NOTE 2 – DISCONTINUED OPERATIONS AND ASSETS AND LIABILITIES HELD FOR SALE

Discontinued Operations. The assets and liabilities associated with the below transactions were previously reported in the First Bank segment and were sold as part of the Company’s Capital Plan to preserve risk-based capital.

Northern Illinois Region. During 2010, First Bank entered into three Branch Purchase and Assumption Agreements that provided for the sale of certain assets and the transfer of certain liabilities associated with 14 of First Bank’s branch banking offices in Northern Illinois, as further described below.

On December 21, 2010, First Bank entered into a Branch Purchase and Assumption Agreement with United Community Bank (United Community) that provided for the sale of certain assets and the transfer of certain liabilities associated with First Bank’s three retail branches in Pittsfield, Roodhouse and Winchester, Illinois to United Community. The transaction was completed on May 13, 2011. Under the terms of the agreement, United Community assumed $92.2 million of deposits associated with these branches for a weighted average premium of approximately 2.4%, or $2.2 million. United Community also purchased $37.5 million of loans as well as certain other assets at par value, including premises and equipment, associated with these branches. The assets and liabilities sold in this transaction are reflected in assets and liabilities of discontinued operations in the consolidated balance sheet as of December 31, 2010.

On June 7, 2010, First Bank entered into a Branch Purchase and Assumption Agreement with Bank of Springfield that provided for the sale of certain assets and the transfer of certain liabilities of First Bank’s branch banking office located in Jacksonville, Illinois (Jacksonville Branch) to Bank of Springfield. The transaction was completed on September 24, 2010. Under the terms of the agreement, Bank of Springfield assumed $28.9 million of deposits associated with the Jacksonville Branch for a premium of approximately 4.00%, or $1.2 million. Bank of Springfield also purchased $2.2 million of loans as well as certain other assets at par value, including premises and equipment, associated with the Jacksonville Branch.

On May 7, 2010, First Bank entered into a Branch Purchase and Assumption Agreement with First Mid-Illinois Bank & Trust, N.A. (First Mid-Illinois) that provided for the sale of certain assets and the transfer of certain liabilities associated with 10 of First Bank’s retail branches in Peoria, Galesburg, Quincy, Bartonville, Knoxville and Bloomington, Illinois to First Mid-Illinois. The transaction was completed on September 10, 2010. Under the terms of the agreement, First Mid-Illinois assumed $336.0 million of deposits for a premium of 4.77%, or $15.6 million. First Mid-Illinois also purchased $135.2 million of loans as well as certain other assets at par value, including premises and equipment, associated with these branches.

The 14 branches in the transactions with United Community, Bank of Springfield and First Mid-Illinois are collectively defined as the Northern Illinois Region (Northern Illinois Region). The Bank of Springfield and First Mid-Illinois transactions, in the aggregate, resulted in a gain of $6.4 million, after the write-off of goodwill and intangible assets of $9.7 million allocated to the Northern Illinois Region, during the third quarter of 2010. The United Community transaction resulted in a gain of $425,000, after the write-off of goodwill and intangible assets of $1.6 million allocated to the Northern Illinois Region, during the second quarter of 2011.

The Company applied discontinued operations accounting in accordance with ASC Topic 205-20, “Presentation of Financial Statements – Discontinued Operations,” to the assets and liabilities being sold in the Northern Illinois Region as of December 31, 2010 and for the three and six months ended June 30, 2011 and 2010.

Missouri Valley Partners, Inc. On March 5, 2010, First Bank entered into a Stock Purchase Letter Agreement that provided for the sale of First Bank’s subsidiary, Missouri Valley Partners, Inc. (MVP) to Stifel Financial Corp. The transaction was completed on April 15, 2010. Under the terms of the agreement, First Bank sold all of the capital stock of MVP for a purchase price of $515,000. The transaction resulted in a loss of $156,000 during the second quarter of 2010. The Company applied discontinued operations accounting to MVP for the three and six months ended June 30, 2010.

Texas Region. On February 8, 2010, First Bank entered into a Purchase and Assumption Agreement with Prosperity Bank (Prosperity), headquartered in Houston, Texas, that provided for the sale of certain assets and the transfer of certain liabilities of First Bank’s Texas franchise (Texas Region) to Prosperity. The transaction was completed on April 30, 2010. Under the terms of the agreement, Prosperity assumed substantially all of the deposits associated with First Bank’s 19 Texas retail branches which totaled $492.2 million, for a premium of 5.50%, or $26.9 million. Prosperity also purchased $96.7 million of loans as well as certain other assets, including premises and equipment, associated with First Bank’s Texas Region. The transaction resulted in a gain of $5.0 million, after the write-off of goodwill and intangible assets of $20.0 million allocated to the Texas Region, during the second quarter of 2010. The Company applied discontinued operations accounting to the assets and liabilities being sold in the Texas Region for the three and six months ended June 30, 2010.

WIUS, Inc. and WIUS of California, Inc. On December 3, 2009, First Bank and Universal Premium Acceptance Corporation, predecessor to WIUS, Inc., and its wholly owned subsidiary, WIUS of California, Inc. (collectively, WIUS), entered into a Purchase and Sale Agreement that provided for the sale of certain assets and the transfer of certain liabilities of WIUS to PFS Holding Company, Inc., Premium Financing Specialists, Inc., Premium Financing Specialists of California, Inc. and Premium Financing Specialists of the South, Inc. (collectively, PFS). Under the terms of the agreement, PFS purchased $141.3 million of loans as well as certain other assets, including premises and equipment, associated with WIUS. PFS also assumed certain other liabilities associated with WIUS. With the exception of the subsequent sale of $1.5 million of additional loans to PFS on February 26, 2010, the transaction was completed on December 31, 2009, and resulted in a loss of $13.1 million, after the write-off of goodwill and intangible assets of $20.0 million allocated to WIUS, during the fourth quarter of 2009. On August 31, 2010, First Bank sold all of the capital stock of WIUS to an unrelated third party for a purchase price of $100,000, which resulted in a loss of $29,000. The Company applied discontinued operations accounting to WIUS for the three and six months ended June 30, 2010.

Chicago Region. On November 11, 2009, First Bank entered into a Purchase and Assumption Agreement that provided for the sale of certain assets and the transfer of certain liabilities of First Bank’s Chicago franchise (Chicago Region) to FirstMerit Bank, N.A. (FirstMerit). The transaction was completed on February 19, 2010. Under the terms of the agreement, FirstMerit assumed substantially all of the deposits associated with First Bank’s 24 Chicago retail branches which totaled $1.20 billion, for a premium of 3.50%, or $42.1 million. FirstMerit also purchased $301.2 million of loans as well as certain other assets, including premises and equipment, associated with First Bank’s Chicago Region. The transaction resulted in a gain of $8.4 million, after the write-off of goodwill and intangible assets of $26.3 million allocated to the Chicago Region, during the first quarter of 2010. The Company applied discontinued operations accounting to the assets and liabilities being sold in the Chicago Region for the three and six months ended June 30, 2010.

Assets and liabilities of discontinued operations at December 31, 2010 were as follows:

	December 31, 2010
	Northern Illinois
	(dollars expressed in
	thousands)
Cash and due from banks	$	693
Loans:
Commercial, financial and agricultural		6,891
Real estate construction and development		50
Residential real estate		13,953
Multi-family residential		135
Commercial real estate		17,253
Consumer and installment, net of deferred costs (fees)		1,983
Total loans		40,265
Bank premises and equipment, net		850
Goodwill and other intangible assets		1,558
Other assets		166
Assets of discontinued operations	$	43,532
Deposits:
Noninterest-bearing demand	$	11,223
Interest-bearing demand		17,619
Savings and money market		23,832
Time deposits of $100 or more		5,789
Other time deposits		35,613
Total deposits		94,076
Accrued expenses and other liabilities		108
Liabilities of discontinued operations	$	94,184

Income from discontinued operations, net of tax, for the three months ended June 30, 2011 and 2010 was as follows:

	Three Months
	Ended
	June 30, 2011		Three Months Ended June 30, 2010
			Northern
	Northern Illinois		Illinois	Chicago		Texas		WIUS		MVP		Total
	(dollars expressed in thousands)
Interest income:
Interest and fees on loans	$	288	3,148	—		453		33		—		3,634
Interest expense:
Interest on deposits		80	1,406	—		430		—		—		1,836
Other borrowings		—	—	—		—		4		—		4
Total interest expense		80	1,406	—		430		4		—		1,840
Net interest income		208	1,742	—		23		29		—		1,794
Provision for loan losses		—	—	—		—		—		—		—
Net interest income after provision for
loan losses		208	1,742	—		23		29		—		1,794
Noninterest income:
Service charges and customer service fees		98	824	—		292		—		—		1,116
Investment management income		—	—	—		—		—		98		98
Loan servicing fees		3	—	—		39		—		—		39
Other		—	19	—		45		—		—		64
Total noninterest income		101	843	—		376		—		98		1,317
Noninterest expense:
Salaries and employee benefits		154	1,032	—		1,006		—		96		2,134
Occupancy, net of rental income		24	358	—		177		—		8		543
Furniture and equipment		10	125	—		112		—		4		241
Legal, examination and professional fees		5	15	—		55		184		34		288
Amortization of intangible assets		—	110	—		—		—		—		110
FDIC insurance		19	602	—		126		—		—		728
Other		20	237	—		341		155		7		740
Total noninterest expense		232	2,479	—		1,817		339		149		4,784
Income (loss) from operations of discontinued
operations		77	106	—		(1,418	)	(310	)	(51	)	(1,673	)
Net gain (loss) on sale of discontinued
operations		425	—	(27	)	4,984		(17	)	(156	)	4,784
Provision for income taxes		—	—	—		—		—		—		—
Net income (loss) from discontinued operations,
net of tax	$	502	106	(27	)	3,566		(327	)	(207	)	3,111

Income from discontinued operations, net of tax, for the six months ended June 30, 2011 and 2010 was as follows:

	Six Months Ended
	June 30, 2011		Six Months Ended June 30, 2010
			Northern
	Northern Illinois		Illinois	Chicago		Texas		WIUS		MVP		Total
	(dollars expressed in thousands)
Interest income:
Interest and fees on loans	$	895	6,454	2,391		1,816		33		—		10,694
Interest expense:
Interest on deposits		261	2,881	2,550		1,796		—		—		7,227
Other borrowings		—	—	—		3		8		—		11
Total interest expense		261	2,881	2,550		1,799		8		—		7,238
Net interest income (loss)		634	3,573	(159	)	17		25		—		3,456
Provision for loan losses		—	—	—		—		—		—		—
Net interest income (loss) after provision
for loan losses		634	3,573	(159	)	17		25		—		3,456
Noninterest income:
Service charges and customer service fees		259	1,605	523		1,192		—		—		3,320
Investment management income		—	—	—		—		—		787		787
Loan servicing fees		5	—	—		101		—		—		101
Other		—	19	254		60		—		(1	)	332
Total noninterest income		264	1,624	777		1,353		—		786		4,540
Noninterest expense:
Salaries and employee benefits		357	2,094	2,137		2,843		32		517		7,623
Occupancy, net of rental income		68	764	606		1,148		—		59		2,577
Furniture and equipment		29	251	178		345		—		17		791
Legal, examination and professional fees		6	36	123		111		189		115		574
Amortization of intangible assets		—	260	—		—		—		—		260
FDIC insurance		100	1,124	292		478		—		—		1,894
Other		67	462	424		860		184		29		1,959
Total noninterest expense		627	4,991	3,760		5,785		405		737		15,678
Income (loss) from operations of discontinued
operations		271	206	(3,142	)	(4,415	)	(380	)	49		(7,682	)
Net gain (loss) on sale of discontinued
operations		425	—	8,413		4,984		(105	)	(156	)	13,136
Provision for income taxes		—	—	—		—		—		—		—
Net income (loss) from discontinued operations,
net of tax	$	696	206	5,271		569		(485	)	(107	)	5,454

The Company did not allocate any consolidated interest that is not directly attributable to or related to discontinued operations.

All financial information in the consolidated financial statements and notes to the consolidated financial statements reflects continuing operations, unless otherwise noted.

Assets Held for Sale and Liabilities Held for Sale. On January 28, 2011, First Bank entered into a Branch Purchase and Assumption Agreement that provided for the sale of First Bank’s Edwardsville, Illinois branch office (Edwardsville Branch) to National Bank. The transaction was completed on April 29, 2011 and resulted in a gain of $263,000, after the write-off of goodwill of $500,000 allocated to the transaction. Under the terms of the agreement, National Bank assumed $10.4 million of deposits associated with the Edwardsville Branch for a premium of $130,000. National Bank also purchased $667,000 of loans associated with the Edwardsville Branch at a premium of 0.5%, or approximately $3,000, and premises and equipment associated with the Edwardsville Branch at a premium of approximately $640,000.

On November 9, 2010, First Bank entered into a Branch Purchase and Assumption Agreement that provided for the sale of First Bank’s San Jose, California branch office (San Jose Branch) to City National Bank (City National). The transaction was completed on February 11, 2011 and resulted in a loss of $334,000 during the first quarter of 2011. Under the terms of the agreement, City National assumed $8.4 million of deposits for a premium of 5.85%, or approximately $371,000. City National also purchased certain other assets at par value, including premises and equipment.

The assets and liabilities associated with the Edwardsville and San Jose Branches were reflected in assets held for sale and liabilities held for sale in the consolidated balance sheet as of December 31, 2010, and were not included in discontinued operations as the Company will have continuing involvement in the respective regions.