10-Q

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)
[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the quarterly period ended September 30, 2011
[   ]	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to ________

Commission File Number: 0-20632

FIRST BANKS, INC.
(Exact name of registrant as specified in its charter)

MISSOURI	43-1175538
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

135 North Meramec, Clayton, Missouri	63105
(Address of principal executive offices)	(Zip code)

(314) 854-4600
(Registrant’s telephone number, including area code)

____________________

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
[ X ] Yes    [   ] No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
[ X ] Yes    [   ] No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer [   ]	Accelerated filer [   ]
Non-accelerated filer [ X ] (Do not check if a smaller reporting company)	Smaller reporting company [   ]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes    [ X ] No

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

Class	Shares Outstanding at October 31, 2011
Common Stock, $250.00 par value	23,661

FIRST BANKS,INC.

TABLE OF CONTENTS

			Page
PART I.		FINANCIAL INFORMATION
	Item 1.	Financial Statements:
		Consolidated Balance Sheets	1
		Consolidated Statements of Operations	2
		Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income
		(Loss)	3
		Consolidated Statements of Cash Flows	4
		Notes to Consolidated Financial Statements	6
	Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	41
	Item 3.	Quantitative and Qualitative Disclosures about Market Risk	74
	Item 4.	Controls and Procedures	74
PART II.		OTHER INFORMATION
	Item 1.	Legal Proceedings	75
	Item 1A.	Risk Factors	75
	Item 6.	Exhibits	75
SIGNATURES			76

PARTI–FINANCIALINFORMATION
ITEM 1–FINANCIAL STATEMENTS

FIRST BANKS,INC.

CONSOLIDATED BALANCE SHEETS –(UNAUDITED)
(dollars expressed in thousands, except share and per share data)

	September 30,			December 31,
	2011			2010
ASSETS
Cash and cash equivalents:
Cash and due from banks	$	100,179		70,964
Short-term investments		398,451		924,794
Total cash and cash equivalents		498,630		995,758
Investment securities:
Available for sale		2,410,198		1,483,185
Held to maturity (fair value of $14,605 and $11,990, respectively)		13,940		11,152
Total investment securities		2,424,138		1,494,337
Loans:
Commercial, financial and agricultural		768,047		1,045,832
Real estate construction and development		303,263		490,766
Real estate mortgage		2,369,673		2,872,104
Consumer and installment		25,206		33,623
Loans held for sale		36,595		54,470
Deferred loan costs (fees)		7		(4,511	)
Total loans		3,502,791		4,492,284
Allowance for loan losses		(157,724	)	(201,033	)
Net loans		3,345,067		4,291,251
Federal Reserve Bank and Federal Home Loan Bank stock, at cost		27,257		30,121
Bank premises and equipment, net		144,547		161,414
Goodwill and other intangible assets		126,727		129,054
Deferred income taxes		23,517		18,004
Other real estate and repossessed assets		131,349		140,665
Other assets		62,733		71,726
Assets held for sale		—		2,266
Assets of discontinued operations		—		43,532
Total assets	$	6,783,965		7,378,128
LIABILITIES
Deposits:
Noninterest-bearing demand	$	1,153,092		1,167,206
Interest-bearing demand		983,289		919,973
Savings and money market		2,098,689		2,206,763
Time deposits of $100 or more		613,582		828,651
Other time deposits		1,095,161		1,335,822
Total deposits		5,943,813		6,458,415
Other borrowings		53,112		31,761
Subordinated debentures		354,038		353,981
Deferred income taxes		30,699		25,186
Accrued expenses and other liabilities		107,271		83,900
Liabilities held for sale		—		23,406
Liabilities of discontinued operations		—		94,184
Total liabilities		6,488,933		7,070,833
STOCKHOLDERS’ EQUITY
First Banks, Inc. stockholders’ equity:
Preferred stock:
$1.00 par value, 4,689,830 shares authorized, no shares issued and outstanding		—		—
Class A convertible, adjustable rate, $20.00 par value, 750,000 shares authorized, 641,082
shares issued and outstanding		12,822		12,822
Class B adjustable rate, $1.50 par value, 200,000 shares authorized, 160,505 shares issued
and outstanding		241		241
Class C fixed rate, cumulative, perpetual, $1.00 par value, 295,400 shares authorized, issued and
outstanding		287,330		284,737
Class D fixed rate, cumulative, perpetual, $1.00 par value, 14,770 shares authorized, issued
and outstanding		17,343		17,343
Common stock, $250.00 par value, 25,000 shares authorized, 23,661 shares issued and outstanding		5,915		5,915
Additional paid-in capital		12,480		12,480
Retained deficit		(162,032	)	(120,827	)
Accumulated other comprehensive income (loss)		25,561		(2,318	)
Total First Banks, Inc. stockholders’ equity		199,660		210,393
Noncontrolling interest in subsidiary		95,372		96,902
Total stockholders’ equity		295,032		307,295
Total liabilities and stockholders’ equity	$	6,783,965		7,378,128

The accompanying notes are an integral part of the consolidated financial statements.

1

FIRST BANKS,INC.

CONSOLIDATED STATEMENTS OF OPERATIONS –(UNAUDITED)
(dollars expressed in thousands, except share and per share data)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2011			2010			2011			2010
Interest income:
Interest and fees on loans	$	43,103			69,480			143,023			220,964
Investment securities		13,013			6,862			32,711			18,566
Federal Reserve Bank and Federal Home Loan Bank stock		340			466			1,075			1,542
Short-term investments		347			841			1,359			2,847
Total interest income		56,803			77,649			178,168			243,919
Interest expense:
Deposits:
Interest-bearing demand		246			343			824			1,070
Savings and money market		2,162			3,661			7,666			11,659
Time deposits of $100 or more		1,934			4,010			7,092			12,479
Other time deposits		3,183			6,320			11,406			20,183
Other borrowings		36			1,251			102			7,194
Subordinated debentures		3,408			3,410			10,076			9,710
Total interest expense		10,969			18,995			37,166			62,295
Net interest income		45,834			58,654			141,002			181,624
Provision for loan losses		19,000			37,000			52,000			162,000
Net interest income after provision for loan losses		26,834			21,654			89,002			19,624
Noninterest income:
Service charges on deposit accounts and customer service fees		10,236			11,044			29,972			31,958
Gain on loans sold and held for sale		2,520			4,081			3,928			7,321
Net gain (loss) on investment securities		4,165			(2	)		5,282			553
Net gain (loss) on derivative instruments		7			(849	)		(214	)		(2,939	)
Decrease in fair value of servicing rights		(4,370	)		(3,375	)		(6,739	)		(6,239	)
Loan servicing fees		2,035			2,184			6,404			6,742
Other		2,387			3,982			7,673			15,421
Total noninterest income		16,980			17,065			46,306			52,817
Noninterest expense:
Salaries and employee benefits		20,696			22,762			61,861			66,205
Occupancy, net of rental income		6,337			7,235			19,544			21,461
Furniture and equipment		2,875			3,484			9,351			11,023
Postage, printing and supplies		707			745			2,248			2,694
Information technology fees		6,452			6,786			19,560			21,182
Legal, examination and professional fees		2,833			3,372			9,115			9,756
Amortization of intangible assets		728			800			2,327			2,525
Advertising and business development		461			260			1,393			946
FDIC insurance		3,781			5,737			12,919			16,425
Write-downs and expenses on other real estate and repossessed assets		2,551			14,439			12,970			31,945
Other		10,716			22,765			22,974			36,227
Total noninterest expense		58,137			88,385			174,262			220,389
Loss from continuing operations before provision for income taxes		(14,323	)		(49,666	)		(38,954	)		(147,948	)
(Benefit) provision for income taxes		(11,581	)		5,193			(11,457	)		5,346
Net loss from continuing operations, net of tax		(2,742	)		(54,859	)		(27,497	)		(153,294	)
Income from discontinued operations, net of tax		—			6,430			696			11,884
Net loss		(2,742	)		(48,429	)		(26,801	)		(141,410	)
Less: net loss attributable to noncontrolling interest in subsidiary		(668	)		(618	)		(1,530	)		(1,082	)
Net loss attributable to First Banks, Inc.	$	(2,074	)		(47,811	)		(25,271	)		(140,328	)
Preferred stock dividends declared and undeclared		4,506			4,272			13,341			12,650
Accretion of discount on preferred stock		874			853			2,593			2,529
Net loss available to common stockholders	$	(7,454	)		(52,936	)		(41,205	)		(155,507	)
Basic and diluted loss per common share from continuing operations	$	(315.01	)		(2,509.02	)		(1,770.84	)		(7,074.56	)
Basic and diluted earnings per common share from discontinued operations	$	—			271.76			29.42			502.26
Basic and diluted loss per common share	$	(315.01	)		(2,237.26	)		(1,741.42	)		(6,572.30	)
Weighted average shares of common stock outstanding		23,661			23,661			23,661			23,661

The accompanying notes are an integral part of the consolidated financial statements.

2

FIRST BANKS,INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’EQUITY
AND COMPREHENSIVE INCOME (LOSS)–(UNAUDITED)

Nine Months Ended September 30, 2011 and Year Ended December 31, 2010

(dollars expressed in thousands)

	First Banks, Inc. Stockholders’ Equity
										Accu-
										mulated
										Other
										Compre-						Total
					Additional		Retained			hensive			Non-			Stock-
	Preferred		Common		Paid-In		Earnings			Income			controlling			holders’
	Stock		Stock		Capital		(Deficit)			(Loss)			Interest			Equity
Balance, December 31, 2009	$	311,762		5,915		12,480		91,271			(2,464	)		103,416			522,380
Comprehensive loss:
Net loss		—		—		—		(191,737	)		—			(6,514	)		(198,251	)
Other comprehensive income (loss):
Unrealized gains on investment securities,
net of tax		—		—		—		—			4,764			—			4,764
Reclassification adjustment for investment
securities gains included in net loss, net
of tax		—		—		—		—			(5,378	)		—			(5,378	)
Change in unrealized gains on derivative
instruments, net of tax		—		—		—		—			(3,734	)		—			(3,734	)
Pension liability adjustment, net of tax		—		—		—		—			(4	)		—			(4	)
Reclassification adjustments for deferred
tax asset valuation allowance		—		—		—		—			4,498			—			4,498
Total comprehensive loss																	(198,105	)
Accretion of discount on preferred stock		3,381		—		—		(3,381	)		—			—			—
Preferred stock dividends declared		—		—		—		(16,980	)		—			—			(16,980	)
Balance, December 31, 2010		315,143		5,915		12,480		(120,827	)		(2,318	)		96,902			307,295
Comprehensive income:
Net loss		—		—		—		(25,271	)		—			(1,530	)		(26,801	)
Other comprehensive income (loss):
Unrealized gains on investment securities,
net of tax		—		—		—		—			29,024			—			29,024
Reclassification adjustment for investment
securities gains included in net loss, net
of tax		—		—		—		—			(3,427	)		—			(3,427	)
Pension liability adjustment, net of tax		—		—		—		—			47			—			47
Reclassification adjustments for deferred
tax asset valuation allowance		—		—		—		—			2,235			—			2,235
Total comprehensive income																	1,078
Accretion of discount on preferred stock		2,593		—		—		(2,593	)		—			—			—
Preferred stock dividends declared		—		—		—		(13,341	)		—			—			(13,341	)
Balance, September 30, 2011	$	317,736		5,915		12,480		(162,032	)		25,561			95,372			295,032

The accompanying notes are an integral part of the consolidated financial statements.

3

FIRST BANKS,INC.
  
CONSOLIDATED STATEMENTS OF CASH FLOWS –(UNAUDITED)
(dollars expressed in thousands)

	Nine Months Ended
	September 30,
	2011			2010
Cash flows from operating activities:
Net loss attributable to First Banks, Inc.	$	(25,271	)		(140,328	)
Net loss attributable to noncontrolling interest in subsidiary		(1,530	)		(1,082	)
Less: net income from discontinued operations		696			11,884
Net loss from continuing operations		(27,497	)		(153,294	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization of bank premises and equipment		10,756			13,513
Amortization of intangible assets		2,327			2,525
Originations of loans held for sale		(177,527	)		(244,475	)
Proceeds from sales of loans held for sale		199,224			238,984
Payments received on loans held for sale		141			452
Provision for loan losses		52,000			162,000
Provision (benefit) for current income taxes		455			(323	)
Benefit for deferred income taxes		(16,171	)		(47,680	)
Increase in deferred tax asset valuation allowance		4,259			53,349
Decrease in accrued interest receivable		2,790			3,403
Increase in accrued interest payable		5,382			3,163
Decrease in current income taxes receivable		51			2,484
Gain on loans sold and held for sale		(3,928	)		(7,321	)
Net gain on investment securities		(5,282	)		(553	)
Net loss on derivative instruments		214			2,939
Decrease in fair value of servicing rights		6,739			6,239
Write-downs on other real estate and repossessed assets		8,410			23,596
Other operating activities, net		25,347			3,284
Net cash provided by operating activities – continuing operations		87,690			62,285
Net cash provided by operating activities – discontinued operations		984			1,374
Net cash provided by operating activities		88,674			63,659
Cash flows from investing activities:
Net cash paid for sale of assets and liabilities of discontinued operations,
net of cash and cash equivalents sold		(51,339	)		(1,400,472	)
Cash paid for sale of branches, net of cash and cash equivalents sold		(16,256	)		(8,408	)
Proceeds from sales of investment securities available for sale		283,713			20,103
Maturities of investment securities available for sale		197,721			132,696
Maturities of investment securities held to maturity		538			1,420
Purchases of investment securities available for sale		(1,372,074	)		(924,654	)
Purchases of investment securities held to maturity		(3,450	)		—
Redemptions of Federal Reserve Bank and Federal Home Loan Bank stock		3,398			24,978
Purchases of Federal Reserve Bank and Federal Home Loan Bank stock		(534	)		(113	)
Proceeds from sales of commercial loans		65,867			34,109
Net decrease in loans		732,727			964,452
Recoveries of loans previously charged-off		16,928			44,006
Purchases of bank premises and equipment		(3,812	)		(2,446	)
Net proceeds from sales of other real estate and repossessed assets		57,619			63,446
Proceeds from termination of bank-owned life insurance policy		—			25,957
Other investing activities, net		145			3,365
Net cash used in investing activities – continuing operations		(88,809	)		(1,021,561	)
Net cash provided by investing activities – discontinued operations		2,724			44,287
Net cash used in investing activities		(86,085	)		(977,274	)

4

FIRST BANKS,INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)–(UNAUDITED)
(dollars expressed in thousands)

	Nine Months Ended
	September 30,
	2011			2010
Cash flows from financing activities:
(Decrease) increase in demand, savings and money market deposits		(61,139	)	21,782
Decrease in time deposits		(458,026	)	(53,267	)
Repayments of Federal Home Loan Bank advances		—		(400,000	)
Increase in securities sold under agreements to repurchase		21,351		878
Net cash used in financing activities – continuing operations		(497,814	)	(430,607	)
Net cash used in financing activities – discontinued operations		(1,903	)	(60,453	)
Net cash used in financing activities		(499,717	)	(491,060	)
Net decrease in cash and cash equivalents		(497,128	)	(1,404,675	)
Cash and cash equivalents, beginning of period		995,758		2,518,105
Cash and cash equivalents, end of period	$	498,630		1,113,430
Supplemental disclosures of cash flow information:
Cash paid (received) during the period for:
Interest on liabilities	$	31,784		59,132
Income taxes		(99	)	(1,916	)
Noncash investing and financing activities:
Loans transferred to other real estate and repossessed assets	$	52,597		131,014
Bank premises and equipment transferred to other real estate and repossessed assets		6,537		—

The accompanying notes are an integral part of the consolidated financial statements.

5

FIRST BANKS,INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1–BASIS OF PRESENTATION

The consolidated financial statements of First Banks, Inc. and subsidiaries (the Company) are unaudited and should be read in conjunction with the consolidated financial statements contained in the 2010 Annual Report on Form 10-K. The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) and conform to predominant practices within the banking industry. Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare the consolidated financial statements in conformity with GAAP. Actual results could differ from those estimates. In the opinion of management, all adjustments, consisting of normal recurring accruals considered necessary for a fair presentation of the results of operations for the interim periods presented herein, have been included. Operating results for the three and nine months ended September 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.

Principles of Consolidation. The consolidated financial statements include the accounts of the parent company and its subsidiaries, giving effect to the noncontrolling interest in subsidiary, as more fully described below and in Note 8 to the consolidated financial statements. All significant intercompany accounts and transactions have been eliminated. Certain reclassifications of 2010 amounts have been made to conform to the 2011 presentation.

All financial information is reported on a continuing operations basis, unless otherwise noted. See Note 2 to the consolidated financial statements for a discussion regarding discontinued operations.

The Company operates through its wholly owned subsidiary bank holding company, The San Francisco Company (SFC), headquartered in St. Louis, Missouri, and SFC’s wholly owned subsidiary bank, First Bank, also headquartered in St. Louis, Missouri. First Bank operates through its branch banking offices and subsidiaries: First Bank Business Capital, Inc.; FB Holdings, LLC (FB Holdings); Small Business Loan Source LLC (SBLS LLC); ILSIS, Inc.; FBIN, Inc.; SBRHC, Inc.; HVIIHC, Inc.; FBSA Missouri, Inc.; FBSA California, Inc.; NT Resolution Corporation; and LC Resolution Corporation. All of the subsidiaries are wholly owned as of September 30, 2011, except FB Holdings, which was 53.23% owned by First Bank and 46.77% owned by First Capital America, Inc. (FCA), a corporation owned and operated by the Company’s Chairman of the Board and members of his immediate family, as further described in Note 8 to the consolidated financial statements. FB Holdings is included in the consolidated financial statements with the noncontrolling ownership interest reported as a component of stockholders’ equity in the consolidated balance sheets as “noncontrolling interest in subsidiary” and the earnings or loss, net of tax, attributable to the noncontrolling ownership interest, is reported as “net loss attributable to noncontrolling interest in subsidiary” in the consolidated statements of operations.

Regulatory Agreements and Other Matters. On March 24, 2010, the Company, SFC and First Bank entered into a Written Agreement (Agreement) with the Federal Reserve Bank of St. Louis (FRB) requiring the Company and First Bank to take certain steps intended to improve their overall financial condition. Pursuant to the Agreement, the Company prepared and filed with the FRB a number of specific plans designed to strengthen and/or address the following matters: (i) board oversight over the management and operations of the Company and First Bank; (ii) credit risk management practices; (iii) lending and credit administration policies and procedures; (iv) asset improvement; (v) capital; (vi) earnings and overall financial condition; and (vii) liquidity and funds management.

The Agreement requires, among other things, that the Company and First Bank obtain prior approval from the FRB in order to pay dividends. In addition, the Company must obtain prior approval from the FRB to: (i) take any other form of payment from First Bank representing a reduction in capital of First Bank; (ii) make any distributions of interest, principal or other sums on junior subordinated debentures or trust preferred securities; (iii) incur, increase or guarantee any debt; or (iv) purchase or redeem any shares of the Company’s stock. Pursuant to the terms of the Agreement, the Company and First Bank submitted a written plan to the FRB to maintain sufficient capital at the Company, on a consolidated basis, and at First Bank, on a standalone basis. In addition, the Agreement also provides that the Company and First Bank must notify the FRB if the risk-based capital ratios of either entity fall below those set forth in the capital plans that were accepted by the FRB, and specifically if First Bank falls below the criteria for being well capitalized under the regulatory framework for prompt corrective action. The Company must also notify the FRB before appointing any new directors or senior executive officers or changing the responsibilities of any senior executive officer position. The Agreement also requires the Company and First Bank to comply with certain restrictions regarding indemnification and severance payments. The Agreement is specifically enforceable by the FRB in court.

6

The Company and First Bank must furnish periodic progress reports to the FRB regarding compliance with the Agreement. As of the date of this filing, the Company and First Bank have provided progress reports and other reports, as required under the Agreement. It is likely that the Company and First Bank may receive additional requests from the FRB regarding compliance with the Agreement, which may include, but are not limited to, updates and modifications to the Company’s Asset Quality Improvement, Profit Improvement and Capital Plans. Management intends to respond promptly to any such requests. The Agreement will remain in effect until stayed, modified, terminated or suspended by the FRB.

The description of the Agreement above represents a summary and is qualified in its entirety by the full text of the Agreement which is incorporated herein by reference to Exhibit 10.19 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, as filed with the United States Securities and Exchange Commission (SEC) on March 25, 2010.

Prior to entering into the Agreement on March 24, 2010, the Company and First Bank had entered into a memorandum of understanding and an informal agreement, respectively, with the FRB and the State of Missouri Division of Finance (MDOF). Each of the agreements were characterized by regulatory authorities as informal actions that were neither published nor made publicly available by the agencies and are used when circumstances warrant a milder form of action than a formal supervisory action, such as a written agreement or cease and desist order. The informal agreement with the MDOF is still in place and there have not been any modifications thereto since its inception in September 2008.

Under the terms of the prior memorandum of understanding with the FRB, the Company agreed, among other things, to provide certain information to the FRB including, but not limited to, financial performance updates, notice of plans to materially change its fundamental business and notice to issue trust preferred securities or raise additional equity capital. In addition, the Company agreed not to pay any dividends on its common or preferred stock or make any distributions of interest or other sums on its trust preferred securities without the prior approval of the FRB.

First Bank, under its informal agreement with the MDOF and the FRB, agreed to, among other things, prepare and submit plans and reports to the agencies regarding certain matters including, but not limited to, the performance of First Bank’s loan portfolio. In addition, First Bank agreed not to declare or pay any dividends or make certain other payments without the prior consent of the MDOF and the FRB and to maintain a Tier 1 capital to total assets ratio of no less than 7.00%. As further described in Note 9 to the consolidated financial statements, First Bank’s Tier 1 capital to total assets ratio was 8.17% at September 30, 2011.

While the Company and First Bank intend to take such actions as may be necessary to comply with the requirements of the Agreement with the FRB and informal agreement with the MDOF, there can be no assurance that the Company and First Bank will be able to comply fully with the requirements of the Agreement or that First Bank will be able to comply fully with the provisions of the informal agreement, that compliance with the Agreement and the informal agreement will not be more time consuming or more expensive than anticipated, that compliance with the Agreement and the informal agreement will enable the Company and First Bank to resume profitable operations, or that efforts to comply with the Agreement and the informal agreement will not have adverse effects on the operations and financial condition of the Company or First Bank. If the Company or First Bank is unable to comply with the terms of the Agreement or the informal agreement, respectively, the Company and First Bank could become subject to various requirements limiting the ability to develop new business lines, mandating additional capital, and/or requiring the sale of certain assets and liabilities. Failure of the Company and First Bank to meet these conditions could lead to further enforcement action by the regulatory agencies. The terms of any such additional regulatory actions, orders or agreements could have a materially adverse effect on the Company’s business, financial condition or results of operations.

On August 10, 2009, the Company announced the deferral of its regularly scheduled interest payments on its outstanding junior subordinated notes relating to its $345.0 million of trust preferred securities beginning with the regularly scheduled quarterly interest payments that would otherwise have been made in September and October 2009, as further described in Note 12 to the consolidated financial statements. During the deferral period, the Company may not, among other things and with limited exceptions, pay cash dividends on or repurchase its common stock or preferred stock or make any payment on outstanding debt obligations that rank equally with or junior to the junior subordinated notes. Accordingly, the Company also suspended the payment of cash dividends on its outstanding common stock and preferred stock beginning with the regularly scheduled quarterly dividend payments on the preferred stock that would otherwise have been made in August and September 2009, as further described in Note 13 to the consolidated financial statements. In conjunction with this election, the Company suspended the declaration of dividends on its Class A and Class B preferred stock, but continues to declare and accumulate dividends on its Class C Fixed Rate Cumulative Perpetual Preferred Stock (Class C Preferred Stock) and Class D Fixed Rate Cumulative Perpetual Preferred Stock (Class D Preferred Stock). As a result of the Company’s deferral of dividends on its Class C and Class D preferred stock to the United States Department of the Treasury (U.S. Treasury) for six quarters, the U.S. Treasury had the right to elect two directors to the Company’s Board. On July 13, 2011, the U.S. Treasury elected two members to the Company’s Board of Directors, effective immediately.

7

Capital Plan. As further described in Note 2 to the consolidated financial statements, on August 10, 2009, the Company announced the adoption of a Capital Optimization Plan (Capital Plan) designed to improve its regulatory capital ratios and financial performance through certain divestiture activities, asset reductions and expense reductions. The Capital Plan was adopted in order to, among other things, preserve and enhance the Company’s risk-based capital.

The successful completion of all or any portion of the Capital Plan is not assured, and no assurance can be made that the Capital Plan will not be materially modified in the future. The decision to implement the Capital Plan reflects the adverse effect that the severe downturn in the commercial and residential real estate markets has had on the Company’s financial condition and results of operations. If the Company is not able to complete substantially all of the Capital Plan, its business, financial condition, including regulatory capital ratios, and results of operations may be materially and adversely affected and its ability to withstand continued adverse economic conditions could be threatened.

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

Discontinued Operations. The assets and liabilities associated with the transactions described (and defined) below were previously reported in the First Bank segment and were sold as part of the Company’s Capital Plan to preserve risk-based capital. The Company applied discontinued operations accounting in accordance with ASC Topic 205-20, “Presentation of Financial Statements – Discontinued Operations,” to the assets and liabilities sold during the second quarter of 2011 related to the Northern Illinois Region as of December 31, 2010, and to the operations of the Northern Illinois, Chicago and Texas Regions, in addition to the operations of WIUS and MVP, for the three and nine months ended September 30, 2011 and 2010, as applicable. 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 is reported on a continuing operations basis, unless otherwise noted.

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.

8

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.

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.

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.

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.

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 and deferred loan 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

9

There was no income from discontinued operations for the three months ended September 30, 2011. Income from discontinued operations, net of tax, for the three months ended September 30, 2010 was as follows:

	Three Months Ended September 30, 2010
	Northern
	Illinois			WIUS		Total
	(dollars expressed in thousands)
Interest income:
Interest and fees on loans	$	2,496		—		2,496
Interest expense:
Interest on deposits		1,130		—		1,130
Other borrowings		—		(10	)	(10	)
Total interest expense		1,130		(10	)	1,120
Net interest income		1,366		10		1,376
Provision for loan losses		—		—		—
Net interest income after provision for loan losses		1,366		10		1,376
Noninterest income:
Service charges and customer service fees		704		—		704
Other		11		—		11
Total noninterest income		715		—		715
Noninterest expense:
Salaries and employee benefits		1,170		—		1,170
Occupancy, net of rental income		313		—		313
Furniture and equipment		93		—		93
Legal, examination and professional fees		22		(36	)	(14	)
Amortization of intangible assets		29		—		29
FDIC insurance		441		—		441
Other		200		—		200
Total noninterest expense		2,268		(36	)	2,232
(Loss) income from operations of discontinued operations		(187	)	46		(141	)
Net gain on sale of discontinued operations		6,375		39		6,414
Benefit for income taxes		—		(157	)	(157	)
Net income from discontinued operations, net of tax	$	6,188		242		6,430

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

	Nine Months Ended
	September 30, 2011		Nine Months Ended September 30, 2010
	Northern		Northern
	Illinois		Illinois	Chicago		Texas		WIUS		MVP		Total
	(dollars expressed in thousands)
Interest income:
Interest and fees on loans	$	895	8,950	2,391		1,816		33		—		13,190
Interest expense:
Interest on deposits		261	4,011	2,550		1,796		—		—		8,357
Other borrowings		—	—	—		3		(2	)	—		1
Total interest expense		261	4,011	2,550		1,799		(2	)	—		8,358
Net interest income (loss)		634	4,939	(159	)	17		35		—		4,832
Provision for loan losses		—	—	—		—		—		—		—
Net interest income (loss) after provision
for loan losses		634	4,939	(159	)	17		35		—		4,832
Noninterest income:
Service charges and customer service fees		259	2,309	523		1,192		—		—		4,024
Investment management income		—	—	—		—		—		787		787
Loan servicing fees		5	—	—		101		—		—		101
Other		—	30	254		60		—		(1	)	343
Total noninterest income		264	2,339	777		1,353		—		786		5,255
Noninterest expense:
Salaries and employee benefits		357	3,264	2,137		2,843		32		517		8,793
Occupancy, net of rental income		68	1,077	606		1,148		—		59		2,890
Furniture and equipment		29	344	178		345		—		17		884
Legal, examination and professional fees		6	58	123		111		153		115		560
Amortization of intangible assets		—	289	—		—		—		—		289
FDIC insurance		100	1,565	292		478		—		—		2,335
Other		67	662	424		860		184		29		2,159
Total noninterest expense		627	7,259	3,760		5,785		369		737		17,910
Income (loss) from operations of discontinued
operations		271	19	(3,142	)	(4,415	)	(334	)	49		(7,823	)
Net gain (loss) on sale of discontinued operations		425	6,375	8,414		4,984		(67	)	(156	)	19,550
Benefit for income taxes		—	—	—		—		(157	)	—		(157	)
Net income (loss) from discontinued operations, net
of tax	$	696	6,394	5,272		569		(244	)	(107	)	11,884

10

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.

NOTE 3–INVESTMENTS IN DEBT AND EQUITY SECURITIES

Securities Available for Sale. The amortized cost, contractual maturity, gross unrealized gains and losses and fair value of investment securities available for sale at September 30, 2011 and December 31, 2010 were as follows:

	Maturity									Total	Gross				Weighted
	1 Year			1-5		5-10		After		Amortized	Unrealized			Fair	Average
	or Less			Years		Years		10 Years		Cost	Gains	Losses		Value	Yield
	(dollars expressed in thousands)
September 30, 2011:
Carrying value:
U.S. Government
sponsored agencies	$	1,000		221,962		147,066		—		370,028	2,709	(9	)	372,728	1.78	%
Residential mortgage-
backed		—		3,082		10,956		1,782,414		1,796,452	42,620	(442	)	1,838,630	2.40
Commercial mortgage-
backed		—		—		821		—		821	108	—		929	5.03
State and political
subdivisions		936		3,948		1,103		—		5,987	264	—		6,251	4.02
Corporate notes		—		106,051		74,459		5,000		185,510	64	(5,615	)	179,959	3.15
Equity investments		—		—		—		11,678		11,678	23	—		11,701	3.41
Total	$	1,936		335,043		234,405		1,799,092		2,370,476	45,788	(6,066	)	2,410,198	2.37
Fair value:
Debt securities	$	1,950		333,720		233,381		1,829,446
Equity securities		—		—		—		11,701
Total	$	1,950		333,720		233,381		1,841,147
Weighted average yield		3.35	%	1.94	%	2.62	%	2.42	%
December 31, 2010:
Carrying value:
U.S. Treasury		$ —		101,478		—		—		101,478	4	(280	)	101,202	0.73	%
U.S. Government
sponsored agencies		—		20,220		—		—		20,220	199	(87	)	20,332	1.70
Residential mortgage-
backed		262		5,646		15,152		1,320,364		1,341,424	9,447	(9,293	)	1,341,578	2.48
Commercial mortgage-
backed		—		—		966		—		966	42	—		1,008	4.19
State and political
subdivisions		2,507		4,031		1,540		—		8,078	309	—		8,387	3.96
Equity investments		—		—		—		10,678		10,678	—	—		10,678	3.41
Total	$	2,769		131,375		17,658		1,331,042		1,482,844	10,001	(9,660	)	1,483,185	2.37
Fair value:
Debt securities	$	2,832		131,600		17,912		1,320,163
Equity securities		—		—		—		10,678
Total	$	2,832		131,600		17,912		1,330,841
Weighted average yield		4.01	%	1.12	%	2.09	%	2.49	%

11

Securities Held to Maturity. The amortized cost, contractual maturity, gross unrealized gains and losses and fair value of investment securities held to maturity at September 30, 2011 and December 31, 2010 were as follows:

	Maturity									Total	Gross			Weighted
	1 Year			1-5		5-10		After		Amortized	Unrealized		Fair	Average
	or Less			Years		Years		10 Years		Cost	Gains	Losses	Value	Yield
	(dollars expressed in thousands)
September 30, 2011:
Carrying value:
Residential mortgage-
backed	$	—		—		763		619		1,382	122	—	1,504	5.05	%
Commercial mortgage-
backed		—		6,343		—		—		6,343	492	—	6,835	5.34
State and political
subdivisions		1,050		3,376		255		1,534		6,215	51	—	6,266	3.72
Total	$	1,050		9,719		1,018		2,153		13,940	665	—	14,605	4.59
Fair value:
Debt securities	$	1,050		10,239		1,101		2,215
Weighted average yield		1.35	%	4.49	%	4.59	%	6.60	%
December 31, 2010:
Carrying value:
Residential mortgage-
backed	$	—		—		962		912		1,874	132	—	2,006	5.15	%
Commercial mortgage-
backed		—		6,437		—		—		6,437	440	—	6,877	5.16
State and political
subdivisions		—		733		574		1,534		2,841	266	—	3,107	5.66
Total	$	—		7,170		1,536		2,446		11,152	838	—	11,990	5.29
Fair value:
Debt securities	$	—		7,645		1,635		2,710
Weighted average yield		—	%	4.99	%	4.71	%	6.51	%

Proceeds from sales of available-for-sale investment securities were $156.2 million and $283.7 million for the three and nine months ended September 30, 2011, respectively, compared to zero and $20.1 million for the three and nine months ended September 30, 2010. Gross realized gains and gross realized losses on investment securities for the three and nine months ended September 30, 2011 and 2010 were as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2011		2010		2011		2010
	(dollars expressed in thousands)
Gross realized gains on sales of available-for-sale securities	$	4,165	—		5,285		556
Gross realized losses on sales of available-for-sale securities		—	—		(1	)	—
Other-than-temporary impairment		—	(2	)	(2	)	(3	)
Net realized gains	$	4,165	(2	)	5,282		553

Investment securities with a carrying value of $263.6 million and $234.9 million at September 30, 2011 and December 31, 2010, respectively, were pledged in connection with deposits of public and trust funds, securities sold under agreements to repurchase and for other purposes as required by law.

Gross unrealized losses on investment securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 2011 and December 31, 2010 were as follows:

	Less than 12 months				12 months or more			Total
			Unrealized			Unrealized			Unrealized
	Fair Value		Losses		Fair Value	Losses		Fair Value	Losses
	(dollars expressed in thousands)
September 30, 2011:
Available for sale:
U.S. Government sponsored agencies	$	20,058	(9	)	—	—		20,058	(9	)
Residential mortgage-backed		161,002	(350	)	305	(92	)	161,307	(442	)
Corporate notes		142,128	(5,615	)	—	—		142,128	(5,615	)
Total	$	323,188	(5,974	)	305	(92	)	323,493	(6,066	)
December 31, 2010:
Available for sale:
U.S. Treasury	$	91,193	(280	)	—	—		91,193	(280	)
U.S. Government sponsored agencies		8,731	(87	)	—	—		8,731	(87	)
Residential mortgage-backed		544,657	(9,218	)	341	(75	)	544,998	(9,293	)
Total	$	644,581	(9,585	)	341	(75	)	644,922	(9,660	)

12

The Company does not believe that the investment securities that were in an unrealized loss position at September 30, 2011 and December 31, 2010 represent other-than-temporary impairment. The unrealized losses on these investment securities were primarily attributable to fluctuations in interest rates. It is expected that the securities would not be settled at a price less than the amortized cost. Because the decline in fair value is attributable to changes in interest rates and not credit loss, and because the Company does not intend to sell these investments and it is more likely than not that First Bank will not be required to sell these securities before the anticipated recovery of the remaining amortized cost basis or maturity, these investments are not considered other-than-temporarily impaired. The unrealized losses for residential mortgage-backed securities for 12 months or more at September 30, 2011 and December 31, 2010 included ten and nine securities, respectively.

NOTE 4–LOANS AND ALLOWANCE FOR LOAN LOSSES

The following table summarizes the composition of the loan portfolio at September 30, 2011 and December 31, 2010:

	September 30,		December 31,
	2011		2010
	(dollars expressed in thousands)
Commercial, financial and agricultural	$	768,047	1,045,832
Real estate construction and development		303,263	490,766
Real estate mortgage:
One-to-four family residential		920,624	1,050,895
Multi-family residential		128,144	178,289
Commercial real estate		1,320,905	1,642,920
Consumer and installment		25,206	33,623
Loans held for sale		36,595	54,470
Deferred loan costs (fees)		7	(4,511	)
Loans, net of deferred loan costs (fees)	$	3,502,791	4,492,284

Aging of Loans. The following table presents the aging of loans by loan classification at September 30, 2011 and December 31, 2010:

								Recorded
								Investment
	30-59		60-89	90 Days and	Total Past			> 90 Days
	Days		Days	Over	Due	Current	Total Loans	Accruing
	(dollars expressed in thousands)
September 30, 2011:
Commercial, financial and
agricultural	$	1,831	1,842	71,505	75,178	692,869	768,047	470
Real estate construction and
development		562	—	83,632	84,194	219,069	303,263	1,922
One-to-four-family residential:
Bank portfolio		5,812	3,017	16,608	25,437	151,929	177,366	930
Mortgage Division portfolio		5,766	3,916	19,327	29,009	336,270	365,279	—
Home equity		4,031	1,196	8,857	14,084	363,895	377,979	685
Multi-family residential		437	9	7,595	8,041	120,103	128,144	—
Commercial real estate		4,340	3,123	66,967	74,430	1,246,475	1,320,905	47
Consumer and installment		259	117	48	424	24,789	25,213	—
Loan held for sale		—	—	—	—	36,595	36,595	—
Total	$	23,038	13,220	274,539	310,797	3,191,994	3,502,791	4,054
December 31, 2010:
Commercial, financial and
agricultural	$	5,574	7,286	68,274	81,134	964,698	1,045,832	909
Real estate construction and
development		1,523	10,816	137,176	149,515	341,251	490,766	2,932
One-to-four-family residential:
Bank portfolio		5,157	2,296	14,845	22,298	217,065	239,363	366
Mortgage Division portfolio		9,998	4,968	33,386	48,352	363,601	411,953	—
Home equity		5,373	1,658	8,438	15,469	384,110	399,579	1,316
Multi-family residential		16,279	1,670	12,960	30,909	147,380	178,289	—
Commercial real estate		9,391	15,252	129,187	153,830	1,489,090	1,642,920	—
Consumer and installment		515	265	165	945	28,167	29,112	—
Loan held for sale		—	—	—	—	54,470	54,470	—
Total	$	53,810	44,211	404,431	502,452	3,989,832	4,492,284	5,523

13

Under the Company’s loan policy, loans are placed on nonaccrual status once principal or interest payments become 90 days past due. However, individual loan officers may submit written requests for approval to continue the accrual of interest on loans that become 90 days past due. These requests may be submitted for approval consistent with the authority levels provided in the Company’s credit approval policies, and they are only granted if an expected near term future event, such as a pending renewal or expected payoff, exists at the time the loan becomes 90 days past due. If the expected near term future event does not occur as anticipated, the loan is then placed on nonaccrual status. At September 30, 2011 and December 31, 2010, the Company had $4.1 million and $5.5 million, respectively, of loans past due 90 days or more and still accruing interest.

Credit Quality Indicators. The Company’s credit management policies and procedures focus on identifying, measuring and controlling credit exposure. These procedures employ a lender-initiated system of rating credits, which is ratified in the loan approval process and subsequently tested in internal credit reviews, external audits and regulatory bank examinations. The system requires the rating of all loans at the time they are originated or acquired, except for homogeneous categories of loans, such as residential real estate mortgage loans and consumer loans. These homogeneous loans are assigned an initial rating based on the Company’s experience with each type of loan. The Company adjusts the ratings of the homogeneous loans based on payment experience subsequent to their origination.

The Company includes adversely rated credits, including loans requiring close monitoring that would not normally be considered classified credits by the Company’s regulators, on its monthly loan watch list. Loans may be added to the Company’s watch list for reasons that are temporary and correctable, such as the absence of current financial statements of the borrower or a deficiency in loan documentation. Loans may also be added to the Company’s watch list whenever any adverse circumstance is detected which might affect the borrower’s ability to comply with the contractual terms of the loan. The delinquency of a scheduled loan payment, deterioration in the borrower’s financial condition identified in a review of periodic financial statements, a decrease in the value of the collateral securing the loan, or a change in the economic environment within which the borrower operates could initiate the addition of a loan to the Company’s watch list. Loans on the Company’s watch list require periodic detailed loan status reports prepared by the responsible officer which are discussed in formal meetings with credit review and credit administration staff members. Upgrades and downgrades of loan risk ratings may be initiated by the responsible loan officer. However, upgrades of risk ratings associated with significant credit relationships and/or problem credit relationships may only be made with the concurrence of appropriate regional or senior regional credit officers.

Under the Company’s risk rating system, special mention loans are those loans that do not currently expose the Company to sufficient risk to warrant classification as substandard, troubled debt restructuring (TDR) or nonaccrual, but possess weaknesses that deserve management’s close attention. Substandard loans include those loans characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. A loan is classified as a TDR when a borrower is experiencing financial difficulties that lead to the restructuring of a loan, and the Company grants concessions to the borrower in the restructuring that it would not otherwise consider. Loans classified as TDRs which are accruing interest are classified as performing TDRs. Loans classified as TDRs which are not accruing interest are classified as nonperforming TDRs and included with all other nonaccrual loans for presentation purposes. Loans classified as nonaccrual have all the weaknesses inherent in those loans classified as substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of the currently existing facts, conditions and values, highly questionable and improbable. Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass-rated loans.

The following table presents the credit exposure of the commercial loan portfolio by internally assigned credit grade as of September 30, 2011 and December 31, 2010:

			Real Estate
			Construction
	Commercial		and		Commercial
	and Industrial		Development	Multi-family	Real Estate	Total
	(dollars expressed in thousands)
September 30, 2011:
Pass	$	612,076	79,773	66,864	1,026,115	1,784,828
Special mention		38,272	16,304	20,153	141,956	216,685
Substandard		42,145	122,332	30,344	83,213	278,034
Performing troubled debt restructuring		4,519	3,144	3,188	2,701	13,552
Nonaccrual		71,035	81,710	7,595	66,920	227,260
	$	768,047	303,263	128,144	1,320,905	2,520,359
December 31, 2010:
Pass	$	829,820	151,686	112,369	1,285,902	2,379,777
Special mention		48,264	73,464	47,376	113,469	282,573
Substandard		100,383	128,227	5,584	95,933	330,127
Performing troubled debt restructuring		—	3,145	—	18,429	21,574
Nonaccrual		67,365	134,244	12,960	129,187	343,756
	$	1,045,832	490,766	178,289	1,642,920	3,357,807

14

The following table presents the credit exposure of the one-to-four family residential mortgage Bank portfolio and home equity portfolio by internally assigned credit grade as of September 30, 2011 and December 31, 2010:

	Bank		Home
	Portfolio		Equity	Total
	(dollars expressed in thousands)
September 30, 2011:
Pass	$	140,307	367,372	507,679
Special mention		10,566	685	11,251
Substandard		10,815	1,750	12,565
Nonaccrual		15,678	8,172	23,850
	$	177,366	377,979	555,345
December 31, 2010:
Pass	$	175,947	389,566	565,513
Special mention		17,358	1,316	18,674
Substandard		31,579	1,575	33,154
Nonaccrual		14,479	7,122	21,601
	$	239,363	399,579	638,942

The following table presents the credit exposure of the one-to-four family residential Mortgage Division portfolio and consumer and installment portfolio by payment activity as of September 30, 2011 and December 31, 2010:

	Mortgage		Consumer
	Division		and
	Portfolio		Installment	Total
	(dollars expressed in thousands)
September 30, 2011:
Pass	$	257,412	25,165	282,577
Substandard		7,192	—	7,192
Performing troubled debt restructuring		81,348	—	81,348
Nonaccrual		19,327	48	19,375
	$	365,279	25,213	390,492
December 31, 2010:
Pass	$	277,379	28,947	306,326
Substandard		9,859	—	9,859
Performing troubled debt restructuring		91,329	—	91,329
Nonaccrual		33,386	165	33,551
	$	411,953	29,112	441,065

Impaired Loans. Loans deemed to be impaired include TDRs and nonaccrual loans. Impaired loans with outstanding balances equal to or greater than $500,000 are evaluated individually for impairment. For these loans, the Company measures the level of impairment based on the present value of the estimated projected cash flows or the estimated value of the collateral. If the current valuation is lower than the current book balance of the loan, the negative difference is evaluated for possible charge-off. In instances where management determines that a charge-off is not appropriate, a specific reserve is established for the individual loan in question. This specific reserve is included as a part of the overall allowance for loan losses.

15

The following tables present the recorded investment, unpaid principal balance, related allowance for loan losses, average recorded investment and interest income recognized while on impaired status for impaired loans without a related allowance for loan losses and for impaired loans with a related allowance for loan losses by loan classification at September 30, 2011 and December 31, 2010:

			Unpaid	Related	Average	Interest
	Recorded		Principal	Allowance for	Recorded	Income
	Investment		Balance	Loan Losses	Investment	Recognized
	(dollars expressed in thousands)
September 30, 2011:
With No Related Allowance Recorded:
Commercial, financial and agricultural	$	15,622	25,469	—	15,932	268
Real estate construction and development		47,891	53,038	—	63,624	90
Real estate mortgage:
Bank portfolio		5,765	5,821	—	5,436	—
Mortgage Division portfolio		11,707	25,136	—	13,113	—
Home equity portfolio		—	—	—	—	—
Multi-family residential		4,399	4,449	—	4,829	48
Commercial real estate		22,880	28,266	—	32,708	87
Consumer and installment		—	—	—	—	—
		108,264	142,179	—	135,642	493
With A Related Allowance Recorded:
Commercial, financial and agricultural		59,932	98,008	9,338	61,123	—
Real estate construction and development		36,963	57,429	4,996	49,106	53
Real estate mortgage:
Bank portfolio		9,913	10,844	555	9,346	—
Mortgage Division portfolio		88,968	98,039	14,887	99,649	1,885
Home equity portfolio		8,172	8,612	1,634	7,543	—
Multi-family residential		6,384	6,535	581	7,007	—
Commercial real estate		46,741	48,591	6,510	66,819	173
Consumer and installment		48	47	7	72	—
		257,121	328,105	38,508	300,665	2,111
Total:
Commercial, financial and agricultural		75,554	123,477	9,338	77,055	268
Real estate construction and development		84,854	110,467	4,996	112,730	143
Real estate mortgage:
Bank portfolio		15,678	16,665	555	14,782	—
Mortgage Division portfolio		100,675	123,175	14,887	112,762	1,885
Home equity portfolio		8,172	8,612	1,634	7,543	—
Multi-family residential		10,783	10,984	581	11,836	48
Commercial real estate		69,621	76,857	6,510	99,527	260
Consumer and installment		48	47	7	72	—
	$	365,385	470,284	38,508	436,307	2,604
			Unpaid	Related	Average	Interest
	Recorded		Principal	Allowance for	Recorded	Income
	Investment		Balance	Loan Losses	Investment	Recognized
	(dollars expressed in thousands)
December 31, 2010:
With No Related Allowance Recorded:
Commercial, financial and agricultural	$	9,777	29,258	—	9,244	246
Real estate construction and development		40,527	40,997	—	79,408	38
Real estate mortgage:
Bank portfolio		4,141	4,324	—	4,088	—
Mortgage Division portfolio		15,469	34,113	—	15,536	—
Home equity portfolio		—	—	—	—	—
Multi-family residential		5,555	5,702	—	4,833	—
Commercial real estate		54,317	56,983	—	47,881	1,249
Consumer and installment		—	—	—	—	—
		129,786	171,377	—	160,990	1,533
With A Related Allowance Recorded:
Commercial, financial and agricultural		57,588	70,668	6,617	54,448	21
Real estate construction and development		96,862	187,568	10,605	189,790	695
Real estate mortgage:
Bank portfolio		10,338	12,550	372	10,204	—
Mortgage Division portfolio		109,246	117,075	16,746	109,721	3,697
Home equity portfolio		7,122	7,601	1,155	5,302	—
Multi-family residential		7,405	12,349	1,024	6,443	—
Commercial real estate		93,299	120,311	14,329	82,244	—
Consumer and installment		165	165	55	290	—
		382,025	528,287	50,903	458,442	4,413
Total:
Commercial, financial and agricultural		67,365	99,926	6,617	63,692	267
Real estate construction and development		137,389	228,565	10,605	269,198	733
Real estate mortgage:
Bank portfolio		14,479	16,874	372	14,292	—
Mortgage Division portfolio		124,715	151,188	16,746	125,257	3,697
Home equity portfolio		7,122	7,601	1,155	5,302	—
Multi-family residential		12,960	18,051	1,024	11,276	—
Commercial real estate		147,616	177,294	14,329	130,125	1,249
Consumer and installment		165	165	55	290	—
	$	511,811	699,664	50,903	619,432	5,946

16

Recorded investment represents the Company’s investment in its impaired loans reduced by any charge-offs recorded against the allowance for loan losses on these same loans. At September 30, 2011 and December 31, 2010, the Company had recorded charge-offs of $104.9 million and $187.9 million, respectively, on its impaired loans, representing the difference between the unpaid principal balance and the recorded investment reflected in the table above. The unpaid principal balance represents the principal amount contractually owed to the Company by the borrowers on the impaired loans.

Impaired Loans Acquired in Acquisitions. The outstanding balance and carrying amount of impaired loans acquired in acquisitions was $1.4 million and $314,000, respectively, at December 31, 2010, and $3.0 million and $672,000, respectively, at September 30, 2010. There were no outstanding impaired loans acquired in acquisitions at September 30, 2011 and there were no impaired loans acquired during the three and nine months ended September 30, 2011 and 2010. As the loans were classified as nonaccrual loans, there was no accretable yield related to these loans at December 31, 2010. Changes in the carrying amount of impaired loans acquired in acquisitions for the three and nine months ended September 30, 2011 and 2010 were as follows:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2011			2010		2011		2010
	(dollars expressed in thousands)
Balance, beginning of period	$	94		940		314		1,945
Transfers to other real estate		—		(147	)	(49	)	(517	)
Loans charged-off		(33	)	(159	)	(62	)	(716	)
Payments and settlements		(61	)	38		(203	)	(40	)
Balance, end of period	$	—		672		—		672

Troubled debt restructurings. In the ordinary course of business, the Company modifies loan terms across loan types, including both consumer and commercial loans, for a variety of reasons. Modifications to consumer loans may include, but are not limited to, changes in interest rate, maturity, amortization and financial covenants. In the original underwriting, loan terms are established that represent the then current and projected financial condition of the borrower. Over any period of time, modifications to these loan terms may be required due to changes in the original underwriting assumptions. These changes may include the financial requirements of the borrower as well as underwriting standards. If the modified terms are consistent with competitive market conditions and representative of terms the borrower could otherwise obtain in the open market, the modified loan is not categorized as a TDR.

Loan modifications are generally performed at the request of the individual borrower and may include reduction in interest rates, changes in payments and maturity date extensions. Although the Company does not have formal, standardized loan modification programs for its commercial or consumer loan portfolios, it participates in the U.S. Department of the Treasury’s (U.S. Treasury) Home Affordable Modification Program (HAMP). HAMP gives qualifying homeowners an opportunity to refinance into more affordable monthly payments, with the U.S. Treasury compensating the Company for a portion of the reduction in monthly amounts due from borrowers participating in this program. At September 30, 2011 and December 31, 2010, the Company had $73.4 million and $64.2 million, respectively, of modified loans in HAMP.

For a loan modification to be classified as a TDR, all of the following conditions must be present: (1) the borrower is experiencing financial difficulty, (2) the Company makes a concession to the original contractual loan terms and (3) the Company would not consider the concessions but for economic or legal reasons related to the borrower’s financial difficulty. Modifications of loan terms to borrowers experiencing financial difficulty are made in an attempt to protect as much of the investment in the loan as possible. These modifications are generally made to either prevent a loan from becoming nonaccrual or to return a nonaccrual loan to performing status based on the expectations that the borrower can adequately perform in accordance with the modified terms.

The determination of whether a modification should be classified as a TDR requires significant judgment after taking into consideration all facts and circumstances surrounding the transaction. No single characteristic or factor, taken alone, is determinative of whether a modification should be classified as a TDR. The fact that a single characteristic is present is not considered sufficient to overcome the preponderance of contrary evidence. Assuming all of the TDR criteria are met, the Company considers one or more of the following concessions to the loan terms to represent a TDR: (1) a reduction of the stated interest rate, (2) an extension of the maturity date or dates at a stated interest rate lower than the current market rate for a new loan with similar terms or (3) forgiveness of principal or accrued interest.

Loans renegotiated at a rate equal to or greater than that of a new loan with comparable risk at the time the contract is modified are excluded from TDR classification in the calendar years subsequent to the renegotiation if the loan is in compliance with the modified terms for at least six months.

17

The Company does not accrue interest on any TDRs unless it believes collection of all principal and interest under the modified terms is reasonably assured. Generally, six months of consecutive payment performance by the borrower under the restructured terms is required before a TDR is returned to accrual status. However, the period could vary depending upon the individual facts and circumstances of the loan. TDRs accruing interest are classified as performing TDRs. The following table presents the categories of performing TDRs as of September 30, 2011 and December 31, 2010:

	September 30,		December 31,
	2011		2010
	(dollars expressed in thousands)
Commercial, financial and agricultural	$	4,519	—
Real estate construction and development		3,144	3,145
Real estate mortgage:
One-to-four family residential		81,348	91,329
Multi-family residential		3,188	—
Commercial real estate		2,701	18,429
Total performing troubled debt restructurings	$	94,900	112,903

The Company does not accrue interest on TDRs which have been modified for a period less than six months or are not in compliance with the modified terms. These loans are considered nonperforming TDRs and are included with other nonaccrual loans for classification purposes. The following table presents the categories of loans considered nonperforming TDRs as of September 30, 2011 and December 31, 2010:

	September 30,		December 31,
	2011		2010
	(dollars expressed in thousands)
Commercial, financial and agricultural	$	1,555	5,432
Real estate construction and development		7,496	9,927
Real estate mortgage:
One-to-four family residential		4,872	4,923
Commercial real estate		8,968	5,909
Total nonperforming troubled debt restructurings	$	22,891	26,191

Both performing and nonperforming TDRs are considered to be impaired loans. When an individual loan is determined to be a TDR, the amount of impairment is based upon the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the underlying collateral less applicable selling costs. The impairment amount is either charged off as a reduction to the allowance for loan losses or provided for as a specific reserve within the allowance for loan losses. The allowance for loan losses allocated to TDRs was $11.2 million and $11.4 million at September 30, 2011 and December 31, 2010, respectively.

The following table presents loans classified as TDRs that were modified during the three and nine months ended September 30, 2011:

	Loan Modifications as Troubled Debt Restructurings
	Three Months Ended September 30, 2011					Nine Months Ended September 30, 2011
	(dollars expressed in thousands)
		Pre-		Post-			Pre-		Post-
		Modification		Modification			Modification		Modification
	Number	Outstanding		Outstanding		Number	Outstanding		Outstanding
	of	Recorded		Recorded		of	Recorded		Recorded
	Contracts	Investment		Investment		Contracts	Investment		Investment
Commercial, financial and agricultural	—	$	—	$	—	3	$	1,945	$	1,945
Real estate construction and development	2		7,372		6,354	2		7,372		6,354
Real estate mortgage:
One-to-four family residential	22		4,374		3,930	94		17,187		16,094
Multi-family residential	1		4,964		3,209	1		4,964		3,209
Commercial real estate	1		259		250	3		9,246		6,022

The following table presents TDRs that defaulted within twelve months of modification during the three and nine months ended September 30, 2011:

	Troubled Debt Restructurings That Subsequently Defaulted
	Three Months Ended			Nine Months Ended
	September 30, 2011			September 30, 2011
	Number of	Recorded		Number of	Recorded
	Contracts	Investment		Contracts	Investment
	(dollars expressed in thousands)
Real estate mortgage:
One-to-four family residential	7	$	1,213	29	$	6,819

18

Upon default of a TDR, which is considered to be 90 days or more past due under the modified terms, impairment is measured based on the fair value of the underlying collateral less applicable selling costs. The impairment amount is either charged off as a reduction to the allowance for loan losses or provided for as a specific reserve within the allowance for loan losses.

Allowance for Loan Losses. The allowance for loan losses is a reserve for estimated credit losses on individually evaluated loans determined to be impaired as well as estimated credit losses inherent in the loan portfolio, and is based on quarterly evaluations of the collectability and historical loss experience of loans. Actual credit losses, net of recoveries, are deducted from the allowance for loan losses. A provision for loan losses, which is a charge against earnings, is recorded to bring the allowance for loan losses to a level that, in management’s judgment, is appropriate to absorb probable losses in the loan portfolio.

The allocation methodology applied by the Company, designed to assess the appropriateness of the allowance for loan losses, includes an allocation methodology, as well as management’s ongoing review and grading of the loan portfolio into criticized loan categories (defined as specific loans warranting either specific allocation, or a criticized status of special mention, substandard, doubtful or loss). The allocation methodology focuses on evaluation of several factors, including but not limited to: evaluation of facts and circumstances related to specific loans, management’s ongoing review and grading of the loan portfolio, consideration of historical loan loss and delinquency experience within each portfolio category, trends in past due and nonaccrual loans, the level of potential problem loans, the risk characteristics of the various classifications of loans, changes in the size and character of the loan portfolio, concentrations of loans to specific borrowers or industries, existing economic conditions, the fair value of underlying collateral, and other qualitative and quantitative factors which could affect potential credit losses. Because each of the criteria used is subject to change, the allocation of the allowance for loan losses is made for analytical purposes and is not necessarily indicative of the trend of future loan losses in any particular loan category. The total allowance for loan losses is available to absorb losses from any segment of the loan portfolio.

When an individual loan is determined to be impaired, the allowance for loan losses attributable to the loan is allocated based on management’s estimate of the borrower’s ability to repay the loan given the availability of collateral, other sources of cash flows, as well as evaluation of legal options available to the Company. The amount of impairment is measured based upon the present value of expected future cash flows discounted at the loan’s effective interest rate, the fair value of the underlying collateral less applicable selling costs, or the observable market price of the loan. If foreclosure is probable or the loan is collateral dependent, impairment is measured using the fair value of the loan’s collateral, less estimated costs to sell. Large groups of homogeneous loans, such as residential mortgage, home equity and installment loans, are aggregated and collectively evaluated for impairment.

Changes in the allowance for loan losses for the three and nine months ended September 30, 2011 and 2010 were as follows:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2011			2010		2011		2010
	(dollars expressed in thousands)
Balance, beginning of period	$	161,186		241,969		201,033		266,448
Allowance for loan losses allocated to loans sold		—		—		—		(321	)
		161,186		241,969		201,033		266,127
Loans charged-off		(26,074	)	(58,293	)	(112,237	)	(246,082	)
Recoveries of loans previously charged-off		3,612		5,375		16,928		44,006
Net loans charged-off		(22,462	)	(52,918	)	(95,309	)	(202,076	)
Provision for loan losses		19,000		37,000		52,000		162,000
Balance, end of period	$	157,724		226,051		157,724		226,051

19

The following table represents a summary of changes in the allowance for loan losses by portfolio segment for the three and nine months ended September 30, 2011 in addition to the impairment method used by loan category at September 30, 2011:

				Real Estate
	Commercial			Construction		One-to-Four		Multi-				Consumer
	and			and		Family		Family		Commercial		and
	Industrial			Development		Residential		Residential		Real Estate		Installment		Total
	(dollars expressed in thousands)
Three months ended
September 30, 2011:
Allowance for loan losses:
Beginning balance	$	28,938		35,768		52,609		5,287		38,061		523		161,186
Charge-offs		(9,248	)	(5,944	)	(8,589	)	(60	)	(2,144	)	(89	)	(26,074	)
Recoveries		1,559		575		710		485		219		64		3,612
Provision (benefit) for loan
losses		9,298		2,380		7,014		85		266		(43	)	19,000
Ending balance	$	30,547		32,779		51,744		5,797		36,402		455		157,724
Nine months ended
September 30, 2011:
Allowance for loan losses:
Beginning balance	$	28,000		58,439		60,762		5,158		47,880		794		201,033
Charge-offs		(31,992	)	(25,630	)	(25,076	)	(2,990	)	(26,165	)	(384	)	(112,237	)
Recoveries		5,525		4,958		3,331		528		2,323		263		16,928
Provision (benefit) for loan
losses		29,014		(4,988	)	12,727		3,101		12,364		(218	)	52,000
Ending balance	$	30,547		32,779		51,744		5,797		36,402		455		157,724
Ending balance: individually
evaluated for impairment	$	7,710		3,163		2,855		349		5,006		—		19,083
Ending balance: collectively
evaluated for impairment	$	22,837		29,616		48,889		5,448		31,396		455		138,641
Financing receivables:
Ending balance	$	768,047		303,263		920,624		128,144		1,320,905		25,213		3,466,196
Ending balance: individually
evaluated for impairment	$	56,277		77,809		17,968		10,783		64,098		—		226,935
Ending balance: collectively
evaluated for impairment	$	711,770		225,454		902,656		117,361		1,256,807		25,213		3,239,261
Ending balance: loans acquired
with deteriorated credit
quality	$	—		—		—		—		—		—		—

The following table represents a summary of the allowance for loan losses by portfolio segment at December 31, 2010 in addition to the impairment method used by loan category at December 31, 2010:

			Real Estate
	Commercial		Construction	One-to-Four	Multi-		Consumer
	and		and	Family	Family	Commercial	and
	Industrial		Development	Residential	Residential	Real Estate	Installment	Total
	(dollars expressed in thousands)
December 31, 2010:
Allowance for loan losses	$	28,000	58,439	60,762	5,158	47,880	794	201,033
Ending balance: individually
evaluated for impairment	$	4,690	6,572	4,975	644	9,997	—	26,878
Ending balance: collectively
evaluated for impairment	$	23,310	51,867	55,787	4,514	37,883	794	174,155
Financing receivables:
Ending balance	$	1,045,832	490,766	1,050,895	178,289	1,642,920	29,112	4,437,814
Ending balance: individually
evaluated for impairment	$	44,585	128,797	30,388	12,960	136,254	—	352,984
Ending balance: collectively
evaluated for impairment	$	1,001,247	361,969	1,020,507	165,329	1,506,666	29,112	4,084,830
Ending balance: loans acquired
with deteriorated credit
quality	$	—	—	314	—	—	—	314

20

NOTE 5–GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and other intangible assets, net of amortization, were comprised of the following at September 30, 2011 and December 31, 2010:

	September 30, 2011				December 31, 2010
	Gross				Gross
	Carrying		Accumulated		Carrying	Accumulated
	Amount		Amortization		Amount	Amortization
	(dollars expressed in thousands)
Amortized intangible assets:
Core deposit intangibles (1)	$	17,074	(16,314	)	20,594	(17,507	)
Unamortized intangible assets:
Goodwill (2)	$	125,967			125,967
____________________

(1)	The gross carrying amount and accumulated amortization for core deposit intangibles at December 31, 2010 have been reduced by $617,000 and $559,000, respectively, or a net of $58,000, related to discontinued operations, as further described in Note 2 to the consolidated financial statements.
(2)	Goodwill at December 31, 2010 has been reduced by $2.0 million, related to discontinued operations and assets held for sale, as further described below and in Note 2 to the consolidated financial statements.

The Company allocated goodwill to the sales of the remaining branches in the Northern Illinois Region and the Edwardsville Branch of $1.5 million and $500,000, respectively, based on the relative fair values of the operations disposed of during 2011 and the portion of the First Bank segment that will be retained. The allocation of goodwill to the sale of the remaining branches in the Northern Illinois Region reduced the gain on sale of discontinued operations during the nine months ended September 30, 2011. The allocation of goodwill to the sale of the Edwardsville Branch reduced other income during the nine months ended September 30, 2011. The Company did not allocate any goodwill to the sale of the San Jose Branch.

Core deposit intangibles of $58,000 related to the sale of the remaining branches in the Northern Illinois Region were included in assets of discontinued operations at December 31, 2010 and reduced the gain on sale of discontinued operations during the nine months ended September 30, 2011.

Amortization of intangible assets was $728,000 and $2.3 million for the three and nine months ended September 30, 2011, respectively, compared to $800,000 and $2.5 million for the comparable periods in 2010. Amortization of core deposit intangibles has been estimated in the following table.

	(dollars expressed
	in thousands)
Year ending December 31:
2011 remaining	$	296
2012		464
Total	$	760

Changes in the carrying amount of goodwill for the three and nine months ended September 30, 2011 and 2010 were as follows:

	Three Months Ended			Nine Months Ended
	September 30,			September 30,
	2011		2010	2011	2010
	(dollars expressed in thousands)
Balance, beginning of period	$	125,967	127,967	125,967	136,967
Goodwill allocated to sale transactions (1)		—	—	—	(9,000	)
Balance, end of period	$	125,967	127,967	125,967	127,967
____________________

(1)        Goodwill allocated to sale transactions pertains to the sale of a portion of the Northern Illinois Region in September 2010, as further described in Note 2 to the consolidated financial statements.

The Company’s annual measurement date for its goodwill impairment test is December 31. The Company engaged an independent valuation firm to assist in computing the fair value estimate for the impairment assessment by utilizing two separate valuation methodologies and applying a weighted average to each methodology in order to determine fair value for its single reporting unit, First Bank. The valuation methodologies utilized a comparison of the average price to book value of comparable businesses and a discounted cash flow valuation technique. Taking into account this independent third party valuation, the Company concluded that the carrying value of its single reporting unit exceeded its estimated fair value at December 31, 2010.

21

Because the carrying value of the Company’s reporting unit exceeded the estimated fair value at December 31, 2010, the Company engaged the same independent valuation firm to assist in computing the fair value of First Bank’s assets and liabilities in order to determine the implied fair value of First Bank’s goodwill at December 31, 2010. Management compared the implied fair value of First Bank’s goodwill, as determined by the independent valuation firm, with its carrying value. Taking into account the results of the goodwill impairment analysis performed for the year ended December 31, 2010, First Bank did not record goodwill impairment.

As a result of continued adversity in the Company’s business climate, the Company performed an interim period goodwill impairment analysis as of September 30, 2011. The Step 1 analysis of the interim goodwill impairment test indicated the carrying amount of the Company’s single reporting unit exceeded the estimated fair value. Therefore, Step 2 testing was required. The Company determined, as a result of the Step 2 analysis, that the goodwill assigned to the Company’s single reporting unit was not impaired as of September 30, 2011.

The Company believes the estimates and assumptions utilized in the goodwill impairment test are reasonable. However, further deterioration in the outlook for credit quality or other factors could impact the estimated fair value of the single reporting unit as determined under Step 1 of the goodwill impairment test. A decrease in the estimated fair value of the reporting unit would decrease the implied fair value of goodwill as further determined under Step 2 of the goodwill impairment test. Step 2 of the goodwill impairment test compared the implied fair value of goodwill with the carrying value of goodwill. The implied fair value of goodwill is determined in the same manner as the determination of the amount of goodwill recognized in a business combination. The fair value of a reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the price paid to acquire the reporting unit. The fair value allocated to all of the assets and liabilities of the reporting unit requires significant judgment, especially for those assets and liabilities that are not measured on a recurring basis such as certain types of loans. The excess of the estimated fair value of the reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill.

The estimated fair value assigned to loans significantly affected the determination of the implied fair value of First Bank’s goodwill at September 30, 2011 and December 31, 2010. The implied fair value of a reporting unit’s goodwill will generally increase if the estimated fair value of the reporting unit’s loans is less than the carrying value of the reporting unit’s loans. The estimated fair value of the reporting unit’s loans was derived from discounted cash flow analyses. Loans were grouped into loan pools based on similar characteristics such as maturity, payment type and payment frequency, and rate type and underlying index. These cash flow calculations include assumptions for prepayment estimates over the loan’s remaining life, considerations for the current interest rate environment compared to the weighted average rate of the loan portfolio, a credit risk component based on the historical and expected performance of each loan portfolio stratum and a liquidity adjustment related to the current market environment. To the extent any of these assumptions change in the future, the implied fair value of the reporting unit’s goodwill could change materially. A decrease in the discount rate utilized in deriving the estimated fair value of the reporting unit’s loans would decrease the implied fair value of goodwill.

The estimated fair value assigned to the core deposit intangible, or First Bank’s deposit base, also significantly affected the determination of the implied fair value of First Bank’s goodwill at September 30, 2011 and December 31, 2010. The implied fair value of a reporting unit’s goodwill will generally decrease by the estimated fair value assigned to the reporting unit’s core deposit intangible. The estimated fair value of the core deposit intangible was derived from discounted cash flow analyses with considerations for estimated deposit runoff, cost of the deposit base, interest costs, net maintenance costs and the cost of alternative funds. The resulting estimate of the fair value of the core deposit intangible represents the present value of the difference in cash flows between maintaining the existing deposits and obtaining alternative funds over the life of the deposit base. To the extent any of these assumptions used to determine the estimated fair value of the core deposit intangible change in the future, the implied fair value of the reporting unit’s goodwill could change materially.

Due to the recent economic environment and the uncertainties regarding the impact on First Bank, there can be no assurance that the Company’s estimates and assumptions made for the purposes of the goodwill impairment testing will prove to be accurate predictions in the future. Adverse changes in the economic environment, First Bank’s operations, or other factors could result in a decline in the implied fair value of First Bank, which could result in the recognition of future goodwill impairment that may materially affect the carrying value of First Bank’s assets and its related operating results.

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NOTE 6–SERVICING RIGHTS

Mortgage Banking Activities. At September 30, 2011 and December 31, 2010, First Bank serviced mortgage loans for others totaling $1.27 billion. Changes in mortgage servicing rights for the three and nine months ended September 30, 2011 and 2010 were as follows:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2011			2010		2011		2010
	(dollars expressed in thousands)
Balance, beginning of period	$	11,739		11,443		12,150		12,130
Originated mortgage servicing rights		617		1,262		2,230		2,721
Change in fair value resulting from changes in valuation inputs or
assumptions used in valuation model (1)		(3,497	)	(2,443	)	(4,572	)	(3,465	)
Other changes in fair value (2)		(470	)	(858	)	(1,419	)	(1,982	)
Balance, end of period	$	8,389		9,404		8,389		9,404
____________________

(1)	The change in fair value resulting from changes in valuation inputs or assumptions used in valuation model primarily reflects the change in discount rates and prepayment speed assumptions, primarily due to changes in interest rates.
(2)	Other changes in fair value reflect changes due to the collection/realization of expected cash flows over time.

Other Servicing Activities. At September 30, 2011 and December 31, 2010, First Bank serviced United States Small Business Administration (SBA) loans for others totaling $182.8 million and $200.4 million, respectively. Changes in SBA servicing rights for the three and nine months ended September 30, 2011 and 2010 were as follows:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2011			2010		2011		2010
	(dollars expressed in thousands)
Balance, beginning of period	$	7,087		7,823		7,432		8,478
Originated SBA servicing rights		—		—		—		63
Change in fair value resulting from changes in valuation inputs or
assumptions used in valuation model (1)		107		100		333		524
Other changes in fair value (2)		(510	)	(174	)	(1,081	)	(1,316	)
Balance, end of period	$	6,684		7,749		6,684		7,749
____________________

(1)	The change in fair value resulting from changes in valuation inputs or assumptions used in valuation model primarily reflects the change in discount rates and prepayment speed assumptions, primarily due to changes in interest rates.
(2)	Other changes in fair value reflect changes due to the collection/realization of expected cash flows over time.

23

NOTE 7–EARNINGS (LOSS)PER COMMON SHARE

The following is a reconciliation of basic and diluted earnings (loss) per share (EPS) for the three and nine months ended September 30, 2011 and 2010:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2011			2010		2011		2010
	(dollars in thousands, except share and per share data)
Basic:
Net loss from continuing operations attributable to First Banks, Inc.	$	(2,074	)	(54,241	)	(25,967	)	(152,212	)
Preferred stock dividends declared and undeclared		(4,506	)	(4,272	)	(13,341	)	(12,650	)
Accretion of discount on preferred stock		(874	)	(853	)	(2,593	)	(2,529	)
Net loss from continuing operations attributable to common stockholders		(7,454	)	(59,366	)	(41,901	)	(167,391	)
Net income from discontinued operations attributable to common
stockholders		—		6,430		696		11,884
Net loss available to First Banks, Inc. common stockholders	$	(7,454	)	(52,936	)	(41,205	)	(155,507	)
Weighted average shares of common stock outstanding		23,661		23,661		23,661		23,661
Basic loss per common share – continuing operations	$	(315.01	)	(2,509.02	)	(1,770.84	)	(7,074.56	)
Basic earnings per common share – discontinued operations	$	—		271.76		29.42		502.26
Basic loss per common share	$	(315.01	)	(2,237.26	)	(1,741.42	)	(6,572.30	)
Diluted:
Net loss from continuing operations attributable to common stockholders	$	(7,454	)	(59,366	)	(41,901	)	(167,391	)
Net income from discontinued operations attributable to common
stockholders		—		6,430		696		11,884
Net loss available to First Banks, Inc. common stockholders		(7,454	)	(52,936	)	(41,205	)	(155,507	)
Effect of dilutive securities:
Class A convertible preferred stock		—		—		—		—
Diluted loss per common share – net loss available to First Banks, Inc.
common stockholders	$	(7,454	)	(52,936	)	(41,205	)	(155,507	)
Weighted average shares of common stock outstanding		23,661		23,661		23,661		23,661
Effect of dilutive securities:
Class A convertible preferred stock		—		—		—		—
Weighted average diluted shares of common stock outstanding		23,661		23,661		23,661		23,661
Diluted loss per common share – continuing operations	$	(315.01	)	(2,509.02	)	(1,770.84	)	(7,074.56	)
Diluted earnings per common share – discontinued operations	$	—		271.76		29.42		502.26
Diluted loss per common share	$	(315.01	)	(2,237.26	)	(1,741.42	)	(6,572.30	)

NOTE 8–TRANSACTIONS WITH RELATED PARTIES

First Services, L.P. First Services, L.P. (First Services), a limited partnership indirectly owned by the Company’s Chairman and members of his immediate family, provides information technology, item processing and various related services to the Company and First Bank. Fees paid under agreements with First Services were $6.2 million and $18.5 million for the three and nine months ended September 30, 2011, respectively, and $6.4 million and $20.0 million for the comparable periods in 2010. First Services leases information technology and other equipment from First Bank. First Services paid First Bank rental fees for the use of such equipment of $459,000 and $1.5 million during the three and nine months ended September 30, 2011, respectively, and $649,000 and $2.0 million for the comparable periods in 2010. In addition, First Services paid $462,000 and $1.4 million for the three and nine months ended September 30, 2011, respectively, and $463,000 and $1.4 million for the comparable periods in 2010, in rental payments to First Bank for occupancy of certain First Bank premises from which business is conducted.

Effective January 1, 2009, First Services entered into an Affiliate Services Agreement with the Company and First Bank. The Affiliate Services Agreement relates to various services provided to First Services, including certain human resources, payroll, employee benefit and training services, insurance services and vendor payment processing services. Fees accrued under the Affiliate Services Agreement by First Services were $39,000 and $117,000 for the three and nine months ended September 30, 2011, respectively, and $57,000 and $173,000 for the comparable periods in 2010.

24

First Brokerage America, L.L.C. First Brokerage America, L.L.C. (First Brokerage), a limited liability company indirectly owned by the Company’s Chairman and members of his immediate family, received $1.2 million and $4.1 million for the three and nine months ended September 30, 2011, respectively, and $1.2 million and $3.8 million for the comparable periods in 2010, in gross commissions paid by unaffiliated third-party companies. The commissions received primarily resulted from sales of annuities, securities and other insurance products to customers of First Bank. First Brokerage paid $96,000 and $392,000 for the three and nine months ended September 30, 2011, respectively, and $101,000 and $198,000 for the comparable periods in 2010, to First Bank in rental payments for occupancy of certain First Bank premises from which brokerage business is conducted.

Dierbergs Markets, Inc. First Bank leases certain of its in-store branch offices and automated teller machine (ATM) sites from Dierbergs Markets, Inc., a grocery store chain headquartered in St. Louis, Missouri that is owned and operated by the brother of the Company’s Chairman and members of his immediate family. Total rent expense incurred by First Bank under the lease obligation contracts was $120,000 and $357,000 for the three and nine months ended September 30, 2011, respectively, and $116,000 and $345,000 for the comparable periods in 2010.

First Capital America, Inc. / FB Holdings, LLC. In May 2008, the Company formed FB Holdings, a limited liability company organized in the state of Missouri. FB Holdings operates as a majority-owned subsidiary of First Bank and was formed for the primary purpose of holding and managing certain nonperforming loans and assets to allow the liquidation of such assets at a time that is more economically advantageous to First Bank and to permit an efficient vehicle for the investment of additional capital by the Company’s sole owner of its Class A and Class B preferred stock. During 2008, First Bank contributed cash of $9.0 million and nonperforming loans and assets with a fair value of approximately $133.3 million and FCA contributed cash of $125.0 million to FB Holdings. As a result, First Bank owned 53.23% and FCA owned the remaining 46.77% of FB Holdings as of September 30, 2011. The contribution of cash by FCA is reflected as a component of stockholders’ equity in the consolidated balance sheets and, consequently, increased the Company’s and First Bank’s risk-based capital ratios under then-existing regulatory guidelines, subject to certain limitations.

FB Holdings entered into a Services Agreement with First Bank effective May 2008. The Services Agreement relates to various services provided to FB Holdings by First Bank, including loan servicing and special assets services as well as various other financial, legal, human resources and property management services. Fees paid under the Services Agreement by FB Holdings were $44,000 and $152,000 for the three and nine months ended September 30, 2011, respectively, and $71,000 and $258,000 for the comparable periods in 2010.

Investors of America Limited Partnership. On March 24, 2011, the Company entered into a Revolving Credit Note and a Stock Pledge Agreement (the Credit Agreement) with Investors of America Limited Partnership (Investors of America, LP), as further described in Note 11 to the consolidated financial statements. Investors of America, LP is a Nevada limited partnership that was created by and for the benefit of the Company’s Chairman and members of his immediate family. The agreement provides for a $5.0 million secured revolving line of credit to be utilized for general working capital needs. This borrowing arrangement, which has a maturity date of December 31, 2012 and an interest rate of the London Interbank Offered Rate (LIBOR) plus 300 basis points, is intended to supplement, if necessary, the parent company’s overall level of unrestricted cash to cover the parent company’s projected operating expenses for the foreseeable future. There were no balances outstanding with respect to the Credit Agreement as of and for the nine months ended September 30, 2011.

Loans to Directors and/or their Affiliates. First Bank has had in the past, and may have in the future, loan transactions in the ordinary course of business with its directors and/or their affiliates. Loans to directors, their affiliates and executive officers of the Company were $19.0 million and $9.1 million at September 30, 2011 and December 31, 2010, respectively. First Bank does not extend credit to its officersor to officers of the Company, except extensions of credit secured by mortgages on personal residences, loans to purchase automobiles, personal credit card accounts and deposit account overdraft protection under a plan whereby a credit limit has been established in accordance with First Bank’s standard credit criteria.

Depositary Accounts of Directors and/or their Affiliates. Certain directors and/or their affiliates maintain funds on deposit with First Bank in the ordinary course of business. These deposit transactions include demand, savings and time accounts, and have been established on the same terms, including interest rates, as those prevailing at the time for comparable transactions with unaffiliated persons.

NOTE 9–REGULATORY CAPITAL

The Company and First Bank are subject to various regulatory capital requirements administered by the federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the operations and financial condition of the Company and First Bank. Under these capital requirements, the Company and First Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. 

25

Quantitative measures established by regulation to ensure capital adequacy require the Company and First Bank to maintain minimum amounts and ratios of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets, and of Tier 1 capital to average assets.

The Company did not meet the minimum regulatory capital standards established for bank holding companies by the Federal Reserve at September 30, 2011 and December 31, 2010. The Company must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table below in order to meet the minimum capital adequacy standards.

First Bank was categorized as well capitalized at September 30, 2011 and December 31, 2010 under the prompt corrective action provisions of the regulatory capital standards. First Bank must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table below in order to be categorized as well capitalized. In addition, First Bank is currently required to maintain its Tier 1 capital to total assets ratio at no less than 7.00% in accordance with the provisions of its informal agreement entered into with the MDOF, as further described in Note 1 to the consolidated financial statements. First Bank’s Tier 1 capital to total assets ratio of 8.17% and 7.68% at September 30, 2011 and December 31, 2010, respectively, exceeded the 7.00% minimum level required under the terms of the informal agreement with the MDOF.

As further described in Note 1 to the consolidated financial statements, on August 10, 2009, the Company announced the adoption of its Capital Plan, in order to, among other things, preserve the Company’s risk-based capital levels. The successful completion of all or any portion of the Capital Plan is not assured, and no assurance can be made that the Capital Plan will not be materially modified in the future. If the Company is not able to complete substantially all of the Capital Plan, its regulatory capital ratios may be materially and adversely affected and its ability to withstand continued adverse economic conditions could be threatened.

At September 30, 2011 and December 31, 2010, the Company and First Bank’s required and actual capital ratios were as follows:

											To be Well
											Capitalized
											Under
											Prompt
	Actual								For Capital		Corrective
	September 30, 2011				December 31, 2010 (1)				Adequacy		Action
	Amount		Ratio		Amount		Ratio		Purposes		Provisions
	(dollars expressed in thousands)
Total capital (to risk-weighted assets):
First Banks, Inc.	$	126,832	3.07	%	$	305,006	6.29	%	8.0	%	N/A
First Bank		604,460	14.65			626,976	12.95		8.0		10.0	%
Tier 1 capital (to risk-weighted assets):
First Banks, Inc.		63,416	1.54			152,503	3.15		4.0		N/A
First Bank		551,555	13.37			564,664	11.66		4.0		6.0
Tier 1 capital (to average assets):
First Banks, Inc.		63,416	0.94			152,503	1.99		4.0		N/A
First Bank		551,555	8.22			564,664	7.40		4.0		5.0

____________________

(1)        The decline in First Banks, Inc.’s regulatory capital ratios during the first nine months of 2011 reflects the implementation of new Federal Reserve rules that became effective on March 31, 2011, as further described below. First Banks, Inc.’s total capital (to risk-weighted assets), Tier 1 capital (to risk-weighted assets) and Tier 1 capital (to average assets) at December 31, 2010 would have been 4.53%, 2.27% and 1.44%, respectively, under the new rules if implemented as of December 31, 2010.

26

In March 2005, the Federal Reserve adopted a final rule, Risk-Based Capital Standards: Trust Preferred Securities and the Definition of Capital, which allows for the continued limited inclusion of trust preferred securities in Tier 1 capital. The Federal Reserve’s final rule limits restricted core capital elements to 25% of the sum of all core capital elements, including restricted core capital elements, net of goodwill less any associated deferred tax liability. Amounts of restricted core capital elements in excess of these limits may generally be included in Tier 2 capital. Specifically, amounts of qualifying trust preferred securities and cumulative perpetual preferred stock in excess of the 25% limit may be included in Tier 2 capital, but will be limited, together with subordinated debt and limited-life preferred stock, to 50% of Tier 1 capital. In addition, the final rule provides that in the last five years before the maturity of the underlying subordinated note, the outstanding amount of the associated trust preferred securities is to be excluded from Tier 1 capital and included in Tier 2 capital, subject to one-fifth amortization per year. The final rule provided for a five-year transition period, ending March 31, 2009, for the application of the quantitative limits. In March 2009, the Federal Reserve adopted a final rule that delayed the effective date for the application of the quantitative limits to March 31, 2011. Until March 31, 2011, the aggregate amount of qualifying cumulative perpetual preferred stock and qualifying trust preferred securities that could be included in Tier 1 capital was limited to 25% of the sum of the following core capital elements: qualifying common stockholders’ equity, qualifying noncumulative and cumulative perpetual preferred stock, qualifying noncontrolling interest in the equity accounts of consolidated subsidiaries and qualifying trust preferred securities. The Company determined that the Federal Reserve’s final rules that became effective on March 31, 2011, if implemented as of December 31, 2010, would have reduced the Company’s total capital (to risk-weighted assets), Tier 1 capital (to risk-weighted assets) and Tier 1 capital (to average assets) to 4.53%, 2.27% and 1.44%, respectively. The final rules that became effective on March 31, 2011 had no impact on First Bank’s regulatory capital ratios.

As noted above, the Company’s capital ratios are below the minimum regulatory capital standards established for bank holding companies, and therefore, the Company could be subject to additional actions by regulators that could have a direct material effect on the operations and financial condition of the Company and First Bank.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 restricts new issuances of trust preferred securities from being included as Tier 1 capital for all bank holding companies.

NOTE 10–BUSINESS SEGMENT RESULTS

The Company’s business segment is First Bank. The reportable business segment is consistent with the management structure of the Company, First Bank and the internal reporting system that monitors performance. First Bank provides similar products and services in its defined geographic areas through its branch network. The products and services offered include a broad range of commercial and personal deposit products, including demand, savings, money market and time deposit accounts. In addition, First Bank markets combined basic services for various customer groups, including packaged accounts for more affluent customers, and sweep accounts, lock-box deposits and cash management products for commercial customers. First Bank also offers consumer and commercial loans. Consumer lending includes residential real estate, home equity and installment lending. Commercial lending includes commercial, financial and agricultural loans, real estate construction and development loans, commercial real estate loans and small business lending. Other financial services include mortgage banking, debit cards, brokerage services, internet banking, remote deposit, ATMs, telephone banking, safe deposit boxes, and trust and private banking services. The revenues generated by First Bank and its subsidiaries consist primarily of interest income generated from the loan and investment security portfolios, service charges and fees generated from deposit products and services, and fees generated by the Company’s mortgage banking and trust and private banking business units. The Company’s products and services are offered to customers primarily within its geographic areas, which include eastern Missouri, southern Illinois, southern and northern California, and Florida’s Manatee, Pinellas, Hillsborough and Pasco counties. Certain loan products are available nationwide.

The business segment results are consistent with the Company’s internal reporting system and, in all material respects, with GAAP and practices predominant in the banking industry. The business segment results are summarized as follows:

				Corporate, Other and
	First Bank			Intercompany Reclassifications				Consolidated Totals
	September 30,		December 31,	September 30,		December 31,		September 30,	December 31,
	2011		2010	2011		2010		2011	2010
	(dollars expressed in thousands)
Balance sheet information:
Investment securities	$	2,413,460	1,483,659	10,678		10,678		2,424,138	1,494,337
Loans, net of deferred loan costs (fees)		3,502,791	4,492,284	—		—		3,502,791	4,492,284
FRB and FHLB stock		27,257	30,121	—		—		27,257	30,121
Goodwill and other intangible assets		126,727	129,054	—		—		126,727	129,054
Assets held for sale		—	2,266	—		—		—	2,266
Assets of discontinued operations		—	43,532	—		—		—	43,532
Total assets		6,768,646	7,361,706	15,319		16,422		6,783,965	7,378,128
Deposits		5,947,009	6,462,068	(3,196	)	(3,653	)	5,943,813	6,458,415
Other borrowings		53,112	31,761	—		—		53,112	31,761
Subordinated debentures		—	—	354,038		353,981		354,038	353,981
Liabilities held for sale		—	23,406	—		—		—	23,406
Liabilities of discontinued operations		—	94,184	—		—		—	94,184
Stockholders’ equity		703,843	693,458	(408,811	)	(386,163	)	295,032	307,295

27

						Corporate, Other and
						Intercompany
	First Bank					Reclassifications				Consolidated Totals
	Three Months Ended					Three Months Ended				Three Months Ended
	September 30,					September 30,				September 30,
	2011			2010		2011		2010		2011		2010
	(dollars expressed in thousands)
Income statement information:
Interest income	$	56,671		77,469		132		180		56,803		77,649
Interest expense		7,564		15,591		3,405		3,404		10,969		18,995
Net interest income (loss)		49,107		61,878		(3,273	)	(3,224	)	45,834		58,654
Provision for loan losses		19,000		37,000		—		—		19,000		37,000
Net interest income (loss) after provision for
loan losses		30,107		24,878		(3,273	)	(3,224	)	26,834		21,654
Noninterest income		16,972		17,913		8		(848	)	16,980		17,065
Amortization of intangible assets		728		800		—		—		728		800
Other noninterest expense		57,528		87,724		(119	)	(139	)	57,409		87,585
Loss from continuing operations before (benefit)
provision for income taxes		(11,177	)	(45,733	)	(3,146	)	(3,933	)	(14,323	)	(49,666	)
(Benefit) provision for income taxes		(11,572	)	5,250		(9	)	(57	)	(11,581	)	5,193
Net income (loss) from continuing operations, net
of tax		395		(50,983	)	(3,137	)	(3,876	)	(2,742	)	(54,859	)
Discontinued operations, net of tax		—		6,430		—		—		—		6,430
Net income (loss)		395		(44,553	)	(3,137	)	(3,876	)	(2,742	)	(48,429	)
Net loss attributable to noncontrolling interest in
subsidiary		(668	)	(618	)	—		—		(668	)	(618	)
Net income (loss) attributable to First Banks, Inc.	$	1,063		(43,935	)	(3,137	)	(3,876	)	(2,074	)	(47,811	)

						Corporate, Other and
						Intercompany
	First Bank					Reclassifications				Consolidated Totals
	Nine Months Ended					Nine Months Ended				Nine Months Ended
	September 30,					September 30,				September 30,
	2011			2010		2011		2010		2011		2010
	(dollars expressed in thousands)
Income statement information:
Interest income	$	177,783		243,498		385		421		178,168		243,919
Interest expense		27,098		52,601		10,068		9,694		37,166		62,295
Net interest income (loss)		150,685		190,897		(9,683	)	(9,273	)	141,002		181,624
Provision for loan losses		52,000		162,000		—		—		52,000		162,000
Net interest income (loss) after provision for
loan losses		98,685		28,897		(9,683	)	(9,273	)	89,002		19,624
Noninterest income		46,516		53,149		(210	)	(332	)	46,306		52,817
Amortization of intangible assets		2,327		2,525		—		—		2,327		2,525
Other noninterest expense		172,476		217,804		(541	)	60		171,935		217,864
Loss from continuing operations before (benefit)
provision for income taxes		(29,602	)	(138,283	)	(9,352	)	(9,665	)	(38,954	)	(147,948	)
(Benefit) provision for income taxes		(11,412	)	5,504		(45	)	(158	)	(11,457	)	5,346
Net loss from continuing operations, net of tax		(18,190	)	(143,787	)	(9,307	)	(9,507	)	(27,497	)	(153,294	)
Discontinued operations, net of tax		696		11,884		—		—		696		11,884
Net loss		(17,494	)	(131,903	)	(9,307	)	(9,507	)	(26,801	)	(141,410	)
Net loss attributable to noncontrolling interest in
subsidiary		(1,530	)	(1,082	)	—		—		(1,530	)	(1,082	)
Net loss attributable to First Banks, Inc.	$	(15,964	)	(130,821	)	(9,307	)	(9,507	)	(25,271	)	(140,328	)

NOTE 11–NOTES PAYABLE AND OTHER BORROWINGS

Notes Payable. On March 24, 2011, the Company entered into a Credit Agreement with Investors of America, LP, as further described in Note 8 to the consolidated financial statements. The agreement provides for a $5.0 million secured revolving line of credit to be utilized for general working capital needs. This borrowing arrangement, which has a maturity date of December 31, 2012 and an interest rate of LIBOR plus 300 basis points, is intended to supplement, if necessary, the parent company’s overall level of unrestricted cash to cover the parent company’s projected operating expenses for the foreseeable future. The parent company’s unrestricted cash was $3.2 million and $3.6 million at September 30, 2011 and December 31, 2010, respectively. There were no balances outstanding with respect to the Credit Agreement as of and for the nine months ended September 30, 2011.

Other Borrowings. Other borrowings were comprised solely of daily securities sold under agreement to repurchase of $53.1 million and $31.8 million at September 30, 2011 and December 31, 2010, respectively.

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NOTE 12–SUBORDINATED DEBENTURES

The Company has formed or assumed various affiliated Delaware or Connecticut statutory and business trusts (collectively, the Trusts) that were created for the sole purpose of issuing trust preferred securities. The trust preferred securities were issued in private placements, with the exception of First Preferred Capital Trust IV, which was issued in a publicly underwritten offering. The Company owns all of the common securities of the Trusts. The gross proceeds of the offerings were used by the Trusts to purchase variable rate or fixed rate junior subordinated debentures from the Company. The junior subordinated debentures are the sole asset of the Trusts. In connection with the issuance of the trust preferred securities, the Company made certain guarantees and commitments that, in the aggregate, constitute a full and unconditional guarantee by the Company of the obligations of the Trusts under the trust preferred securities. The Company’s distributions accrued on the junior subordinated debentures were $3.4 million and $10.0 million for the three and nine months ended September 30, 2011, respectively, and $3.4 million and $9.7 million for the comparable periods in 2010, and are included in interest expense in the consolidated statements of operations. Deferred issuance costs associated with the Company’s junior subordinated debentures are included as a reduction of junior subordinated debentures in the consolidated balance sheets and are amortized on a straight-line basis to the maturity date of the respective junior subordinated debentures. The structure of the trust preferred securities currently satisfies the regulatory requirements for inclusion, subject to certain limitations, in the Company’s capital base, as further discussed in Note 9 to the consolidated financial statements.

A summary of the junior subordinated debentures issued to the Trusts in conjunction with the trust preferred securities offerings at September 30, 2011 and December 31, 2010 were as follows:

						Trust
				Interest		Preferred		Subordinated
Name of Trust	Issuance Date	Maturity Date	Call Date (1)	Rate (2)		Securities		Debentures
							(dollars expressed in
							thousands)
Variable Rate
First Bank Statutory Trust II	September 2004	September 20, 2034	September 20, 2009	+ 205.0	bp	$	20,000	$	20,619
Royal Oaks Capital Trust I	October 2004	January 7, 2035	January 7, 2010	+ 240.0	bp		4,000		4,124
First Bank Statutory Trust III	November 2004	December 15, 2034	December 15, 2009	+ 218.0	bp		40,000		41,238
First Bank Statutory Trust IV	March 2006	March 15, 2036	March 15, 2011	+ 142.0	bp		40,000		41,238
First Bank Statutory Trust V	April 2006	June 15, 2036	June 15, 2011	+ 145.0	bp		20,000		20,619
First Bank Statutory Trust VI	June 2006	July 7, 2036	July 7, 2011	+ 165.0	bp		25,000		25,774
First Bank Statutory Trust VII	December 2006	December 15, 2036	December 15, 2011	+ 185.0	bp		50,000		51,547
First Bank Statutory Trust VIII	February 2007	March 30, 2037	March 30, 2012	+ 161.0	bp		25,000		25,774
First Bank Statutory Trust X	August 2007	September 15, 2037	September 15, 2012	+ 230.0	bp		15,000		15,464
First Bank Statutory Trust IX	September 2007	December 15, 2037	December 15, 2012	+ 225.0	bp		25,000		25,774
First Bank Statutory Trust XI	September 2007	December 15, 2037	December 15, 2012	+ 285.0	bp		10,000		10,310
Fixed Rate
First Bank Statutory Trust	March 2003	March 20, 2033	March 20, 2008	8.10%			25,000		25,774
First Preferred Capital Trust IV	April 2003	June 30, 2033	June 30, 2008	8.15%			46,000		47,423

____________________
 

(1)	The junior subordinated debentures are callable at the option of the Company on the call date shown at 100% of the principal amount plus accrued and unpaid interest.
(2)	The interest rates paid on the trust preferred securities are based on either a variable rate or a fixed rate. The variable rate is based on the three-month LIBOR plus the basis point spread shown.

In August 2009, the Company announced the deferral of its regularly scheduled interest payments on its outstanding junior subordinated notes relating to its $345.0 million of trust preferred securities beginning with the regularly scheduled quarterly interest payments that would otherwise have been made in September and October 2009. The terms of the junior subordinated notes and the related trust indentures allow the Company to defer such payments of interest for up to 20 consecutive quarterly periods without default or penalty. The Company has deferred such payments for nine quarterly periods as of September 30, 2011. During the deferral period, the respective trusts will suspend the declaration and payment of dividends on the trust preferred securities. During the deferral period, the Company may not, among other things and with limited exceptions, pay cash dividends on or repurchase its common stock or preferred stock nor make any payment on outstanding debt obligations that rank equally with or junior to the junior subordinated notes. The Company has deferred $27.9 million and $18.8 million of its regularly scheduled interest payments as of September 30, 2011 and December 31, 2010, respectively. In addition, the Company has accrued additional interest expense of $1.5 million and $621,000 as of September 30, 2011 and December 31, 2010, respectively, on the regularly scheduled deferred interest payments based on the interest rate in effect for each junior subordinated note issuance in accordance with the respective terms of the underlying agreements.

Under its agreement with the FRB, the Company agreed, among other things, to provide certain information to the FRB, including, but not limited to, prior notice regarding the issuance of additional trust preferred securities. The Company also agreed not to make any distributions of interest or other sums on its outstanding trust preferred securities without the prior approval of the FRB, as further described in Note 1 to the consolidated financial statements.

29

NOTE 13–STOCKHOLDERS’EQUITY

There is no established public trading market for the Company’s common stock. Various trusts, which were established by and are administered by and for the benefit of the Company’s Chairman of the Board and members of his immediate family, own all of the voting stock of the Company.

The Company has four classes of preferred stock outstanding. The Class A preferred stock is convertible into shares of common stock at a rate based on the ratio of the par value of the preferred stock to the current market value of the common stock at the date of conversion, to be determined by independent appraisal at the time of conversion. Shares of Class A preferred stock may be redeemed by the Company at any time at 105.0% of par value. The Class B preferred stock may not be redeemed or converted. The holders of the Class A and Class B preferred stock have full voting rights. Dividends on the Class A and Class B preferred stock are adjustable quarterly based on the highest of the Treasury Bill Rate or the Ten Year Constant Maturity Rate for the two-week period immediately preceding the beginning of the quarter. This rate shall not be less than 6.0% nor more than 12.0% on the Class A preferred stock, or less than 7.0% nor more than 15.0% on the Class B preferred stock. Effective August 10, 2009, the Company suspended the declaration of dividends on its Class A and Class B preferred stock.

On December 31, 2008,the Company issued 295,400 shares of Class C Preferred Stock and 14,770 shares of Class D Preferred Stock to the U.S. Treasury in conjunction with the U.S. Treasury’s Troubled Asset Relief Program’s Capital Purchase Program (CPP). The Class C Preferred Stock has a par value of $1.00 per share and a liquidation preference of $1,000 per share. The holders of the Class C Preferred Stock have no voting rights except in certain limited circumstances. The Class C Preferred Stock carries an annual dividend rate equal to 5% for the first five years and the annual dividend rate increases to 9% thereafter, payable quarterly in arrears beginning February 15, 2009. The Class D Preferred Stock has a par value of $1.00 per share and a liquidation preference of $1,000 per share. The holders of the Class D Preferred Stock have no voting rights except in certain limited circumstances. The Class D Preferred Stock carries an annual dividend rate equal to 9%, payable quarterly in arrears beginning February 15, 2009. The Class C Preferred Stock and the Class D Preferred Stock qualify as Tier 1 capital. Effective February 17, 2009, the Class C Preferred Stock and the Class D Preferred Stock may be redeemed at any time without penalty and without the need to raise new capital, subject to the U.S. Treasury’s consultation with the Company’s primary regulatory agency. The Class D Preferred Stock may not be redeemed until all of the outstanding shares of the Class C Preferred Stock have been redeemed. In addition, the U.S. Treasury has certain supervisory and oversight duties and responsibilities under the CPP and, pursuant to the terms of the agreement governing the issuance of the Class C Preferred Stock and the Class D Preferred Stock to the U.S. Treasury (Purchase Agreement), the U.S. Treasury is empowered to unilaterally amend any provision of the Purchase Agreement with the Company to the extent required to comply with any changes in applicable federal statutes. As a result of the Company’s deferral of dividends to the U.S. Treasury for an aggregate of six quarters, the U.S. Treasury had the right to elect two directors to the Company’s Board. On July 13, 2011, the U.S. Treasury elected two members to the Company’s Board of Directors, effective immediately.

The Company allocated the total proceeds received under the CPP of $295.4 million to the Class C Preferred Stock and the Class D Preferred Stock based on the relative fair values of the respective classes of preferred stock at the time of issuance. The discount on the Class C Preferred Stock of $17.3 million is being accreted to retained earnings on a level-yield basis over five years. Accretion of the discount on the Class C Preferred Stock was $874,000 and $2.6 million for the three and nine months ended September 30, 2011, respectively, compared to $853,000 and $2.5 million for the comparable periods in 2010.

The redemption of any issue of preferred stock requires the prior approval of the Federal Reserve. Furthermore, the agreement that the Company entered into with the U.S. Treasury associated with the issuance of the Class C Preferred Stock and the Class D Preferred Stock contains limitations on certain actions of the Company, including, but not limited to, payment of dividends and redemptions and acquisitions of the Company’s equity securities. In addition, the Company, under its agreement with the FRB, has agreed, among other things, to provide certain information to the FRB including, but not limited to, notice of plans to materially change its fundamental business and notice to raise additional equity capital. Furthermore, the Company agreed not to pay any dividends on its common or preferred stock without the prior approval of the FRB, as further described in Note 1 to the consolidated financial statements.

30

On August 10, 2009, the Company began suspending the payment of cash dividends on its outstanding common stock and preferred stock beginning with the regularly scheduled quarterly dividend payments on the preferred stock that would otherwise have been made in August and September 2009. The Company has deferred such payments for nine quarterly periods as of September 30, 2011. The Company has declared and deferred $36.2 million and $24.1 million of its regularly scheduled dividend payments on its Class C Preferred Stock and Class D Preferred Stock, and has declared and accrued an additional $2.3 million and $990,000 of cumulative dividends on such deferred dividend payments at September 30, 2011 and December 31, 2010, respectively.

The following table presents the transactions affecting accumulated other comprehensive income (loss) included in stockholders’ equity for the three and nine months ended September 30, 2011 and 2010:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2011			2010		2011		2010
	(dollars expressed in thousands)
Net loss	$	(2,742	)	(48,429	)	(26,801	)	(141,410	)
Other comprehensive income (loss):
Unrealized gains on available-for-sale investment securities, net of tax		5,644		4,748		29,024		15,926
Reclassification adjustment for available-for-sale investment securities
(gains) losses included in net loss, net of tax		(2,708	)	2		(3,427	)	(359	)
Reclassification adjustment for deferred tax asset valuation allowance
on investment securities (1)		(10,002	)	2,557		2,200		8,382
Change in unrealized gains on derivative instruments, net of tax		—		(1,245	)	—		(3,734	)
Reclassification adjustment for deferred tax asset valuation allowance
on derivative instruments (2)		—		6,146		—		4,806
Amortization of net loss related to pension liability, net of tax		15		64		47		193
Reclassification adjustment for deferred tax asset valuation allowance
on pension liability		12		47		35		140
Comprehensive (loss) income		(9,781	)	(36,110	)	1,078		(116,056	)
Comprehensive loss attributable to noncontrolling interest in
subsidiary		(668	)	(618	)	(1,530	)	(1,082	)
Comprehensive (loss) income attributable to First Banks, Inc.	$	(9,113	)	(35,492	)	2,608		(114,974	)
____________________

  

(1)

In the third quarter of 2011, the Company recorded an intraperiod tax allocation of $11.6 million between accumulated other comprehensive income and net loss from continuing operations, as further described in Note 14 to the consolidated financial statements.

(2)

In the third quarter of 2010, the Company reclassified an accumulated other comprehensive loss of $6.8 million related to the establishment of a deferred tax asset valuation allowance to its provision for income taxes related to the expiration of the amortization period of the unrealized gain on certain terminated interest rate swap agreements that had been designated as cash flow hedges on certain loans, as further described in Note 14 and Note 16 to the consolidated financial statements.

NOTE 14–INCOME TAXES

The realization of the Company’s net deferred tax assets is based on the expectation of future taxable income and the utilization of tax planning strategies. The Company has a full valuation allowance against its net deferred tax assets at September 30, 2011 and December 31, 2010. The deferred tax asset valuation allowance was recorded in accordance with ASC Topic 740, “Income Taxes.” Under ASC Topic 740, the Company is required to assess whether it is “more likely than not” that some portion or all of its deferred tax assets will not be realized. Pursuant to ASC Topic 740, concluding that a deferred tax asset valuation allowance is not required is difficult when there is significant evidence which is objective and verifiable, such as the lack of recoverable taxes, excess of reversing deductible differences over reversing taxable differences and cumulative losses in recent years. If, in the future, the Company generates taxable income on a sustained basis, management may conclude the deferred tax asset valuation allowance is no longer required, which would result in the reversal of a portion or all of the deferred tax asset valuation allowance, which would be reflected as a benefit for income taxes in the consolidated statements of operations.

A summary of the Company’s deferred tax assets and deferred tax liabilities at September 30, 2011 and December 31, 2010 is as follows:

	September 30,			December 31,
	2011			2010
	(dollars expressed in thousands)
Gross deferred tax assets	$	400,369		387,202
Valuation allowance		(376,852	)	(369,198	)
Deferred tax assets, net of valuation allowance		23,517		18,004
Deferred tax liabilities		30,699		25,186
Net deferred tax liabilities	$	(7,182	)	(7,182	)

The Company’s valuation allowance was $376.9 million and $369.2 million at September 30, 2011 and December 31, 2010, respectively. At September 30, 2011 and December 31, 2010, for federal income tax purposes, the Company had net operating loss carryforwards of approximately $518.0 million and $478.3 million, respectively, and for state income tax purposes, the Company had net operating loss carryforwards of approximately $683.2 million and $567.3 million, respectively, and a related deferred tax asset of $53.3 million and $43.7 million, respectively.

31

At September 30, 2011 and December 31, 2010, the Company’s unrecognized tax benefits for uncertain tax positions, excluding interest and penalties, were $1.5 million and $1.3 million, respectively. At September 30, 2011 and December 31, 2010, the total amount of unrecognized tax benefits that would affect the provision for income taxes, prior to the consideration of the deferred tax asset valuation allowance, was $961,000 and $837,000, respectively. During the nine months ended September 30, 2011 and 2010, the Company recorded additional liabilities for unrecognized tax benefits of $191,000 and $258,000, respectively. The Company reduced the reserve for unrecognized tax benefits for uncertain tax positions by $2.2 million during the three and nine months ended September 30, 2010 as a result of the completion of an Internal Revenue Service (IRS) examination and the sale of WIUS. The partial reversal of the reserve for unrecognized tax benefits resulted in a decrease to the provision for income taxes of $2.0 million.

It is the Company’s policy to separately disclose any interest or penalties arising from the application of federal or state income taxes. Interest related to unrecognized tax benefits is included in interest expense and penalties related to unrecognized tax benefits are included in noninterest expense. At September 30, 2011 and December 31, 2010, interest accrued for unrecognized tax positions was $236,000 and $180,000, respectively. The Company recorded interest expense of $18,000 and $56,000 related to unrecognized tax benefits for the three and nine months ended September 30, 2011, respectively. The Company recorded a reduction to interest expense of $1.1 million and $969,000 for the three and nine months ended September 30, 2010, respectively, reflecting the reversal of interest accrued on unrecognized tax benefits for uncertain tax positions of $1.1 million during the third quarter of 2010 as a result of the completion of an IRS examination and the sale of WIUS. There were no penalties for uncertain tax positions accrued at September 30, 2011 and December 31, 2010, nor did the Company recognize any expense for penalties during the three and nine months ended September 30, 2011 and 2010.

The Company continually evaluates the unrecognized tax benefits associated with its uncertain tax positions. It is reasonably possible that the total unrecognized tax benefits as of September 30, 2011 could decrease by approximately $305,000 by December 31, 2011, as a result of the lapse of statutes of limitations or potential settlements with the federal and state taxing authorities, of which the impact to the provision for income taxes, prior to the consideration of the deferred tax asset valuation allowance, is estimated to be approximately $198,000. It is also reasonably possible that this decrease could be substantially offset by new matters arising during the same period.

The Company files consolidated and separate income tax returns in the U.S. federal jurisdiction and in various state jurisdictions. Management of the Company believes the accrual for tax liabilities is adequate for all open audit years based on its assessment of many factors, including past experience and interpretations of tax law applied to the facts of each matter. This assessment relies on estimates and assumptions. The Company’s federal income tax returns through 2008 have been examined by the IRS. Years subsequent to 2008 could contain matters that could be subject to differing interpretations of applicable tax laws and regulations as they relate to the amount, timing or inclusion of revenue and expenses. The Company has recorded a tax benefit only for those positions that meet the “more likely than not” standard. The Company’s current estimate of the resolution of various state examinations, none of which are in process, is reflected in accrued income taxes; however, final settlement of the examinations or changes in the Company’s estimate may result in future income tax expense or benefit.

The Company is no longer subject to U.S. federal tax examination for the years prior to 2008 and is no longer subject to Florida, Illinois and Missouri income tax examination by the tax authorities for the years prior to 2007, and prior to 2006 for California and Texas. The Company had a federal tax examination for tax years through 2008, which was closed during 2010, and a California tax examination for the 2004 and 2005 tax years, which was closed during 2008. An Illinois tax examination of the 2007 and 2008 tax years was completed during the second quarter of 2011 with no changes to the returns as originally filed.

The Company recorded a benefit for income taxes of $11.6 million during the three and nine months ended September 30, 2011 related to an intraperiod tax allocation between accumulated other comprehensive income and loss from continuing operations, primarily driven by market appreciation in the Company’s investment securities portfolio.

The Company had an accumulated other comprehensive loss of $6.8 million related to the establishment of a deferred tax asset valuation allowance regarding the unrealized gain on certain interest rate swap agreements that were designated as cash flow hedges on certain loans. These interest rate swap agreements were terminated in December 2008, and as a result, the unrealized gain at the date of termination of $20.8 million was being amortized as an increase to interest and fees on loans in the consolidated statements of operations over the remaining terms of the respective interest rate swap agreements, which had contractual maturity dates through September 2010. In the third quarter of 2010, the Company recorded a provision for incomes taxes of $6.8 million related to the expiration of the amortization period of the unrealized gain on the interest rate swap agreements with a corresponding increase to accumulated other comprehensive income.

32

NOTE 15–FAIR VALUE DISCLOSURES

In accordance with ASC Topic 820, “Fair Value Measurements and Disclosures,” financial assets and financial liabilities that are measured at fair value subsequent to initial recognition are grouped into three levels of inputs or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the reliability of assumptions used to determine fair value. The three input levels of the valuation hierarchy are as follows:

Level 1 Inputs –	Valuation is based on quoted prices in active markets for identical instruments in active markets.
Level 2 Inputs –	Valuation is based on quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 Inputs –	Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

The following describes valuation methodologies used to measure financial assets and financial liabilities at fair value, as well as the general classification of such financial instruments pursuant to the valuation hierarchy:

Available-for-sale investment securities. Available-for-sale investment securities are recorded at fair value on a recurring basis. Available-for-sale investment securities included in Level 1 are valued using quoted market prices. Where quoted market prices are unavailable, the fair value included in Level 2 is based on quoted market prices of comparable instruments obtained from independent pricing vendors based on recent trading activity and other relevant information.

Loans held for sale. Mortgage loans held for sale are carried at fair value on a recurring basis. The determination of fair value is based on quoted market prices of comparable instruments obtained from independent pricing vendors based on recent trading activity and other relevant information. Other loans held for sale are carried at the lower of cost or market value, which is determined on an individual loan basis. The fair value is based on the prices secondary markets are offering for portfolios with similar characteristics. The Company classifies mortgage loans held for sale subjected to recurring fair value adjustments as recurring Level 2. The Company classifies other loans held for sale subjected to nonrecurring fair value adjustments as nonrecurring Level 2.

Loans. The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans are considered impaired when, in the judgment of management based on current information and events, it is probable that payment of all amounts due under the contractual terms of the loan agreement will not be collected. Acquired impaired loans are classified as nonaccrual loans and are initially measured at fair value with no allocated allowance for loan losses. An allowance for loan losses is recorded to the extent there is further credit deterioration subsequent to acquisition date. In accordance with ASC Topic 820, impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. Once a loan is identified as impaired, management measures the impairment in accordance with ASC Topic 310-10-35, “Receivables.” Impairment is measured by reference to an observable market price, if one exists, the expected future cash flows of an impaired loan discounted at the loan’s effective interest rate, or the fair value of the collateral for a collateral-dependent loan. In most cases, the Company measures fair value based on the value of the collateral securing the loan. Collateral may be in the form of real estate or personal property, including equipment and inventory. The vast majority of the collateral is real estate. The value of the collateral is determined based on third party appraisals as well as internal estimates. These measurements are classified as Level 3.

33

Derivative instruments. Substantially all derivative instruments utilized by the Company are traded in over-the-counter markets where quoted market prices are not readily available. Derivative instruments utilized by the Company include interest rate swap agreements, interest rate floor and cap agreements, interest rate lock commitments and forward commitments to sell mortgage-backed securities. For these derivative instruments, fair value is based on market observable inputs utilizing pricing systems and valuation models, and where applicable, the values are compared to the market values calculated independently by the respective counterparties. The Company classifies its derivative instruments as Level 2.

Servicing rights. Servicing rights are valued based on valuation models that utilize assumptions based on the predominant risk characteristics of the underlying loans, including principal balance, interest rate, weighted average life, cost to service and estimated prepayment speeds. The valuation models estimate the present value of estimated future net servicing income. The Company classifies its servicing rights as Level 3.

Nonqualified Deferred Compensation Plan. The Company’s nonqualified deferred compensation plan is recorded at fair value on a recurring basis. The unfunded plan allows participants to hypothetically invest in various specified investment options such as equity funds, international stock funds, capital appreciation funds, money market funds, bond funds, mid-cap value funds and growth funds. The nonqualified deferred compensation plan liability is valued based on quoted market prices of the underlying investments. The Company classifies its nonqualified deferred compensation plan liability as Level 1.

Items Measured on a Recurring Basis. Assets and liabilities measured at fair value on a recurring basis as of September 30, 2011 and December 31, 2010 are reflected in the following table:

	Fair Value Measurements
	Level 1		Level 2		Level 3	Fair Value
	(dollars expressed in thousands)
September 30, 2011:
Assets:
Available-for-sale investment securities:
U.S. Government sponsored agencies	$	—	372,728		—	372,728
Residential mortgage-backed		—	1,838,630		—	1,838,630
Commercial mortgage-backed		—	929		—	929
State and political subdivisions		—	6,251		—	6,251
Corporate notes		—	179,959		—	179,959
Equity investments		1,023	10,678		—	11,701
Mortgage loans held for sale		—	36,595		—	36,595
Derivative instruments:
Customer interest rate swap agreements		—	518		—	518
Interest rate lock commitments		—	2,707		—	2,707
Forward commitments to sell mortgage-backed securities		—	(1,569	)	—	(1,569	)
Servicing rights		—	—		15,073	15,073
Total	$	1,023	2,447,426		15,073	2,463,522
Liabilities:
Derivative instruments:
Interest rate swap agreements	$	—	1,189		—	1,189
Customer interest rate swap agreements		—	432		—	432
Nonqualified deferred compensation plan		6,693	—		—	6,693
Total	$	6,693	1,621		—	8,314
December 31, 2010:
Assets:
Available-for-sale investment securities:
U.S. Treasury	$	101,202	—		—	101,202
U.S. Government sponsored agencies		—	20,332		—	20,332
Residential mortgage-backed		—	1,341,578		—	1,341,578
Commercial mortgage-backed		—	1,008		—	1,008
State and political subdivisions		—	8,387		—	8,387
Equity investments		—	10,678		—	10,678
Mortgage loans held for sale		—	54,470		—	54,470
Derivative instruments:
Customer interest rate swap agreements		—	792		—	792
Interest rate lock commitments		—	276		—	276
Forward commitments to sell mortgage-backed securities		—	1,538		—	1,538
Servicing rights		—	—		19,582	19,582
Total	$	101,202	1,439,059		19,582	1,559,843
Liabilities:
Derivative instruments:
Interest rate swap agreements	$	—	2,402		—	2,402
Customer interest rate swap agreements		—	636		—	636
Nonqualified deferred compensation plan		7,790	—		—	7,790
Total	$	7,790	3,038		—	10,828

There were no transfers between Levels 1 and 2 of the fair value hierarchy for the three and nine months ended September 30, 2011.

34

The following table presents the changes in Level 3 assets measured on a recurring basis for the three and nine months ended September 30, 2011 and 2010:

	Servicing Rights
	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2011			2010		2011		2010
	(dollars expressed in thousands)
Balance, beginning of period	$	18,826		19,266		19,582		20,608
Total gains or losses (realized/unrealized):
Included in earnings (1)		(4,370	)	(3,375	)	(6,739	)	(6,239	)
Included in other comprehensive income (loss)		—		—		—		—
Issuances		617		1,262		2,230		2,784
Transfers in and/or out of level 3		—		—		—		—
Balance, end of period	$	15,073		17,153		15,073		17,153
____________________

(1) Gains or losses (realized/unrealized) are included in noninterest income in the consolidated statements of operations.

Items Measured on a Nonrecurring Basis. From time to time, the Company measures certain assets at fair value on a nonrecurring basis. These include assets that are measured at the lower of cost or market value that were recognized at fair value below cost at the end of the period. Assets measured at fair value on a nonrecurring basis as of September 30, 2011 and December 31, 2010 are reflected in the following table:

	Fair Value Measurements
	Level 1		Level 2	Level 3	Fair Value
	(dollars expressed in thousands)
September 30, 2011:
Assets:
Impaired loans:
Commercial, financial and agricultural	$	—	—	66,216	66,216
Real estate construction and development		—	—	79,858	79,858
Real estate mortgage:
Bank portfolio		—	—	15,123	15,123
Mortgage Division portfolio		—	—	85,788	85,788
Home equity portfolio		—	—	6,538	6,538
Multi-family residential		—	—	10,202	10,202
Commercial real estate		—	—	63,111	63,111
Consumer and installment		—	—	41	41
Other real estate and repossessed assets		—	—	131,349	131,349
Total	$	—	—	458,226	458,226
December 31, 2010:
Assets:
Impaired loans:
Commercial, financial and agricultural	$	—	—	60,748	60,748
Real estate construction and development		—	—	126,784	126,784
Real estate mortgage:
Bank portfolio		—	—	14,107	14,107
Mortgage Division portfolio		—	—	107,969	107,969
Home equity portfolio		—	—	5,967	5,967
Multi-family residential		—	—	11,936	11,936
Commercial real estate		—	—	133,287	133,287
Consumer and installment		—	—	110	110
Other real estate and repossessed assets		—	—	140,665	140,665
Total	$	—	—	601,573	601,573

Non-Financial Assets and Non-Financial Liabilities. Certain non-financial assets measured at fair value on a non-recurring basis include other real estate (upon initial recognition or subsequent impairment), non-financial assets and non-financial liabilities measured at fair value in the second step of a goodwill impairment test, and intangible assets and other non-financial long-lived assets measured at fair value for impairment assessment.

Certain other real estate, upon initial recognition, was re-measured and reported at fair value through a charge-off to the allowance for loan losses based upon the estimated fair value of the other real estate. The fair value of other real estate, upon initial recognition, is estimated using Level 3 inputs based on third-party appraisals, and where applicable, discounted based on management’s judgment taking into account current market conditions, distressed or forced sale price comparisons and other factors in effect at the time of valuation. Other real estate and repossessed assets measured at fair value upon initial recognition totaled $52.6 million and $131.0 million for the nine months ended September 30, 2011 and 2010, respectively. In addition to other real estate and repossessed assets measured at fair value upon initial recognition, the Company recorded write-downs to the balance of other real estate and repossessed assets of $1.6 million and $8.4 million to noninterest expense for the three and nine months ended September 30, 2011, respectively, compared to $12.7 million and $23.6 million for the comparable periods in 2010. Other real estate and repossessed assets were $131.3 million at September 30, 2011, compared to $140.7 million at December 31, 2010.

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Fair Value of Financial Instruments. The fair value of financial instruments is management’s estimate of the values at which the instruments could be exchanged in a transaction between willing parties. These estimates are subjective and may vary significantly from amounts that would be realized in actual transactions. In addition, other significant assets are not considered financial assets including servicing assets, deferred income tax assets, bank premises and equipment and goodwill and other intangible assets. Furthermore, the income taxes that would be incurred if the Company were to realize any of the unrealized gains or unrealized losses indicated between the estimated fair values and corresponding carrying values could have a significant effect on the fair value estimates and have not been considered in any of the estimates.

The following summarizes the methods and assumptions used in estimating the fair value of all other financial instruments:

Cash and cash equivalents and accrued interest receivable:The carrying values reported in the consolidated balance sheets approximate fair value.

Held-to-maturity investment securities: The fair value of held-to-maturity investment securities is based on quoted market prices where available. If quoted market prices are not available, the fair value is based on quoted market prices of comparable instruments.

Loans: The fair value of loans held for portfolio uses an exit price concept and reflects discounts the Company believes are consistent with liquidity discounts in the market place. Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial and industrial, real estate construction and development, commercial real estate, one-to-four family residential real estate, home equity and consumer and installment. The fair value of loans is estimated by discounting the future cash flows, utilizing assumptions for prepayment estimates over the loans’ remaining life and considerations for the current interest rate environment compared to the weighted average rate of the loan portfolio. The fair value analysis also included other assumptions to estimate fair value, intended to approximate those factors a market participant would use in an orderly transaction, with adjustments for discount rates, interest rates, liquidity, and credit spreads, as appropriate.

Loans held for sale: The fair value of loans held for sale, which is the amount reported in the consolidated balance sheets, is based on quoted market prices where available. If quoted market prices are not available, the fair value is based on quoted market prices of comparable instruments.

Deposits: The fair value of deposits generally payable on demand (i.e., noninterest-bearing and interest-bearing demand, and savings and money market accounts) is considered equal to their respective carrying amounts as reported in the consolidated balance sheets. The fair value of demand deposits does not include the benefit that results from the low-cost funding provided by deposit liabilities compared to the cost of borrowing funds in the market. The fair value disclosed for time deposits was estimated utilizing a discounted cash flow calculation that applied interest rates currently being offered on similar deposits to a schedule of aggregated monthly maturities of time deposits. If the estimated fair value is lower than the carrying value, the carrying value is reported as the fair value of time deposits.

Other borrowings and accrued interest payable: The carrying values reported in the consolidated balance sheets for variable rate borrowings approximate fair value. The fair value of fixed rate borrowings is based on quoted market prices where available. If quoted market prices are not available, the fair value is based on discounting contractual maturities using an estimate of current market rates for similar instruments.

Subordinated debentures: The fair value of subordinated debentures is based on quoted market prices of comparable instruments.

Off-Balance Sheet Financial Instruments: The fair value of commitments to extend credit, standby letters of credit and financial guarantees is based on estimated probable credit losses.

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The estimated fair value of the Company’s financial instruments at September 30, 2011 and December 31, 2010 were as follows:

	September 30, 2011					December 31, 2010
	Carrying			Estimated		Carrying		Estimated
	Value			Fair Value		Value		Fair Value
	(dollars expressed in thousands)
Financial Assets:
Cash and cash equivalents	$	498,630		498,630		995,758		995,758
Investment securities:
Available for sale		2,410,198		2,410,198		1,483,185		1,483,185
Held to maturity		13,940		14,605		11,152		11,990
Loans held for portfolio		3,308,472		3,016,161		4,236,781		3,973,825
Loans held for sale		36,595		36,595		54,470		54,470
Federal Reserve Bank and FHLB stock		27,257		27,257		30,121		30,121
Derivative instruments		1,656		1,656		2,606		2,606
Accrued interest receivable		21,596		21,596		22,488		22,488
Assets held for sale		—		—		2,266		2,866
Assets of discontinued operations		—		—		43,532		43,532
Financial Liabilities:
Deposits:
Noninterest-bearing demand	$	1,153,092		1,153,092		1,167,206		1,167,206
Interest-bearing demand		983,289		983,289		919,973		919,973
Savings and money market		2,098,689		2,098,689		2,206,763		2,206,763
Time deposits		1,708,743		1,715,056		2,164,473		2,176,855
Other borrowings		53,112		53,112		31,761		31,761
Derivative instruments		1,621		1,621		3,038		3,038
Accrued interest payable		31,084		31,084		22,444		22,444
Subordinated debentures		354,038		175,989		353,981		202,298
Liabilities held for sale		—		—		23,406		23,276
Liabilities of discontinued operations		—		—		94,184		91,894
Off-Balance Sheet Financial Instruments:
Commitments to extend credit, standby
letters of credit and financial
guarantees	$	(2,785	)	(2,785	)	(3,148	)	(3,148	)

NOTE 16–DERIVATIVE FINANCIAL INSTRUMENTS

The Company utilizes derivative financial instruments to assist in the management of interest rate sensitivity by modifying the repricing, maturity and option characteristics of certain assets and liabilities. Derivative financial instruments held by the Company at September 30, 2011 and December 31, 2010 are summarized as follows:

	September 30, 2011			December 31, 2010
	Notional		Credit	Notional	Credit
	Amount		Exposure	Amount	Exposure
	(dollars expressed in thousands)
Interest rate swap agreements	$	50,000	—	75,000	—
Customer interest rate swap agreements		48,970	586	53,696	869
Interest rate lock commitments		78,856	2,707	41,857	276
Forward commitments to sell mortgage-backed securities		101,050	—	84,100	1,538

The notional amounts of derivative financial instruments do not represent amounts exchanged by the parties and, therefore, are not a measure of the Company’s credit exposure through its use of these instruments. The credit exposure represents the loss the Company would incur in the event the counterparties failed completely to perform according to the terms of the derivative financial instruments and the collateral held to support the credit exposure was of no value. The Company’s credit exposure on interest rate swaps is limited to the net fair value and related accrued interest receivable reduced by the amount of collateral pledged by the counterparty. At September 30, 2011 and December 31, 2010, the Company had pledged cash of zero and $1.1 million, respectively, as collateral in connection with its interest rate swap agreements. Collateral requirements are monitored on a daily basis and adjusted as necessary.

The Company realized net interest income on its derivative financial instruments of $1.9 million and $5.7 million for the three and nine months ended September 30, 2010, respectively. The Company also recorded net gains on derivative financial instruments of $7,000 and net losses on derivative financial instruments of $214,000, which are included in noninterest income in the statements of operations, for the three and nine months ended September 30, 2011, respectively, compared to net losses of $849,000 and $2.9 million for the comparable periods in 2010. 

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Interest Rate Swap Agreements. The Company entered into four interest rate swap agreements, which were designated as cash flow hedges prior to August 2009, with the objective of stabilizing the long-term cost of capital and cash flow and, accordingly, net interest expense on junior subordinated debentures to the respective call dates of certain junior subordinated debentures. These swap agreements provided for the Company to receive an adjustable rate of interest equivalent to the three-month LIBOR plus 1.65%, 1.85%, 1.61% and 2.25%, and pay a fixed rate of interest. The terms of the swap agreements provide for the Company to pay and receive interest on a quarterly basis. In December 2010, the Company terminated its $50.0 million notional interest rate swap agreement that provided for the Company to receive an adjustable rate of interest equivalent to the three-month LIBOR plus 1.85%, and pay a fixed rate of interest. As noted in the table below, the $25.0 million notional interest rate swap agreement that provided for the Company to receive an adjustable rate of interest equivalent to the three-month LIBOR plus 1.65% and pay a fixed rate of interest matured on July 7, 2011.

The amount receivable by the Company under these swap agreements was $30,000 and $149,000 at September 30, 2011 and December 31, 2010, respectively, and the amount payable by the Company under these swap agreements was $65,000 and $335,000 at September 30, 2011 and December 31, 2010, respectively.

In August 2009, the Company reclassified a cumulative fair value adjustment of $4.6 million on its interest rate swap agreements designated as cash flow hedges on its junior subordinated debentures from accumulated other comprehensive income to loss on derivative instruments as a result of the discontinuation of hedge accounting following the announcement of the deferral of interest payments on the underlying trust preferred securities. In conjunction with the discontinuation of hedge accounting, the net interest differential on these interest rate swap agreements was recorded as a reduction of noninterest income effective August 2009.

In 2006, the Company entered into a $200.0 million notional amount three-year interest rate swap agreement and a $200.0 million notional amount four-year interest rate swap agreement. These interest rate swap agreements were designated as cash flow hedges, to effectively lengthen the re-pricing characteristics of certain loans to correspond more closely with their funding source with the objective of stabilizing cash flow, and accordingly, net interest income over time. In December 2008, the Company terminated these swap agreements. The pre-tax gain of $20.8 million, in the aggregate, was being amortized as an increase to interest and fees on loans in the consolidated statements of operations over the remaining terms of the respective interest rate swap agreements, which had contractual maturity dates of September 18, 2009 and September 20, 2010. For the three and nine months ended September 30, 2010, the amount of the pre-tax gain amortized as an increase to interest and fees on loans was $1.9 million and $5.7 million, respectively.

The maturity dates, notional amounts, interest rates paid and received and fair value of the Company’s interest rate swap agreements as of September 30, 2011 and December 31, 2010 were as follows:

	Notional		Interest Rate		Interest Rate
Maturity Date	Amount		Paid		Received		Fair Value
	(dollars expressed in thousands)
September 30, 2011:
March 30, 2012	$	25,000	4.71	%	1.98	%	$	(334	)
December 15, 2012		25,000	5.57		2.60			(855	)
	$	50,000	5.14		2.29		$	(1,189	)
December 31, 2010:
July 7, 2011	$	25,000	4.40	%	1.94	%	$	(313	)
March 30, 2012		25,000	4.71		1.91			(822	)
December 15, 2012		25,000	5.57		2.55			(1,267	)
	$	75,000	4.89		2.13		$	(2,402	)

For interest rate swap agreements designated as cash flow hedges, the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss) and reclassified into interest income or interest expense in the same period the hedged transaction affects earnings. The ineffective portion of the change in the cash flow hedge’s gain or loss is recorded in noninterest income on each monthly measurement date. The Company did not recognize any ineffectiveness related to interest rate swap agreements that were designated as cash flow hedges during the three and nine months ended September 30, 2010.

Customer Interest Rate Swap Agreements. First Bank offers interest rate swap agreements to certain customers to assist in hedging their risks of adverse changes in interest rates. First Bank serves as an intermediary between its customers and the financial markets. Each interest rate swap agreement between First Bank and its customers is offset by an interest rate swap agreement between First Bank and various counterparties. These interest rate swap agreements do not qualify for hedge accounting treatment. Changes in the fair value are recognized in noninterest income on a monthly basis. Each customer contract is paired with an offsetting contract, and as such, there is no significant impact to net income (loss). The notional amount of these interest rate swap agreement contracts at September 30, 2011 and December 31, 2010 was $49.0 million and $53.7 million, respectively. 

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Interest Rate Lock Commitments / Forward Commitments to Sell Mortgage-Backed Securities. Derivative financial instruments issued by the Company consist of interest rate lock commitments to originate fixed-rate loans to be sold. Commitments to originate fixed-rate loans consist primarily of residential real estate loans. These net loan commitments and loans held for sale are hedged with forward contracts to sell mortgage-backed securities, which expire in December 2011. The fair value of the interest rate lock commitments, which is included in other assets in the consolidated balance sheets, was an unrealized gain of $2.7 million and $276,000 at September 30, 2011 and December 31, 2010, respectively. The fair value of the forward contracts to sell mortgage-backed securities, which is included in other assets in the consolidated balance sheets, was an unrealized loss of $1.6 million at September 30, 2011 and an unrealized gain of $1.5 million at December 31, 2010. Changes in the fair value of interest rate lock commitments and forward commitments to sell mortgage-backed securities are recognized in noninterest income on a monthly basis.

The following table summarizes derivative financial instruments held by the Company, their estimated fair values and their location in the consolidated balance sheets at September 30, 2011 and December 31, 2010:

	September 30, 2011				December 31, 2010
	Balance Sheet	Fair Value			Balance Sheet	Fair Value
	Location	Gain (Loss)			Location	Gain (Loss)
	(dollars expressed in thousands)
Derivative financial instruments not designated as hedging
instruments under ASC Topic 815:
Customer interest rate swap agreements	Other assets	$	518		Other assets	$	792
Interest rate lock commitments	Other assets		2,707		Other assets		276
Forward commitments to sell mortgage-backed securities	Other assets		(1,569	)	Other assets		1,538
Total derivatives in other assets		$	1,656			$	2,606
Interest rate swap agreements	Other liabilities	$	(1,189	)	Other liabilities	$	(2,402	)
Customer interest rate swap agreements	Other liabilities		(432	)	Other liabilities		(636	)
Total derivatives in other liabilities		$	(1,621	)		$	(3,038	)

The following table summarizes amounts included in the consolidated statements of operations and in accumulated other comprehensive income (loss) in the consolidated balance sheets as of and for the three and nine months ended September 30, 2011 and 2010 related to interest rate swap agreements designated as cash flow hedges:

	Three Months Ended			Nine Months Ended
	September 30,			September 30,
	2011		2010	2011	2010
	(dollars expressed in thousands)
Derivative financial instruments designated as hedging instruments under ASC
Topic 815:
Interest rate swap agreements:
Amount reclassified from accumulated other comprehensive income to
interest income on loans	$	—	1,915	—	5,745

The unamortized gain related to the fair value of the cash flow hedges on loans terminated in December 2008 was fully amortized effective September 2010, as previously discussed.

39

The following table summarizes amounts included in the consolidated statements of operations for the three and nine months ended September 30, 2011 and 2010 related to non-hedging derivative instruments:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2011			2010		2011		2010
	(dollars expressed in thousands)
Derivative financial instruments not designated as hedging
instruments under ASC Topic 815:
Interest rate swap agreements:
Net gain (loss) on derivative instruments	$	7		(850	)	(214	)	(2,942	)
Customer interest rate swap agreements:
Net gain (loss) on derivative instruments		—		1		—		3
Interest rate lock commitments:
Gain on loans sold and held for sale		2,021		955		2,431		2,571
Forward commitments to sell mortgage-backed securities:
Gain on loans sold and held for sale		(1,473	)	535		(3,107	)	(1,530	)

NOTE 17–CONTINGENT LIABILITIES

In the ordinary course of business, the Company and its subsidiaries become involved in legal proceedings, including litigation arising out of the Company’s efforts to collect outstanding loans. It is not uncommon for collection efforts to lead to so-called “lender liability” suits in which borrowers may assert various claims against the Company. Management believes the ultimate resolution of these existing proceedings is not reasonably likely to have a material adverse effect on the business, financial condition or results of operations of the Company and/or its subsidiaries.

The Company and First Bank have entered into agreements with the FRB and MDOF, as further described in Note 1 to the consolidated financial statements.

40

ITEM 2–MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements and Factors that Could Affect Future Results

The discussion set forth in Management’s Discussion and Analysis of Financial Condition and Results of Operations contains certain forward-looking statements with respect to our financial condition, results of operations and business. Generally, forward-looking statements may be identified through the use of words such as: “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” or words of similar meaning or future or conditional terms such as: “will,” “would,” “should,” “could,” “may,” “likely,” “probably,” or “possibly.” Examples of forward-looking statements include, but are not limited to, estimates or projections with respect to our future financial condition, and expected or anticipated revenues with respect to our results of operations and our business. These forward-looking statements are subject to certain risks and uncertainties, not all of which can be predicted or anticipated. Factors that may cause our actual results to differ materially from those contemplated by the forward-looking statements herein include market conditions as well as conditions affecting the banking industry generally and factors having a specific impact on us, including but not limited to, the following factors whose order is not indicative of likelihood or significance of impact:

Ø	Our ability to raise sufficient capital, absent the successful completion of all or a significant portion of our Capital Plan, as further discussed under “—Recent Developments and Other Matters – Capital Plan;”
Ø	Our ability to maintain capital at levels necessary or desirable to support our operations;
Ø	The risks associated with implementing our business strategy, including our ability to preserve and access sufficient capital to continue to execute our strategy;
Ø	Regulatory actions that impact First Banks, Inc. and First Bank, including the regulatory agreements entered into among First Banks, Inc., First Bank, the Federal Reserve Bank of St. Louis and the State of Missouri Division of Finance, as further discussed under “—Recent Developments and Other Matters – Regulatory Agreements;”
Ø	Our ability to comply with the terms of an agreement with our regulators pursuant to which we have agreed to take certain corrective actions to improve our financial condition and results of operations;
Ø	The effects of and changes in trade and monetary and fiscal policies and laws, including, but not limited to, the Dodd-Frank Wall Street Reform and Consumer Protection Act, the interest rate policies of the Federal Open Market Committee of the Federal Reserve Board of Governors and the U.S. Treasury’s Capital Purchase Program and Troubled Asset Relief Program authorized by the Emergency Economic Stabilization Act of 2008;
Ø	The risks associated with the high concentration of commercial real estate loans in our loan portfolio;
Ø	The decline in commercial and residential real estate sales volume and the likely potential for continuing lack of liquidity in the real estate markets;
Ø	The uncertainties in estimating the fair value of developed real estate and undeveloped land in light of declining demand for such assets and continuing lack of liquidity in the real estate markets;
Ø	Negative developments and disruptions in the credit and lending markets, including the impact of the ongoing credit crisis on our business and on the businesses of our customers as well as other banks and lending institutions with which we have commercial relationships;
Ø	The sufficiency of our allowance for loan losses to absorb the amount of actual losses inherent in our existing loan portfolio;
Ø	The accuracy of assumptions underlying the establishment of our allowance for loan losses and the estimation of values of collateral or cash flow projections and the potential resulting impact on the carrying value of various financial assets and liabilities;
Ø	Credit risks and risks from concentrations (by geographic area and by industry) within our loan portfolio including certain large individual loans;
Ø	Possible changes in the creditworthiness of customers and the possible impairment of collectability of loans;
Ø	Liquidity risks;
Ø	Inaccessibility of funding sources on the same or similar terms on which we have historically relied if we are unable to maintain sufficient capital ratios;
Ø	The ability to successfully acquire low cost deposits or alternative funding;
Ø	The effects of increased Federal Deposit Insurance Corporation deposit insurance assessments;
Ø	Changes in consumer spending, borrowing and savings habits;
Ø	The ability of First Bank to pay dividends to its parent holding company;
Ø	Our ability to pay cash dividends on our preferred stock and interest on our junior subordinated debentures;
Ø	High unemployment rates and the resulting impact on our customers’ savings rates and their ability to service debt obligations;
Ø	Possible changes in interest rates may increase our funding costs and reduce earning asset yields, thus reducing our margins;
Ø	The impact of possible future goodwill and other material impairment charges;
Ø	The ability to attract and retain senior management experienced in the banking and financial services industry;
Ø	Changes in the economic environment, competition, or other factors that may influence loan demand, deposit flows, the quality of our loan portfolio and loan and deposit pricing;
Ø	The impact on our financial condition of unknown and/or unforeseen liabilities arising from legal or administrative proceedings;

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Ø	The threat of future terrorist activities, existing and potential wars and/or military actions related thereto, and domestic responses to terrorism or threats of terrorism;
Ø	Possible changes in general economic and business conditions in the United States in general and particularly in the communities and market segments we serve;
Ø	Volatility and disruption in national and international financial markets;
Ø	Government intervention in the U.S. financial system;
Ø	The impact of laws and regulations applicable to us and changes therein;
Ø	The impact of changes in accounting policies and practices, as may be adopted by the regulatory agencies, as well as the Public Company Accounting Oversight Board, the Financial Accounting Standards Board, and other accounting standard setters;
Ø	The impact of litigation generally and specifically arising out of our efforts to collect outstanding customer loans;
Ø	Competitive conditions in the markets in which we conduct our operations, including competition from banking and non-banking companies with substantially greater resources than us, some of which may offer and develop products and services not offered by us;
Ø	Our ability to control the composition of our loan portfolio without adversely affecting interest income;
Ø	The geographic dispersion of our offices;
Ø	The impact our hedging activities may have on our operating results;
Ø	The highly regulated environment in which we operate; and
Ø	Our ability to respond to changes in technology or an interruption or breach in security of our information systems.

Actual events or our actual future results may differ materially from any forward-looking statement due to these and other risks, uncertainties and significant factors. For a discussion of these and other risk factors that may impact these forward-looking statements, please refer to our 2010 Annual Report on Form 10-K, as filed with the United States Securities and Exchange Commission on March 25, 2011. We wish to caution readers of this Quarterly Report on Form 10-Q that the foregoing list of important factors may not be all-inclusive and specifically decline to undertake any obligation to publicly revise any forward-looking statements that have been made to reflect events or circumstances after the date of such statements or to reflect the occurrence of anticipated or unanticipated events. We do not have a duty to and will not update these forward-looking statements. Readers of this Quarterly Report on Form 10-Q should therefore consider these risks and uncertainties in evaluating forward-looking statements and should not place undue reliance on these statements.

Overview

We, or the Company, are a registered bank holding company incorporated in Missouri in 1978 and headquartered in St. Louis, Missouri. We operate through our wholly owned subsidiary bank holding company, The San Francisco Company, or SFC, headquartered in St. Louis, Missouri, and SFC’s wholly owned subsidiary bank, First Bank, also headquartered in St. Louis, Missouri. First Bank’s subsidiaries at September 30, 2011 were as follows:

Ø	First Bank Business Capital, Inc., or FBBC;
Ø	FB Holdings, LLC, or FB Holdings;
Ø	Small Business Loan Source LLC, or SBLS LLC;
Ø	ILSIS, Inc.;
Ø	FBIN, Inc.;
Ø	SBRHC, Inc.;
Ø	HVIIHC, Inc.;
Ø	FBSA Missouri, Inc.;
Ø	FBSA California, Inc.;
Ø	NT Resolution Corporation; and
Ø	LC Resolution Corporation.

First Bank’s subsidiaries are wholly owned except for FB Holdings, which was 53.23% owned by First Bank and 46.77% owned by First Capital America, Inc., or FCA, a corporation owned and operated by the Company’s Chairman of the Board and members of his immediate family, as of September 30, 2011, as further described in Note 8 to our consolidated financial statements.

At September 30, 2011, we had assets of $6.78 billion, loans, net of deferred loan costs (fees), of $3.50 billion, deposits of $5.94 billion and stockholders’ equity of $295.0 million. We currently operate 149 branch banking offices in California, Florida, Illinois and Missouri.

Through First Bank, we offer a broad range of financial services, including commercial and personal deposit products, commercial and consumer lending, and many other financial products and services. Commercial and personal deposit products include demand, savings, money market and time deposit accounts. In addition, we market combined basic services for various customer groups, including packaged accounts for more affluent customers, and sweep accounts, lock-box deposits and cash management products for commercial customers. Commercial lending includes commercial, financial and agricultural loans, real estate construction and development loans, commercial real estate loans and small business lending. Consumer lending includes residential real estate, home equity and installment lending. Other financial services include mortgage banking, debit cards, brokerage services, internet banking, remote deposit, ATMs, telephone banking, safe deposit boxes, and trust and private banking services. The revenues generated by First Bank and its subsidiaries consist primarily of interest income, generated from our loan and investment security portfolios, service charges and fees generated from deposit products and services, and fees and commissions generated by our mortgage banking and trust and private banking business units. Our extensive line of products and services are offered to customers primarily within our geographic areas, which include eastern Missouri, southern Illinois, southern and northern California, and Florida, including Bradenton and the greater Tampa metropolitan area.

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Primary responsibility for managing our banking units rests with the officers and directors of each unit, but we centralize many of our overall corporate policies, procedures and administrative functions and provide centralized operational support functions for our subsidiaries. This practice allows us to achieve various operating efficiencies while allowing our banking units to focus on customer service.

Recent Developments and Other Matters

Capital Plan. We have been working since the beginning of 2008 to strengthen our capital ratios and improve our financial performance. Additionally, on August 10, 2009, we announced the adoption of our Capital Optimization Plan, or Capital Plan, designed to improve our capital ratios and financial performance through certain divestiture activities, asset reductions and expense reductions. We adopted our Capital Plan in order to, among other things, preserve our risk-based capital. We have completed, or are in the process of completing, a number of initiatives associated with our Capital Plan.

A summary of the primary initiatives completed as of September 30, 2011 with respect to our Capital Plan is as follows:

				Decrease in	Decrease in	Total Risk-
	Gain (Loss)			Intangible	Risk-Weighted	Based Capital
	on Sale			Assets	Assets	Benefit (1)
	(dollars expressed in thousands)
Sale of Remaining Northern Illinois Region	$	425		1,558	33,800	4,900
Sale of Edwardsville Branch		263		500	1,400	900
Reduction in Other Risk-Weighted Assets		—		—	684,300	59,900
Total 2011 Capital Initiatives	$	688		2,058	719,500	65,700
Partial Sale of Northern Illinois Region	$	6,355		9,683	141,800	28,500
Sale of Texas Region		4,984		19,962	116,300	35,100
Sale of MVP		(156	)	—	800	(100	)
Sale of Chicago Region		8,414		26,273	342,600	64,700
Sale of Lawrenceville Branch		168		1,000	11,400	2,200
Reduction in Other Risk-Weighted Assets		—		—	2,111,400	184,700
Total 2010 Capital Initiatives	$	19,765		56,918	2,724,300	315,100
Sale of WIUS loans	$	(13,077	)	19,982	146,700	19,700
Sale of restaurant franchise loans		(1,149	)	—	64,400	4,500
Sale of asset-based lending loans		(6,147	)	—	119,300	4,300
Sale of Springfield Branch		309		1,000	900	1,400
Sale of ANB		120		13,013	1,300	13,200
Reduction in Other Risk-Weighted Assets		—		—	1,580,400	138,300
Total 2009 Capital Initiatives	$	(19,944	)	33,995	1,913,000	181,400
Total Completed Capital Initiatives	$	509		92,971	5,356,800	562,200

____________________
 

(1) Calculated as the sum of the gain (loss) on sale plus the reduction in intangible assets plus 8.75% of the reduction in risk-weighted assets.

During the first nine months of 2011, we have completed the following initiatives associated with our Capital Plan:

Ø

The sale of certain assets and the transfer of certain liabilities of our three retail branches in Pittsfield, Roodhouse and Winchester, Illinois to United Community Bank, or United Community, under a Branch Purchase and Assumption Agreement dated December 21, 2010. We completed the transaction with United Community 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. We recognized a gain on sale of $425,000, after the write-off of goodwill and intangible assets of $1.6 million allocated to the Northern Illinois Region (defined below).

The sale of the three branches in the transaction with United Community on May 13, 2011, along with the sale of 10 of our retail branches in Peoria, Galesburg, Quincy, Bartonville, Knoxville and Bloomington, Illinois to First Mid-Illinois Bank & Trust, N.A. on September 10, 2010, and the sale of our retail branch in Jacksonville, Illinois to Bank of Springfield on September 24, 2010, are collectively defined as the Northern Illinois Region.

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Ø

The sale of certain assets and the transfer of certain liabilities of our branch banking office located in Edwardsville, Illinois, or the Edwardsville Branch, to National Bank, under a Branch Purchase and Assumption Agreement dated January 28, 2011. We completed the transaction with National Bank on April 29, 2011. Under the terms of the agreement, National Bank assumed $10.4 million of deposits associated with our Edwardsville Branch for a premium of $130,000. National Bank also purchased $667,000 of loans associated with our Edwardsville Branch at a premium of 0.5%, or $3,000, and premises and equipment associated with our Edwardsville Branch at a premium of approximately $640,000. We recognized a gain on sale of $263,000, after the write-off of goodwill of $500,000 allocated to the transaction.

Ø

The reduction of our net risk-weighted assets to $4.13 billion at September 30, 2011, representing decreases of $719.5 million from $4.85 billion at December 31, 2010, $3.44 billion from $7.56 billion at December 31, 2009, $5.36 billion from $9.48 billion at December 31, 2008 and $6.12 billion from $10.25 billion at December 31, 2007. The decline in our net risk-weighted assets primarily resulted from our planned divestures and a shift in the mix of our assets during these periods, particularly reduced loan balances and increased short-term investments and investment securities balances, as further described under “—Financial Condition.”

In addition to the action items identified above with respect to our Capital Plan, we are also focused on the following actions which, if consummated, would further improve our regulatory capital ratios and/or result in a reduction of our risk-weighted assets:

Ø	Reduction of our concentration in real estate lending and further diversification of our loan portfolio from real estate lending to commercial and industrial lending;
Ø	Reduction in the overall level of our nonperforming assets and potential problem loans;
Ø	Reduction of our unfunded loan commitments with an original maturity greater than one year;
Ø	Sale, merger or closure of individual branches or selected branch groupings;
Ø	Sale and/or aggressive reduction of the retained assets and liabilities associated with our Chicago, Texas and Northern Illinois Regions; and
Ø	Exploration of possible capital planning strategies to increase the overall level of Tier 1 risk-based capital at our holding company permitted by the successful consent solicitation from the holders of the 8.15% cumulative trust preferred securities of First Preferred Capital Trust IV, which was completed on January 26, 2011.

We believe the successful completion of our Capital Plan would substantially improve our capital position. However, no assurance can be made that we will be able to successfully complete all, or any portion, of our Capital Plan, or that our Capital Plan will not be materially modified in the future. Our decision to implement the Capital Plan reflects the adverse effect that the severe downturn in the commercial and residential real estate markets has had on our financial condition and results of operations. If we are not able to successfully complete substantially all of our Capital Plan, our business, financial condition and results of operations may be materially and adversely affected and our ability to withstand continued adverse economic uncertainty could be threatened.

Discontinued Operations.We have applied discontinued operations accounting in accordance with Accounting Standards CodificationTM, or ASC, Topic 205-20, “Presentation of Financial Statements – Discontinued Operations,” to the assets and liabilities sold during the second quarter of 2011 related to our Northern Illinois Region as of December 31, 2010, and to the operations of our 14 Northern Illinois retail branches, our 24 Chicago retail branches, or Chicago Region, and our 19 Texas retail branches, or Texas Region, in addition to the operations of WIUS, Inc., and its wholly owned subsidiary, WIUS of California, Inc., collectively WIUS, and Missouri Valley Partners, Inc., or MVP, for the three and nine months ended September 30, 2011 and 2010, as applicable. All financial information in this Quarterly Report on Form 10-Q is reported on a continuing operations basis, unless otherwise noted. See Note 2 to our accompanying consolidated financial statements for further discussion regarding discontinued operations.

Regulatory Agreements.On March 24, 2010, the Company, SFC and First Bank entered into a Written Agreement, or Agreement, with the Federal Reserve Bank of St. Louis, or the FRB, requiring the Company and First Bank to take certain steps intended to improve their overall financial condition. Pursuant to the Agreement, the Company prepared and filed with the FRB a number of specific plans designed to strengthen and/or address the following matters: (i) board oversight over the management and operations of the Company and First Bank; (ii) credit risk management practices; (iii) lending and credit administration policies and procedures; (iv) asset improvement; (v) capital; (vi) earnings and overall financial condition; and (vii) liquidity and funds management.

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The Agreement requires, among other things, that the Company and First Bank obtain prior approval from the FRB in order to pay dividends. In addition, the Company must obtain prior approval from the FRB to: (i) take any other form of payment from First Bank representing a reduction in capital of First Bank; (ii) make any distributions of interest, principal or other sums on junior subordinated debentures or trust preferred securities; (iii) incur, increase or guarantee any debt; or (iv) purchase or redeem any shares of the Company’s stock. Pursuant to the terms of the Agreement, the Company and First Bank submitted a written plan to the FRB to maintain sufficient capital at the Company, on a consolidated basis, and at First Bank, on a standalone basis. In addition, the Agreement also provides that the Company and First Bank must notify the FRB if the risk-based capital ratios of either entity fall below those set forth in the capital plans that were accepted by the FRB, and specifically if First Bank falls below the criteria for being well capitalized under the regulatory framework for prompt corrective action. The Company must also notify the FRB before appointing any new directors or senior executive officers or changing the responsibilities of any senior executive officer position. The Agreement also requires the Company and First Bank to comply with certain restrictions regarding indemnification and severance payments. The Agreement is specifically enforceable by the FRB in court.

The Company and First Bank must furnish periodic progress reports to the FRB regarding compliance with the Agreement. As of the date of this filing, the Company and First Bank have provided progress reports and other reports, as required under the Agreement. It is likely that the Company and First Bank may receive additional requests from the FRB regarding compliance with the Agreement, which may include, but are not limited to, updates and modifications to the Company’s Asset Quality Improvement, Profit Improvement and Capital Plans. Management intends to respond promptly to any such requests. The Agreement will remain in effect until stayed, modified, terminated or suspended by the FRB.

Prior to entering into the Agreement, the Company and First Bank had entered into a memorandum of understanding and an informal agreement, respectively, with the FRB and the State of Missouri Division of Finance, or the MDOF. Each of the agreements were characterized by regulatory authorities as informal actions that were neither published nor made publicly available by the agencies and are used when circumstances warrant a milder form of action than a formal supervisory action, such as a written agreement or cease and desist order. The informal agreement with the MDOF is still in place and there have not been any modifications thereto since its inception in September 2008.

Under the terms of the prior memorandum of understanding with the FRB, the Company agreed, among other things, to provide certain information to the FRB including, but not limited to, financial performance updates, notice of plans to materially change its fundamental business and notice to issue trust preferred securities or raise additional equity capital. In addition, the Company agreed not to pay any dividends on its common or preferred stock or make any distributions of interest or other sums on its trust preferred securities without the prior approval of the FRB.

First Bank, under its informal agreement with the MDOF and the FRB, agreed to, among other things, prepare and submit plans and reports to the agencies regarding certain matters including, but not limited to, the performance of First Bank’s loan portfolio. In addition, First Bank agreed not to declare or pay any dividends or make certain other payments without the prior consent of the MDOF and the FRB and to maintain a Tier 1 capital to total assets ratio of no less than 7.00%. As further described in Note 9 to the consolidated financial statements, First Bank’s Tier 1 capital to total assets ratio was 8.17% at September 30, 2011.

While the Company and First Bank intend to take such actions as may be necessary to comply with the requirements of the Agreement with the FRB and informal agreement with the MDOF, there can be no assurance that the Company and First Bank will be able to comply fully with the requirements of the Agreement or that First Bank will be able to comply fully with the provisions of the informal agreement, that compliance with the Agreement and the informal agreement will not be more time consuming or more expensive than anticipated, that compliance with the Agreement and the informal agreement will enable the Company and First Bank to resume profitable operations, or that efforts to comply with the Agreement and the informal agreement will not have adverse effects on the operations and financial condition of the Company or First Bank. If the Company or First Bank is unable to comply with the terms of the Agreement or the informal agreement, respectively, the Company and First Bank could become subject to further enforcement actions by the regulatory agencies which could mandate additional capital and/or require the sale of certain assets and liabilities. The terms of any such additional regulatory actions, orders or agreements could have a materially adverse effect on our business, financial condition or results of operations.

Financial Condition

Total assets decreased $594.2 million to $6.78 billion at September 30, 2011, from $7.38 billion at December 31, 2010. The decrease in our total assets was attributable to decreases in our cash and short-term investments, loans, FRB and Federal Home Loan Bank, or FHLB, stock, bank premises and equipment, goodwill and other intangible assets, other real estate and repossessed assets, other assets and assets held for sale and assets of discontinued operations; partially offset by an increase in our investment securities portfolio.

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Cash and cash equivalents, which are comprised of cash and short-term investments, decreased $497.1 million to $498.6 million at September 30, 2011, compared to $995.8 million at December 31, 2010. The decrease in our cash and cash equivalents was primarily attributable to the following:

Ø	The sale of our San Jose Branch on February 11, 2011, resulting in a cash outflow of $7.8 million;
Ø	The sale of our Edwardsville, Illinois Branch on April 29, 2011, resulting in a cash outflow of $8.3 million;
Ø	The sale of our remaining Northern Illinois branches on May 13, 2011, resulting in a cash outflow of $50.8 million;
Ø	A net increase in our investment securities portfolio of $890.4 million, excluding the fair value adjustment on available-for-sale investment securities; and
Ø	A decrease in our deposit balances of approximately $521.1 million, excluding the impact of the divestitures of the San Jose, Edwardsville and three Northern Illinois Branches.

These decreases in cash and cash equivalents were partially offset by:

Ø	A decrease in loans of $827.1 million, exclusive of loan charge-offs and transfers to other real estate and repossessed assets;
Ø	Recoveries of loans previously charged off of $16.9 million;
Ø	Sales of other real estate and repossessed assets resulting in the receipt of cash proceeds from these sales of approximately $57.6 million;
Ø	A net increase in our other borrowings of $21.4 million, consisting of changes in our daily repurchase agreements utilized by customers as an alternative deposit product; and
Ø	The net redemption of $2.9 million of FRB and FHLB stock associated with the reduction in our total assets during 2011.

The majority of funds in our short-term investments at September 30, 2011 and December 31, 2010 were maintained in our correspondent bank account with the FRB, as further discussed under “—Liquidity Management.”

Investment securities increased $929.8 million to $2.42 billion at September 30, 2011, from $1.49 billion at December 31, 2010. The increase in our investment securities during 2011 reflects the utilization of excess cash and cash equivalents to fund gradual and planned increases in our investment securities portfolio in a continued effort to maximize our net interest income and net interest margin while maintaining appropriate liquidity levels, in addition to an increase in the fair value adjustment of our available-for-sale investment securities of $39.4 million during the first nine months of 2011 resulting from a decrease in market interest rates.

Loans, net of deferred loan costs (fees), decreased $989.5 million to $3.50 billion at September 30, 2011, from $4.49 billion at December 31, 2010. The decrease reflects loan charge-offs of $112.2 million, transfers of loans to other real estate and repossessed assets of $52.6 million and $824.7 million of other net loan activity, including significant principal repayments and overall continual reduced loan demand within our markets, as further discussed under “—Loans and Allowance for Loan Losses.”

FRB and FHLB stock decreased $2.9 million to $27.3 million at September 30, 2011, from $30.1 million at December 31, 2010, reflecting net redemptions of FRB and FHLB stock associated with the reduction in our total assets during the first nine months of 2011.

Bank premises and equipment, net of depreciation and amortization, decreased $16.9 million to $144.5 million at September 30, 2011, from $161.4 million at December 31, 2010, primarily attributable to depreciation and amortization of $10.8 million, transfers of certain properties associated with our Texas and Chicago regions with a carrying value of $6.5 million to other real estate and repossessed assets and write-downs of certain bank-owned facilities of $2.3 million, partially offset by net purchases of premises and equipment.

Goodwill and other intangible assets decreased $2.3 million to $126.7 million at September 30, 2011, from $129.1 million at December 31, 2010, reflecting amortization of $2.3 million during the first nine months of 2011.

Other real estate and repossessed assets decreased $9.3 million to $131.3 million at September 30, 2011, from $140.7 million at December 31, 2010. The decrease in other real estate and repossessed assets during the first nine months of 2011 was primarily attributable to the sale of other real estate properties and repossessed assets with a carrying value of $58.6 million at a net loss of $1.1 million, and write-downs of other real estate properties of $8.4 million attributable to declining real estate values on certain properties. These decreases were partially offset by foreclosures and additions to other real estate and repossessed assets aggregating $57.7 million, as further discussed under “—Loans and Allowance for Loan Losses.”

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Other assets were $62.7 million and $71.7 million at September 30, 2011 and December 31, 2010, respectively, and are primarily comprised of accrued interest receivable, servicing rights, derivative financial instruments and miscellaneous other receivables.

The zero balance of assets and liabilities held for sale at September 30, 2011 reflects the completion of the sale of our San Jose Branch on February 11, 2011 and our Edwardsville Branch on April 29, 2011. See Note 2 to our consolidated financial statements for further discussion of assets held for sale.

The zero balance of assets and liabilities of discontinued operations at September 30, 2011 reflects the completion of the sale of the three remaining branches in our Northern Illinois Region on May 13, 2011. See Note 2 to our consolidated financial statements for further discussion of discontinued operations.

Deposits decreased $514.6 million to $5.94 billion at September 30, 2011, from $6.46 billion at December 31, 2010. The decrease was primarily attributable to anticipated reductions of higher rate certificates of deposit and money market deposits. Time deposits and savings and money market deposits decreased $455.7 million and $108.1 million, respectively, reflecting our efforts to exit unprofitable relationships to reduce overall deposit costs and improve First Bank’s leverage ratio. Noninterest-bearing demand deposits decreased $14.1 million, reflecting a decrease in commercial deposit relationships as a result of the corresponding decrease in the overall level of commercial loans. These decreases were partially offset by an increase in interest-bearing demand deposits of $63.3 million, reflecting organic growth through our deposit development programs.

Other borrowings, which are comprised of daily securities sold under agreements to repurchase (in connection with cash management activities of our commercial deposit customers), increased $21.4 million to $53.1 million at September 30, 2011, from $31.8 million at December 31, 2010, reflecting changes in customer balances associated with this product segment.

Accrued expenses and other liabilities increased $23.4 million to $107.3 million at September 30, 2011, from $83.9 million at December 31, 2010. The increase was primarily attributable to an increase in dividends payable on our Class C and Class D Preferred Stock of $13.3 million to $38.5 million at September 30, 2011 and an increase in accrued interest payable on our junior subordinated debentures of $10.0 million to $29.6 million at September 30, 2011, as further discussed in Note 13 and Note 12 to our consolidated financial statements.

Stockholders’ equity, including noncontrolling interest in subsidiary, was $295.0 million and $307.3 million at September 30, 2011 and December 31, 2010, respectively, reflecting a decrease of $12.3 million. The decrease during the first nine months of 2011 reflects:

Ø	A net loss, including discontinued operations, of $25.3 million;
Ø	Dividends declared of $13.3 million on our Class C and Class D Preferred Stock; and
Ø	A decrease in noncontrolling interest in subsidiary of $1.5 million associated with net losses in FB Holdings; partially offset by
Ø	A net increase in accumulated other comprehensive income of $27.9 million primarily associated with an increase in unrealized gains on available-for-sale investment securities resulting from the decrease in market interest rates during the first nine months of 2011.

Results of Operations

Net Income. We recorded a net loss, including discontinued operations, of $2.1 million and $25.3 million for the three and nine months ended September 30, 2011, respectively, compared to a net loss, including discontinued operations, of $47.8 million and $140.3 million for the comparable periods in 2010. Our results of operations levels reflect the following:

Ø	A provision for loan losses of $19.0 million and $52.0 million for the three and nine months ended September 30, 2011, respectively, compared to $37.0 million and $162.0 million for the comparable periods in 2010;
Ø	Net interest income of $45.8 million and $141.0 million for the three and nine months ended September 30, 2011, respectively, compared to $58.7 million and $181.6 million for the comparable periods in 2010, which contributed to a decline in our net interest margin to 2.82% and 2.85% for the three and nine months ended September 30, 2011, respectively, compared to 3.00% and 2.96% for the comparable periods in 2010;
Ø	Noninterest income of $17.0 million and $46.3 million for the three and nine months ended September 30, 2011, respectively, compared to $17.1 million and $52.8 million for the comparable periods in 2010;

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Ø	Noninterest expense of $58.1 million and $174.3 million for the three and nine months ended September 30, 2011, respectively, compared to $88.4 million and $220.4 million for the comparable periods in 2010;
Ø	A benefit for income taxes of $11.6 million and $11.5 million for the three and nine months ended September 30, 2011, respectively, compared to a provision for income taxes of $5.2 million and $5.3 million for the comparable periods in 2010;
Ø	Net income from discontinued operations, net of tax, of zero and $696,000 for the three and nine months ended September 30, 2011, respectively, compared to $6.4 million and $11.9 million for the comparable periods in 2010; and
Ø	Net losses attributable to noncontrolling interest in subsidiary of $668,000 and $1.5 million for the three and nine months ended September 30, 2011, respectively, compared to net losses of $618,000 and $1.1 million for the comparable periods in 2010.

Net Interest Income. Net interest income, expressed on a tax-equivalent basis, decreased to $45.9 million and $141.3 million for the three and nine months ended September 30, 2011, respectively, compared to $58.8 million and $182.0 million for the comparable periods in 2010. Our net interest margin decreased to 2.82% and 2.85% for the three and nine months ended September 30, 2011, respectively, compared to 3.00% and 2.96% for the comparable periods in 2010.

The primary source of our income is net interest income. Net interest income is the difference between the interest earned on our interest-earning assets, such as loans and investment securities, and the interest paid on our interest-bearing liabilities, such as deposits and borrowings. Net interest income is affected by the level and composition of assets, liabilities and stockholders’ equity, as well as the general level of interest rates and changes in interest rates. Interest income on a tax-equivalent basis includes the additional amount of interest income that would have been earned if our investment in certain tax-exempt interest-earning assets had been made in assets subject to federal, state and local income taxes yielding the same after-tax income. Net interest margin is determined by dividing net interest income on a tax-equivalent basis by average interest-earning assets. The interest rate spread is the difference between the average equivalent yield earned on interest-earning assets and the average rate paid on interest-bearing liabilities.

Our balance sheet is presently asset sensitive, and as such, our net interest margin has been negatively impacted by the low interest rate environment as our loan portfolio re-prices on an immediate basis; whereas we are unable to immediately re-price our deposit portfolio to current market interest rates, thereby resulting in a compression of our net interest margin. Our asset-sensitive position, coupled with the level of our nonperforming assets, the increased level of average lower-yielding short-term investments and investment securities, the lower level of average loans and the expiration of the amortization period of the unrealized gain on certain terminated interest rate swap agreements in September 2010, as further discussed below, have negatively impacted our net interest income and are expected to continue to negatively impact the level of our net interest income in the near future.

We attribute the decrease in our net interest margin to a decrease in the yield on our interest-earning assets of 48 and 38 basis points to 3.49% and 3.59% for the three and nine months ended September 30, 2011, respectively, compared to 3.97% for the comparable periods in 2010, partially offset by a significant decrease in deposit and other borrowing costs, contributing to a decrease in the average rate paid on our interest-bearing liabilities of 37 and 39 basis points to 0.82% and 0.91% for the three and nine months ended September 30, 2011, respectively, compared to 1.19% and 1.30% for the comparable periods in 2010. Average interest-earning assets decreased $1.31 billion and $1.58 billion to $6.46 billion and $6.64 billion for the three and nine months ended September 30, 2011, respectively, compared to $7.76 billion and $8.22 billion for the comparable periods in 2010. Average interest-bearing liabilities decreased $1.03 billion and $928.9 million to $5.29 billion and $5.46 billion for the three and nine months ended September 30, 2011, respectively, compared to $6.32 billion and $6.38 billion for the comparable periods in 2010.

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Interest income on our loan portfolio, expressed on a tax-equivalent basis, decreased to $43.1 million and $143.1 million for the three and nine months ended September 30, 2011, respectively, compared to $69.5 million and $221.1 million for the comparable periods in 2010. Average loans decreased $1.62 billion and $1.81 billion to $3.62 billion and $3.95 billion for the three and nine months ended September 30, 2011, respectively, from $5.24 billion and $5.75 billion for the comparable periods in 2010. The decrease in average loans primarily reflects a substantial level of loan payoffs and principal payments, a decline in loan production and reduced loan demand within our markets, loan charge-offs, transfers of loans to other real estate and repossessed assets, and the exit of certain of our problem credit relationships. The yield on our loan portfolio decreased 54 and 29 basis points to 4.72% and 4.85% for the three and nine months ended September 30, 2011, respectively, compared to 5.26% and 5.14% for the comparable periods in 2010. The yield on our loan portfolio continues to be adversely impacted by the historically low prime and London Interbank Offered Rate, or LIBOR, interest rates, as a significant portion of our loan portfolio is priced to these indices. Furthermore, the yield on our loan portfolio continues to be adversely impacted by the higher levels of average nonaccrual loans, as further discussed under “—Loans and Allowance for Loan Losses.” Our nonaccrual loans decreased our average yield on loans by approximately 39 and 49 basis points during the three and nine months ended September 30, 2011, respectively, compared to approximately 59 and 67 basis points during the comparable periods in 2010. An interest adjustment associated with the amortization of the remaining loan premium related to prior bank acquisitions of $1.8 million decreased our average yield on loans by approximately 20 and six basis points during the three and nine months ended September 30, 2011, respectively. This adjustment was necessitated by an acceleration of loan payoffs within these acquired portfolios. Interest income on our loan portfolio was positively impacted by income associated with our interest rate swap agreements of $1.9 million and $5.7 million for the three and nine months ended September 30, 2010, respectively. The income ceased during the third quarter of 2010 with the expiration of the amortization period of the unrealized pre-tax gain associated with the termination of our interest rate swap agreements designated as cash flow hedges, as further discussed under “—Interest Rate Risk Management.”

Interest income on our investment securities, expressed on a tax-equivalent basis, was $13.1 million and $32.9 million for the three and nine months ended September 30, 2011, respectively, compared to $6.9 million and $18.8 million for the comparable periods in 2010. Average investment securities increased $1.11 billion and $1.03 billion to $2.26 billion and $1.94 billion for the three and nine months ended September 30, 2011, respectively, compared to $1.15 billion and $910.4 million for the comparable periods in 2010. We continue to utilize a portion of our cash and cash equivalents to fund gradual and planned increases in our investment securities portfolio in an effort to maximize our net interest income and net interest margin while maintaining appropriate liquidity levels and appropriate diversification within our investment securities portfolio. The yield earned on our investment portfolio was 2.30% and 2.27% for the three and nine months ended September 30, 2011, respectively, compared to 2.39% and 2.76% for the comparable periods in 2010, reflecting significant purchases of investment securities at lower market rates.

Dividends on our FRB and FHLB stock were $340,000 and $1.1 million for the three and nine months ended September 30, 2011, respectively, compared to $466,000 and $1.5 million for the comparable periods in 2010. Average FRB and FHLB stock was $27.2 million and $27.8 million for the three and nine months ended September 30, 2011, respectively, compared to $48.6 million and $54.2 million for the comparable periods in 2010. The decrease in the average balance reflects the net redemption of FRB and FHLB stock during 2010 and the first nine months of 2011 associated with the reduction in our total assets, in addition to the redemption of FHLB stock during 2010 associated with the prepayment of $600.0 million of FHLB advances during 2010. The yield earned on our FRB and FHLB stock was 4.97% and 5.17% for the three and nine months ended September 30, 2011, respectively, compared to 3.81% for the comparable periods in 2010.

Interest income on our short-term investments was $347,000 and $1.4 million for the three and nine months ended September 30, 2011, respectively, compared to $841,000 and $2.8 million for the comparable periods in 2010. Average short-term investments were $550.9 million and $726.6 million for the three and nine months ended September 30, 2011, respectively, compared to $1.32 billion and $1.50 billion for the comparable periods in 2010. The yield earned on our short-term investments was 0.25% for the three and nine months ended September 30, 2011 and 2010, reflecting the investment of the majority of funds in our short-term investments in our correspondent bank account with the FRB, which currently earns 0.25%. We built a significant amount of available balance sheet liquidity throughout 2009, 2010 and the first nine months of 2011 in anticipation of the expected completion of certain transactions associated with our Capital Plan, as further discussed under “—Liquidity Management” and in Note 2 to our consolidated financial statements. The high level of short-term investments, while necessary to complete certain transactions associated with our Capital Plan and to maintain significant balance sheet liquidity in light of economic conditions, has negatively impacted our net interest margin and will negatively impact our net interest margin in future periods until we have the opportunity to further reduce our short-term investments through deployment of such funds into other higher-yielding assets.

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Interest expense on our interest-bearing deposits decreased to $7.5 million and $27.0 million for the three and nine months ended September 30, 2011, respectively, from $14.3 million and $45.4 million for the comparable periods in 2010. Average interest-bearing deposits were $4.89 billion and $5.06 billion for the three and nine months ended September 30, 2011, respectively, compared to $5.44 billion and $5.42 billion for the comparable periods in 2010. The decrease in our average interest-bearing deposits primarily reflects anticipated reductions of higher rate certificates of deposits, partially offset by an increase in interest-bearing demand deposits. Decreases in our average time deposits and noninterest-bearing demand deposits of $438.6 million and $4.1 million, respectively, for the first nine months of 2011, as compared to the comparable period in 2010, were partially offset by increases in average interest-bearing demand deposits and savings and money market deposits of $67.4 million and $11.3 million, respectively. The aggregate weighted average rate paid on our interest-bearing deposit portfolio decreased to 0.61% and 0.71% for the three and nine months ended September 30, 2011, respectively, from 1.04% and 1.12% for the comparable periods in 2010, reflecting the re-pricing of certificates of deposit accounts to current market interest rates upon maturity and our efforts to reduce deposit costs across our deposit portfolio, in particular promotional money market deposits. The weighted average rate paid on our time deposit portfolio declined to 1.15% and 1.29% for the three and nine months ended September 30, 2011, respectively, from 1.75% and 1.85% for the comparable periods in 2010; the average rate paid on our savings and money market deposit portfolio declined to 0.40% and 0.47% for the three and nine months ended September 30, 2011, respectively, from 0.67% and 0.72% for the comparable periods in 2010; and the average rate paid on our interest-bearing demand deposits declined to 0.10% and 0.11% for the three and nine months ended September 30, 2011, respectively, from 0.15% and 0.16% for the comparable periods in 2010. Assuming that the prevailing interest rate environment remains relatively stable, we anticipate continued reductions in our deposit costs as certain of our certificates of deposit accounts continue to reprice to current market interest rates upon maturity, as money market accounts re-price from promotional rates to current market interest rates and as we implement certain product modifications designed to enhance overall product offerings to our customer base.

Interest expense on our other borrowings was $36,000 and $102,000 for the three and nine months ended September 30, 2011, respectively, compared to $1.3 million and $7.2 million for the comparable periods in 2010. Average other borrowings were $52.9 million and $45.3 million for the three and nine months ended September 30, 2011, respectively, compared to $521.6 million and $614.3 million for the comparable periods in 2010. Average other borrowings for the first nine months of 2011 were comprised solely of daily repurchase agreements utilized by customers as an alternative deposit product. The decrease in average other borrowings for the nine months ended September 30, 2011, as compared to the comparable period in 2010, reflects the repayment of all of our $600.0 million outstanding FHLB advances and the early termination of our $120.0 million term repurchase agreement during 2010, in addition to a decrease in daily repurchase agreements. The aggregate weighted average rate paid on our other borrowings was 0.27% and 0.30% for the three and nine months ended September 30, 2011, respectively, compared to 0.95% and 1.57% for the comparable periods in 2010, reflecting the repayment of our higher cost secured borrowings during 2010.

Interest expense on our junior subordinated debentures was $3.4 million and $10.1 million for the three and nine months ended September 30, 2011, respectively, compared to $3.4 million and $9.7 million for the comparable periods in 2010. Average junior subordinated debentures were $354.0 million for the three and nine months ended September 30, 2011, compared to $354.0 million and $353.9 million for the three and nine months ended September 30, 2010, respectively. The aggregate weighted average rate paid on our junior subordinated debentures was 3.82% and 3.81% for the three and nine months ended September 30, 2011, respectively, compared to 3.82% and 3.67% for the comparable periods in 2010. The aggregate weighted average rates and the level of interest expense reflect the LIBOR rates and the impact to the related spreads to LIBOR during the periods as approximately 79.4% of our junior subordinated debentures are variable rate. The aggregate weighted average rates also reflect additional interest expense accrued on the regularly scheduled deferred interest payments on our junior subordinated debentures, as further described in Note 12 to our consolidated financial statements.

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The following table sets forth, on a tax-equivalent basis, certain information on a continuing basis relating to our average balance sheets, and reflects the average yield earned on our interest-earning assets, the average cost of our interest-bearing liabilities and the resulting net interest income for the three and nine months ended September 30, 2011 and 2010.

	Three Months Ended September 30,										Nine Months Ended September 30,
	2011					2010					2011					2010
			Interest					Interest					Interest					Interest
	Average		Income/	Yield/		Average		Income/	Yield/		Average		Income/	Yield/		Average		Income/	Yield/
	Balance		Expense	Rate		Balance		Expense	Rate		Balance		Expense	Rate		Balance		Expense	Rate
	(dollars expressed in thousands)
ASSETS
Interest-earning assets:
Loans (1)(2)(3)(4)	$	3,619,241	43,103	4.72	%	$	5,241,952	69,526	5.26	%	$	3,945,559	143,075	4.85	%	$	5,754,037	221,110	5.14	%
Investment securities (4)		2,259,526	13,079	2.30			1,149,845	6,941	2.39			1,936,961	32,910	2.27			910,360	18,814	2.76
FRB and FHLB stock		27,163	340	4.97			48,573	466	3.81			27,814	1,075	5.17			54,164	1,542	3.81
Short-term investments		550,918	347	0.25			1,322,293	841	0.25			726,567	1,359	0.25			1,502,680	2,847	0.25
Total interest-earning
assets		6,456,848	56,869	3.49			7,762,663	77,774	3.97			6,636,901	178,419	3.59			8,221,241	244,313	3.97
Nonearning assets		425,722					454,723					417,151					447,175
Assets of discontinued
operations		—					175,683					19,627					345,635
Total assets	$	6,882,570				$	8,393,069				$	7,073,679				$	9,014,051
LIABILITIES AND
STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
Interest-bearing demand	$	981,999	246	0.10	%	$	924,965	343	0.15	%	$	961,570	824	0.11	%	$	894,199	1,070	0.16	%
Savings and money
market		2,138,368	2,162	0.40			2,172,828	3,661	0.67			2,176,697	7,666	0.47			2,165,397	11,659	0.72
Time deposits of $100 or
more		637,418	1,934	1.20			918,491	4,010	1.73			710,255	7,092	1.34			909,831	12,479	1.83
Other time deposits		1,128,095	3,183	1.12			1,427,614	6,320	1.76			1,208,201	11,406	1.26			1,447,184	20,183	1.86
Total interest-bearing
deposits		4,885,880	7,525	0.61			5,443,898	14,334	1.04			5,056,723	26,988	0.71			5,416,611	45,391	1.12
Other borrowings		52,930	36	0.27			521,588	1,251	0.95			45,280	102	0.30			614,323	7,194	1.57
Subordinated debentures		354,029	3,408	3.82			353,953	3,410	3.82			354,010	10,076	3.81			353,934	9,710	3.67
Total interest-bearing
liabilities		5,292,839	10,969	0.82			6,319,439	18,995	1.19			5,456,013	37,166	0.91			6,384,868	62,295	1.30
Noninterest-bearing liabilities:
Demand deposits		1,148,499					1,136,944					1,139,331					1,143,458
Other liabilities		135,225					111,914					125,911					105,511
Liabilities of discontinued
operations		—					393,706					47,175					904,397
Total liabilities		6,576,563					7,962,003					6,768,430					8,538,234
Stockholders’ equity		306,007					431,066					305,249					475,817
Total liabilities and
stockholders’ equity	$	6,882,570				$	8,393,069				$	7,073,679				$	9,014,051
Net interest income			45,900					58,779					141,253					182,018
Interest rate spread				2.67					2.78					2.68					2.67
Net interest margin (5)				2.82	%				3.00	%				2.85	%				2.96	%
____________________

(1)	For purposes of these computations, nonaccrual loans are included in the average loan amounts.
(2)	Interest income on loans includes loan fees.
(3)	Interest income includes the effect of interest rate swap agreements.
(4)	Information is presented on a tax-equivalent basis assuming a tax rate of 35%. The tax-equivalent adjustments were $66,000 and $251,000 for the three and nine months ended September 30, 2011, respectively, and $125,000 and $394,000 for the comparable periods in 2010.
(5)	Net interest margin is the ratio of net interest income (expressed on a tax-equivalent basis) to average interest-earning assets.

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The following table indicates, on a tax-equivalent basis, the change in interest income and interest expense that is attributable to the change in average volume and change in average rates, for the three and nine months ended September 30, 2011, as compared to the three and nine months ended September 30, 2010. The change in interest due to the combined rate/volume variance has been allocated to rate and volume changes in proportion to the dollar amounts of the change in each.

	Increase (Decrease) Attributable to Change in:
	Three Months Ended							Nine Months Ended
	September 30, 2011							September 30, 2011
	Compared to 2010							Compared to 2010
	Volume			Rate		Net Change		Volume		Rate		Net Change
	(dollars expressed in thousands)
Interest earned on:
Loans: (1) (2) (3)
Taxable	$	(19,830	)	(6,461	)	(26,291	)	(66,257	)	(11,510	)	(77,767	)
Tax-exempt (4)		(46	)	(86	)	(132	)	(134	)	(134	)	(268	)
Investment securities:
Taxable		6,351		(177	)	6,174		17,697		(3,462	)	14,235
Tax-exempt (4)		(11	)	(25	)	(36	)	(77	)	(62	)	(139	)
FRB and FHLB stock		(243	)	117		(126	)	(905	)	438		(467	)
Short-term investments		(494	)	—		(494	)	(1,488	)	—		(1,488	)
Total interest income		(14,273	)	(6,632	)	(20,905	)	(51,164	)	(14,730	)	(65,894	)
Interest paid on:
Interest-bearing demand deposits		21		(118	)	(97	)	82		(328	)	(246	)
Savings and money market
deposits		(57	)	(1,442	)	(1,499	)	61		(4,054	)	(3,993	)
Time deposits		(2,185	)	(3,028	)	(5,213	)	(5,392	)	(8,772	)	(14,164	)
Other borrowings		(676	)	(539	)	(1,215	)	(3,786	)	(3,306	)	(7,092	)
Subordinated debentures		(2	)	—		(2	)	2		364		366
Total interest expense		(2,899	)	(5,127	)	(8,026	)	(9,033	)	(16,096	)	(25,129	)
Net interest income	$	(11,374	)	(1,505	)	(12,879	)	(42,131	)	1,366		(40,765	)
____________________

(1)	For purposes of these computations, nonaccrual loans are included in the average loan amounts.
(2)	Interest income on loans includes loan fees.
(3)	Interest income and interest expense include the effects of interest rate swap agreements.
(4)	Information is presented on a tax-equivalent basis assuming a tax rate of 35%.

Net interest income, expressed on a tax-equivalent basis, decreased $12.9 million and $40.8 million for the three and nine months ended September 30, 2011, respectively, as compared to the comparable periods in 2010. The decrease for the nine months ended September 30, 2011 as compared to the comparable period in 2010 was primarily driven by a decrease in the volume of loans, partially offset by an increase in the volume of investment securities. We have been utilizing cash proceeds resulting from loan payoffs to fund gradual and planned increases in our investment securities portfolio in an effort to maximize our net interest income and net interest margin while maintaining appropriate liquidity levels and appropriate diversification within our investment securities portfolio. Because loans generally have a higher yield than investment securities, the change in our interest-earning asset mix has had a negative impact on our net interest income. The significant decrease in loans is further discussed under “—Loans and Allowance for Loan Losses.” The decrease in net interest income, expressed on a tax-equivalent basis, due to volume of $42.1 million was partially offset by an increase of $1.4 million due to rate for the nine months ended September 30, 2011 as compared to the comparable period in 2010. The increase in net interest income due to rate was primarily driven by a decline in the cost of our interest-bearing deposits and other borrowings, partially offset by a decrease in our loan and investment securities yields as previously discussed.

Provision for Loan Losses. We recorded a provision for loan losses of $19.0 million and $52.0 million for the three and nine months ended September 30, 2011, respectively, compared to $37.0 million and $162.0 million for the comparable periods in 2010. The decrease in the provision for loan losses during the periods was primarily driven by the significant decrease in the overall level of nonaccrual loans and potential problem loans and a decrease in net charge-offs, in addition to less severe asset migration to classified asset categories than the migration levels experienced during the first nine months of 2010.

Our nonaccrual loans were $270.5 million at September 30, 2011, compared to $305.8 million at June 30, 2011, $382.0 million at March 31, 2011, $398.9 million at December 31, 2010 and $471.8 million at September 30, 2010. The decrease in the overall level of nonaccrual loans was driven by gross loan charge-offs, transfers to other real estate and repossessed assets, and resolution of certain nonaccrual loans exceeding net additions to nonaccrual loans, as further discussed under “—Loans and Allowance for Loan Losses,” and reflects our continued progress with respect to the implementation of our Asset Quality Improvement Plan initiatives, designed to reduce the overall balance of nonaccrual and other potential problem loans and assets.

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Our net loan charge-offs were $22.5 million and $95.3 million for the three and nine months ended September 30, 2011, respectively, compared to $52.9 million and $202.1 million for the comparable periods in 2010. The decrease in net loan charge-offs for the nine months ended September 30, 2011 as compared to the comparable period in 2010 was primarily attributable to decreases in net charge-offs in our real estate construction and development, one-to-four family residential real estate, and commercial real estate portfolios, partially offset by an increase in net charge-offs in our commercial, financial and agricultural portfolio.

Tables summarizing nonperforming assets, past due loans and charge-off and recovery experience are presented under “—Loans and Allowance for Loan Losses.”

Noninterest Income. Noninterest income was $17.0 million and $46.3 million for the three and nine months ended September 30, 2011, respectively, compared to $17.1 million and $52.8 million for the comparable periods in 2010. Noninterest income consists primarily of service charges on deposit accounts and customer service fees, mortgage-banking revenues, net gains (losses) on investment securities and derivative instruments, changes in the fair value of servicing rights, loan servicing fees and other income. The decrease in our noninterest income was primarily attributable to lower service charges on deposit accounts and customer service fees, reduced gains on loans sold and held for sale, increased declines in the fair value of servicing rights, lower loan servicing fees and decreased other income, primarily resulting from reduced gains on sales of other real estate and repossessed assets, and the receipt of a litigation settlement of $2.6 million in the second quarter of 2010; partially offset by increased gains on sales of investment securities and lower net losses on derivative financial instruments.

Service charges on deposit accounts and customer service fees were $10.2 million and $30.0 million for the three and nine months ended September 30, 2011, respectively, compared to $11.0 million and $32.0 million for the comparable periods in 2010, primarily reflecting reduced non-sufficient funds and returned check fee income on retail and commercial accounts.

Gains on loans sold and held for sale were $2.5 million and $3.9 million for the three and nine months ended September 30, 2011, respectively, compared to $4.1 million and $7.3 million for the comparable periods in 2010. The decrease was primarily attributable to a decrease in the volume of mortgage loans originated for sale in the secondary market during the first nine months of 2011 associated with a decline in refinancing volume in our mortgage banking division in addition to lower margins on the loans originated for sale in the secondary market. The gain on sale of mortgage loans was $2.5 million and $4.0 million for the three and nine months ended September 30, 2011, respectively, compared to $4.1 million and $7.3 million for the comparable periods in 2010. For the nine months ended September 30, 2011 and 2010, we originated residential mortgage loans held for sale totaling $177.5 million and $243.5 million, respectively. The decrease in gains on loans sold and held for sale also reflects gains/losses on the sale of SBA loans and other commercial loans.

We recorded net gains on investment securities of $4.2 million and $5.3 million for the three and nine months ended September 30, 2011, respectively, compared to net losses on investment securities of $2,000 for the three months ended September 30, 2010 and net gains of $553,000 for the nine months ended September 30, 2010. During the first quarter of 2011, we reduced our overall number of smaller investment securities holdings, many of which were acquired in previous acquisitions, in an effort to reduce the operational requirements and overall costs associated with maintaining these securities. In addition, during the second quarter of 2011, we sold $100.0 million of U.S. Treasury securities at a gain of $592,000. During the third quarter of 2011, we sold $148.5 million of mortgage-backed securities at a gain of $4.1 million. Proceeds from sales of available-for-sale investment securities were $156.2 million and $283.7 million for the three and nine months ended September 30, 2011, respectively, as compared to zero and $20.1 million for the comparable periods in 2010.

We recorded a net gain on derivative instruments of $7,000 and a net loss on derivative instruments of $214,000 for the three and nine months ended September 30, 2011, respectively, compared to net losses on derivative instruments of $849,000 and $2.9 million for the comparable periods in 2010, primarily attributable to changes in fair value and the net interest differential on our interest rate swap agreements.

We recorded net losses associated with changes in the fair value of mortgage and SBA servicing rights of $4.4 million and $6.7 million for the three and nine months ended September 30, 2011, respectively, compared to $3.4 million and $6.2 million for the comparable periods in 2010. The changes in the fair value of mortgage and SBA servicing rights during the periods reflect changes in mortgage interest rates and the related changes in estimated prepayment speeds, as well as changes in cash flow assumptions on the underlying SBA loans in the serviced portfolio.

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Loan servicing fees were $2.0 million and $6.4 million for the three and nine months ended September 30, 2011, respectively, compared to $2.2 million and $6.7 million for the comparable periods in 2010, and are primarily attributable to fee income generated from the servicing of real estate mortgage loans owned by investors and originated by our mortgage banking division, as well as SBA loans originated to small business concerns. The level of fees is primarily impacted by the balance of loans serviced and interest shortfall on serviced residential mortgage loans. Interest shortfall represents the difference between the interest collected from a loan servicing customer upon prepayment of the loan and the full month of interest that is required to be remitted to the security owner.

Other income was $2.4 million and $7.7 million for the three and nine months ended September 30, 2011, respectively, compared to $4.0 million and $15.4 million for the comparable periods in 2010. The decrease in other income reflects the following:

Ø	A loss of $334,000 recognized in the first quarter of 2011 on the sale of our San Jose Branch and a gain of $263,000 recognized in the second quarter of 2011 on the sale of our Edwardsville Branch, as further described in Note 2 to our consolidated financial statements, compared to a gain of $168,000 recognized in the first quarter of 2010 on the sale of our Lawrenceville, Illinois retail branch;
Ø	Income recognized on certain Community Reinvestment Act, or CRA, investments of $495,000 during the second quarter of 2011 and $388,000 during the third quarter of 2011;
Ø	The receipt of a litigation settlement of $2.6 million recognized in the second quarter of 2010; and
Ø	Net losses of $404,000 and $1.1 million on sales of other real estate and repossessed assets for the three and nine months ended September 30, 2011, respectively, compared to net gains of $814,000 and $3.4 million for the comparable periods in 2010.

Noninterest Expense.Noninterest expense decreased to $58.1 million and $174.3 million for the three and nine months ended September 30, 2011, respectively, from $88.4 million and $220.4 million for the comparable periods in 2010. The decrease in our noninterest expense during the three and nine months ended September 30, 2011, as compared to the comparable periods in 2010, was primarily attributable to reductions in write-downs and expenses on other real estate and repossessed assets, salaries and employee benefits expense, occupancy and furniture and equipment expenses, postage, printing and supplies expenses, information technology fees, legal, examination and professional fees, FDIC insurance expense and other expense; partially offset by increased advertising and business development expenses.

Salaries and employee benefits expense decreased to $20.7 million and $61.9 million for the three and nine months ended September 30, 2011, respectively, in comparison to $22.8 million and $66.2 million for the comparable periods in 2010. The overall decrease in salaries and employee benefits expense is reflective of the completion of certain staff reductions in 2010 and 2011. Our total full-time equivalent employees (FTEs), excluding discontinued operations, decreased to 1,305 at September 30, 2011, from 1,393 at December 31, 2010 and 1,453 at September 30, 2010, representing decreases of 6.3% and 10.2%, respectively. The overall reduction in salaries and employee benefits expense was partially offset by an increase in our 401(k) matching contribution, resulting from the reinstatement of our 401(k) matching contribution in the first quarter of 2011 following the elimination of our matching contribution in April 2009.

Occupancy, net of rental income, and furniture and equipment expense decreased to $9.2 million and $28.9 million for the three and nine months ended September 30, 2011, respectively, from $10.7 million and $32.5 million for the comparable periods in 2010. The decrease reflects reduced furniture, fixture and technology equipment expenditures associated with prior expansion and branch renovation activities and certain branch closures completed in conjunction with profit improvement initiatives.

Postage, printing and supplies expense decreased to $707,000 and $2.2 million for the three and nine months ended September 30, 2011, respectively, from $745,000 and $2.7 million for the comparable periods in 2010, primarily reflecting decreases in office supplies expenses as a result of profit improvement initiatives.

Information technology and item processing fees decreased to $6.5 million and $19.6 million for the three and nine months ended September 30, 2011, respectively, from $6.8 million and $21.2 million for the comparable periods in 2010. The decrease in information technology fees is primarily due to the implementation of certain profit improvement initiatives and negotiated fee reductions with First Services, L.P. As more fully described in Note 8 to our consolidated financial statements, First Services, L.P., a limited partnership indirectly owned by our Chairman and members of his immediate family, provides information technology and various operational support services to our subsidiaries and us. Information technology fees also include fees paid to outside servicers associated with our mortgage lending, trust and small business lending divisions as well as our payroll processing department.

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Legal, examination and professional fees decreased to $2.8 million and $9.1 million for the three and nine months ended September 30, 2011, respectively, from $3.4 million and $9.8 million for the comparable periods in 2010. The decrease in legal, examination and professional fees during the first nine months of 2011 reflects a decrease in legal expenses associated with divestiture activities and litigation matters in comparison to the level of such expenses during the comparable period in 2010. We anticipate legal, examination and professional fees to remain at higher-than-historical levels for the remainder of 2011, primarily as a result of higher legal and professional fees associated with ongoing collection efforts on commercial and consumer problem loans, ongoing litigation matters and ongoing matters associated with our Capital Plan, as further described under “—Recent Developments and Other Matters – Capital Plan.”

Amortization of intangible assets was $728,000 and $2.3 million for the three and nine months ended September 30, 2011, respectively, compared to $800,000 and $2.5 million for the comparable periods in 2010, reflecting a decrease in the amortization of core deposit intangibles associated with prior acquisitions.

Advertising and business development expense increased to $461,000 and $1.4 million for the three and nine months ended September 30, 2011, respectively, from $260,000 and $946,000 for the comparable periods in 2010, reflecting increased advertising during the first nine months of 2011 as compared to the comparable period in 2010. We expect these expenses to increase over time as we further market our products and services throughout our geographic market areas.

FDIC insurance expense decreased to $3.8 million and $12.9 million for the three and nine months ended September 30, 2011, respectively, from $5.7 million and $16.4 million for the comparable periods in 2010. Prior to April 1, 2011, the FDIC’s assessment base for the calculation of insurance premium assessments was an institution’s average deposits. The Dodd-Frank Act required the FDIC to establish rules setting insurance premium assessments based on an institution's average consolidated assets minus its average tangible equity instead of its deposits. The change in the assessment base had the impact of reducing the level of our FDIC insurance expense beginning with the second quarter of 2011.

Write-downs and expenses on other real estate and repossessed assets decreased to $2.6 million and $13.0 million for the three and nine months ended September 30, 2011, respectively, from $14.4 million and $31.9 million for the comparable periods in 2010, and include write-downs related to the revaluation of certain other real estate properties of $1.6 million and $8.4 million for the three and nine months ended September 30, 2011, respectively, as compared to $12.7 million and $23.6 million for the comparable periods in 2010. Write-downs during the third quarter of 2010 include a write-down of $9.0 million on a single property located in Southern California. Other real estate and repossessed asset expenses, exclusive of write-downs, such as taxes, insurance, and repairs and maintenance, were $947,000 and $4.6 million for the three and nine months ended September 30, 2011, respectively, compared to $1.8 million and $8.3 million for the comparable periods in 2010, primarily reflecting a decrease in the balance of other real estate and repossessed assets and the sale of certain properties that possessed higher operating expenditures. The balance of our other real estate and repossessed assets was $131.3 million at September 30, 2011, as compared to $140.7 million at December 31, 2010 and $171.0 million at September 30, 2010. The overall higher-than-historical level of expenses on other real estate and repossessed assets is associated with ongoing foreclosure activity, including current and delinquent real estate taxes paid on other real estate properties, as well as other property preservation related expenses. We expect the level of write-downs and expenses on our other real estate and repossessed assets to remain at elevated levels in the near term as a result of the high level of our other real estate and repossessed assets and the expected future transfer of certain of our nonaccrual loans into our other real estate portfolio.

Other expense decreased to $10.7 million and $23.0 million for the three and nine months ended September 30, 2011, respectively, compared to $22.8 million and $36.2 million for the comparable periods in 2010. Other expense encompasses numerous general and administrative expenses including communications, insurance, freight and courier services, correspondent bank charges, loan expenses, miscellaneous losses and recoveries, memberships and subscriptions, transfer agent fees, sales taxes, travel, meals and entertainment, overdraft losses and other nonrecurring expenses. The changes in the overall level of other expense for the first nine months of 2011 as compared to the comparable period in 2010 reflect the following:

Ø	An operating loss of $13.6 million during the third quarter of 2010 resulting from suspected fraud involving a customer relationship;
Ø	Write-downs of bank-owned facilities to estimated fair value less costs to sell of $2.3 million associated with space consolidation initiatives during the three and nine months ended September 30, 2011;
Ø	Loan expenses related to collection matters of $1.3 million and $4.0 million for the three and nine months ended September 30, 2011, respectively, compared to $942,000 and $4.1 million for the comparable periods in 2010;

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Ø	A reduction in overdraft losses to $330,000 and $909,000 for the three and nine months ended September 30, 2011, respectively, compared to $510,000 and $1.2 million for the comparable periods in 2010;
Ø	Prepayment penalties of $1.9 million recognized during the third quarter of 2010 associated with the prepayment of FHLB advances;
Ø	Expenses associated with CRA investments of $2.0 million for the nine months ended September 30, 2011, compared to $1.5 million for the comparable period in 2010; and
Ø	Profit improvement initiatives and management’s efforts to reduce overall expense levels.

(Benefit) Provision for Income Taxes. We recorded a benefit for income taxes of $11.6 million and $11.5 million for the three and nine months ended September 30, 2011, compared to a provision for income taxes of $5.2 million and $5.3 million for the three and nine months ended September 30, 2010, respectively. The (benefit) provision for income taxes during the three and nine months ended September 30, 2011 and 2010 reflects the establishment of a full deferred tax asset valuation allowance during 2008 and the resulting inability to record tax benefits on our net loss due to existing federal and state net operating loss carryforwards on which the realization of the related tax benefits is not “more likely than not,” as further described in Note 14 to our consolidated financial statements. The deferred tax asset valuation allowance was primarily established as a result of our three-year cumulative operating loss for the years ended December 31, 2008, 2007 and 2006, after considering all available objective evidence and potential tax planning strategies related to the amount of the deferred tax assets that are more likely than not to be realized.

The benefit for income taxes during the three and nine months ended September 30, 2011 also reflects a benefit for income taxes of $11.6 million related to an intraperiod tax allocation between accumulated other comprehensive income and loss from continuing operations, and was primarily driven by market appreciation in our investment securities portfolio, as further described in Note 14 to our consolidated financial statements.

The provision for income taxes for the three and nine months ended September 30, 2010 also reflects a provision for income taxes of $6.8 million related to the establishment of a deferred tax asset valuation allowance regarding the unrealized gain on certain interest rate swap agreements that were designated as cash flow hedges on certain of our loans. These interest rate swap agreements were terminated in December 2008, and as a result, the unrealized gain at the date of termination of $20.8 million was being amortized as an increase to interest and fees on loans in the consolidated statements of operations over the remaining terms of the respective interest rate swap agreements, which had contractual maturity dates through September 2010. During the third quarter of 2010, we recorded a provision for income taxes of $6.8 million related to the expiration of the amortization period of the unrealized gain on the interest rate swap agreements with a corresponding increase to accumulated other comprehensive income. The provision for income taxes also reflects a $2.1 million benefit related to the expiration of the statute of limitations, and the related reversal of certain reserves on a number of uncertain tax positions, and expense of $240,000 related to the termination of our remaining BOLI policies.

The level of our provision for income taxes and the deferred tax asset valuation allowance are more fully described in Note 14 to our consolidated financial statements.

Income from Discontinued Operations, Net of Tax. We recorded income from discontinued operations, net of tax, of zero and $696,000 for the three and nine months ended September 30, 2011, respectively, compared to income from discontinued operations, net of tax, of $6.4 million and $11.9 million for the comparable periods in 2010. Income from discontinued operations, net of tax, for the nine months ended September 30, 2011 and 2010, is reflective of the following:

Ø	A gain of $425,000 during the second quarter of 2011 associated with the sale of our remaining Northern Illinois Region on May 13, 2011 after the write-off of goodwill and intangible assets allocated to the Northern Illinois Region of $1.6 million;
Ø	A gain of $8.4 million during the first quarter of 2010 associated with the sale of our Chicago Region on February 19, 2010 after the write-off of goodwill and intangible assets allocated to the Chicago Region of $26.3 million;
Ø	A gain of $5.0 million during the second quarter of 2010 associated with the sale of our Texas Region on April 30, 2010 after the write-off of goodwill and intangible assets allocated to the Texas Region of $20.0 million;
Ø	A gain of $6.4 million during the third quarter of 2010 associated with the sale of a portion of our Northern Illinois Region during September 2010 after the write-off of goodwill and intangible assets allocated to the Northern Illinois Region of approximately $9.7 million; and
Ø	Other net income (loss) from all discontinued operations during the respective periods, as further described in Note 2 to our consolidated financial statements.

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Net Loss Attributable to Noncontrolling Interest in Subsidiary.Net losses attributable to noncontrolling interest in subsidiary were $668,000 and $1.5 million for the three and nine months ended September 30, 2011, respectively, compared to $618,000 and $1.1 million for the comparable periods in 2010, and were comprised of the noncontrolling interest in the net losses of FB Holdings. The net loss attributable to noncontrolling interest in subsidiary during the first nine months of 2011, as compared to the comparable period in 2010, is primarily reflective of reduced gains recognized on the sale of other real estate properties and increased provision for loan losses, partially offset by reduced expenses associated with lower balances of other real estate properties in FB Holdings. Noncontrolling interest in subsidiary is more fully described in Note 1 and Note 8 to our consolidated financial statements.

Interest Rate Risk Management

The maintenance of a satisfactory level of net interest income is a primary factor in our ability to achieve acceptable income levels. However, the maturity and repricing characteristics of our loan and investment portfolios may differ significantly from those within our deposit structure. The nature of the loan and deposit markets within which we operate, and our objectives for business development within those markets at any point in time, influence these characteristics. In addition, the ability of borrowers to repay loans and the possibility of depositors withdrawing funds prior to stated maturity dates introduces divergent option characteristics that fluctuate as interest rates change. These factors cause various elements of our balance sheet to react in different manners and at different times relative to changes in interest rates, potentially leading to increases or decreases in net interest income over time. Depending upon the direction and magnitude of interest rate movements and their effect on the specific components of our balance sheet, the effects on net interest income can be substantial. Consequently, it is critical that we establish effective control over our exposure to changes in interest rates. We strive to manage our interest rate risk by:

Ø	Maintaining an Asset Liability Committee, or ALCO, responsible to our Board of Directors and Executive Management, to review the overall interest rate risk management activity and approve actions taken to reduce risk;
Ø	Employing a financial simulation model to determine our exposure to changes in interest rates;
Ø	Coordinating the lending, investing and deposit-generating functions to control the assumption of interest rate risk; and
Ø	Utilizing various financial instruments, including derivatives, to offset inherent interest rate risk should it become excessive.

The objective of these procedures is to limit the adverse impact that changes in interest rates may have on our net interest income.

The ALCO has overall responsibility for the effective management of interest rate risk and the approval of policy guidelines. The ALCO includes our President and Chief Executive Officer, Chief Financial Officer, Controller, Chief Investment Officer, Chief Credit Officer, Executive Vice President of Retail Banking, Director of Risk Management and Audit, and certain other senior officers. The Asset Liability Management Group, which monitors interest rate risk, supports the ALCO, prepares analyses for review by the ALCO and implements actions that are either specifically directed by the ALCO or established by policy guidelines.

In managing sensitivity, we strive to reduce the adverse impact on earnings by managing interest rate risk within internal policy constraints. Our policy is to manage exposure to potential risks associated with changing interest rates by maintaining a balance sheet posture in which annual net interest income is not significantly impacted by reasonably possible near-term changes in interest rates. To measure the effect of interest rate changes, we project our net income over a two-year horizon on a pro forma basis. The analysis assumes various scenarios for increases and decreases in interest rates including both instantaneous and gradual, and parallel and non-parallel, shifts in the yield curve, in varying amounts. For purposes of arriving at reasonably possible near-term changes in interest rates, we include scenarios based on actual changes in interest rates, which have occurred over a two-year period, simulating both a declining and rising interest rate scenario.

We are “asset-sensitive,” indicating that our assets would generally reprice with changes in interest rates more rapidly than our liabilities, and our simulation model indicates a loss of projected net interest income should interest rates decline. While a decline in interest rates of less than 50 basis points was projected to have a relatively minimal impact on our net interest income, an instantaneous parallel decline in the interest yield curve of 50 basis points indicates a pre-tax projected loss of approximately 5.0% of net interest income, based on assets and liabilities at September 30, 2011. At September 30, 2011, we remain in an asset-sensitive position and thus, remain subject to a higher level of risk in a declining interest rate environment. Although we do not anticipate that instantaneous shifts in the yield curve as projected in our simulation model are likely, these are indications of the effects that changes in interest rates would have over time. Our asset-sensitive position, coupled with the effect of significant declines in interest rates that began in late 2007 and continued throughout 2008 and 2009 to historically low levels, and the overall level of our nonperforming assets, has negatively impacted our net interest income and is expected to continue to impact the level of our net interest income throughout the near future.

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We also prepare and review a more traditional interest rate sensitivity position in conjunction with the results of our simulation model. The following table presents the projected maturities and periods to repricing of our rate sensitive assets and liabilities as of September 30, 2011, adjusted to account for anticipated prepayments:

						Over Six
	Three			Over Three		through		Over One
	Months or			through Six		Twelve		through Five	Over Five
	Less			Months		Months		Years	Years	Total
	(dollars expressed in thousands)
Interest-earning assets:
Loans (1)	$	2,156,197		235,977		384,188		676,666	49,763	3,502,791
Investment securities		143,289		141,186		394,393		1,098,043	647,227	2,424,138
FRB and FHLB stock		27,257		—		—		—	—	27,257
Short-term investments		398,451		—		—		—	—	398,451
Total interest-earning assets	$	2,725,194		377,163		778,581		1,774,709	696,990	6,352,637
Interest-bearing liabilities:
Interest-bearing demand deposits	$	363,818		226,156		147,493		108,162	137,660	983,289
Money market deposits		1,851,376		—		—		—	—	1,851,376
Savings deposits		42,043		34,624		29,678		42,043	98,925	247,313
Time deposits		500,120		348,697		450,099		409,743	84	1,708,743
Other borrowings		53,112		—		—		—	—	53,112
Subordinated debentures		282,481		—		—		—	71,557	354,038
Total interest-bearing liabilities		3,092,950		609,477		627,270		559,948	308,226	5,197,871
Effect of interest rate swap agreements		(50,000	)	25,000		—		25,000	—	—
Total interest-bearing liabilities after the
effect of interest rate swap agreements	$	3,042,950		634,477		627,270		584,948	308,226	5,197,871
Interest-sensitivity gap:
Periodic	$	(317,756	)	(257,314	)	151,311		1,189,761	388,764	1,154,766
Cumulative		(317,756	)	(575,070	)	(423,759	)	766,002	1,154,766
Ratio of interest-sensitive assets to interest-
sensitive liabilities:
Periodic		0.90		0.59		1.24		3.03	2.26	1.22
Cumulative		0.90		0.84		0.90		1.16	1.22
____________________

(1) Loans are presented net of deferred loan costs (fees).

Management made certain assumptions in preparing the foregoing table. These assumptions included:

Ø	Loans will repay at projected repayment rates;
Ø	Mortgage-backed securities, included in investment securities, will repay at projected repayment rates;
Ø	Interest-bearing demand accounts and savings deposits will behave in a projected manner with regard to their interest rate sensitivity; and
Ø	Fixed maturity deposits will not be withdrawn prior to maturity.

A significant variance in actual results from one or more of these assumptions could materially affect the results reflected in the foregoing table.

We were in an overall asset-sensitive position of $1.15 billion, or 17.0% of our total assets, and $1.26 billion, or 17.1% of our total assets, at September 30, 2011 and December 31, 2010, respectively. We were in an overall liability-sensitive position on a cumulative basis through the twelve-month time horizon of $423.8 million, or 6.2% of our total assets, and $21.0 million, or 0.3% of our total assets at September 30, 2011 and December 31, 2010, respectively.

The interest-sensitivity position is one of several measurements of the impact of interest rate changes on net interest income. Its usefulness in assessing the effect of potential changes in net interest income varies with the constant change in the composition of our assets and liabilities and changes in interest rates. For this reason, we place greater emphasis on our simulation model for monitoring our interest rate risk exposure.

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As previously discussed, we utilize derivative financial instruments to assist in our management of interest rate sensitivity by modifying the repricing, maturity and option characteristics of certain assets and liabilities. We also sell interest rate swap agreement contracts to certain customers who wish to modify their interest rate sensitivity. We offset the interest rate risk of these swap agreements by simultaneously purchasing matching interest rate swap agreement contracts with offsetting pay/receive rates from other financial institutions. Because of the matching terms of the offsetting contracts, the net effect of the changes in the fair value of the paired swaps is minimal.

The derivative financial instruments we held as of September 30, 2011 and December 31, 2010 are summarized as follows:

	September 30, 2011			December 31, 2010
	Notional		Credit	Notional	Credit
	Amount		Exposure	Amount	Exposure
	(dollars expressed in thousands)
Interest rate swap agreements	$	50,000	—	75,000	—
Customer interest rate swap agreements		48,970	586	53,696	869
Interest rate lock commitments		78,856	2,707	41,857	276
Forward commitments to sell mortgage-backed securities		101,050	—	84,100	1,538

The notional amounts of our derivative financial instruments do not represent amounts exchanged by the parties and, therefore, are not a measure of our credit exposure through our use of these instruments. The credit exposure represents the loss we would incur in the event the counterparties failed completely to perform according to the terms of the derivative financial instruments and the collateral held to support the credit exposure was of no value.

The earnings associated with our derivative financial instruments reflect the interest rate environment during these periods as well as the overall level of our derivative instruments throughout these periods. We realized net interest income on our derivative financial instruments of $1.9 million and $5.7 million for the three and nine months ended September 30, 2010, respectively, comprised entirely of amortization associated with a deferred gain on the previous termination of certain of our interest rate swap agreements. In December 2008, we terminated certain of our interest rate swap agreements that were designated as cash flow hedges on certain of our loans, and recorded a gain of $20.8 million, in aggregate, which was being amortized as an increase to interest and fees on loans in the consolidated statements of operations over the remaining terms of the respective interest rate swap agreements, which had contractual maturity dates of September 2009 and September 2010. Consequently, the conclusion of the amortization period associated with the aggregate gain in September 2010 resulted in a negative impact on our net interest income and net interest margin for the nine months ended September 30, 2011.

We recorded net gains on derivative instruments of $7,000 and net losses on derivative instruments of $214,000, which are included in noninterest income in the consolidated statements of operations, for the three and nine months ended September 30, 2011, respectively, compared to net losses $849,000 and $2.9 million for the comparable periods in 2010. The net losses on derivative instruments is primarily attributable to changes in the fair value and the net interest differential on our interest rate swap agreements previously designated as cash flow hedges on our junior subordinated debentures.

Our derivative financial instruments are more fully described in Note 16 to our consolidated financial statements.

Loans and Allowance for Loan Losses

Loan Portfolio Composition. Loans, net of deferred loan costs (fees), represented 51.6% of our assets as of September 30, 2011, compared to 60.9% of our assets at December 31, 2010. Loans, net of deferred loan costs (fees), decreased $989.5 million to $3.50 billion at September 30, 2011 from $4.49 billion at December 31, 2010. The following table summarizes the composition of our loan portfolio by category at September 30, 2011 and December 31, 2010:

	September 30,		December 31,
	2011		2010
	(dollars expressed in thousands)
Commercial, financial and agricultural	$	768,047	1,045,832
Real estate construction and development		303,263	490,766
Real estate mortgage:
One-to-four family residential		920,624	1,050,895
Multi-family residential		128,144	178,289
Commercial real estate		1,320,905	1,642,920
Consumer and installment		25,206	33,623
Loans held for sale		36,595	54,470
Deferred loan costs (fees)		7	(4,511	)
Loans, net of deferred loan costs (fees)	$	3,502,791	4,492,284

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The following table summarizes the composition of our loan portfolio by geographic region and/or business segment at September 30, 2011 and December 31, 2010:

	September 30,		December 31,
	2011		2010
	(dollars expressed in thousands)
Mortgage Division	$	408,776	466,735
Florida		94,240	114,061
Northern California		516,276	633,867
Southern California		1,016,987	1,268,960
Chicago		205,067	244,277
Missouri		678,971	879,200
Texas		137,657	292,609
First Bank Business Capital, Inc.		34,135	56,212
Northern and Southern Illinois		288,067	350,208
Other		122,615	186,155
Total	$	3,502,791	4,492,284

We attribute the net decrease in our loan portfolio during the first nine months of 2011 primarily to:

Ø

A decrease of $277.8 million in our commercial, financial and agricultural portfolio, reflecting gross loan charge-offs of $32.0 million and portfolio runoff associated with a decline in internal production and reduced loan demand within our markets;

Ø

A decrease of $187.5 million in our real estate construction and development portfolio primarily attributable to gross loan charge-offs of $25.6 million, transfers to other real estate and repossessed assets of $30.9 million and other loan activity, including the sale of a $43.7 million loan in our Texas Region during the second quarter of 2011. The following table summarizes the composition of our real estate construction and development portfolio by region as of September 30, 2011 and December 31, 2010:

	September 30,		December 31,
	2011		2010
	(dollars expressed in thousands)
Northern California	$	64,178	64,647
Southern California		113,666	157,306
Chicago		32,727	44,166
Missouri		20,542	62,012
Texas		45,328	128,794
Florida		1,436	3,799
Northern and Southern Illinois		18,079	28,721
Other		7,307	1,321
Total	$	303,263	490,766

We have experienced significant asset quality deterioration within all geographic areas of our real estate construction and development portfolio. As a result of the asset quality deterioration, we focused on reducing our exposure to this portfolio segment and decreased the portfolio balance by $1.84 billion, or 85.8%, from $2.14 billion at December 31, 2007 to $303.3 million at September 30, 2011. Of the remaining portfolio balance of $303.3 million, $81.7 million, or 26.9%, of loans were on nonaccrual status as of September 30, 2011 and $122.3 million, or 40.3%, of loans were considered potential problem loans, as further discussed below;

Ø

A decrease of $130.3 million in our one-to-four family residential real estate loan portfolio primarily attributable to gross loan charge-offs of $25.1 million, transfers to other real estate of $10.3 million and principal payments. The following table summarizes the composition of our one-to-four family residential real estate loan portfolio as of September 30, 2011 and December 31, 2010:

	September 30,		December 31,
	2011		2010
	(dollars expressed in thousands)
One-to-four family residential real estate:
Bank portfolio	$	177,366	239,363
Mortgage Division portfolio, excluding Florida		262,785	286,584
Florida Mortgage Division portfolio		102,494	125,369
Home equity portfolio		377,979	399,579
Total	$	920,624	1,050,895

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	Our Bank portfolio consists of mortgage loans originated to customers from our retail branch banking network. As of September 30, 2011, approximately $15.7 million, or 8.8%, of this portfolio is on nonaccrual status. The decrease in this portfolio of $62.0 million, or 25.9%, during the first nine months of 2011 is primarily attributable to principal payments, including the payoff of a single $10.0 million loan relationship during the first quarter of 2011, primarily resulting from increased refinancing loan volumes and the mortgage interest rate environment.
	Our Mortgage Division portfolio, excluding Florida, consists of both prime mortgage loans and Alt A and sub-prime mortgage loans that were originated prior to our discontinuation of these loan products in 2007. This portfolio of one-to-four family residential real estate loans has decreased $231.4 million, or 46.8%, from $494.2 million at December 31, 2007. As of September 30, 2011, approximately $89.7 million, or 34.1%, of this portfolio is considered impaired, consisting of performing troubled debt restructurings, or TDRs, of $74.8 million, including those loans modified in the Home Affordable Modification Program, or HAMP, of $66.1 million, and nonaccrual loans of $14.9 million.
	Our Florida portfolio, the majority of which was acquired in November 2007 through our acquisition of Coast Bank of Florida, consists primarily of prime and Alt A mortgage loans. This portfolio of one-to-four family residential real estate loans has decreased $157.6 million, or 60.6%, from $260.1 million at December 31, 2007. As of September 30, 2011, approximately $11.0 million, or 10.7%, of this portfolio is considered impaired, consisting of performing TDRs of $6.5 million, including $4.5 million of loans modified in HAMP, and $4.4 million of nonaccrual loans. Our Mortgage Division portfolio, excluding Florida, and our Florida Mortgage Division Portfolio are collectively defined as our Mortgage Division portfolio unless otherwise noted.
	Our home equity portfolio consists of loans originated to customers from our retail branch banking network. As of September 30, 2011, approximately $8.2 million, or 2.2%, of this portfolio is on nonaccrual status The decrease in this portfolio of $21.6 million, or 5.4%, during the first nine months of 2011 is primarily attributable to gross loan charge-offs of $6.0 million and principal payments;
Ø	A decrease of $50.1 million in our multi-family residential real estate portfolio primarily due to gross loan charge-offs of $3.0 million and portfolio runoff associated with a decline in internal production and reduced loan demand within our markets;
Ø	A decrease of $322.0 million in our commercial real estate portfolio primarily attributable to gross loan charge-offs of $26.2 million, transfers to other real estate of $14.9 million and our efforts to reduce our exposure to commercial real estate in the current economic environment. The following table summarizes the composition of our commercial real estate portfolio by loan type as of September 30, 2011 and December 31, 2010:

	September 30,		December 31,
	2011		2010
	(dollars expressed in thousands)
Farmland	$	21,099	36,735
Owner occupied		714,514	798,842
Non-owner occupied		585,292	807,343
Total	$	1,320,905	1,642,920

We have experienced the most distress in our non-owner occupied portfolio, which constitutes approximately 44.3% of our commercial real estate portfolio. As of September 30, 2011, $31.7 million, or 5.4%, of the non-owner occupied segment is on nonaccrual status. The following table summarizes the composition of our non-owner occupied loan portfolio by region as of September 30, 2011 and December 31, 2010:

	September 30,		December 31,
	2011		2010
	(dollars expressed in thousands)
Northern California	$	156,216	208,127
Southern California		229,412	305,287
Chicago		20,864	27,907
Missouri		99,081	149,106
Texas		37,557	61,258
Florida		11,293	13,338
Northern and Southern Illinois		23,167	24,990
Other		7,702	17,330
Total	$	585,292	807,343

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		The decrease in non-owner occupied loans in our Southern California region of $75.9 million includes the payoff of a single credit relationship in the amount of $29.0 million in the second quarter of 2011;
	Ø	A decrease of $8.4 million in our consumer and installment portfolio, reflecting gross charge-offs of $384,000 and portfolio runoff associated with a decline in internal production and reduced loan demand within our markets; and
	Ø	A decrease of $17.9 million in our loans held for sale portfolio primarily resulting from a decrease in origination volume and subsequent sales into the secondary mortgage market.
These decreases were partially offset by:
	Ø	An increase of $4.5 million in our net deferred loan costs (fees), primarily attributable to an unearned discount of $6.8 million associated with the sale of the $43.7 million real estate construction and development loan in our Texas region as discussed above.

Nonperforming Assets. Nonperforming assets include nonaccrual loans, other real estate and repossessed assets. The following table presents the categories of nonperforming assets and certain ratios as of September 30, 2011 and December 31, 2010:

	September 30,			December 31,
	2011			2010
	(dollars expressed in thousands)
Nonperforming Assets:
Nonaccrual loans:
Commercial, financial and agricultural	$	71,035		67,365
Real estate construction and development		81,710		134,244
One-to-four family residential real estate:
Bank portfolio		15,678		14,479
Mortgage Division portfolio		19,327		33,386
Home equity portfolio		8,172		7,122
Multi-family residential		7,595		12,960
Commercial real estate		66,920		129,187
Consumer and installment		48		165
Total nonaccrual loans		270,485		398,908
Other real estate		114,318		140,628
Other repossessed assets		17,031		37
Total nonperforming assets	$	401,834		539,573
Loans, net of deferred loan costs (fees)	$	3,502,791		4,492,284
Performing troubled debt restructurings	$	94,900		112,903
Loans past due 90 days or more and still accruing	$	4,054		5,523
Ratio of:
Allowance for loan losses to loans		4.50	%	4.48	%
Nonaccrual loans to loans		7.72		8.88
Allowance for loan losses to nonaccrual loans		58.31		50.40
Nonperforming assets to loans, other real estate and
repossessed assets		11.06		11.65

Our nonperforming assets, consisting of nonaccrual loans, other real estate and repossessed assets, were $401.8 million and $539.6 million at September 30, 2011 and December 31, 2010, respectively. Our nonperforming assets at September 30, 2011 included $14.4 million, comprised of $5.5 million of nonaccrual loans and $8.9 million of other real estate, held by FB Holdings, a subsidiary of First Bank which is 46.77% owned by FCA, an entity owned by our Chairman of the Board and members of his immediate family.

We attribute the $128.4 million net decrease in our nonaccrual loans during the nine months ended September 30, 2011 primarily to the following:

Ø A decrease in nonaccrual loans of $52.5 million in our real estate construction and development loan portfolio driven by gross loan charge-offs of $25.6 million, transfers to other real estate of $30.9 million and payments received, partially offset by additions to nonaccrual loans during the nine months ended September 30, 2011. Although the level of deterioration in this portfolio is slowing due in part to the decline in the total portfolio balance, as previously discussed, we continue to experience deterioration as a result of weak economic conditions and declines in real estate values, and we expect these trends to continue until market conditions stabilize in our primary market areas;

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Ø	A decrease in nonaccrual loans of $14.1 million in our one-to-four family residential real estate Mortgage Division loan portfolio primarily driven by gross loan charge-offs of $15.3 million, transfers to other real estate of $7.3 million and payments received, partially offset by additions to nonaccrual loans during the nine months ended September 30, 2011 driven by current market conditions and the overall deterioration of Alt A and sub-prime residential mortgage loan products experienced throughout the mortgage banking industry. We continue to modify loans under HAMP where deemed economically advantageous to our borrowers and us;
Ø	A decrease in nonaccrual loans of $5.4 million in our multi-family residential loan portfolio primarily driven by gross loan charge-offs of $3.0 million, transfers to other real estate of $1.4 million and payments received, partially offset by new additions to nonaccrual loans resulting from continued weak economic conditions and declines in real estate values; and
Ø	A decrease in nonaccrual loans of $62.3 million in our commercial real estate portfolio primarily driven by gross loan charge-offs of $26.2 million, transfers to other real estate of $14.9 million and payments received, partially offset by new additions to nonaccrual loans resulting from continued weak economic conditions and declines in real estate values. During the second quarter of 2011, a single $29.0 million nonaccrual credit relationship in our Southern California region was repaid.

These decreases were partially offset by:

Ø An increase in nonaccrual loans of $3.7 million in our commercial, financial and agricultural portfolio primarily driven by new additions to nonaccrual loans during the nine months ended September 30, 2011, partially offset by gross loan charge-offs of $32.0 million and payments received. Additions to nonaccrual status during the first nine months of 2011 included three credits with outstanding balances of $13.5 million, $7.3 million and $4.2 million at September 30, 2011, or $25.0 million in aggregate.

The decrease in other real estate of $26.3 million during the first nine months of 2011 was primarily driven by the sale of other real estate properties with a carrying value of $58.6 million at a net loss of $1.1 million, and write-downs of other real estate of $8.4 million, attributable to declining real estate values on certain properties; partially offset by foreclosures and other additions to other real estate aggregating $40.7 million.

The increase in repossessed assets of $17.0 million during the first nine months of 2011 was driven by First Bank’s 43.76% minority ownership interest in WBI Resolution, LLC, which was established in June 2011 by a group of seven banks to dispose of foreclosed real estate construction and development loans to a single borrower.

At September 30, 2011, our other real estate and repossessed assets consisted of collateral with the most recent appraisal date being in 2011, 2010, 2009 and 2008 of $22.6 million, $97.2 million, $3.8 million and $6.8 million, respectively, in addition to $974,000 with the fair value estimated by management or by broker’s price opinions.

The decrease in performing TDRs, of $18.0 million during the first nine months of 2011 was primarily driven by a decrease in one-to-four family residential and commercial real estate TDRs. The decrease in one-to-four family residential TDRs was primarily attributable to certain loans being removed from TDR status as a result of compliance with the contractual terms of the respective modified loan agreements, the payoff of a $3.0 million TDR during the first quarter of 2011 and TDRs entering nonaccrual status; partially offset by an increase in performing TDRs under HAMP of $7.2 million to $70.6 million at September 30, 2011. One-to-four family residential loans restructured under HAMP will be considered TDRs for the life of the respective loans or modification periods as they are being restructured at interest rates lower than current market rates. The decrease in commercial real estate TDRs primarily resulted from the payoff of an $11.1 million TDR and the removal from TDR status of a $6.3 million TDR as a result of compliance with the contractual terms of the modified loan agreement for a sustained period during the first quarter of 2011.

We expect the declining and unstable market conditions associated with our loan portfolio to continue, which will likely continue to impact the overall level of our nonperforming and potential problem loans, loan charge-offs, provision for loan losses and other real estate and repossessed assets balances.

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The following table summarizes the composition of our nonperforming assets by region / business segment at September 30, 2011 and December 31, 2010:

	September 30,		December 31,
	2011		2010
	(dollars expressed in thousands)
Mortgage Division	$	26,490	41,686
Florida		6,993	15,243
Northern California		49,432	62,339
Southern California		88,332	143,522
Chicago		44,628	71,882
Missouri		76,813	99,161
Texas		49,836	60,967
First Bank Business Capital, Inc.		14,304	1,622
Northern and Southern Illinois		26,681	21,372
Other		18,325	21,779
Total nonperforming assets	$	401,834	539,573

During the first nine months of 2011, we experienced a decline in nonperforming assets in most of our regions as a result of payment activity, sales of other real estate properties, charge-offs of loans and write-downs of other real estate properties. The increase in First Bank Business Capital, Inc. of $12.7 million primarily resulted from the addition of a $13.5 million commercial and industrial loan during the second quarter of 2011. We have been successful in reducing the overall level of nonperforming assets as a result of the completion of several initiatives in our Asset Quality Improvement Plan.

Potential Problem Loans. As of September 30, 2011 and December 31, 2010, loans aggregating $297.8 million and $373.1 million, respectively, which were not classified as nonperforming assets and performing TDRs, were identified by management as having potential credit problems, or potential problem loans. These loans are generally defined as loans having an internally assigned grade of substandard and loans in the Mortgage Division which are 30-89 days delinquent. The following table presents the categories of potential problem loans as of September 30, 2011 and December 31, 2010:

	September 30,		December 31,
	2011		2010
	(dollars expressed in thousands)
Commercial, financial and agricultural	$	42,145	100,383
Real estate construction and development		122,332	128,227
Real estate mortgage:
One-to-four family residential		19,757	43,013
Multi-family residential		30,344	5,584
Commercial real estate		83,213	95,933
Total potential problem loans	$	297,791	373,140

The decrease in commercial, financial and agricultural potential problem loans of $58.2 million is primarily attributable to the transfer of two credits with outstanding balances of $13.5 million and $7.3 million, or $20.8 million in aggregate, to nonaccrual status during the first nine months of 2011, in addition to upgrades of certain potential problem credits to special mention status and other loan activity. The decrease in one-to-four family residential potential problem loans of $23.3 million is primarily attributable to improved delinquency trends, upgrades of certain potential problem loans to special mention status and other loan activity. The increase in multi-family residential potential problem loans of $24.8 million is primarily attributable to the transfer of a $26.7 million credit in our Chicago region to potential problem status from special mention status during the first quarter of 2011.

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The following table summarizes the composition of our potential problem loans by region / business segment at September 30, 2011 and December 31, 2010:

	September 30,		December 31,
	2011		2010
	(dollars expressed in thousands)
Mortgage Division	$	7,192	9,859
Florida		7,159	2,783
Northern California		44,485	64,601
Southern California		119,255	106,526
Chicago		40,087	15,030
Missouri		38,702	91,813
Texas		3,700	27,028
First Bank Business Capital, Inc.		6,738	18,992
Northern and Southern Illinois		27,596	32,548
Other		2,877	3,960
Total potential problem loans	$	297,791	373,140

During the first nine months of 2011, we experienced a decline in potential problem loans in most of our regions as a result of payment activity, upgrades of certain loans to special mention status from potential problem status and transfers to nonaccrual status. However, we experienced an increase in potential problem loans in certain regions, including an increase in our Southern California region of $12.7 million that was primarily attributable to a $72.3 million loan relationship classified as a potential problem loan at September 30, 2011. Of the entire relationship of $72.3 million, $39.3 million was transferred to potential problem status from pass and special mention status during the first nine months of 2011. This increase was partially offset by the payoff of a $13.6 million real estate construction and development potential problem loan and other loan activity. In addition, the increase in our Chicago region of $25.1 million is primarily due to the transfer of a $26.7 million multi-family residential real estate loan from special mention status to potential problem status during the first quarter of 2011. We have been successful in reducing the overall level of potential problem loans as a result of the completion of several initiatives in our Asset Quality Improvement Plan.

Our credit risk management policies and procedures, as further described under “—Allowance for Loan Losses,” focus on identifying potential problem loans. Potential problem loans may be identified by the assigned lender, the credit administration department or the internal credit review department. Specifically, the originating loan officers have primary responsibility for monitoring and overseeing their respective credit relationships, including, but not limited to: (a) periodic reviews of financial statements; (b) periodic site visits to inspect and evaluate loan collateral; (c) ongoing communication with primary borrower representatives; and (d) appropriately monitoring and adjusting the risk rating of the respective credit relationships should ongoing conditions or circumstances associated with the relationship warrant such adjustments. In addition, in the current severely weakened economic environment, our credit administration department and our internal credit review department are reviewing all loans with credit exposure over certain thresholds in loan portfolio segments in which we, or other financial institutions, have experienced significant loan charge-offs, such as real estate construction and development and one-to-four family residential real estate loans, and on loan portfolio segments that appear to be most likely to generate additional loan charge-offs in the future, such as commercial real estate. We include adversely rated credits, including potential problem loans, on our monthly loan watch list. Loans on our watch list require regular detailed loan status reports prepared by the responsible officer which are discussed in formal meetings with internal credit review and credit administration staff members that are generally conducted on a quarterly basis. The primary purpose of these meetings is to closely monitor these loan relationships and further develop, modify and oversee appropriate action plans with respect to the ultimate and timely resolution of the individual loan relationships.

Each loan is assigned an FDIC collateral code at the time of origination which provides management with information regarding the nature and type of the underlying collateral supporting all individual loans, including potential problem loans. Upon identification of a potential problem loan, management makes a determination of the value of the underlying collateral via a third party appraisal and/or an assessment of value from our internal appraisal review department. The estimated value of the underlying collateral is a significant factor in the risk rating and allowance for loan losses allocation assigned to potential problem loans.

Potential problem loans are regularly evaluated for impaired loan status by lenders, the credit administration department and the internal credit review department. When management makes the determination that a loan should be considered impaired, an initial specific reserve is allocated to the impaired loan, if necessary, until the loan is charged down to the appraised value of the underlying collateral, typically within 30 to 90 days of becoming impaired. In the current economic environment, management typically utilizes appraisals performed no earlier than 180 days prior to the charge-off, and in most cases, appraisals utilized are dated within 60 days of the charge-off. As such, management typically addresses collateral shortfalls through charge-offs as opposed to recording specific reserves on individual loans. Once a loan is charged down to the appraised value of the underlying collateral, management regularly monitors the carrying value of the loan for any additional deterioration and records additional reserves or charge-offs as necessary. As a general guideline, management orders new appraisals on any impaired loan or other real estate property in which the most recent appraisal is more than 18 months old; however, management also orders new appraisals on impaired loans or other real estate properties in the event circumstances change, such as a rapid change in market conditions in a particular region.

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We continue our efforts to reduce nonperforming and potential problem loans and re-define our overall strategy and business plans with respect to our loan portfolio as deemed necessary in light of ongoing and dramatic changes in market conditions in the markets in which we operate.

Allowance for Loan Losses. Our allowance for loan losses decreased to $157.7 million at September 30, 2011, compared to $201.0 million at December 31, 2010. The decrease in our allowance for loan losses of $43.3 million during the first nine months of 2011 was primarily attributable to the decrease in nonaccrual loans of $128.4 million, the decrease in potential problem loans of $75.3 million and the $989.5 million decrease in the overall level of our loan portfolio.

Our allowance for loan losses as a percentage of loans, net of deferred loan costs (fees), increased to 4.50% at September 30, 2011 from 4.48% at December 31, 2010. Our allowance for loan losses as a percentage of nonperforming loans increased during the first nine months of 2011 to 58.31% at September 30, 2011 from 50.40% at December 31, 2010. The increase in this ratio was primarily attributable to the decrease in nonaccrual loans during the first nine months of 2011, a portion of which did not carry a specific allowance for loan losses as these loans had been charged down to the estimated fair value of the related collateral less estimated costs to sell.

Changes in the allowance for loan losses for the three and nine months ended September 30, 2011 and 2010 were as follows:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2011			2010		2011		2010
	(dollars expressed in thousands)
Allowance for loan losses, beginning of period	$	161,186		241,969		201,033		266,448
Allowance for loan losses allocated to loans sold		—		—		—		(321	)
		161,186		241,969		201,033		266,127
Loans charged-off:
Commercial, financial and agricultural		(9,248	)	(19,763	)	(31,992	)	(40,153	)
Real estate construction and development		(5,944	)	(9,680	)	(25,630	)	(112,111	)
Real estate mortgage:
One-to-four family residential loans:
Bank portfolio		(2,186	)	(1,427	)	(3,750	)	(4,316	)
Mortgage Division portfolio		(4,641	)	(13,443	)	(15,349	)	(40,800	)
Home equity portfolio		(1,762	)	(1,742	)	(5,977	)	(7,021	)
Multi-family residential loans		(60	)	(2,791	)	(2,990	)	(7,249	)
Commercial real estate loans		(2,144	)	(9,190	)	(26,165	)	(33,660	)
Consumer and installment		(89	)	(257	)	(384	)	(772	)
Total		(26,074	)	(58,293	)	(112,237	)	(246,082	)
Recoveries of loans previously charged-off:
Commercial, financial and agricultural		1,559		1,003		5,525		33,967
Real estate construction and development		575		2,611		4,958		4,641
Real estate mortgage:
One-to-four family residential loans:
Bank portfolio		88		87		490		239
Mortgage Division portfolio		455		1,000		2,401		3,336
Home equity portfolio		167		105		440		238
Multi-family residential loans		485		—		528		—
Commercial real estate loans		219		386		2,323		1,207
Consumer and installment		64		183		263		378
Total		3,612		5,375		16,928		44,006
Net loans charged-off		(22,462	)	(52,918	)	(95,309	)	(202,076	)
Provision for loan losses		19,000		37,000		52,000		162,000
Allowance for loan losses, end of period	$	157,724		226,051		157,724		226,051

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Our net loan charge-offs were $22.5 million and $95.3 million for the three and nine months ended September 30, 2011, respectively, compared to $52.9 million and $202.1 million for the three and nine months ended September 30, 2010, respectively. Our annualized net loan charge-offs as a percentage of average loans were 2.46% and 3.23% for the three and nine months ended September 30, 2011, respectively, compared to 4.01% and 4.70% for the three and nine months ended September 30, 2010, respectively.

Changes in our net loan charge-off levels are primarily attributable to the following:

Ø	A decrease in net loan charge-offs associated with our commercial, financial and agricultural portfolio of $11.1 million for the three months ended September 30, 2011, as compared to the three months ended September 30, 2010 and an increase in net loan charge-offs in this portfolio of $20.3 million for the nine months ended September 30, 2011, as compared to the nine months ended September 30, 2010. Specifically in this portfolio, during the nine months ended September 30, 2011, we recorded charge-offs of $4.9 million on a First Bank Business Capital, Inc. loan and $2.6 million on a loan in our Texas region. During the nine months ended September 30, 2010, we recorded a $5.2 million charge-off on a loan relationship with a related operating loss of $13.6 million as further discussed under “—Noninterest Expense” and a $25.0 million recovery on a single credit whereby we had previously recorded aggregate charge-offs of $30.0 million during 2009 on the same credit;
Ø	A decrease in net loan charge-offs of $1.7 million and $86.8 million associated with our real estate construction and development portfolio for the three and nine months ended September 30, 2011, respectively, as compared to the three and nine months ended September 30, 2010. Net loan charge-offs for the nine months ended September 30, 2011 included a $5.7 million charge-off on a loan in our Missouri region. Net loan charge-offs for the nine months ended September 30, 2010 included a $9.7 million charge-off on a loan in our Missouri region and charge-offs of $24.5 million, $11.5 million and $8.0 million, or $44.0 million in aggregate, on three loans in our Southern California region. Although the overall level of charge-offs has declined with the significant decrease in the balance of loans in our real estate construction and development portfolio, we continue to experience significant distress and unstable market conditions throughout our market areas, resulting in continued high levels of developer inventories, slower lot and home sales and declining real estate values;
Ø	A decrease in net loan charge-offs of $8.3 million and $24.5 million associated with our one-to-four family residential Mortgage Division portfolio for the three and nine months ended September 30, 2011, respectively, as compared to the three and nine months ended September 30, 2010. The decrease in net loan charge-offs is reflective of the declining portfolio balance and the substantial decrease in nonaccrual loans throughout 2010 and the first nine months of 2011, in addition to improving delinquency trends; and
Ø	A decrease in net loan charge-offs of $6.9 million and $8.6 million associated with our commercial real estate portfolio for the three and nine months ended September 30, 2011, respectively, as compared to the three and nine months ended September 30, 2010. The decrease in net loan charge-offs for the nine months ended September 30, 2011 is primarily attributable to the declining portfolio balance, in particular non-owner occupied commercial real estate, and decreases in nonaccrual loans, potential problem loans and performing TDRs.

The following table summarizes the composition of our net loan charge-offs (recoveries) by region / business segment for the three and nine months ended September 30, 2011 and 2010:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2011			2010		2011	2010
	(dollars expressed in thousands)
Mortgage Division	$	4,186		12,443		12,947	37,464
Florida		785		2,671		3,337	7,848
Northern California		3,853		3,106		12,453	10,391
Southern California		2,716		2,263		18,992	35,774
Chicago		1,086		5,741		4,429	30,507
Missouri		4,560		8,900		17,807	41,728
Texas		3,158		8,839		12,139	17,854
First Bank Business Capital, Inc.		(63	)	(69	)	4,258	431
Northern and Southern Illinois		601		765		4,772	3,743
Other		1,580		8,259		4,175	16,336
Total net loan charge-offs	$	22,462		52,918		95,309	202,076

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As discussed above, the decrease in net loan charge-offs in our Mortgage Division is reflective of the declining portfolio balance and the substantial decrease in nonaccrual loans throughout 2010 and the first nine months of 2011, in addition to improving delinquency trends. The decrease in net loan charge-offs in our Southern California region was primarily attributable to charge-offs of $24.5 million, $11.5 million and $8.0 million, or $44.0 million in aggregate, on three real estate construction and development loans during the nine months ended September 30, 2010, partially offset by a $25.0 million recovery recorded during the nine months ended September 30, 2010 on a commercial and industrial loan. The decrease in net loan charge-offs in our Chicago region is reflective of a declining portfolio balance and the decrease in nonaccrual loans throughout 2010 and the first nine months of 2011. The decrease in net loan charge-offs in our Missouri region was primarily attributable to charge-offs of $9.7 million and $3.5 million on two real estate construction and development loans and a charge-off of $3.7 million on a commercial real estate loan during the nine months ended September 30, 2010. During the nine months ended September 30, 2011, we recorded a $5.7 million charge-off on a real estate construction and development loan in the Missouri region. The increase in net loan charge-offs in First Bank Business Capital, Inc. was primarily attributable to a $4.9 million charge-off on a commercial and industrial loan during the nine months ended September 30, 2011.

We continue to closely monitor our loan portfolio and address the ongoing challenges posed by the severely weakened economic environment that has directly impacted and continues to impact many of our market segments. Specifically, we continue to focus on loan portfolio segments in which we have experienced significant loan charge-offs, such as real estate construction and development and one-to-four family residential, and on loan portfolio segments that could generate additional loan charge-offs in the future, such as commercial real estate and commercial and industrial. We consider these factors in our overall assessment of the adequacy of our allowance for loan losses.

Each month, the credit administration department provides management with detailed lists of loans on the watch list and summaries of the entire loan portfolio by risk rating. These are coupled with analyses of changes in the risk profile of the portfolio, changes in past-due and nonperforming loans and changes in watch list and classified loans over time. In this manner, we continually monitor the overall increases or decreases in the level of risk in our loan portfolio. Factors are applied to the loan portfolio for each category of loan risk to determine acceptable levels of allowance for loan losses. Furthermore, management has implemented additional procedures to analyze concentrations in our real estate portfolio in light of economic and market conditions. These procedures include enhanced reporting to track land, lot, construction and finished inventory levels within our real estate construction and development portfolio. In addition, a quarterly evaluation of each lending unit is performed based on certain factors, such as lending personnel experience, recent credit reviews, loan concentrations and other factors. Based on this evaluation, changes to the allowance for loan losses may be required due to the perceived risk of particular portfolios. In addition, management exercises a certain degree of judgment in its analysis of the overall adequacy of the allowance for loan losses. In its analysis, management considers the changes in the portfolio, including growth, composition, the ratio of net loans to total assets, and the economic conditions of the regions in which we operate. Based on this quantitative and qualitative analysis, adjustments are made to the allowance for loan losses. Such adjustments are reflected in our consolidated statements of operations.

We record charge-offs on nonperforming loans typically within 30 to 90 days of the credit relationship reaching nonperforming loan status. We measure impairment and the resulting charge-off amount based primarily on third party appraisals. As such, rather than carrying specific reserves on nonperforming loans, we generally recognize a loan loss through a charge to the allowance for loan losses once the credit relationship reaches nonperforming loan status.

The allocation of the allowance for loan losses by loan category is a result of the application of our risk rating system augmented by historical loss data by loan type and other qualitative analysis. Consequently, the distribution of the allowance for loan losses will change from period to period due to the following factors:

Ø	Changes in the aggregate loan balances by loan category;
Ø	Changes in the identified risk in individual loans in our loan portfolio over time, excluding those homogeneous categories of loans such as consumer and installment loans and residential real estate mortgage loans for which risk ratings are changed based on payment performance;
Ø	Changes in historical loss data as a result of recent charge-off experience by loan type; and
Ø	Changes in qualitative factors such as changes in economic conditions, the volume of nonaccrual and potential problem loans by loan category and geographical location and changes in the value of the underlying collateral for collateral-dependent loans.

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A summary of the allowance for loan losses to loans by category as of September 30, 2011 and December 31, 2010 is as follows:

	September 30,		December 31,
	2011		2010
Commercial, financial and agricultural	3.98	%	2.68	%
Real estate construction and development	10.81		11.91
Real estate mortgage:
One-to-four family residential loans	5.62		5.78
Multi-family residential loans	4.52		2.89
Commercial real estate loans	2.76		2.91
Consumer and installment	1.80		2.73
Total	4.50		4.48

The increase in the percentage of the allocated allowance for loan losses to commercial, financial and agricultural loans is reflective of the increase in nonaccrual loans within this portfolio segment of $3.7 million to $71.0 million, or 9.2% of commercial, financial and agricultural loans, at September 30, 2011 as compared to $67.4 million, or 6.4% of commercial, financial and agricultural loans, at December 31, 2010, in addition to an increase in historical loss data associated with this portfolio segment as a result of recent charge-off experience, partially offset by a decrease in potential problem loans of $58.2 million to $42.1 million at September 30, 2011 as compared to $100.4 million at December 31, 2010. The decrease in the percentage of the allocated allowance for loan losses to real estate construction and development, one-to-four family residential and consumer and installment loans is reflective of the decrease in nonaccrual loans and potential problem loans within each of these portfolio segments. The decrease in the percentage of the allocated allowance for loan losses to commercial real estate loans is reflective of the decrease in nonaccrual loans of $62.3 million to $66.9 million, or 5.1% of commercial real estate loans, at September 30, 2011 as compared to $129.2 million, or 7.9% of commercial real estate loans, at December 31, 2010. The increase in the allocated allowance for loan losses to multi-family residential real estate loans is due to the increase in potential problem loans within this portfolio segment of $24.8 million to $30.3 million at September 30, 2011 as compared to $5.6 million at December 31, 2010.

Liquidity Management

First Bank.Our liquidity is the ability to maintain a cash flow that is adequate to fund operations, service debt obligations and meet obligations and other commitments on a timely basis. First Bank receives funds for liquidity from customer deposits, loan payments, maturities of loans and investments, sales of investments and earnings before provision for loan losses. In addition, we may avail ourselves of other sources of funds by issuing certificates of deposit in denominations of $100,000 or more (including certificates issued through the CDARS program), selling securities under agreements to repurchase, and utilizing borrowings from the FHLB, the FRB and other borrowings.

As a financial intermediary, we are subject to liquidity risk. We closely monitor our liquidity position through our Liquidity Management Committee and we continue to implement actions deemed necessary to maintain an appropriate level of liquidity in light of unstable market conditions, changes in loan funding needs, operating and debt service requirements, current deposit trends and events that may occur in conjunction with our Capital Plan. We continue to seek opportunities to improve our overall liquidity position, and have expanded and implemented a more efficient collateral management process that allows us to maximize our overall collateral position related to our alternative borrowing sources. In conjunction with our liquidity management process, we analyze and manage short-term and long-term liquidity through an ongoing review of internal funding sources, projected cash flows from loans, securities and customer deposits, internal and competitor deposit pricing structures and maturity profiles of current borrowing sources. We utilize planning, management reporting and adverse stress scenarios to monitor sources and uses of funds on a daily basis to assess cash levels to ensure adequate funds are available to meet normal business operating requirements and to supplement liquidity needs to meet unusual demands for funds that may result from an unexpected change in customer deposit levels or potential planned or unexpected liquidity events that may arise from time to time.

First Bank built a significant amount of available balance sheet liquidity throughout 2009, 2010 and the first nine months of 2011 in anticipation of the expected completion of certain transactions associated with our Capital Plan, as further described under “—Recent Developments and Other Matters – Capital Plan.” Our cash and cash equivalents were $498.6 million and $995.8 million at September 30, 2011 and December 31, 2010, respectively. The majority of funds were maintained in our correspondent bank account with the FRB. The decrease in our cash and cash equivalents of $497.1 million is further discussed under “—Financial Condition.”

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We are actively increasing our unpledged investment securities portfolio in an effort to improve our net interest income and increase our available liquidity. Our unpledged investment securities increased $927.2 million to $2.15 billion at September 30, 2011, compared to $1.22 billion at December 31, 2010, and are mostly comprised of highly liquid and readily marketable available-for-sale securities. The combined level of cash and cash equivalents and unpledged investment securities provided us with total available liquidity of $2.65 billion and $2.22 billion at September 30, 2011 and December 31, 2010, respectively. As such, despite significant cash outflows to support transactions associated with our Capital Plan and the prepayment of $720.0 million of secured term borrowings during 2010, we have maintained a higher level of available liquidity of $2.65 billion, or 39.0% of total assets, at September 30, 2011. Our ability to maintain strong liquidity was achieved by a substantial shift in our balance sheet from loans to short-term investments and investment securities while substantially maintaining our deposit levels, exclusive of transactions resulting from our Capital Plan. Our loan-to-deposit ratio decreased to 58.9% at September 30, 2011 from 69.6% at December 31, 2010, while the ratio of our cash and cash equivalents and investment securities to total assets increased to 43.1% at September 30, 2011 from 33.7% at December 31, 2010.

During the first nine months of 2011, we reduced the aggregate funds acquired from other sources of funds by $193.7 million to $666.7 million at September 30, 2011, from $860.4 million at December 31, 2010. These other sources of funds include certificates of deposit of $100,000 or more and other borrowings, which are comprised of daily securities sold under agreements to repurchase. The decrease was attributable to a reduction in certificates of deposit of $100,000 or more of $215.1 million, partially offset by an increase in our daily repurchase agreements of $21.4 million. The reduction in certificates of deposit of $100,000 or more was primarily attributable to a planned reduction of higher rate single-service certificate of deposit relationships in an effort to utilize a portion of our current available liquidity and improve First Bank’s leverage ratio. The following table presents the maturity structure of these other sources of funds at September 30, 2011:

	Certificates of
	Deposit of		Other
	$100,000 or More		Borrowings	Total
	(dollars expressed in thousands)
Three months or less	$	188,567	53,112	241,679
Over three months through six months		114,425	—	114,425
Over six months through twelve months		158,538	—	158,538
Over twelve months		152,052	—	152,052
Total	$	613,582	53,112	666,694

In addition to these sources of funds, First Bank has established a borrowing relationship with the FRB. This borrowing relationship, which is secured primarily by commercial loans, provides an additional liquidity facility that may be utilized for contingency liquidity purposes. Advances drawn on First Bank’s established borrowing relationship require the prior approval of the FRB. First Bank did not have any FRB borrowings outstanding at September 30, 2011 or December 31, 2010.

First Bank also has a borrowing relationship with the FHLB. First Bank’s borrowing capacity through its relationship with the FHLB was approximately $389.3 million and $475.1 million at September 30, 2011 and December 31, 2010, respectively. The borrowing relationship is secured by one-to-four family residential, multi-family residential and commercial real estate loans. The reduction in First Bank’s borrowing capacity with the FHLB during the first nine months of 2011 primarily resulted from the corresponding decrease in the loan portfolio during this period, as further described under “—Loans and Allowance for Loan Losses.” First Bank requests advances and/or repays advances from the FHLB based on its current and future projected liquidity needs. All borrowing requests require approval from the FHLB. First Bank did not have any FHLB advances outstanding at September 30, 2011 or December 31, 2010.

As a means of further contingency funding, First Bank may use broker dealers to acquire deposits to fund both short-term and long-term funding needs, including brokered money market accounts, and has available funding, subject to certain limits, through the CDARS program.

We believe First Bank has sufficient liquidity to meet its current and future near-term liquidity needs; however, no assurance can be made that First Bank’s liquidity position will not be materially, adversely affected in the future.

First Banks, Inc. First Banks, Inc. is a separate and distinct legal entity from its subsidiaries. The Company’s liquidity position is affected by dividends received from its subsidiaries and the amount of cash and other liquid assets on hand, payment of interest and dividends on debt and equity instruments issued by the Company (all of which are presently suspended or deferred), capital contributions the Company makes into its subsidiaries, any redemption of debt for cash issued by the Company, and proceeds the Company raises through the issuance of debt and/or equity instruments, if any. The Company’s unrestricted cash totaled $3.2 million and $3.6 million at September 30, 2011 and December 31, 2010, respectively.

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On March 24, 2011, the Company entered into a Revolving Credit Note and a Stock Pledge Agreement with Investors of America Limited Partnership, or Investors of America, LP, as further described in Note 8 and Note 11 to our consolidated financial statements. The agreement provides for a $5.0 million secured revolving line of credit to be utilized for general working capital needs. This borrowing arrangement, which has a maturity date of December 31, 2012 and an interest rate of LIBOR plus 300 basis points, is intended to supplement, if necessary, the parent company’s overall level of unrestricted cash to cover the parent company’s projected operating expenses for the foreseeable future. We cannot be assured of our ability to access future liquidity through debt markets. The Company’s ability to access debt markets on terms satisfactory to us will depend on conditions in the capital markets, economic conditions and a number of other factors, many of which are outside of our control, and on our financial performance. There have not been any advances outstanding on this borrowing arrangement since its inception.

Additional long-term funding is provided by our junior subordinated debentures, as further described in Note 12 to our consolidated financial statements. As of September 30, 2011, we had 13 affiliated Delaware or Connecticut statutory and business trusts that were created for the sole purpose of issuing trust preferred securities. The sole assets of the statutory and business trusts are our junior subordinated debentures.

We agreed, among other things, not to pay any dividends on our common or preferred stock or make any distributions of interest or other sums on ourtrust preferred securities without the prior approval of the FRB, as previously discussed under “—Recent Developments and Other Matters – Regulatory Agreements.”

In August 2009, we announced the deferral of our regularly scheduled interest payments on our outstanding junior subordinated debentures relating to our $345.0 million of trust preferred securities beginning with the regularly scheduled quarterly interest payments that would otherwise have been made in September and October 2009. The terms of the junior subordinated debentures and the related trust indentures allow us to defer such payments of interest for up to 20 consecutive quarterly periods without default or penalty. During the deferral period, we may not, among other things and with limited exceptions, pay cash dividends on or repurchase our common stock or preferred stock nor make any payment on outstanding debt obligations that rank equally with or junior to our junior subordinated debentures. Accordingly, we also suspended the payment of cash dividends on our outstanding common stock and preferred stock beginning with the regularly scheduled quarterly dividend payments on our preferred stock that would otherwise have been made in August and September 2009, as further described in Note 13 to our consolidated financial statements.

The Company’s financial position may be adversely affected if it experiences increased liquidity needs if any of the following events occurs:

Ø	First Bank experiences future net losses and, accordingly, is unable or prohibited by its regulators to pay a dividend to the Company sufficient to satisfy the Company’s operating cash flow needs. The Company’s ability to receive future dividends from First Bank to assist the Company in meeting its operating requirements, both on a short-term and long-term basis, is currently subject to regulatory approval, as further described above and under “—Recent Developments and Other Matters – Regulatory Agreements;”
Ø	We deem it advisable, or are required by regulatory authorities, to use cash maintained by the Company to support the capital position of First Bank;
Ø	First Bank fails to remain “well-capitalized” and, accordingly, First Bank is required to pledge additional collateral against its borrowings and is unable to do so. As discussed above, First Bank has no outstanding borrowings at September 30, 2011 with the exception of $53.1 million of daily repurchase agreements utilized by customers as an alternative deposit product; or
Ø	The Company has difficulty raising cash through the future issuance of debt or equity instruments or by accessing additional sources of credit.

The Company’s financial flexibility may be severely constrained if we are unable to maintain our access to funding or if adequate financing on terms acceptable to us is not available in the marketplace. If we are required to rely more heavily on more expensive funding sources to support our business, our revenues may not increase proportionately to cover our costs. In this case, our operating margins could be materially adversely affected. A lack of liquidity and/or cost-effective funding alternatives could materially adversely affect our business, financial condition and results of operations.

71

Other Commitments and Contractual Obligations. We have entered into long-term leasing arrangements and other commitments and contractual obligations in conjunction with our ongoing operating activities. The required payments under such leasing arrangements, other commitments and contractual obligations at September 30, 2011 were as follows:

	Less Than		1-3	3-5	Over
	1 Year		Years	Years	5 Years	Total (1)
	(dollars expressed in thousands)
Operating leases	$	12,634	18,930	11,824	30,588	73,976
Certificates of deposit (2)		1,293,959	399,544	15,156	84	1,708,743
Other borrowings (2)		53,112	—	—	—	53,112
Subordinated debentures (3)		—	—	—	354,038	354,038
Preferred stock issued under the CPP (3)(4)		—	—	—	310,170	310,170
Other contractual obligations		723	198	6	—	927
Total	$	1,360,428	418,672	26,986	694,880	2,500,966
____________________

(1)	Amounts exclude ASC Topic 740 unrecognized tax liabilities of $1.5 million and related accrued interest expense of $236,000 for which the timing of payment of such liabilities cannot be reasonably estimated as of September 30, 2011.
(2)	Amounts exclude the related accrued interest expense on certificates of deposit and other borrowings of $1.1 million as of September 30, 2011.
(3)	Amounts exclude the accrued interest expense on subordinated debentures and the accrued dividends declared on preferred stock issued under the CPP of $29.6 million and $38.5 million, respectively, as of September 30, 2011. As further described under “¯Recent Developments and Other Matters – Regulatory Agreements,” we currently may not make any distributions of interest or other sums on our subordinated debentures and related underlying trust preferred securities without the prior approval of the FRB.
(4)	Represents amounts payable upon redemption of the Class C Preferred Stock and the Class D Preferred Stock issued under the CPP of $295.4 million and $14.8 million, respectively.

Effects of New Accounting Standards

In January 2010, the FASB issued ASU No. 2010-06 – Fair Value Measurements and Disclosures (ASC Topic 820) – Improving Disclosures about Fair Value Measurements. This ASU amends certain disclosure requirements of Subtopic 820-10, providing additional disclosures for transfers in and out of Levels I and II and for activity in Level III and clarifies certain other existing disclosure requirements including the level of disaggregation and disclosures around inputs and valuation techniques. The final amendments of this ASU were effective for annual or interim periods beginning after December 15, 2009, except for the requirement to provide the Level 3 activity for purchases, sales, issuances, and settlements on a gross basis. This requirement was effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years. The amended ASU does not require disclosures for earlier periods presented for comparative purposes at initial adoption. We implemented the disclosure requirements under this ASU on January 1, 2010, except for the disclosure requirement to provide the Level 3 activity for purchases, sales, issuances, and settlements on a gross basis, which we implemented on January 1, 2011. The implementation of the new disclosure requirements did not have a material impact on our consolidated financial statements or the disclosures presented in our consolidated financial statements.

In January 2011, the FASB issued ASU No. 2011-01 – Receivables (ASC Topic 310) – Deferral of the Effective Date of Disclosures about Troubled Debt Restructurings in Update No. 2010-20. The provisions of ASU No. 2010-20 required the disclosure of more granular information on the nature and extent of troubled debt restructurings and their effect on the allowance for loan and lease losses effective for the Company’s reporting period ended March 31, 2011. The amendments in ASU No. 2011-01 deferred the effective date related to these disclosures, enabling creditors to provide such disclosures after the FASB completed their project clarifying the guidance for determining what constitutes a troubled debt restructuring. As the provisions of this ASU only deferred the effective date of disclosure requirements related to troubled debt restructurings until the adoption of ASU No. 2011-02, the adoption of this ASU did not have a material impact on our consolidated financial statements or results of operations.

In April 2011, the FASB issued ASU No. 2011-02 – Receivables (ASC Topic 310) – A Creditor’s Determination of Whether a Restructuring is a Troubled Debt Restructuring. The provisions of this ASU: provide additional guidance related to determining whether a creditor has granted a concession; include factors and examples for creditors to consider in evaluating whether a restructuring results in a delay in payment that is insignificant; prohibit creditors from using the borrower’s effective rate test to evaluate whether a concession has been granted to the borrower; and add factors for creditors to use in determining whether a borrower is experiencing financial difficulties. A provision in this ASU also ends the deferral of the additional disclosures about troubled debt restructurings as required by ASU No. 2010-20. The provisions of this ASU are effective for the Company’s reporting period ended September 30, 2011. We adopted the requirements of this ASU on July 1, 2011, and applied this guidance to restructurings occurring on or after January 1, 2011. The new guidance did not impact our financial condition, results of operations or the number of TDRs identified.

72

In May 2011, the FASB issued ASU No. 2011-04 – Fair Value Measurement (ASC Topic 820) – Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs. This ASU provides a consistent definition of fair value and common fair value measurement and disclosure requirements between U.S generally accepted accounting principles, or GAAP, and International Financial Reporting Standards, or IFRS. This ASU eliminates wording differences used to describe the requirements for measuring fair value and for disclosure information about fair value measurements between GAAP and IFRS, clarifies the application of existing fair value measurement requirements, and changes certain principles or requirements for measuring fair value or for disclosing information about fair value measurements. The provisions of this ASU are effective for interim and annual periods beginning on or after December 15, 2011, and should be applied prospectively. Early adoption is not permitted. The adoption of this ASU is not expected to have a material impact on our consolidated financial statements or results of operations.

In June 2011, the FASB issued ASU No. 2011-05 – Comprehensive Income (ASC Topic 220) – Presentation of Comprehensive Income. This ASU improves the comparability, consistency, and transparency of financial reporting and increases the prominence of items reported in other comprehensive income. This ASU requires companies to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. This ASU eliminates the option to present the components of other comprehensive income as part of the statement of changes in stockholders’ equity. The amendments of this ASU are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, and should be applied retrospectively. Early adoption is permitted. In October 2011, the FASB announced plans to consider the deferral of certain provisions in ASU No. 2011-05 related to the presentation of reclassification adjustments from other comprehensive income to net income. The adoption of this ASU is not expected to have a material impact on our consolidated financial statements or results of operations.

In September 2011, the FASB issued ASU No. 2011-08 – Intangibles – Goodwill and Other (ASC Topic 350) – Testing of Goodwill for Impairment. This ASU simplifies how entities test goodwill for impairment. The amendments under this ASU permit an entity to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount as a basis for determining whether it is necessary to perform the two-step goodwill impairment test. The more-likely-than-not threshold is defined as having a likelihood of more than 50 percent. If an entity concludes that it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, it would not be required to perform the two-step impairment test for that reporting unit. This ASU does not change the current guidance for testing other indefinite-lived intangible assets for impairment. The amendments of this ASU are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption of this ASU is not expected to have a material impact on our consolidated financial statements or results of operations.

73

ITEM 3–QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The quantitative and qualitative disclosures about market risk are included under “Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations — Interest Rate Risk Management,” appearing on pages 57 through 59 of this report.

ITEM 4–CONTROLS AND PROCEDURES

The Company’s management, including our President and Chief Executive Officer and our Chief Financial Officer, have evaluated the effectiveness of our “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, or the Exchange Act), as of the end of the period covered by this report. Based on such evaluation, our President and Chief Executive Officer and our Chief Financial Officer have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective as of that date to provide reasonable assurance that the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that information required to be disclosed by the Company in the reports its files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its President and Chief Executive Officer and its Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fiscal quarter to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

74

PART II – OTHER INFORMATION

ITEM 1–LEGAL PROCEEDINGS

The information required by this item is set forth in Note 17, Contingent Liabilities, to our consolidated financial statements appearing elsewhere in this report and is incorporated herein by reference.

In the ordinary course of business, we and our subsidiaries become involved in legal proceedings, including litigation arising out of our efforts to collect outstanding loans. It is not uncommon for collection efforts to lead to so-called “lender liability” suits in which borrowers may assert various claims against us. We are not presently party to any legal proceedings the resolution of which we believe would have a material adverse effect on our business, financial condition or results of operations.

The Company and First Bank entered into agreements with the FRB and MDOF, as further described under “Item 2 —Management’s Discussion and Analysis of Financial Condition and Results of Operations —Recent Developments and Other Matters – Regulatory Agreements” and in Note 1 to our consolidated financial statements.

ITEM 1A–RISK FACTORS

Readers of our Quarterly Report on Form 10-Q should consider certain risk factors in conjunction with the other information included in this Quarterly Report on Form 10-Q. Refer to “Item 1A — Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2010 for a discussion of these risks.

ITEM 6–EXHIBITS

The exhibits are numbered in accordance with the Exhibit Table of Item 601 of Regulation S-K.

Exhibit Number	Description
31.1	Rule 13a-14(a) / 15d-14(a) Certifications of Chief Executive Officer – filed herewith.
31.2	Rule 13a-14(a) / 15d-14(a) Certifications of Chief Financial Officer – filed herewith.
32.1	Section 1350 Certifications of Chief Executive Officer – furnished herewith.
32.2	Section 1350 Certifications of Chief Financial Officer – furnished herewith.
101	Financial information from the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2011, formatted in XBRL interactive data files pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations; (iii) Consolidated Statements of Changes in Stockholders’ Equity and Comprehensive Income (Loss); (iv) Consolidated Statements of Cash Flows; and (v) Notes to Consolidated Financial Statements – furnished herewith.

75

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: November 14, 2011

FIRST BANKS, INC.
By:	/s/	Terrance M. McCarthy
		Terrance M. McCarthy
		President and Chief Executive Officer
		(Principal Executive Officer)
By:	/s/	Lisa K. Vansickle
		Lisa K. Vansickle
		Executive Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

76

EX-31.1

EXHIBIT 31.1

CERTIFICATIONSREQUIREDBY
RULE 13a-14(a) OR RULE 15d-14(a)
UNDER THE SECURITIES EXCHANGE ACT OF 1934

I, Terrance M. McCarthy, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q (the “Report”) of First Banks, Inc. (the “Registrant”);
2.	Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;
3.	Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Report;
4.	The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared;
	b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c)	Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and
	d)	Disclosed in this Report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5.	The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
	a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: November 14, 2011

FIRST BANKS, INC.
By:	/s/	Terrance M. McCarthy
		Terrance M. McCarthy
		President and Chief Executive Officer
		(Principal Executive Officer)

77

EX-31.2

EXHIBIT 31.2

CERTIFICATIONSREQUIREDBY
RULE 13a-14(a) OR RULE 15d-14(a)
UNDER THE SECURITIES EXCHANGE ACT OF 1934

I, Lisa K. Vansickle, certify that:

1.	I have reviewed this Quarterly Report on Form 10-Q (the “Report”) of First Banks, Inc. (the “Registrant”);
2.	Based on my knowledge, this Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this Report;
3.	Based on my knowledge, the financial statements, and other financial information included in this Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this Report;
4.	The Registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Registrant and have:
	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this Report is being prepared;
	b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c)	Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this Report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this Report based on such evaluation; and
	d)	Disclosed in this Report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and
5.	The Registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions):
	a)	All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and
	b)	Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting.

Date: November 14, 2011

FIRST BANKS, INC.
By:	/s/	Lisa K. Vansickle
		Lisa K. Vansickle
		Executive Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

78

EX-32.1

EXHIBIT 32.1

CERTIFICATIONS PURSUANT TO
18 U.S.C. SECTION 1350

     I, Terrance M. McCarthy, President and Chief Executive Officer of First Banks, Inc. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that to the best of my knowledge:

(1)	The Quarterly Report on Form 10-Q of the Company for the quarterly period ended September 30, 2011 (the “Report”) fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 14, 2011

By:	/s/	Terrance M. McCarthy
		Terrance M. McCarthy
		President and Chief Executive Officer
		(Principal Executive Officer)

79

EX-32.2

EXHIBIT 32.2

CERTIFICATIONS PURSUANT TO
18 U.S.C. SECTION 1350

     I, Lisa K. Vansickle, Executive Vice President and Chief Financial Officer of First Banks, Inc. (the “Company”), certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that to the best of my knowledge:

(1)	The Quarterly Report on Form 10-Q of the Company for the quarterly period ended September 30, 2011 (the “Report”) fully complies with the requirements of Sections 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: November 14, 2011

By:	/s/	Lisa K. Vansickle
		Lisa K. Vansickle
		Executive Vice President and Chief Financial Officer
		(Principal Financial and Accounting Officer)

80

XML

CONSOLIDATED BALANCE SHEETS [Parenthetical] (USD $) In Thousands, except Share data	Sep. 30, 2011	Dec. 31, 2010
Held-to-maturity securities, fair value (in dollars)	$ 14,605	$ 11,990
Preferred stock, par value (in dollars per share)	$ 1	$ 1
Preferred stock, shares authorized	4,689,830	4,689,830
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value (in dollars per share)	$ 250.00	$ 250.00
Common stock, shares authorized	25,000	25,000
Common stock, shares issued	23,661	23,661
Common stock, shares outstanding	23,661	23,661
Class A Converible Adjustable Rate Preferred Stock
Preferred stock, par value (in dollars per share)	$ 20	$ 20
Preferred stock, shares authorized	750,000	750,000
Preferred stock, shares issued	641,082	641,082
Preferred stock, shares outstanding	641,082	641,082
Class B Adjustable Rate Preferred Stock
Preferred stock, par value (in dollars per share)	$ 1.50	$ 1.50
Preferred stock, shares authorized	200,000	200,000
Preferred stock, shares issued	160,505	160,505
Preferred stock, shares outstanding	160,505	160,505
Class C Fixed Rate Cumulative Perpetual Preferred Stock
Preferred stock, par value (in dollars per share)	$ 1	$ 1
Preferred stock, shares authorized	295,400	295,400
Preferred stock, shares issued	295,400	295,400
Preferred stock, shares outstanding	295,400	295,400
Class D Fixed Rate Cumulative Perpetual Preferred Stock
Preferred stock, par value (in dollars per share)	$ 1	$ 1
Preferred stock, shares authorized	14,770	14,770
Preferred stock, shares issued	14,770	14,770
Preferred stock, shares outstanding	14,770	14,770

XML

CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) (USD $) In Thousands, except Share data	3 Months Ended		9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010	Sep. 30, 2011	Sep. 30, 2010
Interest income:
Interest and fees on loans	$ 43,103	$ 69,480	$ 143,023	$ 220,964
Investment securities	13,013	6,862	32,711	18,566
Federal Reserve Bank and Federal Home Loan Bank stock	340	466	1,075	1,542
Short-term investments	347	841	1,359	2,847
Total interest income	56,803	77,649	178,168	243,919
Interest expense:
Interest-bearing demand	246	343	824	1,070
Savings and money market	2,162	3,661	7,666	11,659
Time deposits of $100 or more	1,934	4,010	7,092	12,479
Other time deposits	3,183	6,320	11,406	20,183
Other borrowings	36	1,251	102	7,194
Subordinated debentures	3,408	3,410	10,076	9,710
Total interest expense	10,969	18,995	37,166	62,295
Net interest income	45,834	58,654	141,002	181,624
Provision for loan losses	19,000	37,000	52,000	162,000
Net interest income after provision for loan losses	26,834	21,654	89,002	19,624
Noninterest income:
Service charges on deposit accounts and customer service fees	10,236	11,044	29,972	31,958
Gain on loans sold and held for sale	2,520	4,081	3,928	7,321
Net gain (loss) on investment securities	4,165	(2)	5,282	553
Net gain (loss) on derivative instruments	7	(849)	(214)	(2,939)
Decrease in fair value of servicing rights	(4,370)	(3,375)	(6,739)	(6,239)
Loan servicing fees	2,035	2,184	6,404	6,742
Other	2,387	3,982	7,673	15,421
Total noninterest income	16,980	17,065	46,306	52,817
Noninterest expense:
Salaries and employee benefits	20,696	22,762	61,861	66,205
Occupancy, net of rental income	6,337	7,235	19,544	21,461
Furniture and equipment	2,875	3,484	9,351	11,023
Postage, printing and supplies	707	745	2,248	2,694
Information technology fees	6,452	6,786	19,560	21,182
Legal, examination and professional fees	2,833	3,372	9,115	9,756
Amortization of intangible assets	728	800	2,327	2,525
Advertising and business development	461	260	1,393	946
FDIC insurance	3,781	5,737	12,919	16,425
Write-downs and expenses on other real estate and repossessed assets	2,551	14,439	12,970	31,945
Other	10,716	22,765	22,974	36,227
Total noninterest expense	58,137	88,385	174,262	220,389
Loss from continuing operations before provision for income taxes	(14,323)	(49,666)	(38,954)	(147,948)
(Benefit) provision for income taxes	(11,581)	5,193	(11,457)	5,346
Net loss from continuing operations, net of tax	(2,742)	(54,859)	(27,497)	(153,294)
Income from discontinued operations, net of tax	0	6,430	696	11,884
Net loss	(2,742)	(48,429)	(26,801)	(141,410)
Less: net loss attributable to noncontrolling interest in subsidiary	(668)	(618)	(1,530)	(1,082)
Net loss attributable to First Banks, Inc.	(2,074)	(47,811)	(25,271)	(140,328)
Preferred stock dividends declared and undeclared	4,506	4,272	13,341	12,650
Accretion of discount on preferred stock	874	853	2,593	2,529
Net loss available to common stockholders	$ (7,454)	$ (52,936)	$ (41,205)	$ (155,507)
Basic and diluted loss per common share from continuing operations (in dollars per share)	$ (315.01)	$ (2,509.02)	$ (1,770.84)	$ (7,074.56)
Basic and diluted earnings per common share from discontinued operations (in dollars per share)	$ 0	$ 271.76	$ 29.42	$ 502.26
Basic and diluted loss per common share (in dollars per share)	$ (315.01)	$ (2,237.26)	$ (1,741.42)	$ (6,572.30)
Weighted average shares of common stock outstanding (in shares)	23,661	23,661	23,661	23,661

XML

CONTINGENT LIABILITIES

9 Months Ended

Sep. 30, 2011

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies Disclosure [Text Block]

NOTE 17–CONTINGENT LIABILITIES

In the ordinary course of business, the Company and its subsidiaries become involved in legal proceedings, including litigation arising out of the Company’s efforts to collect outstanding loans. It is not uncommon for collection efforts to lead to so-called “lender liability” suits in which borrowers may assert various claims against the Company. Management believes the ultimate resolution of these existing proceedings is not reasonably likely to have a material adverse effect on the business, financial condition or results of operations of the Company and/or its subsidiaries.

The Company and First Bank have entered into agreements with the FRB and MDOF, as further described in Note 1 to the consolidated financial statements.

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DOCUMENT AND ENTITY INFORMATION	9 Months Ended
	Sep. 30, 2011	Oct. 31, 2011
Entity Registrant Name	FIRST BANKS, INC
Entity Central Index Key	0000710507
Current Fiscal Year End Date	--12-31
Entity Filer Category	Non-accelerated Filer
Trading Symbol	fbspra
Entity Common Stock, Shares Outstanding		23,661
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Sep. 30, 2011
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2011

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SERVICING RIGHTS

9 Months Ended

Sep. 30, 2011

Servicing Rights [Abstract]

Servicing Rights [Text Block]

NOTE 6–SERVICING RIGHTS

Mortgage Banking Activities. At September 30, 2011 and December 31, 2010, First Bank serviced mortgage loans for others totaling $1.27 billion. Changes in mortgage servicing rights for the three and nine months ended September 30, 2011 and 2010 were as follows:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2011			2010		2011		2010
	(dollars expressed in thousands)
Balance, beginning of period	$	11,739		11,443		12,150		12,130
Originated mortgage servicing rights		617		1,262		2,230		2,721
Change in fair value resulting from changes in valuation inputs or
assumptions used in valuation model (1)		(3,497	)	(2,443	)	(4,572	)	(3,465	)
Other changes in fair value (2)		(470	)	(858	)	(1,419	)	(1,982	)
Balance, end of period	$	8,389		9,404		8,389		9,404
____________________

(1)	The change in fair value resulting from changes in valuation inputs or assumptions used in valuation model primarily reflects the change in discount rates and prepayment speed assumptions, primarily due to changes in interest rates.
(2)	Other changes in fair value reflect changes due to the collection/realization of expected cash flows over time.

Other Servicing Activities. At September 30, 2011 and December 31, 2010, First Bank serviced United States Small Business Administration (SBA) loans for others totaling $182.8 million and $200.4 million, respectively. Changes in SBA servicing rights for the three and nine months ended September 30, 2011 and 2010 were as follows:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2011			2010		2011		2010
	(dollars expressed in thousands)
Balance, beginning of period	$	7,087		7,823		7,432		8,478
Originated SBA servicing rights		—		—		—		63
Change in fair value resulting from changes in valuation inputs or
assumptions used in valuation model (1)		107		100		333		524
Other changes in fair value (2)		(510	)	(174	)	(1,081	)	(1,316	)
Balance, end of period	$	6,684		7,749		6,684		7,749
____________________

(1)	The change in fair value resulting from changes in valuation inputs or assumptions used in valuation model primarily reflects the change in discount rates and prepayment speed assumptions, primarily due to changes in interest rates.
(2)	Other changes in fair value reflect changes due to the collection/realization of expected cash flows over time.

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NOTES PAYABLE AND OTHER BORROWINGS

9 Months Ended

Sep. 30, 2011

Debt Disclosure [Abstract]

Debt Disclosure [Text Block]

NOTE 11–NOTES PAYABLE AND OTHER BORROWINGS 

Notes Payable. On March 24, 2011, the Company entered into a Credit Agreement with Investors of America, LP, as further described in Note 8 to the consolidated financial statements. The agreement provides for a $5.0 million secured revolving line of credit to be utilized for general working capital needs. This borrowing arrangement, which has a maturity date of December 31, 2012 and an interest rate of LIBOR plus 300 basis points, is intended to supplement, if necessary, the parent company’s overall level of unrestricted cash to cover the parent company’s projected operating expenses for the foreseeable future. The parent company’s unrestricted cash was $3.2 million and $3.6 million at September 30, 2011 and December 31, 2010, respectively. There were no balances outstanding with respect to the Credit Agreement as of and for the nine months ended September 30, 2011.

Other Borrowings. Other borrowings were comprised solely of daily securities sold under agreement to repurchase of $53.1 million and $31.8 million at September 30, 2011 and December 31, 2010, respectively.

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DISCONTINUED OPERATIONS AND ASSETS AND LIABILITIES HELD FOR SALE

9 Months Ended

Sep. 30, 2011

Discontinued Operations and Disposal Groups [Abstract]

Disposal Groups, Including Discontinued Operations, Disclosure [Text Block]

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

Discontinued Operations. The assets and liabilities associated with the transactions described (and defined) below were previously reported in the First Bank segment and were sold as part of the Company’s Capital Plan to preserve risk-based capital. The Company applied discontinued operations accounting in accordance with ASC Topic 205-20, “Presentation of Financial Statements – Discontinued Operations,” to the assets and liabilities sold during the second quarter of 2011 related to the Northern Illinois Region as of December 31, 2010, and to the operations of the Northern Illinois, Chicago and Texas Regions, in addition to the operations of WIUS and MVP, for the three and nine months ended September 30, 2011 and 2010, as applicable. 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 is reported on a continuing operations basis, unless otherwise noted.

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.

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.

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.

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.

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.

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 and deferred loan 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

There was no income from discontinued operations for the three months ended September 30, 2011. Income from discontinued operations, net of tax, for the three months ended September 30, 2010 was as follows:

	Three Months Ended September 30, 2010
	Northern
	Illinois			WIUS		Total
	(dollars expressed in thousands)
Interest income:
Interest and fees on loans	$	2,496		—		2,496
Interest expense:
Interest on deposits		1,130		—		1,130
Other borrowings		—		(10	)	(10	)
Total interest expense		1,130		(10	)	1,120
Net interest income		1,366		10		1,376
Provision for loan losses		—		—		—
Net interest income after provision for loan losses		1,366		10		1,376
Noninterest income:
Service charges and customer service fees		704		—		704
Other		11		—		11
Total noninterest income		715		—		715
Noninterest expense:
Salaries and employee benefits		1,170		—		1,170
Occupancy, net of rental income		313		—		313
Furniture and equipment		93		—		93
Legal, examination and professional fees		22		(36	)	(14	)
Amortization of intangible assets		29		—		29
FDIC insurance		441		—		441
Other		200		—		200
Total noninterest expense		2,268		(36	)	2,232
(Loss) income from operations of discontinued operations		(187	)	46		(141	)
Net gain on sale of discontinued operations		6,375		39		6,414
Benefit for income taxes		—		(157	)	(157	)
Net income from discontinued operations, net of tax	$	6,188		242		6,430

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

	Nine Months Ended
	September 30, 2011		Nine Months Ended September 30, 2010
	Northern		Northern
	Illinois		Illinois	Chicago		Texas		WIUS		MVP		Total
	(dollars expressed in thousands)
Interest income:
Interest and fees on loans	$	895	8,950	2,391		1,816		33		—		13,190
Interest expense:
Interest on deposits		261	4,011	2,550		1,796		—		—		8,357
Other borrowings		—	—	—		3		(2	)	—		1
Total interest expense		261	4,011	2,550		1,799		(2	)	—		8,358
Net interest income (loss)		634	4,939	(159	)	17		35		—		4,832
Provision for loan losses		—	—	—		—		—		—		—
Net interest income (loss) after provision
for loan losses		634	4,939	(159	)	17		35		—		4,832
Noninterest income:
Service charges and customer service fees		259	2,309	523		1,192		—		—		4,024
Investment management income		—	—	—		—		—		787		787
Loan servicing fees		5	—	—		101		—		—		101
Other		—	30	254		60		—		(1	)	343
Total noninterest income		264	2,339	777		1,353		—		786		5,255
Noninterest expense:
Salaries and employee benefits		357	3,264	2,137		2,843		32		517		8,793
Occupancy, net of rental income		68	1,077	606		1,148		—		59		2,890
Furniture and equipment		29	344	178		345		—		17		884
Legal, examination and professional fees		6	58	123		111		153		115		560
Amortization of intangible assets		—	289	—		—		—		—		289
FDIC insurance		100	1,565	292		478		—		—		2,335
Other		67	662	424		860		184		29		2,159
Total noninterest expense		627	7,259	3,760		5,785		369		737		17,910
Income (loss) from operations of discontinued
operations		271	19	(3,142	)	(4,415	)	(334	)	49		(7,823	)
Net gain (loss) on sale of discontinued operations		425	6,375	8,414		4,984		(67	)	(156	)	19,550
Benefit for income taxes		—	—	—		—		(157	)	—		(157	)
Net income (loss) from discontinued operations, net
of tax	$	696	6,394	5,272		569		(244	)	(107	)	11,884

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.

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TRANSACTIONS WITH RELATED PARTIES

9 Months Ended

Sep. 30, 2011

Related Party Transactions [Abstract]

Related Party Transactions Disclosure [Text Block]

NOTE 8–TRANSACTIONS WITH RELATED PARTIES 

First Services, L.P. First Services, L.P. (First Services), a limited partnership indirectly owned by the Company’s Chairman and members of his immediate family, provides information technology, item processing and various related services to the Company and First Bank. Fees paid under agreements with First Services were $6.2 million and $18.5 million for the three and nine months ended September 30, 2011, respectively, and $6.4 million and $20.0 million for the comparable periods in 2010. First Services leases information technology and other equipment from First Bank. First Services paid First Bank rental fees for the use of such equipment of $459,000 and $1.5 million during the three and nine months ended September 30, 2011, respectively, and $649,000 and $2.0 million for the comparable periods in 2010. In addition, First Services paid $462,000 and $1.4 million for the three and nine months ended September 30, 2011, respectively, and $463,000 and $1.4 million for the comparable periods in 2010, in rental payments to First Bank for occupancy of certain First Bank premises from which business is conducted.

Effective January 1, 2009, First Services entered into an Affiliate Services Agreement with the Company and First Bank. The Affiliate Services Agreement relates to various services provided to First Services, including certain human resources, payroll, employee benefit and training services, insurance services and vendor payment processing services. Fees accrued under the Affiliate Services Agreement by First Services were $39,000 and $117,000 for the three and nine months ended September 30, 2011, respectively, and $57,000 and $173,000 for the comparable periods in 2010.

First Brokerage America, L.L.C. First Brokerage America, L.L.C. (First Brokerage), a limited liability company indirectly owned by the Company’s Chairman and members of his immediate family, received $1.2 million and $4.1 million for the three and nine months ended September 30, 2011, respectively, and $1.2 million and $3.8 million for the comparable periods in 2010, in gross commissions paid by unaffiliated third-party companies. The commissions received primarily resulted from sales of annuities, securities and other insurance products to customers of First Bank. First Brokerage paid $96,000 and $392,000 for the three and nine months ended September 30, 2011, respectively, and $101,000 and $198,000 for the comparable periods in 2010, to First Bank in rental payments for occupancy of certain First Bank premises from which brokerage business is conducted.

Dierbergs Markets, Inc. First Bank leases certain of its in-store branch offices and automated teller machine (ATM) sites from Dierbergs Markets, Inc., a grocery store chain headquartered in St. Louis, Missouri that is owned and operated by the brother of the Company’s Chairman and members of his immediate family. Total rent expense incurred by First Bank under the lease obligation contracts was $120,000 and $357,000 for the three and nine months ended September 30, 2011, respectively, and $116,000 and $345,000 for the comparable periods in 2010.

First Capital America, Inc. / FB Holdings, LLC. In May 2008, the Company formed FB Holdings, a limited liability company organized in the state of Missouri. FB Holdings operates as a majority-owned subsidiary of First Bank and was formed for the primary purpose of holding and managing certain nonperforming loans and assets to allow the liquidation of such assets at a time that is more economically advantageous to First Bank and to permit an efficient vehicle for the investment of additional capital by the Company’s sole owner of its Class A and Class B preferred stock. During 2008, First Bank contributed cash of $9.0 million and nonperforming loans and assets with a fair value of approximately $133.3 million and FCA contributed cash of $125.0 million to FB Holdings. As a result, First Bank owned 53.23% and FCA owned the remaining 46.77% of FB Holdings as of September 30, 2011. The contribution of cash by FCA is reflected as a component of stockholders’ equity in the consolidated balance sheets and, consequently, increased the Company’s and First Bank’s risk-based capital ratios under then-existing regulatory guidelines, subject to certain limitations.

FB Holdings entered into a Services Agreement with First Bank effective May 2008. The Services Agreement relates to various services provided to FB Holdings by First Bank, including loan servicing and special assets services as well as various other financial, legal, human resources and property management services. Fees paid under the Services Agreement by FB Holdings were $44,000 and $152,000 for the three and nine months ended September 30, 2011, respectively, and $71,000 and $258,000 for the comparable periods in 2010.

Investors of America Limited Partnership. On March 24, 2011, the Company entered into a Revolving Credit Note and a Stock Pledge Agreement (the Credit Agreement) with Investors of America Limited Partnership (Investors of America, LP), as further described in Note 11 to the consolidated financial statements. Investors of America, LP is a Nevada limited partnership that was created by and for the benefit of the Company’s Chairman and members of his immediate family. The agreement provides for a $5.0 million secured revolving line of credit to be utilized for general working capital needs. This borrowing arrangement, which has a maturity date of December 31, 2012 and an interest rate of the London Interbank Offered Rate (LIBOR) plus 300 basis points, is intended to supplement, if necessary, the parent company’s overall level of unrestricted cash to cover the parent company’s projected operating expenses for the foreseeable future. There were no balances outstanding with respect to the Credit Agreement as of and for the nine months ended September 30, 2011.

Loans to Directors and/or their Affiliates. First Bank has had in the past, and may have in the future, loan transactions in the ordinary course of business with its directors and/or their affiliates. Loans to directors, their affiliates and executive officers of the Company were $19.0 million and $9.1 million at September 30, 2011 and December 31, 2010, respectively. First Bank does not extend credit to its officers or to officers of the Company, except extensions of credit secured by mortgages on personal residences, loans to purchase automobiles, personal credit card accounts and deposit account overdraft protection under a plan whereby a credit limit has been established in accordance with First Bank’s standard credit criteria.

Depositary Accounts of Directors and/or their Affiliates. Certain directors and/or their affiliates maintain funds on deposit with First Bank in the ordinary course of business. These deposit transactions include demand, savings and time accounts, and have been established on the same terms, including interest rates, as those prevailing at the time for comparable transactions with unaffiliated persons.

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STOCKHOLDERS' EQUITY

9 Months Ended

Sep. 30, 2011

Stockholders' Equity Note [Abstract]

Stockholders' Equity Note Disclosure [Text Block]

NOTE 13–STOCKHOLDERS’EQUITY 

There is no established public trading market for the Company’s common stock. Various trusts, which were established by and are administered by and for the benefit of the Company’s Chairman of the Board and members of his immediate family, own all of the voting stock of the Company.

The Company has four classes of preferred stock outstanding. The Class A preferred stock is convertible into shares of common stock at a rate based on the ratio of the par value of the preferred stock to the current market value of the common stock at the date of conversion, to be determined by independent appraisal at the time of conversion. Shares of Class A preferred stock may be redeemed by the Company at any time at 105.0% of par value. The Class B preferred stock may not be redeemed or converted. The holders of the Class A and Class B preferred stock have full voting rights. Dividends on the Class A and Class B preferred stock are adjustable quarterly based on the highest of the Treasury Bill Rate or the Ten Year Constant Maturity Rate for the two-week period immediately preceding the beginning of the quarter. This rate shall not be less than 6.0% nor more than 12.0% on the Class A preferred stock, or less than 7.0% nor more than 15.0% on the Class B preferred stock. Effective August 10, 2009, the Company suspended the declaration of dividends on its Class A and Class B preferred stock.

On December 31, 2008, the Company issued 295,400 shares of Class C Preferred Stock and 14,770 shares of Class D Preferred Stock to the U.S. Treasury in conjunction with the U.S. Treasury’s Troubled Asset Relief Program’s Capital Purchase Program (CPP). The Class C Preferred Stock has a par value of $1.00 per share and a liquidation preference of $1,000 per share. The holders of the Class C Preferred Stock have no voting rights except in certain limited circumstances. The Class C Preferred Stock carries an annual dividend rate equal to 5% for the first five years and the annual dividend rate increases to 9% thereafter, payable quarterly in arrears beginning February 15, 2009. The Class D Preferred Stock has a par value of $1.00 per share and a liquidation preference of $1,000 per share. The holders of the Class D Preferred Stock have no voting rights except in certain limited circumstances. The Class D Preferred Stock carries an annual dividend rate equal to 9%, payable quarterly in arrears beginning February 15, 2009. The Class C Preferred Stock and the Class D Preferred Stock qualify as Tier 1 capital. Effective February 17, 2009, the Class C Preferred Stock and the Class D Preferred Stock may be redeemed at any time without penalty and without the need to raise new capital, subject to the U.S. Treasury’s consultation with the Company’s primary regulatory agency. The Class D Preferred Stock may not be redeemed until all of the outstanding shares of the Class C Preferred Stock have been redeemed. In addition, the U.S. Treasury has certain supervisory and oversight duties and responsibilities under the CPP and, pursuant to the terms of the agreement governing the issuance of the Class C Preferred Stock and the Class D Preferred Stock to the U.S. Treasury (Purchase Agreement), the U.S. Treasury is empowered to unilaterally amend any provision of the Purchase Agreement with the Company to the extent required to comply with any changes in applicable federal statutes. As a result of the Company’s deferral of dividends to the U.S. Treasury for an aggregate of six quarters, the U.S. Treasury had the right to elect two directors to the Company’s Board. On July 13, 2011, the U.S. Treasury elected two members to the Company’s Board of Directors, effective immediately.

The Company allocated the total proceeds received under the CPP of $295.4 million to the Class C Preferred Stock and the Class D Preferred Stock based on the relative fair values of the respective classes of preferred stock at the time of issuance. The discount on the Class C Preferred Stock of $17.3 million is being accreted to retained earnings on a level-yield basis over five years. Accretion of the discount on the Class C Preferred Stock was $874,000 and $2.6 million for the three and nine months ended September 30, 2011, respectively, compared to $853,000 and $2.5 million for the comparable periods in 2010.

The redemption of any issue of preferred stock requires the prior approval of the Federal Reserve. Furthermore, the agreement that the Company entered into with the U.S. Treasury associated with the issuance of the Class C Preferred Stock and the Class D Preferred Stock contains limitations on certain actions of the Company, including, but not limited to, payment of dividends and redemptions and acquisitions of the Company’s equity securities. In addition, the Company, under its agreement with the FRB, has agreed, among other things, to provide certain information to the FRB including, but not limited to, notice of plans to materially change its fundamental business and notice to raise additional equity capital. Furthermore, the Company agreed not to pay any dividends on its common or preferred stock without the prior approval of the FRB, as further described in Note 1 to the consolidated financial statements.

On August 10, 2009, the Company began suspending the payment of cash dividends on its outstanding common stock and preferred stock beginning with the regularly scheduled quarterly dividend payments on the preferred stock that would otherwise have been made in August and September 2009. The Company has deferred such payments for nine quarterly periods as of September 30, 2011. The Company has declared and deferred $36.2 million and $24.1 million of its regularly scheduled dividend payments on its Class C Preferred Stock and Class D Preferred Stock, and has declared and accrued an additional $2.3 million and $990,000 of cumulative dividends on such deferred dividend payments at September 30, 2011 and December 31, 2010, respectively.

The following table presents the transactions affecting accumulated other comprehensive income (loss) included in stockholders’ equity for the three and nine months ended September 30, 2011 and 2010:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2011			2010		2011		2010
	(dollars expressed in thousands)
Net loss	$	(2,742	)	(48,429	)	(26,801	)	(141,410	)
Other comprehensive income (loss):
Unrealized gains on available-for-sale investment securities, net of tax		5,644		4,748		29,024		15,926
Reclassification adjustment for available-for-sale investment securities
(gains) losses included in net loss, net of tax		(2,708	)	2		(3,427	)	(359	)
Reclassification adjustment for deferred tax asset valuation allowance
on investment securities (1)		(10,002	)	2,557		2,200		8,382
Change in unrealized gains on derivative instruments, net of tax		—		(1,245	)	—		(3,734	)
Reclassification adjustment for deferred tax asset valuation allowance
on derivative instruments (2)		—		6,146		—		4,806
Amortization of net loss related to pension liability, net of tax		15		64		47		193
Reclassification adjustment for deferred tax asset valuation allowance
on pension liability		12		47		35		140
Comprehensive (loss) income		(9,781	)	(36,110	)	1,078		(116,056	)
Comprehensive loss attributable to noncontrolling interest in
subsidiary		(668	)	(618	)	(1,530	)	(1,082	)
Comprehensive (loss) income attributable to First Banks, Inc.	$	(9,113	)	(35,492	)	2,608		(114,974	)
____________________

(1)

In the third quarter of 2011, the Company recorded an intraperiod tax allocation of $11.6 million between accumulated other comprehensive income and net loss from continuing operations, as further described in Note 14 to the consolidated financial statements.

(2)

In the third quarter of 2010, the Company reclassified an accumulated other comprehensive loss of $6.8 million related to the establishment of a deferred tax asset valuation allowance to its provision for income taxes related to the expiration of the amortization period of the unrealized gain on certain terminated interest rate swap agreements that had been designated as cash flow hedges on certain loans, as further described in Note 14 and Note 16 to the consolidated financial statements.

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REGULATORY CAPITAL

9 Months Ended

Sep. 30, 2011

Banking and Thrift [Abstract]

Regulatory Capital Requirements under Banking Regulations [Text Block]

NOTE 9–REGULATORY CAPITAL

The Company and First Bank are subject to various regulatory capital requirements administered by the federal and state banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by regulators that, if undertaken, could have a direct material effect on the operations and financial condition of the Company and First Bank. Under these capital requirements, the Company and First Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities and certain off-balance sheet items as calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by the regulators about components, risk weightings and other factors. 

Quantitative measures established by regulation to ensure capital adequacy require the Company and First Bank to maintain minimum amounts and ratios of total and Tier 1 capital (as defined in the regulations) to risk-weighted assets, and of Tier 1 capital to average assets.

The Company did not meet the minimum regulatory capital standards established for bank holding companies by the Federal Reserve at September 30, 2011 and December 31, 2010. The Company must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table below in order to meet the minimum capital adequacy standards.

First Bank was categorized as well capitalized at September 30, 2011 and December 31, 2010 under the prompt corrective action provisions of the regulatory capital standards. First Bank must maintain minimum total risk-based, Tier 1 risk-based and Tier 1 leverage ratios as set forth in the table below in order to be categorized as well capitalized. In addition, First Bank is currently required to maintain its Tier 1 capital to total assets ratio at no less than 7.00% in accordance with the provisions of its informal agreement entered into with the MDOF, as further described in Note 1 to the consolidated financial statements. First Bank’s Tier 1 capital to total assets ratio of 8.17% and 7.68% at September 30, 2011 and December 31, 2010, respectively, exceeded the 7.00% minimum level required under the terms of the informal agreement with the MDOF.

As further described in Note 1 to the consolidated financial statements, on August 10, 2009, the Company announced the adoption of its Capital Plan, in order to, among other things, preserve the Company’s risk-based capital levels. The successful completion of all or any portion of the Capital Plan is not assured, and no assurance can be made that the Capital Plan will not be materially modified in the future. If the Company is not able to complete substantially all of the Capital Plan, its regulatory capital ratios may be materially and adversely affected and its ability to withstand continued adverse economic conditions could be threatened.

At September 30, 2011 and December 31, 2010, the Company and First Bank’s required and actual capital ratios were as follows:

											To be Well
											Capitalized
											Under
											Prompt
	Actual								For Capital		Corrective
	September 30, 2011				December 31, 2010 (1)				Adequacy		Action
	Amount		Ratio		Amount		Ratio		Purposes		Provisions
	(dollars expressed in thousands)
Total capital (to risk-weighted assets):
First Banks, Inc.	$	126,832	3.07	%	$	305,006	6.29	%	8.0	%	N/A
First Bank		604,460	14.65			626,976	12.95		8.0		10.0	%
Tier 1 capital (to risk-weighted assets):
First Banks, Inc.		63,416	1.54			152,503	3.15		4.0		N/A
First Bank		551,555	13.37			564,664	11.66		4.0		6.0
Tier 1 capital (to average assets):
First Banks, Inc.		63,416	0.94			152,503	1.99		4.0		N/A
First Bank		551,555	8.22			564,664	7.40		4.0		5.0

____________________

(1)        The decline in First Banks, Inc.’s regulatory capital ratios during the first nine months of 2011 reflects the implementation of new Federal Reserve rules that became effective on March 31, 2011, as further described below. First Banks, Inc.’s total capital (to risk-weighted assets), Tier 1 capital (to risk-weighted assets) and Tier 1 capital (to average assets) at December 31, 2010 would have been 4.53%, 2.27% and 1.44%, respectively, under the new rules if implemented as of December 31, 2010.

In March 2005, the Federal Reserve adopted a final rule, Risk-Based Capital Standards: Trust Preferred Securities and the Definition of Capital, which allows for the continued limited inclusion of trust preferred securities in Tier 1 capital. The Federal Reserve’s final rule limits restricted core capital elements to 25% of the sum of all core capital elements, including restricted core capital elements, net of goodwill less any associated deferred tax liability. Amounts of restricted core capital elements in excess of these limits may generally be included in Tier 2 capital. Specifically, amounts of qualifying trust preferred securities and cumulative perpetual preferred stock in excess of the 25% limit may be included in Tier 2 capital, but will be limited, together with subordinated debt and limited-life preferred stock, to 50% of Tier 1 capital. In addition, the final rule provides that in the last five years before the maturity of the underlying subordinated note, the outstanding amount of the associated trust preferred securities is to be excluded from Tier 1 capital and included in Tier 2 capital, subject to one-fifth amortization per year. The final rule provided for a five-year transition period, ending March 31, 2009, for the application of the quantitative limits. In March 2009, the Federal Reserve adopted a final rule that delayed the effective date for the application of the quantitative limits to March 31, 2011. Until March 31, 2011, the aggregate amount of qualifying cumulative perpetual preferred stock and qualifying trust preferred securities that could be included in Tier 1 capital was limited to 25% of the sum of the following core capital elements: qualifying common stockholders’ equity, qualifying noncumulative and cumulative perpetual preferred stock, qualifying noncontrolling interest in the equity accounts of consolidated subsidiaries and qualifying trust preferred securities. The Company determined that the Federal Reserve’s final rules that became effective on March 31, 2011, if implemented as of December 31, 2010, would have reduced the Company’s total capital (to risk-weighted assets), Tier 1 capital (to risk-weighted assets) and Tier 1 capital (to average assets) to 4.53%, 2.27% and 1.44%, respectively. The final rules that became effective on March 31, 2011 had no impact on First Bank’s regulatory capital ratios.

As noted above, the Company’s capital ratios are below the minimum regulatory capital standards established for bank holding companies, and therefore, the Company could be subject to additional actions by regulators that could have a direct material effect on the operations and financial condition of the Company and First Bank.

The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 restricts new issuances of trust preferred securities from being included as Tier 1 capital for all bank holding companies.

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EARNINGS (LOSS) PER COMMON SHARE

9 Months Ended

Sep. 30, 2011

Earnings Per Share [Abstract]

Earnings Per Share [Text Block]

NOTE 7–EARNINGS (LOSS)PER COMMON SHARE 

The following is a reconciliation of basic and diluted earnings (loss) per share (EPS) for the three and nine months ended September 30, 2011 and 2010:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2011			2010		2011		2010
	(dollars in thousands, except share and per share data)
Basic:
Net loss from continuing operations attributable to First Banks, Inc.	$	(2,074	)	(54,241	)	(25,967	)	(152,212	)
Preferred stock dividends declared and undeclared		(4,506	)	(4,272	)	(13,341	)	(12,650	)
Accretion of discount on preferred stock		(874	)	(853	)	(2,593	)	(2,529	)
Net loss from continuing operations attributable to common stockholders		(7,454	)	(59,366	)	(41,901	)	(167,391	)
Net income from discontinued operations attributable to common
stockholders		—		6,430		696		11,884
Net loss available to First Banks, Inc. common stockholders	$	(7,454	)	(52,936	)	(41,205	)	(155,507	)
Weighted average shares of common stock outstanding		23,661		23,661		23,661		23,661
Basic loss per common share – continuing operations	$	(315.01	)	(2,509.02	)	(1,770.84	)	(7,074.56	)
Basic earnings per common share – discontinued operations	$	—		271.76		29.42		502.26
Basic loss per common share	$	(315.01	)	(2,237.26	)	(1,741.42	)	(6,572.30	)
Diluted:
Net loss from continuing operations attributable to common stockholders	$	(7,454	)	(59,366	)	(41,901	)	(167,391	)
Net income from discontinued operations attributable to common
stockholders		—		6,430		696		11,884
Net loss available to First Banks, Inc. common stockholders		(7,454	)	(52,936	)	(41,205	)	(155,507	)
Effect of dilutive securities:
Class A convertible preferred stock		—		—		—		—
Diluted loss per common share – net loss available to First Banks, Inc.
common stockholders	$	(7,454	)	(52,936	)	(41,205	)	(155,507	)
Weighted average shares of common stock outstanding		23,661		23,661		23,661		23,661
Effect of dilutive securities:
Class A convertible preferred stock		—		—		—		—
Weighted average diluted shares of common stock outstanding		23,661		23,661		23,661		23,661
Diluted loss per common share – continuing operations	$	(315.01	)	(2,509.02	)	(1,770.84	)	(7,074.56	)
Diluted earnings per common share – discontinued operations	$	—		271.76		29.42		502.26
Diluted loss per common share	$	(315.01	)	(2,237.26	)	(1,741.42	)	(6,572.30	)

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CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (USD $) In Thousands	9 Months Ended
	Sep. 30, 2011	Sep. 30, 2010
Cash flows from operating activities:
Net loss attributable to First Banks, Inc.	$ (25,271)	$ (140,328)
Net loss attributable to noncontrolling interest in subsidiary	(1,530)	(1,082)
Less: net income from discontinued operations	696	11,884
Net loss from continuing operations	(27,497)	(153,294)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization of bank premises and equipment	10,756	13,513
Amortization of intangible assets	2,327	2,525
Originations of loans held for sale	(177,527)	(244,475)
Proceeds from sales of loans held for sale	199,224	238,984
Payments received on loans held for sale	141	452
Provision for loan losses	52,000	162,000
Provision (benefit) for current income taxes	455	(323)
Benefit for deferred income taxes	(16,171)	(47,680)
Increase in deferred tax asset valuation allowance	4,259	53,349
Decrease in accrued interest receivable	2,790	3,403
Increase in accrued interest payable	5,382	3,163
Decrease in current income taxes receivable	51	2,484
Gain on loans sold and held for sale	(3,928)	(7,321)
Net gain on investment securities	(5,282)	(553)
Net loss on derivative instruments	214	2,939
Decrease in fair value of servicing rights	6,739	6,239
Write-downs on other real estate and repossessed assets	8,410	23,596
Other operating activities, net	25,347	3,284
Net cash provided by operating activities - continuing operations	87,690	62,285
Net cash provided by operating activities - discontinued operations	984	1,374
Net cash provided by operating activities	88,674	63,659
Cash flows from investing activities:
Net cash paid for sale of assets and liabilities of discontinued operations, net of cash and cash equivalents sold	(51,339)	(1,400,472)
Cash paid for sale of branches, net of cash and cash equivalents sold	(16,256)	(8,408)
Proceeds from sales of investment securities available for sale	283,713	20,103
Maturities of investment securities available for sale	197,721	132,696
Maturities of investment securities held to maturity	538	1,420
Purchases of investment securities available for sale	(1,372,074)	(924,654)
Purchases of investment securities held to maturity	(3,450)	0
Redemptions of Federal Reserve Bank and Federal Home Loan Bank stock	3,398	24,978
Purchases of Federal Reserve Bank and Federal Home Loan Bank stock	(534)	(113)
Proceeds from sales of commercial loans	65,867	34,109
Net decrease in loans	732,727	964,452
Recoveries of loans previously charged-off	16,928	44,006
Purchases of bank premises and equipment	(3,812)	(2,446)
Net proceeds from sales of other real estate and repossessed assets	57,619	63,446
Proceeds from termination of bank-owned life insurance policy	0	25,957
Other investing activities, net	145	3,365
Net cash used in investing activities - continuing operations	(88,809)	(1,021,561)
Net cash provided by investing activities - discontinued operations	2,724	44,287
Net cash used in investing activities	(86,085)	(977,274)
Cash flows from financing activities:
(Decrease) increase in demand, savings and money market deposits	(61,139)	21,782
Decrease in time deposits	(458,026)	(53,267)
Repayments of Federal Home Loan Bank advances	0	(400,000)
Increase in securities sold under agreements to repurchase	21,351	878
Net cash used in financing activities - continuing operations	(497,814)	(430,607)
Net cash used in financing activities - discontinued operations	(1,903)	(60,453)
Net cash used in financing activities	(499,717)	(491,060)
Net decrease in cash and cash equivalents	(497,128)	(1,404,675)
Cash and cash equivalents, beginning of period	995,758	2,518,105
Cash and cash equivalents, end of period	498,630	1,113,430
Supplemental disclosures of cash flow information:
Cash paid during the period for interest on liabilities	31,784	59,132
Cash received during the period for income taxes	(99)	(1,916)
Noncash investing and financing activities:
Loans transferred to other real estate and repossessed assets	52,597	131,014
Bank premises and equipment transferred to other real estate and repossessed assets	$ 6,537	$ 0

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INVESTMENTS IN DEBT AND EQUITY SECURITIES

9 Months Ended

Sep. 30, 2011

Investments, Debt and Equity Securities [Abstract]

Investments in Debt and Marketable Equity Securities (and Certain Trading Assets) Disclosure [Text Block]

NOTE 3–INVESTMENTS IN DEBT AND EQUITY SECURITIES

Securities Available for Sale. The amortized cost, contractual maturity, gross unrealized gains and losses and fair value of investment securities available for sale at September 30, 2011 and December 31, 2010 were as follows:

	Maturity									Total	Gross				Weighted
	1 Year			1-5		5-10		After		Amortized	Unrealized			Fair	Average
	or Less			Years		Years		10 Years		Cost	Gains	Losses		Value	Yield
	(dollars expressed in thousands)
September 30, 2011:
Carrying value:
U.S. Government
sponsored agencies	$	1,000		221,962		147,066		—		370,028	2,709	(9	)	372,728	1.78	%
Residential mortgage-
backed		—		3,082		10,956		1,782,414		1,796,452	42,620	(442	)	1,838,630	2.40
Commercial mortgage-
backed		—		—		821		—		821	108	—		929	5.03
State and political
subdivisions		936		3,948		1,103		—		5,987	264	—		6,251	4.02
Corporate notes		—		106,051		74,459		5,000		185,510	64	(5,615	)	179,959	3.15
Equity investments		—		—		—		11,678		11,678	23	—		11,701	3.41
Total	$	1,936		335,043		234,405		1,799,092		2,370,476	45,788	(6,066	)	2,410,198	2.37
Fair value:
Debt securities	$	1,950		333,720		233,381		1,829,446
Equity securities		—		—		—		11,701
Total	$	1,950		333,720		233,381		1,841,147
Weighted average yield		3.35	%	1.94	%	2.62	%	2.42	%
December 31, 2010:
Carrying value:
U.S. Treasury		$ —		101,478		—		—		101,478	4	(280	)	101,202	0.73	%
U.S. Government
sponsored agencies		—		20,220		—		—		20,220	199	(87	)	20,332	1.70
Residential mortgage-
backed		262		5,646		15,152		1,320,364		1,341,424	9,447	(9,293	)	1,341,578	2.48
Commercial mortgage-
backed		—		—		966		—		966	42	—		1,008	4.19
State and political
subdivisions		2,507		4,031		1,540		—		8,078	309	—		8,387	3.96
Equity investments		—		—		—		10,678		10,678	—	—		10,678	3.41
Total	$	2,769		131,375		17,658		1,331,042		1,482,844	10,001	(9,660	)	1,483,185	2.37
Fair value:
Debt securities	$	2,832		131,600		17,912		1,320,163
Equity securities		—		—		—		10,678
Total	$	2,832		131,600		17,912		1,330,841
Weighted average yield		4.01	%	1.12	%	2.09	%	2.49	%

Securities Held to Maturity. The amortized cost, contractual maturity, gross unrealized gains and losses and fair value of investment securities held to maturity at September 30, 2011 and December 31, 2010 were as follows:

	Maturity									Total	Gross			Weighted
	1 Year			1-5		5-10		After		Amortized	Unrealized		Fair	Average
	or Less			Years		Years		10 Years		Cost	Gains	Losses	Value	Yield
	(dollars expressed in thousands)
September 30, 2011:
Carrying value:
Residential mortgage-
backed	$	—		—		763		619		1,382	122	—	1,504	5.05	%
Commercial mortgage-
backed		—		6,343		—		—		6,343	492	—	6,835	5.34
State and political
subdivisions		1,050		3,376		255		1,534		6,215	51	—	6,266	3.72
Total	$	1,050		9,719		1,018		2,153		13,940	665	—	14,605	4.59
Fair value:
Debt securities	$	1,050		10,239		1,101		2,215
Weighted average yield		1.35	%	4.49	%	4.59	%	6.60	%
December 31, 2010:
Carrying value:
Residential mortgage-
backed	$	—		—		962		912		1,874	132	—	2,006	5.15	%
Commercial mortgage-
backed		—		6,437		—		—		6,437	440	—	6,877	5.16
State and political
subdivisions		—		733		574		1,534		2,841	266	—	3,107	5.66
Total	$	—		7,170		1,536		2,446		11,152	838	—	11,990	5.29
Fair value:
Debt securities	$	—		7,645		1,635		2,710
Weighted average yield		—	%	4.99	%	4.71	%	6.51	%

Proceeds from sales of available-for-sale investment securities were $156.2 million and $283.7 million for the three and nine months ended September 30, 2011, respectively, compared to zero and $20.1 million for the three and nine months ended September 30, 2010. Gross realized gains and gross realized losses on investment securities for the three and nine months ended September 30, 2011 and 2010 were as follows:

	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2011		2010		2011		2010
	(dollars expressed in thousands)
Gross realized gains on sales of available-for-sale securities	$	4,165	—		5,285		556
Gross realized losses on sales of available-for-sale securities		—	—		(1	)	—
Other-than-temporary impairment		—	(2	)	(2	)	(3	)
Net realized gains	$	4,165	(2	)	5,282		553

Investment securities with a carrying value of $263.6 million and $234.9 million at September 30, 2011 and December 31, 2010, respectively, were pledged in connection with deposits of public and trust funds, securities sold under agreements to repurchase and for other purposes as required by law.

Gross unrealized losses on investment securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at September 30, 2011 and December 31, 2010 were as follows:

	Less than 12 months				12 months or more			Total
			Unrealized			Unrealized			Unrealized
	Fair Value		Losses		Fair Value	Losses		Fair Value	Losses
	(dollars expressed in thousands)
September 30, 2011:
Available for sale:
U.S. Government sponsored agencies	$	20,058	(9	)	—	—		20,058	(9	)
Residential mortgage-backed		161,002	(350	)	305	(92	)	161,307	(442	)
Corporate notes		142,128	(5,615	)	—	—		142,128	(5,615	)
Total	$	323,188	(5,974	)	305	(92	)	323,493	(6,066	)
December 31, 2010:
Available for sale:
U.S. Treasury	$	91,193	(280	)	—	—		91,193	(280	)
U.S. Government sponsored agencies		8,731	(87	)	—	—		8,731	(87	)
Residential mortgage-backed		544,657	(9,218	)	341	(75	)	544,998	(9,293	)
Total	$	644,581	(9,585	)	341	(75	)	644,922	(9,660	)

The Company does not believe that the investment securities that were in an unrealized loss position at September 30, 2011 and December 31, 2010 represent other-than-temporary impairment. The unrealized losses on these investment securities were primarily attributable to fluctuations in interest rates. It is expected that the securities would not be settled at a price less than the amortized cost. Because the decline in fair value is attributable to changes in interest rates and not credit loss, and because the Company does not intend to sell these investments and it is more likely than not that First Bank will not be required to sell these securities before the anticipated recovery of the remaining amortized cost basis or maturity, these investments are not considered other-than-temporarily impaired. The unrealized losses for residential mortgage-backed securities for 12 months or more at September 30, 2011 and December 31, 2010 included ten and nine securities, respectively.

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LOANS AND ALLOWANCE FOR LOAN LOSSES

9 Months Ended

Sep. 30, 2011

Receivables [Abstract]

Loans, Notes, Trade and Other Receivables Disclosure [Text Block]

NOTE 4–LOANS AND ALLOWANCE FOR LOAN LOSSES

The following table summarizes the composition of the loan portfolio at September 30, 2011 and December 31, 2010:

	September 30,		December 31,
	2011		2010
	(dollars expressed in thousands)
Commercial, financial and agricultural	$	768,047	1,045,832
Real estate construction and development		303,263	490,766
Real estate mortgage:
One-to-four family residential		920,624	1,050,895
Multi-family residential		128,144	178,289
Commercial real estate		1,320,905	1,642,920
Consumer and installment		25,206	33,623
Loans held for sale		36,595	54,470
Deferred loan costs (fees)		7	(4,511	)
Loans, net of deferred loan costs (fees)	$	3,502,791	4,492,284

Aging of Loans. The following table presents the aging of loans by loan classification at September 30, 2011 and December 31, 2010:

								Recorded
								Investment
	30-59		60-89	90 Days and	Total Past			> 90 Days
	Days		Days	Over	Due	Current	Total Loans	Accruing
	(dollars expressed in thousands)
September 30, 2011:
Commercial, financial and
agricultural	$	1,831	1,842	71,505	75,178	692,869	768,047	470
Real estate construction and
development		562	—	83,632	84,194	219,069	303,263	1,922
One-to-four-family residential:
Bank portfolio		5,812	3,017	16,608	25,437	151,929	177,366	930
Mortgage Division portfolio		5,766	3,916	19,327	29,009	336,270	365,279	—
Home equity		4,031	1,196	8,857	14,084	363,895	377,979	685
Multi-family residential		437	9	7,595	8,041	120,103	128,144	—
Commercial real estate		4,340	3,123	66,967	74,430	1,246,475	1,320,905	47
Consumer and installment		259	117	48	424	24,789	25,213	—
Loan held for sale		—	—	—	—	36,595	36,595	—
Total	$	23,038	13,220	274,539	310,797	3,191,994	3,502,791	4,054
December 31, 2010:
Commercial, financial and
agricultural	$	5,574	7,286	68,274	81,134	964,698	1,045,832	909
Real estate construction and
development		1,523	10,816	137,176	149,515	341,251	490,766	2,932
One-to-four-family residential:
Bank portfolio		5,157	2,296	14,845	22,298	217,065	239,363	366
Mortgage Division portfolio		9,998	4,968	33,386	48,352	363,601	411,953	—
Home equity		5,373	1,658	8,438	15,469	384,110	399,579	1,316
Multi-family residential		16,279	1,670	12,960	30,909	147,380	178,289	—
Commercial real estate		9,391	15,252	129,187	153,830	1,489,090	1,642,920	—
Consumer and installment		515	265	165	945	28,167	29,112	—
Loan held for sale		—	—	—	—	54,470	54,470	—
Total	$	53,810	44,211	404,431	502,452	3,989,832	4,492,284	5,523

Under the Company’s loan policy, loans are placed on nonaccrual status once principal or interest payments become 90 days past due. However, individual loan officers may submit written requests for approval to continue the accrual of interest on loans that become 90 days past due. These requests may be submitted for approval consistent with the authority levels provided in the Company’s credit approval policies, and they are only granted if an expected near term future event, such as a pending renewal or expected payoff, exists at the time the loan becomes 90 days past due. If the expected near term future event does not occur as anticipated, the loan is then placed on nonaccrual status. At September 30, 2011 and December 31, 2010, the Company had $4.1 million and $5.5 million, respectively, of loans past due 90 days or more and still accruing interest.

Credit Quality Indicators. The Company’s credit management policies and procedures focus on identifying, measuring and controlling credit exposure. These procedures employ a lender-initiated system of rating credits, which is ratified in the loan approval process and subsequently tested in internal credit reviews, external audits and regulatory bank examinations. The system requires the rating of all loans at the time they are originated or acquired, except for homogeneous categories of loans, such as residential real estate mortgage loans and consumer loans. These homogeneous loans are assigned an initial rating based on the Company’s experience with each type of loan. The Company adjusts the ratings of the homogeneous loans based on payment experience subsequent to their origination.

The Company includes adversely rated credits, including loans requiring close monitoring that would not normally be considered classified credits by the Company’s regulators, on its monthly loan watch list. Loans may be added to the Company’s watch list for reasons that are temporary and correctable, such as the absence of current financial statements of the borrower or a deficiency in loan documentation. Loans may also be added to the Company’s watch list whenever any adverse circumstance is detected which might affect the borrower’s ability to comply with the contractual terms of the loan. The delinquency of a scheduled loan payment, deterioration in the borrower’s financial condition identified in a review of periodic financial statements, a decrease in the value of the collateral securing the loan, or a change in the economic environment within which the borrower operates could initiate the addition of a loan to the Company’s watch list. Loans on the Company’s watch list require periodic detailed loan status reports prepared by the responsible officer which are discussed in formal meetings with credit review and credit administration staff members. Upgrades and downgrades of loan risk ratings may be initiated by the responsible loan officer. However, upgrades of risk ratings associated with significant credit relationships and/or problem credit relationships may only be made with the concurrence of appropriate regional or senior regional credit officers.

Under the Company’s risk rating system, special mention loans are those loans that do not currently expose the Company to sufficient risk to warrant classification as substandard, troubled debt restructuring (TDR) or nonaccrual, but possess weaknesses that deserve management’s close attention. Substandard loans include those loans characterized by the distinct possibility that the Company will sustain some loss if the deficiencies are not corrected. A loan is classified as a TDR when a borrower is experiencing financial difficulties that lead to the restructuring of a loan, and the Company grants concessions to the borrower in the restructuring that it would not otherwise consider. Loans classified as TDRs which are accruing interest are classified as performing TDRs. Loans classified as TDRs which are not accruing interest are classified as nonperforming TDRs and included with all other nonaccrual loans for presentation purposes. Loans classified as nonaccrual have all the weaknesses inherent in those loans classified as substandard with the added characteristic that the weaknesses present make collection or liquidation in full, on the basis of the currently existing facts, conditions and values, highly questionable and improbable. Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass-rated loans.

The following table presents the credit exposure of the commercial loan portfolio by internally assigned credit grade as of September 30, 2011 and December 31, 2010:

			Real Estate
			Construction
	Commercial		and		Commercial
	and Industrial		Development	Multi-family	Real Estate	Total
	(dollars expressed in thousands)
September 30, 2011:
Pass	$	612,076	79,773	66,864	1,026,115	1,784,828
Special mention		38,272	16,304	20,153	141,956	216,685
Substandard		42,145	122,332	30,344	83,213	278,034
Performing troubled debt restructuring		4,519	3,144	3,188	2,701	13,552
Nonaccrual		71,035	81,710	7,595	66,920	227,260
	$	768,047	303,263	128,144	1,320,905	2,520,359
December 31, 2010:
Pass	$	829,820	151,686	112,369	1,285,902	2,379,777
Special mention		48,264	73,464	47,376	113,469	282,573
Substandard		100,383	128,227	5,584	95,933	330,127
Performing troubled debt restructuring		—	3,145	—	18,429	21,574
Nonaccrual		67,365	134,244	12,960	129,187	343,756
	$	1,045,832	490,766	178,289	1,642,920	3,357,807

The following table presents the credit exposure of the one-to-four family residential mortgage Bank portfolio and home equity portfolio by internally assigned credit grade as of September 30, 2011 and December 31, 2010:

	Bank		Home
	Portfolio		Equity	Total
	(dollars expressed in thousands)
September 30, 2011:
Pass	$	140,307	367,372	507,679
Special mention		10,566	685	11,251
Substandard		10,815	1,750	12,565
Nonaccrual		15,678	8,172	23,850
	$	177,366	377,979	555,345
December 31, 2010:
Pass	$	175,947	389,566	565,513
Special mention		17,358	1,316	18,674
Substandard		31,579	1,575	33,154
Nonaccrual		14,479	7,122	21,601
	$	239,363	399,579	638,942

The following table presents the credit exposure of the one-to-four family residential Mortgage Division portfolio and consumer and installment portfolio by payment activity as of September 30, 2011 and December 31, 2010:

	Mortgage		Consumer
	Division		and
	Portfolio		Installment	Total
	(dollars expressed in thousands)
September 30, 2011:
Pass	$	257,412	25,165	282,577
Substandard		7,192	—	7,192
Performing troubled debt restructuring		81,348	—	81,348
Nonaccrual		19,327	48	19,375
	$	365,279	25,213	390,492
December 31, 2010:
Pass	$	277,379	28,947	306,326
Substandard		9,859	—	9,859
Performing troubled debt restructuring		91,329	—	91,329
Nonaccrual		33,386	165	33,551
	$	411,953	29,112	441,065

Impaired Loans. Loans deemed to be impaired include TDRs and nonaccrual loans. Impaired loans with outstanding balances equal to or greater than $500,000 are evaluated individually for impairment. For these loans, the Company measures the level of impairment based on the present value of the estimated projected cash flows or the estimated value of the collateral. If the current valuation is lower than the current book balance of the loan, the negative difference is evaluated for possible charge-off. In instances where management determines that a charge-off is not appropriate, a specific reserve is established for the individual loan in question. This specific reserve is included as a part of the overall allowance for loan losses.

The following tables present the recorded investment, unpaid principal balance, related allowance for loan losses, average recorded investment and interest income recognized while on impaired status for impaired loans without a related allowance for loan losses and for impaired loans with a related allowance for loan losses by loan classification at September 30, 2011 and December 31, 2010:

			Unpaid	Related	Average	Interest
	Recorded		Principal	Allowance for	Recorded	Income
	Investment		Balance	Loan Losses	Investment	Recognized
	(dollars expressed in thousands)
September 30, 2011:
With No Related Allowance Recorded:
Commercial, financial and agricultural	$	15,622	25,469	—	15,932	268
Real estate construction and development		47,891	53,038	—	63,624	90
Real estate mortgage:
Bank portfolio		5,765	5,821	—	5,436	—
Mortgage Division portfolio		11,707	25,136	—	13,113	—
Home equity portfolio		—	—	—	—	—
Multi-family residential		4,399	4,449	—	4,829	48
Commercial real estate		22,880	28,266	—	32,708	87
Consumer and installment		—	—	—	—	—
		108,264	142,179	—	135,642	493
With A Related Allowance Recorded:
Commercial, financial and agricultural		59,932	98,008	9,338	61,123	—
Real estate construction and development		36,963	57,429	4,996	49,106	53
Real estate mortgage:
Bank portfolio		9,913	10,844	555	9,346	—
Mortgage Division portfolio		88,968	98,039	14,887	99,649	1,885
Home equity portfolio		8,172	8,612	1,634	7,543	—
Multi-family residential		6,384	6,535	581	7,007	—
Commercial real estate		46,741	48,591	6,510	66,819	173
Consumer and installment		48	47	7	72	—
		257,121	328,105	38,508	300,665	2,111
Total:
Commercial, financial and agricultural		75,554	123,477	9,338	77,055	268
Real estate construction and development		84,854	110,467	4,996	112,730	143
Real estate mortgage:
Bank portfolio		15,678	16,665	555	14,782	—
Mortgage Division portfolio		100,675	123,175	14,887	112,762	1,885
Home equity portfolio		8,172	8,612	1,634	7,543	—
Multi-family residential		10,783	10,984	581	11,836	48
Commercial real estate		69,621	76,857	6,510	99,527	260
Consumer and installment		48	47	7	72	—
	$	365,385	470,284	38,508	436,307	2,604
			Unpaid	Related	Average	Interest
	Recorded		Principal	Allowance for	Recorded	Income
	Investment		Balance	Loan Losses	Investment	Recognized
	(dollars expressed in thousands)
December 31, 2010:
With No Related Allowance Recorded:
Commercial, financial and agricultural	$	9,777	29,258	—	9,244	246
Real estate construction and development		40,527	40,997	—	79,408	38
Real estate mortgage:
Bank portfolio		4,141	4,324	—	4,088	—
Mortgage Division portfolio		15,469	34,113	—	15,536	—
Home equity portfolio		—	—	—	—	—
Multi-family residential		5,555	5,702	—	4,833	—
Commercial real estate		54,317	56,983	—	47,881	1,249
Consumer and installment		—	—	—	—	—
		129,786	171,377	—	160,990	1,533
With A Related Allowance Recorded:
Commercial, financial and agricultural		57,588	70,668	6,617	54,448	21
Real estate construction and development		96,862	187,568	10,605	189,790	695
Real estate mortgage:
Bank portfolio		10,338	12,550	372	10,204	—
Mortgage Division portfolio		109,246	117,075	16,746	109,721	3,697
Home equity portfolio		7,122	7,601	1,155	5,302	—
Multi-family residential		7,405	12,349	1,024	6,443	—
Commercial real estate		93,299	120,311	14,329	82,244	—
Consumer and installment		165	165	55	290	—
		382,025	528,287	50,903	458,442	4,413
Total:
Commercial, financial and agricultural		67,365	99,926	6,617	63,692	267
Real estate construction and development		137,389	228,565	10,605	269,198	733
Real estate mortgage:
Bank portfolio		14,479	16,874	372	14,292	—
Mortgage Division portfolio		124,715	151,188	16,746	125,257	3,697
Home equity portfolio		7,122	7,601	1,155	5,302	—
Multi-family residential		12,960	18,051	1,024	11,276	—
Commercial real estate		147,616	177,294	14,329	130,125	1,249
Consumer and installment		165	165	55	290	—
	$	511,811	699,664	50,903	619,432	5,946

Recorded investment represents the Company’s investment in its impaired loans reduced by any charge-offs recorded against the allowance for loan losses on these same loans. At September 30, 2011 and December 31, 2010, the Company had recorded charge-offs of $104.9 million and $187.9 million, respectively, on its impaired loans, representing the difference between the unpaid principal balance and the recorded investment reflected in the table above. The unpaid principal balance represents the principal amount contractually owed to the Company by the borrowers on the impaired loans.

Impaired Loans Acquired in Acquisitions. The outstanding balance and carrying amount of impaired loans acquired in acquisitions was $1.4 million and $314,000, respectively, at December 31, 2010, and $3.0 million and $672,000, respectively, at September 30, 2010. There were no outstanding impaired loans acquired in acquisitions at September 30, 2011 and there were no impaired loans acquired during the three and nine months ended September 30, 2011 and 2010. As the loans were classified as nonaccrual loans, there was no accretable yield related to these loans at December 31, 2010. Changes in the carrying amount of impaired loans acquired in acquisitions for the three and nine months ended September 30, 2011 and 2010 were as follows:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2011			2010		2011		2010
	(dollars expressed in thousands)
Balance, beginning of period	$	94		940		314		1,945
Transfers to other real estate		—		(147	)	(49	)	(517	)
Loans charged-off		(33	)	(159	)	(62	)	(716	)
Payments and settlements		(61	)	38		(203	)	(40	)
Balance, end of period	$	—		672		—		672

Troubled debt restructurings. In the ordinary course of business, the Company modifies loan terms across loan types, including both consumer and commercial loans, for a variety of reasons. Modifications to consumer loans may include, but are not limited to, changes in interest rate, maturity, amortization and financial covenants. In the original underwriting, loan terms are established that represent the then current and projected financial condition of the borrower. Over any period of time, modifications to these loan terms may be required due to changes in the original underwriting assumptions. These changes may include the financial requirements of the borrower as well as underwriting standards. If the modified terms are consistent with competitive market conditions and representative of terms the borrower could otherwise obtain in the open market, the modified loan is not categorized as a TDR.

Loan modifications are generally performed at the request of the individual borrower and may include reduction in interest rates, changes in payments and maturity date extensions. Although the Company does not have formal, standardized loan modification programs for its commercial or consumer loan portfolios, it participates in the U.S. Department of the Treasury’s (U.S. Treasury) Home Affordable Modification Program (HAMP). HAMP gives qualifying homeowners an opportunity to refinance into more affordable monthly payments, with the U.S. Treasury compensating the Company for a portion of the reduction in monthly amounts due from borrowers participating in this program. At September 30, 2011 and December 31, 2010, the Company had $73.4 million and $64.2 million, respectively, of modified loans in HAMP.

For a loan modification to be classified as a TDR, all of the following conditions must be present: (1) the borrower is experiencing financial difficulty, (2) the Company makes a concession to the original contractual loan terms and (3) the Company would not consider the concessions but for economic or legal reasons related to the borrower’s financial difficulty. Modifications of loan terms to borrowers experiencing financial difficulty are made in an attempt to protect as much of the investment in the loan as possible. These modifications are generally made to either prevent a loan from becoming nonaccrual or to return a nonaccrual loan to performing status based on the expectations that the borrower can adequately perform in accordance with the modified terms.

The determination of whether a modification should be classified as a TDR requires significant judgment after taking into consideration all facts and circumstances surrounding the transaction. No single characteristic or factor, taken alone, is determinative of whether a modification should be classified as a TDR. The fact that a single characteristic is present is not considered sufficient to overcome the preponderance of contrary evidence. Assuming all of the TDR criteria are met, the Company considers one or more of the following concessions to the loan terms to represent a TDR: (1) a reduction of the stated interest rate, (2) an extension of the maturity date or dates at a stated interest rate lower than the current market rate for a new loan with similar terms or (3) forgiveness of principal or accrued interest.

Loans renegotiated at a rate equal to or greater than that of a new loan with comparable risk at the time the contract is modified are excluded from TDR classification in the calendar years subsequent to the renegotiation if the loan is in compliance with the modified terms for at least six months.

The Company does not accrue interest on any TDRs unless it believes collection of all principal and interest under the modified terms is reasonably assured. Generally, six months of consecutive payment performance by the borrower under the restructured terms is required before a TDR is returned to accrual status. However, the period could vary depending upon the individual facts and circumstances of the loan. TDRs accruing interest are classified as performing TDRs. The following table presents the categories of performing TDRs as of September 30, 2011 and December 31, 2010:

	September 30,		December 31,
	2011		2010
	(dollars expressed in thousands)
Commercial, financial and agricultural	$	4,519	—
Real estate construction and development		3,144	3,145
Real estate mortgage:
One-to-four family residential		81,348	91,329
Multi-family residential		3,188	—
Commercial real estate		2,701	18,429
Total performing troubled debt restructurings	$	94,900	112,903

The Company does not accrue interest on TDRs which have been modified for a period less than six months or are not in compliance with the modified terms. These loans are considered nonperforming TDRs and are included with other nonaccrual loans for classification purposes. The following table presents the categories of loans considered nonperforming TDRs as of September 30, 2011 and December 31, 2010:

	September 30,		December 31,
	2011		2010
	(dollars expressed in thousands)
Commercial, financial and agricultural	$	1,555	5,432
Real estate construction and development		7,496	9,927
Real estate mortgage:
One-to-four family residential		4,872	4,923
Commercial real estate		8,968	5,909
Total nonperforming troubled debt restructurings	$	22,891	26,191

Both performing and nonperforming TDRs are considered to be impaired loans. When an individual loan is determined to be a TDR, the amount of impairment is based upon the present value of expected future cash flows discounted at the loan’s effective interest rate or the fair value of the underlying collateral less applicable selling costs. The impairment amount is either charged off as a reduction to the allowance for loan losses or provided for as a specific reserve within the allowance for loan losses. The allowance for loan losses allocated to TDRs was $11.2 million and $11.4 million at September 30, 2011 and December 31, 2010, respectively.

The following table presents loans classified as TDRs that were modified during the three and nine months ended September 30, 2011:

	Loan Modifications as Troubled Debt Restructurings
	Three Months Ended September 30, 2011					Nine Months Ended September 30, 2011
	(dollars expressed in thousands)
		Pre-		Post-			Pre-		Post-
		Modification		Modification			Modification		Modification
	Number	Outstanding		Outstanding		Number	Outstanding		Outstanding
	of	Recorded		Recorded		of	Recorded		Recorded
	Contracts	Investment		Investment		Contracts	Investment		Investment
Commercial, financial and agricultural	—	$	—	$	—	3	$	1,945	$	1,945
Real estate construction and development	2		7,372		6,354	2		7,372		6,354
Real estate mortgage:
One-to-four family residential	22		4,374		3,930	94		17,187		16,094
Multi-family residential	1		4,964		3,209	1		4,964		3,209
Commercial real estate	1		259		250	3		9,246		6,022

The following table presents TDRs that defaulted within twelve months of modification during the three and nine months ended September 30, 2011:

	Troubled Debt Restructurings That Subsequently Defaulted
	Three Months Ended			Nine Months Ended
	September 30, 2011			September 30, 2011
	Number of	Recorded		Number of	Recorded
	Contracts	Investment		Contracts	Investment
	(dollars expressed in thousands)
Real estate mortgage:
One-to-four family residential	7	$	1,213	29	$	6,819

Upon default of a TDR, which is considered to be 90 days or more past due under the modified terms, impairment is measured based on the fair value of the underlying collateral less applicable selling costs. The impairment amount is either charged off as a reduction to the allowance for loan losses or provided for as a specific reserve within the allowance for loan losses.

Allowance for Loan Losses. The allowance for loan losses is a reserve for estimated credit losses on individually evaluated loans determined to be impaired as well as estimated credit losses inherent in the loan portfolio, and is based on quarterly evaluations of the collectability and historical loss experience of loans. Actual credit losses, net of recoveries, are deducted from the allowance for loan losses. A provision for loan losses, which is a charge against earnings, is recorded to bring the allowance for loan losses to a level that, in management’s judgment, is appropriate to absorb probable losses in the loan portfolio.

The allocation methodology applied by the Company, designed to assess the appropriateness of the allowance for loan losses, includes an allocation methodology, as well as management’s ongoing review and grading of the loan portfolio into criticized loan categories (defined as specific loans warranting either specific allocation, or a criticized status of special mention, substandard, doubtful or loss). The allocation methodology focuses on evaluation of several factors, including but not limited to: evaluation of facts and circumstances related to specific loans, management’s ongoing review and grading of the loan portfolio, consideration of historical loan loss and delinquency experience within each portfolio category, trends in past due and nonaccrual loans, the level of potential problem loans, the risk characteristics of the various classifications of loans, changes in the size and character of the loan portfolio, concentrations of loans to specific borrowers or industries, existing economic conditions, the fair value of underlying collateral, and other qualitative and quantitative factors which could affect potential credit losses. Because each of the criteria used is subject to change, the allocation of the allowance for loan losses is made for analytical purposes and is not necessarily indicative of the trend of future loan losses in any particular loan category. The total allowance for loan losses is available to absorb losses from any segment of the loan portfolio.

When an individual loan is determined to be impaired, the allowance for loan losses attributable to the loan is allocated based on management’s estimate of the borrower’s ability to repay the loan given the availability of collateral, other sources of cash flows, as well as evaluation of legal options available to the Company. The amount of impairment is measured based upon the present value of expected future cash flows discounted at the loan’s effective interest rate, the fair value of the underlying collateral less applicable selling costs, or the observable market price of the loan. If foreclosure is probable or the loan is collateral dependent, impairment is measured using the fair value of the loan’s collateral, less estimated costs to sell. Large groups of homogeneous loans, such as residential mortgage, home equity and installment loans, are aggregated and collectively evaluated for impairment.

Changes in the allowance for loan losses for the three and nine months ended September 30, 2011 and 2010 were as follows:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2011			2010		2011		2010
	(dollars expressed in thousands)
Balance, beginning of period	$	161,186		241,969		201,033		266,448
Allowance for loan losses allocated to loans sold		—		—		—		(321	)
		161,186		241,969		201,033		266,127
Loans charged-off		(26,074	)	(58,293	)	(112,237	)	(246,082	)
Recoveries of loans previously charged-off		3,612		5,375		16,928		44,006
Net loans charged-off		(22,462	)	(52,918	)	(95,309	)	(202,076	)
Provision for loan losses		19,000		37,000		52,000		162,000
Balance, end of period	$	157,724		226,051		157,724		226,051

The following table represents a summary of changes in the allowance for loan losses by portfolio segment for the three and nine months ended September 30, 2011 in addition to the impairment method used by loan category at September 30, 2011:

				Real Estate
	Commercial			Construction		One-to-Four		Multi-				Consumer
	and			and		Family		Family		Commercial		and
	Industrial			Development		Residential		Residential		Real Estate		Installment		Total
	(dollars expressed in thousands)
Three months ended
September 30, 2011:
Allowance for loan losses:
Beginning balance	$	28,938		35,768		52,609		5,287		38,061		523		161,186
Charge-offs		(9,248	)	(5,944	)	(8,589	)	(60	)	(2,144	)	(89	)	(26,074	)
Recoveries		1,559		575		710		485		219		64		3,612
Provision (benefit) for loan
losses		9,298		2,380		7,014		85		266		(43	)	19,000
Ending balance	$	30,547		32,779		51,744		5,797		36,402		455		157,724
Nine months ended
September 30, 2011:
Allowance for loan losses:
Beginning balance	$	28,000		58,439		60,762		5,158		47,880		794		201,033
Charge-offs		(31,992	)	(25,630	)	(25,076	)	(2,990	)	(26,165	)	(384	)	(112,237	)
Recoveries		5,525		4,958		3,331		528		2,323		263		16,928
Provision (benefit) for loan
losses		29,014		(4,988	)	12,727		3,101		12,364		(218	)	52,000
Ending balance	$	30,547		32,779		51,744		5,797		36,402		455		157,724
Ending balance: individually
evaluated for impairment	$	7,710		3,163		2,855		349		5,006		—		19,083
Ending balance: collectively
evaluated for impairment	$	22,837		29,616		48,889		5,448		31,396		455		138,641
Financing receivables:
Ending balance	$	768,047		303,263		920,624		128,144		1,320,905		25,213		3,466,196
Ending balance: individually
evaluated for impairment	$	56,277		77,809		17,968		10,783		64,098		—		226,935
Ending balance: collectively
evaluated for impairment	$	711,770		225,454		902,656		117,361		1,256,807		25,213		3,239,261
Ending balance: loans acquired
with deteriorated credit
quality	$	—		—		—		—		—		—		—

The following table represents a summary of the allowance for loan losses by portfolio segment at December 31, 2010 in addition to the impairment method used by loan category at December 31, 2010:

			Real Estate
	Commercial		Construction	One-to-Four	Multi-		Consumer
	and		and	Family	Family	Commercial	and
	Industrial		Development	Residential	Residential	Real Estate	Installment	Total
	(dollars expressed in thousands)
December 31, 2010:
Allowance for loan losses	$	28,000	58,439	60,762	5,158	47,880	794	201,033
Ending balance: individually
evaluated for impairment	$	4,690	6,572	4,975	644	9,997	—	26,878
Ending balance: collectively
evaluated for impairment	$	23,310	51,867	55,787	4,514	37,883	794	174,155
Financing receivables:
Ending balance	$	1,045,832	490,766	1,050,895	178,289	1,642,920	29,112	4,437,814
Ending balance: individually
evaluated for impairment	$	44,585	128,797	30,388	12,960	136,254	—	352,984
Ending balance: collectively
evaluated for impairment	$	1,001,247	361,969	1,020,507	165,329	1,506,666	29,112	4,084,830
Ending balance: loans acquired
with deteriorated credit
quality	$	—	—	314	—	—	—	314

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SUBORDINATED DEBENTURES

9 Months Ended

Sep. 30, 2011

Subordinated Borrowings [Abstract]

Subordinated Borrowings Disclosure [Text Block]

NOTE 12–SUBORDINATED DEBENTURES 

The Company has formed or assumed various affiliated Delaware or Connecticut statutory and business trusts (collectively, the Trusts) that were created for the sole purpose of issuing trust preferred securities. The trust preferred securities were issued in private placements, with the exception of First Preferred Capital Trust IV, which was issued in a publicly underwritten offering. The Company owns all of the common securities of the Trusts. The gross proceeds of the offerings were used by the Trusts to purchase variable rate or fixed rate junior subordinated debentures from the Company. The junior subordinated debentures are the sole asset of the Trusts. In connection with the issuance of the trust preferred securities, the Company made certain guarantees and commitments that, in the aggregate, constitute a full and unconditional guarantee by the Company of the obligations of the Trusts under the trust preferred securities. The Company’s distributions accrued on the junior subordinated debentures were $3.4 million and $10.0 million for the three and nine months ended September 30, 2011, respectively, and $3.4 million and $9.7 million for the comparable periods in 2010, and are included in interest expense in the consolidated statements of operations. Deferred issuance costs associated with the Company’s junior subordinated debentures are included as a reduction of junior subordinated debentures in the consolidated balance sheets and are amortized on a straight-line basis to the maturity date of the respective junior subordinated debentures. The structure of the trust preferred securities currently satisfies the regulatory requirements for inclusion, subject to certain limitations, in the Company’s capital base, as further discussed in Note 9 to the consolidated financial statements.

A summary of the junior subordinated debentures issued to the Trusts in conjunction with the trust preferred securities offerings at September 30, 2011 and December 31, 2010 were as follows:

						Trust
				Interest		Preferred		Subordinated
Name of Trust	Issuance Date	Maturity Date	Call Date (1)	Rate (2)		Securities		Debentures
							(dollars expressed in
							thousands)
Variable Rate
First Bank Statutory Trust II	September 2004	September 20, 2034	September 20, 2009	+ 205.0	bp	$	20,000	$	20,619
Royal Oaks Capital Trust I	October 2004	January 7, 2035	January 7, 2010	+ 240.0	bp		4,000		4,124
First Bank Statutory Trust III	November 2004	December 15, 2034	December 15, 2009	+ 218.0	bp		40,000		41,238
First Bank Statutory Trust IV	March 2006	March 15, 2036	March 15, 2011	+ 142.0	bp		40,000		41,238
First Bank Statutory Trust V	April 2006	June 15, 2036	June 15, 2011	+ 145.0	bp		20,000		20,619
First Bank Statutory Trust VI	June 2006	July 7, 2036	July 7, 2011	+ 165.0	bp		25,000		25,774
First Bank Statutory Trust VII	December 2006	December 15, 2036	December 15, 2011	+ 185.0	bp		50,000		51,547
First Bank Statutory Trust VIII	February 2007	March 30, 2037	March 30, 2012	+ 161.0	bp		25,000		25,774
First Bank Statutory Trust X	August 2007	September 15, 2037	September 15, 2012	+ 230.0	bp		15,000		15,464
First Bank Statutory Trust IX	September 2007	December 15, 2037	December 15, 2012	+ 225.0	bp		25,000		25,774
First Bank Statutory Trust XI	September 2007	December 15, 2037	December 15, 2012	+ 285.0	bp		10,000		10,310
Fixed Rate
First Bank Statutory Trust	March 2003	March 20, 2033	March 20, 2008	8.10%			25,000		25,774
First Preferred Capital Trust IV	April 2003	June 30, 2033	June 30, 2008	8.15%			46,000		47,423

____________________

(1)	The junior subordinated debentures are callable at the option of the Company on the call date shown at 100% of the principal amount plus accrued and unpaid interest.
(2)	The interest rates paid on the trust preferred securities are based on either a variable rate or a fixed rate. The variable rate is based on the three-month LIBOR plus the basis point spread shown.

In August 2009, the Company announced the deferral of its regularly scheduled interest payments on its outstanding junior subordinated notes relating to its $345.0 million of trust preferred securities beginning with the regularly scheduled quarterly interest payments that would otherwise have been made in September and October 2009. The terms of the junior subordinated notes and the related trust indentures allow the Company to defer such payments of interest for up to 20 consecutive quarterly periods without default or penalty. The Company has deferred such payments for nine quarterly periods as of September 30, 2011. During the deferral period, the respective trusts will suspend the declaration and payment of dividends on the trust preferred securities. During the deferral period, the Company may not, among other things and with limited exceptions, pay cash dividends on or repurchase its common stock or preferred stock nor make any payment on outstanding debt obligations that rank equally with or junior to the junior subordinated notes. The Company has deferred $27.9 million and $18.8 million of its regularly scheduled interest payments as of September 30, 2011 and December 31, 2010, respectively. In addition, the Company has accrued additional interest expense of $1.5 million and $621,000 as of September 30, 2011 and December 31, 2010, respectively, on the regularly scheduled deferred interest payments based on the interest rate in effect for each junior subordinated note issuance in accordance with the respective terms of the underlying agreements.

Under its agreement with the FRB, the Company agreed, among other things, to provide certain information to the FRB, including, but not limited to, prior notice regarding the issuance of additional trust preferred securities. The Company also agreed not to make any distributions of interest or other sums on its outstanding trust preferred securities without the prior approval of the FRB, as further described in Note 1 to the consolidated financial statements.

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GOODWILL AND OTHER INTANGIBLE ASSETS

9 Months Ended

Sep. 30, 2011

Goodwill and Intangible Assets Disclosure [Abstract]

Goodwill and Intangible Assets Disclosure [Text Block]

NOTE 5–GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and other intangible assets, net of amortization, were comprised of the following at September 30, 2011 and December 31, 2010:

	September 30, 2011				December 31, 2010
	Gross				Gross
	Carrying		Accumulated		Carrying	Accumulated
	Amount		Amortization		Amount	Amortization
	(dollars expressed in thousands)
Amortized intangible assets:
Core deposit intangibles (1)	$	17,074	(16,314	)	20,594	(17,507	)
Unamortized intangible assets:
Goodwill (2)	$	125,967			125,967
____________________

(1)	The gross carrying amount and accumulated amortization for core deposit intangibles at December 31, 2010 have been reduced by $617,000 and $559,000, respectively, or a net of $58,000, related to discontinued operations, as further described in Note 2 to the consolidated financial statements.
(2)	Goodwill at December 31, 2010 has been reduced by $2.0 million, related to discontinued operations and assets held for sale, as further described below and in Note 2 to the consolidated financial statements.

The Company allocated goodwill to the sales of the remaining branches in the Northern Illinois Region and the Edwardsville Branch of $1.5 million and $500,000, respectively, based on the relative fair values of the operations disposed of during 2011 and the portion of the First Bank segment that will be retained. The allocation of goodwill to the sale of the remaining branches in the Northern Illinois Region reduced the gain on sale of discontinued operations during the nine months ended September 30, 2011. The allocation of goodwill to the sale of the Edwardsville Branch reduced other income during the nine months ended September 30, 2011. The Company did not allocate any goodwill to the sale of the San Jose Branch.

Core deposit intangibles of $58,000 related to the sale of the remaining branches in the Northern Illinois Region were included in assets of discontinued operations at December 31, 2010 and reduced the gain on sale of discontinued operations during the nine months ended September 30, 2011.

Amortization of intangible assets was $728,000 and $2.3 million for the three and nine months ended September 30, 2011, respectively, compared to $800,000 and $2.5 million for the comparable periods in 2010. Amortization of core deposit intangibles has been estimated in the following table.

	(dollars expressed
	in thousands)
Year ending December 31:
2011 remaining	$	296
2012		464
Total	$	760

Changes in the carrying amount of goodwill for the three and nine months ended September 30, 2011 and 2010 were as follows:

	Three Months Ended			Nine Months Ended
	September 30,			September 30,
	2011		2010	2011	2010
	(dollars expressed in thousands)
Balance, beginning of period	$	125,967	127,967	125,967	136,967
Goodwill allocated to sale transactions (1)		—	—	—	(9,000	)
Balance, end of period	$	125,967	127,967	125,967	127,967
____________________

(1)        Goodwill allocated to sale transactions pertains to the sale of a portion of the Northern Illinois Region in September 2010, as further described in Note 2 to the consolidated financial statements.

The Company’s annual measurement date for its goodwill impairment test is December 31. The Company engaged an independent valuation firm to assist in computing the fair value estimate for the impairment assessment by utilizing two separate valuation methodologies and applying a weighted average to each methodology in order to determine fair value for its single reporting unit, First Bank. The valuation methodologies utilized a comparison of the average price to book value of comparable businesses and a discounted cash flow valuation technique. Taking into account this independent third party valuation, the Company concluded that the carrying value of its single reporting unit exceeded its estimated fair value at December 31, 2010.

Because the carrying value of the Company’s reporting unit exceeded the estimated fair value at December 31, 2010, the Company engaged the same independent valuation firm to assist in computing the fair value of First Bank’s assets and liabilities in order to determine the implied fair value of First Bank’s goodwill at December 31, 2010. Management compared the implied fair value of First Bank’s goodwill, as determined by the independent valuation firm, with its carrying value. Taking into account the results of the goodwill impairment analysis performed for the year ended December 31, 2010, First Bank did not record goodwill impairment.

As a result of continued adversity in the Company’s business climate, the Company performed an interim period goodwill impairment analysis as of September 30, 2011. The Step 1 analysis of the interim goodwill impairment test indicated the carrying amount of the Company’s single reporting unit exceeded the estimated fair value. Therefore, Step 2 testing was required. The Company determined, as a result of the Step 2 analysis, that the goodwill assigned to the Company’s single reporting unit was not impaired as of September 30, 2011.

The Company believes the estimates and assumptions utilized in the goodwill impairment test are reasonable. However, further deterioration in the outlook for credit quality or other factors could impact the estimated fair value of the single reporting unit as determined under Step 1 of the goodwill impairment test. A decrease in the estimated fair value of the reporting unit would decrease the implied fair value of goodwill as further determined under Step 2 of the goodwill impairment test. Step 2 of the goodwill impairment test compared the implied fair value of goodwill with the carrying value of goodwill. The implied fair value of goodwill is determined in the same manner as the determination of the amount of goodwill recognized in a business combination. The fair value of a reporting unit is allocated to all of the assets and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business combination and the fair value of the reporting unit was the price paid to acquire the reporting unit. The fair value allocated to all of the assets and liabilities of the reporting unit requires significant judgment, especially for those assets and liabilities that are not measured on a recurring basis such as certain types of loans. The excess of the estimated fair value of the reporting unit over the amounts assigned to its assets and liabilities is the implied fair value of goodwill.

The estimated fair value assigned to loans significantly affected the determination of the implied fair value of First Bank’s goodwill at September 30, 2011 and December 31, 2010. The implied fair value of a reporting unit’s goodwill will generally increase if the estimated fair value of the reporting unit’s loans is less than the carrying value of the reporting unit’s loans. The estimated fair value of the reporting unit’s loans was derived from discounted cash flow analyses. Loans were grouped into loan pools based on similar characteristics such as maturity, payment type and payment frequency, and rate type and underlying index. These cash flow calculations include assumptions for prepayment estimates over the loan’s remaining life, considerations for the current interest rate environment compared to the weighted average rate of the loan portfolio, a credit risk component based on the historical and expected performance of each loan portfolio stratum and a liquidity adjustment related to the current market environment. To the extent any of these assumptions change in the future, the implied fair value of the reporting unit’s goodwill could change materially. A decrease in the discount rate utilized in deriving the estimated fair value of the reporting unit’s loans would decrease the implied fair value of goodwill.

The estimated fair value assigned to the core deposit intangible, or First Bank’s deposit base, also significantly affected the determination of the implied fair value of First Bank’s goodwill at September 30, 2011 and December 31, 2010. The implied fair value of a reporting unit’s goodwill will generally decrease by the estimated fair value assigned to the reporting unit’s core deposit intangible. The estimated fair value of the core deposit intangible was derived from discounted cash flow analyses with considerations for estimated deposit runoff, cost of the deposit base, interest costs, net maintenance costs and the cost of alternative funds. The resulting estimate of the fair value of the core deposit intangible represents the present value of the difference in cash flows between maintaining the existing deposits and obtaining alternative funds over the life of the deposit base. To the extent any of these assumptions used to determine the estimated fair value of the core deposit intangible change in the future, the implied fair value of the reporting unit’s goodwill could change materially.

Due to the recent economic environment and the uncertainties regarding the impact on First Bank, there can be no assurance that the Company’s estimates and assumptions made for the purposes of the goodwill impairment testing will prove to be accurate predictions in the future. Adverse changes in the economic environment, First Bank’s operations, or other factors could result in a decline in the implied fair value of First Bank, which could result in the recognition of future goodwill impairment that may materially affect the carrying value of First Bank’s assets and its related operating results.

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FAIR VALUE DISCLOSURES

9 Months Ended

Sep. 30, 2011

Fair Value Disclosures [Abstract]

Fair Value Disclosures [Text Block]

NOTE 15–FAIR VALUE DISCLOSURES

In accordance with ASC Topic 820, “Fair Value Measurements and Disclosures,” financial assets and financial liabilities that are measured at fair value subsequent to initial recognition are grouped into three levels of inputs or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the reliability of assumptions used to determine fair value. The three input levels of the valuation hierarchy are as follows:

Level 1 Inputs –	Valuation is based on quoted prices in active markets for identical instruments in active markets.
Level 2 Inputs –	Valuation is based on quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable.
Level 3 Inputs –	Valuation is generated from model-based techniques that use at least one significant assumption not observable in the market. These unobservable assumptions reflect estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.

The following describes valuation methodologies used to measure financial assets and financial liabilities at fair value, as well as the general classification of such financial instruments pursuant to the valuation hierarchy:

Available-for-sale investment securities. Available-for-sale investment securities are recorded at fair value on a recurring basis. Available-for-sale investment securities included in Level 1 are valued using quoted market prices. Where quoted market prices are unavailable, the fair value included in Level 2 is based on quoted market prices of comparable instruments obtained from independent pricing vendors based on recent trading activity and other relevant information.

Loans held for sale. Mortgage loans held for sale are carried at fair value on a recurring basis. The determination of fair value is based on quoted market prices of comparable instruments obtained from independent pricing vendors based on recent trading activity and other relevant information. Other loans held for sale are carried at the lower of cost or market value, which is determined on an individual loan basis. The fair value is based on the prices secondary markets are offering for portfolios with similar characteristics. The Company classifies mortgage loans held for sale subjected to recurring fair value adjustments as recurring Level 2. The Company classifies other loans held for sale subjected to nonrecurring fair value adjustments as nonrecurring Level 2.

Loans. The Company does not record loans at fair value on a recurring basis. However, from time to time, a loan is considered impaired and an allowance for loan losses is established. Loans are considered impaired when, in the judgment of management based on current information and events, it is probable that payment of all amounts due under the contractual terms of the loan agreement will not be collected. Acquired impaired loans are classified as nonaccrual loans and are initially measured at fair value with no allocated allowance for loan losses. An allowance for loan losses is recorded to the extent there is further credit deterioration subsequent to acquisition date. In accordance with ASC Topic 820, impaired loans where an allowance is established based on the fair value of collateral require classification in the fair value hierarchy. Once a loan is identified as impaired, management measures the impairment in accordance with ASC Topic 310-10-35, “Receivables.” Impairment is measured by reference to an observable market price, if one exists, the expected future cash flows of an impaired loan discounted at the loan’s effective interest rate, or the fair value of the collateral for a collateral-dependent loan. In most cases, the Company measures fair value based on the value of the collateral securing the loan. Collateral may be in the form of real estate or personal property, including equipment and inventory. The vast majority of the collateral is real estate. The value of the collateral is determined based on third party appraisals as well as internal estimates. These measurements are classified as Level 3.

Derivative instruments. Substantially all derivative instruments utilized by the Company are traded in over-the-counter markets where quoted market prices are not readily available. Derivative instruments utilized by the Company include interest rate swap agreements, interest rate floor and cap agreements, interest rate lock commitments and forward commitments to sell mortgage-backed securities. For these derivative instruments, fair value is based on market observable inputs utilizing pricing systems and valuation models, and where applicable, the values are compared to the market values calculated independently by the respective counterparties. The Company classifies its derivative instruments as Level 2.

Servicing rights. Servicing rights are valued based on valuation models that utilize assumptions based on the predominant risk characteristics of the underlying loans, including principal balance, interest rate, weighted average life, cost to service and estimated prepayment speeds. The valuation models estimate the present value of estimated future net servicing income. The Company classifies its servicing rights as Level 3.

Nonqualified Deferred Compensation Plan. The Company’s nonqualified deferred compensation plan is recorded at fair value on a recurring basis. The unfunded plan allows participants to hypothetically invest in various specified investment options such as equity funds, international stock funds, capital appreciation funds, money market funds, bond funds, mid-cap value funds and growth funds. The nonqualified deferred compensation plan liability is valued based on quoted market prices of the underlying investments. The Company classifies its nonqualified deferred compensation plan liability as Level 1.

Items Measured on a Recurring Basis. Assets and liabilities measured at fair value on a recurring basis as of September 30, 2011 and December 31, 2010 are reflected in the following table:

	Fair Value Measurements
	Level 1		Level 2		Level 3	Fair Value
	(dollars expressed in thousands)
September 30, 2011:
Assets:
Available-for-sale investment securities:
U.S. Government sponsored agencies	$	—	372,728		—	372,728
Residential mortgage-backed		—	1,838,630		—	1,838,630
Commercial mortgage-backed		—	929		—	929
State and political subdivisions		—	6,251		—	6,251
Corporate notes		—	179,959		—	179,959
Equity investments		1,023	10,678		—	11,701
Mortgage loans held for sale		—	36,595		—	36,595
Derivative instruments:
Customer interest rate swap agreements		—	518		—	518
Interest rate lock commitments		—	2,707		—	2,707
Forward commitments to sell mortgage-backed securities		—	(1,569	)	—	(1,569	)
Servicing rights		—	—		15,073	15,073
Total	$	1,023	2,447,426		15,073	2,463,522
Liabilities:
Derivative instruments:
Interest rate swap agreements	$	—	1,189		—	1,189
Customer interest rate swap agreements		—	432		—	432
Nonqualified deferred compensation plan		6,693	—		—	6,693
Total	$	6,693	1,621		—	8,314
December 31, 2010:
Assets:
Available-for-sale investment securities:
U.S. Treasury	$	101,202	—		—	101,202
U.S. Government sponsored agencies		—	20,332		—	20,332
Residential mortgage-backed		—	1,341,578		—	1,341,578
Commercial mortgage-backed		—	1,008		—	1,008
State and political subdivisions		—	8,387		—	8,387
Equity investments		—	10,678		—	10,678
Mortgage loans held for sale		—	54,470		—	54,470
Derivative instruments:
Customer interest rate swap agreements		—	792		—	792
Interest rate lock commitments		—	276		—	276
Forward commitments to sell mortgage-backed securities		—	1,538		—	1,538
Servicing rights		—	—		19,582	19,582
Total	$	101,202	1,439,059		19,582	1,559,843
Liabilities:
Derivative instruments:
Interest rate swap agreements	$	—	2,402		—	2,402
Customer interest rate swap agreements		—	636		—	636
Nonqualified deferred compensation plan		7,790	—		—	7,790
Total	$	7,790	3,038		—	10,828

There were no transfers between Levels 1 and 2 of the fair value hierarchy for the three and nine months ended September 30, 2011.

The following table presents the changes in Level 3 assets measured on a recurring basis for the three and nine months ended September 30, 2011 and 2010:

	Servicing Rights
	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2011			2010		2011		2010
	(dollars expressed in thousands)
Balance, beginning of period	$	18,826		19,266		19,582		20,608
Total gains or losses (realized/unrealized):
Included in earnings (1)		(4,370	)	(3,375	)	(6,739	)	(6,239	)
Included in other comprehensive income (loss)		—		—		—		—
Issuances		617		1,262		2,230		2,784
Transfers in and/or out of level 3		—		—		—		—
Balance, end of period	$	15,073		17,153		15,073		17,153
____________________

(1) Gains or losses (realized/unrealized) are included in noninterest income in the consolidated statements of operations.

Items Measured on a Nonrecurring Basis. From time to time, the Company measures certain assets at fair value on a nonrecurring basis. These include assets that are measured at the lower of cost or market value that were recognized at fair value below cost at the end of the period. Assets measured at fair value on a nonrecurring basis as of September 30, 2011 and December 31, 2010 are reflected in the following table:

	Fair Value Measurements
	Level 1		Level 2	Level 3	Fair Value
	(dollars expressed in thousands)
September 30, 2011:
Assets:
Impaired loans:
Commercial, financial and agricultural	$	—	—	66,216	66,216
Real estate construction and development		—	—	79,858	79,858
Real estate mortgage:
Bank portfolio		—	—	15,123	15,123
Mortgage Division portfolio		—	—	85,788	85,788
Home equity portfolio		—	—	6,538	6,538
Multi-family residential		—	—	10,202	10,202
Commercial real estate		—	—	63,111	63,111
Consumer and installment		—	—	41	41
Other real estate and repossessed assets		—	—	131,349	131,349
Total	$	—	—	458,226	458,226
December 31, 2010:
Assets:
Impaired loans:
Commercial, financial and agricultural	$	—	—	60,748	60,748
Real estate construction and development		—	—	126,784	126,784
Real estate mortgage:
Bank portfolio		—	—	14,107	14,107
Mortgage Division portfolio		—	—	107,969	107,969
Home equity portfolio		—	—	5,967	5,967
Multi-family residential		—	—	11,936	11,936
Commercial real estate		—	—	133,287	133,287
Consumer and installment		—	—	110	110
Other real estate and repossessed assets		—	—	140,665	140,665
Total	$	—	—	601,573	601,573

Non-Financial Assets and Non-Financial Liabilities. Certain non-financial assets measured at fair value on a non-recurring basis include other real estate (upon initial recognition or subsequent impairment), non-financial assets and non-financial liabilities measured at fair value in the second step of a goodwill impairment test, and intangible assets and other non-financial long-lived assets measured at fair value for impairment assessment.

Certain other real estate, upon initial recognition, was re-measured and reported at fair value through a charge-off to the allowance for loan losses based upon the estimated fair value of the other real estate. The fair value of other real estate, upon initial recognition, is estimated using Level 3 inputs based on third-party appraisals, and where applicable, discounted based on management’s judgment taking into account current market conditions, distressed or forced sale price comparisons and other factors in effect at the time of valuation. Other real estate and repossessed assets measured at fair value upon initial recognition totaled $52.6 million and $131.0 million for the nine months ended September 30, 2011 and 2010, respectively. In addition to other real estate and repossessed assets measured at fair value upon initial recognition, the Company recorded write-downs to the balance of other real estate and repossessed assets of $1.6 million and $8.4 million to noninterest expense for the three and nine months ended September 30, 2011, respectively, compared to $12.7 million and $23.6 million for the comparable periods in 2010. Other real estate and repossessed assets were $131.3 million at September 30, 2011, compared to $140.7 million at December 31, 2010.

Fair Value of Financial Instruments. The fair value of financial instruments is management’s estimate of the values at which the instruments could be exchanged in a transaction between willing parties. These estimates are subjective and may vary significantly from amounts that would be realized in actual transactions. In addition, other significant assets are not considered financial assets including servicing assets, deferred income tax assets, bank premises and equipment and goodwill and other intangible assets. Furthermore, the income taxes that would be incurred if the Company were to realize any of the unrealized gains or unrealized losses indicated between the estimated fair values and corresponding carrying values could have a significant effect on the fair value estimates and have not been considered in any of the estimates.

The following summarizes the methods and assumptions used in estimating the fair value of all other financial instruments:

Cash and cash equivalents and accrued interest receivable:The carrying values reported in the consolidated balance sheets approximate fair value.

Held-to-maturity investment securities: The fair value of held-to-maturity investment securities is based on quoted market prices where available. If quoted market prices are not available, the fair value is based on quoted market prices of comparable instruments.

Loans: The fair value of loans held for portfolio uses an exit price concept and reflects discounts the Company believes are consistent with liquidity discounts in the market place. Fair values are estimated for portfolios of loans with similar financial characteristics. Loans are segregated by type such as commercial and industrial, real estate construction and development, commercial real estate, one-to-four family residential real estate, home equity and consumer and installment. The fair value of loans is estimated by discounting the future cash flows, utilizing assumptions for prepayment estimates over the loans’ remaining life and considerations for the current interest rate environment compared to the weighted average rate of the loan portfolio. The fair value analysis also included other assumptions to estimate fair value, intended to approximate those factors a market participant would use in an orderly transaction, with adjustments for discount rates, interest rates, liquidity, and credit spreads, as appropriate.

Loans held for sale: The fair value of loans held for sale, which is the amount reported in the consolidated balance sheets, is based on quoted market prices where available. If quoted market prices are not available, the fair value is based on quoted market prices of comparable instruments.

Deposits: The fair value of deposits generally payable on demand (i.e., noninterest-bearing and interest-bearing demand, and savings and money market accounts) is considered equal to their respective carrying amounts as reported in the consolidated balance sheets. The fair value of demand deposits does not include the benefit that results from the low-cost funding provided by deposit liabilities compared to the cost of borrowing funds in the market. The fair value disclosed for time deposits was estimated utilizing a discounted cash flow calculation that applied interest rates currently being offered on similar deposits to a schedule of aggregated monthly maturities of time deposits. If the estimated fair value is lower than the carrying value, the carrying value is reported as the fair value of time deposits.

Other borrowings and accrued interest payable: The carrying values reported in the consolidated balance sheets for variable rate borrowings approximate fair value. The fair value of fixed rate borrowings is based on quoted market prices where available. If quoted market prices are not available, the fair value is based on discounting contractual maturities using an estimate of current market rates for similar instruments.

Subordinated debentures: The fair value of subordinated debentures is based on quoted market prices of comparable instruments.

Off-Balance Sheet Financial Instruments: The fair value of commitments to extend credit, standby letters of credit and financial guarantees is based on estimated probable credit losses.

The estimated fair value of the Company’s financial instruments at September 30, 2011 and December 31, 2010 were as follows:

	September 30, 2011					December 31, 2010
	Carrying			Estimated		Carrying		Estimated
	Value			Fair Value		Value		Fair Value
	(dollars expressed in thousands)
Financial Assets:
Cash and cash equivalents	$	498,630		498,630		995,758		995,758
Investment securities:
Available for sale		2,410,198		2,410,198		1,483,185		1,483,185
Held to maturity		13,940		14,605		11,152		11,990
Loans held for portfolio		3,308,472		3,016,161		4,236,781		3,973,825
Loans held for sale		36,595		36,595		54,470		54,470
Federal Reserve Bank and FHLB stock		27,257		27,257		30,121		30,121
Derivative instruments		1,656		1,656		2,606		2,606
Accrued interest receivable		21,596		21,596		22,488		22,488
Assets held for sale		—		—		2,266		2,866
Assets of discontinued operations		—		—		43,532		43,532
Financial Liabilities:
Deposits:
Noninterest-bearing demand	$	1,153,092		1,153,092		1,167,206		1,167,206
Interest-bearing demand		983,289		983,289		919,973		919,973
Savings and money market		2,098,689		2,098,689		2,206,763		2,206,763
Time deposits		1,708,743		1,715,056		2,164,473		2,176,855
Other borrowings		53,112		53,112		31,761		31,761
Derivative instruments		1,621		1,621		3,038		3,038
Accrued interest payable		31,084		31,084		22,444		22,444
Subordinated debentures		354,038		175,989		353,981		202,298
Liabilities held for sale		—		—		23,406		23,276
Liabilities of discontinued operations		—		—		94,184		91,894
Off-Balance Sheet Financial Instruments:
Commitments to extend credit, standby
letters of credit and financial
guarantees	$	(2,785	)	(2,785	)	(3,148	)	(3,148	)

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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED) (USD $) In Thousands	Preferred Stock	Common Stock	Additional Paid-in Capital	Retained Earnings (Deficit)	Accumulated Other Comprehensive Income (Loss)	Noncontrolling Interest	Total
Balance at Dec. 31, 2009	$ 311,762	$ 5,915	$ 12,480	$ 91,271	$ (2,464)	$ 103,416	$ 522,380
Comprehensive income (loss):
Net loss	0	0	0	(191,737)	0	(6,514)	(198,251)
Other comprehensive income (loss):
Unrealized gains on investment securities, net of tax	0	0	0	0	4,764	0	4,764
Reclassification adjustment for investment securities gains included in net loss, net of tax	0	0	0	0	(5,378)	0	(5,378)
Change in unrealized gains on derivative instruments, net of tax	0	0	0	0	(3,734)	0	(3,734)
Pension liability adjustment, net of tax	0	0	0	0	(4)	0	(4)
Reclassification adjustments for deferred tax asset valuation allowance	0	0	0	0	4,498	0	4,498
Total comprehensive income (loss)							(198,105)
Accretion of discount on preferred stock	3,381	0	0	(3,381)	0	0	0
Preferred stock dividends declared	0	0	0	(16,980)	0	0	(16,980)
Balance at Dec. 31, 2010	315,143	5,915	12,480	(120,827)	(2,318)	96,902	307,295
Comprehensive income (loss):
Net loss	0	0	0	(25,271)	0	(1,530)	(26,801)
Other comprehensive income (loss):
Unrealized gains on investment securities, net of tax	0	0	0	0	29,024	0	29,024
Reclassification adjustment for investment securities gains included in net loss, net of tax	0	0	0	0	(3,427)	0	(3,427)
Pension liability adjustment, net of tax	0	0	0	0	47	0	47
Reclassification adjustments for deferred tax asset valuation allowance	0	0	0	0	2,235	0	2,235
Total comprehensive income (loss)							1,078
Accretion of discount on preferred stock	2,593	0	0	(2,593)	0	0	2,593
Preferred stock dividends declared	0	0	0	(13,341)	0	0	(13,341)
Balance at Sep. 30, 2011	$ 317,736	$ 5,915	$ 12,480	$ (162,032)	$ 25,561	$ 95,372	$ 295,032

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DERIVATIVE FINANCIAL INSTRUMENTS

9 Months Ended

Sep. 30, 2011

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Instruments and Hedging Activities Disclosure [Text Block]

NOTE 16–DERIVATIVE FINANCIAL INSTRUMENTS

The Company utilizes derivative financial instruments to assist in the management of interest rate sensitivity by modifying the repricing, maturity and option characteristics of certain assets and liabilities. Derivative financial instruments held by the Company at September 30, 2011 and December 31, 2010 are summarized as follows:

	September 30, 2011			December 31, 2010
	Notional		Credit	Notional	Credit
	Amount		Exposure	Amount	Exposure
	(dollars expressed in thousands)
Interest rate swap agreements	$	50,000	—	75,000	—
Customer interest rate swap agreements		48,970	586	53,696	869
Interest rate lock commitments		78,856	2,707	41,857	276
Forward commitments to sell mortgage-backed securities		101,050	—	84,100	1,538

The notional amounts of derivative financial instruments do not represent amounts exchanged by the parties and, therefore, are not a measure of the Company’s credit exposure through its use of these instruments. The credit exposure represents the loss the Company would incur in the event the counterparties failed completely to perform according to the terms of the derivative financial instruments and the collateral held to support the credit exposure was of no value. The Company’s credit exposure on interest rate swaps is limited to the net fair value and related accrued interest receivable reduced by the amount of collateral pledged by the counterparty. At September 30, 2011 and December 31, 2010, the Company had pledged cash of zero and $1.1 million, respectively, as collateral in connection with its interest rate swap agreements. Collateral requirements are monitored on a daily basis and adjusted as necessary.

The Company realized net interest income on its derivative financial instruments of $1.9 million and $5.7 million for the three and nine months ended September 30, 2010, respectively. The Company also recorded net gains on derivative financial instruments of $7,000 and net losses on derivative financial instruments of $214,000, which are included in noninterest income in the statements of operations, for the three and nine months ended September 30, 2011, respectively, compared to net losses of $849,000 and $2.9 million for the comparable periods in 2010. 

Interest Rate Swap Agreements. The Company entered into four interest rate swap agreements, which were designated as cash flow hedges prior to August 2009, with the objective of stabilizing the long-term cost of capital and cash flow and, accordingly, net interest expense on junior subordinated debentures to the respective call dates of certain junior subordinated debentures. These swap agreements provided for the Company to receive an adjustable rate of interest equivalent to the three-month LIBOR plus 1.65%, 1.85%, 1.61% and 2.25%, and pay a fixed rate of interest. The terms of the swap agreements provide for the Company to pay and receive interest on a quarterly basis. In December 2010, the Company terminated its $50.0 million notional interest rate swap agreement that provided for the Company to receive an adjustable rate of interest equivalent to the three-month LIBOR plus 1.85%, and pay a fixed rate of interest. As noted in the table below, the $25.0 million notional interest rate swap agreement that provided for the Company to receive an adjustable rate of interest equivalent to the three-month LIBOR plus 1.65% and pay a fixed rate of interest matured on July 7, 2011.

The amount receivable by the Company under these swap agreements was $30,000 and $149,000 at September 30, 2011 and December 31, 2010, respectively, and the amount payable by the Company under these swap agreements was $65,000 and $335,000 at September 30, 2011 and December 31, 2010, respectively.

In August 2009, the Company reclassified a cumulative fair value adjustment of $4.6 million on its interest rate swap agreements designated as cash flow hedges on its junior subordinated debentures from accumulated other comprehensive income to loss on derivative instruments as a result of the discontinuation of hedge accounting following the announcement of the deferral of interest payments on the underlying trust preferred securities. In conjunction with the discontinuation of hedge accounting, the net interest differential on these interest rate swap agreements was recorded as a reduction of noninterest income effective August 2009.

In 2006, the Company entered into a $200.0 million notional amount three-year interest rate swap agreement and a $200.0 million notional amount four-year interest rate swap agreement. These interest rate swap agreements were designated as cash flow hedges, to effectively lengthen the re-pricing characteristics of certain loans to correspond more closely with their funding source with the objective of stabilizing cash flow, and accordingly, net interest income over time. In December 2008, the Company terminated these swap agreements. The pre-tax gain of $20.8 million, in the aggregate, was being amortized as an increase to interest and fees on loans in the consolidated statements of operations over the remaining terms of the respective interest rate swap agreements, which had contractual maturity dates of September 18, 2009 and September 20, 2010. For the three and nine months ended September 30, 2010, the amount of the pre-tax gain amortized as an increase to interest and fees on loans was $1.9 million and $5.7 million, respectively.

The maturity dates, notional amounts, interest rates paid and received and fair value of the Company’s interest rate swap agreements as of September 30, 2011 and December 31, 2010 were as follows:

	Notional		Interest Rate		Interest Rate
Maturity Date	Amount		Paid		Received		Fair Value
	(dollars expressed in thousands)
September 30, 2011:
March 30, 2012	$	25,000	4.71	%	1.98	%	$	(334	)
December 15, 2012		25,000	5.57		2.60			(855	)
	$	50,000	5.14		2.29		$	(1,189	)
December 31, 2010:
July 7, 2011	$	25,000	4.40	%	1.94	%	$	(313	)
March 30, 2012		25,000	4.71		1.91			(822	)
December 15, 2012		25,000	5.57		2.55			(1,267	)
	$	75,000	4.89		2.13		$	(2,402	)

For interest rate swap agreements designated as cash flow hedges, the effective portion of the gain or loss on the derivative instrument is reported as a component of other comprehensive income (loss) and reclassified into interest income or interest expense in the same period the hedged transaction affects earnings. The ineffective portion of the change in the cash flow hedge’s gain or loss is recorded in noninterest income on each monthly measurement date. The Company did not recognize any ineffectiveness related to interest rate swap agreements that were designated as cash flow hedges during the three and nine months ended September 30, 2010.

Customer Interest Rate Swap Agreements. First Bank offers interest rate swap agreements to certain customers to assist in hedging their risks of adverse changes in interest rates. First Bank serves as an intermediary between its customers and the financial markets. Each interest rate swap agreement between First Bank and its customers is offset by an interest rate swap agreement between First Bank and various counterparties. These interest rate swap agreements do not qualify for hedge accounting treatment. Changes in the fair value are recognized in noninterest income on a monthly basis. Each customer contract is paired with an offsetting contract, and as such, there is no significant impact to net income (loss). The notional amount of these interest rate swap agreement contracts at September 30, 2011 and December 31, 2010 was $49.0 million and $53.7 million, respectively.

Interest Rate Lock Commitments / Forward Commitments to Sell Mortgage-Backed Securities. Derivative financial instruments issued by the Company consist of interest rate lock commitments to originate fixed-rate loans to be sold. Commitments to originate fixed-rate loans consist primarily of residential real estate loans. These net loan commitments and loans held for sale are hedged with forward contracts to sell mortgage-backed securities, which expire in December 2011. The fair value of the interest rate lock commitments, which is included in other assets in the consolidated balance sheets, was an unrealized gain of $2.7 million and $276,000 at September 30, 2011 and December 31, 2010, respectively. The fair value of the forward contracts to sell mortgage-backed securities, which is included in other assets in the consolidated balance sheets, was an unrealized loss of $1.6 million at September 30, 2011 and an unrealized gain of $1.5 million at December 31, 2010. Changes in the fair value of interest rate lock commitments and forward commitments to sell mortgage-backed securities are recognized in noninterest income on a monthly basis.

The following table summarizes derivative financial instruments held by the Company, their estimated fair values and their location in the consolidated balance sheets at September 30, 2011 and December 31, 2010:

	September 30, 2011				December 31, 2010
	Balance Sheet	Fair Value			Balance Sheet	Fair Value
	Location	Gain (Loss)			Location	Gain (Loss)
	(dollars expressed in thousands)
Derivative financial instruments not designated as hedging
instruments under ASC Topic 815:
Customer interest rate swap agreements	Other assets	$	518		Other assets	$	792
Interest rate lock commitments	Other assets		2,707		Other assets		276
Forward commitments to sell mortgage-backed securities	Other assets		(1,569	)	Other assets		1,538
Total derivatives in other assets		$	1,656			$	2,606
Interest rate swap agreements	Other liabilities	$	(1,189	)	Other liabilities	$	(2,402	)
Customer interest rate swap agreements	Other liabilities		(432	)	Other liabilities		(636	)
Total derivatives in other liabilities		$	(1,621	)		$	(3,038	)

The following table summarizes amounts included in the consolidated statements of operations and in accumulated other comprehensive income (loss) in the consolidated balance sheets as of and for the three and nine months ended September 30, 2011 and 2010 related to interest rate swap agreements designated as cash flow hedges:

	Three Months Ended			Nine Months Ended
	September 30,			September 30,
	2011		2010	2011	2010
	(dollars expressed in thousands)
Derivative financial instruments designated as hedging instruments under ASC
Topic 815:
Interest rate swap agreements:
Amount reclassified from accumulated other comprehensive income to
interest income on loans	$	—	1,915	—	5,745

The unamortized gain related to the fair value of the cash flow hedges on loans terminated in December 2008 was fully amortized effective September 2010, as previously discussed.

The following table summarizes amounts included in the consolidated statements of operations for the three and nine months ended September 30, 2011 and 2010 related to non-hedging derivative instruments:

	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2011			2010		2011		2010
	(dollars expressed in thousands)
Derivative financial instruments not designated as hedging
instruments under ASC Topic 815:
Interest rate swap agreements:
Net gain (loss) on derivative instruments	$	7		(850	)	(214	)	(2,942	)
Customer interest rate swap agreements:
Net gain (loss) on derivative instruments		—		1		—		3
Interest rate lock commitments:
Gain on loans sold and held for sale		2,021		955		2,431		2,571
Forward commitments to sell mortgage-backed securities:
Gain on loans sold and held for sale		(1,473	)	535		(3,107	)	(1,530	)

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BASIS OF PRESENTATION

9 Months Ended

Sep. 30, 2011

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

NOTE 1 – BASIS OF PRESENTATION

The consolidated financial statements of First Banks, Inc. and subsidiaries (the Company) are unaudited and should be read in conjunction with the consolidated financial statements contained in the 2010 Annual Report on Form 10-K. The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) and conform to predominant practices within the banking industry. Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare the consolidated financial statements in conformity with GAAP. Actual results could differ from those estimates. In the opinion of management, all adjustments, consisting of normal recurring accruals considered necessary for a fair presentation of the results of operations for the interim periods presented herein, have been included. Operating results for the three and nine months ended September 30, 2011 are not necessarily indicative of the results that may be expected for the year ending December 31, 2011.

Principles of Consolidation. The consolidated financial statements include the accounts of the parent company and its subsidiaries, giving effect to the noncontrolling interest in subsidiary, as more fully described below and in Note 8 to the consolidated financial statements. All significant intercompany accounts and transactions have been eliminated. Certain reclassifications of 2010 amounts have been made to conform to the 2011 presentation.

All financial information is reported on a continuing operations basis, unless otherwise noted. See Note 2 to the consolidated financial statements for a discussion regarding discontinued operations.

The Company operates through its wholly owned subsidiary bank holding company, The San Francisco Company (SFC), headquartered in St. Louis, Missouri, and SFC’s wholly owned subsidiary bank, First Bank, also headquartered in St. Louis, Missouri. First Bank operates through its branch banking offices and subsidiaries: First Bank Business Capital, Inc.; FB Holdings, LLC (FB Holdings); Small Business Loan Source LLC (SBLS LLC); ILSIS, Inc.; FBIN, Inc.; SBRHC, Inc.; HVIIHC, Inc.; FBSA Missouri, Inc.; FBSA California, Inc.; NT Resolution Corporation; and LC Resolution Corporation. All of the subsidiaries are wholly owned as of September 30, 2011, except FB Holdings, which was 53.23% owned by First Bank and 46.77% owned by First Capital America, Inc. (FCA), a corporation owned and operated by the Company’s Chairman of the Board and members of his immediate family, as further described in Note 8 to the consolidated financial statements. FB Holdings is included in the consolidated financial statements with the noncontrolling ownership interest reported as a component of stockholders’ equity in the consolidated balance sheets as “noncontrolling interest in subsidiary” and the earnings or loss, net of tax, attributable to the noncontrolling ownership interest, is reported as “net loss attributable to noncontrolling interest in subsidiary” in the consolidated statements of operations.

Regulatory Agreements and Other Matters. On March 24, 2010, the Company, SFC and First Bank entered into a Written Agreement (Agreement) with the Federal Reserve Bank of St. Louis (FRB) requiring the Company and First Bank to take certain steps intended to improve their overall financial condition. Pursuant to the Agreement, the Company prepared and filed with the FRB a number of specific plans designed to strengthen and/or address the following matters: (i) board oversight over the management and operations of the Company and First Bank; (ii) credit risk management practices; (iii) lending and credit administration policies and procedures; (iv) asset improvement; (v) capital; (vi) earnings and overall financial condition; and (vii) liquidity and funds management.

The Agreement requires, among other things, that the Company and First Bank obtain prior approval from the FRB in order to pay dividends. In addition, the Company must obtain prior approval from the FRB to: (i) take any other form of payment from First Bank representing a reduction in capital of First Bank; (ii) make any distributions of interest, principal or other sums on junior subordinated debentures or trust preferred securities; (iii) incur, increase or guarantee any debt; or (iv) purchase or redeem any shares of the Company’s stock. Pursuant to the terms of the Agreement, the Company and First Bank submitted a written plan to the FRB to maintain sufficient capital at the Company, on a consolidated basis, and at First Bank, on a standalone basis. In addition, the Agreement also provides that the Company and First Bank must notify the FRB if the risk-based capital ratios of either entity fall below those set forth in the capital plans that were accepted by the FRB, and specifically if First Bank falls below the criteria for being well capitalized under the regulatory framework for prompt corrective action. The Company must also notify the FRB before appointing any new directors or senior executive officers or changing the responsibilities of any senior executive officer position. The Agreement also requires the Company and First Bank to comply with certain restrictions regarding indemnification and severance payments. The Agreement is specifically enforceable by the FRB in court.

The Company and First Bank must furnish periodic progress reports to the FRB regarding compliance with the Agreement. As of the date of this filing, the Company and First Bank have provided progress reports and other reports, as required under the Agreement. It is likely that the Company and First Bank may receive additional requests from the FRB regarding compliance with the Agreement, which may include, but are not limited to, updates and modifications to the Company’s Asset Quality Improvement, Profit Improvement and Capital Plans. Management intends to respond promptly to any such requests. The Agreement will remain in effect until stayed, modified, terminated or suspended by the FRB.

The description of the Agreement above represents a summary and is qualified in its entirety by the full text of the Agreement which is incorporated herein by reference to Exhibit 10.19 of the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, as filed with the United States Securities and Exchange Commission (SEC) on March 25, 2010.

Prior to entering into the Agreement on March 24, 2010, the Company and First Bank had entered into a memorandum of understanding and an informal agreement, respectively, with the FRB and the State of Missouri Division of Finance (MDOF). Each of the agreements were characterized by regulatory authorities as informal actions that were neither published nor made publicly available by the agencies and are used when circumstances warrant a milder form of action than a formal supervisory action, such as a written agreement or cease and desist order. The informal agreement with the MDOF is still in place and there have not been any modifications thereto since its inception in September 2008.

Under the terms of the prior memorandum of understanding with the FRB, the Company agreed, among other things, to provide certain information to the FRB including, but not limited to, financial performance updates, notice of plans to materially change its fundamental business and notice to issue trust preferred securities or raise additional equity capital. In addition, the Company agreed not to pay any dividends on its common or preferred stock or make any distributions of interest or other sums on its trust preferred securities without the prior approval of the FRB.

First Bank, under its informal agreement with the MDOF and the FRB, agreed to, among other things, prepare and submit plans and reports to the agencies regarding certain matters including, but not limited to, the performance of First Bank’s loan portfolio. In addition, First Bank agreed not to declare or pay any dividends or make certain other payments without the prior consent of the MDOF and the FRB and to maintain a Tier 1 capital to total assets ratio of no less than 7.00%. As further described in Note 9 to the consolidated financial statements, First Bank’s Tier 1 capital to total assets ratio was 8.17% at September 30, 2011.

While the Company and First Bank intend to take such actions as may be necessary to comply with the requirements of the Agreement with the FRB and informal agreement with the MDOF, there can be no assurance that the Company and First Bank will be able to comply fully with the requirements of the Agreement or that First Bank will be able to comply fully with the provisions of the informal agreement, that compliance with the Agreement and the informal agreement will not be more time consuming or more expensive than anticipated, that compliance with the Agreement and the informal agreement will enable the Company and First Bank to resume profitable operations, or that efforts to comply with the Agreement and the informal agreement will not have adverse effects on the operations and financial condition of the Company or First Bank. If the Company or First Bank is unable to comply with the terms of the Agreement or the informal agreement, respectively, the Company and First Bank could become subject to various requirements limiting the ability to develop new business lines, mandating additional capital, and/or requiring the sale of certain assets and liabilities. Failure of the Company and First Bank to meet these conditions could lead to further enforcement action by the regulatory agencies. The terms of any such additional regulatory actions, orders or agreements could have a materially adverse effect on the Company’s business, financial condition or results of operations.

On August 10, 2009, the Company announced the deferral of its regularly scheduled interest payments on its outstanding junior subordinated notes relating to its $345.0 million of trust preferred securities beginning with the regularly scheduled quarterly interest payments that would otherwise have been made in September and October 2009, as further described in Note 12 to the consolidated financial statements. During the deferral period, the Company may not, among other things and with limited exceptions, pay cash dividends on or repurchase its common stock or preferred stock or make any payment on outstanding debt obligations that rank equally with or junior to the junior subordinated notes. Accordingly, the Company also suspended the payment of cash dividends on its outstanding common stock and preferred stock beginning with the regularly scheduled quarterly dividend payments on the preferred stock that would otherwise have been made in August and September 2009, as further described in Note 13 to the consolidated financial statements. In conjunction with this election, the Company suspended the declaration of dividends on its Class A and Class B preferred stock, but continues to declare and accumulate dividends on its Class C Fixed Rate Cumulative Perpetual Preferred Stock (Class C Preferred Stock) and Class D Fixed Rate Cumulative Perpetual Preferred Stock (Class D Preferred Stock). As a result of the Company’s deferral of dividends on its Class C and Class D preferred stock to the United States Department of the Treasury (U.S. Treasury) for six quarters, the U.S. Treasury had the right to elect two directors to the Company’s Board. On July 13, 2011, the U.S. Treasury elected two members to the Company’s Board of Directors, effective immediately.

Capital Plan. As further described in Note 2 to the consolidated financial statements, on August 10, 2009, the Company announced the adoption of a Capital Optimization Plan (Capital Plan) designed to improve its regulatory capital ratios and financial performance through certain divestiture activities, asset reductions and expense reductions. The Capital Plan was adopted in order to, among other things, preserve and enhance the Company’s risk-based capital.

The successful completion of all or any portion of the Capital Plan is not assured, and no assurance can be made that the Capital Plan will not be materially modified in the future. The decision to implement the Capital Plan reflects the adverse effect that the severe downturn in the commercial and residential real estate markets has had on the Company’s financial condition and results of operations. If the Company is not able to complete substantially all of the Capital Plan, its business, financial condition, including regulatory capital ratios, and results of operations may be materially and adversely affected and its ability to withstand continued adverse economic conditions could be threatened.

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BUSINESS SEGMENT RESULTS

9 Months Ended

Sep. 30, 2011

Segment Reporting [Abstract]

Segment Reporting Disclosure [Text Block]

NOTE 10–BUSINESS SEGMENT RESULTS

The Company’s business segment is First Bank. The reportable business segment is consistent with the management structure of the Company, First Bank and the internal reporting system that monitors performance. First Bank provides similar products and services in its defined geographic areas through its branch network. The products and services offered include a broad range of commercial and personal deposit products, including demand, savings, money market and time deposit accounts. In addition, First Bank markets combined basic services for various customer groups, including packaged accounts for more affluent customers, and sweep accounts, lock-box deposits and cash management products for commercial customers. First Bank also offers consumer and commercial loans. Consumer lending includes residential real estate, home equity and installment lending. Commercial lending includes commercial, financial and agricultural loans, real estate construction and development loans, commercial real estate loans and small business lending. Other financial services include mortgage banking, debit cards, brokerage services, internet banking, remote deposit, ATMs, telephone banking, safe deposit boxes, and trust and private banking services. The revenues generated by First Bank and its subsidiaries consist primarily of interest income generated from the loan and investment security portfolios, service charges and fees generated from deposit products and services, and fees generated by the Company’s mortgage banking and trust and private banking business units. The Company’s products and services are offered to customers primarily within its geographic areas, which include eastern Missouri, southern Illinois, southern and northern California, and Florida’s Manatee, Pinellas, Hillsborough and Pasco counties. Certain loan products are available nationwide.

The business segment results are consistent with the Company’s internal reporting system and, in all material respects, with GAAP and practices predominant in the banking industry. The business segment results are summarized as follows:

				Corporate, Other and
	First Bank			Intercompany Reclassifications				Consolidated Totals
	September 30,		December 31,	September 30,		December 31,		September 30,	December 31,
	2011		2010	2011		2010		2011	2010
	(dollars expressed in thousands)
Balance sheet information:
Investment securities	$	2,413,460	1,483,659	10,678		10,678		2,424,138	1,494,337
Loans, net of deferred loan costs (fees)		3,502,791	4,492,284	—		—		3,502,791	4,492,284
FRB and FHLB stock		27,257	30,121	—		—		27,257	30,121
Goodwill and other intangible assets		126,727	129,054	—		—		126,727	129,054
Assets held for sale		—	2,266	—		—		—	2,266
Assets of discontinued operations		—	43,532	—		—		—	43,532
Total assets		6,768,646	7,361,706	15,319		16,422		6,783,965	7,378,128
Deposits		5,947,009	6,462,068	(3,196	)	(3,653	)	5,943,813	6,458,415
Other borrowings		53,112	31,761	—		—		53,112	31,761
Subordinated debentures		—	—	354,038		353,981		354,038	353,981
Liabilities held for sale		—	23,406	—		—		—	23,406
Liabilities of discontinued operations		—	94,184	—		—		—	94,184
Stockholders’ equity		703,843	693,458	(408,811	)	(386,163	)	295,032	307,295

						Corporate, Other and
						Intercompany
	First Bank					Reclassifications				Consolidated Totals
	Three Months Ended					Three Months Ended				Three Months Ended
	September 30,					September 30,				September 30,
	2011			2010		2011		2010		2011		2010
	(dollars expressed in thousands)
Income statement information:
Interest income	$	56,671		77,469		132		180		56,803		77,649
Interest expense		7,564		15,591		3,405		3,404		10,969		18,995
Net interest income (loss)		49,107		61,878		(3,273	)	(3,224	)	45,834		58,654
Provision for loan losses		19,000		37,000		—		—		19,000		37,000
Net interest income (loss) after provision for
loan losses		30,107		24,878		(3,273	)	(3,224	)	26,834		21,654
Noninterest income		16,972		17,913		8		(848	)	16,980		17,065
Amortization of intangible assets		728		800		—		—		728		800
Other noninterest expense		57,528		87,724		(119	)	(139	)	57,409		87,585
Loss from continuing operations before (benefit)
provision for income taxes		(11,177	)	(45,733	)	(3,146	)	(3,933	)	(14,323	)	(49,666	)
(Benefit) provision for income taxes		(11,572	)	5,250		(9	)	(57	)	(11,581	)	5,193
Net income (loss) from continuing operations, net
of tax		395		(50,983	)	(3,137	)	(3,876	)	(2,742	)	(54,859	)
Discontinued operations, net of tax		—		6,430		—		—		—		6,430
Net income (loss)		395		(44,553	)	(3,137	)	(3,876	)	(2,742	)	(48,429	)
Net loss attributable to noncontrolling interest in
subsidiary		(668	)	(618	)	—		—		(668	)	(618	)
Net income (loss) attributable to First Banks, Inc.	$	1,063		(43,935	)	(3,137	)	(3,876	)	(2,074	)	(47,811	)

						Corporate, Other and
						Intercompany
	First Bank					Reclassifications				Consolidated Totals
	Nine Months Ended					Nine Months Ended				Nine Months Ended
	September 30,					September 30,				September 30,
	2011			2010		2011		2010		2011		2010
	(dollars expressed in thousands)
Income statement information:
Interest income	$	177,783		243,498		385		421		178,168		243,919
Interest expense		27,098		52,601		10,068		9,694		37,166		62,295
Net interest income (loss)		150,685		190,897		(9,683	)	(9,273	)	141,002		181,624
Provision for loan losses		52,000		162,000		—		—		52,000		162,000
Net interest income (loss) after provision for
loan losses		98,685		28,897		(9,683	)	(9,273	)	89,002		19,624
Noninterest income		46,516		53,149		(210	)	(332	)	46,306		52,817
Amortization of intangible assets		2,327		2,525		—		—		2,327		2,525
Other noninterest expense		172,476		217,804		(541	)	60		171,935		217,864
Loss from continuing operations before (benefit)
provision for income taxes		(29,602	)	(138,283	)	(9,352	)	(9,665	)	(38,954	)	(147,948	)
(Benefit) provision for income taxes		(11,412	)	5,504		(45	)	(158	)	(11,457	)	5,346
Net loss from continuing operations, net of tax		(18,190	)	(143,787	)	(9,307	)	(9,507	)	(27,497	)	(153,294	)
Discontinued operations, net of tax		696		11,884		—		—		696		11,884
Net loss		(17,494	)	(131,903	)	(9,307	)	(9,507	)	(26,801	)	(141,410	)
Net loss attributable to noncontrolling interest in
subsidiary		(1,530	)	(1,082	)	—		—		(1,530	)	(1,082	)
Net loss attributable to First Banks, Inc.	$	(15,964	)	(130,821	)	(9,307	)	(9,507	)	(25,271	)	(140,328	)

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INCOME TAXES

9 Months Ended

Sep. 30, 2011

Income Tax Disclosure [Abstract]

Income Tax Disclosure [Text Block]

NOTE 14–INCOME TAXES 

The realization of the Company’s net deferred tax assets is based on the expectation of future taxable income and the utilization of tax planning strategies. The Company has a full valuation allowance against its net deferred tax assets at September 30, 2011 and December 31, 2010. The deferred tax asset valuation allowance was recorded in accordance with ASC Topic 740, “ Income Taxes .” Under ASC Topic 740, the Company is required to assess whether it is “more likely than not” that some portion or all of its deferred tax assets will not be realized. Pursuant to ASC Topic 740, concluding that a deferred tax asset valuation allowance is not required is difficult when there is significant evidence which is objective and verifiable, such as the lack of recoverable taxes, excess of reversing deductible differences over reversing taxable differences and cumulative losses in recent years. If, in the future, the Company generates taxable income on a sustained basis, management may conclude the deferred tax asset valuation allowance is no longer required, which would result in the reversal of a portion or all of the deferred tax asset valuation allowance, which would be reflected as a benefit for income taxes in the consolidated statements of operations.

A summary of the Company’s deferred tax assets and deferred tax liabilities at September 30, 2011 and December 31, 2010 is as follows:

	September 30,			December 31,
	2011			2010
	(dollars expressed in thousands)
Gross deferred tax assets	$	400,369		387,202
Valuation allowance		(376,852	)	(369,198	)
Deferred tax assets, net of valuation allowance		23,517		18,004
Deferred tax liabilities		30,699		25,186
Net deferred tax liabilities	$	(7,182	)	(7,182	)

The Company’s valuation allowance was $376.9 million and $369.2 million at September 30, 2011 and December 31, 2010, respectively. At September 30, 2011 and December 31, 2010, for federal income tax purposes, the Company had net operating loss carryforwards of approximately $518.0 million and $478.3 million, respectively, and for state income tax purposes, the Company had net operating loss carryforwards of approximately $683.2 million and $567.3 million, respectively, and a related deferred tax asset of $53.3 million and $43.7 million, respectively.

At September 30, 2011 and December 31, 2010, the Company’s unrecognized tax benefits for uncertain tax positions, excluding interest and penalties, were $1.5 million and $1.3 million, respectively. At September 30, 2011 and December 31, 2010, the total amount of unrecognized tax benefits that would affect the provision for income taxes, prior to the consideration of the deferred tax asset valuation allowance, was $961,000 and $837,000, respectively. During the nine months ended September 30, 2011 and 2010, the Company recorded additional liabilities for unrecognized tax benefits of $191,000 and $258,000, respectively. The Company reduced the reserve for unrecognized tax benefits for uncertain tax positions by $2.2 million during the three and nine months ended September 30, 2010 as a result of the completion of an Internal Revenue Service (IRS) examination and the sale of WIUS. The partial reversal of the reserve for unrecognized tax benefits resulted in a decrease to the provision for income taxes of $2.0 million.

It is the Company’s policy to separately disclose any interest or penalties arising from the application of federal or state income taxes. Interest related to unrecognized tax benefits is included in interest expense and penalties related to unrecognized tax benefits are included in noninterest expense. At September 30, 2011 and December 31, 2010, interest accrued for unrecognized tax positions was $236,000 and $180,000, respectively. The Company recorded interest expense of $18,000 and $56,000 related to unrecognized tax benefits for the three and nine months ended September 30, 2011, respectively. The Company recorded a reduction to interest expense of $1.1 million and $969,000 for the three and nine months ended September 30, 2010, respectively, reflecting the reversal of interest accrued on unrecognized tax benefits for uncertain tax positions of $1.1 million during the third quarter of 2010 as a result of the completion of an IRS examination and the sale of WIUS. There were no penalties for uncertain tax positions accrued at September 30, 2011 and December 31, 2010, nor did the Company recognize any expense for penalties during the three and nine months ended September 30, 2011 and 2010.

The Company continually evaluates the unrecognized tax benefits associated with its uncertain tax positions. It is reasonably possible that the total unrecognized tax benefits as of September 30, 2011 could decrease by approximately $305,000 by December 31, 2011, as a result of the lapse of statutes of limitations or potential settlements with the federal and state taxing authorities, of which the impact to the provision for income taxes, prior to the consideration of the deferred tax asset valuation allowance, is estimated to be approximately $198,000. It is also reasonably possible that this decrease could be substantially offset by new matters arising during the same period.

The Company files consolidated and separate income tax returns in the U.S. federal jurisdiction and in various state jurisdictions. Management of the Company believes the accrual for tax liabilities is adequate for all open audit years based on its assessment of many factors, including past experience and interpretations of tax law applied to the facts of each matter. This assessment relies on estimates and assumptions. The Company’s federal income tax returns through 2008 have been examined by the IRS. Years subsequent to 2008 could contain matters that could be subject to differing interpretations of applicable tax laws and regulations as they relate to the amount, timing or inclusion of revenue and expenses. The Company has recorded a tax benefit only for those positions that meet the “more likely than not” standard. The Company’s current estimate of the resolution of various state examinations, none of which are in process, is reflected in accrued income taxes; however, final settlement of the examinations or changes in the Company’s estimate may result in future income tax expense or benefit.

The Company is no longer subject to U.S. federal tax examination for the years prior to 2008 and is no longer subject to Florida, Illinois and Missouri income tax examination by the tax authorities for the years prior to 2007, and prior to 2006 for California and Texas. The Company had a federal tax examination for tax years through 2008, which was closed during 2010, and a California tax examination for the 2004 and 2005 tax years, which was closed during 2008. An Illinois tax examination of the 2007 and 2008 tax years was completed during the second quarter of 2011 with no changes to the returns as originally filed.

The Company recorded a benefit for income taxes of $11.6 million during the three and nine months ended September 30, 2011 related to an intraperiod tax allocation between accumulated other comprehensive income and loss from continuing operations, primarily driven by market appreciation in the Company’s investment securities portfolio.

The Company had an accumulated other comprehensive loss of $6.8 million related to the establishment of a deferred tax asset valuation allowance regarding the unrealized gain on certain interest rate swap agreements that were designated as cash flow hedges on certain loans. These interest rate swap agreements were terminated in December 2008, and as a result, the unrealized gain at the date of termination of $20.8 million was being amortized as an increase to interest and fees on loans in the consolidated statements of operations over the remaining terms of the respective interest rate swap agreements, which had contractual maturity dates through September 2010. In the third quarter of 2010, the Company recorded a provision for incomes taxes of $6.8 million related to the expiration of the amortization period of the unrealized gain on the interest rate swap agreements with a corresponding increase to accumulated other comprehensive income.

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CONSOLIDATED BALANCE SHEETS (UNAUDITED) (USD $) In Thousands	Sep. 30, 2011	Dec. 31, 2010
ASSETS
Cash and due from banks	$ 100,179	$ 70,964
Short-term investments	398,451	924,794
Total cash and cash equivalents	498,630	995,758
Investment securities:
Available for sale	2,410,198	1,483,185
Held to maturity (fair value of $14,605 and $11,990, respectively)	13,940	11,152
Total investment securities	2,424,138	1,494,337
Loans:
Commercial, financial and agricultural	768,047	1,045,832
Real estate construction and development	303,263	490,766
Real estate mortgage	2,369,673	2,872,104
Consumer and installment	25,206	33,623
Loans held for sale	36,595	54,470
Deferred loan costs (fees)	7	(4,511)
Total loans	3,502,791	4,492,284
Allowance for loan losses	(157,724)	(201,033)
Net loans	3,345,067	4,291,251
Federal Reserve Bank and Federal Home Loan Bank stock, at cost	27,257	30,121
Bank premises and equipment, net	144,547	161,414
Goodwill and other intangible assets	126,727	129,054
Deferred income taxes	23,517	18,004
Other real estate and repossessed assets	131,349	140,665
Other assets	62,733	71,726
Assets held for sale	0	2,266
Assets of discontinued operations	0	43,532
Total assets	6,783,965	7,378,128
LIABILITIES
Noninterest-bearing demand	1,153,092	1,167,206
Interest-bearing demand	983,289	919,973
Savings and money market	2,098,689	2,206,763
Time deposits of $100 or more	613,582	828,651
Other time deposits	1,095,161	1,335,822
Total deposits	5,943,813	6,458,415
Other borrowings	53,112	31,761
Subordinated debentures	354,038	353,981
Deferred income taxes	30,699	25,186
Accrued expenses and other liabilities	107,271	83,900
Liabilities held for sale	0	23,406
Liabilities of discontinued operations	0	94,184
Total liabilities	6,488,933	7,070,833
STOCKHOLDERS' EQUITY
Preferred stock	0	0
Common stock, $250.00 par value, 25,000 shares authorized, 23,661 shares issued and outstanding	5,915	5,915
Additional paid-in capital	12,480	12,480
Retained deficit	(162,032)	(120,827)
Accumulated other comprehensive income (loss)	25,561	(2,318)
Total First Banks, Inc. stockholders' equity	199,660	210,393
Noncontrolling interest in subsidiary	95,372	96,902
Total stockholders' equity	295,032	307,295
Total liabilities and stockholders' equity	6,783,965	7,378,128
Class A Converible Adjustable Rate Preferred Stock
STOCKHOLDERS' EQUITY
Preferred stock	12,822	12,822
Class B Adjustable Rate Preferred Stock
STOCKHOLDERS' EQUITY
Preferred stock	241	241
Class C Fixed Rate Cumulative Perpetual Preferred Stock
STOCKHOLDERS' EQUITY
Preferred stock	287,330	284,737
Class D Fixed Rate Cumulative Perpetual Preferred Stock
STOCKHOLDERS' EQUITY
Preferred stock	$ 17,343	$ 17,343