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.