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

FORM 10-K

(Mark One)
[X]	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 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)
___________________________________________

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Name of each exchange on which registered
8.15% Cumulative Trust Preferred Securities
(issued by First Preferred Capital Trust IV and	New York Stock Exchange
guaranteed by First Banks, Inc.)

Securities registered pursuant to Section 12(g) of the Act: None

     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. [   ] Yes [ X ] No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. [ X ] Yes [   ] No

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 (§232.405 of this chapter) 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ]

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 definition 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 Act).  [   ] Yes [ X ] No

None of the voting stock of the Company is held by non-affiliates. All of the voting stock of the Company is owned by various trusts, which were established by and for the benefit of Mr. James F. Dierberg, the Company’s Chairman of the Board of Directors, and members of his immediate family.

At March 23, 2012, there were 23,661 shares of the registrant’s common stock outstanding. There is no public or private market for such common stock.

FIRST BANKS, INC.

ANNUAL REPORT ON FORM 10-K

TABLE OF CONTENTS

		Page
Part I
Item 1.	Business		1
Item 1A.	Risk Factors		16
Item 1B.	Unresolved Staff Comments		23
Item 2.	Properties		23
Item 3.	Legal Proceedings		24
Item 4.	(Reserved)		24
Part II
Item 5.	Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer
	Purchases of Equity Securities		24
Item 6.	Selected Financial Data		25
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		26
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		68
Item 8.	Financial Statements and Supplementary Data		68
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		68
Item 9A.	Controls and Procedures		69
Item 9B.	Other Information		69
Part III
Item 10.	Directors, Executive Officers and Corporate Governance		70
Item 11.	Executive Compensation		74
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
	Matters		80
Item 13.	Certain Relationships and Related Transactions, and Director Independence		81
Item 14.	Principal Accounting Fees and Services		82
Part IV
Item 15.	Exhibits, Financial Statement Schedules		82
Signatures			147

Special Note Regarding Forward-Looking Statements
and Factors that Could Affect Future Results

This Annual Report on Form 10-K 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 earnings, 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 “Item 1. Business —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 “Item 1. Business —Supervision and Regulation – 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, borrowings 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 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;
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 further discussion under “Item 1A. Risk Factors.” We wish to caution readers of this Annual Report on Form 10-K that the foregoing list of important factors may not be all-inclusive and we 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 Annual Report on Form 10-K should therefore consider these risks and uncertainties in evaluating forward-looking statements and should not place undue reliance on these statements.

PART I

Item 1. Business

General. First Banks, Inc., or we, or the Company, is 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. A list of First Bank’s subsidiaries at December 31, 2011 is included as Exhibit 21.1 and incorporated herein by reference. First Bank’s subsidiaries are wholly owned, except for FB Holdings, LLC, or 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, including Mr. Michael Dierberg, a director of the Company, as of December 31, 2011, as further described in Note 20 to our consolidated financial statements.

First Bank currently operates 147 branch offices in California, Florida, Illinois and Missouri, with 177 automated teller machines, or ATMs, across the four states. At December 31, 2011, we had assets of $6.61 billion, loans, net of net deferred loan fees, of $3.28 billion, deposits of $5.45 billion and stockholders’ equity of $263.7 million.

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 presently include eastern Missouri, southern Illinois, southern and northern California, and Florida, including Bradenton and the greater Tampa metropolitan area. First Bank also has a loan production office in Cincinnati, Ohio.

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.

Ownership Structure.

Voting Stock. Various trusts, established by and administered by and for the benefit of Mr. James F. Dierberg and members of his immediate family, own all of our voting stock. Mr. Dierberg and his family, therefore, control our management and policies.

Trust Preferred Securities. We have formed numerous affiliated Delaware or Connecticut business or statutory trusts. These trusts operate as financing entities and were created for the sole purpose of issuing trust preferred securities, and the sole assets of the trusts are our junior subordinated debentures. In conjunction with the formation of our financing entities and their issuance of the trust preferred securities, we issued junior subordinated debentures to each of our financing entities in amounts equivalent to the respective trust preferred securities plus the amount of the common securities of the individual trusts. Prior to August 10, 2009, we paid interest on our junior subordinated debentures to our respective financing entities. In turn, our financing entities paid distributions to the holders of the trust preferred securities. The interest accrued and payable on our junior subordinated debentures is included in interest expense in our consolidated statements of operations.

On August 10, 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. We have deferred such payments for ten quarterly periods as of December 31, 2011.

The trust preferred securities issued by First Preferred Capital Trust IV are publicly held and traded on the New York Stock Exchange, or NYSE. The remaining trust preferred securities were issued in private placements. The trust preferred securities have no voting rights except in certain limited circumstances.

1

See Note 12 to our consolidated financial statements for further discussion regarding our junior subordinated debentures relating to our trust preferred securities.

United States Department of the Treasury. On December 31, 2008, the Company entered into a Letter Agreement, including a Securities Purchase Agreement – Standard Terms, or Purchase Agreement, with the United States Department of the Treasury, or the U.S. Treasury, pursuant to the Troubled Asset Relief Program’s Capital Purchase Program, or CPP. Under the terms of the Purchase Agreement, on December 31, 2008, we issued to the U.S. Treasury, 295,400 shares of senior preferred stock, or Class C Preferred Stock, and a warrant, or Warrant, to acquire up to 14,784.78478 shares of a separate series of senior preferred stock, or Class D Preferred Stock (at an exercise price of $1.00 per share), for an aggregate purchase price of $295.4 million, pursuant to the standard CPP terms and conditions for non-public companies as described and set forth in the Purchase Agreement and the Warrant. Pursuant to the terms of the Warrant, the U.S. Treasury exercised the Warrant on December 31, 2008 and paid the exercise price by having us withhold, from the shares of Class D Preferred Stock that would otherwise be delivered to the U.S. Treasury upon such exercise, shares of Class D Preferred Stock issuable upon exercise of the Warrant with an aggregate liquidation amount equal in value to the aggregate exercise price of $14,784.78. The senior preferred stock and the Warrant were issued in a private placement exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended. The Purchase Agreement contains limitations on certain actions of the Company, including, but not limited to, payment of dividends, redemptions and acquisitions of the Company’s equity securities, and compensation of senior executive officers. In addition, the U.S. Treasury has certain supervisory and oversight duties and responsibilities under the CPP and, pursuant to the terms of the 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. Furthermore, in the event the Company does not pay dividends on the preferred stock issued to the U.S. Treasury for an aggregate of six quarters, the U.S. Treasury shall have the right to elect two directors to our Board.

On August 10, 2009, we announced the deferral of the payment of cash dividends on our outstanding Class C Preferred Stock and Class D Preferred Stock beginning with the regularly scheduled quarterly dividend payments that would otherwise have been made in August 2009, however we continue to record the declaration of such dividends and the related additional cumulative dividends on our deferred dividend payments in our consolidated financial statements. We have deferred such payments for ten quarterly periods as of December 31, 2011, as more fully described in Note 1 and Note 13 to our consolidated financial statements. On July 13, 2011, as a result of our deferral of dividends to the U.S. Treasury for six quarters, the U.S. Treasury elected two members to our Board of Directors.

See Note 13 to our consolidated financial statements for further discussion regarding our Class C Preferred Stock and Class D Preferred Stock.

2

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 December 31, 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		—		—	877,900	76,800
Total 2011 Capital Initiatives	$	688		2,058	913,100	82,600
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	5,550,400	579,100

____________________
 

(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 year ended December 31, 2011, we completed, or were in the process of completing, the following initiatives associated with our Capital Plan:

Ø

The sale of certain assets and the transfer of certain liabilities of our Florida franchise, or Florida Region, to an unaffiliated financial institution under a Branch Purchase and Assumption Agreement dated January 25, 2012. Under the terms of the agreement, the unaffiliated financial institution is to assume approximately $345.9 million of deposits associated with our 19 Florida retail branches for a premium of approximately 2.3%. The unaffiliated financial institution is also expected to purchase premises and equipment and assume the leases associated with our Florida Region at a discount of $1.2 million. The transaction, which is subject to regulatory approvals and certain customary closing conditions, is expected to be completed during the second or third quarter of 2012.

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 transaction.   The sale of the three branches in the above 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.

3

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 $3.93 billion at December 31, 2011, representing decreases of $913.1 million from $4.85 billion at December 31, 2010, $3.64 billion from $7.56 billion at December 31, 2009, $5.55 billion from $9.48 billion at December 31, 2008 and $6.32 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 “Management’s Discussion and Analysis of Financial Condition and Results of Operations —Financial Condition.”

See Note 2 to our consolidated financial statements for a discussion of initiatives associated with our Capital Plan that were completed during 2009 and 2010.

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	Successful implementation of the action items contained within our Profit Improvement Plan, as further discussed below;
Ø	Reduction in the overall level of our nonperforming assets and potential problem loans;
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, Northern Illinois and Florida 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 Codification^TM, or ASC, Topic 205-20, “Presentation of Financial Statements – Discontinued Operations,” to the assets and liabilities being sold related to our Florida Region as of December 31, 2011; to the assets and liabilities sold during 2011 related to our Northern Illinois Region as of December 31, 2010; and to the operations of our 19 Florida retail branches, 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, Missouri Valley Partners, Inc., or MVP, and Adrian N. Baker & Company, or ANB; for the years ended December 31, 2011, 2010, 2009, 2008 and 2007, as applicable. All financial information in this Annual Report on Form 10-K is reported on a continuing operations basis, unless otherwise noted. See Note 2 and Note 25 to our consolidated financial statements for further discussion regarding discontinued operations and subsequent events associated with discontinued operations.

Strategy. Our strategy emphasizes profitable growth within our market areas, aggressive management of asset quality and liquidity risks, and preservation and enhancement of risk-based capital. We have developed several plans around these actions, including the previously discussed Capital Plan, a Profit Improvement Plan, a Liquidity Plan and an Asset Quality Improvement Plan.

Our Profit Improvement Plan contains several action items regarding revenue enhancement and continued reduction of noninterest expenses including the following:

Ø Accelerating the reduction of special mention, substandard and nonaccrual loans and other real estate to reduce future provisions for loan losses, increase our net interest income and reduce noninterest expenses associated with these assets, including legal fees, other real estate write-downs and other real estate expenses related to property preservation, taxes, insurance and other items;

4

Ø	Developing new loan growth strategies, primarily within our commercial and industrial, owner-occupied commercial real estate and residential mortgage segments;
Ø	Re-pricing our deposits to current market interest rates while maintaining appropriate deposit portfolio diversification;
Ø	Utilizing low-yielding short-term investments to complete our divestitures associated with our Capital Plan, and increase our investment securities portfolio;
Ø	Pursuing opportunities to generate noninterest income through sales of other real estate properties, branch offices and other assets;
Ø	Increasing the volume of loans sold in the secondary market in our mortgage division through an expanded sales force and enhanced marketing initiatives; and
Ø	Evaluating opportunities to reduce noninterest expenses as a result of our smaller asset base and lower deposit volumes.

Our Liquidity Plan includes the following actions:

Ø	Maintaining and continuing to generate core deposits, including noninterest-bearing demand, interest-checking, money market and savings deposits;
Ø	Diversifying our loan portfolio, as previously discussed, including strategies surrounding potential sales or aggressive reductions of our retained Chicago, Texas, Northern Illinois and Florida loan portfolios;
Ø	Increasing our investment securities portfolio and maintaining appropriate levels of unpledged investment securities; and
Ø	Continuing to maximize potential borrowing relationships with the Federal Home Loan Bank, or FHLB, and the Federal Reserve Bank of St. Louis, or FRB, in the event utilization of these additional alternative funding sources becomes necessary in the future.

Our Asset Quality Improvement Plan includes the following actions intended to reduce the level of our nonperforming assets and loan charge-offs:

Ø	Developing written action plans for all credit relationships over $3.0 million with approval by the Regional President and Regional Credit Officer;
Ø	Actively pursuing troubled debt restructurings to position credits to return to performing status with sustained operating performance;
Ø	Eliminating or significantly reducing the potential exposure to our largest nonperforming credit relationships;
Ø	Pursuing opportunities to generate significant recoveries on previously charged-off loans;
Ø	Modifying one-to-four-family residential real estate loans under the Home Affordable Modification Program, or HAMP, where deemed economically advantageous to our borrowers and us;
Ø	Assessing our commercial real estate portfolio for early risk recognition and identification of potential areas for deteriorating commercial real estate loans, with increased emphasis on non-owner occupied loans;
Ø	Transferring certain nonperforming and potential problem credits to our special asset groups for further review, evaluation and development of appropriate strategies for exiting these relationships or significantly reducing our potential exposure; and
Ø	Further developing additional reporting mechanisms regarding asset quality related matters to assist management in further evaluating and assessing ongoing performance measurements and trends.

We believe the successful completion of the various components of these plans would substantially improve our financial performance and regulatory capital ratios. If we are not able to successfully complete a substantial portion of the action items contained within these plans, our business, financial condition, including our regulatory capital ratios, and results of operations may be materially and adversely affected and our ability to withstand continued adverse economic uncertainty could be threatened.

Lending Activities. As further discussed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations —Loans and Allowance for Loan Losses,” our business development efforts have historically been focused on the origination of the following general loan types: commercial, financial and agricultural loans; real estate construction and land development loans; commercial real estate mortgage loans and residential real estate mortgage loans. Our lending strategy emphasizes quality and diversification. Throughout our organization, we employ a common credit underwriting policy. In addition to underwriting based on estimates and projection of financial strength, collateral values and future cash flows, most loans to borrowing entities other than individuals require the guarantee of the parent company or entity sponsor, or in the case of smaller entities, the personal guarantees of the principals.

5

Commercial, Financial and Agricultural. Our commercial, financial and agricultural loan portfolio was $725.1 million, or 22.3% of total loans held for portfolio, at December 31, 2011, compared to $1.05 billion, or 23.5% of total loans, at December 31, 2010. Throughout the last three years, we have attempted to further diversify our loan portfolio by increasing our commercial, financial and agricultural lending opportunities. However, certain transactions associated with our Capital Plan during the last three years, including loan sale transactions and reclassifications of loans to discontinued operations, have reduced the percentage of commercial, financial and agricultural loans as a percentage of total loans. The primary component of commercial, financial and agricultural loans is commercial loans, which are made based on the borrowers’ general credit strength and ability to generate cash flows for repayment from income sources. Most of these loans are made on a secured basis, generally involving the use of company equipment, inventory and/or accounts receivable, and, from time to time, real estate, as collateral. Regardless of collateral, substantial emphasis is placed on the borrowers’ ability to generate cash flow sufficient to operate the business and provide coverage of debt servicing requirements. Commercial loans are frequently renewable annually, although some terms may be as long as five years. These loans typically require the borrower to satisfy certain operating covenants appropriate for the specific business, such as profitability, debt service coverage and current asset and leverage ratios, which are generally reported and monitored on a quarterly basis and subject to more detailed annual reviews. Commercial loans are made to customers primarily located in First Bank’s geographic trade areas of California, Missouri and Illinois that are engaged in manufacturing, retailing, wholesaling and service businesses. This portfolio is not concentrated in large specific industry segments that are characterized by sufficient homogeneity that would result in significant concentrations of credit exposure. Rather, it is a highly diversified portfolio that encompasses many industry segments. Within both our real estate and commercial lending portfolios, we strive for the highest degree of diversity that is practicable. We also emphasize the development of other service relationships, particularly deposit accounts, with our commercial borrowers.

Real Estate Construction and Development. Our real estate construction and land development loan portfolio was $250.0 million, or 7.7% of total loans held for portfolio, at December 31, 2011, compared to $490.8 million, or 11.1% of total loans, at December 31, 2010. Real estate construction and land development loans include commitments for construction of both residential and commercial properties. Commercial real estate projects often require commitments for permanent financing from other lenders upon completion of the project and, more typically, may include a short-term amortizing component of the initial financing. Commitments for construction of multi-tenant commercial and retail projects generally require lease commitments from a substantial primary tenant or tenants prior to commencement of construction. We typically engage in multi-phase, multi-tenant projects, as opposed to large vertical projects, that allow us to complete the financing for the projects in phases and limit the number of tenant building starts based upon successful lease and/or sale of the tenant units. We finance some projects for borrowers whose home office is located within our trade area but the particular project may be outside our normal trade area. Although we generally do not engage in developing commercial and residential construction lending business outside of our trade area, certain loans acquired in acquisitions from time to time and certain other loans have been related to projects outside of our trade area. Residential real estate construction and development loans are made based on the cost of land acquisition and development, as well as the construction of the residential units. Although we finance the cost of display units and units held for sale, a substantial portion of the loans for individual residential units have purchase commitments prior to funding. Residential condominium projects are funded as the building construction progresses, but funding of unit finishing is generally based on firm sales contracts.

Commercial Real Estate. Our commercial real estate loan portfolio was $1.23 billion, or 37.7% of total loans held for portfolio, at December 31, 2011, compared to $1.64 billion, or 37.0% of total loans, at December 31, 2010. Commercial real estate loans include loans for which the intended source of repayment is rental and other income from the real estate. This includes commercial real estate developed for lease to third parties as well as the owner’s occupancy. The underwriting of owner-occupied commercial real estate loans generally follows the procedures for commercial lending described above, except that the collateral is real estate, and the loan term may be longer. The primary emphasis in underwriting loans for which the source of repayment is the performance of the collateral is the projected cash flow from the real estate and its adequacy to cover the operating costs of the project and the debt service requirements. Secondary emphasis is placed on the appraised value of the real estate, with the requirement that the appraised liquidation value of the collateral must be adequate to repay the debt and related interest in the event the cash flow becomes insufficient to service the debt. Generally, underwriting terms require the loan principal not to exceed 80% of the appraised value of the collateral and the loan maturity not to exceed ten years. Commercial real estate loans are made for commercial office space, retail properties, industrial and warehouse facilities and recreational properties. We typically only finance commercial real estate or rental properties that have lease commitments for a majority of the rentable space.

Residential Real Estate Mortgage. Our one-to-four-family residential real estate mortgage loan portfolio was $902.4 million, or 27.7% of total loans held for portfolio, at December 31, 2011, compared to $1.05 billion, or 23.7% of total loans, at December 31, 2010. Residential real estate mortgage loans are primarily loans secured by single-family, owner-occupied properties. These loans include both adjustable rate and fixed rate mortgage loans. We typically originate residential real estate mortgage loans for sale in the secondary mortgage market in the form of a mortgage-backed security or to various private third-party investors, although from time-to-time, we retain certain residential mortgage loans, including home equity loans, in our loan portfolio as directed by management’s business strategies. Our residential real estate mortgage loans are generated through our branch office network as well as our mortgage division and are underwritten in accordance with conforming terms that allow the loans to be sold into the secondary market. We discontinued the origination of Alt A and Sub-prime mortgage loan products in 2007 and do not presently offer these loan products. Servicing rights may either be retained or released with respect to conventional, FHA and VA conforming fixed-rate and conventional adjustable rate residential mortgage loans.

6

Market Areas. As of December 31, 2011, First Bank’s 147 banking facilities were located in California, Florida, Illinois and Missouri. First Bank presently operates in the St. Louis metropolitan area, in eastern Missouri and throughout southern Illinois. First Bank also operates in southern California, including San Diego and the greater Los Angeles metropolitan area, including Ventura County, Riverside County and Orange County; in Santa Barbara County; in northern California, including the greater San Francisco, San Jose and Sacramento metropolitan areas; and, until completion of the anticipated sale, in Florida, including Bradenton and the greater Tampa metropolitan area. First Bank also has a loan production office in Cincinnati, Ohio.

The following table lists the geographic market areas in which First Bank operates, total deposits, deposits as a percentage of total deposits and the number of locations as of December 31, 2011:

			Deposits as a
	Total Deposits		Percentage of		Number of
Geographic Area	(in millions)		Total Deposits		Locations
Southern California	$	1,702.8	29.3	%	40
St. Louis, Missouri metropolitan area		1,281.7	22.1		34
Northern California		1,274.1	22.0		19
Southern Illinois		805.3	13.9		22
Missouri (excluding the St. Louis metropolitan area)		386.0	6.7		12
Florida (1)		346.2	6.0		19
Other		1.6	—		1
Total Deposits	$	5,797.7	100.0	%	147

____________________
 

(1) Includes deposits of approximately $345.9 million associated with the sale of our Florida Region, which is expected to be completed in the second or third quarter of 2012. See Note 2 and Note 25 to our consolidated financial statements for further discussion of discontinued operations.

Competition and Branch Banking. The activities in which First Bank engages are highly competitive. Those activities and the geographic markets served primarily involve competition with other banks, some of which are affiliated with large regional or national holding companies, and other financial services companies. Financial institutions compete based upon interest rates offered on deposit accounts and other credit and service charges, the types of products and quality of services rendered, the convenience of branch facilities, interest rates charged on loans and, in the case of loans to large commercial borrowers, relative lending limits.

Our principal competitors include other commercial banks, savings banks, savings and loan associations, and finance companies, including trust companies, credit unions, mortgage companies, leasing companies, private issuers of debt obligations and suppliers of other investment alternatives, such as securities firms and financial holding companies. Many of our non-bank competitors are not subject to the same degree of regulation as that imposed on bank holding companies, federally insured banks and national or state chartered banks. As a result, such non-bank competitors have advantages over us in providing certain services. We also compete with major multi-bank holding companies, which are significantly larger than us and have greater access to capital and other resources.

Employees. We employed approximately 1,171 full-time equivalent employees at December 31, 2011, exclusive of discontinued operations. None of the employees are subject to a collective bargaining agreement. We consider our relationships with our employees to be good.

Supervision and Regulation.

General. Along with First Bank, we are extensively regulated by federal and state laws and regulations which are designed to protect depositors of First Bank and the safety and soundness of the U.S. banking system, not our debt holders or stockholders. To the extent this discussion refers to statutory or regulatory provisions, it is not intended to summarize all such provisions and is qualified in its entirety by reference to the relevant statutory and regulatory provisions. Changes in applicable laws, regulations or regulatory policies may have a material effect on our business and prospects. We are unable to predict the nature or extent of the effects on our business and earnings that new federal and state legislation or regulation may have. The enactment of the legislation described below has significantly affected the banking industry generally and is likely to have ongoing effects on First Bank and us in the future.

7

As a registered bank holding company under the Bank Holding Company Act of 1956, as amended, we are subject to regulation and supervision of the Board of Governors of the Federal Reserve System, or Federal Reserve. We file annual reports with the Federal Reserve and provide to the Federal Reserve additional information as it may require. Many of our nonbank subsidiaries are also subject to the laws and regulations of both the federal government and the various states in which they conduct business. As an originator of small business loans, we are also regulated by the U.S. Small Business Administration, or SBA.

Regulatory Agreements. On March 24, 2010, the Company, SFC and First Bank entered into a Written Agreement, or Agreement, with 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.

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. The Company and First Bank have received, or may receive in the future, 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 has responded promptly to any such requests and intends to do so in the future. 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 14 to our consolidated financial statements, First Bank’s Tier 1 capital to total assets ratio was 8.37% at December 31, 2011.

8

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.

Bank Holding Company Regulation. The activities of bank holding companies are generally limited to the business of banking, managing or controlling banks, and other activities that the Federal Reserve has determined to be so closely related to banking or managing or controlling banks as to the proper incident thereto. In addition, under the Gramm-Leach-Bliley Act, or GLB Act, which was enacted in November 1999 and is further discussed below, a bank holding company, whose control depository institutions are “well-capitalized” and “well-managed” (as defined in Federal Banking Regulations), and which obtains “satisfactory” Community Reinvestment Act (discussed briefly below) ratings, may declare itself to be a “financial holding company” and engage in a broader range of activities. As of this date, we are not a “financial holding company.”

We are also subject to capital requirements applied on a consolidated basis, which are substantially similar to those required of First Bank (briefly summarized below). The Bank Holding Company Act also requires a bank holding company to obtain approval from the Federal Reserve before:

Ø	Acquiring, directly or indirectly, ownership or control of any voting shares of another bank or bank holding company if, after such acquisition, it would own or control more than 5% of such shares (unless it already owns or controls a majority of such shares);
Ø	Acquiring all or substantially all of the assets of another bank or bank holding company; or
Ø	Merging or consolidating with another bank holding company.

The Federal Reserve will not approve any acquisition, merger or consolidation that would have a substantially anticompetitive result, unless the anti-competitive effects of the proposed transaction are clearly outweighed by a greater public interest in meeting the convenience and needs of the community to be served. The Federal Reserve also considers capital adequacy and other financial and managerial factors in reviewing acquisitions and mergers.

Safety and Soundness and Similar Regulations. We are subject to various regulations and regulatory policies directed at the financial soundness of First Bank. These include, but are not limited to: the Federal Reserve’s source of strength policy, which obligates a bank holding company such as us to provide financial and managerial strength to its subsidiary banks; restrictions on the nature and size of certain affiliate transactions between a bank holding company and its subsidiary depository institutions; and restrictions on extensions of credit by its subsidiary banks to executive officers, directors, principal stockholders and the related interests of such persons.

Regulatory Capital Standards. The federal bank regulatory agencies have adopted substantially similar risk-based and leverage capital guidelines for banking organizations. Risk-based capital ratios are determined by classifying assets and specified off-balance sheet obligations and financial instruments into weighted categories, with higher levels of capital being required for categories deemed to represent greater risk. Federal Reserve policy also provides that banking organizations generally, and particularly those that are experiencing internal growth or actively making acquisitions, are expected to maintain capital positions that are substantially above the minimum supervisory levels, without significant reliance on intangible assets.

Under the risk-based capital standard, the minimum consolidated ratio of total capital to risk-adjusted assets required for bank holding companies is 8% and the minimum consolidated ratio of Tier I capital (as described below) to risk-adjusted assets required for bank holding companies is 4%. At least one-half of the total capital must be composed of common equity, retained earnings, qualifying noncumulative perpetual preferred stock, a limited amount of qualifying cumulative perpetual preferred stock and noncontrolling interests in the equity accounts of consolidated subsidiaries, less certain items such as goodwill and certain other intangible assets, which amount is referred to as “Tier I capital.” The remainder may consist of qualifying hybrid capital instruments, perpetual debt, mandatory convertible debt securities, a limited amount of subordinated debt, preferred stock that does not qualify as Tier I capital and a limited amount of loan and lease loss reserves, which amount, together with Tier I capital, is referred to as “Total Risk-Based Capital.”

In addition to the risk-based standard, we are subject to minimum requirements with respect to the ratio of our Tier I capital to our average assets less goodwill and certain other intangible assets, or the Leverage Ratio. Applicable requirements provide for a minimum Leverage Ratio of 3% for bank holding companies that have the highest supervisory rating, while all other bank holding companies must maintain a minimum Leverage Ratio of at least 4% to 5%. The Office of the Comptroller of the Currency and the FDIC have established capital requirements for banks under their respective jurisdictions that are consistent with those imposed by the Federal Reserve on bank holding companies.

9

As further described in Note 14 to our consolidated financial statements, First Bank was categorized as well capitalized at December 31, 2011 and 2010 under the prompt corrective action provisions of the regulatory capital standards. The Company did not meet the minimum regulatory capital standards established for bank holding companies by the Federal Reserve at December 31, 2011 and 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 federal regulatory authorities’ risk-based capital guidelines are based upon the 1988 capital accord (Basel I) of the Basel Committee on Banking Supervision, or the Basel Committee. The Basel Committee is a committee of central banks and bank supervisors/regulators from the major industrialized countries that develops broad policy guidelines for use by each country’s supervisors in determining the supervisory policies and regulations to which they apply. Actions of the Basel Committee have no direct effect on banks in participating countries. In 2004, the Basel Committee published a new capital accord (Basel II) to replace Basel I. Basel II provides two approaches for setting capital standards for credit risk – an internal ratings-based approach tailored to individual institutions’ circumstances and a standardized approach that bases risk weightings on external credit assessments to a much greater extent than permitted in existing risk-based capital guidelines. Basel II also sets capital requirements for operational risk and refines the existing capital requirements for market risk exposures. Basel II applies only to certain large or internationally active banking organizations, or “core banks,” defined as those with consolidated total assets of $250 billion or more or consolidated on-balance sheet foreign exposures of $10 billion or more and, accordingly, currently does not apply to the Company.

In 2009, the U.S. Treasury issued a policy statement, or the Treasury Policy Statement, entitled “Principles for Reforming the U.S. and International Regulatory Capital Framework for Banking Firms,” which contemplates changes to the existing regulatory capital regime involving substantial revisions to major parts of the Basel I and Basel II capital frameworks and affecting all regulated banking organizations and other systemically important institutions. The Treasury Policy Statement calls for, among other things, higher and stronger capital requirements for all banking firms, with changes to the regulatory capital framework to be phased in over a period of several years.

In December 2009, the Basel Committee issued a set of proposals, or the 2009 Capital Proposals, that would significantly revise the definitions of Tier 1 capital and Tier 2 capital. Among other things, the 2009 Capital Proposals would re-emphasize that common equity is the predominant component of Tier 1 capital. Concurrently with the release of the 2009 Capital Proposals, the Basel Committee also released a set of proposals related to liquidity risk exposure, or the 2009 Liquidity Proposals. The 2009 Liquidity Proposals include the implementation of (i) a liquidity coverage ratio, or LCR, designed to ensure that a bank maintains an adequate level of unencumbered, high-quality assets sufficient to meet the bank’s liquidity needs over a 30-day time horizon under an acute liquidity stress scenario and (ii) a net stable funding ratio, or NSFR, designed to promote more medium and long-term funding of the assets and activities of banks over a one-year time horizon.

In December 2010 and January 2011, the Basel Committee published the final texts of reforms on capital and liquidity generally referred to as Basel III. Although Basel III is intended to be implemented by institutions with greater than $50 billion in assets, its provisions are likely to be considered by United States banking regulators in developing new regulations applicable to other banks in the United States, including First Bank.

10

For banks in the United States, among the most significant provisions of Basel III concerning capital are the following:

Ø	A minimum ratio of common equity to risk-weighted assets reaching 4.5%, plus an additional 2.5% as a capital conservation buffer, by 2019 after a phase-in period;
Ø	A minimum ratio of Tier 1 capital to risk-weighted assets reaching 6.0%, plus an additional 2.5% as a capital conservation buffer, by 2019 after a phase-in period;
Ø	A minimum ratio of total capital to risk-weighted assets reaching 8.0%, plus an additional 2.5% capital conservation buffer, by 2019 after a phase-in period;
Ø	An additional countercyclical capital buffer to be imposed by applicable national banking regulators periodically at their discretion, with advance notice;
Ø	Restrictions on capital distributions and discretionary bonuses applicable when capital ratios fall within the buffer zone;
Ø	Deduction from common equity of deferred tax assets that depend on future profitability to be realized;
Ø	Accumulated comprehensive income items, such as the fair value adjustment on investment securities, are not excluded, which could result in significant variations in the level of capital depending upon the impact of interest rate fluctuations on the fair value of the Company’s investment securities portfolio;
Ø	Increased capital requirements for counterparty credit risk relating to over-the-counter derivatives, repurchase agreements and securities financing activities; and
Ø	For capital instruments issued on or after January 13, 2013 (other than common equity), a loss-absorbency requirement such that the instrument must be written off or converted to common equity if a trigger event occurs, either pursuant to applicable law or at the direction of the banking regulator. A trigger event is an event under which the banking entity would become nonviable without the write-off or conversion, or without an injection of capital from the public sector. The issuer must maintain authorization to issue the requisite shares of common equity if conversion were required.

The timing for the federal banking agencies’ publication of proposed rules to implement the Basel III capital framework and the implementation schedule is uncertain, but the federal banking agencies have indicated informally that rules implementing the Basel III capital framework will be published for comment during the first half of 2012. The rules ultimately adopted and made applicable to the Company may be different from the Basel III final framework as published in December 2010.

Prompt Corrective Action. The FDIC Improvement Act, or FDICIA, requires the federal bank regulatory agencies to take prompt corrective action in respect to depository institutions that do not meet minimum capital requirements. A depository institution’s status under the prompt corrective action provisions depends upon how its capital levels compare to various relevant capital measures and other factors as established by regulation.

The federal regulatory agencies have adopted regulations establishing relevant capital measures and relevant capital levels. Under the regulations, a bank will be:

Ø	“Well capitalized” if it has a total risk-based capital ratio of 10% or greater, a Tier I capital ratio of 6% or greater and a Leverage Ratio of 5% or greater and is not subject to any order or written directive by any such regulatory authority to meet and maintain a specific capital level for any capital measure;
Ø	“Adequately capitalized” if it has a total risk-based capital ratio of 8% or greater, a Tier I capital ratio of 4% or greater and a Leverage Ratio of 4% or greater (3% in certain circumstances);
Ø	“Undercapitalized” if it has a total risk-based capital ratio of less than 8%, a Tier I capital ratio of less than 4% or a Leverage Ratio of less than 4% (3% in certain circumstances);
Ø	“Significantly undercapitalized” if it has a total risk-based capital ratio of less than 6%, a Tier I capital ratio of less than 3% or a Leverage Ratio of less than 3%; and
Ø	“Critically undercapitalized” if its tangible equity is equal to or less than 2% of its average quarterly tangible assets.

Under certain circumstances, a depository institution’s primary federal regulatory agency may use its authority to lower the institution’s capital category. The banking agencies are permitted to establish individual minimum capital requirements exceeding the general requirements described above. See further discussion above under “—Regulatory Agreements.” Generally, failing to maintain the status of “well capitalized” or “adequately capitalized” subjects a bank to restrictions and limitations on its business that become progressively more severe as the capital levels decrease.

A bank is prohibited from making any capital distribution (including payment of a dividend) or paying any management fee to its holding company if the bank would thereafter be “undercapitalized.” Limitations exist for “undercapitalized” depository institutions regarding, among other things, asset growth, acquisitions, branching, new lines of business, acceptance of brokered deposits and borrowings from the Federal Reserve System. These institutions are also required to submit a capital restoration plan that includes a guarantee from the institution’s holding company. “Significantly undercapitalized” depository institutions may be subject to a number of requirements and restrictions, including orders to sell sufficient voting stock to become “adequately capitalized,” requirements to reduce total assets and cessation of receipt of deposits from correspondent banks. The appointment of a receiver or conservator may be required for “critically undercapitalized” institutions.

11

Dividends.Our primary source of funds in the future is the dividends, if any, paid by First Bank. The ability of First Bank to pay dividends is limited by federal laws, by regulations promulgated by the bank regulatory agencies and by principles of prudent bank management. The dividend limitations are further described in Note 22 to our consolidated financial statements appearing elsewhere in this report. In addition, First Bank has agreed that it will not declare or pay any dividends or make certain other payments to us without the prior consent of the MDOF and the FRB, as previously discussed under “—Regulatory Agreements.”

Federal Deposit Insurance Reform. The FDIC maintains the Deposit Insurance Fund (the “DIF”), which was created in 2006. The deposit accounts of First Bank are insured by the DIF to the maximum amount provided by law. This insurance is backed by the full faith and credit of the United States Government. As insurer, the FDIC is authorized to conduct examinations of and to require reporting by DIF-insured institutions. It also may prohibit any DIF-insured institution from engaging in any activity the FDIC determines by regulation or order to pose a serious threat to the DIF. The FDIC also has the authority to take enforcement actions against insured institutions. Insurance of deposits may be terminated by the FDIC upon a finding that the institution has engaged or is engaging in unsafe and unsound practices, is in an unsafe or unsound condition to continue operations or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC or written agreement entered into with the FDIC. We do not know of any practice, condition or violation that might lead to termination of deposit insurance.

The FDIC imposes assessments for deposit insurance on an insured institution on a quarterly basis. The Dodd-Frank Act (as defined and further described below) required the FDIC to establish rules setting insurance premium assessments based on an institution’s total assets minus its tangible equity instead of its deposits. These rules were finalized on February 7, 2011 and set base assessment rates for institutions in Risk Categories II, III and IV at annual rates of 14, 23 and 35 basis points, respectively. The base assessment rate for a Risk Category I institution was set at a range of five to nine basis points. These initial base assessment rates are adjusted to determine an institution’s final assessment rate based on its brokered deposits and unsecured debt. Total base assessment rates after adjustments range from 2.5 to 9 basis points for Risk Category I, 9 to 24 basis points for Risk Category II, 18 to 33 basis points for Risk Category III, and 30 to 45 basis points for Risk Category IV.

In addition, all institutions with deposits insured by the FDIC are required to pay assessments to fund interest payments on bonds issued by the Financing Corporation, a mixed-ownership government corporation established to recapitalize a predecessor to the DIF. These assessments will continue until the Financing Corporation bonds mature in 2019.

Pursuant to the Dodd-Frank Act, the FDIC has established 2.0% as the designated reserve ratio, or DRR, that is, the ratio of the DIF to insured deposits. The FDIC has adopted a plan under which it will meet the statutory minimum DRR of 1.35% by September 30, 2020, the deadline imposed by the Dodd-Frank Act.

In November 2010 and January 2011, the FDIC, as mandated by Section 343 of the Dodd-Frank Act, adopted rules providing for unlimited deposit insurance for traditional noninterest-bearing transaction accounts and IOLTA accounts for two years beginning on December 31, 2010. This coverage applies to all insured deposit institutions, and there is no separate FDIC assessment for the insurance. Furthermore, this unlimited coverage is separate from, and in addition to, the coverage provided to depositors with respect to other accounts held at an insured depository institution.

Customer Protection. First Bank is also subject to consumer laws and regulations intended to protect consumers in transactions with depository institutions, as well as other laws or regulations affecting customers of financial institutions generally. These laws and regulations mandate various disclosure requirements and substantively regulate the manner in which financial institutions must deal with their customers. First Bank must comply with numerous regulations in this regard and is subject to periodic examinations with respect to its compliance with the requirements.

Community Reinvestment Act. The Community Reinvestment Act of 1977, or CRA, requires that, in connection with examinations of financial institutions within their jurisdiction, the federal banking regulators evaluate the record of the financial institutions in meeting the credit needs of their local communities, including low and moderate income neighborhoods, consistent with the safe and sound operation of those financial institutions. These factors are also considered in evaluating mergers, acquisitions and other applications to expand.

12

The Gramm-Leach-Bliley Act. The GLB Act, enacted in 1999, amended and repealed portions of the Glass-Steagall Act and other federal laws restricting the ability of bank holding companies, securities firms and insurance companies to affiliate with each other and to enter new lines of business. The GLB Act established a comprehensive framework to permit financial companies to expand their activities, including through such affiliations, and to modify the federal regulatory structure governing some financial services activities. The GLB Act also adopted consumer privacy safeguards requiring financial services providers to disclose their policies regarding the privacy of customer information to their customers and, subject to some exceptions, allowing customers to “opt out” of policies permitting such companies to disclose confidential financial information to non-affiliated third parties.

The Sarbanes-Oxley Act.The Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley, imposes a myriad of corporate governance and accounting measures designed to increase corporate responsibility, to provide for enhanced penalties for accounting and auditing improprieties at publicly traded companies, and to protect investors by improving the accuracy and reliability of disclosures under securities laws. All public companies that file periodic reports with the SEC are affected by Sarbanes-Oxley. Sarbanes-Oxley addresses, among other matters: (i) the creation of an independent accounting oversight board to oversee the audit of public companies and auditors who perform such audits; (ii) auditor independence provisions which restrict non-audit services that independent accountants may provide to their audit clients; (iii) additional corporate governance and responsibility measures which require the chief executive officer and chief financial officer to certify financial statements, to forfeit salary and bonuses in certain situations, and protect whistleblowers and informants; (iv) expansion of the audit committee’s authority and responsibility by requiring that the audit committee have direct control of the outside auditor, be able to hire and fire the auditor, and approve all non-audit services; (v) requirements that audit committee members be independent; (vi) disclosure of a code of ethics; and (vii) enhanced penalties for fraud and other violations. The provisions of Sarbanes-Oxley also require that management assess the effectiveness of internal control over financial reporting and that the independent auditor issue an attestation report on management’s report on internal control over financial reporting. As we are a non-accelerated filer, management’s report on internal control over financial reporting was not subject to attestation by the Company’s Independent Registered Public Accounting Firm as of December 31, 2011, as further discussed under “Item 9A — Controls and Procedures.”

The USA Patriot Act. The USA Patriot Act, or Patriot Act, is intended to strengthen the ability of U.S. law enforcement agencies and the intelligence communities to work cohesively to combat terrorism on a variety of fronts. The impact of the Patriot Act on financial institutions is significant and wide ranging. The Patriot Act contains sweeping anti-money laundering and financial transparency laws and imposes various regulations, including standards for verifying client identification at account opening, and rules to promote cooperation among financial institutions, regulators and law enforcement entities in identifying parties that may be involved in terrorism or money laundering.

Reserve Requirements; Federal Reserve System and Federal Home Loan Bank System. First Bank is a member of the Federal Reserve System and the Federal Home Loan Bank System. As a member, First Bank is required to hold investments in those systems. First Bank was in compliance with these requirements at December 31, 2011, as further described in Note 1 to our consolidated financial statements.

The Federal Reserve requires all depository institutions to maintain reserves against their transaction accounts and non-personal time deposits. The balances maintained to meet the reserve requirements imposed by the Federal Reserve may be used to satisfy liquidity requirements.

First Bank has established a borrowing relationship with the FRB, which is primarily secured by commercial loans, and provides an additional liquidity facility that may be utilized for contingency purposes. Advances drawn on First Bank’s established borrowing relationship require prior approval of the FRB. First Bank also has established a borrowing relationship with the FHLB of Des Moines. The borrowing relationship is secured by one-to-four-family residential, multi-family residential and commercial real estate loans. First Bank requests advances and/or repays advances from the FHLB based on its current and future projected liquidity needs. Advances from the FHLB require prior approval of the FHLB. See further discussion under “Management’s Discussion and Analysis of Financial Condition and Results of Operations —Liquidity Management.”

Monetary Policy and Economic Control. The commercial banking business is affected by legislation, regulatory policies and general economic conditions as well as the monetary policies of the Federal Reserve. The instruments of monetary policy available to the Federal Reserve include the following: (i) changes in the discount rate on member bank borrowings and the targeted federal funds rate; (ii) the availability of credit at the discount window; (iii) open market operations; (iv) the imposition of and changes in reserve requirements against deposits of domestic banks; (v) the imposition of and changes in reserve requirements against deposits and assets of foreign branches; and (vi) the imposition of and changes in reserve requirements against certain borrowings by banks and their affiliates.

13

These monetary policies are used in varying combinations to influence overall growth and distributions of bank loans, investments and deposits, and this use may affect interest rates charged on loans or paid on liabilities. The monetary policies of the Federal Reserve have had a significant effect on the operating results of commercial banks and are expected to do so in the future. Such policies are influenced by various factors, including inflation, unemployment, and short-term and long-term changes in the international trade balance and in the fiscal policies of the U.S. Government. We cannot predict the effect that changes in monetary policy or in the discount rate on member bank borrowings will have on our future business and earnings or those of First Bank.

United States Securities and Exchange Commission. We are also under the jurisdiction of the SEC and certain state securities commissions for matters relating to the offering and sale of our securities. We are subject to disclosure and regulatory requirements of the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, as administered by the SEC. The securities issued by one of our affiliated trusts are registered under the Securities Exchange Act of 1934 and are listed on the NYSE under the trading symbol “FBSPrA,” and therefore, we are subject to certain rules and regulations of the NYSE.

United States Department of the Treasury. As further described above under “Item 1 —Business – Ownership Structure,” on December 31, 2008, we completed the sale to the U.S. Treasury of $295.4 million of newly-issued non-voting preferred stock as part of the CPP. The U.S. Treasury has certain supervisory and oversight duties and responsibilities under the CPP and, pursuant to the terms of the Purchase Agreement, the U.S. Treasury is empowered to unilaterally amend any provision of the Purchase Agreement with us to the extent required to comply with any changes in applicable federal statutes. In addition, as a result of our 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 our Board. On July 13, 2011, the U.S. Treasury elected two members to our Board of Directors.

SIGTARP. The Special Inspector General for the Troubled Asset Relief Program, or SIGTARP, was established pursuant to Section 121 of the Emergency Economic Stabilization Act of 2008, or EESA, and has the duty, among other things, to conduct, supervise, and coordinate audits and investigations of the purchase, management and sale of assets by the U.S. Treasury under the CPP, including the shares of non-voting preferred shares purchased from us.

Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010.The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Dodd-Frank Act, implements far-reaching changes across the financial regulatory landscape, including provisions that, among other things:

Ø	Provides that debit card interchange fees must be reasonable and proportional to the cost incurred by the issuer with respect to the transaction. This provision is known as the “Durbin Amendment.” In June 2011, the Board of Governors of the Federal Reserve System adopted regulations setting the maximum permissible interchange fee as the sum of 21 cents per transaction and 5 basis points multiplied by the value of the transaction, with an additional adjustment of up to one cent per transaction if the issuer implements certain fraud-prevention standards. Banks with total assets less than $10 billion, such as First Bank, are not presently impacted by the Durbin Amendment;
Ø	After a three-year phase-in period which begins January 1, 2013, removes trust preferred securities as a permitted component of a holding company’s Tier 1 capital for holding companies with more than $15 billion of assets, and restricts new issuances of trust preferred securities from being included as Tier 1 capital for all holding companies;
Ø	Changes the basis for determining FDIC premiums from deposits to assets less tangible capital, eliminated the ceiling and the size of the DIF and increased the floor applicable to the size of the DIF;
Ø	Creates a new Consumer Financial Protection Bureau that will have rulemaking authority for a wide range of consumer protection laws that would apply to all banks and would have broad powers to supervise and enforce consumer protection laws;
Ø	Provides for new disclosure and other requirements relating to executive compensation and corporate governance;
Ø	Changes standards for federal preemption of state laws related to federally chartered institutions and their subsidiaries;
Ø	Provides mortgage reform provisions regarding a customer’s ability to repay, restricting variable-rate lending by requiring the ability to repay to be determined for variable-rate loans by using the maximum rate that will apply during the first five years of a variable-rate loan term, and making more loans subject to provisions for higher cost loans, new disclosures, and certain other revisions;
Ø	Creates a financial stability oversight council that will recommend to the Federal Reserve increasingly strict rules for capital, leverage, liquidity, risk management and other requirements as companies grow in size and complexity;
Ø	Permanently increases the deposit insurance coverage to $250,000;
Ø	Repeals the federal prohibitions on the payment of interest on demand deposits, thereby permitting depository institutions to pay interest on business transaction and other accounts;

Ø	Requires publicly-traded bank holding companies with assets of $10 billion or more to establish a risk committee responsible for enterprise-wide risk management practices;
Ø	Increases the authority of the Federal Reserve in its regular examinations;
Ø	Requires all bank holding companies to serve as a source of financial strength to their depository institution subsidiaries in the event such subsidiaries suffer from financial distress; and
Ø	Restricts proprietary trading by banks, bank holding companies and others, and their acquisition and retention of ownership interests in and sponsorship of hedge funds and private equity funds.

14

Many aspects of the Dodd-Frank Act are subject to rulemaking and will take effect over several years, making it difficult to anticipate the overall impact on the operations and financial condition of the Company. Provisions in the legislation that affect deposit insurance assessments and payment of interest on demand deposits could increase the cost associated with deposits. Provisions in the legislation that require revisions to the capital requirements of the Company and First Bank could require the Company and First Bank to seek additional sources of capital in the future.

CPP Related Compensation and Corporate Governance Requirements. The EESA was signed into law in October 2008 and authorized the U.S. Treasury to provide funds to be used to restore liquidity and stability to the U.S. financial system pursuant to the CPP. Under the authority of EESA, the U.S. Treasury instituted the TARP Capital Purchase Program to encourage U.S. financial institutions to build capital to increase the flow of financing to U.S. businesses and consumers and to support the U.S. economy. As noted above, on December 31, 2008, we participated in this program by issuing 295,400 shares of the Company’s Class C Preferred Stock to the U.S. Treasury for a purchase price of $295.4 million in cash and a Warrant to acquire up to 14,784.78478 shares of Class D Preferred Stock at an exercise price of $1.00 per share.

In addition to the restrictions on the Company’s ability to pay dividends on and repurchase its stock, participation in the CPP also includes certain requirements and restrictions regarding compensation that were expanded significantly by the American Recovery and Reinvestment Act of 2009, or ARRA, as implemented by U.S. Treasury’s Interim Final Rule on TARP Standards for Compensation and Corporate Governance. These requirements and restrictions include, among others, the following: (i) a prohibition on paying or accruing bonuses, retention awards and incentive compensation, other than qualifying long-term restricted stock or pursuant to certain preexisting employment contracts, to the Company’s five most highly-compensated employees; (ii) a general prohibition on providing severance benefits, or other benefits due to a change in control of the Company, to the Company’s senior executive officers (“SEOs”) and next five most highly compensated employees; (iii) a requirement to make subject to clawback any bonus, retention award, or incentive compensation paid to any of the SEOs and any of the next 20 most highly compensated employees if such compensation was based on materially inaccurate financial statements or any other materially inaccurate performance metric criteria; (iv) a requirement to establish a policy on luxury or excessive expenditures; (v) a requirement to annually provide shareholders with a non-binding advisory “say on pay” vote on executive compensation; (vi) a prohibition on deducting more than $500,000 in annual compensation, including performance-based compensation, to the executives covered under Internal Revenue Code Section 162(m); (vii) a requirement that the compensation committee of the board of directors evaluate and review on a semi-annual basis the risks involved in employee compensation plans; and (viii) a prohibition on providing tax “gross-ups” to the Company’s SEOs and the next 20 most highly compensated employees. These requirements and restrictions will remain applicable to the Company until the U.S. Treasury ceases to own any shares of the Company’s Class C Preferred Stock and Class D Preferred Stock.

Incentive Compensation. In October 2009, the Federal Reserve issued a comprehensive proposal on incentive compensation policies, or the Incentive Compensation Proposal, intended to ensure that the incentive compensation policies of banking organizations do not undermine the safety and soundness of such organizations by encouraging excessive risk-taking. The Incentive Compensation Proposal, which covers all employees that have the ability to materially affect the risk profile of an organization, either individually or as part of a group, is based upon the key principles that a banking organization’s incentive compensation arrangements should (i) provide incentives that do not encourage risk-taking beyond the organization’s ability to effectively identify and manage risks, (ii) be compatible with effective internal controls and risk management, and (iii) be supported by strong corporate governance, including active and effective oversight by the organization’s board of directors.

The scope and content of the U.S. banking regulators’ policies on executive compensation are continuing to develop and are likely to continue evolving in the near future. It cannot be determined at this time whether compliance with such policies will adversely affect our ability to hire, retain and motivate our key employees. See further discussion under Item 11 — Executive Compensation.

15

Other Future Legislation and Changes in Regulations. In addition to the specific proposals described above, from time to time, various legislative and regulatory initiatives are introduced in Congress and state legislatures, as well as by regulatory agencies. Such initiatives may include proposals to expand or contract the powers of bank holding companies and depository institutions or proposals to substantially change the financial institution regulatory system. Such legislation could change banking statutes and the operating environment of the Company in substantial and unpredictable ways. If enacted, such legislation could increase or decrease the cost of doing business, limit or expand permissible activities or affect the competitive balance among banks, savings associations, credit unions, and other financial institutions. The Company cannot predict whether any such legislation will be enacted, and, if enacted, the effect that it, or any implementing regulations, would have on the financial condition or results of operations of the Company. A change in statutes, regulations or regulatory policies applicable to us or any of our subsidiaries could have a material effect on the Company’s business, financial condition or results of operations.

Item 1A. Risk Factors

Readers of our Annual Report on Form 10-K should consider the risk factors described below in conjunction with the other information included in this Annual Report on Form 10-K, including Management’s Discussion and Analysis of Financial Condition and Results of Operations, our Selected Financial Data, our consolidated financial statements and the related notes thereto, and the financial and other data contained elsewhere in this report. See also “Special Note Regarding Forward-Looking Statements and Factors that Could Affect Future Results” appearing at the beginning of this report. The order of the risk factors described below is not indicative of likelihood or significance.

Our results of operations, financial condition and business may be materially, adversely affected if we fail to successfully implement our Capital Plan. Our Capital Plan contemplates a number of different strategies intended to reduce our costs, increase our risk-based capital ratios and enable us to withstand and better respond to continuing adverse market conditions. There can be no assurance, however, that we will be able to successfully implement each or every component of our Capital Plan in a timely manner or at all, and a number of events and conditions must occur in order for the plan to achieve its intended effect. If we are not able to successfully complete our Capital Plan, we could be adversely impacted and our ability to withstand continued adverse economic conditions could be threatened.

We could be compelled to seek additional capital in the future, but capital may not be available when it is needed. Our holding company, First Banks, did not meet the minimum regulatory capital standards established for bank holdings companies by the Federal Reserve at December 31, 2011. 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 Company’s financial statements. A number of financial institutions have raised considerable amounts of capital as a result of deterioration in their results of operations and financial condition arising from turmoil in the mortgage loan market, weak economic conditions, declines in real estate values and other factors, which may diminish our ability to raise additional capital. Our previously announced Capital Plan also contemplates raising additional capital in an effort to improve our capital position.

Our ability to raise additional capital, as part of our Capital Plan or otherwise, will depend on conditions in the capital markets, economic conditions and a number of other factors, many of which are outside of our control (including the response to any offers to current holders of the Company’s securities), and on our financial performance. Accordingly, we cannot be assured of our ability to raise additional capital, as part of our Capital Plan or otherwise, or on terms acceptable to us. If we are unable to raise additional capital, as part of our Capital Plan or otherwise, on terms satisfactory to us, our financial condition, results of operations, business prospects and our regulatory capital ratios and those of First Bank may be materially and adversely affected. If we are unable to raise additional capital, as part of our Capital Plan or otherwise, we may also be subjected to increased regulatory supervision, which could result in the imposition of additional regulatory restrictions on our operations and/or regulatory enforcement actions and could also potentially limit our future growth opportunities. These restrictions could negatively impact our ability to manage or expand our operations in a manner that we may deem beneficial to our stockholders and debt holders and could result in significant increases in our operating expenses or decreases in our revenues.

The Company, SFC and First Bank entered into an Agreement with the Federal Reserve Bank of St. Louis. As further described under “—Supervision and Regulation – Regulatory Agreements,” the Company, SFC and First Bank entered into an Agreement with the FRB. Although we cannot predict the ramifications that would result from the failure to comply with each of the provisions of the Agreement, the failure to comply could have a material adverse effect on our business, financial condition, results of operations and cash flows. Furthermore, under the Agreement, the Company, SFC and First Bank must receive approval from the FRB prior to paying any dividends on capital stock or making any interest payments on the Company’s outstanding junior subordinated debentures, which represent the source of distributions to holders of trust preferred securities.

16

We are subject to extensive government regulation and supervision. We are subject to extensive federal and state regulation and supervision. Banking regulations are primarily intended to protect depositors’ funds, federal deposit insurance funds and the banking system as a whole, not security holders. These regulations affect our lending practices, capital structure, investment practices, dividend policy and growth, among other things. Congress and federal regulatory agencies continually review banking laws, regulations and policies for possible changes. The Dodd-Frank Act instituted major changes to the banking and financial institutions regulatory regimes in light of the recent performance of and government intervention in the financial services sector. Other changes to statutes, regulations or regulatory policies, including changes in interpretation or implementation of statutes, regulations or policies, could affect us in substantial and unpredictable ways. Such changes could subject us to additional costs, limit the types of financial services and products we may offer and/or increase the ability of non-banks to offer competing financial services and products, among other things. Failure to comply with laws, regulations or policies could result in sanctions by regulatory agencies, civil money penalties and/or reputation damage, which could have a material adverse effect on our business, financial condition and results of operations. For a further discussion of these matters, see “Item 1. Business —Supervision and Regulation.”

Changes in economic conditions could negatively and materially impact our business. Our business is directly affected by factors such as economic, political and market conditions, broad trends in industry and finance, legislative and regulatory changes, changes in government monetary and fiscal policies and inflation, all of which are beyond our control. A continued deterioration in economic conditions or lack of improvement in economic conditions may result in the following consequences, any of which could negatively and materially impact or continue to negatively and materially impact our business:

Ø	Loan delinquencies may continue to increase or remain at elevated levels;
Ø	Problem assets and foreclosures may continue to increase or remain at elevated levels;
Ø	High unemployment may continue;
Ø	Demand for our products and services may decline;
Ø	Low cost or noninterest bearing deposits may decrease; and
Ø	Collateral pledged to us by our customers for loans made by us, especially residential and commercial real estate property may decline or continue to decline in value, in turn reducing our customers’ borrowing power, and thereby reducing the value of the underlying assets and collateral associated with our existing loans.

Our emphasis on commercial real estate lending and real estate construction and development lending has increased our credit risk.A substantial portion of our loans are secured by commercial real estate. Commercial real estate and real estate construction and development loans were $1.23 billion and $250.0 million, respectively, at December 31, 2011, representing 37.7% and 7.7%, respectively, of our loans held for portfolio. As discussed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations —Loans and Allowance for Loan Losses,” we have experienced high levels of nonperforming loans within our real estate construction and development portfolio and commercial real estate portfolio, reflective of declining market conditions surrounding land acquisition and development loans as a result of increased developer inventories, slower lot and home sales, and declining market values. Adverse developments affecting real estate in one or more of our markets could further increase the credit risk associated with our loan portfolio.

Weakness in the real estate market has adversely affected us and may continue to do so.As discussed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations —Loans and Allowance for Loan Losses,” we have experienced deterioration within our residential real estate mortgage loan portfolio beginning in early 2007, primarily in our Alt A and sub-prime loan portfolios. Our one-to-four-family residential real estate mortgage loans were $902.4 million at December 31, 2011, representing 27.7% of our loans held for portfolio. The effects of ongoing mortgage market challenges, as well as the ongoing correction in residential real estate market prices and reduced levels of home sales, could result in further price reductions in single family home values, adversely affecting the value of collateral securing mortgage loans held, mortgage loan originations and gains recognized on the sale of mortgage loans. In the event our allowance for loan losses is insufficient to cover such losses, our financial condition and results of operations may be adversely affected.

Our allowance for loan losses may not be sufficient to cover our actual loan losses, which could adversely affect our results of operations or financial condition. As a lender, we are exposed to the risk that our loan customers may not repay their loans according to their contractual terms and that the collateral securing the payment of these loans may be insufficient to assure repayment in full. We have experienced, and may continue to experience, significant loan losses, which could continue to have a material adverse effect on our results of operations. Management makes various assumptions and judgments about the collectability of our loan portfolio, which are based in part on:

Ø	Current economic conditions and their estimated effects on specific borrowers;
Ø	An evaluation of the existing relationships among loans, potential loan losses and the present level of the allowance for loan losses;
Ø	Management’s internal review of the loan portfolio, including existing compliance with established policies and procedures; and
Ø	Results of examinations of our loan portfolio by regulatory agencies.

17

We maintain an allowance for loan losses, which is a reserve established through a provision for loan losses charged to expense, that represents management’s best estimate of probable incurred loan losses inherent in our loan portfolio. Additional loan losses will likely continue to occur in the future and may occur at a rate greater than we have experienced historically. In determining the amount of the allowance for loan losses, we rely on an analysis of our loan portfolio, experience, and evaluation of general economic, political and regulatory conditions, industry and geographic concentrations, and certain other factors. The determination of the appropriate level of the allowance for loan losses inherently involves a high degree of subjectivity and judgment and requires us to make significant estimates of current credit risk and future trends, all of which may undergo material changes. If our assumptions and analysis prove to be incorrect, our current allowance for loan losses may not be sufficient. In addition, adjustments may be necessary to allow for unexpected volatility or deterioration in the local or national economy or other factors such as changes in interest rates that may be beyond our control. In addition, federal and state regulators periodically review our allowance for loan losses and may require us to increase our provision for loan losses or recognize further loan charge-offs, based on judgments different than those of management. Any increase in our allowance for loan losses or loan charge-offs could have a material adverse effect on our results of operations.

Our nonperforming loans also impact the sufficiency of our allowance for loan losses. Nonperforming loans totaled $220.3 million as of December 31, 2011. In addition to those loans currently identified and classified as nonperforming loans, management is aware that other possible credit problems may exist with certain borrowers. These include loans that are migrating from grades with lower risks of loss probabilities into grades with higher risks of loss probabilities as performance and potential repayment issues surface. We monitor these loans and adjust the loss rates in our allowance for loan losses accordingly. The most severe of these loans are credits that are classified as substandard loans due to either less than satisfactory performance history, lack of borrower’s paying capacity, or potentially inadequate collateral. Substandard, or potential problem loans, totaled $233.5 million at December 31, 2011. We also make concessions to modify the contractual terms of certain loans when the borrower is experiencing financial difficulty. These modifications are generally made to either prevent a loan from being placed on nonaccrual status 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. These loans are classified as performing troubled debt restructurings and totaled $126.4 million at December 31, 2011.

We are subject to credit quality risks and our credit policies may not be sufficient to avoid losses. We are subject to the risk of losses resulting from the failure of borrowers, guarantors and related parties to pay interest and principal amounts on their loans. Our credit policies and credit underwriting and monitoring and collection procedures may not prevent losses, particularly during periods in which the local, regional or national economy suffers a general decline. If borrowers fail to repay their loans according to the contractual terms of the loans, our financial condition and results of operations will be adversely affected.

The overall level of our nonperforming assets and potential problem loans has increased our noninterest expense levels. Our nonperforming assets were $350.1 million and $539.6 million at December 31, 2011 and 2010, respectively. We have incurred, and expect to incur for the foreseeable future, significant expenses associated with collection and foreclosure related matters on loans and taxes, insurance, property preservation and other collection matters on other real estate properties. In addition, we recorded write-downs on other real estate properties of $16.9 million, $34.7 million and $37.4 million for the years ended December 31, 2011, 2010 and 2009, respectively. If the overall level of our nonperforming assets does not decrease, these expense levels will continue to have a material adverse affect on our financial condition and results of operations.

Liquidity risk could impair our ability to fund operations and jeopardize our financial condition. Liquidity is essential to our business. An inability to raise funds through traditional deposits, brokered deposits, borrowings, the sale of securities or loans and other sources could have a substantial negative effect on our liquidity. Our access to funding sources in amounts adequate to finance our activities and on terms which are acceptable to us could be impaired by factors that affect us specifically or the financial services industry or economy in general. Factors that could detrimentally impact our access to liquidity sources include a decrease in the level of our business activity as a result of a downturn in the markets in which our loans are concentrated or adverse regulatory action against us. Our ability to borrow could also be impaired by factors that are not specific to us, such as a disruption in the financial markets or negative views and expectations about the prospects for the financial services industry in light of the recent and ongoing turmoil faced by banking organizations and the continued deterioration and instability in credit markets.

We rely on commercial and retail deposits, advances from the FHLB of Des Moines and other borrowings to fund our operations. Although we have historically been able to replace maturing deposits and advances as necessary, we might not be able to replace such funds in the future if, among other things, our results of operations or financial condition or the results of operations or financial condition of the FHLB of Des Moines or overall market conditions were to change.

18

There can be no assurance these sources of funds will be adequate for our liquidity needs and we may be compelled to seek additional sources of financing in the future. Likewise, we may seek additional debt in the future to achieve our business objectives. There can be no assurance additional borrowings, if sought, would be available to us or, if available, would be on terms acceptable to us. The ability of banks and holding companies to raise capital or borrow in the debt markets has been negatively affected by recent adverse economic trends. If additional financing sources are unavailable or not available on reasonable terms, our financial condition, results of operations and future prospects could be materially adversely affected.

We actively monitor the depository institutions that hold our cash operating account balances. It is possible that access to our cash equivalents will be impacted by adverse conditions in the financial markets. Our emphasis is primarily on safety of principal and we seek to diversify our cash balances among counterparties to minimize exposure to any one of these entities. The financial statements and other relevant data of the counterparties are routinely reviewed as part of our asset/liability management process. Balances in our accounts with financial institutions in the U.S. may exceed the FDIC insurance limits. While we monitor and adjust the balances in our accounts as appropriate, these balances could be impacted if the financial institutions fail and could be subject to other adverse conditions in the financial markets. At December 31, 2011, our cash and cash equivalents totaled $472.0 million, of which $368.2 million was maintained in our cash operating account at the FRB.

First Banks, Inc. is a separate and distinct legal entity from its subsidiaries. The Company’s liquidity position is affected by dividends received from our subsidiaries, 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 we raise through the issuance of debt and/or equity instruments through the Company, if any. The Company’s unrestricted cash totaled $2.8 million at December 31, 2011. The Company’s future liquidity position may be adversely affected if a combination of the following events occurs:

Ø	First Bank continues to experience 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;
Ø	The Company is unable to pay the cumulative deferred interest payments on its outstanding junior subordinated debentures relating to its $345.0 million of trust preferred securities prior to September 2014, thus potentially triggering a payment default or penalty. Such payment default or penalty could have a material adverse effect on our business, financial condition or results of operations;
Ø	We deem it advisable, or are required by the FRB, 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; 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.

We rely on dividends from our subsidiaries for most of our revenue. The Company is a separate and distinct legal entity from its subsidiaries. We receive substantially all of our revenue from dividends from our subsidiaries. These dividends are the principal source of funds to pay dividends on our preferred stock and interest and principal on our debt. Various federal and/or state laws and regulations limit the amount of dividends that First Bank and certain nonbank subsidiaries may pay to the Company. In the event First Bank is unable to pay dividends, we may not be able to service our debt (including our junior subordinated debentures issued in connection with the issuance of our outstanding trust preferred securities), pay obligations or pay dividends on our preferred stock, including the preferred stock we issued to the U.S. Treasury. The inability to receive dividends from First Bank could have a material adverse effect on our business, financial condition and results of operations. As further described under “Item 1. Business —Supervision and Regulation,” First Bank has agreed not to declare or pay any dividends without the prior consent of the MDOF and the FRB. First Bank did not make any dividend payments during the year ended December 31, 2011.

19

Our ability to repay our junior subordinated debentures, and our Class C Preferred Stock and Class D Preferred Stock issued under the CPP, could be hindered by the completed and pending divestiture initiatives associated with our Capital Plan. As further described under “Item 1. Recent Developments and Other Matters —Capital Plan,” we have completed, or are in the process of completing, a number of initiatives associated with our Capital Plan, including sales of branch offices, sales of certain loans, sales of nonbank subsidiaries and reductions in our risk-weighted assets. While these transactions were considered necessary by the Company to improve our regulatory capital ratios and preserve our risk-based capital in the short-term, these transactions have also decreased our sources of revenue and could hinder the probability and timing of future repayment of these obligations.

Concern of customers over deposit insurance may cause a decrease in deposits. With ongoing increased concerns about bank failures, customers increasingly are concerned about the extent to which their deposits are insured by the FDIC. Customers may withdraw deposits in an effort to ensure that the amount they have on deposit with their bank is fully insured. Decreases in deposits may adversely affect our liquidity position, funding costs and results of operations.

The Company may be adversely affected by the soundness of other financial institutions. Financial services institutions are interrelated as a result of trading, clearing, counterparty, or other relationships. We have exposure to many different industries and counterparties, and routinely execute transactions with counterparties in the financial services industry, including commercial banks, brokers and dealers, investment banks, and other institutional clients. Many of these transactions expose us to credit risk in the event of a default by a counterparty or client. In addition, our credit risk may be exacerbated when the collateral held by us cannot be realized upon or is liquidated at prices not sufficient to recover the full amount of the credit or derivative exposure due to us. Any such losses could have a material adverse affect on our financial condition and results of operations.

Markets have experienced, and may continue to experience, periods of high volatility accompanied by reduced liquidity. Financial markets are susceptible to severe events evidenced by rapid depreciation in asset values accompanied by a reduction in asset liquidity. Under these extreme conditions, hedging and other risk management strategies may not be as effective at mitigating losses as they would be under more normal market conditions. Moreover, under these conditions, market participants are particularly exposed to trading strategies employed by many market participants simultaneously and on a large scale, such as crowded trades. Our risk management and monitoring processes seek to quantify and mitigate risk to more extreme market moves. Severe market events have historically been difficult to predict, however, and we could realize significant losses if unprecedented extreme market events were to occur, such as the recent conditions in the global financial markets and global economy.

Because of our participation in the CPP under the EESA, we are subject to several restrictions, including restrictions on our ability to declare or pay dividends and repurchase capital stock and trust preferred securities, as well as restrictions on compensation paid to our executive officers.Pursuant to the terms of the Purchase Agreement, our ability to declare or pay dividends on any of our shares is limited. Specifically, we are unable to make any distributions on our trust preferred securities or dividends on pari passu preferred shares if we are in arrears on the payment of dividends on our Class C Preferred Stock and Class D Preferred Stock. In addition, we are not permitted to increase dividends on our common shares above the amount of the last quarterly cash dividend per share declared without the U.S. Treasury’s approval unless all of the Class C Preferred Stock and Class D Preferred Stock has been redeemed or transferred by the U.S. Treasury to unaffiliated third parties. Further, our trust preferred securities and pari passu preferred shares may not be repurchased if we are in arrears on the payment of Class C Preferred Stock and Class D Preferred Stock dividends. The terms of the Purchase Agreement allow the U.S. Treasury to impose additional restrictions, including those on dividends and including unilateral amendments required to comply with changes in applicable federal law. We are unable to predict the potential impact of any such amendments.

In addition, pursuant to the terms of the Purchase Agreement, we adopted the U.S. Treasury’s current standards for executive compensation and corporate governance for the period during which the U.S. Treasury holds our equity securities issued pursuant to the Purchase Agreement. These standards generally apply to our executive officers identified in the Summary Compensation Table on page 76 and the 20 next most highly compensated employees. The impact of the executive compensation standards, as described under Item 11 —Executive Compensation, may result in the loss of current members of our management team and could adversely affect our ability to compete for talent in the industry.

We expect the U.S. Treasury, our bank regulators and other agencies of the U.S. Government to continue to monitor our use of the CPP proceeds. Our failure to comply with the terms and conditions of the program or the Purchase Agreement may subject us to a regulatory enforcement action or legal proceedings brought by the U.S. Government.

The impact of a potential new shareholder is not known should the U.S. Treasury sell or transfer its shares of our Class C Preferred Stock and Class D Preferred Stock to a third party. As a result of our 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 our Board and did so on July 13, 2011. If the U.S. Treasury sold or transferred its shares of our Class C Preferred Stock and Class D Preferred stock to a third party, the third party may remove the directors elected by the U.S. Treasury and elect two new directors. The impact of a potential new shareholder is not known.

20

Negative perception could adversely affect our business, impacting our financial condition, results of operations and cash flows. Risk of negative perception or publicity is inherent in any business. Although the Company takes steps to minimize reputation risk in dealing with customers and other constituencies, the Company is inherently exposed to the risk of negative perception by the public and our customers as a result of, but not limited to, our participation in the CPP under the EESA and as a result of actions imposed by our regulators. The risk of negative perception by the public and our customers may adversely affect the Company’s ability to maintain and attract customers and employees.

We could be required to further write down goodwill and other intangible assets. When we acquire a business, a portion of the purchase price of the acquisition is allocated to goodwill and other identifiable intangible assets. The amount of the purchase price that is allocated to goodwill and other intangible assets is determined by the excess of the purchase price over the net identifiable assets acquired. At December 31, 2011, our goodwill and other identifiable intangible assets were $122.0 million. Under current accounting standards, if we determine goodwill or intangible assets are impaired, we are required to write down the carrying value of these assets. We conduct a review at least annually to determine whether goodwill and other identifiable intangible assets are impaired. We completed such an impairment analysis during the fourth quarter of 2011 and determined our goodwill and other intangible assets were not impaired, as further described in Note 6 to our consolidated financial statements. We cannot provide assurance, however, that we will not be required to record an impairment charge in the future. Any additional impairment charge would have an adverse effect on our financial condition and results of operations.

Our controls and procedures may fail or be circumvented. Our management regularly reviews and updates the Company’s internal controls, disclosure controls and procedures, and corporate governance policies and procedures. Any system of controls, however well designed and operated, is based in part on certain assumptions and can provide only reasonable, not absolute, assurance that the objectives of the system are met. Any failure or circumvention of the controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, financial condition and results of operations.

The Company’s deposit insurance premiums could be substantially higher in the future, which could have a material adverse effect on our future earnings. The Dodd-Frank Act established 1.35% as the minimum DRR. It is possible that our insurance premiums will increase in the future as a result of the required minimum DRR and/or an increase in our risk assessment rating.

Significant legal actions could subject us to substantial liabilities. We are from time to time subject to claims related to our operations. These claims and legal actions, including supervisory actions by our regulators, could involve monetary claims and significant defense costs. As a result, we may be exposed to substantial liabilities, which could affect our results of operations and financial condition.

The value of securities in the Company’s investment securities portfolio may be negatively affected by continued disruptions in securities markets. The market for some of the investment securities held in our investment portfolio has become extremely volatile over the past four years. Volatile market conditions may detrimentally affect the value of these securities, such as through reduced valuations due to the perception of heightened credit and liquidity risks. There can be no assurance that the declines in market value associated with these disruptions will not result in other-than-temporary impairment of these assets, which could lead to write-downs of the carrying value of these assets that could have a material adverse effect on our net income and capital levels.

Geographic distance between our operations increases operating costs and makes efforts to standardize operations more difficult.We operate banking offices in California, Florida, Illinois and Missouri. The noncontiguous nature of many of our geographic markets increases operating costs and makes it more difficult for us to standardize our business practices and procedures. As a result of our geographic dispersion, we face the following challenges, among others: (a) familiarizing personnel with our business environment, banking practices and customer requirements at geographically dispersed locations; (b) providing administrative support, including accounting, human resources, credit administration, loan servicing, internal audit and credit review at significant distances; and (c) establishing and monitoring compliance with our corporate policies and procedures in different areas.

Decreases in interest rates could have a negative impact on our profitability.Our earnings are principally dependent on our ability to generate net interest income. Net interest income is affected by many factors that are partly or completely beyond our control, including competition, general economic conditions and the policies of regulatory authorities, including the monetary policies of the Federal Reserve. Under our current interest rate risk profile, our net interest income has been and could be negatively affected by a further decline in interest rates, as further discussed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations —Interest Rate Risk Management.”

21

Our interest rate risk hedging activities may not effectively reduce volatility in earnings.To offset the risks associated with the effects of changes in market interest rates, we periodically enter into transactions designed to hedge our interest rate risk. The accounting for such hedging activities under U.S. generally accepted accounting principles, or GAAP, requires our hedging instruments to be recorded at fair value. The effect of certain of our hedging strategies may result in volatility in our quarterly and annual earnings as interest rates change or as the volatility in the underlying derivatives markets increases or decreases. The volatility in earnings is primarily a result of marking to market certain of our hedging instruments and/or modifying our overall hedge position, as further discussed under “Management’s Discussion and Analysis of Financial Condition and Results of Operations —Interest Rate Risk Management.”

The financial services business is highly competitive, and we face competitive disadvantages because of our size and the nature of banking regulation.We encounter strong direct competition for deposits, loans and other financial services in all of our market areas. Our larger competitors, which have significantly greater resources, may have advantages over us in providing certain services. Our principal competitors include other commercial banks, savings banks, savings and loan associations, mutual funds, finance companies, trust companies, insurance companies, leasing companies, credit unions, mortgage companies, private issuers of debt obligations and suppliers of other investment alternatives, such as securities firms and financial holding companies. Many of our non-bank competitors are not subject to the same degree of regulation as that imposed on bank holding companies, federally insured banks and national or state chartered banks. As a result, such non-bank competitors may have advantages over us in providing certain services and may make it more difficult for us to achieve our objectives, such as increasing the size of our loan portfolio, attracting customers and implementing our profit and capital improvement plan initiatives.

The recent repeal of federal prohibitions on payment of interest on demand deposits could increase the Company’s interest expense. All federal prohibitions on the ability of financial institutions to pay interest on demand deposit accounts were repealed as part of the Dodd-Frank Act beginning on July 21, 2011. As a result, some financial institutions have commenced offering interest on demand deposits to compete for customers. The Company does not yet know what interest rates other institutions may offer as market interest rates begin to increase. The Company’s interest expense will increase and its net interest margin will decrease if it begins offering interest on demand deposits to attract additional customers or maintain current customers, which could have a material adverse effect on the Company’s business, financial condition and results of operations.

Non-compliance with the USA Patriot Act, Bank Secrecy Act, or other laws and regulations could result in fines or sanctions. The USA Patriot and Bank Secrecy Acts require financial institutions to develop programs to prevent financial institutions from being used for money laundering and terrorist activities. If such activities are detected, financial institutions are obligated to file suspicious activity reports with the U.S. Treasury’s Office of Financial Crimes Enforcement Network. These rules require financial institutions to establish procedures for identifying and verifying the identity of customers seeking to open new financial accounts. Failure to comply with these regulations could result in fines or sanctions. Although we have developed policies and procedures designed to assist in compliance with these laws and regulations, no assurance can be given that these policies and procedures will be effective in preventing violations of these laws and regulations.

We provide treasury management services to money services businesses, which include: check cashers, issuers/sellers of traveler’s checks, money orders and stored value cards, and money transmitters. Money services businesses pose risk of compliance with regulatory guidance. We provide treasury management services to the check cashing industry, offering: check clearing, monetary instrument, depository, and credit services. We also provide treasury management services to money transmitters. Financial institutions that open and maintain accounts for money services businesses are expected to apply the requirements of the USA Patriot Act and Bank Secrecy Act, as they do with all accountholders, on a risk-assessed basis. As with any category of accountholder, there will be money services businesses that pose little risk of money laundering or lack of compliance with other laws and regulations and those that pose a significant risk. Providing treasury management services to money services businesses represents a significant compliance and regulatory risk, and failure to comply with all statutory and regulatory requirements could result in fines or sanctions.

We may not be able to implement technological change as effectively as our competitors.The financial services industry has undergone in the past and continues to undergo rapid technological change related to delivery and availability of products and services and operating efficiencies. In many instances technological improvements require significant capital expenditures, and many of our larger competitors have significantly greater resources to absorb such capital expenditures than we may have available. As such, we may be at a competitive disadvantage in our ability to retain existing customers and compete for new customers in the marketplace.

22

We are subject to financial and operational risks if our technology and information systems suffer an interruption or breach in security.Our operations are heavily reliant upon our communication and information systems. A failure, interruption or breach in security of these systems, including cybersecurity risk of attack, damage or unauthorized access to data, applications or information systems, could result in failures or disruptions in our customer relationship management, general ledger, deposit, loan and other systems. While we have policies and procedures designed to prevent or limit the impact of any such failure, interruption or security breach, there can be no assurance that any such failure, interruption or security breach will not occur. While we closely monitor and evaluate the financial and operational risks associated with reliance on technology and information systems on an ongoing basis and maintain insurance coverage for such risks, any such failure, interruption or security breach could adversely affect our operations and financial condition, including a resulting loss in customer business, damage to our reputation, misappropriation of sensitive information, corruption of data, disruption of internet banking activities or other operations, and possible exposure to regulatory scrutiny and litigation, any of which could have a material adverse affect on our business, financial condition and results of operations.

Severe weather, natural disasters, acts of war or terrorism, and other external events could significantly impact our business. Severe weather, natural disasters, acts of war or terrorism, and other adverse external events could have a significant impact on our ability to conduct business. Such events could affect the stability of our deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenue, and/or cause us to incur additional expenses. Changing climate conditions may increase the frequency of natural disasters such as hurricanes, windstorms and other severe weather conditions. Although we have established policies and procedures addressing these types of events, the occurrence of any such event could have a material adverse effect on our business, financial condition and results of operations.

The Company is subject to claims and litigation pertaining to fiduciary responsibility. From time to time, customers make claims and take legal action pertaining to the performance of our fiduciary responsibilities. Whether customer claims and legal action related to the performance of our fiduciary responsibilities are founded or unfounded, if such claims and legal actions are not resolved in a manner favorable to us, they may result in significant financial liability and/or adversely affect the market perception of us and our products and services as well as impact customer demand for our products and services. Any financial liability or reputation damage could have a material adverse effect on our business, which, in turn, could have a material adverse effect on our financial condition, results of operations and cash flows.

The Company is exposed to risk of environmental liabilities with respect to properties to which we take title. In the course of our business, we may own or foreclose and take title to real estate, and could be subject to environmental liabilities with respect to these properties. We may be held liable to a governmental entity or to third parties for property damage, personal injury, investigation and clean-up costs incurred by these parties in connection with environmental contamination, or we may be required to investigate or clean up hazardous or toxic substances, or chemical releases at a property. The costs associated with investigation or remediation activities could be substantial. In addition, as the owner or former owner of a contaminated site, we may be subject to common law or contractual claims by third parties based on damages and costs resulting from environmental contamination emanating from the property. If we ever become subject to significant environmental liabilities, our business, financial condition, cash flows, liquidity and results of operations could be materially and adversely affected.

Item 1B. Unresolved Staff Comments

None.

Item 2. Properties

We own our officebuilding, which houses our principal place of business, located at 135 North Meramec, Clayton, Missouri 63105. The property is in good condition and consists of approximately 60,353 square feet, of which approximately 7,262 square feet is currently leased to others. Of our other 146 offices and two operations and administrative facilities at December 31, 2011, 78 are located in buildings that we own and 70 are located in buildings that we lease.

We consider the properties at which we do business to be in good condition generally and suitable for our business conducted at each location. To the extent our properties or those acquired in connection with our acquisition of other entities provide space in excess of that effectively utilized in the operations of First Bank, we seek to lease or sublease any excess space to third parties. Additional information regarding the premises and equipment utilized by First Bank appears in Note 5 to our consolidated financial statements appearing elsewhere in this report.

23

Item 3. Legal Proceedings

The information required by this item is set forth in Item 8 under Note 24, 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. From time to time, we are party to other legal matters arising in the normal course of business. While some matters pending against us specify damages claimed by plaintiffs, others do not seek a specified amount of damages or are at very early stages of the legal process. We record a loss accrual for all legal matters for which we deem a loss is probable and can be reasonably estimated. 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 1. Business —Supervision and Regulation – Regulatory Agreements” and in Note 1 to our consolidated financial statements.

Item 4. (Reserved)

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information. There is no established public trading market for our common stock. Various trusts, which were established by and are administered by and for the benefit of Mr. James F. Dierberg, our Chairman of the Board, and members of his immediate family, own all of our voting stock.

Dividends. We have not paid any dividends on our Common Stock.

On August 10, 2009, we announced the suspension of the payment of cash dividends on our outstanding Class A Convertible Adjustable Rate Preferred Stock and our Class B Non-Convertible Adjustable Rate Preferred Stock beginning with the scheduled dividend payments that would have otherwise been made in September 2009. Prior to this time, we have paid minimal dividends on our Class A Convertible Adjustable Rate Preferred Stock and our Class B Non-Convertible Adjustable Rate Preferred Stock.

On August 10, 2009, we also announced the deferral of dividend payments on our Class C Preferred Stock and Class D Preferred Stock beginning with the regularly scheduled quarterly dividend payments that would otherwise have been made in August 2009, however, we continue to record the declaration of such dividends and the related additional cumulative dividends on our deferred dividend payments in our consolidated financial statements. We have deferred such payments for ten quarterly periods as of December 31, 2011. In February 2009 and May 2009, we paid the regularly scheduled quarterly dividends on our Class C Preferred Stock and Class D Preferred Stock, which were pre-approved and authorized for payment by the FRB.

Our ability to pay dividends is limited by regulatory requirements and by the receipt of dividend payments from First Bank, which is also subject to regulatory requirements. First Bank has agreed not to declare or pay any dividends or make certain other payments to us without the prior consent of the MDOF and the FRB, as previously discussed under “Item 1. Business —Supervision and Regulation – Regulatory Agreements.” The dividend limitations are further described in Note 13 and Note 22 to our consolidated financial statements appearing elsewhere in this report.

24

Item 6. Selected Financial Data. The selected consolidated financial data set forth below are derived from our consolidated financial statements. This information is qualified by reference to our consolidated financial statements appearing elsewhere in this report. This information should be read in conjunction with such consolidated financial statements, the related notes thereto, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors.”

	As of or For the Year Ended December 31, (1)
	2011				2010			2009			2008			2007
	(dollars expressed in thousands, except share and per share data)
Income Statement Data:
Interest income	$	233,685			312,838			400,332			536,579			643,446
Interest expense		42,659			72,937			108,564			168,081			225,965
Net interest income		191,026			239,901			291,768			368,498			417,481
Provision for loan losses		69,000			214,000			390,000			368,000			65,056
Net interest income (loss) after provision for loan losses		122,026			25,901			(98,232	)		498			352,425
Noninterest income		60,884			77,137			69,367			61,209			55,416
Noninterest expense		226,059			293,981			345,364			247,247			262,180
(Loss) income from continuing operations before (benefit)
provision for income taxes		(43,149	)		(190,943	)		(374,229	)		(185,540	)		145,661
(Benefit) provision for income taxes		(10,654	)		4,114			2,393			18,323			40,925
(Loss) income from continuing operations, net of tax		(32,495	)		(195,057	)		(376,622	)		(203,863	)		104,736
Loss from discontinued operations, net of tax		(11,605	)		(3,194	)		(72,314	)		(84,450	)		(55,198	)
Net (loss) income		(44,100	)		(198,251	)		(448,936	)		(288,313	)		49,538
Net (loss) income attributable to noncontrolling interest in
subsidiaries		(2,950	)		(6,514	)		(21,315	)		(1,158	)		78
Net (loss) income attributable to First Banks, Inc.	$	(41,150	)		(191,737	)		(427,621	)		(287,155	)		49,460
Dividends Declared and Undeclared:
Preferred stock	$	17,908			16,980			16,536			786			786
Common stock		—			—			—			—			—
Ratio of total dividends declared to net (loss) income		(43.52	)	%	(8.86	)	%	(3.87	)	%	(0.27	)	%	1.59		%
Earnings (Loss) Per Share (EPS) and Other Share Data:
Basic EPS – continuing operations	$	(2,151.99	)		(8,829.08	)		(15,854.85	)		(8,600.29	)		4,390.02
Basic EPS – discontinued operations		(490.47	)		(134.99	)		(3,056.25	)		(3,569.17	)		(2,332.88	)
Diluted EPS – continuing operations		(2,151.99	)		(8,829.08	)		(15,854.85	)		(8,600.29	)		4,350.07
Diluted EPS – discontinued operations		(490.47	)		(134.99	)		(3,056.25	)		(3,569.17	)		(2,294.65	)
Weighted average shares of common stock outstanding		23,661			23,661			23,661			23,661			23,661
Balance Sheet Data:
Investment securities	$	2,481,382			1,494,337			541,557			575,094			978,676
Loans, net of net deferred loan fees		3,283,951			4,492,284			6,608,293			8,592,975			8,886,184
Assets of discontinued operations		21,009			43,532			518,056			—			—
Total assets		6,608,913			7,378,128			10,581,996			10,783,154			10,902,470
Total deposits		5,451,830			6,458,415			7,063,973			8,741,520			9,149,193
Other borrowings		50,910			31,761			767,494			575,133			409,616
Notes payable		—			—			—			—			39,000
Subordinated debentures		354,057			353,981			353,905			353,828			353,752
Liabilities of discontinued operations		346,282			94,184			1,730,264			—			—
Total stockholders’ equity		263,671			307,295			522,380			996,355			847,621
Earnings Ratios:
Return on average assets		(0.59	)	%	(2.20	)	%	(4.04	)	%	(2.66	)	%	0.48		%
Return on average stockholders’ equity		(13.71	)		(42.36	)		(51.82	)		(32.78	)		6.07
Net interest margin (2)		2.92			3.01			3.24			4.06			4.70
Noninterest expense to average assets		3.23			3.38			3.26			2.29			2.54
Tangible noninterest expense to average assets (3)		3.19			3.34			2.51			2.24			2.48
Efficiency ratio (4)		89.74			92.73			95.63			57.54			55.44
Tangible efficiency ratio (4)		88.56			91.70			73.67			56.22			54.26
Asset Quality Ratios:
Allowance for loan losses to loans		4.19		%	4.48		%	4.03		%	2.56		%	1.89		%
Nonaccrual loans to loans		6.71			8.88			10.46			4.86			2.28
Allowance for loan losses to nonaccrual loans		62.52			50.40			38.55			52.71			83.27
Nonperforming assets to loans, other real estate and
repossessed assets (5)		10.26			11.65			12.15			5.87			2.40
Net loan charge-offs to average loans		3.47			5.06			4.62			3.84			0.76

25

Selected Financial Data (continued):

	As of or For the Year Ended December 31, (1)
	2011		2010		2009		2008		2007
	(dollars expressed in thousands, except share and per share data)
First Banks, Inc. Capital Ratios (6):
Average stockholders’ equity to average assets	4.29	%	5.20	%	7.79	%	8.11	%	7.89	%
Total risk-based capital ratio	1.88		6.29		9.78		12.11		9.84
Tier 1 risk-based capital ratio	0.94		3.15		4.89		8.87		7.92
Leverage ratio	0.56		1.99		3.52		8.04		7.99
First Bank Capital Ratios:
Total risk-based capital ratio	14.98	%	12.95	%	10.39	%	11.01	%	10.01	%
Tier 1 risk-based capital ratio	13.70		11.66		9.11		9.75		8.75
Leverage ratio	8.19		7.40		6.56		8.85		8.85

____________________
 

(1)	The selected data is presented on a continuing basis.
(2)	Net interest margin is the ratio of net interest income (expressed on a tax-equivalent basis) to average interest-earning assets.
(3)	Tangible noninterest expense to average assets is the ratio of noninterest expense (excluding goodwill impairment and amortization of intangible assets) to average assets.
(4)	Efficiency ratio is the ratio of noninterest expense to the sum of net interest income and noninterest income. Tangible efficiency ratio is the ratio of noninterest expense (excluding goodwill impairment and amortization of intangible assets) to the sum of net interest income and noninterest income.
(5)	Nonperforming assets consist of nonaccrual loans, other real estate and repossessed assets.
(6)	The capital ratios at December 31, 2011 reflect the implementation of new Federal Reserve rules that became effective on March 31, 2011, as further described in Note 14 to our consolidated financial statements.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following presents management’s discussion and analysis of our financial condition and results of operations as of the dates and for the periods indicated. This discussion should be read in conjunction with our “Selected Financial Data,” our consolidated financial statements and the related notes thereto, and the other financial data appearing elsewhere in this report. This discussion set forth in Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements with respect to our financial condition, results of operations and business. These forward-looking statements are subject to certain risks and uncertainties, not all of which can be predicted or anticipated. Various factors may cause our actual results to differ materially from those contemplated by the forward-looking statements herein. We do not have a duty to and do not undertake any obligation to update these forward-looking statements. Readers of our Annual Report on Form 10-K should therefore consider these risks and uncertainties in evaluating forward-looking statements and should not place undue reliance on forward-looking statements. See “Special Note Regarding Forward-Looking Statements and Factors that Could Affect Future Results” appearing at the beginning of this report and “Item 1A – Risk Factors,” appearing elsewhere in this report.

RESULTS OF OPERATIONS

Overview

All financial information in this Annual Report on Form 10-K is reported on a continuing operations basis, unless otherwise noted. See Note 2 to our consolidated financial statements appearing elsewhere in this report for further discussion regarding our discontinued operations.

We recorded a net loss, including discontinued operations, of $41.2 million, $191.7 million and $427.6 million for the years ended December 31, 2011, 2010 and 2009, respectively. Our results of operations levels reflect the following:

Ø	Net interest income of $191.0 million for the year ended December 31, 2011, compared to $239.9 million in 2010 and $291.8 million in 2009, which contributed to a decline in our net interest margin to 2.92% for the year ended December 31, 2011, compared to 3.01% in 2010 and 3.24% in 2009, as further discussed under “—Net Interest Income;”
Ø	A provision for loan losses of $69.0 million for the year ended December 31, 2011, compared to $214.0 million in 2010 and $390.0 million in 2009, as further discussed under “—Provision for Loan Losses;”
Ø	Noninterest income of $60.9 million for the year ended December 31, 2011, compared to $77.1 million in 2010 and $69.4 million in 2009, as further discussed under “—Noninterest Income;”
Ø	Noninterest expense of $226.1 million for the year ended December 31, 2011, compared to $294.0 million in 2010 and $345.4 million in 2009, as further discussed under “—Noninterest Expense;”

26

Ø	A benefit for income taxes of $10.7 million for the year ended December 31, 2011, compared to a provision for income taxes of $4.1 million in 2010 and $2.4 million in 2009, as further discussed under “—(Benefit) Provision for Income Taxes;”
Ø	Net losses from discontinued operations, net of tax, of $11.6 million for the year ended December 31, 2011, compared to net losses from discontinued operations, net of tax, of $3.2 million in 2010 and $72.3 million in 2009, as further discussed under “—Loss from Discontinued Operations, Net of Tax;” and
Ø	Net losses attributable to noncontrolling interest in subsidiaries of $3.0 million for the year ended December 31, 2011, compared to net losses of $6.5 million in 2010 and $21.3 million in 2009, as further discussed under “—Net Loss Attributable to Noncontrolling Interest in Subsidiaries.”

Net Interest Income

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 and the lower level of average loans has negatively impacted our net interest income and is expected to continue to impact the level of our net interest income in the future.

Comparison of 2011 and 2010. Net interest income, expressed on a tax-equivalent basis, decreased $49.1 million to $191.3 million for the year ended December 31, 2011, compared to $240.4 million in 2010. Our net interest margin decreased to 2.92% for the year ended December 31, 2011, from 3.01% in 2010. We attribute the decrease in our net interest margin and net interest income to a lower average balance of interest-earning assets in addition to a significant change in the mix of our interest-earning assets from loans to investment securities, partially offset by a decrease in interest-bearing liabilities and a decrease in the cost of our interest-bearing liabilities. The average yield earned on our interest-earning assets decreased 35 basis points to 3.57% for the year ended December 31, 2011 compared to 3.92% in 2010, while the average rate paid on our interest-bearing liabilities decreased 38 basis points to 0.86% for the year ended December 31, 2011, compared to 1.24% in 2010. Average interest-earning assets decreased $1.43 billion to $6.56 billion for the year ended December 31, 2011, compared to $7.99 billion in 2010. Average interest-bearing liabilities decreased $902.4 million to $4.98 billion for the year ended December 31, 2011, compared to $5.89 billion in 2010.

Interest income on our loan portfolio, expressed on a tax-equivalent basis, decreased $97.2 million to $184.6 million for the year ended December 31, 2011, compared to $281.8 million in 2010. Average loans decreased $1.71 billion to $3.81 billion for the year ended December 31, 2011, from $5.52 billion 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 26 basis points to 4.84% for the year ended December 31, 2011, compared to 5.10% in 2010. The yield on our loan portfolio continues to be adversely impacted by the historically low prime and 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 47 and 64 basis points in 2011 and 2010, respectively. An interest adjustment of $1.8 million associated with the amortization of the remaining loan premium related to prior bank acquisitions decreased our average yield on loans by five basis points during 2011. 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 $5.7 million in 2010. This 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” and in Note 8 to our consolidated financial statements.

27

Interest income on our investment securities, expressed on a tax-equivalent basis, increased $20.4 million to $46.3 million for the year ended December 31, 2011, compared to $25.9 million in 2010. Average investment securities increased $1.05 billion to $2.07 billion for the year ended December 31, 2011, compared to $1.01 billion in 2010. The increase in average investment securities reflects the continued utilization of a portion of our cash and short-term investments to fund gradual and planned increases in our investment securities portfolio in an effort 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 securities portfolio decreased to 2.24% for the year ended December 31, 2011, compared to 2.55% in 2010, reflecting significant purchases of investment securities at lower market rates.

Dividends on our FRB and FHLB stock were $1.4 million and $2.1 million for the years ended December 31, 2011 and 2010, respectively. Average FRB and FHLB stock was $27.6 million for the year ended December 31, 2011, compared to $49.7 million in 2010. The decrease in average FRB and FHLB stock reflects the net redemption of FRB and FHLB stock during 2010 and 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 5.12% for the year ended December 31, 2011, compared to 4.15% in 2010.

Interest income on our short-term investments was $1.6 million for the year ended December 31, 2011, compared to $3.5 million in 2010. Average short-term investments decreased $751.3 million to $652.2 million for the year ended December 31, 2011, compared to $1.40 billion in 2010. The yield on our short-term investments was 0.25% for the years ended December 31, 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%. The decrease in our average short-term investments reflects the utilization of such funds, coupled with funds available from the decline in our loan portfolio, to fund increases in our investment securities portfolio, divestitures associated with our Capital Plan, and decreases in our average total deposits. We built a significant amount of available balance sheet liquidity throughout 2009, 2010 and 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 during these periods, 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.

Interest expense on our interest-bearing deposits decreased $23.1 million to $29.0 million for the year ended December 31, 2011, compared to $52.1 million in 2010. Average total deposits decreased $418.9 million to $5.73 billion for the year ended December 31, 2011, compared to $6.15 billion in 2010. Average interest-bearing deposits decreased $434.8 million to $4.58 billion for the year ended December 31, 2011, compared to $5.02 billion in 2010. The decrease in average interest-bearing deposits primarily reflects anticipated reductions of higher rate certificates of deposit and promotional money market deposits, partially offset by organic growth through deposit development programs, including marketing campaigns and enhanced product and service offerings. The mix in our deposit portfolio volumes during 2011 primarily reflects a shift from time deposits and savings and money market deposits to interest-bearing and noninterest-bearing demand deposits. Decreases in our average time deposits and savings and money market deposits of $436.9 million and $34.2 million, respectively, for 2011 as compared to 2010, were partially offset by increases in average interest-bearing demand deposits and noninterest-bearing demand deposits of $36.2 million and $15.9 million, respectively. The aggregate weighted average rate paid on our interest-bearing deposit portfolio decreased 41 basis points to 0.63% for the year ended December 31, 2011, compared to 1.04% in 2010, reflecting the re-pricing of certificate 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 1.19% in 2011 from 1.77% in 2010; the weighted average rate paid on our savings and money market deposit portfolio declined to 0.41% in 2011 from 0.66% in 2010; and the weighted average rate paid on our interest-bearing demand deposits declined to 0.11% in 2011 from 0.16% in 2010. Assuming that the prevailing interest rate environment remains relatively stable, we anticipate continued reductions in our deposit costs as certain of our certificate of deposit accounts continue to re-price 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.

28

Interest expense on our other borrowings decreased $7.8 million to $15,000 for the year ended December 31, 2011, compared to $7.8 million in 2010. Average other borrowings decreased $467.6 million to $46.7 million for the year ended December 31, 2011, compared to $514.3 million in 2010. Average other borrowings for the year ended December 31, 2011 were comprised solely of daily repurchase agreements utilized by our commercial deposit customers as an alternative deposit product in connection with cash management activities. The decrease in average other borrowings for 2011, as compared to 2010, primarily reflects the prepayment of $600.0 million of our outstanding FHLB advances and the early termination of our $120.0 million term repurchase agreement in 2010. The aggregate weighted average rate paid on our other borrowings decreased to 0.03% for the year ended December 31, 2011, compared to 1.53% in 2010, reflecting the repayment of our higher cost secured borrowings during 2010. See further discussion regarding activity in other borrowings under “—Liquidity Management.”

Interest expense on our junior subordinated debentures increased to $13.6 million for the year ended December 31, 2011, compared to $13.0 million in 2010. Average junior subordinated debentures were $354.0 million and $353.9 million for the years ended December 31, 2011 and 2010, respectively. The aggregate weighted average rate paid on our junior subordinated debentures increased to 3.85% for the year ended December 31, 2011, compared to 3.68% 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 discussed in Note 12 to our consolidated financial statements. The additional interest expense accrued on the regularly scheduled deferred interest payments increased the weighted average rate paid on our junior subordinated debentures by approximately 36 and 16 basis points in 2011 and 2010, respectively.

Comparison of 2010 and 2009. Net interest income, expressed on a tax-equivalent basis, decreased $52.2 million to $240.4 million for the year ended December 31, 2010, compared to $292.6 million in 2009. Our net interest margin decreased to 3.01% for the year ended December 31, 2010, from 3.24% in 2009. We attribute the decrease in our net interest margin and net interest income to a significantly higher average balance of short-term investments yielding 25 basis points, a lower average balance of interest-earning assets in addition to a significant change in the mix of our interest-earning assets from loans to investment securities, partially offset by a decrease in the cost of our interest-bearing liabilities. The average yield earned on our interest-earning assets decreased 53 basis points to 3.92% for the year ended December 31, 2010, compared to 4.45% in 2009, while the average rate paid on our interest-bearing liabilities decreased 60 basis points to 1.24% for the year ended December 31, 2010, compared to 1.84% in 2009. Average interest-earning assets decreased $1.04 billion to $7.99 billion for the year ended December 31, 2010, compared to $9.02 billion for the year ended December 31, 2009. Average interest-bearing liabilities decreased $12.9 million to $5.89 billion for the year ended December 31, 2010, compared to $5.90 billion for the year ended December 31, 2009.

Interest income on our loan portfolio, expressed on a tax-equivalent basis, decreased $89.2 million to $281.8 million for the year ended December 31, 2010, compared to $371.0 million in 2009. Average loans decreased $1.81 billion to $5.52 billion for the year ended December 31, 2010, from $7.33 billion in 2009. 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 increased four basis points to 5.10% for the year ended December 31, 2010, compared to 5.06% in 2009. The yield on our loan portfolio has been adversely impacted by the historically low prime and LIBOR interest rates, as a significant portion of our loan portfolio is priced to these indices. Furthermore, the yield on our loan portfolio was adversely impacted by the higher levels of average nonaccrual loans. Our nonaccrual loans decreased our average yield on loans by approximately 64 and 49 basis points in 2010 and 2009, respectively. Interest income on our loan portfolio was positively impacted by income associated with our interest rate swap agreements of $5.7 million and $13.7 million in 2010 and 2009, respectively. This 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 previously discussed.

Interest income on our investment securities, expressed on a tax-equivalent basis, was $25.9 million and $25.2 million for the years ended December 31, 2010 and 2009, respectively. Average investment securities increased $377.5 million to $1.01 billion for the year ended December 31, 2010, compared to $637.2 million in 2009. The increase in average investment securities reflects the utilization of excess cash and short-term investments to fund gradual and planned increases in our investment securities portfolio in an effort 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 securities portfolio decreased to 2.55% for the year ended December 31, 2010, compared to 3.96% in 2009, reflecting the higher average balance of investment securities during 2010, the decline in short-term interest rates during the periods and the sale of higher-yielding available-for-sale investment securities to reposition our investment securities portfolio from securities that carried relatively high risk-weightings for regulatory capital purposes to lower risk-weighted investment securities.

29

Dividends on our FRB and FHLB stock were $2.1 million and $2.2 million for the years ended December 31, 2010 and 2009, respectively. Average FRB and FHLB stock was $49.7 million for the year ended December 31, 2010, compared to $57.5 million in 2009. The decrease in average FRB and FHLB stock reflects the redemption of $27.3 million of FHLB stock associated with the prepayment of $600.0 million of FHLB advances during 2010, as further discussed below, and the redemption of $7.8 million of FRB stock associated with the reduction in our total assets during 2010. The yield earned on our FRB and FHLB stock was 4.15% for the year ended December 31, 2010, compared to 3.75% in 2009.

Interest income on our short-term investments was $3.5 million for the year ended December 31, 2010, compared to $2.8 million in 2009. Average short-term investments were $1.40 billion for the year ended December 31, 2010, compared to $995.2 million in 2009. The increase in our average short-term investments was primarily due to a higher level of liquidity resulting from the significant decrease in average loans, partially offset by the utilization of such funds to increase our investment securities portfolio and fund our divestitures completed in 2010. We increased our overall liquidity position during 2009 and 2010 in anticipation of significant cash outflows required for the completion and expected completion of certain transactions associated with our Capital Plan. The yield earned on our short-term investments was 0.25% for the year ended December 31, 2010, compared to 0.28% in 2009. The majority of funds in our short-term investments during 2010 and 2009 were maintained in our correspondent bank account with the FRB, which earned 0.25%.

Interest expense on our interest-bearing deposits decreased $30.9 million to $52.1 million for the year ended December 31, 2010, compared to $83.0 million in 2009. Average total deposits increased $91.2 million to $6.15 billion for the year ended December 31, 2010, compared to $6.06 billion in 2009. Average interest-bearing deposits increased $33.5 million to $5.02 billion for the year ended December 31, 2010, compared to $4.98 billion in 2009. The increase in average interest-bearing deposits primarily reflects organic growth through deposit development programs, including marketing campaigns and enhanced product and service offerings, partially offset by anticipated reductions of higher rate certificate of deposit accounts. The mix in our deposit portfolio volumes during 2010 primarily reflects a shift from time deposits and savings and money market deposits to interest-bearing and noninterest-bearing demand deposits. Decreases in our average time deposits and savings and money market deposit volumes of $33.5 million and $17.3 million, respectively, were partially offset by increases in average interest-bearing demand deposits and noninterest-bearing demand deposits of $84.3 million and $57.7 million, respectively. The aggregate weighted average rate paid on our interest-bearing deposit portfolio decreased 63 basis points to 1.04% for the year ended December 31, 2010, compared to 1.67% in 2009, reflecting the re-pricing of certificate of deposit accounts to current market interest rates upon maturity and our efforts to reduce deposit costs across our deposit portfolio. The weighted average rate paid on our time deposit portfolio declined to 1.77% in 2010 from 2.84% in 2009; the weighted average rate paid on our savings and money market deposit portfolio declined to 0.66% in 2010 from 1.00% in 2009; and the weighted average rate paid on our interest-bearing demand deposits declined to 0.16% in 2010 from 0.19% in 2009.

Interest expense on our other borrowings decreased $2.2 million to $7.8 million for the year ended December 31, 2010, compared to $10.0 million in 2009. Average other borrowings, generally comprised of daily and term repurchase agreements, FHLB advances, FRB borrowings and federal funds purchased, decreased $46.4 million to $514.3 million for the year ended December 31, 2010, compared to $560.8 million in 2009. The decrease in average other borrowings reflects the prepayment of all of our $600.0 million of outstanding FHLB advances during 2010, the early termination of our $120.0 million term repurchase agreement in November 2010 and reductions in daily repurchase agreements (in connection with cash management activities of our commercial deposit customers). The aggregate weighted average rate paid on our other borrowings decreased to 1.53% for the year ended December 31, 2010, compared to 1.79% in 2009, reflecting the reduction in short-term interest rates during the periods.

Interest expense on our junior subordinated debentures decreased $2.5 million to $13.0 million for the year ended December 31, 2010, compared to $15.5 million in 2009. Average junior subordinated debentures were $353.9 million for the years ended December 31, 2010 and 2009, and are further discussed in Note 12 to our consolidated financial statements. The aggregate weighted average rate paid on our junior subordinated debentures decreased to 3.68% for the year ended December 31, 2010, compared to 4.38% in 2009. The aggregate weighted average rates and the level of interest expense reflect the reduction in 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, and the entrance into four interest rate swap agreements with an aggregate notional amount of $125.0 million during March 2008 that effectively converted the interest payments on certain of our junior subordinated debentures from a variable rate to a fixed rate. In August 2009, we discontinued hedge accounting on these interest rate swap agreements due to the deferral of interest payments on our junior subordinated debentures, and as such, the net interest recorded on the interest rate swap agreements was recorded as noninterest income effective August 2009, as further described under “—Interest Rate Risk Management” and in Note 8 to our consolidated financial statements. Interest expense on our junior subordinated debentures for the year ended December 31, 2009 included interest expense of $1.3 million associated with these interest rate swap agreements. The aggregate weighted average rates also reflect additional interest expense accrued on the regularly scheduled deferred interest payments on our junior subordinated debentures, which increased the weighted average rate paid on our junior subordinated debentures by approximately 16 and one basis points in 2010 and 2009, respectively.

30

Average Balance Sheets

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 years ended December 31, 2011, 2010 and 2009.

	Years Ended December 31,
	2011					2010					2009
			Interest					Interest					Interest
	Average		Income/	Yield/		Average		Income/	Yield/		Average		Income/	Yield/
	Balance		Expense	Rate		Balance		Expense	Rate		Balance		Expense	Rate
	(dollars expressed in thousands)
ASSETS
Interest-earning assets:
Loans: (1) (2) (3)
Taxable	$	3,807,099	184,459	4.85	%	$	5,513,601	281,309	5.10	%	$	7,311,281	369,916	5.06	%
Tax-exempt (4)		4,024	178	4.42			6,846	503	7.35			22,364	1,060	4.74
Investment securities:
Taxable		2,053,726	45,579	2.22			1,001,157	25,000	2.50			616,141	23,828	3.87
Tax-exempt (4)		12,143	740	6.09			13,604	915	6.73			21,107	1,414	6.70
FRB and FHLB stock		27,648	1,416	5.12			49,718	2,063	4.15			57,505	2,155	3.75
Short-term investments		652,195	1,634	0.25			1,403,474	3,544	0.25			995,214	2,825	0.28
Total interest-earning
assets		6,556,835	234,006	3.57			7,988,400	313,334	3.92			9,023,612	401,198	4.45
Nonearning assets		399,370					423,300					575,262
Assets of discontinued
operations		36,247					292,024					989,165
Total assets	$	6,992,452				$	8,703,724				$	10,588,039
LIABILITIES AND
STOCKHOLDERS’ EQUITY
Interest-bearing liabilities:
Interest-bearing deposits:
Interest-bearing demand	$	926,031	1,007	0.11	%	$	889,791	1,382	0.16	%	$	805,498	1,492	0.19	%
Savings and money market		1,973,612	8,015	0.41			2,007,780	13,210	0.66			2,025,056	20,327	1.00
Time		1,683,100	19,999	1.19			2,120,014	37,489	1.77			2,153,556	61,187	2.84
Total interest-bearing
deposits		4,582,743	29,021	0.63			5,017,585	52,081	1.04			4,984,110	83,006	1.67
Other borrowings		46,736	15	0.03			514,336	7,844	1.53			560,751	10,023	1.79
Notes payable (5)		—	—	—			—	—	—			—	37	—
Subordinated debentures (3)		354,019	13,623	3.85			353,943	13,012	3.68			353,867	15,498	4.38
Total interest-bearing
liabilities		4,983,498	42,659	0.86			5,885,864	72,937	1.24			5,898,728	108,564	1.84
Noninterest-bearing liabilities:
Demand deposits		1,150,958					1,135,013					1,077,281
Other liabilities		129,787					108,761					98,284
Liabilities of discontinued
operations		428,075					1,121,461					2,688,568
Total liabilities		6,692,318					8,251,099					9,762,861
Stockholders’ equity		300,134					452,625					825,178
Total liabilities and
stockholders’ equity	$	6,992,452				$	8,703,724				$	10,588,039
Net interest income			191,347					240,397					292,634
Interest rate spread				2.71					2.68					2.61
Net interest margin (6)				2.92	%				3.01	%				3.24	%

____________________
 

(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%. The tax-equivalent adjustments were $321,000, $496,000 and $866,000 for the years ended December 31, 2011, 2010 and 2009, respectively.
(5)	Interest expense on our notes payable reflects commitment fees of $37,000 for the year ended December 31, 2009.
(6)	Net interest margin is the ratio of net interest income (expressed on a tax-equivalent basis) to average interest-earning assets.

31

Rate / Volume

The following table indicates, on a tax-equivalent basis, the changes in interest income and interest expense on a continuing basis that are attributable to changes in average volume and changes in average rates, in comparison with the preceding year. 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:
	2011 Compared to 2010							2010 Compared to 2009
						Net						Net
	Volume			Rate		Change		Volume		Rate		Change
	(dollars expressed in thousands)
Interest earned on:
Loans: (1) (2) (3)
Taxable	$	(83,608	)	(13,242	)	(96,850	)	(91,514	)	2,907		(88,607	)
Tax-exempt (4)		(165	)	(160	)	(325	)	(961	)	404		(557	)
Investment securities:
Taxable		23,665		(3,086	)	20,579		11,525		(10,353	)	1,172
Tax-exempt (4)		(93	)	(82	)	(175	)	(505	)	6		(499	)
FRB and FHLB stock		(1,056	)	409		(647	)	(309	)	217		(92	)
Short-term investments		(1,910	)	—		(1,910	)	1,044		(325	)	719
Total interest income		(63,167	)	(16,161	)	(79,328	)	(80,720	)	(7,144	)	(87,864	)
Interest paid on:
Interest-bearing demand deposits		59		(434	)	(375	)	149		(259	)	(110	)
Savings and money market deposits		(223	)	(4,972	)	(5,195	)	(174	)	(6,943	)	(7,117	)
Time deposits		(6,753	)	(10,737	)	(17,490	)	(941	)	(22,757	)	(23,698	)
Other borrowings		(3,767	)	(4,062	)	(7,829	)	(791	)	(1,388	)	(2,179	)
Notes payable (5)		—		—		—		(37	)	—		(37	)
Subordinated debentures (3)		3		608		611		3		(2,489	)	(2,486	)
Total interest expense		(10,681	)	(19,597	)	(30,278	)	(1,791	)	(33,836	)	(35,627	)
Net interest income	$	(52,486	)	3,436		(49,050	)	(78,929	)	26,692		(52,237	)

____________________
 

(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%.
(5)	Interest expense on our notes payable reflects commitment fees of $37,000 for the year ended December 31, 2009.

Net interest income, expressed on a tax-equivalent basis, decreased $49.1 million for year ended December 31, 2011, as compared to 2010, and reflects a decrease due to volume of $52.5 million, partially offset by an increase due to rate of $3.4 million. Net interest income, expressed on a tax-equivalent basis, decreased $52.2 million for the year ended December 31, 2010, as compared to 2009, and reflects a decrease due to volume of $78.9 million, partially offset by an increase due to rate of $26.7 million. The decrease in net interest income, expressed on a tax-equivalent basis, for 2011 as compared to 2010, and for 2010 as compared to 2009, 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 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, reflective of overall market conditions and competition during these periods.

Provision for Loan Losses

Comparison of 2011 and 2010. We recorded a provision for loan losses of $69.0 million for the year ended December 31, 2011, compared to $214.0 million in 2010. The decrease in the provision for loan losses for the year ended December 31, 2011, as compared to 2010, was primarily driven by the significant decrease in our overall level of nonaccrual loans and potential problem loans, a decrease in net loan charge-offs and less severe asset migration to classified asset categories during 2011 than the migration levels experienced during 2010, as further discussed under “—Loans and Allowance for Loan Losses.”

Our nonaccrual loans were $220.3 million at December 31, 2011, compared to $398.9 million at December 31, 2010. The decrease in the overall level of nonaccrual loans during 2011 was primarily 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.

32

Our net loan charge-offs decreased to $132.3 million for the year ended December 31, 2011, compared to $279.1 million in 2010. Our net loan charge-offs were 3.47% of average loans in 2011, compared to 5.06% of average loans in 2010. Loan charge-offs were $154.6 million for 2011, compared to $331.2 million in 2010, and loan recoveries were $22.3 million for 2011, compared to $52.1 million in 2010.

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

Comparison of 2010 and 2009. We recorded a provision for loan losses of $214.0 million for the year ended December 31, 2010, compared to $390.0 million in 2009. The decrease in the provision for loan losses for the year ended December 31, 2010, as compared to 2009, was primarily driven by the significant decrease in loans, net of net deferred loan fees, during 2010 as compared to 2009, lower net loan charge-offs, a decrease in nonaccrual loans and less severe asset migration to classified asset categories during 2010 than the migration levels experienced during 2009.

Our nonaccrual loans were $398.9 million at December 31, 2010, compared to $691.1 million at December 31, 2009. The decrease in the overall level of nonaccrual loans during 2010 was primarily 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.

Our net loan charge-offs decreased to $279.1 million for the year ended December 31, 2010, compared to $339.0 million in 2009. Our net loans charge-offs were 5.06% of average loans in 2010, compared to 4.62% of average loans in 2009. Loan charge-offs were $331.2 million for 2010, compared to $352.7 million in 2009, and loan recoveries were $52.1 million for 2010, compared to $13.7 million in 2009.

Noninterest Income

Comparison of 2011 and 2010. Noninterest income decreased $16.3 million, or 21.1%, to $60.9 million for the year ended December 31, 2011, from $77.1 million in 2010. 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, reduced gains on investment securities, a higher decline in the fair value of servicing rights, lower loan servicing fees and decreased other income, partially offset by a reduction in net losses on derivative financial instruments. The following table summarizes noninterest income for the years ended December 31, 2011 and 2010:

	December 31,					Increase (Decrease)
	2011			2010		Amount		%
	(dollars expressed in thousands)
Noninterest income:
Service charges on deposit accounts and customer service fees	$	38,214		41,412		(3,198	)	(7.7	)	%
Gain on loans sold and held for sale		5,176		9,516		(4,340	)	(45.6	)
Net gain on investment securities		5,335		8,315		(2,980	)	(35.8	)
Net loss on derivative instruments		(193	)	(2,925	)	2,732		93.4
Change in fair value of servicing rights		(7,652	)	(5,558	)	(2,094	)	(37.7	)
Loan servicing fees		8,271		8,783		(512	)	(5.8	)
Other		11,733		17,594		(5,861	)	(33.3	)
Total noninterest income	$	60,884		77,137		(16,253	)	(21.1	)

Service charges on deposit accounts and customer service fees decreased $3.2 million, or 7.7%, to $38.2 million for the year ended December 31, 2011, from $41.4 million in 2010, primarily reflecting reduced non-sufficient funds and returned check fee income on retail and commercial accounts coupled with changes in the deposit mix and certain product modifications designed to enhance overall product offerings to our customer base during these periods.

Gains on loans sold and held for sale decreased $4.3 million, or 45.6%, to $5.2 million for the year ended December 31, 2011, from $9.5 million in 2010. The decrease was primarily attributable to a decrease in the volume of mortgage loans originated for sale in the secondary market during 2011 associated with the decline in refinancing volume in our mortgage banking division in addition to lower margins on the loans originated for sale in the secondary market. For the years ended December 31, 2011 and 2010, we originated residential mortgage loans totaling $294.0 million and $398.9 million, respectively, and sold residential mortgage loans totaling $298.5 million and $376.2 million, respectively.

Net gains on investment securities were $5.3 million and $8.3 million for the years ended December 31, 2011 and 2010, respectively. 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. 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. During 2010, we sold investment securities primarily to provide funding to pay off our remaining term secured borrowings, including our FHLB advances and our $120.0 million term repurchase agreement. These investment securities were sold at net gains. Proceeds from sales of available-for-sale investment securities were $283.7 million for the year ended December 31, 2011, as compared to $249.2 million in 2010.

Net losses on derivative instruments decreased $2.7 million, or 93.4%, to $193,000 for the year ended December 31, 2011, from $2.9 million in 2010, primarily attributable to changes in fair value and the net interest differential on our interest rate swap agreements.

33

Net losses associated with changes in the fair value of mortgage and SBA servicing rights increased $2.1 million, or 37.7%, to $7.7 million for the year ended December 31, 2011, from $5.6 million 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 underlying SBA loans serviced for others. The higher decline in the fair value of servicing rights during 2011 was primarily attributable to the substantial decrease in mortgage interest rates during 2011 and related increase in loan prepayment speeds resulting from historically low mortgage interest rates.

Loan servicing fees decreased $512,000, or 5.8%, to $8.3 million for the year ended December 31, 2011, from $8.8 million in 2010. Loan servicing fees are primarily comprised of 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, in addition to unused commitment fees received from lending customers. The level of such 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. The decrease in loan servicing fees during 2011 was primarily attributable to a decrease in unused commitment fees of $533,000 to $608,000 for the year ended December 31, 2011, from $1.1 million in 2010, driven by the decrease in our loan portfolio and related unused commitments.

Other income decreased $5.9 million, or 33.3%, to $11.7 million for the year ended December 31, 2011, from $17.6 million in 2010. The decrease in other income primarily 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, compared to a gain of $168,000 recognized in the first quarter of 2010 on the sale of our Lawrenceville, Illinois branch, as further described in Note 2 to our consolidated financial statements;
Ø	The receipt of a litigation settlement of $2.6 million recognized in the second quarter of 2010; and
Ø	Net losses on sales of other real estate and repossessed assets of $1.3 million for the year ended December 31, 2011, compared to net gains on sales of other real estate and repossessed assets of $3.5 million in 2010; partially offset by
Ø	The partial recovery of $1.8 million received during 2011 from a suspected fraud loss recognized during 2010; and
Ø	Income recognized on certain Community Reinvestment Act, or CRA, investments of $1.1 million during 2011, as compared to $35,000 in 2010.

Comparison of 2010 and 2009. Noninterest income increased $7.8 million, or 11.2%, to $77.1 million for the year ended December 31, 2010, from $69.4 million in 2009. The increase in our noninterest income was primarily attributable to increased gains on loans sold and held for sale, an increase in net gains on investment securities, lower net losses on derivative financial instruments and increased other income, partially offset by higher declines in the fair value of servicing rights and reduced service charges on deposit accounts and customer service fees. The following table summarizes noninterest income for the years ended December 31, 2010 and 2009:

	December 31,					Increase (Decrease)
	2010			2009		Amount		%
	(dollars expressed in thousands)
Noninterest income:
Service charges on deposit accounts and customer service fees	$	41,412		41,991		(579	)	(1.4	) %
Gain on loans sold and held for sale		9,516		4,112		5,404		131.4
Net gain on investment securities		8,315		7,697		618		8.0
Net loss on derivative instruments		(2,925	)	(4,874	)	1,949		40.0
Change in fair value of servicing rights		(5,558	)	(2,896	)	(2,662	)	(91.9	)
Loan servicing fees		8,783		8,842		(59	)	(0.7	)
Other		17,594		14,495		3,099		21.4
Total noninterest income	$	77,137		69,367		7,770		11.2

34

Service charges on deposit accounts and customer service fees decreased $579,000, or 1.4%, to $41.4 million for the year ended December 31, 2010, from $42.0 million in 2009, primarily reflecting reduced non-sufficient funds and returned check fee income on retail and commercial accounts coupled with changes in the deposit mix and certain product modifications designed to enhance overall product offerings to our customer base during these periods.

Gains on loans sold and held for sale increased $5.4 million to $9.5 million for the year ended December 31, 2010, from $4.1 million in 2009. The increase in the gain on loans sold and held for sale reflects an increase in the gain on the sale of mortgage loans to $9.5 million during 2010, as compared to $9.4 million in 2009. For the years ended December 31, 2010 and 2009, we originated residential mortgage loans totaling $398.9 million and $541.0 million, respectively, and sold residential mortgage loans totaling $376.2 million and $522.6 million, respectively. The increase in 2010 also reflects losses on the sale of certain asset based lending loans and restaurant franchise loans of $6.1 million and $1.1 million, respectively, during the fourth quarter of 2009 and a decrease in the gain on sale of SBA loans of $1.8 million to $230,000 during 2010, compared to $2.1 million during 2009 resulting from lower origination volumes within this segment.

Net gains on investment securities were $8.3 million and $7.7 million for the years ended December 31, 2010 and 2009, respectively. During 2010, we sold investment securities primarily to provide funding to pay off our remaining term secured borrowings, including our FHLB advances and our $120.0 million term repurchase agreement. These investment securities were sold at net gains. Throughout 2009, we sold available-for-sale investment securities that carried relatively high risk-weightings for regulatory capital purposes and repositioned a portion of our investment securities portfolio to lower risk-weighted investments. The net gains from these sales were partially offset by other-than-temporary impairment of $4,000 and $1.2 million recorded during the years ended December 31, 2010 and 2009, respectively. We recorded other-than-temporary impairment of $1.2 million during 2009 on equity investments in the common stock of two companies in the financial services industry. These equity investments were sold during 2010.

Net losses on derivative instruments decreased $1.9 million, or 40.0%, to $2.9 million for the year ended December 31, 2010, as compared to $4.9 million in 2009. The net losses incurred during 2010 were primarily attributable to changes in fair value and the net interest differential on our interest rate swap agreements previously designated as cash flow hedges on our junior subordinated debentures. The net losses incurred during 2009 of $4.9 million were primarily attributable to a cumulative fair value adjustment of $4.6 million on our interest rate swap agreements designated as cash flow hedges on our junior subordinated debentures that was reclassified from accumulated other comprehensive loss to loss on derivative instruments as a result of the discontinuation of hedge accounting treatment following the announcement of the deferral of interest payments on the underlying trust preferred securities in August 2009. 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, as further discussed under “—Interest Rate Risk Management” and in Note 8 to our consolidated financial statements. These losses were partially offset by income of $711,000 generated from the issuance of customer interest rate swap agreements in 2009.

Net losses from changes in the fair value of mortgage and SBA servicing rights increased $2.7 million to $5.6 million for the year ended December 31, 2010, from $2.9 million in 2009. 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 underlying SBA loans in the serviced portfolio. The increase in net losses in 2010 was primarily attributable to the decline in mortgage interest rates during 2010.

Loan servicing fees were $8.8 million for the years ended December 31, 2010 and 2009, and are primarily attributable to fee income generated for the servicing of real estate mortgage loans owned by investors and originated by our mortgage banking division, as well as SBA loans to small business concerns, in addition to unused commitment fees received from lending customers. The level of fees is primarily impacted by the balance of loans serviced and interest shortfall on serviced residential mortgage loans.

Other income increased $3.1 million, or 21.4%, to $17.6 million for the year ended December 31, 2010, from $14.5 million in 2009. The increase in other income primarily reflects the following:

Ø	The receipt of a litigation settlement of $2.6 million in the second quarter of 2010; and
Ø	Net gains on sales of other real estate and repossessed assets of $3.5 million for the year ended December 31, 2010, compared to net losses on sales of other real estate and repossessed assets of $17,000 in 2009; partially offset by
Ø	A decrease in BOLI investment income to $120,000 for the year ended December 31, 2010, from $733,000 in 2009, reflecting a decline in the average balance of BOLI between the periods. In June 2009, we terminated our largest BOLI policy resulting in a reduction in the carrying value of our BOLI investment of $93.1 million. In January 2010, we terminated an additional BOLI policy which had a carrying value of $19.8 million, and in the third quarter of 2010, we liquidated our remaining BOLI policies which had an aggregate carrying value of $6.7 million; and
Ø	A gain of $168,000 recognized in the first quarter of 2010 on the sale of our Lawrenceville Branch, compared to a gain of $309,000 recognized in the fourth quarter of 2009 on the sale of our Springfield Branch, as further described in Note 2 to our consolidated financial statements.

35

Noninterest Expense

Comparison of 2011 and 2010. Noninterest expense decreased $67.9 million, or 23.1%, to $226.1 million for the year ended December 31, 2011, from $294.0 million in 2010. The decrease in our noninterest expense during 2011, as compared to 2010, was primarily attributable to reductions in substantially all expense categories attributable to our profit improvement initiatives and the decrease in our total assets. The following table summarizes noninterest expense for the years ended December 31, 2011 and 2010:

	December 31,			Increase (Decrease)
	2011		2010	Amount		%
	(dollars expressed in thousands)
Noninterest expense:
Salaries and employee benefits	$	77,267	81,865	(4,598	)	(5.6	) %
Occupancy, net of rental income		23,138	25,927	(2,789	)	(10.8	)
Furniture and equipment		11,485	13,359	(1,874	)	(14.0	)
Postage, printing and supplies		2,748	3,353	(605	)	(18.0	)
Information technology fees		25,804	27,745	(1,941	)	(7.0	)
Legal, examination and professional fees		12,191	13,805	(1,614	)	(11.7	)
Amortization of intangible assets		2,962	3,260	(298	)	(9.1	)
Advertising and business development		1,855	1,473	382		25.9
FDIC insurance		15,652	20,878	(5,226	)	(25.0	)
Write-downs and expenses on other real estate and repossessed assets		22,983	44,662	(21,679	)	(48.5	)
Other		29,974	57,654	(27,680	)	(48.0	)
Total noninterest expense	$	226,059	293,981	(67,922	)	(23.1	)

Salaries and employee benefits expense decreased $4.6 million, or 5.6%, to $77.3 million for the year ended December 31, 2011, from $81.9 million 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 or FTEs, excluding discontinued operations, decreased to 1,171 at December 31, 2011, from 1,296 at December 31, 2010, representing a decrease of 9.6%. 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 $4.7 million, or 11.9%, to $34.6 million for the year ended December 31, 2011, from $39.3 million 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 $605,000, or 18.0%, to $2.7 million for the year ended December 31, 2011, from $3.4 million in 2010, primarily reflecting decreases in office supplies expenses as a result of profit improvement initiatives.

Information technology fees decreased $1.9 million, or 7.0%, to $25.8 million for the year ended December 31, 2011, from $27.7 million 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 20 to our consolidated financial statements, First Services, L.P., a limited partnership indirectly owned by our Chairman and members of his immediate family, including Mr. Michael Dierberg, a director of the Company, 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.

Legal, examination and professional fees decreased $1.6 million, or 11.7%, to $12.2 million for the year ended December 31, 2011, from $13.8 million in 2010. The decrease in legal, examination and professional fees reflects a decrease in legal expenses associated with loan collection activities, divestiture activities and litigation matters in comparison to the level of such expenses during 2010. We anticipate legal, examination and professional fees to remain at higher-than-historical levels during 2012, primarily as a result of high levels of legal and professional fees associated with ongoing collection efforts on commercial and consumer problem loans as well as ongoing matters associated with our Capital Plan, as further described under “Item 1 —Business – Recent Developments and Other Matters – Capital Plan.”

36

Amortization of intangible assets decreased $298,000, or 9.1%, to $3.0 million for the year ended December 31, 2011, from $3.3 million in 2010, reflecting a decrease in the amortization of core deposit intangibles associated with prior acquisitions. Our core deposit intangibles became fully amortized during 2011.

Advertising and business development expense increased $382,000, or 25.9%, to $1.9 million for the year ended December 31, 2011, from $1.5 million in 2010, reflecting increased advertising during 2011 as compared to 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 $5.2 million, or 25.0%, to $15.7 million for the year ended December 31, 2011, from $20.9 million 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. The decrease in FDIC insurance expense is also reflective of our lower level of deposits and total assets during 2011 as compared to 2010.

Write-downs and expenses on other real estate and repossessed assets decreased $21.7 million, or 48.5%, to $23.0 million for the year ended December 31, 2011, from $44.7 million in 2010. Write-downs related to the revaluation of certain other real estate properties and repossessed assets were $16.9 million in 2011, as compared to $34.7 million in 2010. Other real estate and repossessed asset expenses, exclusive of write-downs, such as taxes, insurance, and repairs and maintenance, were $6.1 million in 2011 as compared to $10.0 million in 2010, reflecting a decrease in the balance of other real estate and repossessed assets and the sale of certain properties that required higher operating expenditures. The balance of our other real estate and repossessed assets decreased to $129.9 million at December 31, 2011, from $140.7 million at December 31, 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 $27.7 million, or 48.0%, to $30.0 million for the year ended December 31, 2011, from $57.7 million 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 decrease in the overall level of other expense during 2011, as compared to 2010, is reflective of the following:

Ø	An operating loss of $13.6 million during 2010 resulting from suspected fraud involving a customer relationship;
Ø	Prepayment penalties of $5.1 million associated with the prepayment of all of our outstanding FHLB advances during 2010;
Ø	A fee of $5.5 million paid during 2010 associated with the early termination of our $120.0 million term repurchase agreement;
Ø	Payments related to litigation matters of $3.5 million in 2010;
Ø	The establishment of a specific reserve on an unfunded letter of credit of $2.4 million in the fourth quarter of 2010;
Ø	A reduction in overdraft losses, net of recoveries, to $1.1 million in 2011 as compared to $1.6 million in 2010; and
Ø	Profit improvement initiatives and management’s efforts to reduce overall expense levels; partially offset by
Ø	Write-downs of bank-owned facilities to estimated fair value less costs to sell of $2.6 million associated with space consolidation initiatives completed during 2011; and
Ø	An increase in expenses associated with CRA investments to $2.3 million in 2011 as compared to $1.5 million in 2010.

37

Comparison of 2010 and 2009. Noninterest expense decreased $51.4 million, or 14.9%, to $294.0 million for the year ended December 31, 2010, from $345.4 million in 2009. The decrease in our noninterest expense during 2010, as compared to 2009, was primarily attributable to a $75.0 million goodwill impairment charge in 2009, in addition to reductions in write-downs and expenses on other real estate and repossessed assets, salaries and employee benefits expense, postage, printing and supplies expense, information technology fees and advertising and business development expenses, partially offset by increased occupancy and furniture and equipment expenses, legal, examination and professional fees, FDIC insurance expense and other expense. The following table summarizes noninterest expense for the years ended December 31, 2010 and 2009:

	December 31,			Increase (Decrease)
	2010		2009	Amount		%
	(dollars expressed in thousands)
Noninterest expense:
Salaries and employee benefits	$	81,865	84,496	(2,631	)	(3.1	) %
Occupancy, net of rental income		25,927	24,521	1,406		5.7
Furniture and equipment		13,359	14,507	(1,148	)	(7.9	)
Postage, printing and supplies		3,353	4,225	(872	)	(20.6	)
Information technology fees		27,745	30,915	(3,170	)	(10.3	)
Legal, examination and professional fees		13,805	11,883	1,922		16.2
Goodwill impairment		—	75,000	(75,000	)	(100.0	)
Amortization of intangible assets		3,260	4,326	(1,066	)	(24.6	)
Advertising and business development		1,473	1,801	(328	)	(18.2	)
FDIC insurance		20,878	18,769	2,109		11.2
Write-downs and expenses on other real estate and repossessed assets		44,662	48,488	(3,826	)	(7.9	)
Other		57,654	26,433	31,221		118.1
Total noninterest expense	$	293,981	345,364	(51,383	)	(14.9	)

Salaries and employee benefits expense decreased $2.6 million, or 3.1%, to $81.9 million for the year ended December 31, 2010, from $84.5 million in 2009. The overall decrease in salaries and employee benefits expense in 2010, as compared to 2009, is reflective of the completion of certain staff reductions in 2009 and 2010 intended to improve efficiency in conjunction with our restructuring to a smaller footprint, in addition to a decline in incentive compensation expense commensurate with our earnings performance. Our total FTEs, excluding discontinued operations, decreased to 1,296 at December 31, 2010, from 1,481 at December 31, 2009, representing a decrease of 12.5%. The decrease in salaries and employee benefits expense is also reflective of a decline in other benefits expenses, including our 401(k) matching contribution, which was eliminated in April 2009, and compensation expense associated with the performance of the underlying investments in our nonqualified deferred compensation program, partially offset by an increase in severance expense as a result of certain profit improvement initiatives.

Occupancy, net of rental income, and furniture and equipment expense was $39.3 million for the year ended December 31, 2010, in comparison to $39.0 million in 2009. The expense levels reflect occupancy expense associated with depreciation expense and standard rental increases pursuant to existing lease obligations at several of our branch and operations facilities, coupled with furniture, fixtures and technology equipment expenditures associated with prior expansion and branch renovation activities and certain branch closures in conjunction with profit improvement initiatives.

Postage, printing and supplies expense decreased $872,000, or 20.6%, to $3.4 million for the year ended December 31, 2010, from $4.2 million in 2009, primarily resulting from decreases in office supplies expenses as a result of profit improvement initiatives.

Information technology fees decreased $3.2 million, or 10.3%, to $27.7 million for the year ended December 31, 2010, from $30.9 million in 2009. 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 previously discussed.

Legal, examination and professional fees increased $1.9 million, or 16.2%, to $13.8 million for the year ended December 31, 2010, from $11.9 million in 2009. The increase in legal, examination and professional fees primarily reflects higher legal expenses associated with our divestiture activities, in addition to our collection and foreclosure efforts associated with the significant level of average nonperforming assets and ongoing litigation matters.

We recorded a goodwill impairment charge of $75.0 million in the fourth quarter of 2009. The goodwill impairment charge was necessitated by a decline in the fair value of our single reporting unit, First Bank. The primary factor contributing to the impairment recognition was further deterioration in the actual and projected financial performance of First Bank, as evidenced by the increases in the provision for loan losses, net loan charge-offs and nonperforming loans and the decline in the net interest margin and net interest income during 2009.

38

Amortization of intangible assets decreased $1.1 million, or 24.6%, to $3.3 million for the year ended December 31, 2010, from $4.3 million in 2009, reflecting a decrease in the amortization of core deposit intangibles associated with prior acquisitions.

Advertising and business development expense decreased $328,000, or 18.2%, to $1.5 million for the year ended December 31, 2010, from $1.8 million in 2009, reflecting the implementation of certain profit improvement initiatives and management’s efforts to reduce these expenditures.

FDIC insurance expense increased $2.1 million, or 11.2%, to $20.9 million for the year ended December 31, 2010, from $18.8 million in 2009. The increase in FDIC insurance expense was primarily attributable to the increase in premiums related to our increased risk assessment rating, partially offset by a special assessment of $4.8 million recorded in the second quarter of 2009 and paid on September 30, 2009 in conjunction with a special assessment of five basis points on each FDIC-insured depository institution’s assets minus its Tier 1 capital as of June 30, 2009.

Write-downs and expenses on other real estate and repossessed assets decreased $3.8 million, or 7.9%, to $44.7 million for the year ended December 31, 2010, from $48.5 million in 2009, and included write-downs related to the revaluation of certain properties of $34.7 million in 2010 as compared to $37.4 million in 2009. Other real estate and repossessed asset expenses, exclusive of write-downs, such as taxes and repairs and maintenance, were $10.0 million in 2010 as compared to $11.1 million in 2009. The overall higher-than-historical level of expenses on other real estate and repossessed assets was primarily attributable to expenses associated with increased foreclosure activity, including current and delinquent real estate taxes paid on other real estate properties, as well as other property preservation related expenses. The balance of our other real estate and repossessed assets increased to $140.7 million at December 31, 2010, from $126.9 million at December 31, 2009, primarily driven by foreclosures of real estate construction and development, commercial real estate and one-to-four-family residential real estate loans, partially offset by the sale of other real estate properties and write-downs of other real estate.

Other expense increased $31.2 million to $57.7 million for the year ended December 31, 2010, from $26.4 million in 2009. The increase in other expense during 2010, as compared to 2009, reflects the following:

Ø	An operating loss of $13.6 million during 2010 resulting from suspected fraud involving a customer relationship;
Ø	Prepayment penalties of $5.1 million associated with the prepayment of all of our outstanding FHLB advances during 2010;
Ø	A fee of $5.5 million paid during 2010 associated with the early termination of our $120.0 million term repurchase agreement;
Ø	Payments related to litigation matters of $3.5 million in 2010; and
Ø	The establishment of a specific reserve on an unfunded letter of credit of $2.4 million in the fourth quarter of 2010; partially offset by
Ø	A decrease in loan expenses associated with collection matters to $5.2 million in 2010 as compared to $5.3 million in 2009;
Ø	A decrease in overdraft losses, net of recoveries, to $1.6 million in 2010 as compared to $1.8 million in 2009; and
Ø	Profit improvement initiatives and management’s efforts to reduce overall expense levels.

(Benefit) Provision for Income Taxes.

Comparison of 2011 and 2010. We recorded a benefit for income taxes of $10.7 million for the year ended December 31, 2011, compared to a provision for income taxes of $4.1 million for the year ended December 31, 2010. The (benefit) provision for income taxes during 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 presently “more likely than not,” as further described in Note 17 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 2011 also reflects the recognition of an intraperiod tax allocation between other comprehensive income and loss from continuing operations, resulting in a benefit for income taxes of $11.6 million during the third quarter of 2011 and a provision for income taxes of $1.1 million during the fourth quarter of 2011. This intraperiod tax allocation was primarily driven by market appreciation in our investment securities portfolio during the third quarter of 2011 and a subsequent decline in the fair value of our investment securities portfolio during the fourth quarter of 2011.

39

The provision for income taxes for 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 (benefit) provision for income taxes and the deferred tax asset valuation allowance are more fully described in Note 17 to our consolidated financial statements.

Comparison of 2010 and 2009. We recorded a provision for income taxes of $4.1 million for the year ended December 31, 2010, compared to $2.4 million for the year ended December 31, 2009. The provision for income taxes during 2010 and 2009 reflects the establishment of the full deferred tax asset valuation allowance during 2008, as previously discussed above. The provision for income taxes for 2010 also reflects the 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, 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, as previously discussed above.

Loss from Discontinued Operations, Net of Tax

We recorded a loss from discontinued operations, net of tax, of $11.6 million for the year ended December 31, 2011, compared to a loss from discontinued operations, net of tax, of $3.2 million in 2010 and a loss from discontinued operations, net of tax, of $72.3 million in 2009. The losses from discontinued operations, net of tax, for 2011, 2010 and 2009 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 $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 $9.7 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 loss of $156,000 during the second quarter of 2010 associated with the sale of MVP on April 15, 2010;
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 loss of $13.1 million during the fourth quarter of 2009 associated with the sale of assets of WIUS on December 31, 2009;
Ø	A gain of $120,000 during 2009 associated with the sale of ANB on September 30, 2009 after the write-off of goodwill and intangible assets allocated to ANB of $13.0 million; and
Ø	Other income (loss) from all discontinued operations during the respective periods, as further described in Note 2 to our consolidated financial statements.

See Note 2 to our consolidated financial statements for further discussion of discontinued operations.

40

Net Loss Attributable to Noncontrolling Interest in Subsidiaries

Net losses attributable to noncontrolling interest in subsidiaries were $3.0 million for the year ended December 31, 2011, compared to $6.5 million in 2010, and were comprised of the noncontrolling interest in the net losses of FB Holdings. The decrease is primarily reflective of lower collection and other real estate related expenses primarily resulting from lower balances of nonaccrual loans and other real estate in FB Holdings during 2011 as compared to 2010.

Net losses attributable to noncontrolling interest in subsidiaries were $6.5 million for the year ended December 31, 2010, compared to $21.3 million in 2009, and were comprised of the noncontrolling interest in the net losses in FB Holdings and SBLS LLC. The noncontrolling interest in the net losses in FB Holdings was $6.5 million for the year ended December 31, 2010, compared to $20.9 million in 2009. The decrease is primarily reflective of lower collection and other real estate related expenses primarily resulting from lower balances of nonaccrual loans and other real estate in FB Holdings during 2010 as compared to 2009. The noncontrolling interest in the net losses in SBLS LLC was $448,000 for the year ended December 31, 2009.

Noncontrolling interest in our subsidiaries is more fully described in Note 1 and Note 20 to our consolidated financial statements.

Financial Condition

Total assets decreased $769.2 million to $6.61 billion at December 31, 2011, from $7.38 billion at December 31, 2010. The decrease in our total assets was attributable to decreases in our short-term investments, loans, FRB and 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.

Cash and cash equivalents, which are comprised of cash and short-term investments, decreased $523.7 million to $472.0 million at December 31, 2011, compared to $995.8 million at December 31, 2010. The majority of funds in our short-term investments at December 31, 2011 and 2010 were maintained in our correspondent bank account with the FRB, as further discussed under “—Liquidity Management.” 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 $957.5 million, excluding the fair value adjustment on available-for-sale investment securities; and
Ø	A decrease in our deposit balances of approximately $667.2 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 $985.0 million, exclusive of loan charge-offs and transfers to other real estate and repossessed assets;
Ø	Recoveries of loans previously charged off of $22.3 million;
Ø	Sales of other real estate and repossessed assets resulting in the receipt of cash proceeds from these sales of approximately $65.3 million;
Ø	A net increase in our other borrowings of $19.1 million, consisting of changes in our daily repurchase agreements utilized by customers as an alternative deposit product; and
Ø	The net redemption of $3.0 million of FRB and FHLB stock associated with the reduction in our total assets during 2011.

Investment securities increased $987.0 million to $2.48 billion at December 31, 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 $29.6 million during 2011 primarily resulting from a decrease in market interest rates.

Loans, net of net deferred loan fees, decreased $1.21 billion to $3.28 billion at December 31, 2011, from $4.49 billion at December 31, 2010. The decrease reflects loan charge-offs of $154.6 million, transfers of loans to other real estate and repossessed assets of $69.9 million and $983.8 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.”

41

FRB and FHLB stock decreased $3.0 million to $27.1 million at December 31, 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 2011.

Bank premises and equipment, net of depreciation and amortization, decreased $33.5 million to $127.9 million at December 31, 2011, from $161.4 million at December 31, 2010. The decrease is primarily attributable to the reclassification of $14.5 million of bank premises and equipment associated with our Florida Region to assets of discontinued operations, depreciation and amortization of $13.1 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 $2.6 million, partially offset by net purchases of premises and equipment.

Goodwill and other intangible assets decreased $7.1 million to $122.0 million at December 31, 2011, from $129.1 million at December 31, 2010. The decrease is primarily attributable to the allocation of $4.0 million of goodwill associated with our Florida Region to assets of discontinued operations at December 31, 2011 and amortization of $3.0 million during 2011.

Other real estate and repossessed assets decreased $10.8 million to $129.9 million at December 31, 2011, from $140.7 million at December 31, 2010. The decrease in other real estate and repossessed assets was primarily attributable to the sale of other real estate properties and repossessed assets with a carrying value of $66.6 million at a net loss of $1.3 million, and write-downs of other real estate properties and repossessed assets of $16.9 million primarily attributable to declining real estate values on certain properties. These decreases were partially offset by transfers of certain properties associated with our Texas and Chicago Regions with a carrying value of $6.5 million from bank premises and equipment to other real estate and repossessed assets, and foreclosures and additions to other real estate and repossessed assets aggregating $69.9 million, as further discussed under “—Loans and Allowance for Loan Losses.”

Other assets decreased $9.4 million to $62.3 million at December 31, 2011, from $71.7 million at December 31, 2010, and primarily reflects reductions in accrued interest receivable, servicing rights, derivative financial instruments and miscellaneous other receivables.

Assets and liabilities held for sale at December 31, 2011 reflect the completion of the sales 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.

Assets and liabilities of discontinued operations were $21.0 million and $346.3 million, respectively, at December 31, 2011 and represent the assets and liabilities of our Florida Region expected to be sold during the second or third quarter of 2012. Assets and liabilities of discontinued operations were $43.5 million and $94.2 million, respectively, at December 31, 2010 and represent the assets and liabilities associated with three branches in our Northern Illinois Region sold on May 13, 2011. See Note 2 to our consolidated financial statements for further discussion of discontinued operations.

Deposits decreased $1.01 billion to $5.45 billion at December 31, 2011, from $6.46 billion at December 31, 2010. The decrease reflects the reclassification of $345.9 million of deposits associated with our Florida Region to liabilities of discontinued operations at December 31, 2011, as further discussed in Note 2 to our consolidated financial statements. Exclusive of this transaction, total deposits decreased $660.7 million, which 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 $560.7 million and $154.9 million, respectively, reflecting our efforts to exit unprofitable relationships to reduce overall deposit costs and improve First Bank’s leverage ratio. These decreases were partially offset by an increase in demand deposits of $54.9 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 $19.1 million to $50.9 million at December 31, 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 $32.0 million to $115.9 million at December 31, 2011, from $83.9 million at December 31, 2010. The increase was primarily attributable to an increase in dividends payable on our Class C Preferred Stock and Class D Preferred Stock of $17.9 million to $43.0 million at December 31, 2011 and an increase in accrued interest payable on our junior subordinated debentures of $13.5 million to $33.1 million at December 31, 2011, as further discussed in Notes 12 and 18 to our consolidated financial statements.

42

Stockholders’ equity, including noncontrolling interest in subsidiary, was $263.7 million and $307.3 million at December 31, 2011 and 2010, respectively, reflecting a decrease of $43.6 million. The decrease during 2011 reflects a net loss, including discontinued operations, of $41.2 million, dividends declared of $17.9 million on our Class C Preferred Stock and Class D Preferred Stock and a decrease in noncontrolling interest in subsidiary of $3.0 million associated with net losses in FB Holdings, partially offset by a net increase in accumulated other comprehensive income of $18.4 million primarily associated with an increase in unrealized gains on available-for-sale investment securities resulting from the decrease in market interest rates experienced during 2011.

Investment Securities

We classify the securities within our investment portfolio as available for sale or held to maturity. Our investment securities portfolio consists primarily of securities designated as available for sale.

Our investment securities increased $987.0 million to $2.48 billion at December 31, 2011, from $1.49 billion at December 31, 2010. The increase in our investment securities portfolio in 2011 was primarily attributable to the utilization of a portion of our 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 and appropriate diversification within our investment securities portfolio, in addition to an increase in the fair value adjustment of our available-for-sale investment securities during 2011 resulting from a decrease in market interest rates. Funds available from cash and cash equivalents and reductions in our loan portfolio, in addition to the reinvestment of funds available from maturities and/or calls of investment securities of $342.8 million and sales of available-for-sale investment securities of $283.7 million, were utilized to purchase investment securities of $1.59 billion during 2011. Purchases of investment securities during 2011 included $193.0 million of corporate securities, primarily representing large financial institutions.

Our investment securities increased $952.8 million to $1.49 billion at December 31, 2010, from $541.6 million at December 31, 2009. The increase in our investment securities portfolio in 2010 was primarily attributable to the utilization of a portion of our cash and cash equivalents to fund gradual and planned increases in our investment securities portfolio in an effort to maintain appropriate liquidity levels while maximizing our net interest income and net interest margin. Funds available from cash and cash equivalents, in addition to the reinvestment of funds available from maturities and/or calls of investment securities of $192.3 million and sales of available-for-sale investment securities of $249.2 million, were utilized to purchase investment securities of $1.42 billion during 2010.

Additional information regarding our investment securities portfolio is more fully described in Note 3 to our consolidated financial statements.

Loans and Allowance for Loan Losses

Loan Portfolio Composition. Loans, net of net deferred loan fees, represented 49.7% of our assets as of December 31, 2011, compared to 60.9% of our assets at December 31, 2010. Loans, net of net deferred loan fees, decreased $1.21 billion to $3.28 billion at December 31, 2011 from $4.49 billion at December 31, 2010. The following table summarizes the composition of our loan portfolio by portfolio segment and the percent of each portfolio segment to the total portfolio as of the dates presented:

	December 31,
	2011					2010					2009					2008					2007
	Amount			%		Amount			%		Amount			%		Amount			%		Amount			%
	(dollars expressed in thousands)
Commercial, financial and
agricultural	$	725,130		22.3	%	$	1,045,832		23.5	%	$	1,692,922		25.8	%	$	2,575,505		30.1	%	$	2,382,067		27.0	%
Real estate construction and
development		249,987		7.7			490,766		11.1			1,052,922		16.0			1,572,212		18.4			2,141,234		24.3
Real estate mortgage:
One-to-four-family
residential loans		902,438		27.7			1,050,895		23.7			1,279,166		19.5			1,553,366		18.1			1,602,575		18.2
Multi-family residential
loans		127,356		3.9			178,289		4.0			223,044		3.4			220,404		2.6			177,246		2.0
Commercial real estate
loans		1,225,538		37.7			1,642,920		37.0			2,269,372		34.6			2,562,598		30.0			2,431,464		27.5
Consumer and installment		23,333		0.7			33,623		0.8			56,029		0.8			77,877		0.9			97,117		1.1
Net deferred loan fees		(942	)	—			(4,511	)	(0.1	)		(7,846	)	(0.1	)		(7,707	)	(0.1	)		(11,598	)	(0.1	)
Total loans, excluding
loans held for
sale		3,252,840		100.0	%		4,437,814		100.0	%		6,565,609		100.0	%		8,554,255		100.0	%		8,820,105		100.0	%
Loans held for sale		31,111					54,470					42,684					38,720					66,079
Total loans	$	3,283,951				$	4,492,284				$	6,608,293				$	8,592,975				$	8,886,184

43

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

	December 31,
	2011		2010
	(dollars expressed in thousands)
Mortgage Division	$	404,761	466,735
Florida		85,305	114,061
Northern California		497,434	633,867
Southern California		998,976	1,268,960
Chicago		190,610	244,277
Missouri		613,417	879,200
Texas		99,873	292,609
First Bank Business Capital, Inc.		19,496	56,212
Northern and Southern Illinois		278,541	350,208
Other		95,538	186,155
Total	$	3,283,951	4,492,284

We attribute the net decrease in our loan portfolio in 2011 primarily to:

Ø

A decrease of $320.7 million, or 30.7%, in our commercial, financial and agricultural portfolio, reflecting gross loan charge-offs of $46.3 million and portfolio runoff associated with a decline in internal production, low loan demand within our markets and our efforts to reduce the overall level of our special mention, potential problem and nonaccrual loans within this portfolio segment;

Ø

A decrease of $240.8 million, or 49.1%, in our real estate construction and development portfolio, primarily attributable to gross loan charge-offs of $35.5 million, transfers to other real estate and repossessed assets of $28.2 million and other loan activity reflective of our efforts to reduce the overall level of our special mention, potential problem and nonaccrual loans within this portfolio segment, including the sale of a $43.7 million special mention 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 December 31, 2011 and 2010:

	December 31,
	2011		2010
	(dollars expressed in thousands)
Northern California	$	51,968	64,647
Southern California		99,517	157,306
Chicago		30,105	44,166
Missouri		18,096	62,012
Texas		24,850	128,794
Florida		1,398	3,799
Northern and Southern Illinois		17,210	28,721
Other		6,843	1,321
Total	$	249,987	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 this asset quality deterioration, we focused on reducing our exposure to this portfolio segment and decreased the portfolio balance by $1.89 billion, or 88.3%, from $2.14 billion at December 31, 2007 to $250.0 million at December 31, 2011. Of the remaining portfolio balance of $250.0 million, $71.2 million, or 28.5%, of these loans were on nonaccrual status as of December 31, 2011 and $97.2 million, or 38.9%, of these loans were considered potential problem loans, as further discussed below;

44

Ø A decrease of $148.5 million, or 14.1%, in our one-to-four-family residential real estate loan portfolio primarily attributable to gross loan charge-offs of $31.4 million, transfers to other real estate of $14.4 million and principal payments. The following table summarizes the composition of our one-to-four-family residential real estate loan portfolio as of December 31, 2011 and 2010:

	December 31,
	2011		2010
	(dollars expressed in thousands)
One-to-four-family residential real estate:
Bank portfolio	$	165,578	239,363
Mortgage Division portfolio, excluding Florida		269,097	286,584
Florida Mortgage Division portfolio		97,818	125,369
Home equity portfolio		369,945	399,579
Total	$	902,438	1,050,895

	Our Bank portfolio consists of mortgage loans originated to customers from our retail branch banking network. As of December 31, 2011, approximately $14.7 million, or 8.9%, of this portfolio is on nonaccrual status. The decrease in this portfolio of $73.8 million, or 30.8%, during 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 an increasing volume of loan refinancings 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. The decrease in this portfolio of $17.5 million, or 6.1%, during 2011 is primarily attributable to principal payments, gross charge-offs of $12.4 million and transfers to other real estate; partially offset by the addition of approximately $17.6 million of new loan production into this portfolio, consisting of jumbo adjustable rate and 10 and 15-year fixed rate mortgages. As of December 31, 2011, approximately $90.2 million, or 33.5%, of this portfolio is considered impaired, consisting of nonaccrual loans of $13.9 million and performing troubled debt restructurings, or performing TDRs, of $76.3 million, including those loans modified in the Home Affordable Modification Program, or HAMP, of $68.7 million. Our Florida Mortgage Division portfolio, the majority of which was acquired in November 2007 through our acquisition of Coast Bank, consists primarily of prime and Alt A mortgage loans. The decrease in this portfolio of $27.6 million, or 22.0%, is primarily attributable to principal payments, gross charge-offs of $6.7 million and transfers to other real estate. As of December 31, 2011, approximately $9.2 million, or 9.4%, of this portfolio is considered impaired, consisting of performing TDRs of $6.3 million, including loans modified in HAMP of $4.3 million, and nonaccrual loans of $2.9 million. 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 December 31, 2011, approximately $6.9 million, or 1.9%, of this portfolio is on nonaccrual status. The decrease in this portfolio of $29.6 million, or 7.4%, during 2011 is primarily attributable to gross loan charge-offs of $7.7 million, in addition to principal payments and ordinary and seasonal fluctuations experienced within this loan product type;
Ø	A decrease of $50.9 million, or 28.6%, in our multi-family residential real estate portfolio primarily attributable to gross loan charge-offs of $3.1 million, portfolio runoff associated with a decline in internal production, reduced loan demand within our markets as well as our efforts to reduce the overall level of our special mention, potential problem and nonaccrual loans within this portfolio segment;
Ø	A decrease of $417.4 million, or 25.4%, in our commercial real estate portfolio primarily attributable to gross loan charge-offs of $38.0 million, transfers to other real estate of $24.1 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 December 31, 2011 and 2010:

	December 31,
	2011		2010
	(dollars expressed in thousands)
Farmland	$	19,322	36,735
Owner occupied		686,081	798,842
Non-owner occupied		520,135	807,343
Total	$	1,225,538	1,642,920

45

Within our commercial real estate portfolio, we have experienced the most distress in our non-owner occupied portfolio, which constitutes approximately 42.4% of our commercial real estate portfolio at December 31, 2011. As of December 31, 2011, $44.8 million, or 8.6%, of our non-owner occupied segment is considered impaired, consisting of performing TDRs of $21.7 million and nonaccrual loans of $23.1 million. The following table summarizes the composition of our non-owner occupied loan portfolio by region as of December 31, 2011 and 2010:

	December 31,
	2011		2010
	(dollars expressed in thousands)
Northern California	$	146,808	208,127
Southern California		213,394	305,287
Chicago		19,918	27,907
Missouri		77,449	149,106
Texas		27,639	61,258
Florida		10,233	13,338
Northern and Southern Illinois		22,803	24,990
Other		1,891	17,330
Total	$	520,135	807,343

	The decrease in non-owner occupied loans in our Southern California region of $91.9 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 $10.3 million, or 30.6%, in our consumer and installment portfolio, reflecting gross loan charge-offs of $457,000 and portfolio runoff associated with a decline in internal production and reduced loan demand within our markets; and
Ø	A decrease of $23.4 million, or 42.9%, in our loans held for sale portfolio primarily resulting from a decrease in origination volumes and subsequent sales into the secondary mortgage market.

These decreases were partially offset by:

Ø A decrease of $3.6 million, or 79.1%, in our net deferred loan 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.

We attribute the net decrease in our loan portfolio in 2010 primarily to:

Ø

A decrease of $647.1 million, or 38.2%, in our commercial, financial and agricultural portfolio, reflecting gross loan charge-offs of $52.1 million, the sale and reclassification, to assets of discontinued operations, of $18.1 million and $6.9 million, respectively, of such loans in our Northern Illinois Region, and portfolio runoff associated with a decline in internal production and reduced loan demand within our markets;

Ø

A decrease of $562.2 million, or 53.4%, in our real estate construction and development portfolio, primarily attributable to gross loan charge-offs of $143.4 million, transfers to other real estate of $112.5 million and other loan activity. The following table summarizes the composition of our real estate construction and development portfolio by region as of December 31, 2010 and 2009:

	December 31,
	2010		2009
	(dollars expressed in thousands)
Northern California	$	64,647	100,543
Southern California		157,306	435,051
Chicago		44,166	115,141
Missouri		62,012	152,736
Texas		128,794	185,084
Florida		3,799	12,792
Northern and Southern Illinois		28,721	50,713
Other		1,321	862
Total	$	490,766	1,052,922

As a result of significant asset quality deterioration within all geographic areas of our real estate construction and development portfolio, we focused on reducing our exposure to this portfolio segment and decreased the portfolio balance by $1.65 billion, or 77.1%, from $2.14 billion at December 31, 2007 to $490.8 million at December 31, 2010. Of the remaining portfolio balance of $490.8 million, $134.2 million, or 27.4%, of these loans were on nonaccrual status as of December 31, 2010 and $128.2 million, or 26.1%, of these loans were considered potential problem loans, as further discussed below;

46

Ø A decrease of $228.3 million, or 17.8%, in our one-to-four-family residential real estate loan portfolio primarily attributable to gross loan charge-offs of $62.2 million, transfers to other real estate and repossessed assets of $22.3 million, the sale and reclassification, to assets of discontinued operations, of $18.1 million and $14.0 million, respectively, of such loans in our Northern Illinois Region, and principal payments. The following table summarizes the composition of our one-to-four-family residential real estate loan portfolio as of December 31, 2010 and 2009:

	December 31,
	2010		2009
	(dollars expressed in thousands)
One-to-four-family residential real estate:
Bank portfolio	$	239,363	332,653
Mortgage Division portfolio, excluding Florida		286,584	340,201
Florida Mortgage Division portfolio		125,369	179,985
Home equity portfolio		399,579	426,327
Total	$	1,050,895	1,279,166

	As of December 31, 2010, approximately $14.5 million, or 6.0%, of our Bank portfolio was on nonaccrual status. The decrease in this portfolio of $93.3 million, or 28.0%, during 2010 is primarily attributable to prepayments associated with the mortgage refinance environment throughout 2010 and the sale and reclassification, to assets of discontinued operations, of $10.7 million and $12.1 million, respectively, of such loans in our Northern Illinois Region. Our Mortgage Division portfolio, excluding Florida, decreased $207.6 million, or 42.0%, from $494.2 million at December 31, 2007. We continued to experience significant distress within this portfolio of loans and recorded net loan charge-offs of $15.1 million on this portfolio during 2010. As of December 31, 2010, approximately $102.9 million, or 35.9%, of this portfolio was considered impaired, consisting of nonaccrual loans of $24.0 million and performing TDRs of $78.9 million, including those loans modified in HAMP of $59.7 million. Our Florida Mortgage Division portfolio decreased $134.7 million, or 51.8%, from $260.1 million at December 31, 2007. We recorded net loan charge-offs of $27.8 million on this portfolio in 2010. As of December 31, 2010, approximately $21.9 million, or 17.4%, of this portfolio was considered impaired, consisting of nonaccrual loans of $9.4 million and performing TDRs of $12.5 million, including those loans modified in HAMP of $3.7 million. Our home equity portfolio decreased $26.7 million, or 6.3%, during 2010, primarily attributable to gross loan charge-offs of $9.4 million and the sale and reclassification, to assets of discontinued operations of $7.4 million and $1.8 million, respectively, of such loans in our Northern Illinois Region, in addition to overall ordinary and seasonal fluctuations experienced within this loan product type. As of December 31, 2010, approximately $7.1 million, or 1.8%, of this portfolio was on nonaccrual status;
Ø	A decrease of $44.8 million, or 20.1%, in our multi-family residential real estate portfolio primarily attributable to gross loan charge-offs of $9.3 million, the sale of $8.3 million of such loans in our Northern Illinois Region and portfolio runoff associated with a decline in internal production and reduced loan demand within our markets;
Ø	A decrease of $626.5 million, or 27.6%, in our commercial real estate portfolio primarily attributable to gross loan charge-offs of $63.3 million, transfers to other real estate of $24.9 million, the sale and reclassification, to assets of discontinued operations, of $83.5 million and $17.3 million, respectively, of such loans in our Northern Illinois Region, 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 December 31, 2010 and 2009:

	December 31,
	2010		2009
	(dollars expressed in thousands)
Farmland	$	36,735	77,624
Owner occupied		798,842	1,104,225
Non-owner occupied		807,343	1,087,523
Total	$	1,642,920	2,269,372

As of December 31, 2010, approximately $97.9 million, or 12.1%, of our non-owner occupied portfolio was considered impaired, consisting of performing TDRs of $17.3 million and nonaccrual loans of $80.6 million.

47

The following table summarizes the composition of our non-owner occupied loan portfolio by region as of December 31, 2010 and 2009:

	December 31,
	2010		2009
	(dollars expressed in thousands)
Northern California	$	208,127	238,809
Southern California		305,287	368,361
Chicago		27,907	53,849
Missouri		149,106	222,971
Texas		61,258	101,747
Florida		13,338	14,305
Northern and Southern Illinois		24,990	62,084
Other		17,330	25,397
Total	$	807,343	1,087,523

Our Southern California region accounted for $43.8 million, or 54.3%, of the total nonaccrual loans in this portfolio segment at December 31, 2010, and included a single credit relationship in the amount of $31.1 million. We recorded a loan charge-off of $7.3 million on this credit relationship in the fourth quarter of 2010; and

Ø

A decrease of $22.4 million, or 40.0%, in our consumer and installment portfolio, reflecting the sale and reclassification, to assets of discontinued operations, of $1.5 million and $2.0 million, respectively, of such loans in our Northern Illinois Region, gross loan charge-offs of $1.0 million and portfolio runoff associated with a decline in internal production and reduced loan demand within our markets.

These decreases were partially offset by:

Ø	A decrease of $3.3 million, or 42.5%, in net deferred loan fees; and
Ø	An increase of $11.8 million, or 27.6%, in our loans held for sale portfolio primarily resulting from the timing of loan originations and subsequent sales in the secondary mortgage and small business markets.

Loans at December 31, 2011 mature as follows:

			Over One Year Through
			Five Years		Over Five Years
	One Year		Fixed	Floating	Fixed	Floating
	or Less		Rate	Rate	Rate	Rate	Total
	(dollars expressed in thousands)
Commercial, financial and agricultural	$	388,003	90,819	139,695	37,538	69,075	725,130
Real estate construction and development		195,150	34,406	13,266	117	7,048	249,987
Real estate mortgage:
One-to-four-family residential loans		16,669	46,073	38,574	175,265	625,857	902,438
Multi-family residential loans		64,852	20,926	9,835	24,960	6,783	127,356
Commercial real estate loans		351,172	408,176	224,189	107,697	134,304	1,225,538
Consumer and installment and net deferred loan fees		7,229	12,699	2,251	111	101	22,391
Loans held for sale		31,111	—	—	—	—	31,111
Total loans	$	1,054,186	613,099	427,810	345,688	843,168	3,283,951

48

The following table summarizes the components of changes in our loan portfolio, net of net deferred loan fees, for the five years ended December 31, 2011:

	Increase (Decrease) For the Year Ended December 31,
	2011			2010		2009		2008		2007
	(dollars expressed in thousands)
Internal loan volume (decrease) increase	$	(868,141	)	(1,339,445	)	(749,712	)	184,743		776,886
Loans provided by acquisitions		—		—		—		—		693,495
Loans and leases sold (1)		(115,296	)	(245,420	)	(308,034	)	(37,643	)	(72,166	)
Loans transferred to assets held for sale		—		(794	)	(14,382	)	—		—
Loans transferred to discontinued operations (2)		(328	)	(40,265	)	(416,245	)	—		—
Loans charged-off		(154,627	)	(331,196	)	(352,723	)	(331,021	)	(65,494	)
Loans transferred to other real estate and repossessed assets		(69,941	)	(158,889	)	(143,586	)	(109,288	)	(16,269	)
Securitization of loans		—		—		—		—		(102,036	)
Total (decrease) increase	$	(1,208,333	)	(2,116,009	)	(1,984,682	)	(293,209	)	1,214,416

____________________
 

(1)

Loans and leases sold for 2011 include loans associated with the sale of the remaining portion of our Northern Illinois Region of $37.5 million, loans associated with our Edwardsville Branch of $667,000 and other commercial loan sales of $77.1 million. Loans and leases sold for 2010 include loans associated with the partial sale of our Northern Illinois Region of $137.4 million and other commercial loan sales of $108.0 million. Loans and leases sold for 2009 include loans associated with WIUS, our asset based lending subsidiary and restaurant franchise loans of $141.3 million, $101.5 million and $64.4 million, respectively, in addition to loans associated with our Springfield Branch of $887,000. See Note 2 to our consolidated financial statements for further discussion of discontinued operations and other branch sales.

(2)

Loans transferred to discontinued operations for 2011 include loans associated with our Florida Region of $328,000. Loans transferred to discontinued operations for 2010 include loans associated with our Northern Illinois Region of $40.3 million. Loans transferred to discontinued operations for 2009 include loans associated with our Chicago Region, Texas Region and WIUS of $311.3 million, $103.4 million and $1.5 million, respectively. See Note 2 to our consolidated financial statements for further discussion of discontinued operations.

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 the dates presented:

	December 31,
	2011			2010		2009		2008		2007
	(dollars expressed in thousands)
Nonperforming Assets: (1)
Nonaccrual loans:
Commercial, financial and agricultural	$	55,340		67,365		41,408		40,647		5,916
Real estate construction and development		71,244		134,244		407,077		270,444		151,812
One-to-four-family residential real estate:
Bank portfolio		14,690		14,479		13,500		10,996		3,308
Mortgage Division portfolio		16,778		33,386		94,433		69,122		27,727
Home equity portfolio		6,940		7,122		4,303		3,022		1,896
Multi-family residential		7,975		12,960		14,734		545		—
Commercial real estate		47,262		129,187		115,312		23,009		11,294
Consumer and installment		22		165		337		—		263
Total nonaccrual loans		220,251		398,908		691,104		417,785		202,216
Other real estate and repossessed assets		129,896		140,665		126,911		92,218		11,297
Total nonperforming assets	$	350,147		539,573		818,015		510,003		213,513
Loans, net of net deferred loan fees	$	3,283,951		4,492,284		6,608,293		8,592,975		8,886,184
Performing troubled debt restructurings	$	126,442		112,903		54,336		24,641		7
Loans past due 90 days or more and still accruing	$	2,744		5,523		3,807		7,094		26,753
Ratio of:
Allowance for loan losses to loans		4.19	%	4.48	%	4.03	%	2.56	%	1.89	%
Nonaccrual loans to loans		6.71		8.88		10.46		4.86		2.28
Allowance for loan losses to nonaccrual loans		62.52		50.40		38.55		52.71		83.27
Nonperforming assets to loans, other real estate and
repossessed assets		10.26		11.65		12.15		5.87		2.40

____________________
 

(1) During the first quarter of 2010, the Company modified its definition of nonperforming assets to exclude performing TDRs because these loans were performing in accordance with the current or modified terms. Prior periods have been adjusted for this reclassification.

49

Our nonperforming assets, consisting of nonaccrual loans, other real estate and repossessed assets, were $350.1 million, $539.6 million and $818.0 million at December 31, 2011, 2010 and 2009, respectively. Our nonperforming assets at December 31, 2011 included $11.2 million, comprised of $5.5 million of nonaccrual loans and $5.7 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, including Mr. Michael Dierberg, a director of the Company.

We attribute the $178.7 million, or 44.8%, net decrease in our nonaccrual loans during the year ended December 31, 2011 to the following:

Ø	A decrease in nonaccrual loans of $12.0 million, or 17.9%, in our commercial, financial and agricultural portfolio, primarily driven by gross loan charge-offs of $46.3 million and payments received, partially offset by additions to nonaccrual loans during the year. Additions to nonaccrual status during the year ended December 31, 2011 include one credit in our First Bank Business Capital, Inc. subsidiary with a recorded investment of $10.6 million;
Ø	A decrease in nonaccrual loans of $63.0 million, or 46.9%, in our real estate construction and development loan portfolio driven by gross loan charge-offs of $35.5 million, transfers to other real estate and repossessed assets of $28.2 million and payments received, partially offset by additions to nonaccrual loans during the year. Nonaccrual construction and development loans at December 31, 2011 include a single loan in our Northern California region with a recorded investment of $19.7 million and a single loan in our Texas region with a recorded investment of $8.8 million. 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;
Ø	A decrease in nonaccrual loans of $16.6 million, or 49.7%, in our one-to-four-family residential real estate Mortgage Division loan portfolio primarily driven by gross loan charge-offs of $19.1 million, transfers to other real estate of $9.3 million and payments received, partially offset by additions to nonaccrual loans during the year ended December 31, 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 $5.0 million, or 38.5%, in our multi-family residential loan portfolio primarily driven by gross loan charge-offs of $3.1 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 $81.9 million, or 63.4%, in our commercial real estate portfolio primarily driven by gross loan charge-offs of $38.0 million, transfers to other real estate of $24.1 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.

The decrease in other real estate and repossessed assets of $10.8 million, or 7.7%, during 2011 was primarily driven by the sale of other real estate properties with an aggregate carrying value of $66.6 million at a net loss of $1.3 million and write-downs of other real estate and repossessed assets of $16.9 million attributable to declining real estate values on certain properties, partially offset by foreclosures and other additions to other real estate aggregating $76.4 million. Of the $129.9 million of other real estate and repossessed assets at December 31, 2011, $101.0 million consisted of collateral with the most recent appraisal date being in 2011 or under contract to be sold at a price equal to or exceeding our book value. The remaining $28.9 million of other real estate and repossessed assets at December 31, 2011 consisted of collateral with the most recent appraisal date being in 2010, 2009 and 2008 of $23.9 million, $2.4 million and $2.2 million, respectively, in addition to $345,000 with the fair value estimated by management or by broker’s price opinions.

50

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

	December 31,
	2011		2010
	(dollars expressed in thousands)
Mortgage Division	$	22,137	41,686
Florida		5,819	15,243
Northern California		42,370	62,339
Southern California		85,233	143,522
Chicago		37,760	71,882
Missouri		60,578	99,161
Texas		40,025	60,967
First Bank Business Capital, Inc.		11,411	1,622
Northern and Southern Illinois		28,931	21,372
Other		15,883	21,779
Total nonperforming assets	$	350,147	539,573

During 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.’s nonperforming assets of $9.8 million primarily resulted from the addition of a $10.6 million commercial and industrial loan during the second quarter of 2011. We have been successful in reducing our overall level of nonperforming assets as a result of the completion of several initiatives in our Asset Quality Improvement Plan.

We attribute the $292.2 million net decrease in our nonaccrual loans during the year ended December 31, 2010 to the following:

Ø	An increase in nonaccrual loans of $26.0 million, or 62.7%, in our commercial, financial and agricultural portfolio. The increase during 2010 was partially due to a single shared national credit of $12.0 million being placed on nonaccrual status. At December 31, 2010, approximately 6.4% of this portfolio was on nonaccrual status as compared to 2.4% at December 31, 2009;
Ø	A decrease in nonaccrual loans of $272.8 million, or 67.0%, in our real estate construction and development loan portfolio driven by gross loan charge-offs of $143.4 million, transfers to other real estate of $112.5 million and other activity, including the receipt of cash and other consideration of $89.1 million on our former largest nonaccrual loan relationship during the second quarter of 2010, partially offset by additions to nonaccrual loans during the year. Nonaccrual loans at December 31, 2010 included a $23.3 million loan to a St. Louis, Missouri home developer and a $20.6 million commercial construction loan in Northern California;
Ø	A decrease in nonaccrual loans of $61.0 million, or 64.6%, in our one-to-four-family residential real estate Mortgage Division loan portfolio primarily driven by gross loan charge-offs of $47.5 million, transfers to other real estate and other activity, including modifications of certain nonaccrual loans, partially offset by additions to nonaccrual loans during the year ended December 31, 2010 driven by market conditions and the overall deterioration of Alt A and subprime residential mortgage loan products experienced throughout the mortgage banking industry; and
Ø	An increase in nonaccrual loans of $13.9 million, or 12.0%, in our commercial real estate portfolio primarily driven by new additions during the year ended December 31, 2010 resulting from continued weak economic conditions and significant declines in real estate values, partially offset by gross loan charge-offs of $63.3 million and transfers to other real estate of $24.9 million. There was a single $31.1 million nonaccrual credit relationship in our Southern California region at December 31, 2010, which comprised 24.1% of our total commercial real estate nonaccrual loans, and was subsequently repaid in 2011 as previously discussed.

The increase in other real estate and repossessed assets of $13.8 million, or 10.8%, during 2010 was primarily driven by foreclosures of real estate construction and development, commercial real estate and one-to-four-family residential real estate loans aggregating $158.9 million, partially offset by the sale of properties with a carrying value of $105.5 million at a net gain of $3.5 million and write-downs of other real estate of $34.7 million attributable to declining real estate values on certain properties.

As of December 31, 2011, 2010 and 2009, loans identified by management as TDRs aggregating $40.8 million, $26.2 million and $13.8 million, respectively, were on nonaccrual status and were classified as nonperforming loans.

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.

51

Performing Troubled Debt Restructurings. The following table presents the categories of performing TDRs as of December 31, 2011 and 2010:

	2011		2010
	(dollars expressed in thousands)
Commercial, financial and agricultural	$	4,264	—
Real estate construction and development		12,014	3,145
Real estate mortgage:
One-to-four-family residential		82,629	91,329
Multi-family residential		3,166	—
Commercial real estate		24,369	18,429
Total performing troubled debt restructurings	$	126,442	112,903

The increase in performing TDRs of $13.5 million, or 12.0%, during 2011 was primarily driven by an increase in commercial and industrial, real estate construction and development, multi-family residential and commercial real estate performing TDRs, partially offset by a decrease in one-to-four-family residential performing TDRs. Commercial and industrial performing TDRs increased $4.3 million from zero at December 31, 2010 to $4.3 million at December 31, 2011 due to a single credit relationship being placed on TDR status. Real estate construction and development performing TDRs increased $8.9 million from $3.1 million at December 31, 2010 to $12.0 million at December 31, 2011 primarily resulting from the modification of the contractual terms of three loans within the same credit relationship totaling $10.0 million in aggregate during the fourth quarter of 2011. Multi-family residential performing TDRs increased $3.2 million from zero at December 31, 2010 to $3.2 million at December 31, 2011 due to a single loan being placed on TDR status. Commercial real estate performing TDRs increased $5.9 million from $18.4 million at December 31, 2010 to $24.4 million at December 31, 2011 primarily resulting from the modification of the contractual terms of one loan totaling $17.0 million during the fourth quarter of 2011, partially offset by the payoff of an $11.1 million performing TDR during the first quarter of 2011. One-to-four-family residential performing TDRs decreased $8.7 million from $91.3 million at December 31, 2010 to $82.6 million at December 31, 2011 primarily resulting from 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 performing TDR during the first quarter of 2011 and TDRs entering nonaccrual status; partially offset by an increase in performing TDRs under HAMP of $9.5 million from $63.4 million at December 31, 2010 to $72.9 million at December 31, 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.

Potential Problem Loans. As of December 31, 2011 and 2010, loans aggregating $233.5 million and $373.1 million, respectively, which were not classified as nonperforming assets or 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 past due. The following table presents the categories of our potential problem loans as of December 31, 2011 and 2010:

	December 31,		December 31,
	2011		2010
	(dollars expressed in thousands)
Commercial, financial and agricultural	$	32,851	100,383
Real estate construction and development		97,158	128,227
Real estate mortgage:
One-to-four-family residential		13,797	43,013
Multi-family residential		28,789	5,584
Commercial real estate		60,876	95,933
Total potential problem loans	$	233,471	373,140

The decrease in commercial, financial and agricultural potential problem loans of $67.5 million, or 67.3%, is primarily attributable to the transfer of three credits with recorded investments of $10.6 million, $4.2 million and $2.1 million at December 31, 2011, or $16.9 million in aggregate, to nonaccrual status during 2011, in addition to upgrades of certain potential problem credits to special mention status and payment activity. The decrease in real estate construction and development potential problem loans of $31.1 million, or 24.2%, is primarily attributable to the transfer of a $10.8 million credit to nonaccrual status during 2011, in addition to upgrades of certain potential problem loans to special mention status and transfers to nonaccrual status, in addition to other loan activity, including the payoff of two credits aggregating $18.3 million. The decrease in one-to-four-family residential potential problem loans of $29.2 million, or 67.9%, 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 $23.2 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 2011. The decrease in commercial real estate potential problem credits of $35.1 million, or 36.5%, is primarily attributable to upgrades of certain potential problem loans to special mention status and transfers to nonaccrual status, in addition to payment activity.

52

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

	December 31,		December 31,
	2011		2010
	(dollars expressed in thousands)
Mortgage Division	$	4,429	9,859
Florida		8,100	2,783
Northern California		3,507	64,601
Southern California		113,682	106,526
Chicago		41,720	15,030
Missouri		28,349	91,813
Texas		3,359	27,028
First Bank Business Capital, Inc.		6,114	18,992
Northern and Southern Illinois		20,922	32,548
Other		3,289	3,960
Total potential problem loans	$	233,471	373,140

During 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 $7.2 million that was primarily attributable to a $72.6 million loan relationship classified as a potential problem loan at December 31, 2011. Of the entire relationship of $72.6 million, $39.6 million was transferred to potential problem status from pass and special mention status during 2011. This increase was partially offset by the payoff of two real estate construction and development potential problem loans aggregating $18.3 million and other loan activity. In addition, the increase in our Chicago region of $26.7 million is primarily attributable to the transfer of a $28.4 million multi-family residential real estate loan from special mention status to potential problem status during 2011. We have been successful in reducing the overall level of our 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.

53

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.

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 $137.7 million at December 31, 2011, compared to $201.0 million and $266.4 million at December 31, 2010 and 2009, respectively. The decrease in our allowance for loan losses of $63.3 million during 2011 was primarily attributable to the decrease in nonaccrual loans of $178.7 million, the decrease in potential problem loans of $139.7 million and the $1.21 billion decrease in the overall level of our loan portfolio.

Our allowance for loan losses as a percentage of loans, net of net deferred loan fees, was 4.19%, 4.48% and 4.03% at December 31, 2011, 2010 and 2009, respectively. Our allowance for loan losses as a percentage of nonaccrual loans was 62.52%, 50.40% and 38.55% at December 31, 2011, 2010 and 2009, respectively.

The decrease in the allowance for loan losses as a percentage of loans, net of net deferred loan fees, during 2011 was primarily attributable to the decrease in our nonaccrual and potential problem loans during 2011, which generally result in a higher allowance for loan losses being allocated to these loans, in addition to a decrease in our historical net loan charge-off experience in 2011, as compared to 2010 and 2009, as further discussed below.

The increase in the allowance for loan losses as a percentage of nonaccrual loans during 2011 was primarily attributable to the decrease in nonaccrual loans, 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.

54

The following table is a summary of the changes in the allowance for loan losses for the five years ended December 31, 2011:

	As of or For the Years Ended December 31,
	2011			2010		2009		2008		2007
	(dollars expressed in thousands)
Allowance for loan losses, beginning of year	$	201,033		266,448		220,214		168,391		145,729
Acquired allowances for loan losses		—		—		—		—		14,425
Allowance for loan losses allocated to loans sold		—		(321	)	(4,725	)	—		—
Total		201,033		266,127		215,489		168,391		160,154
Loans charged-off:
Commercial, financial and agricultural		(46,256	)	(52,072	)	(104,648	)	(21,931	)	(13,212	)
Real estate construction and development		(35,459	)	(143,394	)	(122,303	)	(236,715	)	(15,203	)
Real estate mortgage:
One-to-four-family residential loans:
Bank portfolio		(4,561	)	(5,274	)	(5,820	)	(9,209	)	(1,647	)
Mortgage Division portfolio		(19,086	)	(47,525	)	(71,528	)	(54,796	)	(28,671	)
Home equity portfolio		(7,708	)	(9,409	)	(6,298	)	(3,241	)	(1,531	)
Multi-family residential loans		(3,126	)	(9,266	)	(508	)	(19	)	(76	)
Commercial real estate loans		(37,974	)	(63,259	)	(40,255	)	(3,244	)	(3,764	)
Consumer and installment		(457	)	(997	)	(1,363	)	(1,866	)	(1,390	)
Total		(154,627	)	(331,196	)	(352,723	)	(331,021	)	(65,494	)
Recoveries of loans previously charged-off:
Commercial, financial and agricultural		6,962		37,776		1,983		7,226		5,176
Real estate construction and development		6,694		5,256		2,065		5,705		307
Real estate mortgage:
One-to-four-family residential loans:
Bank portfolio		570		331		539		500		361
Mortgage Division portfolio		2,903		4,634		2,930		626		491
Home equity portfolio		512		264		62		54		12
Multi-family residential loans		562		14		5		5		9
Commercial real estate loans		3,787		3,370		5,843		401		1,588
Consumer and installment		314		457		255		327		731
Total		22,304		52,102		13,682		14,844		8,675
Net loans charged-off		(132,323	)	(279,094	)	(339,041	)	(316,177	)	(56,819	)
Provision for loan losses		69,000		214,000		390,000		368,000		65,056
Allowance for loan losses, end of year	$	137,710		201,033		266,448		220,214		168,391
Loans outstanding, net of net deferred loan fees:
Average	$	3,811,123		5,520,447		7,333,645		8,239,273		7,513,033
End of year		3,283,951		4,492,284		6,608,293		8,592,975		8,886,184
End of year, excluding loans held for sale		3,252,840		4,437,814		6,565,609		8,554,255		8,820,105
Ratio of allowance for loan losses to loans outstanding:
Average		3.61	%	3.64	%	3.63	%	2.67	%	2.24	%
End of year		4.19		4.48		4.03		2.56		1.89
End of year, excluding loans held for sale		4.23		4.53		4.06		2.57		1.91
Ratio of net charge-offs to average loans outstanding		3.47		5.06		4.62		3.84		0.76
Ratio of current year recoveries to preceding year’s
charge-offs		6.73		14.77		4.13		22.66		39.07

Our net loan charge-offs were $132.3 million, $279.1 million and $339.0 million for the years ended December 31, 2011, 2010 and 2009, respectively. Our net loan charge-offs as a percentage of average loans were 3.47%, 5.06% and 4.62% for the years ended December 31, 2011, 2010 and 2009, respectively.

Changes in our net loan charge-off levels in 2011 are primarily attributable to the following:

Ø

An increase in net loan charge-offs associated with our commercial, financial and agricultural portfolio of $25.0 million to $39.3 million in 2011, compared to $14.3 million in 2010. Specifically in this portfolio, during 2011, we recorded charge-offs of $7.3 million on a First Bank Business Capital, Inc. loan, $4.1 million on a loan in our Missouri region, $3.9 million on a loan in our Texas region and $3.4 million on a loan in our Northern California region. During 2010, we recorded a $25.0 million recovery on a single loan in our Southern California region 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 $109.4 million associated with our real estate construction and development portfolio to $28.8 million in 2011, compared to $138.1 million in 2010. Net loan charge-offs for 2011 included charge-offs of $5.7 million and $3.6 million, or $9.3 million in aggregate, on two loans in our Missouri region. Net loan charge-offs for 2010 include charge-offs of $24.5 million, $11.5 million and $7.5 million, or $43.5 million in aggregate, on three loans in our Southern California region and a $9.7 million charge-off on a loan in our St. Louis 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;

55

Ø

A decrease in net loan charge-offs of $29.6 million associated with our one-to-four-family residential loan portfolio to $27.4 million in 2011, compared to $57.0 million in 2010. These net loan charge-offs primarily consist of $16.2 million associated with our Mortgage Division one-to-four-family residential mortgage portfolio in 2011, compared to $42.9 million in 2010. The decrease in net loan charge-offs in our Mortgage Division in 2011 is reflective of the declining portfolio balance and the substantial decrease in nonaccrual loans and performing TDRs throughout 2010 and 2011, in addition to improving delinquency trends; and

Ø

A decrease in net loan charge-offs of $25.7 million associated with our commercial real estate portfolio to $34.2 million in 2011, compared to $59.9 million in 2010, primarily attributable to the declining portfolio balance, in particular our non-owner occupied commercial real estate portfolio, and decreases in nonaccrual and potential problem loans. During 2011, we recorded loan charge-offs of $4.6 million and $4.0 million, or $8.6 million in aggregate, on two loans in our Northern California region and $5.3 million on a loan in our Southern California region. During 2010, we recorded loan charge-offs of $7.3 million and $2.8 million on two loans in our Southern California region.

The following table summarizes the composition of our net loan charge-offs (recoveries) by region / business segment for the years ended December 31, 2011 and 2010:

	For the Years Ended
	December 31,
	2011		2010
	(dollars expressed in thousands)
Mortgage Division	$	16,182	42,891
Florida		3,910	9,423
Northern California		26,647	20,680
Southern California		20,405	64,487
Chicago		6,913	43,755
Missouri		23,960	51,191
Texas		14,003	24,660
First Bank Business Capital, Inc.		6,708	385
Northern and Southern Illinois		6,855	4,281
Other		6,740	17,341
Total net loan charge-offs	$	132,323	279,094

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 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 $7.5 million, or $43.5 million in aggregate, on three real estate construction and development loans during 2010, partially offset by a $25.0 million recovery recorded during 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 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 2010. During 2011, we recorded charge-offs of $9.3 million on two real estate construction and development loans in our Missouri region. The increase in net loan charge-offs in First Bank Business Capital, Inc. was primarily attributable to a $7.3 million charge-off on a commercial and industrial loan during 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.

56

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.

The following table is a summary of the allocation of the allowance for loan losses for the five years ended December 31, 2011:

	2011				2010				2009				2008				2007
			Percent				Percent				Percent				Percent				Percent
			of				of				of				of				of
			Category				Category				Category				Category				Category
			of Loans				of Loans				of Loans				of Loans				of Loans
			to Total				to Total				to Total				to Total				to Total
	Amount		Loans		Amount		Loans		Amount		Loans		Amount		Loans		Amount		Loans
	(dollars expressed in thousands)
Commercial, financial and
agricultural	$	27,243	22.1	%	$	28,000	23.3	%	$	42,533	25.6	%	$	56,592	30.0	%	$	41,513	26.8	%
Real estate construction
and development		24,868	7.6			58,439	10.9			90,006	15.9			72,840	18.3			67,034	24.1
Real estate mortgage:
One-to-four-family
residential loans		50,864	27.5			60,762	23.4			78,593	19.4			37,742	18.0			16,312	18.0
Multi-family residential
loans		4,851	3.9			5,158	4.0			5,108	3.4			4,243	2.6			2,983	2.0
Commercial real estate
loans		29,448	37.3			47,880	36.6			49,189	34.4			47,663	29.8			39,634	27.4
Consumer and installment		436	0.7			794	0.6			1,019	0.7			342	0.8			835	1.0
Loans held for sale		—	0.9			—	1.2			—	0.6			792	0.5			80	0.7
Total	$	137,710	100.00	%	$	201,033	100.00	%	$	266,448	100.00	%	$	220,214	100.00	%	$	168,391	100.00	%

57

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

	December 31,
	2011		2010
Commercial, financial and agricultural	3.76	%	2.68	%
Real estate construction and development	9.95		11.91
Real estate mortgage:
One-to-four-family residential loans	5.64		5.78
Multi-family residential loans	3.81		2.89
Commercial real estate loans	2.40		2.91
Consumer and installment	1.95		2.73
Total	4.19		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 the percentage of nonaccrual loans to total loans within this portfolio segment, to 7.6% of commercial, financial and agricultural loans at December 31, 2011, as compared to 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 $67.5 million to $32.9 million at December 31, 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 $81.9 million to $47.3 million, or 3.9% of commercial real estate loans, at December 31, 2011 as compared to $129.2 million, or 7.9% of commercial real estate loans, at December 31, 2010, in addition to the decrease in potential problem loans within this portfolio segment. The increase in the percentage of the allocated allowance for loan losses to multi-family residential real estate loans is primarily attributable to the increase in potential problem loans within this portfolio segment of $23.2 million to $28.8 million at December 31, 2011 as compared to $5.6 million at December 31, 2010.

Deposits

Deposits are the primary source of funds for First Bank. Our deposits consist principally of core deposits from our local market areas, including individual and corporate customers.

The following table sets forth the distribution of our average deposit accounts for the years ended December 31, 2011, 2010 and 2009, and the weighted average interest rates paid on each category of deposits:

	Years Ended December 31,
	2011						2010						2009
			Percent						Percent						Percent
			Of						of						of
	Amount		Deposits		Rate		Amount		Deposits		Rate		Amount		Deposits		Rate
	(dollars expressed in thousands)
Noninterest-bearing demand	$	1,150,958	20.1	%	—	%	$	1,135,013	18.4	%	—	%	$	1,077,281	17.8	%	—	%
Interest-bearing demand		926,031	16.2		0.11			889,791	14.5		0.16			805,498	13.3		0.19
Savings and money market		1,973,612	34.4		0.41			2,007,780	32.6		0.66			2,025,056	33.4		1.00
Time deposits		1,683,100	29.3		1.19			2,120,014	34.5		1.77			2,153,556	35.5		2.84
Total average deposits	$	5,733,701	100.0	%			$	6,152,598	100.0	%			$	6,061,391	100.0	%

Capital and Dividends

On December 31, 2008, the Company issued: (a) 295,400 shares of Class C Fixed Rate Cumulative Perpetual Preferred Stock, par value $1.00 per share, and liquidation preference of $1,000.00 per share; and (b) 14,770 shares of Class D Fixed Rate Cumulative Perpetual Preferred Stock, par value $1.00 per share, and liquidation preference of $1,000.00 per share, to the U.S. Treasury pursuant to the Company’s participation in the CPP program, as further described in “Item 1 —Business – Ownership Structure” and in Note 13 to our consolidated financial statements. The Class C and Class D cumulative perpetual preferred stock qualify as Tier 1 capital. Dividends on our Class C and Class D cumulative perpetual preferred stock, which currently carry annual dividend rates of 5.00% and 9.00%, respectively, were payable quarterly, beginning in February 2009.

The redemption of any of our preferred stock requires the prior approval of the Federal Reserve. As previously discussed under “Item 1 —Business – Supervision and Regulation – Regulatory Agreements,” under the terms of the Agreement with the FRB, we have agreed, among other things, not to declare and pay any dividends on our common or preferred stock or to make any distributions of interest, or other sums, on our trust preferred securities without the prior approval of the FRB.

58

On August 10, 2009, we elected to defer the regularly scheduled interest payments on our outstanding junior subordinated debentures relating to the Company’s $345.0 million of trust preferred securities in accordance with the terms of such securities. The deferral election began 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 our consolidated financial statements. Under the terms of such securities, we may defer such payments for up to 20 consecutive quarterly periods without triggering a payment default or penalty. Such payment default or penalty could have a material adverse effect on our business, financial condition or results of operations. We have deferred such payments for ten quarterly periods as of December 31, 2011. We have deferred $31.0 million of our regularly scheduled interest payments as of December 31, 2011, and in conjunction with these deferred interest payments, we also accrued and deferred additional interest expense of $1.9 million as of December 31, 2011. During the deferral period, the respective trusts have suspended the declaration and payment of dividends on the trust preferred securities. 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 the junior subordinated debentures.

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 the preferred stock that would otherwise have been made in August and September 2009, as further described in Note 13 to our consolidated financial statements. We have deferred such payments for ten quarterly periods as of December 31, 2011. Prior to August 10, 2009, we declared and paid $6.0 million of dividend payments on our Class C Preferred Stock and our Class D Preferred Stock. We subsequently declared and deferred an additional $36.9 million and $3.3 million of regularly scheduled dividend payments on our Class C Preferred Stock and our Class D Preferred Stock, respectively, as of December 31, 2011, and, in conjunction with these deferred dividend payments, we also declared and deferred an additional $2.4 million and $400,000 of cumulative dividends on our deferred Class C Preferred Stock and Class D Preferred Stock dividend payments, respectively, as of December 31, 2011.

Effective August 10, 2009, we also suspended the declaration of dividends on our Class A Convertible, Adjustable Rate Preferred Stock and our Class B Adjustable Rate Preferred Stock. Prior to that time, we declared and paid relatively small dividends on our Class A and Class B preferred stock, totaling $328,000 for the year ended December 31, 2009.

The Company’s and First Bank’s capital ratios at December 31, 2011 and 2010 were as follows:

	December 31,		December 31,
	2011		2010(1)
First Bank:
Total Capital Ratio	14.98	%	12.95	%
Tier 1 Ratio	13.70		11.66
Leverage Ratio	8.19		7.40
First Banks, Inc.:
Total Capital Ratio	1.88		6.29
Tier 1 Ratio	0.94		3.15
Leverage Ratio	0.56		1.99

____________________
 

(1) The Company’s regulatory capital ratios at December 31, 2011 reflect the implementation of new Federal Reserve rules that became effective on March 31, 2011, as further described in Note 14 to our consolidated financial statements. 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. The Federal Reserve’s final rules that became effective on March 31, 2011 had no impact on First Bank’s regulatory capital ratios at December 31, 2010.

First Bank was categorized as well capitalized at December 31, 2011 and 2010 under the prompt corrective action provisions of the regulatory capital standards. The Company did not meet the minimum regulatory capital standards established for bank holding companies by the Federal Reserve at December 31, 2011 and 2010. First Bank’s and our actual and required capital ratios are further described in Note 14 to our consolidated financial statements. First Bank’s Tier 1 capital to total assets ratio of 8.37% at December 31, 2011 exceeded the 7.00% minimum level required under the terms of the informal agreement with the MDOF. As previously discussed under “Item 1 —Business – Recent Developments and Other Matters – Capital Plan,” in August 2009, we announced the adoption of our Capital Plan, in order to, among other things, preserve our risk-based capital levels. The successful completion of all, or any portion, of our Capital Plan is not assured, and no assurance can be made that our Capital Plan will not be materially modified in the future. If we are not able to complete substantially all of our Capital Plan, our regulatory capital ratios may be materially and adversely affected and our ability to withstand continued adverse economic conditions could be threatened.

59

As of December 31, 2011, we had 13 affiliated Delaware or Connecticut statutory and business trusts that were created for the sole purpose of issuing trust preferred securities. As further described in Note 12 to our consolidated financial statements, the sole assets of the statutory and business trusts are our junior subordinated debentures.

A summary of the outstanding trust preferred securities issued by our affiliated statutory and business trusts, and our related junior subordinated debentures issued to the respective trusts in conjunction with the trust preferred securities offerings as of December 31, 2011, is as follows:

	Date of Trust		Interest		Preferred		Subordinated
Name of Trust	Formation	Type of Offering	Rate		Securities		Debentures
First Preferred Capital Trust IV	January 2003	Publicly Underwritten	8.15	%	$	46,000,000	$	47,422,700
First Bank Statutory Trust	March 2003	Private Placement	8.10	%		25,000,000		25,774,000
First Bank Statutory Trust II	September 2004	Private Placement	Variable			20,000,000		20,619,000
Royal Oaks Capital Trust I	October 2004	Private Placement	Variable			4,000,000		4,124,000
First Bank Statutory Trust III	November 2004	Private Placement	Variable			40,000,000		41,238,000
First Bank Statutory Trust IV	February 2006	Private Placement	Variable			40,000,000		41,238,000
First Bank Statutory Trust V	April 2006	Private Placement	Variable			20,000,000		20,619,000
First Bank Statutory Trust VI	June 2006	Private Placement	Variable			25,000,000		25,774,000
First Bank Statutory Trust VII	December 2006	Private Placement	Variable			50,000,000		51,547,000
First Bank Statutory Trust VIII	February 2007	Private Placement	Variable			25,000,000		25,774,000
First Bank Statutory Trust X	August 2007	Private Placement	Variable			15,000,000		15,464,000
First Bank Statutory Trust IX	September 2007	Private Placement	Variable			25,000,000		25,774,000
First Bank Statutory Trust XI	September 2007	Private Placement	Variable			10,000,000		10,310,000

For regulatory reporting purposes, the trust preferred securities are eligible for inclusion, subject to certain limitations, in our Tier 1 and Tier 2 capital. Because of these limitations, as of December 31, 2011, $335.8 million of trust preferred securities were not eligible for inclusion in our Tier 1 capital. Of the $335.8 million not eligible for inclusion in our Tier 1 capital, $18.5 million was eligible for inclusion in our Tier 2 capital and $317.3 million was not eligible for inclusion in our Tier 2 capital.

On January 26, 2011, we, the holder of 100% of the outstanding common stock of First Preferred Capital Trust IV, or the Trust, successfully completed a consent solicitation from the holders of the 8.15% cumulative trust preferred securities of the Trust, or the Trust Preferred Securities, and entered into certain amendments that were approved in the consent solicitation. We solicited the consents in order to increase our capital planning flexibility under the terms of the documents and the provisions of the indentures, guarantee agreements and trust agreements relating to our other tranches of trust preferred securities. The amendments provide an opportunity for the Company to seek to improve its capital position and decrease its level of indebtedness during a period in which it is deferring interest payments in accordance with the terms of the indenture. Thus, as a result of the successful completion of the consent solicitation, the Company believes it is better positioned to consider certain potential capital planning strategies to improve the regulatory capital ratios of First Banks, Inc. and further strengthen the Company’s overall financial position.

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.

60

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 4.9% of net interest income, based on assets and liabilities at December 31, 2011. At December 31, 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 that remain prevalent in the current marketplace, 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.

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 December 31, 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)	$	1,916,314		258,590		369,941		689,937	49,169	3,283,951
Investment securities		157,006		235,191		276,930		1,181,495	630,760	2,481,382
FRB and FHLB stock		27,078		—		—		—	—	27,078
Short-term investments		371,318		—		—		—	—	371,318
Total interest-earning assets	$	2,471,716		493,781		646,871		1,871,432	679,929	6,163,729
Interest-bearing liabilities:
Interest-bearing demand deposits	$	327,141		203,359		132,625		97,259	123,784	884,168
Money market deposits		1,651,236		—		—		—	—	1,651,236
Savings deposits		41,195		33,925		29,079		41,195	96,930	242,324
Time deposits		409,138		323,558		411,748		319,801	98	1,464,343
Other borrowings		50,910		—		—		—	—	50,910
Subordinated debentures		282,481		—		—		—	71,576	354,057
Total interest-bearing liabilities	$	2,762,101		560,842		573,452		458,255	292,388	4,647,038
Interest-sensitivity gap:
Periodic	$	(290,385	)	(67,061	)	73,419		1,413,177	387,541	1,516,691
Cumulative		(290,385	)	(357,446	)	(284,027	)	1,129,150	1,516,691
Ratio of interest-sensitive assets to interest-
sensitive liabilities:
Periodic		0.89		0.88		1.13		4.08	2.33	1.33
Cumulative		0.89		0.89		0.93		1.26	1.33

____________________
 

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

61

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 $1.52 billion, or 22.9% of our total assets, and $1.26 billion, or 17.1% of our total assets, at December 31, 2011 and 2010, respectively. We were in an overall liability-sensitive position on a cumulative basis through the twelve-month time horizon of $284.0 million, or 4.3% of our total assets, and $21.0 million, or 0.3% of our total assets at December 31, 2011 and 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.

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 December 31, 2011 and 2010 are summarized as follows:

	2011			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		47,240	441	53,696	869
Interest rate lock commitments		38,985	1,381	41,857	276
Forward commitments to sell mortgage-backed securities		58,800	—	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. For the years ended December 31, 2010 and 2009, we realized net interest income on our derivative financial instruments of $5.7 million and $12.5 million, respectively, including $5.7 million and $13.7 million, respectively, 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 year ended December 31, 2011.

We recorded net losses on derivative instruments, which are included in noninterest income in the consolidated statements of operations, of $193,000, $2.9 million and $4.9 million for the years ended December 31, 2011, 2010 and 2009, respectively. The net loss on derivative instruments in 2011 and 2010 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. The net loss on derivative instruments in 2009 is primarily attributable to a cumulative fair value adjustment of $4.6 million on our interest rate swap agreements designated as cash flow hedges on our junior subordinated debentures that was reclassified from accumulated other comprehensive loss to net loss on derivative instruments as a result of the discontinuation of hedge accounting treatment following the announcement of the deferral of interest payments on the underlying trust preferred securities in August 2009. In conjunction with the discontinuation of hedge accounting, the net interest differential on these interest rate swap agreements, which was recorded as interest expense on junior subordinated debentures in the consolidated statements of operations, was recorded as a net reduction of noninterest income effective August 2009. The net loss on derivative instruments in 2009 was partially offset by income generated from the issuance of our customer interest rate swap agreements of $711,000.

62

Our derivative financial instruments are more fully described in Note 8 to our consolidated financial statements.

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 Certificate of Deposit Account Registry Service, or 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 has built a significant amount of available balance sheet liquidity throughout 2009, 2010 and 2011 in anticipation of the expected completion of certain transactions associated with our Capital Plan, as further described under “Item 1 —Business – Recent Developments and Other Matters – Capital Plan.” Our cash and cash equivalents were $472.0 million and $995.8 million at December 31, 2011 and 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 $523.7 million is further discussed under “—Financial Condition.”

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 $1.02 billion to $2.24 billion at December 31, 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 $2.71 billion and $2.22 billion at December 31, 2011 and 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 available liquidity of $2.71 billion, or 41.1% of total assets, at December 31, 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 60.2% at December 31, 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 44.7% at December 31, 2011 from 33.7% at December 31, 2010.

63

During 2011, we reduced the aggregate funds acquired from other sources of funds by $287.8 million to $572.6 million at December 31, 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 $307.0 million, partially offset by an increase in our daily repurchase agreements of $19.1 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 December 31, 2011:

	Certificates of
	Deposit of		Other
	$100,000 or More		Borrowings	Total
	(dollars expressed in thousands)
Three months or less	$	138,766	50,910	189,676
Over three months through six months		108,084	—	108,084
Over six months through twelve months		154,600	—	154,600
Over twelve months		120,224	—	120,224
Total	$	521,674	50,910	572,584

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 December 31, 2011 or 2010.

First Bank also has a borrowing relationship with the FHLB. First Bank’s borrowing capacity through its relationship with the FHLB was approximately $370.7 million and $475.1 million at December 31, 2011 and 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 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 December 31, 2011 or 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 $2.8 million and $3.6 million at December 31, 2011 and 2010, respectively. The Company also had restricted cash of $2.0 million at December 31, 2011, which became unrestricted in February 2012.

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 11 and Note 20 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. As further described under “Item 1A – Risk Factors,” 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 December 31, 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 “Item 1 —Business – Supervision and Regulation – Regulatory Agreements.”

64

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 triggering a payment default or penalty. Such payment default or penalty could have a material adverse effect on our business, financial condition or results of operations. 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 under “—Capital and Dividends,” and 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 occur:

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 “Item 1 —Business – Supervision and Regulation – 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 December 31, 2011, with the exception of $50.9 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.

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 December 31, 2011 were as follows:

	Less Than 1
	Year		1-3 Years	3-5 Years	Over 5 Years	Total (1)
	(dollars expressed in thousands)
Operating leases (2)	$	11,103	14,712	9,119	24,905	59,839
Certificates of deposit (3)		1,139,382	311,187	13,676	98	1,464,343
Other borrowings		50,910	—	—	—	50,910
Subordinated debentures (4)		—	—	—	354,057	354,057
Preferred stock issued under the CPP (4) (5)		—	—	—	310,170	310,170
Other contractual obligations		562	152	5	—	719
Total	$	1,201,957	326,051	22,800	689,230	2,240,038

____________________
 

(1)	Amounts exclude ASC Topic 740 unrecognized tax liabilities of $1.2 million and related accrued interest expense of $136,000 for which the timing of payment of such liabilities cannot be reasonably estimated as of December 31, 2011.
(2)	Amounts exclude operating leases associated with discontinued operations of $1.3 million, $2.7 million, $2.4 million and $4.4 million for less than 1 year, 1-3 years, 3-5 years and over 5 years, respectively, or a total of $10.8 million.
(3)	Amounts exclude the related accrued interest expense on certificates of deposit of $875,000 as of December 31, 2011.
(4)	Amounts exclude the accrued interest expense on junior subordinated debentures and the accrued dividends declared on preferred stock issued under the CPP of $33.1 million and $43.0 million, respectively, as of December 31, 2011. As further described under “Item 1 —Business – Supervision and Regulation – Regulatory Agreements,” we currently may not make any distributions of interest or other sums on our junior subordinated debentures and related underlying trust preferred securities without the prior approval of the FRB.
(5)	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.

65

CRITICAL ACCOUNTING POLICIES

Our financial condition and results of operations presented in our consolidated financial statements, notes to our consolidated financial statements, selected consolidated and other financial data appearing elsewhere in this report, and management’s discussion and analysis of financial condition and results of operations are, to a large degree, dependent upon our accounting policies. The selection and application of our accounting policies involve judgments, estimates and uncertainties that are susceptible to change.

We have identified the following accounting policies that we believe are the most critical to the understanding of our financial condition and results of operations. These critical accounting policies require management’s most difficult, subjective and complex judgments about matters that are inherently uncertain. In the event that different assumptions or conditions were to prevail, and depending upon the severity of such changes, the possibility of a materially different financial condition and/or results of operations could be a reasonable likelihood. The impact and any associated risks related to our critical accounting policies on our business operations is discussed throughout “—Management’s Discussion and Analysis of Financial Condition and Results of Operations,” where such policies affect our reported and expected financial results. A detailed discussion of the application of these and other accounting policies is summarized in Note 1 to our consolidated financial statements appearing elsewhere in this report.

Allowance for Loan Losses. We maintain an allowance for loan losses at a level we consider appropriate to provide for probable losses in our loan portfolio. The determination of our allowance for loan losses requires management to make significant judgments and estimates based upon a periodic analysis of our loans held for portfolio and held for sale considering, among other factors, current economic conditions, loan portfolio composition, past loan loss experience, independent appraisals, the fair value of underlying loan collateral, our customers’ ability to repay their loans and selected key financial ratios. If actual events prove the estimates and assumptions we used in determining our allowance for loan losses were incorrect, we may need to make additional provisions for loan losses. Any increases in our allowance for loan losses will result in a decrease in net income and capital, and may have a material adverse effect on our financial condition and results of operations. For further discussion, refer to “—Loans and Allowance for Loan Losses,” “Item 1A – Risk Factors” and Note 4 to our consolidated financial statements appearing elsewhere in this report.

Deferred Tax Assets. We recognize deferred tax assets for the estimated future tax effects of temporary differences, net operating loss carryforwards and tax credits. We recognize deferred tax assets subject to management’s judgment based upon available evidence that realization is more likely than not. Our deferred tax assets are reduced, if necessary, by a deferred tax asset valuation allowance. In the event that we determine we would not be able to realize all or part of our deferred tax assets in the future, we would need to adjust the recorded value of our deferred tax assets, which would result in a direct charge to our provision for income taxes in the period in which such determination is made. For further discussion, refer to “—(Benefit) Provision for Income Taxes,” and Note 1 and Note 17 to our consolidated financial statements appearing elsewhere in this report.

Goodwill and Other Intangible Assets / Business Combinations. The determination of the fair value of the assets and liabilities acquired, as well as the returns on investment that may be achieved, requires management to make significant judgments and estimates based upon detailed analyses of the existing and future economic value of such assets and liabilities and/or the related income streams, including the resulting intangible assets. If actual events prove the estimates and assumptions we used in determining the fair values of the acquired assets and liabilities or the projected income streams were incorrect, we may need to make additional adjustments to the recorded values of such assets and liabilities, which could result in increased volatility in our reported earnings. In addition, we may need to make additional adjustments to the recorded value of our intangible assets, which may impact our reported earnings and directly impacts our regulatory capital levels. For further discussion, refer to Note 2, Note 6 and Note 14 to our consolidated financial statements appearing elsewhere in this report.

Our annual impairment testing date for goodwill and other intangible assets is December 31. In addition, a goodwill impairment assessment is performed if an event occurs or circumstances change that would make it more likely than not that the fair value of our single reporting unit is below its carrying value. The goodwill impairment test is a two-step process which requires us to make assumptions regarding fair value. Our policy allows management to make the determination of fair value using internal cash flow models or by engaging independent third parties. The first step consists of estimating the fair value of the reporting unit using a number of factors, including projected future operating results and business plans, economic projections, anticipated future cash flows, discount rates, and comparable marketplace fair value data from within a comparable industry grouping. We compare the estimated fair value of our reporting unit to the carrying value, which includes allocated goodwill. If the estimated fair value is less than the carrying value, the second step is completed to compute the impairment amount by determining the “implied fair value” of goodwill. This determination requires the allocation of the estimated fair value of the reporting unit to the assets and liabilities of the reporting unit. Any remaining unallocated fair value represents the “implied fair value” of goodwill, which is compared to the corresponding carrying value to compute the goodwill impairment amount, if any. Although we believe our estimates of fair value are reasonable, many of the factors used in assessing fair value and the allocation of estimated fair value to the assets and liabilities of our reporting unit are outside the control of management, and it is reasonably likely that assumptions and estimates may change in future periods. These changes may result in future impairment that may materially affect the carrying value of our assets and our results of operations.

66

Due to the ongoing uncertainty regarding market conditions, which may continue to negatively impact the performance of our reporting unit, management will continue to monitor the goodwill impairment indicators and evaluate the carrying amount of our goodwill, if necessary. Events and circumstances that could trigger the need for interim impairment testing include:

Ø	A significant change in legal factors or in the business climate;
Ø	An adverse action or assessment by a regulator;
Ø	Unanticipated competition;
Ø	A loss of key personnel;
Ø	A more-likely-than-not expectation that our reporting unit or a significant portion of our reporting unit will be sold or otherwise disposed of; and
Ø	The testing for recoverability of a significant asset group within a reporting unit.

For further discussion, refer to “Item 1A – Risk Factors,” “—Noninterest Expense,” and Note 1 and Note 6 to our consolidated financial statements appearing elsewhere in this report.

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 July 2010, the FASB issued ASU No. 2010-20 – Receivables (ASC Topic 310): Disclosures about the Credit Quality of Financing Receivables and the Allowance for Credit Losses. This ASU requires expanded credit risk disclosures intended to provide investors with greater transparency regarding the allowance for credit losses and the credit quality of financing receivables. Under this ASU, companies will be required to provide more information about the credit quality of their financing receivables in the disclosures to financial statements, such as aging information, credit quality indicators, changes in the allowance for credit losses, and the nature and extent of troubled debt restructurings and their effect on the allowance for credit losses. Both new and existing disclosures must be disaggregated by portfolio segment or class based on the level of disaggregation that management uses when assessing its allowance for credit losses and managing its credit exposure. The disclosures as of the end of a reporting period were effective for interim and annual periods ending on or after December 15, 2010. The disclosures about activity that occurs during a reporting period were effective for interim and annual reporting periods beginning on or after December 15, 2010. We implemented the disclosure requirements under this ASU for the reporting period ended December 31, 2010, except for the requirement to provide disclosures about activity that occurs during a reporting period, 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.

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. The provisions of this ASU were 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.

67

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 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 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. In December 2011, the FASB issued ASU No. 2011-12 – Comprehensive Income (ASC Topic 220) – Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU No. 2011-05. This ASU defers those provisions in ASU 2011-05 that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income to allow the FASB time to redeliberate whether to present on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income for all periods presented. This ASU reinstates the requirements for the presentation of reclassifications out of accumulated other comprehensive income that were in place before the issuance of ASU 2011-05. 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. ASU 2011-08 amends ASC Topic 350 to give entities the option to first assess qualitative factors to determine whether the existence of events or circumstances leads to a determination that it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If, after assessing the totality of events or circumstances, an entity determines it is not more likely than not that the fair value of a reporting unit is less than its carrying amount, then performing the two-step impairment test is unnecessary. However, if an entity concludes otherwise, then it is required to perform the first step of the two-step impairment test by calculating the fair value of the reporting unit and comparing the fair value with the carrying amount of the reporting unit. ASU 2011-08 is effective for annual and interim impairment tests beginning after December 15, 2011, and is not expected to have a material impact on our consolidated financial statements or results of operations.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk

The quantitative and qualitative disclosures about market risk are included under “Item 7 – Management’s Discussion and Analysis of Financial Condition and Results of Operations – Interest Rate Risk Management” appearing on pages 60 through 63 of this report.

Effects of Inflation. Inflation affects financial institutions less than other types of companies. Financial institutions make relatively few significant asset acquisitions that are directly affected by changing prices. Instead, the assets and liabilities are primarily monetary in nature. Consequently, interest rates are more significant to the performance of financial institutions than the effect of general inflation levels. While a relationship exists between the inflation rate and interest rates, we believe this is generally manageable through our asset-liability management program.

Item 8. Financial Statements and Supplementary Data

The financial statements and supplementary data appear on pages 83 through 144 of this report.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

None.

68

Item 9A. Controls and Procedures

Disclosure 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 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 December 31, 2011 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 the information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is accumulated and communicated to the Company’s management, including its President and Chief Executive Officer and 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 ended December 31, 2011 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Management’s Report on Internal Control over Financial Reporting

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting. The Company’s internal control over financial reporting is a process designed under the supervision of the President and Chief Executive Officer and the Chief Financial Officer to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Our internal control over financial reporting includes policies and procedures that (1) pertain to the maintenance of records that accurately and fairly reflect, in reasonable detail, transactions and dispositions of our assets, (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP and that receipts and expenditures are being made only in accordance with authorizations of management and our directors, and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on our consolidated financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in circumstances or that the degree of compliance with the policies and procedures may deteriorate.

Management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2011, based on the framework set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control – Integrated Framework. Based on that assessment, management concluded that, as of December 31, 2011, the Company’s internal control over financial reporting is effective based on the criteria established in COSO’s Internal Control – Integrated Framework.

This annual report does not include an attestation report of the Company’s Independent Registered Public Accounting Firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s Independent Registered Public Accounting Firm.

Item 9B. Other Information

On March 21, 2012, the Company adopted the First Bank Salary Phantom Stock Plan, or Plan, under which the named executive officers, identified in Item 10 of this Form 10-K, are eligible to participate. Under the Plan, participants are eligible, from time to time, to receive a portion of their annual salary in the form of phantom units. No awards have been granted under the Plan. A copy of the Plan and a form of Phantom Unit Award Agreement are attached as Exhibit 10.14 to this Form 10-K.

69

PART III

Item 10. Directors, Executive Officers and Corporate Governance

Board of Directors and Committees of the Board

Our Board of Directors consists of nine members. The Board determined that Messrs. Blake, Cooper, Poelker, Rounsaville, Steward and Yaeger are independent. Each of our directors identified in the following table was elected to serve a one-year term and until his successor has been duly qualified for office.

		Director	Principal Occupation(s) During Last Five Years
Name	Age	Since	and Directorships of Public Companies
James F. Dierberg	74	1979	Chairman of the Board of Directors of First Banks, Inc. since 1988; Chief Executive Officer of First Banks, Inc. from 1988 to April 2003; President of First Banks, Inc. from 1979 to 1992 and from 1994 to October 1999.
Terrance M. McCarthy	57	2003	President and Chief Executive Officer of First Banks, Inc. since April 2007; Senior Executive Vice President and Chief Operating Officer of First Banks, Inc. from August 2002 to March 2007; Chairman of the Board of Directors of First Bank since January 2003; President and Chief Executive Officer of First Bank from August 2002 to June 2007 and since April 22, 2009; Executive Vice President of First Bank from June 2007 to April 22, 2009. The Board and voting shareholders considered these qualifications, in addition to his prior service as Chief Operating Officer of the Company and President of First Bank, and his current position and experience with the Company and the banking industry, in making a determination that Mr. McCarthy should be a nominee for director of the Company.
Allen H. Blake (1)	69	2008	Director of First Banks, Inc. since December 2008 and from 1988 to March 2007; Director of First Bank since December 2008; Prior to Mr. Blake’s announcement of his retirement and resignation of his positions at First Banks, Inc., effective March 31, 2007, Mr. Blake served in the following positions: President of First Banks, Inc. from October 1999 to March 2007; Chief Executive Officer of First Banks, Inc. from April 2003 to March 2007; and Chief Financial Officer of First Banks, Inc. from 1984 to September 1999 and from May 2001 to August 2005. The Board and voting shareholders considered these qualifications, in addition to his significant financial and accounting expertise, prior service as Chief Executive Officer and Chief Financial Officer of the Company and experience with the Company and the banking industry, in making a determination that Mr. Blake should be a nominee for director of the Company.
James A. Cooper (1)(2)	56	2008	Senior Managing Partner of Thompson Street Capital Partners, a private equity firm with investments in middle-market manufacturing, service and distribution businesses, in St. Louis, Missouri, since 2000; Director of Thermon Group, Inc.; Director of Thermon Group Holdings, Inc.; and Director of Thermon Holding Corporation. The Board and voting shareholders considered these qualifications, in addition to his investment management expertise, financial expertise and stature in the local community, in making a determination that Mr. Cooper should be a nominee for director of the Company.
Michael J. Dierberg (3)	41	2011	Vice Chairman of First Banks, Inc. since January 2012; Director of First Banks, Inc. from May 2011 to January 2012 and from July 2001 to July 2004; General Counsel of First Banks, Inc. from June 2002 to July 2004; Prior to rejoining First Banks, Inc. as a Director, Mr. Dierberg served as an attorney for the United States Department of Justice in Washington, D.C. from July 2004 to June 2010. The Board and voting shareholders considered these qualifications, in addition to his experience with the Company and the banking industry, in making a determination that Mr. Dierberg should be a nominee for director of the Company.

70

(Continued)

		Director	Principal Occupation(s) During Last Five Years
Name	Age	Since	and Directorships of Public Companies
John S. Poelker (1)(4)	69	2011	Director of First Banks, Inc. since July 2011; President of The Poelker Consultancy, Inc., a corporation that provides strategic and financial management advisory and consulting services to the banking industry and other financial services companies, since 2005; Executive Vice President and Chief Financial Officer of State Bank Financial Corporation, a bank holding company in Atlanta, Georgia, from March 2011 to October 2011; Chief Executive Officer of Beach First National Bank in Myrtle Beach, South Carolina, from February 2010 to April 2010; President and Chief Executive Officer of State Bank of Georgia in Fayetteville, Georgia, from December 2009 to February 2010; President and Chief Executive Officer of Georgian Bancorporation and Georgian Bank in Atlanta, Georgia, from July 2009 to September 2009; Executive Vice President and Chief Financial Officer of Old National Bancorp in Evansville, Indiana, from 1998 to 2005; Director of First Charter Corporation from 2006 to 2008.
Guy Rounsaville, Jr. (2)(4)	68	2011	Director of First Banks, Inc. since July 2011; Director of Diversity at Allen Matkins Leck Gamble Mallory & Natsis LLP, a law firm based in California, since September 2009; Deputy General Counsel of Bank of America from October 2007 to March 2008; General Counsel and Corporate Secretary of LaSalle Bank Corporation and ABN AMRO’s North American Region from November 2006 to October 2007; Executive Vice President and General Counsel of VISA International from 2001 to October 2006; General Counsel of Wells Fargo Bank, N.A. and Wells Fargo & Company from 1969 to 1998; Director of Tri-Valley Bank; Director of Medley Capital Corporation from 2010 to November 2011.
David L. Steward (2)	60	2000	Chairman of the Board of Directors of World Wide Technology Holding Co., Inc., an electronic procurement and logistics company in the information technology industry, in St. Louis, Missouri, since 1990; Director of Centene Corporation. The Board and voting shareholders considered these qualifications, in addition to his significant management expertise and stature in the local community, in making a determination that Mr. Steward should be a nominee for director of the Company.
Douglas H. Yaeger (1)	63	2000	Prior to Mr. Yaeger’s announcement of his retirement and resignation of his positions as Chairman of the Board of Directors and Chief Executive Officer of The Laclede Group, Inc., effective February 1, 2012, Mr. Yaeger served in the following positions: Chairman of the Board of Directors and Chief Executive Officer of The Laclede Group, Inc., an exempt public utility holding company in St. Louis, Missouri, from 2001 to February 2012; President of The Laclede Group, Inc. from 2001 to August 2011; Chairman of the Board of Directors, President and Chief Executive Officer of Laclede Gas Company since 1999. The Board and voting shareholders considered these qualifications, in addition to his financial expertise, public company managerial experience and stature in the local community, in making a determination that Mr. Yaeger should be a nominee for director of the Company.

____________________
 

(1)	Member of the Audit Committee. Mr. John S. Poelker serves as Chairman of the Audit Committee and the Audit Committee Financial Expert.
(2)	Member of the Compensation Committee. Mr. James A. Cooper serves as Chairman of the Compensation Committee.
(3)	Mr. Michael J. Dierberg is the son of Mr. James F. Dierberg. See Item 12. Security Ownership of Certain Beneficial Owners and Management.
(4)	Elected to the Board of Directors by the U.S. Treasury as the sole holder of the Company’s Class C Preferred Stock and Class D Preferred Stock.

71

Committees of the Board of Directors

Audit Committee. Four members of our Board of Directors currently serve on the Audit Committee, all of whom the Board of Directors determined to be independent. The Audit Committee assists the Board of Directors in fulfilling the Board’s oversight responsibilities with respect to the quality and integrity of the consolidated financial statements, financial reporting process and systems of internal controls. The Audit Committee also assists the Board of Directors in monitoring the independence and performance of the independent auditors, the internal audit department and the operation of ethics programs. The Audit Committee operates under a written charter adopted by the Board of Directors.

At its regular meeting on January 27, 2012, the Board of Directors appointed Messrs. Blake, Cooper, Poelker and Yaeger to serve as members of the Audit Committee and Mr. Poelker to serve as Chairman of the Audit Committee and the Audit Committee Financial Expert. Prior to that date, the members of the Audit Committee were Messrs. Blake, Cooper, Steward and Yaeger and Mr. Yaeger served as Chairman and Financial Expert.

Compensation Committee. In accordance with the requirements of the EESA, as amended by the ARRA, the Board of Directors maintains a Compensation Committee comprised solely of directors determined to be independent. At its regular meeting on January 27, 2012, the Board of Directors appointed Messrs. Cooper, Rounsaville and Steward to serve as members of the Compensation Committee and appointed Mr. Cooper to serve as Chairman of the Compensation Committee. Prior to that date, the members of the Compensation Committee were Messrs. Cooper, Steward and Yaeger and Mr. Cooper served as Chairman. The Compensation Committee, governed by a written charter adopted by the Board of Directors, oversees the compensation of the executive officers of the Company and reviews compensation and benefit packages and programs for the Company’s employees generally and reviews the Company’s compliance with the requirements of the EESA and regulations thereunder.

Audit Committee Report

The Audit Committee is responsible for oversight of our financial reporting process on behalf of the Board of Directors. Management has primary responsibility for our financial statements and financial reporting, including internal controls, subject to the oversight of the Audit Committee and the Board of Directors. In fulfilling its responsibilities, the Audit Committee reviewed the audited consolidated financial statements with management and discussed the acceptability of the accounting principles used, the reasonableness of significant judgments made and the clarity of the disclosures.

The Audit Committee reviewed with the Independent Registered Public Accounting Firm, who is responsible for planning and carrying out a proper audit and expressing an opinion on the conformity of our audited consolidated financial statements with U.S. generally accepted accounting principles, their judgments as to the acceptability of the accounting principles we use, and such other matters as are required to be discussed with the Audit Committee by Statement on Auditing Standards No. 61, Communications with Audit Committees. In addition, the Audit Committee discussed with the Independent Registered Public Accounting Firm its independence from management and the Company, including the matters required by Public Company Accounting Oversight Board, or PCAOB, Rule 3526, Communication with Audit Committees Concerning Independence, and the Audit Committee considered the compatibility of non-audit services provided by the Independent Registered Public Accounting Firm with the firm’s independence. KPMG LLP has provided the Audit Committee with the written disclosures and letter required by Standard No. 1 of the Independence Standards Board.

The Audit Committee discussed with our Internal Audit Department and Independent Registered Public Accounting Firm the overall scope and plans for their respective audits. The Audit Committee met with the Internal Audit Department and Independent Registered Public Accounting Firm with and without management present to discuss the results of their examinations, their evaluations of our internal controls and the overall quality of our financial reporting.

In reliance on the reviews and discussions referred to above, the Audit Committee recommended to the Board of Directors that the audited consolidated financial statements be included in the Annual Report on Form 10-K as of and for the year ended December 31, 2011 for filing with the SEC.

Audit Committee

John S. Poelker, Chairman of the Audit Committee

Allen H. Blake

James A. Cooper

Douglas H. Yaeger

72

Code of Ethics for Principal Executive Officer and Financial Professionals

The Board of Directors has approved a Code of Ethics for Principal Executive Officer and Financial Professionals that covers the Chief Executive Officer, the Chief Financial Officer, the Chief Credit Officer, the Chief Investment Officer, the Controller, the Director of Taxes, and all professionals serving in a Corporate Finance, Accounting, Treasury, Tax or Investor Relations role. These individuals are also subject to the policies and procedures adopted by the Company that govern the conduct of all of its employees. The Code of Ethics for Principal Executive Officer and Financial Professionals is included as an exhibit to this Annual Report on Form 10-K. The Company intends to post on its website at www.firstbanks.com any amendment to or waiver from any provision in the Code of Ethics for Principal Executive Officers and Financial Professionals that applies to the Chief Executive Officer, Chief Financial Officer, Controller or other person performing similar functions and that relate to any element of the standards enumerated in the SEC rules.

Code of Conduct for Employees, Officers and Directors

The Board of Directors has approved a Code of Conduct applicable to all employees, officers and directors of the Company that addresses conflicts of interest, honesty and fair dealing, accounting and auditing matters, political activities and application and enforcement of the Code of Conduct. The Code of Conduct is available on the Company’s website, www.firstbanks.com, under “About us.”

Executive Officers

Our executive officers, each of whom was elected to the office(s) indicated by the Board of Directors, as of March 23, 2012, were as follows:

		Current First Banks, Inc.	Principal Occupation(s)
Name	Age	Office(s) Held	During Last Five Years
James F. Dierberg	74	Chairman of the Board of Directors.	See “Item 10 – Directors, Executive Officers and Corporate Governance – Board of Directors.”
Terrance M. McCarthy	57	President, Chief Executive Officer and Director; Chairman of the Board of Directors, President and Chief Executive Officer of First Bank.	See “Item 10 – Directors, Executive Officers and Corporate Governance – Board of Directors.”
F. Christopher McLaughlin	58	Executive Vice President; Director of Retail Banking and Director of Sales, Marketing and Products; Executive Vice President, Director of Retail Banking and Director of First Bank.	Executive Vice President, Director of Retail Banking and Director of Sales, Marketing and Products of First Banks, Inc. and First Bank since April 2007; Executive Vice President and Director of Sales, Marketing and Products of First Banks, Inc. and First Bank from September 2003 to March 2007; Director of First Bank since October 2004.
Gary S. Pratte	64	Executive Vice President and Chief Credit Officer; Executive Vice President, Chief Credit Officer and Director of First Bank.	Executive Vice President and Chief Credit Officer of First Banks, Inc. since May 2011; Executive Vice President and Chief Credit Officer of First Bank since April 2011; Director of First Bank since April 2011; Executive Vice President and Acting Chief Credit Officer of First Banks, Inc. from August 2010 to May 2011, and of First Bank from August 2010 to April 2011; Executive Vice President and Senior Regional Credit Officer of First Bank from April 2007 to August 2010; Senior Vice President and Senior Regional Credit Officer of First Bank from March 2001 to April 2007.

73

(Continued)

		Current First Banks, Inc.	Principal Occupation(s)
Name	Age	Office(s) Held	During Last Five Years
Lisa K. Vansickle	44	Executive Vice President and Chief Financial Officer; Executive Vice President, Chief Financial Officer, Secretary and Director of First Bank.	Executive Vice President and Chief Financial Officer of First Banks, Inc. since April 2010; Senior Vice President and Chief Financial Officer of First Banks, Inc. from April 2007 to April 2010; Senior Vice President and Controller of First Banks, Inc. from January 2001 to April 2007; Executive Vice President, Chief Financial Officer, Secretary and Director of First Bank since May 2010. Senior Vice President, Secretary and Director of First Bank from July 2001 to May 2010.

Item 11. Executive Compensation

Compensation Discussion and Analysis. The compensation program of the Company and its affiliates (collectively referred to only in this Item 11 as the “Company”) is reflective of its ownership structure and its participation in the CPP under the EESA. As outlined in the stock ownership table included in “Item 12 – Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters,” all of our voting stock is owned by various trusts, established by and administered by and for the benefit of Mr. James F. Dierberg, our Chairman of the Board, and members of his immediate family. Therefore, we do not use equity awards in our compensation program. As a participant in the CPP, we are subject to certain corporate governance and executive compensation standards applicable to all CPP participants as required by the ARRA and rules adopted thereunder, as further described below.

Capital Purchase Program – Executive Compensation and Governance Requirements. As a result of our participation in the CPP, we became subject to certain restrictions on executive compensation set forth in Section 111 of the EESA and the Purchase Agreement entered into by the Company and the U.S. Treasury. Subsequently, the ARRA was signed into law and included a provision that amended Section 111 of the EESA and directed the U.S. Treasury to establish specified standards on executive compensation and corporate governance. The U.S. Treasury published its Interim Final Rule on TARP Standards for Compensation and Corporate Governance (sometimes referred to as the Interim Final Rule). As amended, Section 111 of the EESA and the Interim Final Rule established the following standards applicable to the Company as a result of its participation in the CPP (“CPP Rules”):

Ø	A prohibition on paying bonuses, retention awards and incentive compensation, other than pursuant to certain preexisting employment contracts, to our named executive officers identified in Item 10 above (the “Senior Executive Officers” or “SEOs”), and the ten next most highly-compensated employees;
Ø	A prohibition on the payment of “golden parachute payments” to our SEOs and the five next most highly compensated employees upon their termination of employment or a change in control of the Company;
Ø	A requirement to “clawback” any bonus, retention award or incentive compensation paid to a SEO and/or of the twenty (20) next most highly compensated employees if such bonus, retention award, or incentive compensation was based on statements of earnings, revenues, gains or other criteria later found to be materially inaccurate;
Ø	A requirement to establish a policy on luxury or excessive expenditures;
Ø	A prohibition on deducting more than $500,000 in annual compensation paid to each of the SEOs;
Ø	A prohibition on tax gross-ups to the SEOs and the twenty (20) next most highly compensated employees;
Ø	A requirement to disclose to the U.S. Treasury any perquisite with a total value for the year in excess of $25,000 paid or provided to a SEO or any of the twenty (20) next most highly compensated employees;
Ø	A requirement to disclose to the U.S. Treasury whether the Company, Board or Compensation Committee has retained a compensation consultant and the types of services provided by the consultant and its affiliates, whether or not such services were compensation-related;
Ø	A requirement that the Compensation Committee evaluate and review with our senior risk officers at least every six (6) months the SEO compensation plans to limit any features in such plans that would encourage SEOs to take “unnecessary and excessive risks” that could threaten the value of the Company;
Ø	A requirement that the Compensation Committee review at least every six (6) months the Company’s employee compensation plans to identify and eliminate any provisions in such plans that encourage the manipulation of reported earnings to enhance the compensation of any employee;

74

Ø	A requirement that the Compensation Committee evaluate and review with our senior risk officers at least every six (6) months the risks involved in the Company’s employee compensation plans and how to limit the risks posed to the Company by such plans;
Ø	A requirement that the Compensation Committee provide a certification that it has conducted the foregoing reviews; and
Ø	A requirement that the Chief Executive Officer and the Chief Financial Officer provide written certifications of compliance with all of the foregoing requirements.

The SEOs for 2011 were the named executive officers identified in the Company’s Form 10-K for the fiscal year ended December 31, 2010, and were Messrs. James F. Dierberg, Terrance M. McCarthy, F. Christopher McLaughlin, Gary S. Pratte, and Ms. Lisa K. Vansickle. The SEOs for 2012 are the named executive officers identified in the above Item 10 of this Form 10-K for the fiscal year ended December 31, 2011. The CPP Rules apply during the period in which any of the CPP capital securities remain outstanding and held by the U.S. Treasury. The Company has entered into agreements with each of the named executive officers under which the officer acknowledges and agrees to the relevant compensation restrictions set forth under the CPP Rules.

Compensation Objective. The objective of our executive compensation policies and practices is to attract and retain talented key executives that will contribute to the achievement of strategic goals and the growth and success of the Company in order to enhance the long-term value of the Company. Compensation is based upon the achievement of corporate goals and objectives, as established by key corporate executives and reported to the Board of Directors. Rewards for performance are designed to motivate the continued strong performance of key executives on a long-term basis.

Our executive compensation program is designed to reward the achievement of financial results in accordance with our corporate goals and objectives within the limits of our ownership structure and the CPP Rules. The current elements of our executive compensation program include a base salary and a benefits program including health insurance, 401(k) plan, time away benefits and life insurance which are offered to all of our employees. Our executive compensation programs are cash-based and do not include any other forms of non-cash compensation. We do not provide the named executive officers with employment contracts or severance agreements, and consequently, we are under no obligation to make additional payments to any of the named executive officers in the event of severance, change in control, retirement or resignation.

The Compensation Committee and management intend to monitor the Company’s overall compensation program to determine what actions may be necessary to continue to fulfill its compensation objectives while complying with the CPP Rules which have effectively eliminated performance based incentives for our SEOs and the ten next most highly compensated employees. Historically, the Company, as a family owned company, has compensated its executive officers conservatively while maintaining key talent without using extravagant compensation packages or perquisites to reward executive officers. The Compensation Committee intends to continue to apply these long-held philosophies in setting future compensation within the limits of the CPP Rules and any other applicable regulations.

Salary. The base salaries of the executive officers are generally established in March of each year and are dependent upon the evaluation of certain factors and, in part, on subjective considerations. The level of base salaries of executive officers is designed to reward the officer’s performance based upon an evaluation of the following factors: (i) the performance of the Company and the achievement of corporate goals and objectives, considering general business and industry conditions, among other factors, and the contributions of specific executives towards the overall performance; (ii) each executive officer’s areas of responsibility and the Company’s performance in those areas; and (iii) the level of compensation paid to comparable executives by other financial institutions of comparable size in the market areas in which we operate to ensure we maintain a competitive compensation package. The Compensation Committee engaged a compensation consultant to conduct a market review of compensation of certain executive and other senior positions. The consultant provided information for base salaries, annual incentives, total cash compensation, long-term incentive values and total direct compensation. Our corporate goals and objectives provide particular measurements to which the Compensation Committee and executive management assign significance, such as net income, organic and external growth in target market areas, expense control, net interest margin, credit quality, and regulatory examination results. In 2011, the Compensation Committee considered these factors and suggestions of the Chairman of the Board and the Chief Executive Officer, without assigning a specific weight to any particular factor, and evaluated the appropriate base salary and related annual salary increases of the SEOs. Base salaries of executive officers are reviewed on an ongoing basis and are generally adjusted on an annual basis, and may be further adjusted periodically as a result of significant changes in responsibility, employment market conditions, and other factors.

The challenge for management and the Board of Directors is to motivate, retain and reward key personnel through the current economic environment with compensation tools limited by the CPP Rules while recognizing the Company’s performance. Mr. Dierberg ceased receiving a salary in 2008 but receives a fee of $144,000 for serving as Chairman of the Board of Directors. The base salary of Mr. McCarthy, which had not been increased since April 2007, was increased in 2011 by 15.0% due to the significance of his responsibilities. The base salaries of Ms. Vansickle and Mr. McLaughlin were increased in 2011 by 4.3% and 4.0%, respectively. The base salary of Mr. Pratte, which was increased in 2010 by 35.0% due to the change in the significance of his responsibilities, was increased by 1.9% in 2011.

75

Bonuses. The CPP Rules prohibit paying bonuses to the SEOs and the next ten (10) most highly compensated employees, and in compliance with this prohibition the compensation structure for the SEOs and the next ten (10) most highly compensated employees does not contemplate payment of bonuses to the SEOs. The SEOs have not received a bonus since 2007, except Mr. Pratte who received awards in 2008 and 2009 under incentive plans that Mr. Pratte participated in prior to the time he became a named executive officer. Mr. Pratte’s participation in those incentive plans terminated at the time he became a named executive officer.

Deferred Compensation. In previous years, we offered the opportunity to defer income under a Nonqualified Deferred Compensation Plan, or NQDC Plan, to the executive officers and other key employees to promote retention by providing a long-term savings opportunity on a tax-deferred basis. Prior to January 1, 2010, the NQDC Plan allowed executives to defer payment of a portion of their compensation until a later date. Although the NQDC Plan allows the Company to credit the accounts of any participant with discretionary contributions, no such discretionary contributions have been made since the NQDC Plan’s inception. We elected to suspend the availability of deferrals under the NQDC Plan in 2010 and 2011 but reinstated the availability of such deferrals beginning in January 2012. The Company will not make any discretionary contributions to the accounts of the SEOs and the next ten (10) most highly compensated employees during the period the Company is subject to the CPP Rules because such contributions are considered “bonus payments” and therefore prohibited.

Executive Compensation. The following table sets forth certain information regarding compensation earned by the named executive officers for the years ended December 31, 2011, 2010 and 2009:

SUMMARY COMPENSATION TABLE

					All Other
Name and Principal Position(s)	Year	Salary (1)		Bonus (1)	Compensation (2)		Total (1)
James F. Dierberg	2011	$	—	—	149,800	(3)	149,800
Chairman of the Board of Directors	2010		—	—	144,000	(3)	144,000
	2009		—	—	145,400	(3)	145,400
Terrance M. McCarthy	2011		556,200	—	9,800		566,000
President and	2010		500,000	—	—		500,000
Chief Executive Officer	2009		500,000	—	4,400		504,400
Lisa K. Vansickle	2011		237,500	—	9,500		247,000
Executive Vice President and	2010		230,000	—	—		230,000
Chief Financial Officer	2009		214,800	—	10,200	(4)	225,000
F. Christopher McLaughlin	2011		257,500	—	9,800		267,300
Executive Vice President, Director of	2010		250,000	—	—		250,000
Retail Banking, and Director of Sales,	2009		245,900	—	2,400		248,300
Marketing and Products
Gary S. Pratte	2011		273,700	—	9,800		283,500
Executive Vice President and	2010		227,700	—	—		227,700
Chief Credit Officer

____________________
 

(1)	Salary and bonus reported for Ms. Vansickle and Messrs. Dierberg, McCarthy, McLaughlin and Pratte did not include any amounts deferred in our NQDC Plan, except as further described herein. Salary and bonus reported for Mr. McCarthy include amounts deferred in our NQDC Plan, as further described below and in Note 21 to our consolidated financial statements, for 2009 of $75,000. Earnings by the named executive officers on their NQDC Plan balances did not include any above-market or preferential earnings.
(2)	All other compensation reported reflects 401(k) employer match contributions, as further described in Note 21 to our consolidated financial statements, with the exception of the amounts reported for Mr. Dierberg and Ms. Vansickle, as further described below.
(3)	All other compensation reported for Mr. Dierberg for 2011, 2010 and 2009 reflects non-employee director compensation of $144,000 and 401(k) employer match contributions of $5,800, $0 and $1,400, respectively.
(4)	All other compensation reported for Ms. Vansickle for 2009 reflects 401(k) employer match contributions of $1,800 and the payout of $8,400 of an award previously granted under an incentive plan that Ms. Vansickle participated in prior to the time she became a named executive officer in April 2007. Ms. Vansickle’s participation in that incentive plan terminated at the time she became a named executive officer.

76

Nonqualified Deferred Compensation. Officers that meet certain position and base salary criteria and non-employee directors are eligible to participate in our NQDC Plan. Participants are allowed to defer, on an annual basis, up to 25% of their salary and up to 100% of their bonus payments, and hypothetically invest in various investment options available in the NQDC Plan that are selected by the participant and may be changed by the participant at any time. These investment options mirror the investment options that we offer through our 401(k) plan and include various investment funds such as equity funds, international stock funds, capital appreciation funds, money market funds, bond funds, mid-cap value funds and growth funds. However, as discussed above, we suspended the availability of deferrals to the NQDC Plan in 2010 and 2011 but reinstated the availability of such deferrals beginning in January 2012.

The NQDC Plan allows for us to credit the deferred compensation accounts of any participant with discretionary contributions, however, we have not made any such discretionary contributions under the NQDC Plan since its inception. Any such contributions, if made, would vest over a five-year period. Earnings or losses on participant account balances resulting from the participant’s investment choices are credited or charged to the participant accounts on a monthly basis. We recognize these earnings or losses in our consolidated statements of operations on a monthly basis. In the event of retirement, payment of the vested portion of the participant’s deferred compensation account balance is either made through a single lump sum payment or annual payments over five or ten years, subject to election by the participant. Payment of the vested portion of the participant’s deferred compensation account balance is made through a single lump sum payment in the event the participant terminates his or her employment for reasons other than retirement.

The following table sets forth certain information regarding nonqualified deferred compensation earned by the named executive officers for the year ended December 31, 2011:

NONQUALIFIED DEFERRED COMPENSATION TABLE

	Executive				Aggregate	Aggregate
	Contributions in		Aggregate		Withdrawals /	Balance at
	Last Fiscal		Earnings in Last		Distributions in	December 31,
Name and Principal Position(s)	Year (1)		Fiscal Year (2)		Last Fiscal Year	2011 (3)
James F. Dierberg	$	—	(20,000	)	—	463,300
Chairman of the Board of Directors
Terrance M. McCarthy		—	6,800		—	816,100
President and
Chief Executive Officer
Lisa K. Vansickle		—	(2,300	)	—	42,900
Executive Vice President and
Chief Financial Officer
Gary S. Pratte		—	400		—	78,300
Executive Vice President and
Chief Credit Officer

____________________
 

(1)	All executive contributions represent the deferral of base salary and/or bonus payments reflected in the “Summary Compensation Table.” We did not make any discretionary contributions under the NQDC Plan as of and for the year ended December 31, 2011. In addition, Mr. McLaughlin has not elected to participate in the NQDC Plan.
(2)	Earnings by the named executive officers on their NQDC Plan balances did not include any above-market or preferential earnings.
(3)	Represents deferrals of cash consideration from prior years, as previously reported as compensation in the Company’s previously filed Annual Reports on Form 10-K, and the cumulative earnings on the original deferred amounts and the participant’s 2011 activity.

Potential Payments upon Termination. Upon termination of employment, the executive officers will receive payments of the vested portion of the executive’s deferred compensation account balance under our NQDC Plan as described above.

77

Compensation of Directors. The following table sets forth compensation earned by the named non-employee directors for the year ended December 31, 2011:

DIRECTOR COMPENSATION TABLE

	Total Fees Earned
Name	or Paid in Cash
James F. Dierberg (1)	$	144,000
Allen H. Blake (2)		54,000
James A. Cooper (3)		46,000
John S. Poelker (4)(7)		16,500
Guy Rounsaville, Jr. (5)(7)		16,500
David L. Steward		37,000
Douglas H. Yaeger (6)		46,000

____________________
 

(1)	Non-employee director compensation for Mr. Dierberg is also included in the “Summary Compensation Table.”
(2)	Mr. Blake received fees of $38,000 for the Company’s board and committee meetings attended and fees of $16,000 for First Bank board meetings attended.
(3)	Mr. Cooper serves as Chairman of the Compensation Committee.
(4)	Mr. John S. Poelker was elected to the Board of Directors effective July 13, 2011. Mr. Poelker was elected Chairman of the Audit Committee on January 27, 2012 and also serves as the Audit Committee Financial Expert.
(5)	Mr. Guy Rounsaville, Jr. was elected to the Board of Directors effective July 13, 2011. Mr. Rounsaville was elected to the Compensation Committee on January 27, 2012.
(6)	Mr. Yaeger served as Chairman of the Audit Committee and the Audit Committee Financial Expert until January 27, 2012.
(7)	Excludes reimbursement of travel expenses.

Mr. James F. Dierberg received an annual fee of $144,000, paid semi-monthly, for his service as Chairman of the Board of Directors during 2011. Mr. McCarthy does not receive remuneration other than salary for serving on our Board of Directors. Mr. Michael Dierberg does not receive remuneration for serving on our Board of Directors. With the exception of Mr. Michael Dierberg, directors who are neither our employees nor employees of any of our subsidiaries receive cash remuneration for their services as directors. Non-employee directors received a fee of $3,000 for each Board meeting attended, a fee of $3,750 per calendar quarter as a retainer for their service as members of the Board of Directors and a fee of $1,000 for each Audit Committee and Compensation Committee meeting attended. In addition, the Chairmen of the Audit Committee and Compensation Committee received a fee of $5,000 for their service as Chairmen. Mr. Blake, as a non-employee Director of First Bank, also received a fee of $1,000 for each monthly First Bank Board meeting attended and a fee of $500 for each monthly meeting attended of the Company’s Enterprise Risk Management Committee. The Enterprise Risk Management Committee is a committee of the Company’s management in which Mr. Blake and Mr. Michael Dierberg participate.

Prior to 2010 and beginning in January 2012, our non-employee directors were also eligible to defer payment of all or a portion of their compensation through contributions to our NQDC Plan. Earnings by the directors on their NQDC Plan balances did not include any above-market or preferential earnings. Our directors do not receive any other compensation, and there are no arrangements for amounts to be paid to directors upon resignation or any other termination of such director or a change in control of the Company. The Audit Committee, the Compensation Committee and the ERMC are currently the only committees of our Board of Directors.

Compensation Committee Interlocks and Insider Participation. The Compensation Committee is comprised solely of independent directors and no members of the Compensation Committee are current or former officers or employees of the Company. See further information regarding transactions with related parties in Note 20 to our consolidated financial statements appearing on pages 137 through 139 of this report.

78

Compensation Committee Report.

The Compensation Committee has reviewed the Compensation Discussion and Analysis and discussed such with management. Based on such review and discussions, the Compensation Committee recommended the Compensation Discussion and Analysis be included in the Company’s Annual Report on Form 10-K as of and for the year ended December 31, 2011 for filing with the SEC.

In addition, the Compensation Committee certifies that (i) it has reviewed with the Company’s senior risk officers the SEO compensation arrangements and has made all reasonable efforts to ensure that such arrangements do not encourage SEOs to take unnecessary and excessive risks that threaten the value of the Company; (ii) it has reviewed with senior risk officers the employee compensation plans and has made all reasonable efforts to limit any unnecessary risks these plans pose to the Company; and (iii) it has reviewed the employee compensation plans to eliminate any features of these plans that would encourage the manipulation of reported earnings of the Company.

Review of Risk Associated with Compensation Plans. Our senior risk officers conducted two assessments of our compensation plans in 2011 and reviewed and discussed each assessment and the compensation plans with the Compensation Committee. The senior risk officers recommended, and the Compensation Committee approved such recommendation, that the review of all compensation plans maintained by the Company focus on incentive based compensation plans. The senior risk officers, with the approval of the Compensation Committee, reviewed the Company’s non-incentive based compensation plans, such as the Company’s NQDC Plan, and broad-based welfare and benefit plans that do not discriminate in scope and terms of operation and determined that such plans do not present opportunities for employees to take excessive and unnecessary risks.

SEO Compensation Plans. The components of our executive compensation program are base salary, the NQDC Plan, and qualified benefit plans available to other employees of the Company. Based on the assessment of the compensation plans and the lack of any incentive compensation, the Compensation Committee determined that our executive compensation program does not encourage the SEOs to take unnecessary and excessive risks that threaten the value of the Company.

Employee Compensation Plans. The Company maintains and administers multiple compensation and bonus plans for employees of the Company. The bonus plans reward employees other than the SEOs and the next ten (10) most highly compensated employees for measurable performance throughout the Company. These bonus plans are reviewed on a regular basis and have terms and conditions that enable us to adjust potential payments based on management’s discretion and consideration of certain factors, including, but not limited to, credit quality. We have also implemented revised policies, procedures and plan provisions to further address specific risks identified in the assessments completed in 2011. Although the “clawback” requirement under the CPP Rules, discussed above, affects only the SEOs and the twenty (20) next most highly compensated employees, we have ensured that all compensation plans provide the Company a clawback right in the event incentive compensation is paid based upon incorrect or fraudulent information. We also require that any new compensation plans are risk assessed and approved by our Enterprise Risk Management Committee comprised of certain directors and executive officers. In addition, to address the risk of potentially encouraging employees to focus on short-term results rather than long-term value creation, we are continuing to evaluate, and where practical, implement an extended payment schedule for our compensation plans.

Further, in light of the level of oversight and controls surrounding the Company’s compensation plans and incentive compensation plans, and the lack of any equity-based compensation plans, the Compensation Committee has determined that the compensation plans for all employees do not contain any features that would encourage the manipulation of reported earnings to enhance the compensation of any employee.

Compensation Committee

James A. Cooper, Chairman of the Compensation Committee

Guy Rounsaville, Jr.

David L. Steward

79

Item 12.  Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The following table sets forth, as of March 23, 2012, certain information with respect to the beneficial ownership of all classes of our capital stock by each person known to us to be the beneficial owner of more than five percent of the outstanding shares of the respective classes of our stock:

	Number				Percent
	of		Percent		of Total
	Shares		of		Voting
Title of Class and Name of Owner	Owned		Class		Power
Common Stock ($250.00 par value):
James F. Dierberg II Family Trust (1)	7,714.677	(2)	32.605	%	*
Ellen C. Dierberg Family Trust (1)	7,714.676	(2)	32.605		*
Michael J. Dierberg Family Trust (1)	4,255.319	(2)	17.985		*
Michael J. Dierberg Irrevocable Trust (1)	3,459.358	(2)	14.621		*
First Trust (Mary W. Dierberg and First Bank, Trustees) (1)	516.830	(3)	2.184		*
Class A Convertible Adjustable Rate Preferred Stock ($20.00 par value):
James F. Dierberg, Trustee of the James F. Dierberg Living Trust (1)	641,082	(4)(5)	100	%	77.7	%
Class B Non-Convertible Adjustable Rate Preferred Stock ($1.50 par value):
James F. Dierberg, Trustee of the James F. Dierberg Living Trust (1)	160,505	(5)	100	%	19.4	%
Class C Fixed Rate Cumulative Perpetual Preferred Stock ($1.00 par value):
United States Department of the Treasury	295,400	(6)	100	%	0.0	%
Class D Fixed Rate Cumulative Perpetual Preferred Stock ($1.00 par value):
United States Department of the Treasury	14,770	(6)	100	%	0.0	%
All executive officers and directors other than Mr. James F. Dierberg and members
of his immediate family	0		0	%	0.0	%

____________________
 

*	Represents less than 1.0%.
(1)	Each of the above-named trustees and beneficial owners are United States citizens, and the business address for each such individual is 135 North Meramec, Clayton, Missouri 63105. Mr. James F. Dierberg, our Chairman of the Board, and Mrs. Mary W. Dierberg, are husband and wife, and Messrs. James F. Dierberg II and Michael J. Dierberg, our Director, and Ms. Ellen D. Milne, are their adult children.
(2)	Due to the relationship between Mr. James F. Dierberg, his wife and their children, Mr. Dierberg is deemed to share voting and investment power over these shares.
(3)	Due to the relationship between Mr. James F. Dierberg, his wife and First Bank, Mr. Dierberg is deemed to share voting and investment power over these shares.
(4)	Convertible into common stock, based on the appraised value of the common stock at the date of conversion.
(5)	Sole voting and investment power.
(6)	Shares were issued to the U.S. Treasury on December 31, 2008 pursuant to the CPP. The holders of the Class C Preferred Stock and the Class D Preferred Stock have no voting rights except in certain limited circumstances. As a result of our deferral of dividends on the preferred stock issued to the U.S. Treasury for an aggregate of six quarters, the U.S. Treasury had the right to elect two directors to our Board of Directors. As further described in “Item 10 – Directors, Executive Officers and Corporate Governance,” on July 13, 2011, the U.S. Treasury elected two members to our Board of Directors, effective immediately. The address of the U.S. Treasury is 1500 Pennsylvania Avenue, NW, Room 2312, Washington, D.C. 20220.

The following table sets forth, as of March 23, 2012, certain information with respect to the beneficial ownership of all classes of the capital securities of our subsidiary, FB Holdings, by each of our directors and named executive officers:

	Percent of
	Membership
Title of Class and Name of Owner	Interests Owned
Membership Interests
First Bank (1)	53.23	%
First Capital America, Inc. (1)	46.77	%

____________________

(1)       See further discussion of the membership interests of FB Holdings in Note 20 to our consolidated financial statements.

80

Item 13. Certain Relationships and Related Transactions, and Director Independence

Review and Approval of Related Person Transactions. We review all relationships and transactions in which we and our directors and executive officers and their immediate family members and entities in which such persons have a significant interest are participants to determine whether such persons have a direct or indirect material interest. Our management collects information from the executive officers and the directors regarding the related person transactions and determines whether we or a related person has a direct or indirect material interest in the transaction. If we determine that a transaction is directly or indirectly material to us or a related person, then the transaction is disclosed in accordance with applicable requirements. In addition, the Audit Committee of our Board of Directors reviews and approves or ratifies any related person transaction that is required to be so disclosed. In the event that a member of the Audit Committee is a related person to such a transaction, such member may not participate in the discussion or vote regarding approval or ratification of the transaction.

Related Person Transactions. Outside of normal customer relationships, no directors, executive officers or shareholders holding over 5% of our voting securities, and no corporations or firms with which such persons or entities are associated, currently maintain or have maintained since the beginning of the last full fiscal year, any significant business or personal relationship with our subsidiaries or us, other than that which arises by virtue of such position or ownership interest in our subsidiaries or us, except as set forth in “Item 11 – Executive Compensation – Compensation of Directors,” or as described in the following paragraphs.

First Bank has had in the past, and may have in the future, loan transactions and related banking services in the ordinary course of business with our directors and/or their affiliates. These loan transactions have been made on the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unaffiliated persons and, except as described below, did not involve more than the normal risk of collectability or present other unfavorable features. First Bank does not extend credit to our officersor to officers of First Bank, except extensions of credit secured by mortgages on personal residences, loans to purchase automobiles and personal credit card accounts.

Loans to directors, their affiliates and executive officers of the Company at December 31, 2011 included a $15.6 million multi-family real estate loan to a limited liability company which is 50% owned by the brother-in-law of Mr. Douglas H. Yaeger, a director of the Company. The loan is being paid as agreed and has not been reported as past due, nonaccrual or restructured as of December 31, 2011. However, based on current economic and financial considerations, management has classified this loan as special mention in the Company’s loan watch list as of December 31, 2011. Loans to directors, their affiliates and executive officers of the Company at December 31, 2011 also included two credit relationships in an aggregate amount of $1.2 million to companies which are approximately 16% owned by the brother-in-law of Mr. Yaeger, including a $328,000 credit relationship that is 60-89 days past due. Both loans have been classified by management as substandard, or potential problem, loans in the Company’s loan watch list as of December 31, 2011.

Certain of our shareholders, directors and officers and their respective affiliates have deposit accounts and related banking services with First Bank. It is First Bank’s policy not to permit any of its officers or directors or their affiliates to overdraw their respective deposit accounts. Deposit account overdraft protection may be approved for persons or entities under a plan whereby a credit limit has been established in accordance with First Bank’s standard credit criteria.

Transactions with related parties, including transactions with affiliated persons and entities, are described in Note 20 to our consolidated financial statements on pages 137 through 139 of this report, which descriptions are incorporated by reference herein, and in Note 11 to our consolidated financial statements.

Director Independence. Our Board of Directors has determined that Messrs. Allen H. Blake, James A. Cooper, John S. Poelker, Guy Rounsaville, Jr., David L. Steward and Douglas H. Yaeger have no material relationship with us and each is independent. Our Audit Committee of the Board of Directors and our Compensation Committee are composed only of independent directors. In order to be considered independent, our Board of Directors must determine that a director does not have any direct or indirect material relationship with us as provided under the rules of the NYSE. In making such a determination, the Board of Directors considers all relationships between us, or any of our subsidiaries, and the director, or any of his immediate family members, or any entity with which the director or any of his immediate family members is affiliated by reason of being a partner, officer or significant shareholder thereof. In assessing the independence of our directors, the Board of Directors considered all relationships between us and our directors based primarily upon responses of the directors to questions posed through a directors’ and officers’ questionnaire. The Board of Directors considered each of the related person transactions discussed above in making its independence determination.

81

The Company has preferred securities of only one of its capital trusts listed on the NYSE and, pursuant to the General Application section of NYSE Rule 303A, is not subject to NYSE Rule 303A.01 requiring a majority of independent directors. Messrs. James F. Dierberg, Michael J. Dierberg and Terrance M. McCarthy are not independent because they are each current or former executive officers of the Company.

Item 14. Principal Accounting Fees and Services

Fees of Independent Registered Public Accounting Firm

During 2011 and 2010, KPMG LLP served as our Independent Registered Public Accounting Firm and provided services to our affiliates and us. The following table sets forth fees for professional audit services rendered by KPMG LLP for the audit of our consolidated financial statements and other audit services in 2011 and 2010:

	2011		2010
Audit fees (1)	$	583,500	517,500
Audit related fees		—	—
Tax fees (2)		31,309	46,100
All other fees		—	—
Total	$	614,809	563,600

____________________
 

(1)

For 2011 and 2010, audit fees include the audit of the consolidated financial statements of the Company, as well as services provided for reporting requirements under FDICIA and mortgage banking activities, which are included in the audit fees of the Company, as these services are closely related to the audit of the Company’s consolidated financial statements. Audit fees also include other accounting and reporting consultations. On an accrual basis, audit fees for 2011 and 2010 were $578,500 and $567,500, respectively.

(2)

For 2011 and 2010, tax fees consist of tax filing, compliance and other advisory services.

Policy Regarding the Approval of Independent Auditor Provision of Audit and Non-Audit Services

Consistent with the SEC requirements regarding auditor independence, the Audit Committee recognizes the importance of maintaining the independence, in fact and appearance, of our independent auditors. As such, the Audit Committee has adopted a policy for pre-approval of all audit and permissible non-audit services provided by our independent auditors. Under the policy, the Audit Committee, or its designated member, must pre-approve services prior to commencement of the specified service. The requests for pre-approval are submitted to the Audit Committee or its designated member by the Director of Audit with a statement as to whether in his/her view the request is consistent with the SEC’s rules on auditor independence. The Audit Committee reviews the pre-approval requests and the fees paid for such services at their regularly scheduled quarterly meetings or at special meetings.

PART IV

Item 15. Exhibits, Financial Statement Schedules

(a)	1.	Financial Statements and Supplementary Data – The financial statements and supplementary data filed as part of this Report are included in Item 8.
	2.	Financial Statement Schedules – These schedules are omitted for the reason they are not required or are not applicable.
	3.	Exhibits – The exhibits are listed in the index of exhibits required by Item 601 of Regulation S-K at Item (b) below and are incorporated herein by reference.
(b)	The index of required exhibits is included beginning on page 148 of this Report.
(c)	Not Applicable.

82

First Banks, Inc.

Report of Independent Registered Public Accounting Firm

The Board of Directors and Stockholders
First Banks, Inc.:

We have audited the accompanying consolidated balance sheets of First Banks, Inc. and subsidiaries (the Company) as of December 31, 2011 and 2010, and the related consolidated statements of operations, changes in stockholders’ equity and comprehensive income (loss), and cash flows for each of the years in the three-year period ended December 31, 2011. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of First Banks, Inc. and subsidiaries as of December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 2011, in conformity with U.S. generally accepted accounting principles.

St. Louis, Missouri
March 23, 2012

83

First Banks, Inc.

Consolidated Balance Sheets

(dollars expressed in thousands, except share and per share data)

	December 31,
	2011			2010
ASSETS
Cash and cash equivalents:
Cash and due from banks	$	100,693		70,964
Short-term investments		371,318		924,794
Total cash and cash equivalents		472,011		995,758
Investment securities:
Available for sale		2,468,565		1,483,185
Held to maturity (fair value of $13,424 and $11,990, respectively)		12,817		11,152
Total investment securities		2,481,382		1,494,337
Loans:
Commercial, financial and agricultural		725,130		1,045,832
Real estate construction and development		249,987		490,766
Real estate mortgage		2,255,332		2,872,104
Consumer and installment		23,333		33,623
Loans held for sale		31,111		54,470
Net deferred loan fees		(942	)	(4,511	)
Total loans		3,283,951		4,492,284
Allowance for loan losses		(137,710	)	(201,033	)
Net loans		3,146,241		4,291,251
Federal Reserve Bank and Federal Home Loan Bank stock, at cost		27,078		30,121
Bank premises and equipment, net		127,868		161,414
Goodwill and other intangible assets		121,967		129,054
Deferred income taxes		19,121		18,004
Other real estate and repossessed assets		129,896		140,665
Other assets		62,340		71,726
Assets held for sale		—		2,266
Assets of discontinued operations		21,009		43,532
Total assets	$	6,608,913		7,378,128
LIABILITIES
Deposits:
Noninterest-bearing demand	$	1,209,759		1,167,206
Interest-bearing demand		884,168		919,973
Savings and money market		1,893,560		2,206,763
Time deposits of $100 or more		521,674		828,651
Other time deposits		942,669		1,335,822
Total deposits		5,451,830		6,458,415
Other borrowings		50,910		31,761
Subordinated debentures		354,057		353,981
Deferred income taxes		26,261		25,186
Accrued expenses and other liabilities		115,902		83,900
Liabilities held for sale		—		23,406
Liabilities of discontinued operations		346,282		94,184
Total liabilities		6,345,242		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		288,203		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		(183,351	)	(120,827	)
Accumulated other comprehensive income (loss)		16,066		(2,318	)
Total First Banks, Inc. stockholders’ equity		169,719		210,393
Noncontrolling interest in subsidiaries		93,952		96,902
Total stockholders’ equity		263,671		307,295
Total liabilities and stockholders’ equity	$	6,608,913		7,378,128

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

84

First Banks, Inc.

Consolidated Statements of Operations

(dollars expressed in thousands, except share and per share data)

	Years Ended December 31,
	2011			2010		2009
Interest income:
Interest and fees on loans	$	184,575		281,636		370,605
Investment securities:
Taxable		45,579		25,000		23,828
Nontaxable		481		595		919
Federal Reserve Bank and Federal Home Loan Bank stock		1,416		2,063		2,155
Short-term investments		1,634		3,544		2,825
Total interest income		233,685		312,838		400,332
Interest expense:
Deposits:
Interest-bearing demand		1,007		1,382		1,492
Savings and money market		8,015		13,210		20,327
Time deposits of $100 or more		7,579		14,405		21,988
Other time deposits		12,420		23,084		39,199
Other borrowings		15		7,844		10,023
Notes payable		—		—		37
Subordinated debentures		13,623		13,012		15,498
Total interest expense		42,659		72,937		108,564
Net interest income		191,026		239,901		291,768
Provision for loan losses		69,000		214,000		390,000
Net interest income (loss) after provision for loan losses		122,026		25,901		(98,232	)
Noninterest income:
Service charges on deposit accounts and customer service fees		38,214		41,412		41,991
Gain on loans sold and held for sale		5,176		9,516		4,112
Net gain on investment securities		5,335		8,315		7,697
Net loss on derivative instruments		(193	)	(2,925	)	(4,874	)
Decrease in fair value of servicing rights		(7,652	)	(5,558	)	(2,896	)
Loan servicing fees		8,271		8,783		8,842
Other		11,733		17,594		14,495
Total noninterest income		60,884		77,137		69,367
Noninterest expense:
Salaries and employee benefits		77,267		81,865		84,496
Occupancy, net of rental income		23,138		25,927		24,521
Furniture and equipment		11,485		13,359		14,507
Postage, printing and supplies		2,748		3,353		4,225
Information technology fees		25,804		27,745		30,915
Legal, examination and professional fees		12,191		13,805		11,883
Goodwill impairment		—		—		75,000
Amortization of intangible assets		2,962		3,260		4,326
Advertising and business development		1,855		1,473		1,801
FDIC insurance		15,652		20,878		18,769
Write-downs and expenses on other real estate and repossessed assets		22,983		44,662		48,488
Other		29,974		57,654		26,433
Total noninterest expense		226,059		293,981		345,364
Loss from continuing operations, before provision for income taxes		(43,149	)	(190,943	)	(374,229	)
(Benefit) provision for income taxes		(10,654	)	4,114		2,393
Net loss from continuing operations, net of tax		(32,495	)	(195,057	)	(376,622	)
Loss from discontinued operations, net of tax		(11,605	)	(3,194	)	(72,314	)
Net loss		(44,100	)	(198,251	)	(448,936	)
Less: net loss attributable to noncontrolling interest in subsidiaries		(2,950	)	(6,514	)	(21,315	)
Net loss attributable to First Banks, Inc.		(41,150	)	(191,737	)	(427,621	)
Preferred stock dividends declared and undeclared		17,908		16,980		16,536
Accretion of discount on preferred stock		3,466		3,381		3,299
Net loss available to common stockholders	$	(62,524	)	(212,098	)	(447,456	)
Basic and diluted loss per common share from continuing operations	$	(2,151.99	)	(8,829.08	)	(15,854.85	)
Basic and diluted loss per common share from discontinued operations		(490.47	)	(134.99	)	(3,056.25	)
Basic and diluted loss per common share	$	(2,642.46	)	(8,964.07	)	(18,911.10	)
Weighted average shares of common stock outstanding		23,661		23,661		23,661

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

85

First Banks, Inc.

Consolidated Statements of Changes in Stockholders’ Equity amd Comprehensive Income (Loss)
Three Years Ended December 31, 2011

(dollars expressed in thousands)

	First Banks, Inc. Stockholders’ Equity
							Accu-
							mulated
							Other
							Compre-				Total
				Additional			hensive		Non-		Stock-
	Preferred		Common	Paid-In	Retained		Income		controlling		holders’
	Stock		Stock	Capital	Earnings		(Loss)		Interest		Equity
Balance, January 1, 2009	$	308,463	5,915	9,685	536,714		6,195		129,383		996,355
Comprehensive loss:
Net loss		—	—	—	(427,621	)	—		(21,315	)	(448,936	)
Other comprehensive income (loss):
Unrealized gains on investment securities,
net of tax		—	—	—	—		5,874		—		5,874
Reclassification adjustment for investment
securities gains included in net loss, net
of tax		—	—	—	—		(5,004	)	—		(5,004	)
Change in unrealized gains on derivative
instruments, net of tax		—	—	—	—		(5,755	)	—		(5,755	)
Pension liability adjustment, net of tax		—	—	—	—		(664	)	—		(664	)
Reclassification adjustments for deferred
tax asset valuation allowance		—	—	—	—		(3,110	)	—		(3,110	)
Total comprehensive loss											(457,595	)
Purchase of noncontrolling interest in SBLS
LLC		—	—	2,795	—		—		(4,652	)	(1,857	)
Accretion of discount on preferred stock		3,299	—	—	(3,299	)	—		—		—
Preferred stock dividends declared		—	—	—	(14,523	)	—		—		(14,523	)
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 loss:
Net loss		—	—	—	(41,150	)	—		(2,950	)	(44,100	)
Other comprehensive income (loss):
Unrealized gains on investment securities,
net of tax		—	—	—	—		22,676		—		22,676
Reclassification adjustment for investment
securities gains included in net loss, net
of tax		—	—	—	—		(3,461	)	—		(3,461	)
Pension liability adjustment, net of tax		—	—	—	—		(413	)	—		(413	)
Reclassification adjustments for deferred
tax asset valuation allowance		—	—	—	—		(418	)	—		(418	)
Total comprehensive loss											(25,716	)
Accretion of discount on preferred stock		3,466	—	—	(3,466	)	—		—		—
Preferred stock dividends declared		—	—	—	(17,908	)	—		—		(17,908	)
Balance, December 31, 2011	$	318,609	5,915	12,480	(183,351	)	16,066		93,952		263,671

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

86

First Banks, Inc.

Consolidated Statements of Cash Flows

(dollars expressed in thousands)

	Years Ended December 31,
	2011			2010		2009
Cash flows from operating activities:
Net loss attributable to First Banks, Inc.	$	(41,150	)	(191,737	)	(427,621	)
Net loss attributable to noncontrolling interest in subsidiaries		(2,950	)	(6,514	)	(21,315	)
Less: net loss from discontinued operations		(11,605	)	(3,194	)	(72,314	)
Net loss from continuing operations		(32,495	)	(195,057	)	(376,622	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization of bank premises and equipment		13,053		16,001		16,838
Amortization of intangible assets		2,962		3,260		4,326
Amortization and accretion of investment securities		11,934		6,267		1,701
Goodwill impairment		—		—		75,000
Originations of loans held for sale		(274,254	)	(396,855	)	(568,966	)
Proceeds from sales of loans held for sale		301,343		385,109		573,764
Payments received on loans held for sale		237		521		3,283
Provision for loan losses		69,000		214,000		390,000
Provision (benefit) for current income taxes		181		(437	)	76
Benefit for deferred income taxes		(21,395	)	(68,012	)	(121,128	)
Increase in deferred tax asset valuation allowance		10,560		72,563		123,445
Decrease in accrued interest receivable		3,884		5,732		5,173
Increase in accrued interest payable		7,948		4,148		268
Decrease in current income taxes receivable		89		2,488		62,050
Gain on loans sold and held for sale		(5,176	)	(9,516	)	(4,112	)
Net gain on investment securities		(5,335	)	(8,315	)	(7,697	)
Net loss on derivative instruments		193		2,925		4,874
Decrease in fair value of servicing rights		7,652		5,558		2,896
Write-downs on other real estate and repossessed assets		16,922		34,680		37,400
Net cash paid from termination of derivative instruments		—		(1,671	)	—
Other operating activities, net		20,426		7,522		(1,241	)
Net cash provided by operating activities – continuing operations		127,729		80,911		221,328
Net cash used in operating activities – discontinued operations		(12,505	)	(11,340	)	(55,062	)
Net cash provided by operating activities		115,224		69,571		166,266
Cash flows from investing activities:
Net cash (paid) received for sale of assets and liabilities of discontinued operations,
net of cash and cash equivalents sold		(51,339	)	(1,400,472	)	155,695
Cash paid for sale of branches, net of cash and cash equivalents sold		(16,256	)	(8,408	)	(17,786	)
Cash paid for earn-out consideration to Adrian N. Baker & Company		—		—		(2,939	)
Proceeds from sales of investment securities available for sale		283,713		249,209		521,795
Maturities of investment securities available for sale		341,179		189,887		667,797
Maturities of investment securities held to maturity		1,660		2,418		3,667
Purchases of investment securities available for sale		(1,587,313	)	(1,419,739	)	(1,126,519	)
Purchases of investment securities held to maturity		(3,450	)	—		—
Redemptions of Federal Home Loan Bank and Federal Reserve Bank stock		3,577		35,068		6,422
Purchases of Federal Home Loan Bank and Federal Reserve Bank stock		(534	)	(113	)	(23,666	)
Proceeds from sales of commercial loans		65,867		107,414		157,230
Net decrease in loans		884,338		1,309,598		759,470
Recoveries of loans previously charged-off		22,304		52,102		13,682
Purchases of bank premises and equipment		(5,179	)	(4,017	)	(22,984	)
Net proceeds from sales of other real estate and repossessed assets		65,398		108,321		66,710
Proceeds from termination of bank-owned life insurance policy		—		25,957		90,578
Cash paid attributable to noncontrolling interest in SBLS LLC		—		—		(1,857	)
Other investing activities, net		2,109		3,621		833
Net cash provided by (used in) investing activities – continuing operations		6,074		(749,154	)	1,248,128
Net cash provided by (used in) investing activities – discontinued operations		2,711		50,045		(20,081	)
Net cash provided by (used in) investing activities		8,785		(699,109	)	1,228,047

87

First Banks, Inc.

Consolidated Statements of Cash Flows (Continued)

(dollars expressed in thousands)

	Years Ended December 31,
	2011			2010		2009
Cash flows from financing activities:
(Decrease) increase in demand, savings and money market deposits		(84,767	)	83,927		255,954
Decrease in time deposits		(495,427	)	(170,926	)	(101,747	)
Decrease in Federal Reserve Bank advances		—		—		(100,000	)
Advances drawn on Federal Home Loan Bank advances		—		—		600,000
Repayments of Federal Home Loan Bank advances		—		(600,000	)	(200,710	)
Increase (decrease) in securities sold under agreements to repurchase		19,376		(134,775	)	(91,630	)
Payment of preferred stock dividends		—		—		(6,365	)
Net cash (used in) provided by financing activities – continuing operations		(560,818	)	(821,774	)	355,502
Net cash used in financing activities – discontinued operations		(86,938	)	(69,181	)	(75,880	)
Net cash (used in) provided by financing activities		(647,756	)	(890,955	)	279,622
Net (decrease) increase in cash and cash equivalents		(523,747	)	(1,520,493	)	1,673,935
Cash and cash equivalents, beginning of year		995,758		2,516,251		842,316
Cash and cash equivalents, end of year	$	472,011		995,758		2,516,251
Supplemental disclosures of cash flow information:
Cash paid for interest on liabilities	$	34,711		68,789		108,206
Cash received for income taxes		(239	)	(1,873	)	(62,317	)
Noncash investing and financing activities:
Loans transferred to other real estate and repossessed assets	$	69,941		158,889		143,586
Bank premises and equipment transferred to other real estate and repossessed assets		6,537		—		—
Business combinations:
Goodwill and other intangible assets recorded with net assets acquired	$	—		—		2,939

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

88

First Banks, Inc.

Notes to Consolidated Financial Statements

Note 1 – Basis of Presentation and Summary of Significant Accounting Policies

Basis of Presentation.The accompanying consolidated financial statements of First Banks, Inc. and subsidiaries (the Company) 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.

Principles of Consolidation.The consolidated financial statements include the accounts of the parent company and its subsidiaries, giving effect to the noncontrolling interest in subsidiaries, as more fully described below and in Note 20 to the consolidated financial statements. All significant intercompany accounts and transactions have been eliminated. Certain reclassifications of 2010 and 2009 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 and certain assets and liabilities held for sale at December 31, 2011 and 2010.

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 December 31, 2011, except FB Holdings, which is 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, including Mr. Michael Dierberg, a director of the Company, as further described in Note 20 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 subsidiaries” and the earnings or loss, net of tax, attributable to the noncontrolling ownership interest, reported as “net loss attributable to noncontrolling interest in subsidiaries” in the consolidated statements of operations.

Regulatory Agreements. 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.

89

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

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 14 to the consolidated financial statements, First Bank’s Tier 1 capital to total assets ratio was 8.37% at December 31, 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. The Company has deferred such payments for ten quarterly periods as of December 31, 2011. 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 its Class D Fixed Rate Cumulative Perpetual Preferred Stock (Class D Preferred Stock). The Company has deferred such payments for ten quarterly periods as of December 31, 2011. 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.

90

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

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.

Significant Accounting Policies:

Cash and Cash Equivalents.Cash, due from banks and short-term investments, which include federal funds sold and interest-bearing deposits, are considered to be cash and cash equivalents for purposes of the consolidated statements of cash flows. Interest-bearing deposits were $371.3 million and $924.8 million at December 31, 2011 and 2010, respectively. The Company did not have any federal funds sold outstanding at December 31, 2011 and 2010.

First Bank is required to maintain certain daily reserve balances on hand in accordance with regulatory requirements. These reserve balances maintained in accordance with such requirements were $13.1 million and $14.4 million at December 31, 2011 and 2010, respectively.

Federal Reserve Bank and Federal Home Loan Bank Stock. First Bank is a member of the FRB system and the Federal Home Loan Bank (FHLB) system and maintains investments in FRB and FHLB stock. These investments are recorded at cost, which represents redemption value. The investment in FRB stock is maintained at a minimum of 6% of First Bank’s capital stock and capital surplus. The investment in FHLB of Des Moines stock is maintained at an amount equal to 0.12% of First Bank’s total assets, up to a maximum of $10.0 million, plus 4.45% of advances. Investments in FRB and FHLB of Des Moines stock were $18.3 million and $8.8 million, respectively, at December 31, 2011, and $19.9 million and $10.0 million, respectively, at December 31, 2010. First Bank also held an investment in stock of the FHLB of San Francisco as a nonmember of $238,000 at December 31, 2010. This investment was redeemed in 2011.

Investment Securities.The classification of investment securities as available for sale or held to maturity is determined at the date of purchase. Investment securities designated as available for sale, which represent any security that the Company has no immediate plan to sell but which may be sold in the future under different circumstances, are stated at fair value. Realized gains and losses are included in noninterest income, based on the amortized cost of the individual security sold. Unrealized gains and losses, net of related income tax effects, are recorded in accumulated other comprehensive income (loss). All previous fair value adjustments included in the separate component of accumulated other comprehensive income (loss) are reversed upon sale. Premiums and discounts incurred relative to the par value of securities purchased are amortized or accreted, respectively, on the level-yield method taking into consideration the level of current and anticipated prepayments. Investment securities designated as held to maturity, which represent any security that the Company has the positive intent and ability to hold to maturity, are stated at cost, net of amortization of premiums and accretion of discounts computed on the level-yield method taking into consideration the level of current and anticipated prepayments. A decline in the fair value of any available-for-sale or held-to-maturity investment security below its carrying value that is deemed to be other than temporary results in a reduction in the cost basis of the carrying value to fair value. The other-than-temporary impairment, which is not expected to be reversed, is charged to noninterest income and a new cost basis is established. When determining other-than-temporary impairment, consideration is given as to whether the Company has the ability and intent to hold the investment security until a market price recovery and whether evidence indicating the carrying value of the investment security is recoverable outweighs evidence to the contrary.

91

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

Loans Held for Portfolio.Loans held for portfolio are carried at cost, adjusted for amortization of premiums and accretion of discounts using the interest method. Interest and fees on loans are recognized as income using the interest method. Loan origination fees and costs are deferred and accreted to interest income over the estimated life of the loans using the interest method. Loans held for portfolio are stated at cost as the Company has the ability and it is management’s intention to hold them to maturity.

The accrual of interest on loans is discontinued when it appears that interest or principal may not be paid in a timely manner in the normal course of business or once principal or interest payments become 90 days past due under the contractual terms of the loan agreement. Generally, payments received on nonaccrual and impaired loans are recorded as principal reductions. Interest income is recognized after all delinquent principal has been repaid or an improvement in the condition of the loan has occurred that warrants resumption of interest accruals.

A loan is considered impaired when it is probable that the Company will be unable to collect all amounts due, both principal and interest, according to the contractual terms of the loan agreement. Loans on nonaccrual status and restructured loans are considered to be impaired loans. When measuring impairment, the expected future cash flows of an impaired loan are discounted at the loan’s effective interest rate. Alternatively, impairment is measured by reference to an observable market price, if one exists, or the fair value of the collateral for a collateral-dependent loan. Regardless of the historical measurement method used, the Company measures impairment based on the fair value of the collateral when foreclosure is probable.

A loan is classified as a troubled debt restructuring when all of the following conditions are present: (i) the borrower is experiencing financial difficulty, (ii) the Company makes a concession to the original contractual loan terms, and (iii) the Company would not consider the concessions but for economic or legal reasons related to the borrower’s financial difficulty. These concessions may include, but are not limited to, rate reductions, principal forgiveness, extension of maturity date and other actions intended to minimize potential losses. A loan that is modified at a market rate of interest may no longer be classified as a troubled debt restructuring in the calendar year subsequent to the restructuring if it is in compliance with the modified terms. Performance prior to the restructuring is considered when assessing whether the borrower can meet the new terms and may result in the loan being returned to accrual at the time of the restructuring or after a shorter performance period.

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 the acquisition date.

Loans Held for Sale.Loans held for sale are comprised of residential mortgage loans held for sale in the secondary mortgage market, frequently in the form of a mortgage-backed security, U.S. Small Business Administration (SBA) loans awaiting sale of the guaranteed portion to the SBA, and commercial real estate loans which may be identified for sale to specific buyers to achieve credit or loan concentration objectives. One-to-four-family residential 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, primarily SBA loans, are carried at the lower of cost or market value, which is determined on an individual loan basis. The amount by which cost exceeds market value is recorded in a valuation allowance as a reduction of loans held for sale. Changes in the valuation allowance are reflected as part of the gain on loans sold and held for sale in the consolidated statements of operations in the periods in which the changes occur. Gains or losses on the sale of loans held for sale are determined on a specific identification basis and reflect the difference between the value received upon sale and the carrying value of the loans held for sale, including any recourse reserve established for potential repurchase obligations. Loans held for sale transferred to loans held for portfolio or available-for-sale investment securities are transferred at fair value.

Loan Servicing Income.Loan servicing income is included in noninterest income and represents fees earned for servicing real estate mortgage loans owned by investors and originated by First Bank’s mortgage banking operation, as well as SBA loans to small business concerns. These fees are net of federal agency guarantee fees and interest shortfall. Such fees are generally calculated on the outstanding principal balance of the loans serviced and are recorded as income when earned.

92

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

Allowance for Loan Losses.The allowance for loan losses is a reserve established through a provision for loan losses charged to expense, which represents management’s best estimate of probable losses that have been incurred within the existing portfolio of loans. The allowance, in the judgment of management, is necessary to reserve for estimated loan losses and risks inherent in the loan portfolio. The Company’s allowance for loan loss methodology follows the accounting guidance set forth in GAAP and the Interagency Policy Statement on the Allowance for Loan and Lease Losses, which was jointly issued by the Company’s regulatory agencies. Accordingly, the methodology is based on historical loss experience by type of credit and internal risk grade, specific homogeneous risk pools and specific loss allocations, with adjustments for current events and conditions. The Company’s process for determining the appropriate level of the allowance for loan losses is designed to account for credit deterioration as it occurs. The provision for loan losses reflects loan quality trends, including the levels of and trends related to nonaccrual loans, past due loans, substandard loans, special mention loans and net charge-offs or recoveries, among other factors. The provision for loan losses also reflects the totality of actions taken on all loans for a particular period. In other words, the amount of the provision reflects not only the necessary increases in the allowance for loan losses related to newly identified problem loans, but it also reflects actions taken related to other loans including, among other things, any necessary increases or decreases in required allowances for specific loans or loan pools.

The level of the allowance for loan losses reflects management’s continuing evaluation of industry concentrations, specific credit risks, loan loss and recovery experience, current loan portfolio quality, present economic, political and regulatory conditions and unidentified losses inherent in the current loan portfolio. Portions of the allowance may be allocated for specific credits; however, the entire allowance is available for any credit that, in management’s judgment, should be charged off. While management utilizes its best judgment and information available, the ultimate determination of the appropriate level of the allowance is dependent upon a variety of factors beyond the Company’s control, including, among other things, the performance of the Company’s loan portfolio, the economy, changes in interest rates and the view of the regulatory authorities toward loan classifications. The Company monitors whether or not the allowance for loan loss allocation model, as a whole, calculates an appropriate level of allowance for loan losses that moves in direct correlation to the general macroeconomic and loan portfolio conditions the Company experiences over time.

The Company’s allowance for loan losses consists of three elements: (i) specific valuation allowances based on probable losses on impaired loans; (ii) historical valuation allowances determined based on historical loan loss experience for similar loans with similar characteristics and trends, adjusted, as necessary, to reflect the impact of current conditions; and (iii) general valuation allowances based on general economic conditions and other risk factors both internal and external to the Company.

The specific valuation allowances established for probable losses on impaired loans are 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 consumer and installment loans, are aggregated and collectively evaluated for impairment.

Historical valuation allowances are calculated based on the historical loss experience of specific types of loans. The Company calculates historical loss ratios for pools of similar loans with similar characteristics based on the proportion of actual charge-offs experienced to the total population of loans in the pool. The historical loss ratios are updated on a quarterly basis based on actual charge-off experience. A historical valuation allowance is established for each pool of similar loans based upon the product of the historical loss ratio and the total dollar amount of the loans in the pool.

The components of the general valuation allowances include (i) additional reserves allocated to specific loan portfolio segments as a result of applying a qualitative adjustment factor to the base historical loss allocation; (ii) additional reserves allocated to specific geographical regions where negative trends are being experienced; and (iii) additional reserves established based on consideration of trends in past due loans, potential problem loans, performing troubled debt restructurings and nonaccrual loans and other qualitative and quantitative factors both internal and external to the Company which could affect potential credit losses.

Management believes that the level of the Company’s allowance for loan losses is appropriate. While management uses available information to recognize losses on loans, future additions to the allowance for loan losses may be necessary based on changes in economic conditions.

93

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

In addition, various regulatory agencies, as an integral part of their examination process, periodically review the allowance for loan losses. Such agencies may require the Company to modify its allowance for loan losses based on their judgment about information available to them at the time of their examination.

Derivative Instruments and Hedging Activities. The Company utilizes derivative instruments and hedging strategies to assist in the management of interest rate sensitivity and to modify the repricing, maturity and option characteristics of certain assets and liabilities. The Company uses such derivative instruments solely to reduce its interest rate risk exposure. First Bank also offers interest rate swap agreement contracts to certain customers who wish to modify their interest rate sensitivity positions. First Bank offsets 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.

Derivative instruments are recorded in the consolidated balance sheets and measured at fair value. At inception of a non-customer derivative transaction, the Company designates the derivative instrument as either a hedge of the fair value of a recognized asset or liability or of an unrecognized firm commitment (fair value hedges) or a hedge of a forecasted transaction or the variability of cash flows to be received or paid related to a recognized asset or liability (cash flow hedges). For all hedging relationships, the Company documents the hedging relationship and its risk-management objectives and strategy for entering into the hedging relationship including the hedging instrument, the hedged item(s), the nature of the risk being hedged, how the hedging instrument’s effectiveness in offsetting the hedged risk will be assessed and a description of the method the Company will utilize to measure hedge ineffectiveness. This process also includes linking all derivative instruments that are designated as fair value hedges or cash flow hedges to the underlying assets and liabilities or to specific firm commitments or forecasted transactions. The Company also assesses, both at the hedge’s inception and on an ongoing basis, whether the derivative instruments that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of the hedged item(s). The Company discontinues hedge accounting prospectively when it is determined that the derivative instrument is no longer effective in offsetting changes in the fair value or cash flows of the hedged item(s), the derivative instrument expires or is sold, terminated, or exercised, the derivative instrument is de-designated as a hedging instrument because it is unlikely that a forecasted transaction will occur, a hedged firm commitment no longer meets the definition of a firm commitment, or management determines that designation of the derivative instrument as a hedging transaction is no longer appropriate.

A summary of the Company’s accounting policies for its derivative instruments and hedging activities is as follows:

Ø	Interest Rate Swap Agreements – Cash Flow Hedges. Interest rate swap agreements designated as cash flow hedges are accounted for at fair value. The effective portion of the change in the cash flow hedge’s gain or loss is initially reported as a component of other comprehensive income (loss) and subsequently reclassified into interest income or interest expense when the underlying 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 net interest differential is recognized as an adjustment to interest income or interest expense of the related asset or liability being hedged. In the event of early termination or ineffectiveness, the gain or loss on the cash flow hedge would continue to be reported as a component of other comprehensive income (loss) until the underlying transaction affects earnings.
Ø	Interest Rate Swap Agreements – Fair Value Hedges. Interest rate swap agreements designated as fair value hedges are accounted for at fair value. Changes in the fair value of the swap agreements are recognized currently in noninterest income. The change in the fair value of the underlying hedged item is recognized as an adjustment to the carrying amount of the underlying hedged item and is also reflected currently in noninterest income. All changes in fair value are measured on a monthly basis. The net interest differential is recognized as an adjustment to interest income or interest expense of the related asset or liability being hedged. In the event of early termination or ineffectiveness, the net proceeds received or paid on the interest rate swap agreements are recognized immediately in noninterest income and the future net interest differential, if any, is recognized prospectively in noninterest income. The cumulative change in the fair value of the underlying hedged item is deferred and amortized or accreted to interest income or interest expense over the weighted average life of the related asset or liability. If, however, the underlying hedged item is repaid, the cumulative change in the fair value of the underlying hedged item is recognized immediately in noninterest income.
Ø	Customer Interest Rate Swap Agreement Contracts. Derivative instruments are offered to 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 contract between First Bank and its customers is offset by a contract between First Bank and various counterparties. These contracts do not qualify for hedge accounting. Customer interest rate swap agreement contracts are carried at fair value. 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).

94

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

Ø

Interest Rate Lock Commitments. Commitments to originate loans for subsequent sale in the secondary market (interest rate lock commitments), which primarily consist of commitments to originate fixed rate residential mortgage loans, are recorded at fair value. Fair values are based upon quoted market prices. The value of loan servicing rights is also incorporated into fair value measurements for mortgage loan commitments. Changes in the fair value are recognized in noninterest income on a monthly basis.

Ø

Forward Commitments to Sell Mortgage-Backed Securities. Forward commitments to sell mortgage-backed securities are recorded at fair value. Changes in the fair value of forward commitments to sell mortgage-backed securities are recognized in noninterest income on a monthly basis.

Bank Premises and Equipment, Net.Bank premises and equipment are carried at cost less accumulated depreciation and amortization. Depreciation is computed using the straight-line method over the estimated useful lives of the related assets. Amortization of leasehold improvements is calculated using the straight-line method over the shorter of the useful life of the related asset or the term of the lease. Bank premises and improvements are depreciated over five to 40 years and equipment is depreciated over three to seven years.

Goodwill and Other Intangible Assets.Goodwill and other intangible assets primarily consist of goodwill and core deposit intangibles. Goodwill and intangible assets with indefinite useful lives are not amortized, but instead tested at least annually for impairment. Intangible assets with definite useful lives are amortized over their respective estimated useful lives to their estimated residual values, and reviewed for impairment. The Company amortizes its core deposit intangibles on a straight-line basis over the estimated periods to be benefitted, which have been estimated at five to seven years.

The goodwill impairment test is a two-step process which requires the Company to make assumptions regarding fair value. The Company’s policy allows management to make the determination of fair value using internal cash flow models or by engaging independent third parties. The first step consists of estimating the fair value of the reporting unit using a number of factors, including projected future operating results and business plans, economic projections, anticipated future cash flows, discount rates, and comparable marketplace fair value data from within a comparable industry grouping. The Company compares the estimated fair value of its reporting unit to the carrying value, which includes allocated goodwill. If the estimated fair value is less than the carrying value, the second step is completed to compute the impairment amount by determining the “implied fair value” of goodwill. This determination requires the allocation of the estimated fair value of the reporting unit to the assets and liabilities of the reporting unit. Any remaining unallocated fair value represents the “implied fair value” of goodwill, which is compared to the corresponding carrying value to compute the goodwill impairment amount, if any. First Bank did not record any goodwill impairment in 2010 and 2011. Based on the results of the goodwill impairment analyses performed in 2009, First Bank recorded goodwill impairment of $75.0 million. Adverse changes in the economic environment, operations of the reporting unit, or other factors could result in a decline in the implied fair value of goodwill which could result in future goodwill impairment.

Servicing Rights. The Company has mortgage servicing rights and SBA servicing rights, which are measured at fair value as permitted by ASC Topic 860 – Accounting for Servicing of Financial Assets. Changes in the fair value of mortgage and SBA servicing rights are recognized in earnings in the period in which the change occurs and such changes are reflected in other noninterest income in the consolidated statements of operations. Servicing rights are valued based on valuation models that utilize assumptions based on the predominant risk characteristics of the underlying loans, including size, 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.

Mortgage and SBA servicing rights are capitalized upon the sale of the underlying loan at estimated fair value. The fair value of mortgage and SBA servicing rights fluctuates based on changes in interest rates and certain other assumptions utilized to value the mortgage and SBA servicing rights. The value is adversely affected when interest rates decline which normally causes loan prepayments to increase. The determination of the fair value of the mortgage and SBA servicing rights is performed monthly based upon an independent third party valuation. The valuation analysis is prepared using stratifications of the mortgage and SBA servicing rights based on the predominant risk characteristics of the underlying loans, including size, interest rate, weighted average original term, weighted average remaining term and estimated prepayment speeds.

95

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

Other Real Estate and Repossessed Assets. Other real estate and repossessed assets, consisting of real estate and other assets acquired through foreclosure or deed in lieu of foreclosure, are stated at the lower of cost or fair value less applicable selling costs. The excess of cost over fair value of the property at the date of acquisition is charged to the allowance for loan losses. Subsequent reductions in carrying value, to reflect current fair value or costs incurred in maintaining the other real estate and repossessed assets, are charged to noninterest expense as incurred.

Income Taxes.Deferred tax assets and liabilities are reflected at currently enacted income tax rates applicable to the period in which the deferred tax assets or liabilities are expected to be realized or settled. As changes in the tax laws or rates are enacted, deferred tax assets and liabilities are adjusted through the provision for income taxes. Valuation allowances are then recorded to reduce deferred tax assets to the amounts management concludes are more-likely-than-not to be realized. The Company and its eligible subsidiaries file a consolidated federal income tax return and unitary or consolidated state income tax returns in all applicable states.

The Company’s policy is 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.

The Company and its subsidiaries file income tax returns in the U.S. federal jurisdiction and various states. 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.

Noncontributory Defined Benefit Pension Plan. The Company has a noncontributory defined benefit pension plan covering certain former employees of a bank holding company acquired by the Company in 1994 (the Plan) and subsequently merged with and into the Company on December 31, 2002. The Company discontinued the accumulation of benefits under the Plan in 1994, and as such, there is no longer any service cost being accrued by Plan participants. The Company records annual amounts relating to the Plan based on calculations that incorporate various actuarial and other assumptions including discount rates, mortality rates, and assumed rates of return. The Company reviews these assumptions on an annual basis and makes modifications to the assumptions based on current rates and trends when deemed appropriate. The funded status of the Plan is recognized as a net asset or liability and changes in the Plan’s funded status are recognized through other comprehensive income to the extent those changes are not included in the net periodic cost.

Financial Instruments With Off-Balance Sheet Risk.A financial instrument is defined as cash, evidence of an ownership interest in an entity, or a contract that conveys or imposes on an entity the contractual right or obligation to either receive or deliver cash or another financial instrument. The Company utilizes financial instruments to reduce the interest rate risk arising from its financial assets and liabilities. These instruments involve, in varying degrees, elements of interest rate risk and credit risk in excess of the amount recognized in the consolidated balance sheets. “Interest rate risk” is defined as the possibility that interest rates may move unfavorably from the perspective of the Company due to maturity and/or interest rate adjustment timing differences between interest-earning assets and interest-bearing liabilities. The risk that a counterparty to an agreement entered into by the Company may default is defined as “credit risk.”

The Company is a party to commitments to extend credit and commercial and standby letters of credit in the normal course of business to meet the financing needs of its customers. These commitments involve, in varying degrees, elements of interest rate risk and credit risk in excess of the amount reflected in the consolidated balance sheets.

Earnings (Loss) Per Common Share. Basic earnings (loss) per common share (EPS) are computed by dividing the income (loss) available to common stockholders (the numerator) by the weighted average number of shares of common stock outstanding (the denominator) during the year. The computation of dilutive EPS is similar except the denominator is increased to include the number of additional shares of common stock that would have been outstanding if the dilutive potential shares had been issued. In addition, in computing the dilutive effect of convertible securities, the numerator is adjusted to add back any convertible preferred dividends.

96

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

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 related to the Florida Region as of December 31, 2011, 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 Florida, Northern Illinois, Chicago and Texas Regions, in addition to the operations of WIUS and MVP, for the years ended December 31, 2011, 2010 and 2009, 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.

Florida Region. On January 25, 2012, First Bank entered into a Branch Purchase and Assumption Agreement that provides for the sale of certain assets and the transfer of certain liabilities associated with First Bank’s Florida franchise (Florida Region) to an unaffiliated financial institution, as further described in Note 25 to the consolidated financial statements. Under the terms of the agreement, the unaffiliated financial institution is to assume approximately $345.9 million of deposits associated with First Bank’s 19 Florida retail branches for a premium of 2.3%. The unaffiliated financial institution is also expected to purchase premises and equipment and assume the leases associated with the Florida Region at a discount of $1.2 million. The transaction, which is subject to regulatory approvals and certain closing conditions, is expected to be completed during the second or third quarter of 2012. The assets and liabilities associated with the Florida Region are reflected in assets and liabilities of discontinued operations in the consolidated balance sheet as of December 31, 2011.

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.

97

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

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.

Adrian N. Baker & Company. On September 18, 2009, First Bank and Adrian N. Baker & Company signed a Stock Purchase Agreement that provided for the sale of First Bank’s subsidiary, ANB, to AHM Corporation Holdings, Inc. (AHM). Under the terms of the agreement, AHM purchased all of the capital stock of ANB for a purchase price of $14.3 million. The sale of ANB was completed on September 30, 2009 and resulted in a gain of $120,000 during 2009, after the write-off of goodwill and intangible assets of $13.0 million allocated to ANB.

98

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

Assets and liabilities of discontinued operations at December 31, 2011 and 2010 were as follows:

	December 31, 2011		December 31, 2010
	Florida		Northern Illinois
	(dollars expressed in thousands)
Cash and due from banks	$	2,147	693
Loans:
Commercial, financial and agricultural		65	6,891
Real estate construction and development		—	50
Residential real estate		—	13,953
Multi-family residential		—	135
Commercial real estate		—	17,253
Consumer and installment, net of net deferred loan fees		263	1,983
Total loans		328	40,265
Bank premises and equipment, net		14,496	850
Goodwill and other intangible assets		4,000	1,558
Other assets		38	166
Assets of discontinued operations	$	21,009	43,532
Deposits:
Noninterest-bearing demand	$	24,966	11,223
Interest-bearing demand		23,144	17,619
Savings and money market		158,328	23,832
Time deposits of $100 or more		48,613	5,789
Other time deposits		90,823	35,613
Total deposits		345,874	94,076
Other borrowings		272	—
Accrued expenses and other liabilities		136	108
Liabilities of discontinued operations	$	346,282	94,184

Loss from discontinued operations, net of tax, for the year ended December 31, 2011 was as follows:

				Northern
	Florida			Illinois	Total
	(dollars expressed in thousands)
Interest income:
Interest and fees on loans	$	18		895	913
Interest expense:
Interest on deposits		4,040		261	4,301
Net interest (loss) income		(4,022	)	634	(3,388	)
Provision for loan losses		—		—	—
Net interest (loss) income after provision for loan losses		(4,022	)	634	(3,388	)
Noninterest income:
Service charges and customer service fees		1,298		259	1,557
Loan servicing fees		—		5	5
Other		24		—	24
Total noninterest income		1,322		264	1,586
Noninterest expense:
Salaries and employee benefits		4,576		357	4,933
Occupancy, net of rental income		2,495		68	2,563
Furniture and equipment		727		29	756
Legal, examination and professional fees		25		6	31
Amortization of intangible assets		125		—	125
FDIC insurance		920		100	1,020
Other		733		67	800
Total noninterest expense		9,601		627	10,228
(Loss) income from operations of discontinued operations		(12,301	)	271	(12,030	)
Net gain on sale of discontinued operations		—		425	425
Net (loss) income from discontinued operations, net of tax	$	(12,301	)	696	(11,605	)

99

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

Loss from discontinued operations, net of tax, for the year ended December 31, 2010 was as follows:

				Northern
	Florida			Illinois	Chicago		Texas		WIUS		MVP		Total
	(dollars expressed in thousands)
Interest income:
Interest and fees on loans	$	18		9,629	2,391		1,816		33		—		13,887
Interest expense:
Interest on deposits		6,388		4,232	2,550		1,796		—		—		14,966
Other borrowings		—		—	—		3		(2	)	—		1
Total interest expense		6,388		4,232	2,550		1,799		(2	)	—		14,967
Net interest (loss) income		(6,370	)	5,397	(159	)	17		35		—		(1,080	)
Provision for loan losses		—		—	—		—		—		—		—
Net interest (loss) income after provision for loan losses		(6,370	)	5,397	(159	)	17		35		—		(1,080	)
Noninterest income:
Service charges and customer service fees		1,358		2,500	523		1,192		—		—		5,573
Investment management income		—		—	—		—		—		787		787
Loan servicing fees		—		—	—		101		—		—		101
Other		14		30	254		60		—		(1	)	357
Total noninterest income		1,372		2,530	777		1,353		—		786		6,818
Noninterest expense:
Salaries and employee benefits		4,561		3,403	2,137		2,843		32		517		13,493
Occupancy, net of rental income		2,482		1,115	606		1,148		—		59		5,410
Furniture and equipment		1,095		365	178		345		—		17		2,000
Legal, examination and professional fees		13		62	123		111		153		115		577
Amortization of intangible assets		65		319	—		—		—		—		384
FDIC insurance		1,422		1,650	292		478		—		—		3,842
Other		745		709	424		860		184		29		2,951
Total noninterest expense		10,383		7,623	3,760		5,785		369		737		28,657
(Loss) income from operations of discontinued operations		(15,381	)	304	(3,142	)	(4,415	)	(334	)	49		(22,919	)
Net gain (loss) on sale of discontinued operations		—		6,355	8,414		4,984		(29	)	(156	)	19,568
Benefit for income taxes		—		—	—		—		(157	)	—		(157	)
Net (loss) income from discontinued operations, net of tax	$	(15,381	)	6,659	5,272		569		(206	)	(107	)	(3,194	)

Loss from discontinued operations, net of tax, for the year ended December 31, 2009 was as follows:

				Northern
	Florida			Illinois		Chicago		Texas		WIUS		MVP		ANB	Total
Interest income:
Interest and fees on loans	$	18		13,925		17,191		5,483		20,224		—		—	56,841
Interest expense:
Interest on deposits		10,792		9,017		26,961		8,006		—		—		—	54,776
Other borrowings		1		8		6		10		16		—		—	41
Total interest expense		10,793		9,025		26,967		8,016		16		—		—	54,817
Net interest (loss) income		(10,775	)	4,900		(9,776	)	(2,533	)	20,208		—		—	2,024
Provision for loan losses		—		—		—		—		—		—		—	—
Net interest (loss) income after provision                      for loan losses		(10,775	)	4,900		(9,776	)	(2,533	)	20,208		—		—	2,024
Noninterest income:
Service charges and customer service fees		1,320		3,404		4,179		4,378		782		—		—	14,063
Gain on loans sold and held for sale		—		—		—		218		—		—		—	218
Investment management income		—		—		—		—		—		2,316		—	2,316
Insurance fee and commission income		—		—		—		—		—		—		5,828	5,828
Loan servicing fees		—		—		7		383		—		—		—	390
Other		4		68		273		112		14		1		5	477
Total noninterest income		1,324		3,472		4,459		5,091		796		2,317		5,833	23,292
Noninterest expense:
Salaries and employee benefits		4,817		4,518		10,200		8,050		5,785		2,712		3,191	39,273
Occupancy, net of rental income		2,519		1,509		4,144		4,002		314		199		330	13,017
Furniture and equipment		1,232		549		1,101		1,100		1,253		69		50	5,354
Legal, examination and professional fees		5		86		508		667		2,453		434		542	4,695
Amortization of intangible assets		65		600		1,037		1,619		1,207		—		216	4,744
FDIC insurance		1,345		2,132		3,108		1,488		—		—		—	8,073
Other		889		1,023		1,997		2,891		2,049		139		500	9,488
Total noninterest expense		10,872		10,417		22,095		19,817		13,061		3,553		4,829	84,644
(Loss) income from operations of discontinued         operations		(20,323	)	(2,045	)	(27,412	)	(17,259	)	7,943		(1,236	)	1,004	(59,328	)
Net (loss) gain on sale of discontinued        operations		—		—		—		—		(13,077	)	—		120	(12,957	)
Provision for income taxes		—		—		—		—		27		—		2	29
Net (loss) income from discontinued operations,        net of tax	$	(20,323	)	(2,045	)	(27,412	)	(17,259	)	(5,161	)	(1,236	)	1,122	(72,314	)

100

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

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 $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 $371,000. City National also purchased certain other assets at par value, including premises and equipment.

On January 22, 2010, First Bank completed the sale of its banking office located in Lawrenceville, Illinois (Lawrenceville Branch) to The Peoples State Bank of Newton (Peoples). The transaction resulted in a gain of $168,000, after the write-off of goodwill of $1.0 million allocated to the Lawrenceville Branch, during the first quarter of 2010. In conjunction with the transaction, Peoples assumed $23.7 million of deposits for a premium of 5.0%, or $1.2 million, as well as certain other liabilities, and purchased $13.5 million of loans at par value as well as certain other assets, including premises and equipment.

On November 23, 2009, First Bank completed the sale of its banking office located in Springfield, Illinois (Springfield Branch) to First Bankers Trust Company, National Association, a subsidiary of First Bankers Trustshares, Inc., resulting in a gain of $309,000, after the write-off of goodwill of $1.0 million allocated to the Springfield Branch. At the time of the transaction, the Springfield Branch had deposits of $20.1 million and loans of $887,000.

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. The Edwardsville, San Jose, Lawrenceville and Springfield Branch sales were not included in discontinued operations as the Company has continuing involvement in the respective regions.

101

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

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 December 31, 2011 and 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)
December 31, 2011:
Carrying value:
U.S. Government               sponsored agencies	$	1,000		231,691		107,019		—		339,710	2,107	—		341,817	1.75	%
Residential mortgage-               backed		—		2,726		64,309		1,821,209		1,888,244	36,908	(232	)	1,924,920	2.27
Commercial mortgage-               backed		—		—		818		—		818	92	—		910	4.86
State and political               subdivisions		310		4,088		786		—		5,184	226	—		5,410	4.00
Corporate notes		—		122,941		65,088		5,000		193,029	—	(9,216	)	183,813	3.28
Equity investments		—		—		—		11,678		11,678	17	—		11,695	3.53
Total	$	1,310		361,446		238,020		1,837,887		2,438,663	39,350	(9,448	)	2,468,565	2.29
Fair value:
Debt securities	$	1,314		357,194		236,824		1,861,538
Equity securities		—		—		—		11,695
Total	$	1,314		357,194		236,824		1,873,233
Weighted average yield		2.93	%	2.07	%	2.56	%	2.29	%
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	%

102

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

Securities Held to Maturity. The amortized cost, contractual maturity, gross unrealized gains and losses and fair value of investment securities held to maturity at December 31, 2011 and 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)
December 31, 2011:
Carrying value:
Residential mortgage-               backed	$	—		—		728		615		1,343	116	—	1,459	5.06	%
Commercial mortgage-               backed		—		6,310		—		—		6,310	447	—	6,757	5.16
State and political               subdivisions		1,372		2,004		254		1,534		5,164	44	—	5,208	4.20
Total	$	1,372		8,314		982		2,149		12,817	607	—	13,424	4.76
Fair value:
Debt securities	$	1,387		8,768		1,056		2,213
Weighted average yield		2.55	%	4.67	%	4.60	%	6.61	%
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 $283.7 million, $249.2 million and $521.8 million for the years ended December 31, 2011, 2010 and 2009, respectively. Proceeds from calls of investment securities were $56.0 million, $2.4 million and $2.9 million for the years ended December 31, 2011, 2010 and 2009, respectively. Gross realized gains and gross realized losses on investment securities for the years ended December 31, 2011, 2010 and 2009 were as follows:

	2011			2010		2009
	(dollars expressed in thousands)
Gross realized gains on sales of available-for-sale securities	$	5,286		8,350		9,541
Gross realized losses on sales of available-for-sale securities		(1	)	(31	)	(653	)
Other-than-temporary impairment		(3	)	(4	)	(1,206	)
Gross realized gains on calls		53		—		15
Net realized gains	$	5,335		8,315		7,697

The impairment recorded during 2011, 2010 and 2009 represented the difference between the cost basis and fair value of the securities as of the respective impairment dates. The Company recorded other-than-temporary impairment of $1.2 million for the year ended December 31, 2009 on equity investments in the common stock of two companies in the financial services industry, which management considered to have been caused by economic events impacting the financial services industry as a whole. The Company sold these equity investments in 2010.

Investment securities with a carrying value of approximately $228.9 million and $234.9 million at December 31, 2011 and 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.

103

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

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 December 31, 2011 and 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)
December 31, 2011:
Available for sale:
Residential mortgage-backed	$	67,395	(126	)	22,349	(106	)	89,744	(232	)
Corporate notes		173,813	(9,216	)	—	—		173,813	(9,216	)
Total	$	241,208	(9,342	)	22,349	(106	)	263,557	(9,448	)
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 December 31, 2011 and 2010 are other-than-temporarily impaired. The unrealized losses on the 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 December 31, 2011 and 2010 included 11 and nine securities, respectively.

Note 4 – Loans and Allowance for Loan Losses

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

	2011			2010
	(dollars expressed in thousands)
Commercial, financial and agricultural	$	725,130		1,045,832
Real estate construction and development		249,987		490,766
Real estate mortgage:
One-to-four-family residential		902,438		1,050,895
Multi-family residential		127,356		178,289
Commercial real estate		1,225,538		1,642,920
Consumer and installment		23,333		33,623
Loans held for sale		31,111		54,470
Net deferred loan fees		(942	)	(4,511	)
Loans, net of net deferred loan fees	$	3,283,951		4,492,284

At December 31, 2011 and 2010, approximately 94% of the total loan portfolio, and 88% and 86% of the commercial, financial and agricultural loan portfolio, respectively, were made to borrowers within the Company’s primary market areas of California, Florida, central and southern Illinois and Missouri, and within markets where First Bank previously had, but no longer has, operations, specifically Northern Illinois and Texas.

Real estate lending constitutes the only significant concentration of credit risk. Real estate loans comprised approximately 77% and 76% of the loan portfolio at December 31, 2011 and 2010, respectively, of which 37% and 32%, respectively, were made to consumers in the form of residential real estate mortgages and home equity lines of credit. First Bank also offers residential real estate mortgage loans with terms that require interest only payments. At December 31, 2011, the balance of such loans, all of which were held for portfolio, was approximately $40.2 million, of which approximately 14.5% were delinquent. At December 31, 2010, the balance of such loans, all of which were held for portfolio, was approximately $59.1 million, of which approximately 24.2% were delinquent.

104

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

In general, the Company is a secured lender. At December 31, 2011 and 2010, 99% of the loan portfolio was collateralized. Collateral is required in accordance with the normal credit evaluation process based upon the creditworthiness of the customer and the credit risk associated with the particular transaction.

First Bank originates certain one-to-four-family residential mortgage loans for sale in the secondary market. First Bank has a repurchase obligation on these loans in the event of fraud or, on certain loans, early payment default. The early payment default provisions generally range from four months to one year after sale of the loan in the secondary market. First Bank has not sold any one-to-four-family residential mortgage loans into the secondary market with early payment default provisions since 2007.

Loans to directors, their affiliates and executive officers of the Company were approximately $20.7 million and $9.1 million at December 31, 2011 and 2010, respectively, as further described in Note 20 to the consolidated financial statements.

Loans with a carrying value of approximately $1.40 billion and $2.06 billion at December 31, 2011 and 2010, respectively, were pledged as collateral under borrowing arrangements with the FRB and the FHLB. At December 31, 2011 and 2010, First Bank had no outstanding advances under these borrowing arrangements.

Aging of Loans. The following table presents the aging of loans by loan classification at December 31, 2011 and 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)
December 31, 2011:
Commercial, financial and
agricultural	$	1,602	2,085	56,435	60,122	665,008	725,130	1,095
Real estate construction and
development		170	3,033	71,244	74,447	175,540	249,987	—
One-to-four-family residential:
Bank portfolio		4,506	2,577	15,052	22,135	143,443	165,578	362
Mortgage Division portfolio		5,994	1,571	16,778	24,343	342,572	366,915	—
Home equity		3,990	2,151	7,796	13,937	356,008	369,945	856
Multi-family residential		—	118	7,975	8,093	119,263	127,356	—
Commercial real estate		3,888	7,092	47,689	58,669	1,166,869	1,225,538	427
Consumer and installment		396	192	26	614	21,777	22,391	4
Loans held for sale		—	—	—	—	31,111	31,111	—
Total	$	20,546	18,819	222,995	262,360	3,021,591	3,283,951	2,744
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	—
Loans 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 December 31, 2011 and 2010, the Company had $2.7 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.

105

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

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 December 31, 2011 and 2010:

			Real Estate
			Construction
	Commercial		and		Commercial
	and Industrial		Development	Multi-family	Real Estate	Total
	(dollars expressed in thousands)
December 31, 2011:
Pass	$	606,933	57,594	68,748	973,553	1,706,828
Special mention		25,742	11,977	18,678	119,478	175,875
Substandard		32,851	97,158	28,789	60,876	219,674
Performing troubled debt restructuring		4,264	12,014	3,166	24,369	43,813
Nonaccrual		55,340	71,244	7,975	47,262	181,821
	$	725,130	249,987	127,356	1,225,538	2,328,011
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

106

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

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 December 31, 2011 and 2010:

	Bank		Home
	Portfolio		Equity	Total
	(dollars expressed in thousands)
December 31, 2011:
Pass	$	131,973	358,801	490,774
Special mention		12,797	954	13,751
Substandard		6,118	3,250	9,368
Nonaccrual		14,690	6,940	21,630
	$	165,578	369,945	535,523
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 December 31, 2011 and 2010:

	Mortgage		Consumer
	Division		and
	Portfolio		Installment	Total
	(dollars expressed in thousands)
December 31, 2011:
Pass	$	263,079	22,369	285,448
Substandard		4,429	—	4,429
Performing troubled debt restructuring		82,629	—	82,629
Nonaccrual		16,778	22	16,800
	$	366,915	22,391	389,306
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 performing 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.

107

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

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 December 31, 2011 and 2010:

			Unpaid	Related	Average	Interest
	Recorded		Principal	Allowance for	Recorded	Income
	Investment		Balance	Loan Losses	Investment	Recognized
	(dollars expressed in thousands)
December 31, 2011:
With No Related Allowance Recorded:
Commercial, financial and agricultural	$	20,494	38,785	—	25,294	336
Real estate construction and development		62,524	64,025	—	80,230	72
Real estate mortgage:
Bank portfolio		3,274	3,349	—	3,291	—
Mortgage Division portfolio		10,250	22,541	—	11,352	—
Home equity portfolio		196	198	—	210	—
Multi-family residential		7,961	8,193	—	8,358	92
Commercial real estate		45,452	46,485	—	59,613	435
Consumer and installment		1	1	—	2	—
		150,152	183,577	—	188,350	935
With A Related Allowance Recorded:
Commercial, financial and agricultural		39,110	66,497	5,475	48,270	—
Real estate construction and development		20,734	39,586	3,432	26,605	183
Real estate mortgage:
Bank portfolio		11,416	12,496	796	11,473	—
Mortgage Division portfolio		89,157	98,118	15,324	98,739	2,306
Home equity portfolio		6,744	7,217	1,388	7,212	—
Multi-family residential		3,180	3,213	335	3,339	—
Commercial real estate		26,179	32,926	3,875	34,335	168
Consumer and installment		21	21	4	60	—
		196,541	260,074	30,629	230,033	2,657
Total:
Commercial, financial and agricultural		59,604	105,282	5,475	73,564	336
Real estate construction and development		83,258	103,611	3,432	106,835	255
Real estate mortgage:
Bank portfolio		14,690	15,845	796	14,764	—
Mortgage Division portfolio		99,407	120,659	15,324	110,091	2,306
Home equity portfolio		6,940	7,415	1,388	7,422	—
Multi-family residential		11,141	11,406	335	11,697	92
Commercial real estate		71,631	79,411	3,875	93,948	603
Consumer and installment		22	22	4	62	—
	$	346,693	443,651	30,629	418,383	3,592

108

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

			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 cumulative charge-offs recorded against the allowance for loan losses on these same loans. At December 31, 2011 and 2010, the Company had recorded charge-offs of $97.0 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 tables above. The unpaid principal balance represents the principal amount contractually owed to the Company by the borrowers on the impaired loans.

The aggregate allocation of the allowance for loan losses related to impaired loans was approximately $30.6 million and $50.9 million at December 31, 2011 and 2010, respectively.

The Company had $346.7 million and $511.8 million of impaired loans, consisting of loans on nonaccrual status and performing TDRs, at December 31, 2011 and 2010, respectively. Interest on impaired loans that would have been recorded under the original terms of the loans was $34.2 million, $46.3 million and $64.1 million for the years ended December 31, 2011, 2010 and 2009, respectively. Of these amounts, $8.0 million, $14.2 million and $23.0 million was recorded as interest income on such loans in 2011, 2010 and 2009, respectively. The average recorded investment in impaired loans was $418.4 million, $619.4 million and $565.9 million for the years ended December 31, 2011, 2010 and 2009, respectively. The amount of interest income recognized during the time these loans were impaired was $3.6 million, $5.9 million and $4.7 million in 2011, 2010 and 2009, respectively.

109

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

Impaired Loans Acquired in Acquisitions. There were no outstanding impaired loans acquired in acquisitions at December 31, 2011. The outstanding balance and carrying amount of impaired loans acquired in acquisitions was $1.4 million and $314,000, respectively, at December 31, 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 years ended December 31, 2011 and 2010 were as follows:

	2011			2010
	(dollars expressed in thousands)
Balance, beginning of year	$	314		1,945
Transfers to other real estate		(49	)	(721	)
Loans charged-off		(62	)	(872	)
Payments and settlements		(203	)	(38	)
Balance, end of year	$	—		314

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 December 31, 2011 and 2010, the Company had $75.9 million and $64.2 million, respectively, of modified loans in the HAMP program.

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.

110

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

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 December 31, 2011 and 2010:

	2011		2010
	(dollars expressed in thousands)
Performing Troubled Debt Restructurings:
Commercial, financial and agricultural	$	4,264	—
Real estate construction and development		12,014	3,145
Real estate mortgage:
One-to-four-family residential		82,629	91,329
Multi-family residential		3,166	—
Commercial real estate		24,369	18,429
Total performing troubled debt restructurings	$	126,442	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 December 31, 2011 and 2010:

	2011		2010
	(dollars expressed in thousands)
Nonperforming Troubled Debt Restructurings:
Commercial, financial and agricultural	$	1,344	5,432
Real estate construction and development		25,603	9,927
Real estate mortgage:
One-to-four-family residential		6,205	4,923
Commercial real estate		7,605	5,909
Total nonperforming troubled debt restructurings	$	40,757	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 $12.8 million and $11.4 million at December 31, 2011 and 2010, respectively.

The following table presents loans classified as TDRs that were modified during the year ended December 31, 2011:

	2011
		Pre-Modification		Post-Modification
		Outstanding		Outstanding
	Number	Recorded		Recorded
Loan Modifications as Troubled Debt Restructurings:	of Contracts	Investment		Investment
	(dollars expressed in thousands)
Commercial, financial and agricultural	3	$	1,945	$	1,945
Real estate construction and development	8		42,784		38,166
Real estate mortgage:
One-to-four-family residential	118		23,607		22,377
Multi-family residential	1		4,964		3,209
Commercial real estate	5		34,113		26,890

111

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

The following table presents TDRs that defaulted within 12 months of modification during the year ended December 31, 2011:

	2011
	Number of		Recorded
Troubled Debt Restructurings That Subsequently Defaulted:	Contracts		Investment
	(dollars expressed in thousands)
Real estate construction and development	1	$	460
Real estate mortgage:
One-to-four-family residential	45		9,523
Commercial real estate	1		1,144

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. Changes in the allowance for loan losses for the years ended December 31, 2011, 2010 and 2009 were as follows:

	2011			2010		2009
	(dollars expressed in thousands)
Balance, beginning of year	$	201,033		266,448		220,214
Allowance for loan losses allocated to loans sold		—		(321	)	(4,725	)
		201,033		266,127		215,489
Loans charged-off		(154,627	)	(331,196	)	(352,723	)
Recoveries of loans previously charged-off		22,304		52,102		13,682
Net loans charged-off		(132,323	)	(279,094	)	(339,041	)
Provision for loan losses		69,000		214,000		390,000
Balance, end of year	$	137,710		201,033		266,448

The following table represents a summary of changes in the allowance for loan losses by portfolio segment for the years ended December 31, 2011 and 2010, in addition to the impairment method used by loan category at December 31, 2011 and 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)
Year ended December 31, 2011:
Allowance for loan losses:
Beginning balance	$	28,000		58,439		60,762		5,158		47,880		794		201,033
Charge-offs		(46,256	)	(35,459	)	(31,355	)	(3,126	)	(37,974	)	(457	)	(154,627	)
Recoveries		6,962		6,694		3,985		562		3,787		314		22,304
Provision (benefit) for loan losses		38,537		(4,806	)	17,472		2,257		15,755		(215	)	69,000
Ending balance	$	27,243		24,868		50,864		4,851		29,448		436		137,710
December 31, 2011:
Allowance for loan losses:
Ending balance: impaired loans
individually evaluated for impairment	$	4,276		1,752		3,170		110		2,430		—		11,738
Ending balance: impaired loans
collectively evaluated for impairment	$	1,199		1,680		14,338		225		1,445		4		18,891
Ending balance: all other loans collectively
evaluated for impairment	$	21,768		21,436		33,356		4,516		25,573		432		107,081
Financing receivables:
Ending balance	$	725,130		249,987		902,438		127,356		1,225,538		22,391		3,252,840
Ending balance: impaired loans
individually evaluated for
impairment	$	40,527		76,475		16,836		11,141		64,190		—		209,169
Ending balance: impaired loans
collectively evaluated for
impairment	$	19,077		6,783		104,201		—		7,441		22		137,524
Ending balance: all other loans
collectively evaluated for
impairment	$	665,526		166,729		781,401		116,215		1,153,907		22,369		2,906,147

112

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

				Real Estate
	Commercial			Construction		One-to-Four		Multi-				Consumer
	and			and		Family		Family		Commercial		and
	Industrial			Development		Residential		Residential		Real Estate		Installment		Total
Year ended December 31, 2010:
Allowance for loan losses:
Beginning balance	$	42,533		90,006		78,593		5,108		49,189		1,019		266,448
Charge-offs		(52,072	)	(143,394	)	(62,208	)	(9,266	)	(63,259	)	(997	)	(331,196	)
Recoveries		37,776		5,256		5,229		14		3,370		457		52,102
Provision (benefit) for loan losses		84		106,571		39,148		9,302		58,580		315		214,000
Allowance for loan losses allocated to
loans sold		(321	)	—		—		—		—		—		(321	)
Ending balance	$	28,000		58,439		60,762		5,158		47,880		794		201,033
December 31, 2010:
Allowance for loan losses:
Ending balance: impaired loans
individually evaluated for impairment	$	4,690		6,572		4,975		644		9,997		—		26,878
Ending balance: impaired loans
collectively evaluated for impairment	$	1,927		4,033		13,298		380		4,332		55		24,025
Ending balance: all other loans collectively
evaluated for impairment	$	21,383		47,834		42,489		4,134		33,551		739		150,130
Financing receivables:
Ending balance	$	1,045,832		490,766		1,050,895		178,289		1,642,920		29,112		4,437,814
Ending balance: impaired loans
individually evaluated for
impairment	$	44,585		128,797		30,388		12,960		136,254		—		352,984
Ending balance: impaired loans
collectively evaluated for
impairment	$	22,780		8,592		115,928		—		11,362		165		158,827
Ending balance: all other loans
collectively evaluated for
impairment	$	978,467		353,377		904,579		165,329		1,495,304		28,947		3,926,003
Ending balance: loans acquired with
deteriorated credit quality	$	—		—		314		—		—		—		314

Note 5 – Bank Premises and Equipment, Net

Bank premises and equipment, net of accumulated depreciation and amortization, were comprised of the following at December 31, 2011 and 2010:

	2011			2010
	(dollars expressed in thousands)
Land	$	30,967		43,471
Buildings and improvements		126,773		142,451
Furniture, fixtures and equipment		99,514		110,832
Leasehold improvements		14,600		14,262
Construction in progress		657		1,691
Total		272,511		312,707
Accumulated depreciation and amortization		(144,643	)	(151,293	)
Bank premises and equipment, net	$	127,868		161,414

The Company capitalized interest cost of $23,000, $42,000 and $282,000 during the years ended December 31, 2011, 2010 and 2009, respectively.

Depreciation and amortization expense for the years ended December 31, 2011, 2010 and 2009 was $13.1 million, $16.0 million and $16.8 million, respectively.

113

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

The Company leases land, office properties and equipment under operating leases. Certain of the leases contain renewal options and escalation clauses. Total rent expense was $12.8 million, $14.3 million and $14.7 million for the years ended December 31, 2011, 2010 and 2009, respectively. Future minimum lease payments under non-cancellable operating leases extend through 2084 as follows:

	(dollars expressed in
	thousands)
Year ending December 31 (1):
2012	$	11,103
2013		8,125
2014		6,587
2015		4,868
2016		4,251
Thereafter		24,905
Total future minimum lease payments	$	59,839

____________________
 

(1) Amounts exclude future minimum lease payments under non-cancellable operating leases associated with assets and liabilities of discontinued operations of $1.3 million, $1.3 million, $1.4 million, $1.3 million and $1.1 million for the years ended December 31, 2012, 2013, 2014, 2015 and 2016, respectively, and $4.4 million thereafter, or a total of $10.8 million.

The Company also leases to unrelated parties a portion of its banking facilities. Rental income associated with these leases was $4.3 million, $5.3 million and $5.9 million for the years ended December 31, 2011, 2010 and 2009, respectively.

Note 6 – Goodwill and other Intangible Assets

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

	2011				2010
	Gross				Gross
	Carrying		Accumulated		Carrying	Accumulated
	Amount		Amortization		Amount	Amortization
	(dollars expressed in thousands)
Amortized Intangible Assets:
Core deposit intangibles (1)	$	17,074	(17,074	)	20,594	(17,507	)
Unamortized Intangible Assets:
Goodwill (2)	$	121,967			125,967

____________________
 

(1)

The gross carrying amount and accumulated amortization for core deposit intangibles at December 31, 2011 have been reduced by $3.5 million related to core deposit intangibles associated with an acquisition that became fully amortized in 2010. 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, 2011 has been reduced by $4.0 million related to discontinued operations. Goodwill at December 31, 2010 has been reduced by $2.0 million, related to discontinued operations and assets held for sale, as further described in Note 2 to the consolidated financial statements.

The Company allocated goodwill to the various sale transactions, as discussed in Note 2 to the consolidated financial statements, based on the relative fair values of the business and operations to be disposed of and the portion of the First Bank segment that will be retained. The Company allocated goodwill to the sale of the Florida Region of $4.0 million, which is included in assets of discontinued operations at December 31, 2011. The Company allocated goodwill to the sale of the remaining branches in the Northern Illinois Region and the sale of the Edwardsville Branch of $1.5 million and $500,000, respectively, which are included in assets of discontinued operations and assets held for sale, respectively, at December 31, 2010. The goodwill allocated to the sale of the remaining branches in the Northern Illinois Region of $1.5 million reduced the gain on sale of discontinued operations during the year ended December 31, 2011. The goodwill allocated to the sale of the Edwardsville Branch of $500,000 reduced other income during the year ended December 31, 2011. The Company did not allocate any goodwill to the sale of the San Jose Branch.

The goodwill allocated to the sales of the Northern Illinois Region, the Texas Region and the Chicago Region of $9.0 million, $16.0 million and $24.0 million, respectively, reduced the gain on sale of discontinued operations during the year ended December 31, 2010. The goodwill allocated to the sale of the Lawrenceville Branch of $1.0 million reduced other income during the year ended December 31, 2010. The Company did not allocate any goodwill to MVP.

114

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

The goodwill allocated to the sale of certain assets and liabilities of WIUS of $5.0 million and the sale of ANB of $10.0 million reduced the gain on sale of discontinued operations during the year ended December 31, 2009. The goodwill allocated to the sale of the Springfield Branch of $1.0 million reduced other income during the year ended December 31, 2009.

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 year ended December 31, 2011. Core deposit intangibles of $683,000, $4.0 million and $2.3 million related to the Northern Illinois Region, the Texas Region and the Chicago Region, respectively, reduced the gain on sale of discontinued operations during the year ended December 31, 2010. A customer list intangible of $15.0 million related to WIUS was recorded as an increase in the loss on sale of discontinued operations upon the sale of certain assets and liabilities of WIUS in December 2009. A customer list intangible of $3.0 million related to ANB was recorded as a reduction of the gain on sale of discontinued operations upon the sale of ANB in September 2009.

First Bank did not record goodwill impairment for the years ended December 31, 2011 and 2010. First Bank recorded goodwill impairment of $75.0 million for the year ended December 31, 2009, as further discussed below.

Amortization of intangible assets was $3.0 million, $3.3 million and $4.3 million for the years ended December 31, 2011, 2010 and 2009, respectively.

Changes in the carrying amount of goodwill for the years ended December 31, 2011 and 2010 were as follows:

	2011			2010
	(dollars expressed in thousands)
Balance, beginning of year	$	125,967		136,967
Goodwill allocated to sale transactions (1)		—		(9,000	)
Goodwill allocated to discontinued operations (2)		(4,000	)	(1,500	)
Goodwill allocated to assets held for sale (2)		—		(500	)
Balance, end of year	$	121,967		125,967

____________________
 

(1)	Goodwill allocated to sale transactions during 2010 pertains to the sale of a portion of the Northern Illinois Region in September 2010, as further described above and in Note 2 to the consolidated financial statements.
(2)	Goodwill allocated to discontinued operations during 2011 pertains to the Florida Region. Goodwill allocated to discontinued operations and assets held for sale during 2010 pertain to the sale of the remaining portion of the Northern Illinois Region and the Edwardsville Branch, as further discussed 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 of 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, 2011 and 2010.

Because the carrying value of the Company’s reporting unit exceeded the estimated fair value at December 31, 2011 and 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, 2011 and 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 years ended December 31, 2011 and 2010, First Bank did not record goodwill impairment. Taking into account the goodwill impairment analysis performed for the year ended December 31, 2009, First Bank recorded goodwill impairment of $75.0 million, which is reflected in the consolidated statements of operations. The goodwill impairment charge for the year ended December 31, 2009 was a direct result of deterioration in the real estate markets and economic conditions which decreased the fair value of First Bank. The primary factor contributing to the impairment recognition was further deterioration in the actual and projected financial performance of First Bank, as evidenced by the increase in the provision for loan losses, net charge-offs and nonperforming loans, and the decline in the net interest margin and net interest income during 2009.

115

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

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 December 31, 2011 and 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 December 31, 2011 and 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 current 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.

116

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 7 – Servicing Rights

Mortgage Banking Activities. At December 31, 2011 and 2010, the Company serviced mortgage loans for others totaling $1.25 billion and $1.27 billion, respectively. Borrowers’ escrow balances held by the Company on such loans were $8.0 million and $7.5 million at December 31, 2011 and 2010, respectively. Changes in mortgage servicing rights for the years ended December 31, 2011 and 2010 were as follows:

	2011			2010
	(dollars expressed in thousands)
Balance, beginning of year	$	12,150		12,130
Originated mortgage servicing rights		3,450		4,469
Change in fair value resulting from changes in valuation inputs or        assumptions used in valuation model (1)		(4,280	)	(1,167	)
Other changes in fair value (2)		(2,243	)	(3,282	)
Balance, end of year	$	9,077		12,150

____________________
 

(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. AtDecember 31, 2011 and 2010, the Company serviced SBA loans for others totaling $178.5 million and $200.4 million, respectively. Changes in SBA servicing rights for the years ended December 31, 2011 and 2010 were as follows:

	2011			2010
	(dollars expressed in thousands)
Balance, beginning of year	$	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)		150		683
Other changes in fair value (2)		(1,279	)	(1,792	)
Balance, end of year	$	6,303		7,432

____________________
 

(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.

Note 8 – Derivative Instruments

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

	December 31,
	2011			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		47,240	441	53,696	869
Interest rate lock commitments		38,985	1,381	41,857	276
Forward commitments to sell mortgage-backed securities		58,800	—	84,100	1,538

The notional amounts of derivative 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 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. The Company had not pledged any assets at December 31, 2011 as collateral in connection with its interest rate swap agreements. At December 31, 2010, the Company had pledged cash of $1.1 million as collateral in connection with its interest rate swap agreements. Collateral requirements are monitored on a daily basis and adjusted as necessary.

117

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

For the years ended December 31, 2010 and 2009, the Company realized net interest income of $5.7 million and $12.5 million, respectively, on its derivative instruments. The Company also recorded net losses on derivative instruments, which are included in noninterest income in the statements of operations, of $193,000, $2.9 million and $4.9 million for the years ended December 31, 2011, 2010 and 2009, respectively.

Interest Rate Swap Agreements. The Company entered into four interest rate swap agreements with an aggregate notional amount of $125.0 million, 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 provide for the Company to receive an adjustable rate of interest equivalent to the three-month LIBOR plus a range of 1.65% to 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.

The amount receivable by the Company under these swap agreements was $36,000 and $149,000 at December 31, 2011 and 2010, respectively, and the amount payable by the Company under these swap agreements was $72,000 and $335,000 at December 31, 2011 and 2010, respectively.

In August 2009, the Company reclassified a cumulative fair value adjustment of $4.6 million on its interest rate swap agreements previously 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.

The maturity dates, notional amounts, interest rates paid and received and fair value of the Company’s remaining interest rate swap agreements, previously designated as cash flow hedges on certain junior subordinated debentures, as of December 31, 2011 and 2010 were as follows:

	Notional		Interest Rate		Interest Rate
Maturity Date	Amount		Paid		Received		Fair Value
	(dollars expressed in thousands)
December 31, 2011:
March 30, 2012	$	25,000	4.71	%	2.19	%	$	(159	)
December 15, 2012		25,000	5.57		2.80			(648	)
	$	50,000	5.14		2.50		$	(807	)
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	)

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 year ended December 31, 2010, the amount of the pre-tax gain amortized as an increase to interest and fees on loans was $5.7 million.

118

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

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 on junior subordinated debentures in the consolidated statements of operations from January 1, 2009 through the discontinuation of hedge accounting in August 2009. The net cash flows on the interest rate swap agreements on junior subordinated debentures were recorded as an adjustment to interest expense on junior subordinated debentures until the discontinuation of hedge accounting in August 2009. The Company also did not recognize any ineffectiveness related to interest rate swap agreements designated as cash flow hedges on loans in the consolidated statements of operations for the years ended December 31, 2010 and 2009. The net cash flows on the interest rate swap agreements on loans were recorded as an adjustment to interest income on loans.

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 December 31, 2011 and 2010 was $47.2 million and $53.7 million, respectively.

Interest Rate Lock Commitments / Forward Commitments to Sell Mortgage-Backed Securities.Derivative 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 March 2012. 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 $1.4 million and $276,000 at December 31, 2011 and 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 $729,000 at December 31, 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 instruments held by the Company, their estimated fair values and their location in the consolidated balance sheets at December 31, 2011 and 2010:

	December 31, 2011				December 31, 2010
	Balance Sheet	Fair Value			Balance Sheet	Fair Value
	Location	Gain (Loss)			Location	Gain (Loss)
	(dollars expressed in thousands)
Derivative Instruments not Designated as Hedging Instruments        Under ASC Topic 815:
Customer interest rate swap agreements	Other assets	$	370		Other assets	$	792
Interest rate lock commitments	Other assets		1,381		Other assets		276
Forward commitments to sell mortgage-backed securities	Other assets		(729	)	Other assets		1,538
Total derivatives in other assets		$	1,022			$	2,606
Interest rate swap agreements	Other liabilities	$	(807	)	Other liabilities	$	(2,402	)
Customer interest rate swap agreements	Other liabilities		(307	)	Other liabilities		(636	)
Total derivatives in other liabilities		$	(1,114	)		$	(3,038	)

119

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

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 years ended December 31, 2011, 2010 and 2009 related to interest rate swap agreements designated as cash flow hedges:

	2011		2010	2009
	(dollars expressed in thousands)
Derivative Instruments Designated as Hedging Instruments Under ASC Topic 815:
Interest Rate Swap Agreements (Loans):
Amount reclassified from accumulated other comprehensive income to interest income on        loans	$	—	5,745	13,730
Interest Rate Swap Agreements (Subordinated Debentures) (1):
Amount reclassified from accumulated other comprehensive loss to interest expense on junior        subordinated debentures		—	—	1,279
Amount reclassified from accumulated other comprehensive loss to net loss on derivative        instruments		—	—	(4,587	)
Amount of unrealized loss recognized in other comprehensive loss		—	—	(990	)

____________________
 

(1) In August 2009, the Company discontinued hedge accounting following the announcement of the deferral of interest payments on the underlying trust preferred securities associated with its junior subordinated debentures.

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

The following table summarizes amounts included in the consolidated statements of operations for the years December 31, 2011, 2010 and 2009 related to non-hedging derivative instruments:

	2011			2010		2009
	(dollars expressed in thousands)
Derivative Financial Instruments Not Designated as Hedging        Instruments Under ASC Topic 815:
Interest rate swap agreements (subordinated debentures):
Net loss on derivative instruments	$	(194	)	(2,929	)	(5,585	)
Customer interest rate swap agreements:
Net loss on derivative instruments		1		4		711
Interest rate lock commitments:
Gain on loans sold and held for sale		1,105		(93	)	(462	)
Forward commitments to sell mortgage-backed securities:
Gain on loans sold and held for sale		(2,267	)	891		972

Note 9 – Maturities of Time Deposits

A summary of maturities of time deposits of $100,000 or more and other time deposits as of December 31, 2011 is as follows:

	Time Deposits of		Other
	$100,000 or More		Time Deposits	Total
	(dollars expressed in thousands)
Year ending December 31:
2012	$	401,450	737,932	1,139,382
2013		104,186	160,294	264,480
2014		12,644	34,063	46,707
2015		1,605	6,330	7,935
2016		1,789	3,952	5,741
Thereafter		—	98	98
Total	$	521,674	942,669	1,464,343

120

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 10 – Other Borrowings

Other borrowings were comprised solely of daily securities sold under agreement to repurchase of $50.9 million and $31.8 million at December 31, 2011 and 2010, respectively. First Bank had no outstanding FHLB advances at December 31, 2011 and 2010. During 2010, First Bank prepaid $600.0 million of outstanding FHLB advances and in November 2010, First Bank prepaid a $120.0 million term repurchase agreement.

The average balance of other borrowings was $46.7 million and $514.3 million, and the maximum month-end balance of other borrowings was $59.6 million and $778.5 million for the years ended December 31, 2011 and 2010, respectively.

The average rates paid on other borrowings during the years ended December 31, 2011, 2010 and 2009 were 0.03%, 1.53% and 1.79%, respectively. Interest expense on securities sold under agreements to repurchase was $82,000, $3.6 million and $4.3 million for the years ended December 31, 2011, 2010 and 2009, respectively. Interest expense on FHLB advances was $5.4 million and $5.8 million for the years ended December 31, 2010 and 2009, respectively.

Note 11 – Notes Payable

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), a Nevada limited partnership created by and for the benefit of the Company’s Chairman and members of his immediate family, as further described in Note 20 to the consolidated financial statements. The Credit 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 year ended December 31, 2011.

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 $13.5 million, $12.9 million and $14.1 million for the years ended December 31, 2011, 2010 and 2009, respectively, 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 described in Note 14 to the consolidated financial statements.

121

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

A summary of the junior subordinated debentures issued to the Trusts in conjunction with the trust preferred securities offerings at December 31, 2011 and 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 debentures 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 debentures and the related trust indentures allow the Company to defer such payments of interest for up to 20 consecutive quarterly periods without triggering a payment default or penalty. Such payment default or penalty could have a material adverse effect on the Company’s business, financial condition or results of operations. The Company has deferred such payments for ten quarterly periods as of December 31, 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 debentures. The Company has deferred $31.0 million and $18.8 million of its regularly scheduled interest payments as of December 31, 2011 and 2010, respectively. In addition, the Company has accrued additional interest expense of $1.9 million and $621,000 as of December 31, 2011 and 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.

On January 26, 2011, the Company, the holder of 100% of the outstanding common stock of First Preferred Capital Trust IV (the Trust), successfully completed a consent solicitation from the holders of the 8.15% cumulative trust preferred securities of the Trust, and entered into certain amendments that were approved in the consent solicitation. The Company solicited the consents in order to increase its capital planning flexibility under the terms of the documents and the provisions of the indentures, guarantee agreements and trust agreements relating to the Company’s other tranches of trust preferred securities. The amendments provide an opportunity for the Company to seek to improve its capital position and decrease its level of indebtedness during a period in which it is deferring interest payments in accordance with the terms of the indenture.

122

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

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.

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 $3.5 million, $3.4 million and $3.3 million for the years ended December 31, 2011, 2010 and 2009, respectively.

The redemption of any issue of preferred stock requires the prior approval of the Federal Reserve. Furthermore, the Purchase Agreement that the Company entered into with the U.S. Treasury 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 ten quarterly periods as of December 31, 2011. The Company has declared and deferred $40.2 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 $2.8 million and $990,000 of cumulative dividends on such deferred dividend payments at December 31, 2011 and 2010, respectively.

123

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

The following table presents the transactions affecting accumulated other comprehensive income (loss) included in stockholders’ equity for the years ended December 31, 2011, 2010 and 2009:

	Years Ended December 31,
	2011			2010		2009
	(dollars expressed in thousands)
Net loss	$	(44,100	)	(198,251	)	(448,936	)
Other comprehensive income (loss):
Unrealized gains on available-for-sale investment securities, net of tax		22,676		4,764		5,874
Reclassification adjustment for available-for-sale investment securities gains               included in net loss, net of tax		(3,461	)	(5,378	)	(5,004	)
Reclassification adjustment for deferred tax asset valuation allowance on               investment securities		(119	)	(331	)	469
Change in unrealized gains on derivative instruments, net of tax (1)		—		(3,734	)	(5,755	)
Reclassification adjustment for deferred tax asset valuation allowance on               derivative instruments (2)		—		4,806		(3,099	)
Amortization of net loss related to pension liability, net of tax		(413	)	(4	)	(664	)
Reclassification adjustment for deferred tax asset valuation allowance on               pension liability		(299	)	23		(480	)
Comprehensive loss		(25,716	)	(198,105	)	(457,595	)
Comprehensive loss attributable to noncontrolling interest in subsidiaries		(2,950	)	(6,514	)	(21,315	)
Comprehensive loss attributable to First Banks, Inc.	$	(22,766	)	(191,591	)	(436,280	)

____________________
 

(1)

In the third quarter of 2009, the Company reclassified a cumulative fair value adjustment of $4.6 million on its interest rate swap agreements previously 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 August 2009, as further described in Note 8 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 8 and Note 17 to the consolidated financial statements.

Other comprehensive income (loss) of $18.4 million, $146,000 and $(8.7) million, as presented in the consolidated statements of changes in stockholders’ equity and comprehensive income (loss), is reflected net of income tax expense (benefit) of $10.1 million, $(2.3) million and $(3.0) million for the years ended December 31, 2011, 2010 and 2009, respectively.

As a result of First Bank’s purchase of FCA’s noncontrolling interest in SBLS LLC, as further described in Note 20 to the consolidated financial statements, the Company recorded an increase in additional paid-in-capital of $2.8 million and a decrease in noncontrolling interest in subsidiaries of $4.7 million during the second quarter of 2009.

Note 14 – 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 December 31, 2011 and 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.

124

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

First Bank was categorized as well capitalized at December 31, 2011 and 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 8.37% and 7.82% at December 31, 2011 and 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 December 31, 2011 and 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
	2011				2010 (1)				Adequacy		Action
	Amount		Ratio		Amount		Ratio		Purposes		Provisions
	(dollars expressed in thousands)
Total capital (to risk-weighted assets):
First Banks, Inc.	$	73,830	1.88	%	$	305,006	6.29	%	8.0	%	N/A
First Bank		588,860	14.98			626,976	12.95		8.0		10.0	%
Tier 1 capital (to risk-weighted assets):
First Banks, Inc.		36,915	0.94			152,503	3.15		4.0		N/A
First Bank		538,592	13.70			564,664	11.66		4.0		6.0
Tier 1 capital (to average assets):
First Banks, Inc.		36,915	0.56			152,503	1.99		4.0		N/A
First Bank		538,592	8.19			564,664	7.40		4.0		5.0

____________________
 

(1) The decline in First Banks, Inc.’s regulatory capital ratios during 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.

125

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

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 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 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.

126

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

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 December 31, 2011 and 2010 are reflected in the following table:

	Fair Value Measurements
	Level 1		Level 2		Level 3	Fair Value
	(dollars expressed in thousands)
December 31, 2011:
Assets:
Available-for-sale investment securities:
U.S. Government sponsored agencies	$	—	341,817		—	341,817
Residential mortgage-backed		—	1,924,920		—	1,924,920
Commercial mortgage-backed		—	910		—	910
State and political subdivisions		—	5,410		—	5,410
Corporate notes		—	183,813		—	183,813
Equity investments		1,017	10,678		—	11,695
Mortgage loans held for sale		—	31,111		—	31,111
Derivative instruments:
Customer interest rate swap agreements		—	370		—	370
Interest rate lock commitments		—	1,381		—	1,381
Forward commitments to sell mortgage-backed securities		—	(729	)	—	(729	)
Servicing rights		—	—		15,380	15,380
Total	$	1,017	2,499,681		15,380	2,516,078
Liabilities:
Derivative instruments:
Interest rate swap agreements	$	—	807		—	807
Customer interest rate swap agreements		—	307		—	307
Nonqualified deferred compensation plan		6,531	—		—	6,531
Total	$	6,531	1,114		—	7,645
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

127

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

There were no transfers between Levels 1 and 2 of the fair value hierarchy for the years ended December 31, 2011 and 2010.

The following table presents the changes in Level 3 assets measured on a recurring basis for the years ended December 31, 2011 and 2010:

	Servicing Rights
	2011			2010
	(dollars expressed in
	thousands)
Balance, beginning of year	$	19,582		20,608
Total gains or losses (realized/unrealized):
Included in earnings (1)		(7,652	)	(5,558	)
Included in other comprehensive income (loss)		—		—
Issuances		3,450		4,532
Transfers in and/or out of level 3		—		—
Balance, end of year	$	15,380		19,582

____________________
 

(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 December 31, 2011 and 2010 are reflected in the following table:

	Fair Value Measurements
	Level 1		Level 2	Level 3	Fair Value
	(dollars expressed in thousands)
December 31, 2011:
Assets:
Impaired loans:
Commercial, financial and agricultural	$	—	—	54,129	54,129
Real estate construction and development		—	—	79,826	79,826
Real estate mortgage:
Bank portfolio		—	—	13,894	13,894
Mortgage Division portfolio		—	—	84,083	84,083
Home equity portfolio		—	—	5,552	5,552
Multi-family residential		—	—	10,806	10,806
Commercial real estate		—	—	67,756	67,756
Consumer and installment		—	—	18	18
Other real estate and repossessed assets		—	—	129,896	129,896
Total	$	—	—	445,960	445,960
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 $69.9 million, $158.9 million and $143.6 million for the years ended December 31, 2011, 2010 and 2009, 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 $16.9 million, $34.7 million and $37.4 million to noninterest expense for the years ended December 31, 2011, 2010 and 2009, respectively. Other real estate and repossessed assets were $129.9 million at December 31, 2011 compared to $140.7 million at December 31, 2010.

128

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

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.

129

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

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 December 31, 2011 and 2010 were as follows:

	2011					2010
	Carrying			Estimated Fair		Carrying		Estimated Fair
	Value			Value		Value		Value
	(dollars expressed in thousands)
Financial Assets:
Cash and cash equivalents	$	472,011		472,011		995,758		995,758
Investment securities:
Available for sale		2,468,565		2,468,565		1,483,185		1,483,185
Held to maturity		12,817		13,424		11,152		11,990
Loans held for portfolio		3,115,130		2,811,538		4,236,781		3,973,825
Loans held for sale		31,111		31,111		54,470		54,470
FRB and FHLB stock		27,078		27,078		30,121		30,121
Derivative instruments		1,022		1,022		2,606		2,606
Accrued interest receivable		21,050		21,050		22,488		22,488
Assets held for sale		—		—		2,266		2,866
Assets of discontinued operations		21,009		21,009		43,532		43,532
Financial Liabilities:
Deposits:
Noninterest-bearing demand	$	1,209,759		1,209,759		1,167,206		1,167,206
Interest-bearing demand		884,168		884,168		919,973		919,973
Savings and money market		1,893,560		1,893,560		2,206,763		2,206,763
Time deposits		1,464,343		1,467,548		2,164,473		2,176,855
Other borrowings		50,910		50,910		31,761		31,761
Derivative instruments		1,114		1,114		3,038		3,038
Accrued interest payable		34,285		34,285		22,444		22,444
Subordinated debentures		354,057		204,502		353,981		202,298
Liabilities held for sale		—		—		23,406		23,276
Liabilities of discontinued operations		346,282		339,527		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–CREDIT COMMITMENTS

The Company is a party to commitments to extend credit and commercial and standby letters of credit in the normal course of business to meet the financing needs of its customers. These instruments involve, in varying degrees, elements of credit risk and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The interest rate risk associated with these credit commitments relates primarily to the commitments to originate fixed-rate loans. As more fully described in Note 8 to the consolidated financial statements, the interest rate risk of the commitments to originate fixed-rate loans has been hedged with forward commitments to sell mortgage-backed securities. The credit risk amounts are equal to the contractual amounts, assuming the amounts are fully advanced and the collateral or other security is of no value. The Company uses the same credit policies in granting commitments and conditional obligations as it does for on-balance sheet items.

Commitments to extend fixed and variable rate credit, and commercial and standby letters of credit, at December 31, 2011 and 2010 were as follows:

	December 31,
	2011		2010
	(dollars expressed in thousands)
Commitments to extend credit	$	683,186	917,974
Commercial and standby letters of credit		65,993	90,463
Total	$	749,179	1,008,437

Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Each customer’s creditworthiness is evaluated on a case-by-case basis. The amount of collateral obtained, if deemed necessary upon extension of credit, is based on management’s credit evaluation of the counterparty. Collateral held varies but may include accounts receivable, inventory, property, plant, equipment, income-producing commercial properties or single family residential properties. In the event of nonperformance, the Company may obtain and liquidate the collateral to recover amounts paid under its guarantees on these financial instruments.

130

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

Commercial and standby letters of credit are conditional commitments issued to guarantee the performance of a customer to a third party. The letters of credit are primarily issued to support public and private borrowing arrangements, including commercial paper, bond financing and similar transactions. Most letters of credit extend for less than one year. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. Upon issuance of the commitments, the Company typically holds marketable securities, certificates of deposit, inventory, real property or other assets as collateral supporting those commitments for which collateral is deemed necessary. The standby letters of credit at December 31, 2011 expire, at various dates, within six years.

Standby letters of credit issued by the FHLB on First Bank’s behalf were $28.6 million and $50.9 million at December 31, 2011 and 2010, respectively.

The reserve for letters of credit and unfunded loan commitments was $2.8 million and $3.1 million at December 31, 2011 and 2010, respectively.

NOTE 17–INCOME TAXES

The (benefit) provision for income taxes from continuing operations for the years ended December 31, 2011, 2010 and 2009 consists of the following:

	2011			2010		2009
	(dollars expressed in thousands)
Current (benefit) provision for income taxes:
Federal	$	902		(366	)	(13	)
State		(721	)	(71	)	89
		181		(437	)	76
Deferred benefit for income taxes:
Federal		(14,357	)	(54,510	)	(94,958	)
State		(7,038	)	(13,502	)	(26,170	)
		(21,395	)	(68,012	)	(121,128	)
Increase in deferred tax asset valuation allowance		10,560		72,563		123,445
Total	$	(10,654	)	4,114		2,393

The effective rates of federal income taxes for the years ended December 31, 2011, 2010 and 2009 differ from the federal statutory rates of taxation as follows:

	Years Ended December 31,
	2011						2010						2009
	Amount			Percent			Amount			Percent			Amount			Percent
	(dollars expressed in thousands)
Loss from continuing operations before benefit for
income taxes and noncontrolling interest in loss of
subsidiaries	$	(43,149	)				$	(190,943	)				$	(374,229	)
Benefit for income taxes calculated at federal statutory
income tax rates	$	(15,102	)	35.0		%	$	(66,830	)	35.0		%	$	(130,980	)	35.0		%
Effects of differences in tax reporting:
Tax-exempt interest income, net of tax preference
adjustment		(203	)	0.5				(308	)	0.2				(515	)	0.1
State income taxes		(4,566	)	10.4				(8,820	)	4.5				(12,184	)	3.3
Bank owned life insurance, net of premium		10		—				3,144		(1.6	)			7,817		(2.1	)
Noncontrolling investment in flow-through entity		1,033		(2.4	)			2,280		(1.2	)			7,460		(2.0	)
Amortization of intangibles		175		(0.4	)			350		(0.2	)			26,600		(7.1	)
Increase in deferred tax asset valuation allowance,
net of federal benefit		18,611		(43.1	)			68,000		(35.6	)			103,184		(27.6	)
Reclassification of deferred tax asset valuation
allowance from accumulated other comprehensive
income to provision for income taxes		(10,466	)	24.3				6,816		(3.6	)			—		—
Expiration of net operating loss carryforwards		1		—				3		—				1,269		(0.3	)
Other, net		(147	)	0.4				(521	)	0.3				(258	)	0.1
(Benefit) provision for income taxes	$	(10,654	)	24.7		%	$	4,114		(2.2	)	%	$	2,393		(0.6	)	%

131

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at December 31, 2011 and 2010 were as follows:

	December 31,
	2011			2010
	(dollars expressed in thousands)
Deferred tax assets:
Federal net operating loss carryforwards	$	188,726		166,714
State net operating loss carryforwards		58,326		43,700
Allowance for loan losses		56,649		83,173
Loans held for sale		1,745		1,532
Alternative minimum and general business tax credits		17,326		16,414
Interest on nonaccrual loans		15,359		18,429
Deferred compensation		3,593		3,934
Core deposit intangibles		3,111		2,245
Partnership and corporate investments		12,052		8,908
Deferred loan charge-offs and other fraud losses		13,875		5,724
Other real estate and repossessed assets		22,665		19,018
Accrued contingent liabilities		3,632		3,656
Depreciation on bank premises and equipment		2,121		—
Other		12,975		13,755
Gross deferred tax assets		412,155		387,202
Valuation allowance		(393,034	)	(369,198	)
Deferred tax assets, net of valuation allowance		19,121		18,004
Deferred tax liabilities:
Depreciation on bank premises and equipment		—		5,940
Servicing rights		2,418		3,222
Net fair value adjustment for available-for-sale investment securities		10,466		119
Discount on loans		—		799
Equity investments		5,366		5,385
State taxes		4,577		4,522
Net deferred loan fees		2,779		4,505
Other		655		694
Deferred tax liabilities		26,261		25,186
Net deferred tax liabilities	$	(7,140	)	(7,182	)

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 December 31, 2011 and 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.

Changes in the deferred tax asset valuation allowance for the years ended December 31, 2011, 2010 and 2009 were as follows:

	2011			2010		2009
	(dollars expressed in thousands)
Balance, beginning of year	$	369,198		295,067		160,052
Reversal of deferred tax asset valuation allowance to provision for income taxes		(74	)	(1,189	)	(2,229	)
Increase in deferred tax asset valuation allowance to provision for income taxes		13,908		73,001		134,134
Increase in deferred tax asset valuation allowance to accumulated other comprehensive loss		10,002		2,319		3,110
Balance, end of year	$	393,034		369,198		295,067

132

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

At December 31, 2011 and 2010, the Company’s unrecognized tax benefits for uncertain tax positions, excluding interest and penalties, were $1.2 million and $1.3 million, respectively. A reconciliation of the beginning and ending balance of these unrecognized tax benefits for the years ended December 31, 2011 and 2010 is as follows:

	2011			2010
	(dollars expressed in thousands)
Balance, beginning of year	$	1,276		3,424
Additions:
Tax positions taken during the current year		232		280
Tax positions taken during the prior year		—		60
Reductions:
Tax positions taken during the prior year		(8	)	—
Allocated to discontinued operations		—		(37	)
Lapse of statute of limitations		(306	)	(2,451	)
Balance, end of year	$	1,194		1,276

At December 31, 2011 and 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 $784,000 and $837,000, respectively. 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 December 31, 2011 and 2010, interest accrued for uncertain tax positions was $136,000 and $180,000, respectively. The Company recorded a reduction to interest expense of $44,000 and $1.0 million related to unrecognized tax benefits during the years ended December 31, 2011 and 2010, respectively, and interest expense of $211,000 during 2009. There were no penalties for uncertain tax positions accrued at December 31, 2011 and 2010, nor did the Company recognize any expense for penalties during 2011, 2010 and 2009.

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 December 31, 2011 could decrease by approximately $271,000 by December 31, 2012 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 $176,000. 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 2008, and prior to 2007 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 $10.5 million during the year ended December 31, 2011 related to an intraperiod tax allocation between other comprehensive income and loss from continuing operations, primarily driven by market appreciation in the Company’s investment securities portfolio.

133

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

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.

At December 31, 2011 and 2010, the accumulation of prior years’ earnings representing tax bad debt deductions was $29.8 million. If these tax bad debt reserves were charged for losses other than bad debt losses, the Company would be required to recognize taxable income in the amount of the charge. It is not contemplated that such tax-restricted retained earnings will be used in a manner that would create federal income tax liabilities.

At December 31, 2011 and 2010, for federal income tax purposes, the Company had net operating loss carryforwards of approximately $539.2 million and $478.3 million, respectively. At December 31, 2011, the Company’s federal net operating loss carryforwards expire as follows:

	(dollars expressed in
	thousands)
Year ending December 31:
2012	$	1,834
2013 – 2016		—
2017 – 2020		5,257
2021 – 2026		43,105
2028 – 2031		489,021
Total	$	539,217

At December 31, 2011 and 2010, for state income tax purposes, the Company had net operating loss carryforwards of approximately $702.8 million and $567.3 million, respectively, and a related deferred tax asset of $58.3 million and $43.7 million, respectively. The state net operating loss carryforwards are primarily from California, Florida, Illinois and Missouri and expire from 2019 to 2031.

134

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

NOTE 18–EARNINGS (LOSS)PER COMMON SHARE

The following is a reconciliation of basic and diluted (loss) income per share for the years ended December 31, 2011, 2010 and 2009:

	Years Ended December 31,
	2011			2010		2009
	(dollars in thousands,
	except share and per share data)
Basic:
Net loss from continuing operations attributable to First Banks, Inc.	$	(29,545	)	(188,543	)	(355,307	)
Preferred stock dividends declared and undeclared		(17,908	)	(16,980	)	(16,536	)
Accretion of discount on preferred stock		(3,466	)	(3,381	)	(3,299	)
Net loss from continuing operations attributable to common stockholders		(50,919	)	(208,904	)	(375,142	)
Net loss from discontinued operations attributable to common stockholders		(11,605	)	(3,194	)	(72,314	)
Net loss available to First Banks, Inc. common stockholders	$	(62,524	)	(212,098	)	(447,456	)
Weighted average shares of common stock outstanding		23,661		23,661		23,661
Basic loss per common share – continuing operations	$	(2,151.99	)	(8,829.08	)	(15,854.85	)
Basic loss per common share – discontinued operations	$	(490.47	)	(134.99	)	(3,056.25	)
Basic loss per common share	$	(2,642.46	)	(8,964.07	)	(18,911.10	)
Diluted:
Net loss from continuing operations attributable to common stockholders	$	(50,919	)	(208,904	)	(375,142	)
Net loss from discontinued operations attributable to common stockholders		(11,605	)	(3,194	)	(72,314	)
Net loss available to First Banks, Inc. common stockholders		(62,524	)	(212,098	)	(447,456	)
Effect of dilutive securities:
Class A convertible preferred stock		—		—		—
Diluted loss per common share – net loss available to First Banks, Inc. common
stockholders	$	(62,524	)	(212,098	)	(447,456	)
Weighted average shares of common stock outstanding		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
Diluted loss per common share – continuing operations	$	(2,151.99	)	(8,829.08	)	(15,854.85	)
Diluted loss per common share – discontinued operations	$	(490.47	)	(134.99	)	(3,056.25	)
Diluted loss per common share	$	(2,642.46	)	(8,964.07	)	(18,911.10	)

135

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

NOTE 19–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. First Bank also has a loan production office in Cincinnati, Ohio.

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. Such principles and practices are summarized in Note 1 to the consolidated financial statements. The business segment results are summarized as follows:

					Corporate, Other and Intercompany
	First Bank				Reclassifications						Consolidated Totals
	2011		2010	2009	2011		2010		2009		2011	2010	2009
	(dollars expressed in thousands)
Balance sheet
information:
Investment securities	$	2,470,704	1,483,659	527,279	10,678		10,678		14,278		2,481,382	1,494,337	541,557
Loans, net of net
deferred loan fees		3,283,951	4,492,284	6,608,293	—		—		—		3,283,951	4,492,284	6,608,293
FRB and FHLB stock		27,078	30,121	65,076	—		—		—		27,078	30,121	65,076
Goodwill and other
intangible assets		121,967	129,054	144,439	—		—		—		121,967	129,054	144,439
Assets held for sale		—	2,266	16,975	—		—		—		—	2,266	16,975
Assets of discontinued
operations		21,009	43,532	518,056	—		—		—		21,009	43,532	518,056
Total assets		6,593,515	7,361,706	10,561,500	15,398		16,422		20,496		6,608,913	7,378,128	10,581,996
Deposits		5,454,664	6,462,068	7,071,493	(2,834	)	(3,653	)	(7,520	)	5,451,830	6,458,415	7,063,973
Other borrowings		50,910	31,761	767,494	—		—		—		50,910	31,761	767,494
Subordinated
debentures		—	—	—	354,057		353,981		353,905		354,057	353,981	353,905
Liabilities held for sale		—	23,406	24,381	—		—		—		—	23,406	24,381
Liabilities of
discontinued
operations		346,282	94,184	1,730,264	—		—		—		346,282	94,184	1,730,264
Stockholders’ equity		680,625	693,458	878,277	(416,954	)	(386,163	)	(355,897	)	263,671	307,295	522,380

136

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

	Corporate, Other and Intercompany
	First Bank							Reclassifications						Consolidated Totals
	2011			2010		2009		2011		2010		2009		2011		2010		2009
	(dollars expressed in thousands)
Income statement        information:
Interest income	$	233,193		312,315		399,783		492		523		549		233,685		312,838		400,332
Interest expense		29,047		59,944		93,263		13,612		12,993		15,301		42,659		72,937		108,564
Net interest income               (loss)		204,146		252,371		306,520		(13,120	)	(12,470	)	(14,752	)	191,026		239,901		291,768
Provision for loan losses		69,000		214,000		390,000		—		—		—		69,000		214,000		390,000
Net interest income               (loss) after               provision for               loan losses		135,146		38,371		(83,480	)	(13,120	)	(12,470	)	(14,752	)	122,026		25,901		(98,232	)
Noninterest income		61,072		77,486		76,138		(188	)	(349	)	(6,771	)	60,884		77,137		69,367
Goodwill impairment		—		—		75,000		—		—		—		—		—		75,000
Amortization of        intangible assets		2,962		3,260		4,326		—		—		—		2,962		3,260		4,326
Other noninterest        expense		223,475		290,082		265,868		(378	)	639		170		223,097		290,721		266,038
Loss from continuing               operations before               (benefit) provision               for income taxes		(30,219	)	(177,485	)	(352,536	)	(12,930	)	(13,458	)	(21,693	)	(43,149	)	(190,943	)	(374,229	)
(Benefit) provision for        income taxes		(10,608	)	4,286		2,422		(46	)	(172	)	(29	)	(10,654	)	4,114		2,393
Net loss from continuing        operations, net of tax		(19,611	)	(181,771	)	(354,958	)	(12,884	)	(13,286	)	(21,664	)	(32,495	)	(195,057	)	(376,622	)
Discontinued operations,        net of tax		(11,605	)	(3,194	)	(72,314	)	—		—		—		(11,605	)	(3,194	)	(72,314	)
Net loss		(31,216	)	(184,965	)	(427,272	)	(12,884	)	(13,286	)	(21,664	)	(44,100	)	(198,251	)	(448,936	)
Net loss attributable to        noncontrolling interest        in subsidiaries		(2,950	)	(6,514	)	(21,315	)	—		—		—		(2,950	)	(6,514	)	(21,315	)
Net loss attributable to        First Banks, Inc.	$	(28,266	)	(178,451	)	(405,957	)	(12,884	)	(13,286	)	(21,664	)	(41,150	)	(191,737	)	(427,621	)

Note 20 – Transactions With Related Parties

Outside of normal customer relationships, no directors or officers of the Company, no shareholders holding over 5% of the Company’s voting securities and no corporations or firms with which such persons or entities are associated currently maintain or have maintained, since the beginning of the last full fiscal year, any significant business or personal relationships with the Company or its subsidiaries, other than that which arises by virtue of such position or ownership interest in the Company or its subsidiaries, except as described in the following paragraphs.

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, including Mr. Michael Dierberg, a director of the Company, provides information technology, item processing and various related services to the Company and First Bank. Fees paid under agreements with First Services were $24.5 million, $26.2 million and $29.4 million for the years ended December 31, 2011, 2010 and 2009, respectively. 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 $1.9 million, $2.5 million and $3.1 million during the years ended December 31, 2011, 2010 and 2009, respectively. In addition, First Services paid approximately $1.8 million, $1.9 million and $1.9 million for the years ended December 31, 2011, 2010 and 2009, respectively, 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 $177,000, $157,000 and $231,000 for the years ended December 31, 2011, 2010 and 2009, respectively.

137

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

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, including Mr. Michael Dierberg, a director of the Company, received approximately $5.3 million, $5.0 million and $5.7 million for the years ended December 31, 2011, 2010 and 2009, respectively, 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 approximately $491,000, $312,000 and $227,000 for the years ended December 31, 2011, 2010 and 2009, respectively, to First Bank in rental payments for occupancy of certain First Bank premises from which brokerage business is conducted.

Dierberg Vineyards / Wineries. The Company periodically purchases various products from Hermannhof, Inc. and Dierberg Star Lane Vineyards, entities that are owned and operated by the Company’s Chairman and members of his immediate family. The Company utilizes these products primarily for customer and employee events and promotions, and business development functions. During the year ended December 31, 2009, the Company purchased products aggregating approximately $133,000 from these entities.

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 $474,000, $462,000 and $437,000 for the years ended December 31, 2011, 2010 and 2009, respectively.

First Capital America, Inc. / Small Business Loan Source LLC. SBLS LLC, which is presently an inactive subsidiary of First Bank, was engaged in the business of originating, selling and servicing loans which were generally guaranteed in part by the SBA. FCA, a corporation owned by the Company’s Chairman and members of his immediate family, including Mr. Michael Dierberg, a director of the Company, was a 17.45% owner of SBLS LLC prior to April 2009. In April 2009, First Bank and FCA entered into a Purchase Agreement providing for FCA to sell its 17.45% ownership interest in SBLS LLC to First Bank for a purchase price of $1.9 million, the fair value of FCA’s ownership interest in SBLS LLC as of April 30, 2009 as determined by an independent third party appraisal. As such, effective April 30, 2009, First Bank owned 100% of SBLS LLC. As a result of the purchase of FCA’s noncontrolling interest in SBLS LLC, the Company recorded an increase in additional paid-in-capital with a corresponding decrease in noncontrolling interest in subsidiaries of $2.8 million during the second quarter of 2009. Interest expense recorded by SBLS LLC under a promissory note with First Bank that matured in September 2009 was $1.8 million for the year ended December 31, 2009.

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. 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 during 2008. As a result, First Bank owned 53.23% and FCA owned the remaining 46.77% of FB Holdings as of December 31, 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 receives various services provided 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 agreement by FB Holdings to First Bank were $194,000, $321,000 and $570,000 for the years ended December 31, 2011, 2010 and 2009, respectively.

Investors of America Limited Partnership. On March 24, 2011, the Company entered into a Credit Agreement with 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 Credit 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. There were no balances outstanding with respect to the Credit Agreement as of and for the year ended December 31, 2011.

138

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

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. These loan transactions have been made on the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unaffiliated persons and, except as described below, did not involve more than the normal risk of collectability or present other unfavorable features. Loans to directors, their affiliates and executive officers of the Company were $20.7 million and $9.1 million at December 31, 2011 and 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.

Loans to directors, their affiliates and executive officers of the Company at December 31, 2011, included a $15.6 million multi-family real estate loan to a limited liability company which is 50% owned by the brother-in-law of Mr. Douglas H. Yaeger, a director of the Company. The loan is being paid as agreed and has not been reported as past due, nonaccrual or restructured as of December 31, 2011. However, based on current economic and financial considerations, management has classified this loan as special mention in the Company’s loan watch list as of December 31, 2011. Loans to directors, their affiliates and executive officers of the Company at December 31, 2011 also included two credit relationships aggregating $1.2 million to companies which are approximately 16% owned by the brother-in-law of Mr. Yaeger, including a $328,000 credit relationship that is 60 – 89 days past due. Both loans have been classified by management as substandard, or potential problem, loans in the Company’s loan watch list as of December 31, 2011.

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 21 – Employee Benefits

401(k) Plan. The Company’s 401(k) plan is a self-administered savings and incentive plan covering substantially all employees. Employer match contributions are determined annually under the plan by the Company’s Board of Directors. Employee contributions were limited to $16,500 of gross compensation for 2011. Total employer contributions under the plan were $2.3 million, zero and $932,000 for the years ended December 31, 2011, 2010 and 2009, respectively. The plan assets are held and managed under a trust agreement with First Bank’s trust department.

Nonqualified Deferred Compensation Plan. The Company’s nonqualified deferred compensation plan (the NQDC Plan), which covers a select group of employees, is administered by an independent third party. The NQDC Plan is exempt from the participation, vesting, funding and fiduciary requirements of the Employee Retirement Income Security Act of 1974. Although the NQDC Plan allows the Company to credit the accounts of any participant with discretionary contributions, no such discretionary contributions have been made since the NQDC Plan’s inception. Participants may contribute from 1% to 25% of their salary and up to 100% of their bonuses on a pre-tax basis. The Company elected to suspend the availability of deferrals under the NQDC Plan for the years ended December 31, 2011 and 2010 but reinstated the availability of such deferrals beginning in January 2012.

Balances outstanding under the NQDC Plan, which are reflected in accrued and other liabilities in the consolidated balance sheets, were $6.5 million and $7.8 million at December 31, 2011 and 2010, respectively. The Company recognized a decrease in salaries and employee benefits expense related to the NQDC Plan of $64,000 for the year ended December 31, 2011 resulting from net losses incurred by participants on the underlying investments in the plan. The Company recognized salaries and employee benefits expense related to the NQDC Plan of $685,000 and $1.3 million for the years ended December 31, 2010 and 2009, respectively, resulting from net earnings incurred by participants on the underlying investments in the plan.

Noncontributory Defined Benefit Pension Plan. The Company has a noncontributory defined benefit pension plan covering certain current and former employees of a bank holding company acquired by the Company in 1994 and subsequently merged with and into the Company on December 31, 2002. The Company discontinued the accumulation of benefits under the Plan in 1994, and as such, there is no longer any service cost being accrued by Plan participants.

139

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

A summary of the Plan’s change in the projected benefit obligation and change in the fair value of Plan assets for the years ended December 31, 2011 and 2010 and amounts recognized in the Company’s consolidated balance sheets as of December 31, 2011 and 2010 is as follows:

	2011			2010
	(dollars expressed in thousands)
Change in Projected Benefit Obligation:
Projected benefit obligation at beginning of year	$	12,334		12,124
Interest cost		587		628
Actuarial loss		970		396
Benefit payments		(1,424	)	(814	)
Projected benefit obligation at end of year	$	12,467		12,334
Change in Fair Value of Plan Assets:
Fair value at beginning of year	$	9,210		8,994
Actual return on plan assets		774		616
Employer contributions		288		414
Benefit payments		(1,424	)	(814	)
Fair value at end of year	$	8,848		9,210
Amount Recognized in Consolidated Balance Sheets:
Accrued pension liability	$	3,619		3,124
Amounts Recognized in Accumulated Other Comprehensive Loss:
Loss	$	(4,370	)	(3,658	)
Deferred tax liability		1,737		1,438
Loss, net of tax	$	(2,633	)	(2,220	)

The Company’s accrued pension liability of $3.6 million and $3.1 million at December 31, 2011 and 2010, respectively, represents the difference between the fair value of the Plan assets and the projected benefit obligation of the Plan, and is reflected in accrued expenses and other liabilities in the consolidated balance sheets.

The following table reflects the weighted average assumptions used to determine the net periodic benefit cost for the years ended December 31, 2011 and 2010:

	2011		2010
Discount rate	4.93	%	5.36	%
Expected long-term rate of return on Plan assets	7.00		7.00

The discount rate used to determine benefit obligations was 4.28% and 4.93% for the years ended December 31, 2011 and 2010, respectively.

A summary of the components of net periodic benefit cost for the years ended December 31, 2011 and 2010 is as follows:

	2011			2010
	(dollars expressed in thousands)
Interest cost	$	587		628
Expected return on Plan assets		(625	)	(613	)
Amortization of net actuarial loss		109		447
Net periodic benefit cost	$	71		462

Amounts recognized in accumulated other comprehensive income (loss) consist of:

	2011			2010
	(dollars expressed in thousands)
Net loss	$	821		393
Amortization of net actuarial loss		(109	)	(447	)
Total recognized in accumulated other comprehensive income (loss)	$	712		(54	)

140

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

The Plan’s investment strategy is focused on maximizing asset returns. The target allocations for Plan assets are 52% fixed income, 40% equity securities and 8% cash. Asset allocations can fluctuate between acceptable ranges commensurate with market volatility. Debt securities include U.S. Treasuries, investment-grade corporate bonds of companies from diversified industries and mortgage-backed securities. Equity securities primarily include investments in large capitalization companies located in the United States.

The fair value of Plan assets at December 31, 2011 and 2010 was comprised of the following:

	Fair Value Measurements
	Level 1		Level 2	Level 3	Fair Value
	(dollars expressed in thousands)
Plan Assets – December 31, 2011:
Cash and cash equivalents	$	287	—	—	287
Equity securities		—	3,635	—	3,635
Debt securities		—	4,463	—	4,463
Other		—	463	—	463
Total	$	287	8,561	—	8,848
Plan Assets – December 31, 2010:
Cash and cash equivalents	$	620	—	—	620
Equity securities		—	4,355	—	4,355
Debt securities		—	3,797	—	3,797
Other		—	438	—	438
Total	$	620	8,590	—	9,210

Equity and debt securities included in Level 1 are valued using quoted market prices. Where quoted market prices are unavailable, the fair value of equity and debt securities 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.

The Company expects to contribute $740,000 to the Plan in 2012. Pension benefit payments are expected to be paid to Plan participants by the Plan as follows:

	(dollars expressed in
	thousands)
Year ending December 31:
2012	$	851
2013		840
2014		833
2015		845
2016		859
2017 – 2021		4,315

Note 22 – Distribution of Earnings of First Bank

First Bank is restricted by various state and federal regulations as to the amount of dividends that are available for payment to the Company. Under the most restrictive of these requirements, the payment of dividends is limited in any calendar year to the net profit of the current year combined with the retained net profits of the preceding two years. Permission must be obtained for dividends exceeding these amounts. Based on the current level of earnings, permission must be obtained for any payment of dividends from First Bank to the Company. Furthermore, First Bank, under its agreement with the MDOF and the FRB, has agreed, among other things, not to declare or pay any dividends or make certain other payments without the prior consent of the MDOF and the FRB, as further described in Note 1 to the consolidated financial statements.

141

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 23 – Parent Company Only Financial Information

Condensed balance sheets of First Banks, Inc. as of December 31, 2011 and 2010 and condensed statements of operations and cash flows for the years ended December 31, 2011, 2010 and 2009 are shown below:

CONDENSED BALANCE SHEETS

	December 31,
	2011		2010
	(dollars expressed in thousands)
Assets
Cash deposited in First Bank (unrestricted cash)	$	2,801	3,619
Cash deposited in unaffiliated financial institutions (restricted cash)		2,008	3,126
Total cash		4,809	6,745
Available-for-sale investment securities		10,678	10,678
Investment in subsidiaries		586,899	596,806
Other assets		3,067	2,948
Total assets	$	605,453	617,177
Liabilities and Stockholders’ Equity
Subordinated debentures	$	354,057	353,981
Derivative instruments		807	2,402
Accrued interest payable		33,179	19,895
Dividends payable		43,045	25,139
Accrued expenses and other liabilities		4,646	5,367
Total liabilities		435,734	406,784
First Banks, Inc. stockholders’ equity		169,719	210,393
Total liabilities and stockholders’ equity	$	605,453	617,177

CONDENSED STATEMENTS OF OPERATIONS

	Years Ended December 31,
	2011			2010		2009
	(dollars expressed in thousands)
Income:
Management fees from subsidiaries	$	28		193		2,120
Loss on available-for-sale investment securities		—		(31	)	(1,205	)
Net loss on derivative instruments		(194	)	(2,929	)	(5,585	)
Other		509		3,154		873
Total income		343		387		(3,797	)
Expense:
Interest		13,623		13,012		15,535
Other		(374	)	809		2,174
Total expense		13,249		13,821		17,709
Loss before benefit for income taxes and equity in undistributed
losses of subsidiaries		(12,906	)	(13,434	)	(21,506	)
Benefit for income taxes		(46	)	(171	)	(17	)
Loss before equity in undistributed losses of subsidiaries		(12,860	)	(13,263	)	(21,489	)
Equity in undistributed losses of subsidiaries		(28,290	)	(178,474	)	(406,132	)
Net loss attributable to First Banks, Inc.	$	(41,150	)	(191,737	)	(427,621	)

142

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

CONDENSEDSTATEMENTSOFCASHFLOWS

	Years Ended December 31,
	2011			2010		2009
	(dollars expressed in thousands)
Cash flows from operating activities:
Net loss attributable to First Banks, Inc.	$	(41,150	)	(191,737	)	(427,621	)
Adjustments to reconcile net loss to net cash used in operating activities:
Net loss of subsidiaries		28,290		178,474		406,132
Other, net		12,042		6,012		13,717
Net cash used in operating activities		(818	)	(7,251	)	(7,772	)
Cash flows from investing activities:
Decrease in available-for-sale investment securities		—		3,570		—
Other, net		—		—		(645	)
Net cash provided by (used in) investing activities		—		3,570		(645	)
Cash flows from financing activities:
Capital contributions to subsidiaries		—		(100	)	(80,000	)
Payment of preferred stock dividends		—		—		(6,365	)
Net cash used in financing activities		—		(100	)	(86,365	)
Net decrease in unrestricted cash		(818	)	(3,781	)	(94,782	)
Unrestricted cash, beginning of year		3,619		7,400		102,182
Unrestricted cash, end of year	$	2,801		3,619		7,400
Noncash investing activities:
Cash paid for interest	$	—		—		11,132

The parent company’s unrestricted cash was $2.8 million and $3.6 million at December 31, 2011 and 2010, respectively. The parent company’s restricted cash was $2.0 million and $3.1 million at December 31, 2011 and 2010, respectively. The parent company’s restricted cash of $2.0 million at December 31, 2011 was returned in February 2012, thereby increasing the parent company’s unrestricted cash. On March 24, 2011, the Company entered into a Credit Agreement that provides for a $5.0 million secured revolving line of credit to be utilized for general working capital needs, as further described in Note 11 to the consolidated financial statements. This borrowing arrangement has a maturity date of December 31, 2012 and is intended to supplement, if necessary, the parent company’s overall level of unrestricted cash to cover the parent company’s projected operating expenses. There were no balances outstanding with respect to the Credit Agreement as of and for the year ended December 31, 2011.

The parent company has an estimated cash flow obligation of $835,000 on its interest rate swap agreements during 2012 as well as certain other expenses. All obligations related to interest payments on its outstanding junior subordinated debentures relating to its $345.0 million of trust preferred securities and dividends on Class C Preferred Stock and Class D Preferred Stock have been deferred. The Company has until September 2014 to pay the cumulative deferred interest payments on its outstanding junior subordinated debentures without triggering a payment default or penalty. Such payment default or penalty could have a material adverse effect on the Company’s business, financial condition or results of operations.

143

First Banks, Inc.

Notes to Consolidated Financial Statements (Continued)

Note 24 – 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. From time to time, the Company is party to other legal matters arising in the normal course of business. While some matters pending against the Company specify damages claimed by plaintiffs, others do not seek a specified amount of damages or are at very early stages of the legal process. The Company records a loss accrual for all legal matters for which it deems a loss is probable and can be reasonably estimated. Management, after consultation with legal counsel, 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 and the range of possible additional loss in excess of amounts accrued is not material.

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.

Note 25 – Subsequent Events

Florida Region. On January 25, 2012, First Bank entered into a Branch Purchase and Assumption Agreement that provides for the sale of certain assets and the transfer of certain liabilities associated with First Bank’s Florida Region to an unaffiliated financial institution, as further described in Note 2 to the consolidated financial statements. Under the terms of the agreement, the unaffiliated financial institution is to assume approximately $345.9 million of deposits associated with First Bank’s 19 Florida retail branches for a premium of approximately 2.3%. The unaffiliated financial institution is also expected to purchase premises and equipment and assume the leases associated with First Bank’s Florida Region at a discount of $1.2 million. The transaction, which is subject to regulatory approvals and certain closing conditions, is expected to be completed during the second or third quarter of 2012. The transaction is not expected to result in a significant gain or loss.

144

First Banks, Inc.

Quarterly Condensed Financial Data — Unaudited

	2011 Quarter Ended
	March 31			June 30		September 30		December 31
	(dollars expressed in thousands, except per share data)
Interest income	$	62,264		59,093		56,798		55,530
Interest expense		12,507		11,307		10,021		8,824
Net interest income		49,757		47,786		46,777		46,706
Provision for loan losses		10,000		23,000		19,000		17,000
Net interest income after provision for loan losses		39,757		24,786		27,777		29,706
Noninterest income		13,810		14,868		16,643		15,563
Noninterest expense		56,393		54,852		55,759		59,055
Loss from continuing operations before provision (benefit) for
income taxes		(2,826	)	(15,198	)	(11,339	)	(13,786	)
Provision (benefit) for income taxes		52		72		(11,581	)	803
Net (loss) income from continuing operations, net of tax		(2,878	)	(15,270	)	242		(14,589	)
Loss from discontinued operations before benefit for income taxes		(3,205	)	(2,706	)	(2,984	)	(2,710	)
Benefit for income taxes		—		—		—		—
Loss from discontinued operations, net of tax		(3,205	)	(2,706	)	(2,984	)	(2,710	)
Net loss		(6,083	)	(17,976	)	(2,742	)	(17,299	)
Less: net income (loss) attributable to noncontrolling interest in
subsidiaries		65		(927	)	(668	)	(1,420	)
Net loss attributable to First Banks, Inc.	$	(6,148	)	(17,049	)	(2,074	)	(15,879	)
Basic and diluted loss per common share:
Loss per common share from continuing operations	$	(345.95	)	(830.64	)	(188.89	)	(786.51	)
Loss per common share from discontinued operations	$	(135.46	)	(114.36	)	(126.12	)	(114.53	)
Loss per common share	$	(481.41	)	(945.00	)	(315.01	)	(901.04	)
	2010 Quarter Ended
	March 31			June 30		September 30		December 31
	(dollars expressed in thousands, except per share data)
Interest income	$	84,767		81,495		77,644		68,932
Interest expense		20,688		19,227		17,475		15,547
Net interest income		64,079		62,268		60,169		53,385
Provision for loan losses		42,000		83,000		37,000		52,000
Net interest income (loss) after provision for loan losses		22,079		(20,732	)	23,169		1,385
Noninterest income		15,090		20,004		16,702		25,341
Noninterest expense		63,277		63,471		85,773		81,460
Loss from continuing operations before provision (benefit) for
income taxes		(26,108	)	(64,199	)	(45,902	)	(54,734	)
Provision (benefit) for income taxes		105		48		5,193		(1,232	)
Net loss from continuing operations, net of tax		(26,213	)	(64,247	)	(51,095	)	(53,502	)
(Loss) income from discontinued operations before benefit for income
taxes		(1,793	)	(728	)	2,509		(3,339	)
Benefit for income taxes		—		—		(157	)	—
Loss (income) from discontinued operations, net of tax		(1,793	)	(728	)	2,666		(3,339	)
Net loss		(28,006	)	(64,975	)	(48,429	)	(56,841	)
Less: net loss attributable to noncontrolling interest in subsidiaries		(437	)	(27	)	(618	)	(5,432	)
Net loss attributable to First Banks, Inc.	$	(27,569	)	(64,948	)	(47,811	)	(51,409	)
Basic and diluted (loss) income per common share:
Loss per common share from continuing operations	$	(1,300.48	)	(2,928.02	)	(2,349.94	)	(2,250.65	)
(Loss) income per common share from discontinued operations	$	(75.78	)	(30.77	)	112.68		(141.12	)
Loss per common share	$	(1,376.26	)	(2,958.79	)	(2,237.26	)	(2,391.77	)

145

First Banks, Inc.

Investor Information

First Banks, Inc. Trust Preferred Securities

The preferred securities of First Preferred Capital Trust IV are traded on the New York Stock Exchange with the ticker symbol “FBSPrA.” The preferred securities of First Preferred Capital Trust IV are represented by a global security that has been deposited with and registered in the name of The Depository Trust Company, New York, New York (DTC). The beneficial ownership interests of these preferred securities are recorded through the DTC book-entry system. The high and low preferred securities prices and the dividends declared for 2011 and 2010 are summarized as follows:

First Preferred Capital Trust IV (Issue Date – April 2003) – FBSPrA

	2011			Distributions		2010			Distributions
	High		Low	Declared (1)		High		Low	Declared (1)
First quarter	$	14.20	9.72	$	0.509375	$	14.50	4.96	$	0.509375
Second quarter		13.25	10.27		0.509375		13.70	8.47		0.509375
Third quarter		12.00	7.20		0.509375		10.45	6.86		0.509375
Fourth quarter		9.85	6.70		0.509375		11.35	7.00		0.509375
				$	2.037500				$	2.037500

____________________
 

(1) Amounts exclude the additional dividends on any cumulative unpaid dividends following the announcement of the deferral of such dividend payments in August 2009.

For Information Concerning First Banks, Inc., Please Contact:

Terrance M. McCarthy
President and Chief Executive Officer
135 North Meramec
Mail Code – M1-821-014
Clayton, Missouri 63105
Telephone – (314) 854-4600
www.firstbanks.com Lisa K. Vansickle
Executive Vice President and Chief Financial Officer
135 North Meramec
Mail Code – M1-821-014
Clayton, Missouri 63105
Telephone – (314) 854-4600
www.firstbanks.com

Transfer Agent:

Computershare Investor Services, LLC
2 North LaSalle Street
Chicago, Illinois 60602
Telephone – (312) 588-4990
www.computershare.com

146

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

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

Date: March 23, 2012

Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed by the following persons on behalf of the Registrant and in the capacities and on the date indicated.

Signatures	Title	Date
/s/ James F. Dierberg	Chairman of the Board of Directors	March 23, 2012
James F. Dierberg
/s/ Michael J. Dierberg	Vice Chairman of the Board of Directors	March 23, 2012
Michael J. Dierberg
/s/ Terrance M. McCarthy	Director and President	March 23, 2012
Terrance M. McCarthy	and Chief Executive Officer
	(Principal Executive Officer)
/s/ Allen H. Blake	Director	March 23, 2012
Allen H. Blake
/s/ James A. Cooper	Director	March 23, 2012
James A. Cooper
/s/ John S. Poelker	Director	March 23, 2012
John S. Poelker
/s/ Guy Rounsaville, Jr.	Director	March 23, 2012
Guy Rounsaville, Jr.
/s/ David L. Steward	Director	March 23, 2012
David L. Steward
/s/ Douglas H. Yaeger	Director	March 23, 2012
Douglas H. Yaeger
/s/ Lisa K. Vansickle	Executive Vice President	March 23, 2012
Lisa K. Vansickle	and Chief Financial Officer
	(Principal Financial and Accounting Officer)

147

INDEX TO EXHIBITS

Exhibit
Number	Description
2.1+	Purchase and Assumption Agreement, dated as of November 11, 2009, by and between First Bank and FirstMerit Bank, N.A, as amended (incorporated herein by reference to Exhibit 2.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2009).
3.1	Restated Articles of Incorporation of the Company, as amended (incorporated herein by reference to Exhibit 3(i) to the Company’s Annual Report on Form 10-K for the year ended December 31, 1993).
3.2	Certificate of Designation of First Banks, Inc. with respect to Class C Fixed Rate Cumulative Perpetual Preferred Stock dated as of December 24, 2008 (incorporated herein by reference to Exhibit 4.2 to the Company’s Current Report on Form 8-K dated December 31, 2008).
3.3	Certificate of Designation of First Banks, Inc. with respect to Class D Fixed Rate Cumulative Perpetual Preferred Stock dated as of December 24, 2008 (incorporated herein by reference to Exhibit 4.3 to the Company’s Current Report on Form 8-K dated December 31, 2008).
3.4	By-Laws of the Company (incorporated herein by reference to Exhibit 3.2 to Amendment No. 2 to the Company’s Registration Statement on Form S-1, File No. 33-50576, dated September 15, 1992).
4.1	Instruments defining the rights of security holders, including indentures. The registrant hereby agrees to furnish to the Commission upon request copies of instruments defining the rights of holders of long-term debt of the registrant and its consolidated subsidiaries; no issuance of debt exceeds 10% of the assets of the registrant and its subsidiaries on a consolidated basis.
4.2	Warrant to Purchase Shares of First Banks, Inc. Class D Fixed Rate Cumulative Perpetual Preferred Stock dated as of December 31, 2008 (incorporated herein by reference to Exhibit 4.4 to the Company’s Current Report on Form 8-K dated December 31, 2008).
10.1	Shareholders’ Agreement by and among James F. Dierberg II and Mary W. Dierberg, Trustees under the Living Trust of James F. Dierberg II, dated July 24, 1989, Michael James Dierberg and Mary W. Dierberg, Trustees under the Living Trust of Michael James Dierberg, dated July 24, 1989; Ellen C. Dierberg and Mary W. Dierberg, Trustees under the Living Trust of Ellen C. Dierberg dated July 17, 1992, and First Banks, Inc. (incorporated herein by reference to Exhibit 10.3 to the Company’s Registration Statement on Form S-1, File No 33-50576, dated August 6, 1992).
10.2	Comprehensive Banking System License and Service Agreement dated as of July 24, 1991, by and between the Company and FiServ CIR, Inc. (incorporated herein by reference to Exhibit 10.4 to the Company’s Registration Statement on Form S-1, File No. 33-50576, dated August 6, 1992).
10.3	AFS Customer Agreement by and between First Banks, Inc. and Advanced Financial Solutions, Inc., dated  January 29, 2004 (incorporated herein by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004).
10.4	Management Services Agreement by and between First Banks, Inc. and First Bank, dated February 28, 2004 (incorporated herein by reference to Exhibit 10.2 to the Company’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2004).
10.5	Service Agreement by and between First Services, L.P. and First Banks, Inc., dated May 1, 2004 (incorporated herein by reference to Exhibit 10.3 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004).
10.6	Service Agreement by and between First Services, L.P. and First Bank, dated May 1, 2004 (incorporated herein by reference to Exhibit 10.4 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004).
10.7	Service Agreement by and between First Banks, Inc. and First Services, L.P., dated May 1, 2004 (incorporated herein by reference to Exhibit 10.5 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2004).
10.8*	First Banks, Inc. Nonqualified Deferred Compensation Plan, as amended (incorporated herein by reference to Exhibit 5.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2008).

148

10.9	Letter Agreement including the Securities Purchase Agreement – Standard Terms incorporated therein, between First Banks, Inc. and the United States Department of the Treasury, dated as of December 31, 2008 (as amended by the Side Letter Agreement between First Banks, Inc. and the United States Department of the Treasury, dated as of December 31, 2008, and included herein as Exhibit 10.10) (incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated December 31, 2008).
10.10	Side Letter Agreement between First Banks, Inc. and the United States Department of the Treasury, dated as of December 31, 2008 (incorporated herein by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K dated December 31, 2008).
10.11	Written Agreement by and among First Banks, Inc., The San Francisco Company, First Bank and the Federal Reserve Bank of St. Louis, dated as of March 24, 2010 (incorporated herein by reference to Exhibit 10.19 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2009).
10.12	Revolving Credit Note, dated as of March 24, 2011, by and between First Banks, Inc. and Investors of America Limited Partnership (incorporated herein by reference to Exhibit 10.12 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010).
10.13	Stock Pledge Agreement, dated as of March 24, 2011, by and between First Banks, Inc. and Investors of America Limited Partnership (incorporated herein by reference to Exhibit 10.13 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2010).
10.14	First Bank Salary Phantom Stock Plan and Form of Phantom Unit Award Agreement – filed herewith.
14.1	Code of Ethics for Principal Executive Officer and Financial Professionals, as amended (incorporated herein by reference to Exhibit 14.1 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2008).
21.1	Subsidiaries of the Company – filed herewith.
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.
99.1	EESA Section 111(b)(4) Certification of Chief Executive Officer – furnished herewith.
99.2	EESA Section 111(b)(4) Certification of Chief Financial Officer – furnished herewith.
101	Financial information from the Company’s Annual Report on Form 10-K for the year ended December 31, 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.
+	Pursuant to Item 601(b)(2), the registrant undertakes to furnish supplementally a copy of any omitted schedule to the Securities and Exchange Commission upon request.
*	Exhibits designated by an asterisk in the Index to Exhibits relate to management contracts and/or compensatory plans or arrangements.

149