriod
    
    Shares Purchased
    
    Paid Per Share
    
    or Programs
    
    or ProgramsJanuary 1  January 31, 2009
    
    
    99
    
    
    $
    12.60
    
    
    
    
    
    
    $
    177,150February 1  February 28, 2009
    
    
    928
    
    
    
    12.40
    
    
    
    
    
    
    
    177,150March 1  March 31, 2009
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    177,150
  
 Item 3.  Defaults Upon Senior Securities
  
 Item 4.  Submission of Matters to a Vote of Security Holders
  
 Item 5.  Other Information.
  
 Item 6.  Exhibits.
 (10.1)
    
    First Business Financial Services, Inc. Annual Incentive Bonus Plan, as amended
(incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K dated
April 10, 2009(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.
 32




---



##### Table of Contents



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

Corey A. ChambasChief Executive OfficerMay 1, 2009
 33