UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)
[X]	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2014
[   ]	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: 001-31610

FIRST BANKS, INC.

(Exact name of registrant as specified in its charter)

MISSOURI	43-1175538
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
135 North Meramec, Clayton, Missouri	63105
(Address of principal executive offices)	(Zip code)

(314) 854-4600

(Registrant’s telephone number, including area code)

__________________________

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

þ Yes      o No

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

þ Yes      o No

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

Large accelerated filer o	Accelerated filer o
Non-accelerated filer þ (Do not check if a smaller reporting company)	Smaller reporting company o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes      þ No

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

Class	Shares Outstanding at July 31, 2014
Common Stock, $250.00 par value	23,661

FIRSTBANKS,INC.

TABLE OFCONTENTS

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Consolidated Balance Sheets	1
	Consolidated Statements of Income	2
	Consolidated Statements of Comprehensive Income (Loss)	3
	Consolidated Statements of Changes in Stockholders’ Equity	4
	Consolidated Statements of Cash Flows	5
	Notes to Consolidated Financial Statements	6
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	52
Item 4.	Controls and Procedures	52
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	53
Item 1A.	Risk Factors	53
Item 6.	Exhibits	54
SIGNATURES		55

PARTI–FINANCIALINFORMATION

ITEM1–FINANCIALSTATEMENTS

FIRSTBANKS,INC.

CONSOLIDATEDBALANCESHEETS

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

	June 30, 2014			December 31, 2013
	(Unaudited)
ASSETS
Cash and cash equivalents:
Cash and due from banks	$	118,804		92,369
Short-term investments	168,575			98,066
Total cash and cash equivalents	287,379			190,435
Investment securities:
Available for sale	1,429,693			1,611,745
Held to maturity (fair value of $685,869 and $719,183, respectively)	694,085			740,186
Total investment securities	2,123,778			2,351,931
Loans:
Commercial, financial and agricultural	639,741			600,704
Real estate construction and development	123,509			121,662
Real estate mortgage	2,143,541			2,091,026
Consumer and installment	18,501			18,681
Loans held for sale	27,576			25,548
Net deferred loan fees	(749		)	(526	)
Total loans	2,952,119			2,857,095
Allowance for loan losses	(78,018		)	(81,033	)
Net loans	2,874,101			2,776,062
Federal Reserve Bank and Federal Home Loan Bank stock	30,388			27,357
Bank premises and equipment, net	121,835			124,328
Deferred income taxes	324,986			315,881
Other real estate	59,235			66,702
Other assets	60,652			66,287
Total assets	$	5,882,354		5,918,983
LIABILITIES
Deposits:
Noninterest-bearing demand	$	1,299,746		1,243,545
Interest-bearing demand	680,324			679,527
Savings and money market	1,844,362			1,844,710
Time deposits of $100 or more	365,419			389,056
Other time deposits	616,183			657,057
Total deposits	4,806,034			4,813,895
Securities sold under agreements to repurchase	57,572			43,143
Subordinated debentures	354,248			354,210
Deferred income taxes	49,257			28,397
Accrued expenses and other liabilities	109,015			191,082
Total liabilities	5,376,126			5,430,727
STOCKHOLDERS’ EQUITY
First Banks, Inc. stockholders’ equity:
Preferred stock:
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	295,400			295,400
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 earnings	53,355			42,719
Accumulated other comprehensive income	14,892			7,502
Total First Banks, Inc. stockholders’ equity	412,448			394,422
Noncontrolling interest in subsidiary	93,780			93,834
Total stockholders’ equity	506,228			488,256
Total liabilities and stockholders’ equity	$	5,882,354		5,918,983

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

1

FIRSTBANKS,INC.

CONSOLIDATEDSTATEMENTS OF INCOME–(UNAUDITED)

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

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2014			2013		2014		2013
Interest income:
Interest and fees on loans	$	30,182		29,885		59,261		60,058
Investment securities	11,903			13,317		24,535		26,565
Federal Reserve Bank and Federal Home Loan Bank stock	360			307		718		610
Short-term investments	142			223		262		485
Total interest income	42,587			43,732		84,776		87,718
Interest expense:
Deposits:
Interest-bearing demand	87			74		169		150
Savings and money market	769			632		1,513		1,267
Time deposits of $100 or more	483			573		969		1,229
Other time deposits	695			978		1,417		2,081
Other borrowings	2			(15	)	6		(12	)
Subordinated debentures	3,027			3,733		6,838		7,409
Total interest expense	5,063			5,975		10,912		12,124
Net interest income	37,524			37,757		73,864		75,594
Provision for loan losses	—			—		—		—
Net interest income after provision for loan losses	37,524			37,757		73,864		75,594
Noninterest income:
Service charges on deposit accounts and customer service fees	8,667			8,607		17,000		16,921
Gain on loans sold and held for sale	1,554			1,572		2,419		3,125
Net (loss) gain on investment securities	(1		)	345		1,279		(71	)
Net gain on sale of other real estate	692			3,658		1,134		4,024
(Decrease) increase in fair value of servicing rights	(901		)	470		(1,133	)	624
Loan servicing fees	1,664			1,776		3,375		3,493
Other	2,539			2,515		4,815		6,222
Total noninterest income	14,214			18,943		28,889		34,338
Noninterest expense:
Salaries and employee benefits	20,383			19,645		40,265		39,196
Occupancy, net of rental income	5,479			5,935		11,263		11,769
Furniture and equipment	2,643			2,538		5,003		5,121
Postage, printing and supplies	554			711		1,193		1,339
Information technology fees	5,874			5,270		11,484		10,555
Legal, examination and professional fees	1,447			1,497		2,738		3,160
Advertising and business development	650			584		1,272		1,016
FDIC insurance	1,241			1,838		2,505		3,720
Write-downs and expenses on other real estate	639			1,259		1,338		2,770
Other	4,678			4,866		9,275		9,544
Total noninterest expense	43,588			44,143		86,336		88,190
Income from continuing operations before provision (benefit) for income taxes	8,150			12,557		16,417		21,742
Provision (benefit) for income taxes	2,918			(345	)	5,835		20
Net income from continuing operations, net of tax	5,232			12,902		10,582		21,722
Loss from discontinued operations, net of tax	—			(3,334	)	—		(5,398	)
Net income	5,232			9,568		10,582		16,324
Less: net income (loss) attributable to noncontrolling interest in subsidiary	1			105		(54	)	151
Net income attributable to First Banks, Inc.	$	5,231		9,463		10,636		16,173
Preferred stock dividends declared	—			4,947		—		9,828
Accretion of discount on preferred stock	—			908		—		1,806
Net income available to common stockholders	$	5,231		3,608		10,636		4,539
Basic earnings per common share from continuing operations	$	221.11		293.39		449.54		419.98
Diluted earnings per common share from continuing operations	$	189.80		293.39		382.26		419.98
Basic earnings per common share	$	221.11		152.49		449.54		191.84
Diluted earnings per common share	$	189.80		152.49		382.26		191.84
Weighted average shares of common stock outstanding	23,661			23,661		23,661		23,661

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

2

FIRSTBANKS,INC.

CONSOLIDATEDSTATEMENTS OFCOMPREHENSIVEINCOME (LOSS) –(UNAUDITED)

(dollars expressed in thousands)

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2014			2013		2014		2013
Net income	$	5,232		9,568		10,582		16,324
Other comprehensive income (loss):
Unrealized gains (losses) on available-for-sale investment securities, net of tax	4,069			(16,551	)	8,903		(18,803	)
Reclassification adjustment for available-for-sale investment securities losses (gains) included in net income, net of tax	1			(191	)	(752	)	(186	)
Amortization of net unrealized gain associated with reclassification of available-for-sale investment securities to held-to-maturity investment securities, net of tax	(401		)	(431	)	(803	)	(860	)
Amortization of net loss related to pension liability, net of tax	21			30		42		60
Reclassification adjustment for deferred tax asset valuation allowance on investment securities	—			(13,769	)	—		(15,915	)
Reclassification adjustment for deferred tax asset valuation allowance on pension liability	—			24		—		48
Other comprehensive income (loss)	3,690			(30,888	)	7,390		(35,656	)
Comprehensive income (loss)	8,922			(21,320	)	17,972		(19,332	)
Comprehensive income (loss) attributable to noncontrolling interest in subsidiary	1			105		(54	)	151
Comprehensive income (loss) attributable to First Banks, Inc.	$	8,921		(21,425	)	18,026		(19,483	)

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

3

FIRSTBANKS,INC.

CONSOLIDATEDSTATEMENTS OFCHANGES INSTOCKHOLDERS’EQUITY–(UNAUDITED)

Six Months EndedJune 30, 2014 and 2013

(dollars expressed in thousands)

	First Banks, Inc. Stockholders’ Equity
	Preferred Stock		Common Stock	Additional Paid-In Capital	Retained Earnings (Deficit)		Accumulated Other Comprehensive Income		Non- controlling Interest		Total Stockholders’ Equity
Balance, December 31, 2012	$	322,163	5,915	12,480	(179,513	)	45,259		93,655		299,959
Net income	—		—	—	16,173		—		151		16,324
Other comprehensive loss	—		—	—	—		(35,656	)	—		(35,656	)
Accretion of discount on preferred stock	1,806		—	—	(1,806	)	—		—		—
Preferred stock dividends declared	—		—	—	(9,828	)	—		—		(9,828	)
Balance, June 30, 2013	$	323,969	5,915	12,480	(174,974	)	9,603		93,806		270,799
Balance, December 31, 2013	$	325,806	5,915	12,480	42,719		7,502		93,834		488,256
Net income	—		—	—	10,636		—		(54	)	10,582
Other comprehensive income	—		—	—	—		7,390		—		7,390
Balance, June 30, 2014	$	325,806	5,915	12,480	53,355		14,892		93,780		506,228

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

4

FIRSTBANKS,INC.

CONSOLIDATEDSTATEMENTS OFCASHFLOWS–(UNAUDITED)

(dollars expressed in thousands)

	Six Months Ended
	June 30,
	2014			2013
Cash flows from operating activities:
Net income attributable to First Banks, Inc.	$	10,636		16,173
Net (loss) income attributable to noncontrolling interest in subsidiary	(54		)	151
Less: net loss from discontinued operations, net of tax	—			(5,398	)
Net income from continuing operations, net of tax	10,582			21,722
Adjustments to reconcile net income to net cash (used in) provided by operating activities:
Depreciation and amortization of bank premises and equipment	5,837			5,794
Amortization and accretion of investment securities	11,265			13,326
Originations of loans held for sale	(93,643		)	(173,065	)
Proceeds from sales of loans held for sale	93,710			190,182
Provision (benefit) for current income taxes	546			(274	)
Provision for deferred income taxes	5,289			3,956
Decrease in deferred tax asset valuation allowance	—			(3,662	)
Decrease in accrued interest receivable	3,056			8
(Decrease) increase in accrued interest payable	(62,558		)	7,068
Gain on loans sold and held for sale	(2,419		)	(3,125	)
Net (gain) loss on investment securities	(1,279		)	71
Decrease (increase) in fair value of servicing rights	1,133			(624	)
Write-downs on other real estate	197			809
Other operating activities, net	161			5,759
Net cash (used in) provided by operating activities – continuing operations	(28,123		)	67,945
Net cash used in operating activities – discontinued operations	—			(4,553	)
Net cash (used in) provided by operating activities	(28,123		)	63,392
Cash flows from investing activities:
Net cash paid for sale of assets and liabilities of discontinued operations, net of cash and cash equivalents sold	(15,467		)	(115,044	)
Proceeds from sales of investment securities available for sale	166,320			118,583
Maturities of investment securities available for sale	90,817			243,019
Maturities of investment securities held to maturity	38,410			85,760
Purchases of investment securities available for sale	(62,293		)	(306,063	)
Purchases of investment securities held to maturity	(2,595		)	(19,895	)
Net purchases of Federal Reserve Bank and Federal Home Loan Bank stock	(3,031		)	(345	)
Proceeds from sales of commercial loans	3,682			6,681
Net (increase) decrease in loans	(111,615		)	38,544
Recoveries of loans previously charged-off	6,672			7,785
Purchases of bank premises and equipment	(3,674		)	(3,327	)
Net proceeds from sales of other real estate	10,103			20,535
Other investing activities, net	1,170			1,467
Net cash provided by investing activities – continuing operations	118,499			77,700
Net cash provided by investing activities – discontinued operations	—			1,699
Net cash provided by investing activities	118,499			79,399
Cash flows from financing activities:
Increase (decrease) in demand, savings and money market deposits	56,650			(4,681	)
Decrease in time deposits	(64,511		)	(123,856	)
Increase in securities sold under agreements to repurchase	14,429			9,203
Net cash provided by (used in) financing activities – continuing operations	6,568			(119,334	)
Net cash used in financing activities – discontinued operations	—			(26,758	)
Net cash provided by (used in) financing activities	6,568			(146,092	)
Net increase (decrease) in cash and cash equivalents	96,944			(3,301	)
Cash and cash equivalents, beginning of period	190,435			518,846
Cash and cash equivalents, end of period	$	287,379		515,545
Supplemental disclosures of cash flow information:
Cash paid for interest on liabilities	$	73,470		5,056
Cash paid (received) for income taxes	447			(126	)
Noncash investing and financing activities:
Reclassification of investment securities from available for sale to held to maturity	$	—		242,540
Loans transferred to other real estate	2,915			5,221

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

5

FIRSTBANKS,INC.

NOTES TOCONSOLIDATEDFINANCIALSTATEMENTS (UNAUDITED)

NOTE1–BASIS OFPRESENTATION

Basis of Presentation. The consolidated financial statements of First Banks, Inc. and subsidiaries (the Company) are unaudited and should be read in conjunction with the consolidated financial statements contained in the Company’s 2013 Annual Report on Form 10-K. The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (GAAP) and conform to predominant practices within the banking industry. Management of the Company has made a number of estimates and assumptions relating to the reporting of assets and liabilities and the disclosure of contingent assets and liabilities to prepare the consolidated financial statements in conformity with GAAP. Actual results could differ from those estimates. In the opinion of management, all adjustments, consisting of normal recurring accruals considered necessary for a fair presentation of the results of operations for the interim periods presented herein, have been included. Operating results for the three and six months ended June 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014. Certain reclassifications of 2013 amounts have been made to conform to the 2014 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.

Principles of Consolidation. The consolidated financial statements include the accounts of the parent company and its subsidiaries, giving effect to the noncontrolling interest in subsidiary, as more fully described below and in Note 14 to the consolidated financial statements. All significant intercompany accounts and transactions have been eliminated.

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. All of the subsidiaries are wholly owned as of June 30, 2014 except FB Holdings, LLC (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, Vice Chairman of the Company, and Ms. Ellen Dierberg Milne, Director of the Company, as further described in Note 14 to the consolidated financial statements. FB Holdings is included in the consolidated financial statements and the noncontrolling ownership interest is reported as a component of stockholders’ equity in the consolidated balance sheets as “noncontrolling interest in subsidiary” and the earnings or loss, net of tax, attributable to the noncontrolling ownership interest, is reported as “net income (loss) attributable to noncontrolling interest in subsidiary” in the consolidated statements of income.

NOTE2–DISCONTINUEDOPERATIONS

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 Optimization Plan (Capital Plan). The Company applied discontinued operations accounting in accordance with ASC Topic 205-20, “Presentation of Financial Statements – Discontinued Operations,” to the operations of First Bank’s Association Bank Services line of business and Northern Florida Region for the three and six months ended June 30, 2013. 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.

Association Bank Services. On May 13, 2013, First Bank entered into a Purchase and Assumption Agreement that provided for the sale of certain assets and the transfer of certain liabilities, primarily deposits, of First Bank's Association Bank Services (ABS) line of business, to Union Bank, N.A. (Union Bank), headquartered in San Francisco, California. ABS, previously headquartered in Vallejo, California, provided a full range of services to homeowners associations and community management companies. The transaction was completed on November 22, 2013. Under the terms of the agreement, Union Bank assumed $572.1 million of deposits, as well as certain other liabilities, and paid a premium on certain deposit accounts acquired in the transaction. Union Bank also purchased certain assets, including $20.8 million of loans, at par value. The transaction resulted in a gain of $28.6 million, after the write-off of goodwill of $18.0 million allocated to the transaction in the fourth quarter of 2013.

Northern Florida Region. On November 21, 2012, First Bank entered into a Branch Purchase and Assumption Agreement that provided for the sale of certain assets and the transfer of certain liabilities associated with eight of First Bank’s retail branches located in Pinellas County, Florida to HomeBanc National Association (HomeBanc), headquartered in Lake Mary, Florida. The transaction was completed on April 19, 2013. Under the terms of the agreement, HomeBanc assumed $120.3 million of deposits, purchased the premises and equipment, and assumed the leases associated with these eight retail branches. The transaction resulted in a gain of $408,000, after the write-off of goodwill of $700,000 allocated to the Northern Florida Region, primarily during the second quarter of 2013.

6

On April 5, 2013, First Bank closed its three remaining retail branches located in Hillsborough County and in Pasco County. The closure of these three remaining retail branches in the Northern Florida Region resulted in expense of $2.3 million during the second quarter of 2013 attributable to continuing obligations under facility leasing arrangements.

The eight branches sold and three branches closed during the second quarter of 2013 are collectively defined as the Northern Florida Region. First Bank presently continues to operate its remaining eight retail branches in Manatee County’s communities of Bradenton, Palmetto and Longboat Key, Florida.

Losses from discontinued operations, net of tax, for the three and six months ended June 30, 2013 were as follows:

	Three Months Ended							Six Months Ended
	June 30, 2013							June 30, 2013
	Association Bank Services			Northern Florida		Total		Association Bank Services		Northern Florida		Total
	(dollars expressed in thousands)
Interest income:
Interest and fees on loans	$	339		—		339		704		—		704
Interest expense:
Interest on deposits	82			41		123		170		233		403
Net interest income (loss)	257			(41	)	216		534		(233	)	301
Provision for loan losses	—			—		—		—		—		—
Net interest income (loss) after provision for loan losses	257			(41	)	216		534		(233	)	301
Noninterest income:
Service charges and customer service fees	16			30		46		57		134		191
Other	27			1		28		53		4		57
Total noninterest income	43			31		74		110		138		248
Noninterest expense:
Salaries and employee benefits	813			306		1,119		1,456		885		2,341
Occupancy, net of rental income	2			124		126		4		579		583
Furniture and equipment	9			1		10		21		40		61
FDIC insurance	205			—		205		409		53		462
Other	218			2,340		2,558		442		2,452		2,894
Total noninterest expense	1,247			2,771		4,018		2,332		4,009		6,341
Loss from operations of discontinued operations	(947		)	(2,781	)	(3,728	)	(1,688	)	(4,104	)	(5,792	)
Net gain on sale of discontinued operations	—			394		394		—		394		394
Benefit for income taxes	—			—		—		—		—		—
Net loss from discontinued operations, net of tax	$	(947	)	(2,387	)	(3,334	)	(1,688	)	(3,710	)	(5,398	)

7

NOTE3–INVESTMENTS INDEBT ANDEQUITYSECURITIES

Securities Available for Sale. The amortized cost, contractual maturity, gross unrealized gains and losses and fair value of investment securities available for sale at June 30, 2014 and December 31, 2013 were as follows:

	Maturity									Total Amortized Cost	Gross				Weighted Average Yield
	1 Year			1-5		5-10		After			Unrealized			Fair
	or Less			Years		Years		10 Years			Gains	Losses		Value
	(dollars expressed in thousands)
June 30, 2014:
Carrying value:
U.S. Government sponsored agencies	$	8,387		30,019		20,130		131,208		189,744	4,201	(52	)	193,893	1.36	%
Residential mortgage-backed	281			57,182		53,163		912,855		1,023,481	16,996	(9,141	)	1,031,336	2.34
Commercial mortgage-backed	—			786		—		—		786	65	—		851	4.95
State and political subdivisions	1,815			842		—		28,402		31,059	58	(364	)	30,753	1.17
Corporate notes	—			121,324		45,130		—		166,454	5,142	(441	)	171,155	2.81
Equity investments	—			—		—		1,750		1,750	—	(45	)	1,705	2.09
Total	$	10,483		210,153		118,423		1,074,215		1,413,274	26,462	(10,043	)	1,429,693	2.24
Fair value:
Debt securities	$	10,531		216,141		119,237		1,082,079
Equity securities	—			—		—		1,705
Total	$	10,531		216,141		119,237		1,083,784
Weighted average yield	2.03		%	2.34	%	2.08	%	2.24	%
December 31, 2013:
Carrying value:
U.S. Government sponsored agencies	$	8,450		40,243		88,666		135,679		273,038	3,525	(664	)	275,899	1.34	%
Residential mortgage-backed	—			43,943		115,731		951,454		1,111,128	12,873	(18,214	)	1,105,787	2.32
Commercial mortgage-backed	—			—		793		—		793	63	—		856	4.94
State and political subdivisions	1,369			2,035		200		28,432		32,036	81	(560	)	31,557	1.26
Corporate notes	4,980			140,575		45,132		—		190,687	5,777	(261	)	196,203	2.69
Equity investments	—			—		—		1,500		1,500	—	(57	)	1,443	2.17
Total	$	14,799		226,796		250,522		1,117,065		1,609,182	22,319	(19,756	)	1,611,745	2.18
Fair value:
Debt securities	$	14,927		233,338		250,860		1,111,177
Equity securities	—			—		—		1,443
Total	$	14,927		233,338		250,860		1,112,620
Weighted average yield	2.17		%	2.23	%	1.81	%	2.24	%

Securities Held to Maturity. The amortized cost, contractual maturity, gross unrealized gains and losses and fair value of investment securities held to maturity at June 30, 2014 and December 31, 2013 were as follows:

	Maturity									Total Amortized Cost	Gross				Weighted Average Yield
	1 Year			1-5		5-10		After			Unrealized			Fair
	or Less			Years		Years		10 Years			Gains	Losses		Value
	(dollars expressed in thousands)
June 30, 2014:
Carrying value:
U.S. Government sponsored agencies	$	—		—		12,959		—		12,959	—	(104	)	12,855	1.18	%
Residential mortgage-backed	—			120,167		70,482		487,645		678,294	1,776	(9,817	)	670,253	1.88
State and political subdivisions	521			820		489		1,002		2,832	16	(87	)	2,761	1.84
Total	$	521		120,987		83,930		488,647		694,085	1,792	(10,008	)	685,869	1.87
Fair value:
Debt securities	$	524		121,704		83,820		479,821
Weighted average yield	2.62		%	1.94	%	1.15	%	1.97	%
December 31, 2013:
Carrying value:
U.S. Government sponsored agencies	$	—		—		16,119		—		16,119	—	(153	)	15,966	1.14	%
Residential mortgage-backed	—			16,327		182,933		522,504		721,764	441	(21,206	)	700,999	1.88
State and political subdivisions	640			575		55		1,033		2,303	2	(87	)	2,218	1.93
Total	$	640		16,902		199,107		523,537		740,186	443	(21,446	)	719,183	1.86
Fair value:
Debt securities	$	642		16,926		195,647		505,968
Weighted average yield	3.32		%	2.20	%	1.53	%	1.97	%

8

Proceeds from sales of available-for-sale investment securities were zero and $166.3 million for the three and six months ended June 30, 2014, respectively, compared to $52.1 million and $118.6 million for the comparable periods in 2013. Gross realized gains and gross realized losses on investment securities for the three and six months ended June 30, 2014 and 2013 were as follows:

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2014			2013		2014		2013
	(dollars expressed in thousands)
Gross realized gains on sales of available-for-sale securities	$	—		346		2,010		692
Gross realized losses on sales of available-for-sale securities	—			—		(730	)	(354	)
Other-than-temporary impairment	(1		)	(1	)	(1	)	(409	)
Net realized (loss) gain on investment securities	$	(1	)	345		1,279		(71	)

Other-than-temporary impairment for the six months ended June 30, 2013 includes impairment of $407,000 recorded during the first quarter of 2013 on a municipal investment security classified as held-to-maturity. Investment securities with a carrying value of $300.3 million and $283.7 million at June 30, 2014 and December 31, 2013, respectively, were pledged in connection with deposits of public and trust funds, securities sold under agreements to repurchase and for other purposes as required by law.

Gross unrealized losses on investment securities and the fair value of the related securities, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position, at June 30, 2014 and December 31, 2013, were as follows:

	Less Than 12 Months				12 Months or More			Total
	Fair Value		Unrealized Losses		Fair Value	Unrealized Losses		Fair Value	Unrealized Losses
	(dollars expressed in thousands)
June 30, 2014:
Available for sale:
U.S. Government sponsored agencies	$	—	—		14,670	(52	)	14,670	(52	)
Residential mortgage-backed	85,433		(434	)	264,814	(8,707	)	350,247	(9,141	)
State and political subdivisions	—		—		28,038	(364	)	28,038	(364	)
Corporate notes	9,873		(127	)	14,686	(314	)	24,559	(441	)
Equity investments	1,705		(45	)	—	—		1,705	(45	)
Total	$	97,011	(606	)	322,208	(9,437	)	419,219	(10,043	)
Held to maturity:
U.S. Government sponsored agencies	$	12,855	(104	)	—	—		12,855	(104	)
Residential mortgage-backed	67,802		(914	)	377,479	(8,903	)	445,281	(9,817	)
State and political subdivisions	—		—		915	(87	)	915	(87	)
Total	$	80,657	(1,018	)	378,394	(8,990	)	459,051	(10,008	)
December 31, 2013:
Available for sale:
U.S. Government sponsored agencies	$	16,005	(664	)	—	—		16,005	(664	)
Residential mortgage-backed	511,617		(18,119	)	5,473	(95	)	517,090	(18,214	)
State and political subdivisions	27,872		(560	)	—	—		27,872	(560	)
Corporate notes	9,959		(41	)	4,780	(220	)	14,739	(261	)
Equity investments	1,443		(57	)	—	—		1,443	(57	)
Total	$	566,896	(19,441	)	10,253	(315	)	577,149	(19,756	)
Held to maturity:
U.S. Government sponsored agencies	$	15,966	(153	)	—	—		15,966	(153	)
Residential mortgage-backed	644,700		(20,759	)	10,527	(447	)	655,227	(21,206	)
State and political subdivisions	946		(87	)	—	—		946	(87	)
Total	$	661,612	(20,999	)	10,527	(447	)	672,139	(21,446	)

The Company does not believe the investment securities that were in an unrealized loss position at June 30, 2014 and December 31, 2013 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 investment securities for 12 months or more at June 30, 2014 and December 31, 2013 included 54 and 12 securities, respectively.

9

NOTE4–LOANS ANDALLOWANCE FORLOANLOSSES

The following table summarizes the composition of the loan portfolio at June 30, 2014 and December 31, 2013:

	June 30, 2014			December 31, 2013
	(dollars expressed in thousands)
Commercial, financial and agricultural	$	639,741		600,704
Real estate construction and development	123,509			121,662
Real estate mortgage:
One-to-four-family residential	936,580			921,488
Multi-family residential	116,815			121,304
Commercial real estate	1,090,146			1,048,234
Consumer and installment	18,501			18,681
Loans held for sale	27,576			25,548
Net deferred loan fees	(749		)	(526	)
Total loans	$	2,952,119		2,857,095

Aging of Loans. The following table presents the aging of loans by loan classification at June 30, 2014 and December 31, 2013:

	30-59 Days		60-89 Days	Recorded Investment > 90 Days Accruing	Nonaccrual	Total Past Due	Current	Total Loans
	(dollars expressed in thousands)
June 30, 2014:
Commercial, financial and agricultural	$	260	361	15	12,339	12,975	626,766	639,741
Real estate construction and development	—		95	—	4,242	4,337	119,172	123,509
Real estate mortgage:
Residential mortgage	3,341		3,003	139	17,173	23,656	548,891	572,547
Home equity	2,294		493	720	7,011	10,518	353,515	364,033
Multi-family residential	—		—	—	1,164	1,164	115,651	116,815
Commercial real estate	577		4,238	228	6,036	11,079	1,079,067	1,090,146
Consumer and installment and net deferred loan fees	137		23	—	13	173	17,579	17,752
Loans held for sale	—		—	—	—	—	27,576	27,576
Total	$	6,609	8,213	1,102	47,978	63,902	2,888,217	2,952,119
December 31, 2013:
Commercial, financial and agricultural	$	447	394	80	10,523	11,444	589,260	600,704
Real estate construction and development	—		—	—	4,914	4,914	116,748	121,662
Real estate mortgage:
Residential mortgage	4,262		2,637	162	20,063	27,124	545,040	572,164
Home equity	2,256		963	182	7,361	10,762	338,562	349,324
Multi-family residential	—		—	—	1,793	1,793	119,511	121,304
Commercial real estate	1,423		391	—	8,283	10,097	1,038,137	1,048,234
Consumer and installment and net deferred loan fees	87		39	—	19	145	18,010	18,155
Loans held for sale	—		—	—	—	—	25,548	25,548
Total	$	8,475	4,424	424	52,956	66,279	2,790,816	2,857,095

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.

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

The Company includes adversely rated credits, including loans requiring close monitoring that would not normally be considered classified credits by the Company’s regulators, on its monthly loan watch list. Loans may be added to the Company’s watch list for reasons that are temporary and correctable, such as the absence of current financial statements of the borrower or a deficiency in loan documentation. Loans may also be added to the Company’s watch list whenever any adverse circumstance is detected

10

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 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 are 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 tables present the credit exposure of the loan portfolio by internally assigned credit grade and payment activity as of June 30, 2014 and December 31, 2013:

Commercial Loan Portfolio Credit Exposure by Internally Assigned Credit Grade	Commercial and Industrial		Real Estate Construction and Development	Multi-family	Commercial Real Estate	Total
			(dollars expressed in thousands)
June 30, 2014:
Pass	$	593,976	45,980	90,070	1,048,970	1,778,996
Special mention	21,203		141	—	20,808	42,152
Substandard	12,223		73,146	611	9,883	95,863
Performing troubled debt restructuring	—		—	24,970	4,449	29,419
Nonaccrual	12,339		4,242	1,164	6,036	23,781
Total	$	639,741	123,509	116,815	1,090,146	1,970,211
December 31, 2013:
Pass	$	559,243	42,429	91,001	1,001,719	1,694,392
Special mention	16,211		929	—	21,714	38,854
Substandard	14,727		73,390	555	11,999	100,671
Performing troubled debt restructuring	—		—	27,955	4,519	32,474
Nonaccrual	10,523		4,914	1,793	8,283	25,513
Total	$	600,704	121,662	121,304	1,048,234	1,891,904

Consumer Loan Portfolio Credit Exposure by Payment Activity	Residential Mortgage		Home Equity	Consumer and Installment and Net Deferred Loan Fees	Total
	(dollars expressed in thousands)
June 30, 2014:
Pass	$	472,488	353,516	17,579	843,583
Substandard	5,421		3,506	160	9,087
Performing troubled debt restructuring	77,465		—	—	77,465
Nonaccrual	17,173		7,011	13	24,197
Total	$	572,547	364,033	17,752	954,332
December 31, 2013:
Pass	$	468,642	338,562	18,010	825,214
Substandard	5,306		3,401	126	8,833
Performing troubled debt restructuring	78,153		—	—	78,153
Nonaccrual	20,063		7,361	19	27,443
Total	$	572,164	349,324	18,155	939,643

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 if the impaired loans are collateral dependent, the estimated value of the collateral, less applicable selling costs. If the current valuation is lower than the current book

11

balance of the loan, the amount of the difference is evaluated for possible charge-off. In instances where management determines that a charge-off is not appropriate, a specific reserve is established for the individual loan in question. This specific reserve is included as a part of the overall allowance for loan losses.

The following tables present the recorded investment, unpaid principal balance, related allowance for loan losses, average recorded investment and interest income recognized while on impaired status for impaired loans without a related allowance for loan losses and for impaired loans with a related allowance for loan losses by loan classification at June 30, 2014 and December 31, 2013:

	Recorded Investment		Unpaid Principal Balance	Related Allowance for Loan Losses	Average Recorded Investment	Interest Income Recognized
	(dollars expressed in thousands)
June 30, 2014:
With No Related Allowance Recorded:
Commercial, financial and agricultural	$	3,929	5,762	—	3,809	—
Real estate construction and development	3,038		12,833	—	3,294	—
Real estate mortgage:
Residential mortgage	—		—	—	—	—
Home equity	—		—	—	—	—
Multi-family residential	420		709	—	457	—
Commercial real estate	5,866		7,912	—	6,826	58
Consumer and installment	—		—	—	—	—
	13,253		27,216	—	14,386	58
With A Related Allowance Recorded:
Commercial, financial and agricultural	8,410		22,520	766	8,153	—
Real estate construction and development	1,204		3,541	226	1,305	—
Real estate mortgage:
Residential mortgage	94,638		112,767	8,177	97,002	1,038
Home equity	7,011		7,915	1,402	7,156	—
Multi-family residential	25,714		28,636	3,353	27,995	586
Commercial real estate	4,619		6,602	847	5,375	13
Consumer and installment	13		13	1	15	—
	141,609		181,994	14,772	147,001	1,637
Total:
Commercial, financial and agricultural	12,339		28,282	766	11,962	—
Real estate construction and development	4,242		16,374	226	4,599	—
Real estate mortgage:
Residential mortgage	94,638		112,767	8,177	97,002	1,038
Home equity	7,011		7,915	1,402	7,156	—
Multi-family residential	26,134		29,345	3,353	28,452	586
Commercial real estate	10,485		14,514	847	12,201	71
Consumer and installment	13		13	1	15	—
	$	154,862	209,210	14,772	161,387	1,695

12

	Recorded Investment		Unpaid Principal Balance	Related Allowance for Loan Losses	Average Recorded Investment	Interest Income Recognized
	(dollars expressed in thousands)
December 31, 2013:
With No Related Allowance Recorded:
Commercial, financial and agricultural	$	3,119	4,342	—	4,270	1
Real estate construction and development	3,172		12,931	—	17,152	418
Real estate mortgage:
Residential mortgage	—		—	—	—	—
Home equity	596		632	—	564	—
Multi-family residential	443		709	—	474	—
Commercial real estate	6,884		9,221	—	11,636	273
Consumer and installment	—		—	—	—	—
	14,214		27,835	—	34,096	692
With A Related Allowance Recorded:
Commercial, financial and agricultural	7,404		21,565	497	10,136	—
Real estate construction and development	1,742		4,326	294	9,419	—
Real estate mortgage:
Residential mortgage	98,216		118,305	9,740	102,775	2,043
Home equity	6,765		7,637	1,472	6,406	—
Multi-family residential	29,305		29,322	2,438	31,377	1,226
Commercial real estate	5,918		9,468	990	10,003	26
Consumer and installment	19		19	—	22	—
	149,369		190,642	15,431	170,138	3,295
Total:
Commercial, financial and agricultural	10,523		25,907	497	14,406	1
Real estate construction and development	4,914		17,257	294	26,571	418
Real estate mortgage:
Residential mortgage	98,216		118,305	9,740	102,775	2,043
Home equity	7,361		8,269	1,472	6,970	—
Multi-family residential	29,748		30,031	2,438	31,851	1,226
Commercial real estate	12,802		18,689	990	21,639	299
Consumer and installment	19		19	—	22	—
	$	163,583	218,477	15,431	204,234	3,987

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 June 30, 2014 and December 31, 2013, the Company had recorded charge-offs of $54.3 million and $54.9 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.

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 covenants of the borrower as well as underwriting standards.

Loan modifications are generally performed at the request of the borrower, whether commercial or consumer, and may include reductions 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 addresses loan modifications on a case-by-case basis and also participates in the United States 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 June 30, 2014 and December 31, 2013, the Company had $73.8 million and $75.3 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.

13

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

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

The Company does not accrue interest on any TDRs unless it believes collection of all principal and interest under the modified terms is reasonably assured. Generally, six months of consecutive payment performance by the borrower under the restructured terms is required before a TDR is returned to accrual status. However, the period could vary depending upon the individual facts and circumstances of the loan. TDRs accruing interest are classified as performing TDRs. The following table presents the categories of performing TDRs as of June 30, 2014 and December 31, 2013:

	June 30, 2014		December 31, 2013
	(dollars expressed in thousands)
Performing Troubled Debt Restructurings:
Real estate mortgage:
One-to-four-family residential	$	77,465	78,153
Multi-family residential	24,970		27,955
Commercial real estate	4,449		4,519
Total performing troubled debt restructurings	$	106,884	110,627

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 June 30, 2014 and December 31, 2013:

	June 30, 2014		December 31, 2013
	(dollars expressed in thousands)
Nonperforming Troubled Debt Restructurings:
Commercial, financial and agricultural	$	478	711
Real estate construction and development	3,496		3,605
Real estate mortgage:
One-to-four-family residential	5,470		6,266
Total nonperforming troubled debt restructurings	$	9,444	10,582

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 $8.9 million and $9.1 million at June 30, 2014 and December 31, 2013, respectively.

14

The following tables present loans classified as TDRs that were modified during the three and six months ended June 30, 2014 and 2013:

	Three Months Ended June 30, 2014					Three Months Ended June 30, 2013
	Number of Contracts	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of Contracts	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
	(dollars expressed in thousands)
Loan Modifications Classified as Troubled Debt Restructurings:
Commercial, financial and agricultural	—	$	—	$	—	1	$	156	$	156
Real estate mortgage:
One-to-four-family residential	12	1,467		1,177		10	2,647		2,644

	Six Months Ended June 30, 2014					Six Months Ended June 30, 2013
	Number of Contracts	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment		Number of Contracts	Pre- Modification Outstanding Recorded Investment		Post- Modification Outstanding Recorded Investment
	(dollars expressed in thousands)
Loan Modifications Classified as Troubled Debt Restructurings:
Commercial, financial and agricultural	—	$	—	$	—	2	$	246	$	201
Real estate mortgage:
One-to-four-family residential	27	4,047		3,334		20	4,870		4,542

The following tables present TDRs that defaulted within 12 months of modification during the three and six months ended June 30, 2014 and 2013:

	Three Months Ended			Three Months Ended
	June 30, 2014			June 30, 2013
	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
	(dollars expressed in thousands)
Troubled Debt Restructurings That Subsequently Defaulted:
Real estate mortgage:
One-to-four-family residential	5	$	764	1	$	83

	Six Months Ended			Six Months Ended
	June 30, 2014			June 30, 2013
	Number of Contracts	Recorded Investment		Number of Contracts	Recorded Investment
	(dollars expressed in thousands)
Troubled Debt Restructurings That Subsequently Defaulted:
Real estate mortgage:
One-to-four-family residential	6	$	1,202	1	$	83

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 three and six months ended June 30, 2014 and 2013 were as follows:

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2014			2013		2014		2013
	(dollars expressed in thousands)
Balance, beginning of period	$	79,831		88,170		81,033		91,602
Loans charged-off	(6,240		)	(6,871	)	(9,687	)	(13,754	)
Recoveries of loans previously charged-off	4,427			4,334		6,672		7,785
Net loans charged-off	(1,813		)	(2,537	)	(3,015	)	(5,969	)
Provision for loan losses	—			—		—		—
Balance, end of period	$	78,018		85,633		78,018		85,633

15

The following table represents a summary of changes in the allowance for loan losses by portfolio segment for the three and six months ended June 30, 2014:

	Commercial and Industrial			Real Estate Construction and Development		One-to- Four-Family Residential		Multi- Family Residential		Commercial Real Estate		Consumer and Installment		Total
	(dollars expressed in thousands)
Three Months Ended June 30, 2014:
Allowance for loan losses:
Beginning balance	$	13,871		7,086		31,220		5,269		22,043		342		79,831
Charge-offs	(994		)	(35	)	(2,201	)	(2,952	)	(21	)	(37	)	(6,240	)
Recoveries	1,263			756		1,478		2		915		13		4,427
Provision (benefit) for loan losses	(409		)	(1,207	)	(1,352	)	5,055		(2,117	)	30		—
Ending balance	$	13,731		6,600		29,145		7,374		20,820		348		78,018
Six Months Ended June 30, 2014:
Allowance for loan losses:
Beginning balance	$	13,401		7,407		32,619		5,249		22,052		305		81,033
Charge-offs	(2,616		)	(65	)	(3,627	)	(3,084	)	(209	)	(86	)	(9,687	)
Recoveries	2,015			1,356		2,269		9		972		51		6,672
Provision (benefit) for loan losses	931			(2,098	)	(2,116	)	5,200		(1,995	)	78		—
Ending balance	$	13,731		6,600		29,145		7,374		20,820		348		78,018

The following table represents a summary of changes in the allowance for loan losses by portfolio segment for the three and six months ended June 30, 2013:

	Commercial and Industrial			Real Estate Construction and Development		One-to- Four-Family Residential		Multi- Family Residential		Commercial Real Estate		Consumer and Installment		Total
	(dollars expressed in thousands)
Three Months Ended June 30, 2013:
Allowance for loan losses:
Beginning balance	$	14,168		13,003		36,660		4,202		19,720		417		88,170
Charge-offs	(1,010		)	(166	)	(4,338	)	(159	)	(1,156	)	(42	)	(6,871	)
Recoveries	1,023			1,321		1,288		141		522		39		4,334
Provision (benefit) for loan losses	(215		)	(2,746	)	1,656		(62	)	1,487		(120	)	—
Ending balance	$	13,966		11,412		35,266		4,122		20,573		294		85,633
Six Months Ended June 30, 2013:
Allowance for loan losses:
Beginning balance	$	13,572		14,434		38,897		4,252		20,048		399		91,602
Charge-offs	(1,686		)	(448	)	(8,727	)	(162	)	(2,633	)	(98	)	(13,754	)
Recoveries	2,090			1,716		2,519		141		1,240		79		7,785
Provision (benefit) for loan losses	(10		)	(4,290	)	2,577		(109	)	1,918		(86	)	—
Ending balance	$	13,966		11,412		35,266		4,122		20,573		294		85,633

16

The following table represents a summary of the impairment method used by loan category at June 30, 2014 and December 31, 2013:

	Commercial and Industrial		Real Estate Construction and Development	One-to- Four-Family Residential	Multi- Family Residential	Commercial Real Estate	Consumer and Installment and Net Deferred Loans Fees	Total
	(dollars expressed in thousands)
June 30, 2014:
Allowance for loan losses:
Impaired loans individually evaluated for impairment	$	108	—	1,221	1,960	288	—	3,577
Impaired loans collectively evaluated for impairment	658		226	8,358	1,393	559	1	11,195
All other loans collectively evaluated for impairment	12,965		6,374	19,566	4,021	19,973	347	63,246
Total allowance for loan losses	$	13,731	6,600	29,145	7,374	20,820	348	78,018
Loans:
Impaired loans individually evaluated for impairment	$	5,794	2,870	9,866	25,558	6,149	—	50,237
Impaired loans collectively evaluated for impairment	6,545		1,372	91,783	576	4,336	13	104,625
All other loans collectively evaluated for impairment	627,402		119,267	834,931	90,681	1,079,661	17,739	2,769,681
Total loans	$	639,741	123,509	936,580	116,815	1,090,146	17,752	2,924,543
December 31, 2013:
Allowance for loan losses:
Impaired loans individually evaluated for impairment	$	—	62	2,275	1,034	385	—	3,756
Impaired loans collectively evaluated for impairment	497		232	8,937	1,404	605	—	11,675
All other loans collectively evaluated for impairment	12,904		7,113	21,407	2,811	21,062	305	65,602
Total allowance for loan losses	$	13,401	7,407	32,619	5,249	22,052	305	81,033
Loans:
Impaired loans individually evaluated for impairment	$	3,480	3,440	12,276	28,641	9,168	—	57,005
Impaired loans collectively evaluated for impairment	7,043		1,474	93,301	1,107	3,634	19	106,578
All other loans collectively evaluated for impairment	590,181		116,748	815,911	91,556	1,035,432	18,136	2,667,964
Total loans	$	600,704	121,662	921,488	121,304	1,048,234	18,155	2,831,547

NOTE5–SERVICINGRIGHTS

Mortgage Banking Activities. At June 30, 2014 and December 31, 2013, the Company serviced mortgage loans for others totaling $1.32 billion and $1.33 billion, respectively. Changes in mortgage servicing rights for the three and six months ended June 30, 2014 and 2013 were as follows:

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2014			2013		2014		2013
	(dollars expressed in thousands)
Balance, beginning of period	$	14,395		10,652		14,211		9,152
Originated mortgage servicing rights	577			888		1,032		2,117
Purchased mortgage servicing rights	31			—		31		—
Change in fair value resulting from changes in valuation inputs or assumptions used in valuation model (1)	(460		)	1,453		(309	)	2,307
Other changes in fair value (2)	(440		)	(652	)	(862	)	(1,235	)
Balance, end of period	$	14,103		12,341		14,103		12,341

____________________

(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.

17

Other Servicing Activities. At June 30, 2014 and December 31, 2013, the Company serviced United States Small Business Administration (SBA) loans for others totaling $130.2 million and $139.1 million, respectively. Changes in SBA servicing rights for the three and six months ended June 30, 2014 and 2013 were as follows:

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2014			2013		2014		2013
	(dollars expressed in thousands)
Balance, beginning of period	$	4,682		5,523		4,643		5,640
Originated SBA servicing rights	—			—		—		—
Change in fair value resulting from changes in valuation inputs or assumptions used in valuation model (1)	176			(58	)	351		(36	)
Other changes in fair value (2)	(177		)	(273	)	(313	)	(412	)
Balance, end of period	$	4,681		5,192		4,681		5,192

____________________

(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.

NOTE6–DERIVATIVEINSTRUMENTS

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. The following table summarizes derivative instruments held by the Company, their notional amount, estimated fair values and their location in the consolidated balance sheets at June 30, 2014 and December 31, 2013:

				Derivatives in Other Assets
	Notional Amount			Fair Value Gain (Loss)
	June 30, 2014		December 31, 2013	June 30, 2014		December 31, 2013
	(dollars expressed in thousands)
Derivative Instruments Not Designated as Hedging Instruments:
Interest rate lock commitments	$	21,438	14,237	535		217
Forward commitments to sell mortgage-backed securities	35,800		29,100	(441	)	296
Total	$	57,238	43,337	94		513

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 interest rate lock commitments and loans held for sale are hedged with forward contracts to sell mortgage-backed securities, which expire in September 2014.

The following table summarizes amounts included in the consolidated statements of income for the three and six months ended June 30, 2014 and 2013 related to non-hedging derivative instruments:

Derivative Instruments Not Designated as Hedging Instruments:	Location of Gain (Loss) Recognized in Operations on Derivatives	Amount of Gain (Loss) Recognized in Operations on Derivatives
		Three Months Ended					Six Months Ended
		June 30,					June 30,
		2014			2013		2014		2013
		(dollars expressed in thousands)
Interest rate lock commitments	Gain on loans sold and held for sale	$	203		(1,047	)	318		(1,769	)
Forward commitments to sell mortgage-backed securities	Gain on loans sold and held for sale	(455		)	2,543		(737	)	2,783

NOTE7–SUBORDINATEDDEBENTURES

As of June 30, 2014, the Company had 13 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’s distributions accrued on the junior subordinated debentures were $3.0 million and $6.8 million for the three and six months ended June 30, 2014, respectively, and $3.7 million and $7.4 million for the comparable periods in 2013, and are included in interest expense in the consolidated statements of income. The structure of the trust preferred securities currently satisfies the regulatory requirements for inclusion, subject to certain limitations, in the Company’s capital base, as further discussed in Note 9 to the consolidated financial statements.

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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. The Company had deferred such payments for 18 quarterly periods as of December 31, 2013. The Company had deferred $56.0 million of its regularly scheduled interest payments as of December 31, 2013. In addition, the Company had accrued additional interest expense of $6.7 million as of December 31, 2013 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. During a deferral period, the respective trusts suspend the declaration and payment of dividends on the trust preferred securities.

During a 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. 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 8 to the consolidated financial statements.

Under its previous Written Agreement with the Federal Reserve Bank of St. Louis (FRB), which was terminated on May 19, 2014, 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 9 to the consolidated financial statements.

On January 31, 2014, the Company received regulatory approval from the FRB under the then-existing Written Agreement, subject to certain conditions, which granted First Bank the authority to pay a dividend to the Company, and the authority to the Company to utilize such funds, for the sole purpose of paying the accumulated deferred interest payments on the Company's outstanding junior subordinated debentures issued in connection with the Company's trust preferred securities. In February 2014, First Bank paid a dividend of $70.0 million to the Company. The aggregate amount owed on all of the junior subordinated debentures relating to the trust preferred securities at the respective March and April, 2014 payments totaled $66.4 million. On March 14, 2014, the Company paid interest on the junior subordinated debentures of $66.4 million to the respective trustees, which was subsequently distributed to the trust preferred securities holders on the respective interest payment dates in March and April, 2014. Since that time, the Company has continued to pay interest on its junior subordinated debentures to the respective trustees on the regularly scheduled quarterly payment dates. Such interest payments have been funded through additional dividends from First Bank.

Without the payment of dividends from First Bank, the Company currently lacks the source of income and the liquidity to make future interest payments on the junior subordinated debentures associated with its trust preferred securities. Given restrictions placed upon First Bank, including regulatory restrictions, it may not be able to provide the Company with dividends in an amount sufficient to pay the future interest on the trust preferred securities. In such case, the Company would have to pursue alternative funding sources, but there can be no assurance that the Company will be able to identify and obtain alternative funding due to the uncertainty that such alternative funding sources would be available to the Company on terms and conditions that are acceptable to the Company. The Company has the ability to enter into future deferral periods of up to 20 consecutive quarterly periods without triggering a payment default or penalty.

NOTE8–STOCKHOLDERS’EQUITY

Common Stock. 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 (including Mr. Michael Dierberg, Vice Chairman of the Company, and Ms. Ellen Dierberg Milne, Director of the Company), own all of the voting stock of the Company.

Preferred Stock. The Company has four classes of preferred stock outstanding. On February 15, 2014, the annual dividend rate on the Class C Fixed Rate Cumulative Perpetual Preferred Stock (Class C Preferred Stock) increased from 5% to 9%.

The Company 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. The Company has declared and accrued $68.4 million of its regularly scheduled dividend payments on its Class C Preferred Stock and Class D Fixed Rate Cumulative Perpetual Preferred Stock (Class D Preferred Stock) at June 30, 2014 and December 31, 2013, and has accrued an additional $9.4 million of cumulative dividends on such deferred dividend payments at June 30, 2014 and December 31, 2013. As such, the aggregate amount of these deferred and accrued dividend payments was $77.8 million at June 30, 2014 and December 31, 2013.

19

The Company ceased declaring dividends on its Class C Preferred Stock and Class D Preferred Stock during the fourth quarter of 2013. Previously, the Company had declared and accrued dividends on its Class C Preferred Stock and Class D Preferred Stock quarterly throughout the deferral period. If the Company had continued to declare and accrued dividends on its Class C Preferred Stock and Class D Preferred Stock during the fourth quarter of 2013 and the six months ended June 30, 2014, the Company would have accrued an additional $4.1 million and $14.5 million, respectively, of dividend payments, and the Company's aggregate deferred and accrued dividend payments would have been $96.4 million at June 30, 2014. The Company will continue to evaluate whether declaring dividends on its Class C Preferred Stock and Class D Preferred Stock is appropriate in future periods. The Company's cessation of declaring and accruing dividends on its Class C Preferred Stock and Class D Preferred Stock did not have any effect on the terms of the outstanding Class C Preferred Stock and Class D Preferred Stock, including the Company's obligations thereunder.

Accumulated Other Comprehensive Income (Loss). The following table summarizes changes in accumulated other comprehensive income (loss), net of tax, by component, for the three and six months ended June 30, 2014:

	Investment Securities			Defined Benefit Pension Plan		Total
	(dollars expressed in thousands)
Three Months Ended June 30, 2014:
Balance, beginning of period	$	13,830		(2,628	)	11,202
Other comprehensive income before reclassifications	3,668			21		3,689
Amounts reclassified from accumulated other comprehensive income	1			—		1
Net current period other comprehensive income	3,669			21		3,690
Balance, end of period	$	17,499		(2,607	)	14,892
Six Months Ended June 30, 2014:
Balance, beginning of period	$	10,151		(2,649	)	7,502
Other comprehensive income before reclassifications	8,100			42		8,142
Amounts reclassified from accumulated other comprehensive income	(752		)	—		(752	)
Net current period other comprehensive income	7,348			42		7,390
Balance, end of period	$	17,499		(2,607	)	14,892

The following table summarizes changes in accumulated other comprehensive income (loss), net of tax, by component, for the three and six months ended June 30, 2013:

	Investment Securities			Defined Benefit Pension Plan		Deferred Tax Asset Valuation Allowance		Total
	(dollars expressed in thousands)
Three Months Ended June 30, 2013:
Balance, beginning of period	$	32,510		(3,514	)	11,495		40,491
Other comprehensive income (loss) before reclassifications	(16,982		)	30		(13,745	)	(30,697	)
Amounts reclassified from accumulated other comprehensive income (loss)	(191		)	—		—		(191	)
Net current period other comprehensive income (loss)	(17,173		)	30		(13,745	)	(30,888	)
Balance, end of period	$	15,337		(3,484	)	(2,250	)	9,603
Six Months Ended June 30, 2013:
Balance, beginning of period	$	35,186		(3,544	)	13,617		45,259
Other comprehensive income (loss) before reclassifications	(19,663		)	60		(15,867	)	(35,470	)
Amounts reclassified from accumulated other comprehensive income (loss)	(186		)	—		—		(186	)
Net current period other comprehensive income (loss)	(19,849		)	60		(15,867	)	(35,656	)
Balance, end of period	$	15,337		(3,484	)	(2,250	)	9,603

NOTE9–REGULATORYCAPITAL AND OTHER REGULATORY MATTERS

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 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, or Tier1 leverage ratio.

20

The Company was categorized as adequately capitalized under minimum regulatory capital standards established for bank holding companies by the Federal Reserve at June 30, 2014 and December 31, 2013. The Company must maintain minimum total capital, Tier 1 capital and Tier 1 leverage ratios as set forth in the table below in order to meet the minimum capital adequacy standards.

First Bank was categorized as well capitalized at June 30, 2014 and December 31, 2013 under the prompt corrective action provisions of the regulatory capital standards. First Bank must maintain minimum total capital, Tier 1 capital and Tier 1 leverage ratios as set forth in the table below in order to be categorized as well capitalized.

At June 30, 2014 and December 31, 2013, the Company's and First Bank’s required and actual capital ratios were as follows:

											To be Well Capitalized Under Prompt Corrective Action Provisions
	Actual								For Capital Adequacy Purposes
	June 30, 2014				December 31, 2013
	Amount		Ratio		Amount		Ratio
	(dollars expressed in thousands)
Total capital (to risk-weighted assets):
First Banks, Inc.	$	445,411	12.03	%	$	405,856	11.13	%	8.0	%	N/A
First Bank (1)	688,930		18.59		734,535		20.12		8.0		10.0	%
Tier 1 capital (to risk-weighted assets):
First Banks, Inc.	265,812		7.18		239,868		6.58		4.0		N/A
First Bank (1)	642,175		17.32		688,427		18.86		4.0		6.0
Tier 1 capital (to average assets):
First Banks, Inc.	265,812		4.75		239,868		4.12		4.0		N/A
First Bank (1)	642,175		11.49		688,427		11.77		4.0		5.0

____________________

(1) The reduction in First Bank's regulatory capital ratios during the first six months of 2014 primarily resulted from the payment of a $70 million dividend to the Company in February 2014, as further described below.

Regulatory Agreements. On May 19, 2014, the FRB terminated the Written Agreement (Written Agreement), dated March 24, 2010, by and among the Company, SFC, First Bank and the FRB. The Written Agreement previously required the Company and First Bank to take certain steps intended to improve their overall financial condition, as previously described in "Item 1. – Business – Supervision and Regulation —Regulatory Agreements" in the Company's Annual Report on Form 10-K as of and for the year ended December 31, 2013. Pursuant to the Written 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 Written Agreement required, among other things, that the Company and First Bank obtain prior approval from the FRB to pay dividends. In addition, the Company was required to 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. The FRB had complete discretion to grant any such approval. On January 31, 2014, the Company received regulatory approval from the FRB under the former Written Agreement, which granted First Bank the authority to pay a dividend to the Company, and the authority to the Company to utilize such funds, for the sole purpose of paying the accumulated deferred interest payments on the Company's outstanding junior subordinated debentures issued in connection with the Company's trust preferred securities. In February 2014, First Bank paid a dividend of $70.0 million to the Company and the Company subsequently paid interest on the junior subordinated debentures of $66.4 million, as further described in Note 7 to the consolidated financial statements.

On May 19, 2014, the Company and its Board of Directors entered into a Memorandum of Understanding (MOU) with the FRB. The MOU is characterized by regulatory authorities as an informal action that is neither published nor made publicly available by the FRB and is used when circumstances warrant a milder form of action than a formal supervisory action. Under the terms of the MOU, the Company agreed, among other things, to provide certain information to the FRB including, but not limited to, progress of achieving its Capital Plan, notice of plans to materially change its Capital Plan, parent company cash flow plans and summaries of nonperforming asset classifications. In addition, the Company agreed not to do any of the following without the prior approval of the FRB: (i) declare or pay any dividends on its common or preferred stock; (ii) incur or guarantee any debt; (iii) redeem any of the Company's outstanding common or preferred stock; and (iv) cause First Bank to pay dividends in excess of its earnings or make a capital distribution that would cause First Bank's Tier 1 Leverage Ratio to fall below 9.0%. The FRB has complete discretion to grant any such approval and therefore, it is not known whether the FRB would approve any such request.

While the Company intends to take such actions as may be necessary to comply with the requirements of the MOU with the FRB, there can be no assurance that such efforts will not have adverse effects on the operations and financial condition of the Company

21

or First Bank. If the Company fails to comply with the terms of the MOU, further enforcement action could be taken by the FRB which could have a materially adverse effect on the Company's business, financial condition or results of operations.

Basel III Regulatory Capital Reforms. In July, 2013, the Federal Reserve approved revisions to the capital adequacy guidelines and prompt corrective action rules that implement the revised standards of the Basel Committee on Banking Supervision, commonly called Basel III, and address relevant provisions of the Dodd-Frank Act. “Basel III” refers to two consultative documents released by the Basel Committee on Banking Supervision in December 2009, the rules text released in December 2010, and loss absorbency rules issued in January 2011, which include significant changes to bank capital, leverage and liquidity requirements. The final rule, Regulatory Capital Rules: Regulatory Capital, Implementation of Basel III, Capital Adequacy, Transition Provisions, Prompt Corrective Action, Standardized Approach for Risk-weighted Assets, Market Discipline and Disclosure Requirements, Advanced Approaches Risk-Based Capital Rule, and Market Risk Capital Rule, incorporates certain revisions to the Basel capital framework, including Basel III and other elements. The final rule increases risk-based capital requirements and makes selected changes to the calculation of risk-weighted assets. The final rule:

• Includes a new minimum common equity Tier 1 capital ratio of 4.5% of risk-weighted assets and raises the minimum Tier 1 capital ratio from 4.0% to 6.0% of risk-weighted assets;

• Requires institutions to maintain a capital conservation buffer composed of common equity Tier 1 capital of 2.5% above the minimum risk-based capital requirements. Institutions that do not maintain the capital conservation buffer are precluded from: (1) paying dividends and making certain other capital distributions; (2) making interest payments on trust preferred securities (unless the non-payment of interest would otherwise trigger an event of default); and (3) making certain discretionary bonus payments to executive officers. The capital conservation buffer is measured relative to risk-weighted assets and will be phased in over a four-year period beginning on January 1, 2016 with an initial requirement of 0.625% above the minimum capital requirement. The capital conservation buffer subsequently increases to 1.25%, 1.875% and 2.5% on January 1, 2017, 2018 and 2019, respectively;

• Implements new constraints on the inclusion of minority interests, mortgage servicing assets, deferred tax assets and certain investments in the capital of unconsolidated financial institutions in Tier 1 capital;

• Increases risk-weightings for past-due loans, certain commercial real estate loans and some equity exposures;

• Requires trust preferred securities and cumulative perpetual preferred stock to be phased out of Tier 1 capital for banks with assets greater than $15.0 billion as of December 31, 2009; and

• Allows non-advanced banking organizations, such as us, a one-time option to filter certain accumulated other comprehensive income components, such as unrealized gains and losses on available-for-sale investment securities, out of regulatory capital.

The calculation of common equity Tier 1 capital is different from the calculation of common equity under GAAP. Most significantly for the Company, the Company's net deferred tax assets, which are included in the calculation of common equity under GAAP, will be substantially phased out over time from the required calculation of common equity Tier 1 capital for regulatory purposes. The net deferred tax assets attributable to net operating loss and tax credit carryforwards, which comprised over 88.0% of the Company's net deferred tax assets as of June 30, 2014, are scheduled to be phased out entirely from inclusion in the calculation of common equity Tier 1 capital in 2018. The Company is continuing to evaluate the impact the final Basel III capital rules may have on its regulatory capital levels and capital planning strategies.

In light of the Company's current capital and the future changes in the calculation of regulatory capital as a result of Basel III, absent a substantial increase in qualifying common equity, the Company is not likely to meet the common equity Tier 1 requirement as it will be calculated in 2015, or to meet the common equity Tier 1 requirement as it will be calculated in 2016 when the capital conservation buffer goes into effect. The inability to remain adequately capitalized under the new Basel III capital requirements could materially adversely impact the Company's financial condition, results of operations, and ability to grow. In addition, the inability to meet the capital conservation buffer would preclude the Company from making dividend payments on capital stock and interest payments on trust preferred securities absent a waiver of the Basel III rules by the Federal Reserve when the capital conservation rules become applicable to the Company in 2016 and it is not known whether the Federal Reserve would grant such a waiver.

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NOTE10–FAIRVALUEDISCLOSURES

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.

Impaired 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 the 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 nonrecurring Level 3.

Other real estate. Certain other real estate, upon initial recognition, is 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. The Company classifies other real estate subjected to nonrecurring fair value adjustments 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.

Servicing rights. The valuation of mortgage and SBA servicing rights is performed by an independent third party. The valuation models estimate the present value of estimated future net servicing income, using market-based discount rate assumptions, and

23

utilize assumptions based on the predominant risk characteristics of the underlying loans, including principal balance, interest rate, weighted average life, and certain unobservable inputs, including cost to service, estimated prepayment speed rates and default rates. Changes in the fair value of servicing rights occur primarily due to the realization of expected cash flows, as well as changes in valuation inputs and assumptions. Significant increases (decreases) in any of the unobservable inputs would result in a significantly lower (higher) fair value of the servicing rights. 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 June 30, 2014 and December 31, 2013 are reflected in the following table:

	Fair Value Measurements
	Level 1		Level 2		Level 3	Fair Value
	(dollars expressed in thousands)
June 30, 2014:
Assets:
Available-for-sale investment securities:
U.S. Government sponsored agencies	$	—	193,893		—	193,893
Residential mortgage-backed	—		1,031,336		—	1,031,336
Commercial mortgage-backed	—		851		—	851
State and political subdivisions	—		30,753		—	30,753
Corporate notes	—		171,155		—	171,155
Equity investments	1,705		—		—	1,705
Mortgage loans held for sale	—		27,576		—	27,576
Derivative instruments:
Interest rate lock commitments	—		535		—	535
Forward commitments to sell mortgage-backed securities	—		(441	)	—	(441	)
Servicing rights	—		—		18,784	18,784
Total	$	1,705	1,455,658		18,784	1,476,147
Liabilities:
Nonqualified deferred compensation plan	$	6,594	—		—	6,594
Total	$	6,594	—		—	6,594
December 31, 2013:
Assets:
Available-for-sale investment securities:
U.S. Government sponsored agencies	$	—	275,899		—	275,899
Residential mortgage-backed	—		1,105,787		—	1,105,787
Commercial mortgage-backed	—		856		—	856
State and political subdivisions	—		31,557		—	31,557
Corporate notes	—		196,203		—	196,203
Equity investments	1,443		—		—	1,443
Mortgage loans held for sale	—		25,548		—	25,548
Derivative instruments:
Interest rate lock commitments	—		217		—	217
Forward commitments to sell mortgage-backed securities	—		296		—	296
Servicing rights	—		—		18,854	18,854
Total	$	1,443	1,636,363		18,854	1,656,660
Liabilities:
Nonqualified deferred compensation plan	$	6,641	—		—	6,641
Total	$	6,641	—		—	6,641

There were no transfers between Levels 1 and 2 of the fair value hierarchy for the three and six months ended June 30, 2014 and 2013.

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The following table presents the changes in Level 3 assets measured on a recurring basis for the three and six months ended June 30, 2014 and 2013:

	Servicing Rights
	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2014			2013	2014		2013
	(dollars expressed in thousands)
Balance, beginning of period	$	19,077		16,175	18,854		14,792
Total gains or losses (realized/unrealized):
Included in earnings (1)	(901		)	470	(1,133	)	624
Included in other comprehensive income	—			—	—		—
Issuances	577			888	1,032		2,117
Purchases	31			—	31		—
Transfers in and/or out of level 3	—			—	—		—
Balance, end of period	$	18,784		17,533	18,784		17,533

____________________

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

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 June 30, 2014 and December 31, 2013 are reflected in the following table:

	Fair Value Measurements
	Level 1		Level 2	Level 3	Fair Value
	(dollars expressed in thousands)
June 30, 2014:
Assets:
Impaired loans:
Commercial, financial and agricultural	$	—	—	11,573	11,573
Real estate construction and development	—		—	4,016	4,016
Real estate mortgage:
Residential mortgage	—		—	86,461	86,461
Home equity	—		—	5,609	5,609
Multi-family residential	—		—	22,781	22,781
Commercial real estate	—		—	9,638	9,638
Consumer and installment	—		—	12	12
Other real estate	—		—	59,235	59,235
Total	$	—	—	199,325	199,325
December 31, 2013:
Assets:
Impaired loans:
Commercial, financial and agricultural	$	—	—	10,026	10,026
Real estate construction and development	—		—	4,620	4,620
Real estate mortgage:
Residential mortgage	—		—	88,476	88,476
Home equity	—		—	5,889	5,889
Multi-family residential	—		—	27,310	27,310
Commercial real estate	—		—	11,812	11,812
Consumer and installment	—		—	19	19
Other real estate	—		—	66,702	66,702
Total	$	—	—	214,854	214,854

Non-Financial Assets and Non-Financial Liabilities. Certain non-financial assets measured at fair value on a nonrecurring 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.

Other real estate measured at fair value upon initial recognition totaled $2.9 million and $5.2 million for the six months ended June 30, 2014 and 2013, respectively. In addition to other real estate measured at fair value upon initial recognition, the Company recorded write-downs to the balance of other real estate of $100,000 and $197,000 to noninterest expense for the three and six months ended June 30, 2014, respectively, compared to $551,000 and $809,000 for the comparable periods in 2013.

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Fair Value of Financial Instruments. The fair value of financial instruments is management’s estimate of the values at which the instruments could be exchanged in a transaction between willing parties. These estimates are subjective and may vary significantly from amounts that would be realized in actual transactions. In addition, other significant assets are not considered financial assets including deferred income tax assets, bank premises and equipment and goodwill. 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. The Company classifies its held-to-maturity investment securities as Level 2.

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 includes 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. The Company classifies its loans held for portfolio as Level 3.

FRB and FHLB stock. The carrying values reported in the consolidated balance sheets for FRB and FHLB stock, which are carried at cost, represent redemption value and approximate fair value.

Deposits. The fair value of deposits payable on demand with no stated maturity (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 is estimated utilizing a discounted cash flow calculation that applies 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. The Company classifies its time deposits as Level 3.

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. The Company classifies its other borrowings, comprised of securities sold under agreements to repurchase, as Level 1. The carrying values reported in the consolidated balance sheets for accrued interest payable approximate fair value.

Subordinated debentures. The fair value of subordinated debentures is based on quoted market prices of comparable instruments. The Company classifies its subordinated debentures as Level 3.

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 Company classifies its off-balance sheet financial instruments as Level 3.

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The estimated fair value of the Company’s financial instruments at June 30, 2014 was as follows:

	June 30, 2014
	Carrying Value			Estimated Fair Value
				Level 1	Level 2	Level 3		Total
	(dollars expressed in thousands)
Financial Assets:
Cash and cash equivalents	$	287,379		287,379	—	—		287,379
Investment securities:
Available for sale	1,429,693			1,705	1,427,988	—		1,429,693
Held to maturity	694,085			—	685,869	—		685,869
Loans held for portfolio	2,846,525			—	—	2,732,392		2,732,392
Loans held for sale	27,576			—	27,576	—		27,576
FRB and FHLB stock	30,388			30,388	—	—		30,388
Derivative instruments	94			—	94	—		94
Accrued interest receivable	14,742			14,742	—	—		14,742
Financial Liabilities:
Deposits:
Noninterest-bearing demand	$	1,299,746		1,299,746	—	—		1,299,746
Interest-bearing demand	680,324			680,324	—	—		680,324
Savings and money market	1,844,362			1,844,362	—	—		1,844,362
Time deposits	981,602			—	—	981,846		981,846
Securities sold under agreements to repurchase	57,572			57,572	—	—		57,572
Accrued interest payable	783			783	—	—		783
Subordinated debentures	354,248			—	—	302,308		302,308
Off-Balance Sheet Financial Instruments:
Commitments to extend credit, standby letters of credit and financial guarantees	$	(2,430	)	—	—	(2,430	)	(2,430	)

The estimated fair value of the Company’s financial instruments at December 31, 2013 was as follows:

	December 31, 2013
	Carrying Value			Estimated Fair Value
				Level 1	Level 2	Level 3		Total
	(dollars expressed in thousands)
Financial Assets:
Cash and cash equivalents	$	190,435		190,435	—	—		190,435
Investment securities:
Available for sale	1,611,745			1,443	1,610,302	—		1,611,745
Held to maturity	740,186			—	719,183	—		719,183
Loans held for portfolio	2,750,514			—	—	2,562,160		2,562,160
Loans held for sale	25,548			—	25,548	—		25,548
FRB and FHLB stock	27,357			27,357	—	—		27,357
Derivative instruments	513			—	513	—		513
Accrued interest receivable	17,798			17,798	—	—		17,798
Financial Liabilities:
Deposits:
Noninterest-bearing demand	$	1,243,545		1,243,545	—	—		1,243,545
Interest-bearing demand	679,527			679,527	—	—		679,527
Savings and money market	1,844,710			1,844,710	—	—		1,844,710
Time deposits	1,046,113			—	—	1,046,485		1,046,485
Securities sold under agreements to repurchase	43,143			43,143	—	—		43,143
Accrued interest payable	63,341			63,341	—	—		63,341
Subordinated debentures	354,210			—	—	242,678		242,678
Off-Balance Sheet Financial Instruments:
Commitments to extend credit, standby letters of credit and financial guarantees	$	(2,715	)	—	—	(2,715	)	(2,715	)

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NOTE11–INCOMETAXES

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 previously had a full valuation allowance against its net deferred tax assets. 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.

In evaluating the ability to recover deferred tax assets within the jurisdiction from which they arise, the Company considers all available positive and negative evidence, including scheduled reversals of deferred tax liabilities, projected future taxable income, tax planning strategies, and results of recent operations. In projecting future taxable income, the Company begins with historical results adjusted for the results of discontinued operations and changes in accounting policies and incorporates assumptions including the amount of future state and federal pre-tax operating income, the reversal of temporary differences, and the implementation of feasible and prudent tax planning strategies. These assumptions require significant judgment about the forecasts and future taxable income and are consistent with the plans and estimates management uses to manage the underlying business.

After analysis of all available positive and negative evidence, the Company reversed substantially all of its valuation allowance against its net deferred tax assets, which was reflected as a benefit for income taxes in the consolidated statements of income and as an adjustment to accumulated other comprehensive income during the fourth quarter of 2013. The Company concluded that, as of December 31, 2013, it was more likely than not that substantially all of its net deferred tax assets would be realized in future years. This conclusion was primarily based on projected future taxable income, in addition to cumulative earnings resulting from eight consecutive quarters of profitability (excluding the goodwill impairment charge recognized during the fourth quarter of 2013), significant improvement in asset quality metrics and certain other relevant factors. If the Company’s estimate of realizability of its net deferred tax assets changes in the future, an adjustment to the valuation allowance would be recorded, which would either increase or decrease income tax expense in such period.

The valuation allowance reserves for certain state net operating loss carryforwards, federal and state tax credits and capital loss carryovers which are projected to expire prior to their utilization, based upon projected taxable income at December 31, 2013. The Company has reserved for this benefit in its valuation allowance but will continue to evaluate the potential future utilization of these items and will record an adjustment to the valuation allowance in the period a change is warranted.

A summary of the Company’s deferred tax assets and deferred tax liabilities at June 30, 2014 and December 31, 2013 is as follows:

	June 30, 2014			December 31, 2013
	(dollars expressed in thousands)
Gross deferred tax assets	$	369,234		359,261
Unrecognized tax benefits for uncertain tax positions	(868		)	—
Valuation allowance	(43,380		)	(43,380	)
Deferred tax assets, net of valuation allowance	324,986			315,881
Deferred tax liabilities	49,257			28,397
Net deferred tax assets	$	275,729		287,484

At June 30, 2014 and December 31, 2013, for federal income tax purposes, the Company had net operating loss carryforwards of approximately $551.5 million and $571.8 million, respectively. For state income tax purposes, the Company had net operating loss carryforwards of approximately $773.1 million and $785.4 million at June 30, 2014 and December 31, 2013, respectively, and a related deferred tax asset of $65.9 million and $66.6 million, respectively.

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NOTE12–EARNINGS(LOSS)PERCOMMONSHARE

The following is a reconciliation of basic and diluted earnings (loss) per share (EPS) for the three and six months endedJune 30, 2014 and 2013:

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2014		2013		2014	2013
	(dollars in thousands, except share and per share data)
Basic:
Net income from continuing operations attributable to First Banks, Inc.	$	5,231	12,797		10,636	21,571
Preferred stock dividends declared	—		(4,947	)	—	(9,828	)
Accretion of discount on preferred stock	—		(908	)	—	(1,806	)
Net income from continuing operations attributable to common stockholders	5,231		6,942		10,636	9,937
Net loss from discontinued operations attributable to common stockholders	—		(3,334	)	—	(5,398	)
Net income available to First Banks, Inc. common stockholders	$	5,231	3,608		10,636	4,539
Weighted average shares of common stock outstanding	23,661		23,661		23,661	23,661
Basic earnings per common share – continuing operations	$	221.11	293.39		449.54	419.98
Basic loss per common share – discontinued operations	$	—	(140.90	)	—	(228.14	)
Basic earnings per common share	$	221.11	152.49		449.54	191.84
Diluted:
Net income from continuing operations attributable to common stockholders	$	5,231	6,942		10,636	9,937
Net loss from discontinued operations attributable to common stockholders	—		(3,334	)	—	(5,398	)
Net income available to First Banks, Inc. common stockholders	5,231		3,608		10,636	4,539
Effect of dilutive securities – Class A convertible preferred stock	—		—		—	—
Diluted income available to First Banks, Inc. common stockholders	$	5,231	3,608		10,636	4,539
Weighted average shares of common stock outstanding	23,661		23,661		23,661	23,661
Effect of dilutive securities – Class A convertible preferred stock	3,903		—		4,162	—
Weighted average diluted shares of common stock outstanding	27,564		23,661		27,823	23,661
Diluted earnings per common share – continuing operations	$	189.80	293.39		382.26	419.98
Diluted loss per common share – discontinued operations	$	—	(140.90	)	—	(228.14	)
Diluted earnings per common share	$	189.80	152.49		382.26	191.84

NOTE13–BUSINESSSEGMENTRESULTS

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, mobile banking, 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 Bradenton, Palmetto and Longboat Key communities. Certain loan products are available nationwide.

29

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

	First Bank			Corporate, Other and Intercompany Reclassifications				ConsolidatedTotals
	June 30, 2014		December 31, 2013	June 30, 2014		December 31, 2013		June 30, 2014	December 31, 2013
	(dollars expressed in thousands)
Balance sheet information:
Investment securities	$	2,123,778	2,351,931	—		—		2,123,778	2,351,931
Total loans	2,952,119		2,857,095	—		—		2,952,119	2,857,095
FRB and FHLB stock	30,388		27,357	—		—		30,388	27,357
Total assets	5,830,155		5,865,160	52,199		53,823		5,882,354	5,918,983
Deposits	4,816,077		4,815,792	(10,043	)	(1,897	)	4,806,034	4,813,895
Securities sold under agreements to repurchase	57,572		43,143	—		—		57,572	43,143
Subordinated debentures	—		—	354,248		354,210		354,248	354,210
Stockholders’ equity	880,667		931,561	(374,439	)	(443,305	)	506,228	488,256

	First Bank				Corporate, Other and Intercompany Reclassifications				Consolidated Totals
	Three Months Ended				Three Months Ended				Three Months Ended
	June 30,				June 30,				June 30,
	2014		2013		2014		2013		2014	2013
	(dollars expressed in thousands)
Income statement information:
Interest income	$	42,557	43,732		30		—		42,587	43,732
Interest expense	2,041		2,244		3,022		3,731		5,063	5,975
Net interest income (loss)	40,516		41,488		(2,992	)	(3,731	)	37,524	37,757
Provision for loan losses	—		—		—		—		—	—
Net interest income (loss) after provision for loan losses	40,516		41,488		(2,992	)	(3,731	)	37,524	37,757
Noninterest income	14,124		18,831		90		112		14,214	18,943
Noninterest expense	43,607		44,025		(19	)	118		43,588	44,143
Income (loss) from continuing operations before provision (benefit) for income taxes	11,033		16,294		(2,883	)	(3,737	)	8,150	12,557
Provision (benefit) for income taxes	1,901		(128	)	1,017		(217	)	2,918	(345	)
Net income (loss) from continuing operations, net of tax	9,132		16,422		(3,900	)	(3,520	)	5,232	12,902
Loss from discontinued operations, net of tax	—		(3,334	)	—		—		—	(3,334	)
Net income (loss)	9,132		13,088		(3,900	)	(3,520	)	5,232	9,568
Net income attributable to noncontrolling interest in subsidiary	1		105		—		—		1	105
Net income (loss) attributable to First Banks, Inc.	$	9,131	12,983		(3,900	)	(3,520	)	5,231	9,463

	First Bank					Corporate, Other and Intercompany Reclassifications				Consolidated Totals
	Six Months Ended					Six Months Ended				Six Months Ended
	June 30,					June 30,				June 30,
	2014			2013		2014		2013		2014		2013
	(dollars expressed in thousands)
Income statement information:
Interest income	$	84,746		87,718		30		—		84,776		87,718
Interest expense	4,092			4,717		6,820		7,407		10,912		12,124
Net interest income (loss)	80,654			83,001		(6,790	)	(7,407	)	73,864		75,594
Provision for loan losses	—			—		—		—		—		—
Net interest income (loss) after provision for loan losses	80,654			83,001		(6,790	)	(7,407	)	73,864		75,594
Noninterest income	28,683			34,115		206		223		28,889		34,338
Noninterest expense	86,600			87,888		(264	)	302		86,336		88,190
Income (loss) from continuing operations before provision (benefit) for income taxes	22,737			29,228		(6,320	)	(7,486	)	16,417		21,742
Provision (benefit) for income taxes	6,021			20		(186	)	—		5,835		20
Net income (loss) from continuing operations, net of tax	16,716			29,208		(6,134	)	(7,486	)	10,582		21,722
Loss from discontinued operations, net of tax	—			(5,398	)	—		—		—		(5,398	)
Net income (loss)	16,716			23,810		(6,134	)	(7,486	)	10,582		16,324
Net (loss) income attributable to noncontrolling interest in subsidiary	(54		)	151		—		—		(54	)	151
Net income (loss) attributable to First Banks, Inc.	$	16,770		23,659		(6,134	)	(7,486	)	10,636		16,173

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NOTE14–TRANSACTIONSWITHRELATEDPARTIES

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, Vice Chairman of the Company, and Ms. Ellen Dierberg Milne, 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 $5.5 million and $10.8 million for the three and six months ended June 30, 2014, respectively, and $4.9 million and $9.9 million for the comparable periods in 2013. 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 $377,000 and $767,000 for the three and six months ended June 30, 2014, respectively, and $293,000 and $537,000 for the comparable periods in 2013. In addition, First Services paid $435,000 and $870,000 for the three and six months ended June 30, 2014, respectively, and $436,000 and $871,000 for the comparable periods in 2013, in rental payments to First Bank for occupancy of certain First Bank premises from which business is conducted.

First Services has an Affiliate Services Agreement with the Company and First Bank that relates to various services provided to First Services, including certain human resources, payroll, employee benefit and training services, accounting services, insurance services, vendor payment processing services and advisory services. Fees accrued under the Affiliate Services Agreement by First Services were $60,000 and $120,000 for the three and six months ended June 30, 2014, respectively, and $45,000 and $91,000 for the comparable periods in 2013.

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, Vice Chairman of the Company, and Ms. Ellen Dierberg Milne, Director of the Company, received approximately $1.2 million and $2.3 million for the three and six months ended June 30, 2014, respectively, and $1.2 million and $2.4 million for the comparable periods in 2013, 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 $149,000 and $242,000 for the three and six months ended June 30, 2014, respectively, and $131,000 and $245,000 for the comparable periods in 2013, to First Bank in rental payments for occupancy of certain First Bank premises from which brokerage business is conducted.

Dierbergs Markets, Inc. First Bank leases certain of its in-store branch offices and automated teller machine (ATM) sites from Dierbergs Markets, Inc., a grocery store chain headquartered in St. Louis, Missouri that is owned and operated by the brother of the Company’s Chairman and members of his immediate family. Total rent expense incurred by First Bank under the lease obligation contracts was $126,000 and $252,000 for the three and six months ended June 30, 2014, respectively, and $122,000 and $244,000 for the comparable periods in 2013.

First Capital America, Inc. / FB Holdings, LLC. The Company formed FB Holdings, a limited liability company organized in the state of Missouri, in May 2008. 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 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 owned 53.23% and FCA, a corporation owned by the Company’s Chairman and members of his immediate family, including Mr. Michael Dierberg, Vice Chairman of the Company, and Ms. Ellen Dierberg Milne, Director of the Company, owned the remaining 46.77% of FB Holdings as of June 30, 2014. FCA's ownership in FB Holdings is reflected as a component of stockholders’ equity in the consolidated balance sheets.

Investors of America Limited Partnership. On March 20, 2013, 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). 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, including Mr. Michael Dierberg, Vice Chairman of the Company, and Ms. Ellen Dierberg Milne, Director of the Company. The Credit Agreement provided for a $5.0 million secured revolving line of credit to be utilized for general working capital needs. This borrowing arrangement, which matured on March 31, 2014, had an interest rate of LIBOR plus 300 basis points. There were no balances outstanding under the Credit Agreement from its origination date through its maturity date.

Loans to Directors, Executive Officers 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, executive officers 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 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 $14.4 million and $12.0 million at June 30, 2014 and December 31, 2013, respectively. First Bank does not extend credit to its officers or to officers of the Company, except extensions of credit secured by mortgages on personal residences, loans to purchase automobiles, personal credit card accounts and deposit account overdraft protection under a plan whereby a credit limit has been established in accordance with First Bank’s standard credit criteria.

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Depositary Accounts of Directors, Executive Officers and/or their Affiliates. Certain directors, executive officers 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.

NOTE15–CONTINGENTLIABILITIES

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 entered into an MOU with the FRB, dated May 19, 2014. Additionally, on May 19, 2014, the FRB terminated the Written Agreement, dated March 24, 2010, by and among the Company, SFC, First Bank and the FRB. These agreements are further described in Note 9 to the consolidated financial statements.

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ITEM2–MANAGEMENT’SDISCUSSION ANDANALYSIS OFFINANCIALCONDITION ANDRESULTS OFOPERATIONS

Forward-Looking Statements and Factors that Could Affect Future Results

The discussion set forth in Management’s Discussion and Analysis of Financial Condition and Results of Operations contains certain forward-looking statements with respect to our financial condition, results of operations and business. Generally, forward-looking statements may be identified through the use of words such as: “believe,” “expect,” “anticipate,” “intend,” “plan,” “estimate,” or words of similar meaning or future or conditional terms such as: “will,” “would,” “should,” “could,” “may,” “likely,” “probably,” or “possibly.” Examples of forward-looking statements include, but are not limited to, estimates or projections with respect to our future financial condition and earnings, including the ability of the Company to remain profitable, 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:

• Our ability to raise sufficient capital and/or maintain capital at levels necessary or desirable to support our operations;

• The risks associated with implementing our business strategy;

• Regulatory actions that impact First Banks, Inc. and First Bank, including our ability to comply with the terms of the Memorandum of Understanding entered into between First Banks, Inc. and the Federal Reserve Bank of St. Louis, as further discussed under “Overview and Recent Developments – Regulatory Agreements;”

• The effects of and changes in trade and monetary and fiscal policies and laws;

• The appropriateness of our allowance for loan losses to absorb the amount of actual losses inherent in our existing loan portfolio;

• 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;

• Credit risks and risks from concentrations (by geographic area and by industry) within our loan portfolio including certain large individual loans;

• Possible changes in the creditworthiness of customers and the possible impairment of collectability of loans;

• Our ability to maintain an appropriate level of liquidity to fund operations, service debt obligations and meet obligations and other commitments;

• Implementation of the Basel III regulatory capital reforms and changes required by the Dodd-Frank Wall Street Reform and Consumer Protection Act will include significant changes to bank capital, leverage and liquidity requirements, as further discussed under “Overview – Basel III Regulatory Capital Reforms;”

• The ability of First Bank to pay dividends to its parent holding company;

• Our ability to pay cash dividends on our preferred stock and interest on our junior subordinated debentures;

• Possible changes in interest rates may increase our funding costs and reduce earning asset yields, thus reducing our margins;

• The ability to attract and retain senior management experienced in the banking and financial services industry;

• The ability to successfully acquire low cost deposits or alternative funding;

• Changes in consumer spending, borrowing and savings habits;

• 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;

• The impact on our financial condition of unknown and/or unforeseen liabilities arising from legal or administrative proceedings;

• 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;

• Possible changes in general economic and business conditions in the United States in general and particularly in the communities and market segments we serve;

• Volatility and disruption in national and international financial markets;

• Government intervention in the U.S. financial system;

• The impact of laws and regulations applicable to us and changes therein;

• 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;

• The impact of litigation generally and specifically arising out of our efforts to collect outstanding customer loans;

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• 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;

• Our ability to control the composition of our loan portfolio without adversely affecting interest income and credit default risk;

• The geographic dispersion of our offices;

• The highly regulated environment in which we operate; and

• Our ability to respond to changes in technology or an interruption or breach in security of our information systems.

Actual events or our actual future results may differ materially from any forward-looking statement due to these and other risks, uncertainties and significant factors. For a discussion of these and other risk factors that may impact these forward-looking statements, please refer to our 2013 Annual Report on Form 10-K, as filed with the United States Securities and Exchange Commission on March 25, 2014. We wish to caution readers of this Quarterly Report on Form 10-Q that the foregoing list of important factors may not be all-inclusive and 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 do not undertake any obligation to update these forward-looking statements. Readers of this Quarterly Report on Form 10-Q should therefore consider these risks and uncertainties in evaluating forward-looking statements and should not place undue reliance on these statements.

OVERVIEW AND RECENT DEVELOPMENTS

We, or the Company, are a registered bank holding company incorporated in Missouri in 1978 and headquartered in St. Louis, Missouri. We operate through our wholly owned subsidiary bank holding company, The San Francisco Company, or SFC, headquartered in St. Louis, Missouri, and SFC’s wholly owned subsidiary bank, First Bank, also headquartered in St. Louis, Missouri. First Bank operates through its branch banking offices and subsidiaries. First Bank’s subsidiaries are wholly owned at June 30, 2014 except for FB Holdings, LLC, or FB Holdings, which is 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, Vice Chairman of the Company, and Ms. Ellen Dierberg Milne, Director of the Company, as further described in Note 14 to our consolidated financial statements.

First Bank currently operates 130 branch banking offices in eastern Missouri, southern Illinois, southern and northern California, and Florida's Bradenton, Palmetto and Longboat Key communities. 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.

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 our Capital Optimization Plan, or Capital Plan:

• The sale of certain assets and the transfer of certain liabilities, primarily deposits, of First Bank's Association Bank Services, or ABS, line of business, to Union Bank, N.A., or Union Bank, on November 22, 2013; and

• The sale of certain assets and the transfer of certain liabilities associated with eight of First Bank's retail branches located in Pinellas County, Florida to HomeBanc National Association on April 19, 2013 and the closure of First Bank's remaining three retail branches in the Northern Florida region on April 5, 2013. The eight branches sold and the three branches closed are collectively defined as the Northern Florida Region.

We have applied discontinued operations accounting in accordance with Accounting Standards Codification™, or ASC, Topic 205-20, “Presentation of Financial Statements - Discontinued Operations,” to the operations of our ABS line of business and our Northern Florida Region for the three and six months ended June 30, 2013. All financial information in this Quarterly Report on Form 10-Q is reported on a continuing operations basis, unless otherwise noted. See Note 2 to our consolidated financial statements for further information regarding discontinued operations.

Basel III Regulatory Capital Reforms. In July, 2013, the Federal Reserve approved revisions to the capital adequacy guidelines and prompt corrective action rules that implement the revised standards of the Basel Committee on Banking Supervision, commonly called Basel III, and address relevant provisions of the Dodd-Frank Act. “Basel III” refers to two consultative documents released by the Basel Committee on Banking Supervision in December 2009, the rules text released in December 2010, and loss absorbency rules issued in January 2011, which include significant changes to bank capital, leverage and liquidity requirements.

The final rule, Regulatory Capital Rules: Regulatory Capital, Implementation of Basel III, Capital Adequacy, Transition Provisions,Prompt Corrective Action, Standardized Approach for Risk-weighted Assets, Market Discipline and Disclosure Requirements, Advanced Approaches Risk-Based Capital Rule, and Market Risk Capital Rule, incorporates certain revisions to the Basel capital

34

framework, including Basel III and other elements. The final rule increases risk-based capital requirements and makes selected changes to the calculation of risk-weighted assets. The final rule:

• Includes a new minimum common equity Tier 1 capital ratio of 4.5% of risk-weighted assets and raises the minimum Tier 1 capital ratio from 4.0% to 6.0% of risk-weighted assets;

• Requires institutions to maintain a capital conservation buffer composed of common equity Tier 1 capital of 2.5% above the minimum risk-based capital requirements. Institutions that do not maintain the capital conservation buffer are precluded from: (1) paying dividends and making certain other capital distributions; (2) making interest payments on trust preferred securities (unless the non-payment of interest would otherwise trigger an event of default); and (3) making certain discretionary bonus payments to executive officers. The capital conservation buffer is measured relative to risk-weighted assets and will be phased in over a four-year period beginning on January 1, 2016 with an initial requirement of 0.625% above the minimum capital requirement. The capital conservation buffer subsequently increases to 1.25%, 1.875% and 2.5% on January 1, 2017, 2018 and 2019, respectively;

• Implements new constraints on the inclusion of minority interests, mortgage servicing assets, deferred tax assets and certain investments in the capital of unconsolidated financial institutions in Tier 1 capital;

• Increases risk-weightings for past-due loans, certain commercial real estate loans and some equity exposures;

• Requires trust preferred securities and cumulative perpetual preferred stock to be phased out of Tier 1 capital for banks with assets greater than $15.0 billion as of December 31, 2009; and

• Allows non-advanced banking organizations, such as us, a one-time option to filter certain accumulated other comprehensive income components, such as unrealized gains and losses on available-for-sale investment securities, out of regulatory capital.

The calculation of common equity Tier 1 capital is different from the calculation of common equity under U.S. generally accepted accounting principles, or GAAP. Most significantly for the Company, the Company's net deferred tax assets, which are included in the calculation of common equity under GAAP, will be substantially phased out over time from the required calculation of common equity Tier 1 capital for regulatory purposes. To illustrate the difference between common equity under GAAP and common equity Tier 1 capital for regulatory purposes, the Company’s common equity under GAAP as of June 30, 2014 was $71.8 million, which includes net deferred tax assets of $275.7 million. In 2016, the majority of the Company’s net deferred tax assets will be excluded from the regulatory calculation of common equity Tier 1 capital due to the phase in requirements of the Basel III rules. As a direct result of this exclusion and the phase in of other required changes in the regulatory calculation of common equity Tier 1 capital, if, hypothetically, the Company were to apply the regulatory capital rules applicable in 2016 as of June 30, 2014, the Company’s common equity Tier 1 capital as of June 30, 2014 using the rules applicable in 2016 would be negative $98.5 million, or $170.3 million less than the Company’s common equity under GAAP. The net deferred tax assets attributable to net operating loss and tax credit carryforwards, which comprised over 88.0% of the Company's net deferred tax assets as of June 30, 2014, are scheduled to be phased out entirely from inclusion in the calculation of common equity Tier 1 capital in 2018. We are continuing to evaluate the impact the final Basel III capital rules may have on our regulatory capital levels and capital planning strategies.

In light of the Company’s current capital position and the future changes in the calculation of regulatory capital as a result of Basel III, absent a substantial increase in qualifying common equity, the Company is not likely to meet the common equity Tier 1 requirement as it will be calculated in 2015, or to meet the common equity Tier 1 requirement as it will be calculated in 2016 when the capital conservation buffer goes into effect. The inability to remain adequately capitalized under the new Basel III capital requirements could materially adversely impact our financial condition, results of operations, and ability to grow. In addition, the inability to meet the capital conservation buffer would preclude the Company from making dividend payments on capital stock and interest payments on trust preferred securities absent a waiver of the Basel III rules by the Federal Reserve when the capital conservation rules become applicable to the Company in 2016 and it is not known whether the Federal Reserve would grant such a waiver.

See further information regarding these matters under “Item 1A – Risk Factors.”

Dividend from First Bank and Payment of Interest on Junior Subordinated Debentures.On January 31, 2014, the Company received regulatory approval from the Federal Reserve Bank of St. Louis, or FRB, under the then-existing Written Agreement and subject to certain conditions, which granted First Bank the authority to pay a dividend to the Company, and the authority to the Company to utilize such funds, for the sole purpose of paying the accumulated deferred interest payments on the Company's outstanding junior subordinated debentures issued in connection with the Company's trust preferred securities. In February 2014, First Bank paid a dividend of $70.0 million to the Company.

In March 2014, the Company paid interest on all of the junior subordinated debentures of $66.4 million to the respective trustees, which was subsequently distributed to the trust preferred securities holders on the respective interest payment dates in March and

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April, 2014, as further described in Note 7 to our consolidated financial statements. Since that time, the Company has continued to pay interest on its junior subordinated debentures to the respective trustees on the regularly scheduled quarterly payment dates. Such interest payments have been funded through additional dividends from First Bank.

Regulatory Agreements. On May 19, 2014, the FRB terminated the Written Agreement, or Written Agreement, dated March 24, 2014, by and among the Company, SFC, First Bank and the FRB. The Written Agreement previously required the Company and First Bank to take certain steps intended to improve their overall financial condition, as previously described in "Item 1. – Business – Supervision and Regulation —Regulatory Agreements" in the Company's Annual Report on Form 10-K as of and for the year ended December 31, 2013. Pursuant to the Written 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 Written Agreement required, among other things, that the Company and First Bank obtain prior approval from the FRB to pay dividends. In addition, the Company was required to 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. The FRB had complete discretion to grant any such approval. On January 31, 2014, the Company received regulatory approval from the FRB under the former Written Agreement, subject to certain conditions, which granted First Bank the authority to pay a dividend to the Company, and authority to the Company to utilize such funds, for the sole purpose of paying the accumulated deferred interest payments on the Company's outstanding junior subordinated debentures issued in connection with the Company's trust preferred securities, as previously described above.

On May 19, 2014, the Company entered into a Memorandum of Understanding, or MOU, with the FRB. The MOU is characterized by regulatory authorities as an informal action that is neither published nor made publicly available by the FRB and is used when circumstances warrant a milder form of action than a formal supervisory action. Under the terms of the MOU, the Company agreed, among other things, to provide certain information to the FRB including, but not limited to, progress of achieving its Capital Plan, notice of plans to materially change its Capital Plan, parent company cash flow plans and summaries of nonperforming asset classifications. In addition, the Company agreed not to do any of the following without the prior approval of the FRB: (i) declare or pay any dividends on its common or preferred stock; (ii) incur or guarantee any debt; (iii) redeem any of the Company's outstanding common or preferred stock; and (iv) cause First Bank to pay dividends in excess of its earnings or make a capital distribution that would cause First Bank's Tier 1 Leverage Ratio to fall below 9.0%. The FRB has complete discretion to grant any such approval and therefore, it is not known whether the FRB would approve any such request.

While the Company intends to take such actions as may be necessary to comply with the requirements of the MOU with the FRB, there can be no assurance that such efforts will not have adverse effects on the operations and financial condition of the Company or First Bank. If the Company fails to comply with the terms of the MOU, further enforcement action could be taken by the FRB which could have a materially adverse effect on the Company's business, financial condition or results of operations.

RESULTS OFOPERATIONS

Overview. We recorded net income of $5.2 million and $10.6 million for the three and six months ended June 30, 2014, respectively, compared to $9.5 million and $16.2 million for the comparable periods in 2013. Our net income reflects the following:

• Net interest income of $37.5 million and $73.9 million for the three and six months ended June 30, 2014, respectively, compared to $37.8 million and $75.6 million for the comparable periods in 2013, and an increase in our net interest margin to 2.85% and 2.81% for the three and six months ended June 30, 2014, respectively, compared to 2.61% and 2.60% for the comparable periods in 2013;

• A provision for loan losses of zero for each of the three and six months ended June 30, 2014 and 2013;

• Noninterest income of $14.2 million and $28.9 million for the three and six months ended June 30, 2014, respectively, compared to $18.9 million and $34.3 million for the comparable periods in 2013;

• Noninterest expense of $43.6 million and $86.3 million for the three and six months ended June 30, 2014, respectively, compared to $44.1 million and $88.2 million for the comparable periods in 2013;

• A provision for income taxes of $2.9 million and $5.8 million for the three and six months ended June 30, 2014, respectively, compared to a benefit for income taxes of $345,000 for the three months ended June 30, 2013 and a provision for income taxes of $20,000 for the six months ended June 30, 2013;

• A net loss from discontinued operations, net of tax, of $3.3 million and $5.4 million for the three and six months ended June 30, 2013, respectively; and

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• Net income attributable to noncontrolling interest in subsidiary of $1,000 and a net loss attributable to noncontrolling interest in subsidiary $54,000 for the three and six months ended June 30, 2014, respectively, compared to net income attributable to noncontrolling interest in subsidiary of $105,000 and $151,000 for the comparable periods in 2013.

Net Interest Income and Average Balance Sheets. The primary source of our income is net interest income. The following table sets forth, on a tax-equivalent basis, certain information on a continuing operations basis relating to our average balance sheets, and reflects the average yield earned on our interest-earning assets, the average cost of our interest-bearing liabilities and the resulting net interest income for the three and six months ended June 30, 2014 and 2013:

	Three Months Ended June 30,											Six Months Ended June 30,
	2014					2013						2014					2013
	Average Balance		Interest Income/ Expense	Yield/ Rate		Average Balance		Interest Income/ Expense		Yield/ Rate		Average Balance		Interest Income/ Expense	Yield/ Rate		Average Balance		Interest Income/ Expense		Yield/ Rate
	(dollars expressed in thousands)
ASSETS:
Interest-earning assets:
Loans (1)(2)(3)	$	2,935,163	30,191	4.13	%	$	2,803,647	29,898		4.28	%	$	2,906,318	59,282	4.11	%	$	2,824,538	60,084		4.29	%
Investment securities (3)	2,110,914		11,924	2.27		2,632,086		13,351		2.03		2,166,563		24,580	2.29		2,649,872		26,634		2.03
FRB and FHLB stock	31,103		360	4.64		27,593		307		4.46		30,694		718	4.72		27,537		610		4.47
Short-term investments	216,364		142	0.26		352,411		223		0.25		202,843		262	0.26		376,097		485		0.26
Total interest-earning assets	5,293,544		42,617	3.23		5,815,737		43,779		3.02		5,306,418		84,842	3.22		5,878,044		87,813		3.01
Nonearning assets	585,060					410,873						582,798					413,804
Assets of discontinued operations	—					41,567						—					44,021
Total assets	$	5,878,604				$	6,268,177					$	5,889,216				$	6,335,869
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Interest-bearing liabilities:
Interest-bearing deposits:
Interest-bearing demand	$	683,764	87	0.05	%	$	640,108	74		0.05	%	$	679,417	169	0.05	%	$	643,614	150		0.05	%
Savings and money market	1,853,153		769	0.17		1,843,567		632		0.14		1,848,375		1,513	0.17		1,851,003		1,267		0.14
Time deposits of $100 or more	378,130		483	0.51		394,330		573		0.58		388,800		969	0.50		406,105		1,229		0.61
Other time deposits	627,943		695	0.44		730,940		978		0.54		636,864		1,417	0.45		747,172		2,081		0.56
Total interest-bearing deposits	3,542,990		2,034	0.23		3,608,945		2,257		0.25		3,553,456		4,068	0.23		3,647,894		4,727		0.26
Other borrowings	45,115		2	0.02		33,195		(15	)	(0.18	)	42,492		6	0.03		30,460		(12	)	(0.08	)
Subordinated debentures	354,239		3,027	3.43		354,162		3,733		4.23		354,229		6,838	3.89		354,153		7,409		4.22
Total interest-bearing liabilities	3,942,344		5,063	0.52		3,996,302		5,975		0.60		3,950,177		10,912	0.56		4,032,507		12,124		0.61
Noninterest-bearing liabilities:
Demand deposits	1,269,818					1,197,165						1,257,169					1,176,567
Other liabilities	163,534					193,309						182,962					188,754
Liabilities of discontinued operations	—					588,776						—					643,224
Total liabilities	5,375,696					5,975,552						5,390,308					6,041,052
Stockholders’ equity	502,908					292,625						498,908					294,817
Total liabilities and stockholders’ equity	$	5,878,604				$	6,268,177					$	5,889,216				$	6,335,869
Net interest income			37,554					37,804						73,930					75,689
Interest rate spread				2.71						2.42					2.66						2.40
Net interest margin (4)				2.85	%					2.61	%				2.81	%					2.60	%

____________________

(1) For purposes of these computations, nonaccrual loans are included in the average loan amounts.

(2) Interest income on loans includes loan fees.

(3) Information is presented on a tax-equivalent basis assuming a tax rate of 35%. The tax-equivalent adjustments were $30,000 and $66,000 for the three and six months ended June 30, 2014, respectively, and $47,000 and $95,000 for the comparable periods in 2013.

(4) Net interest margin is the ratio of net interest income (expressed on a tax-equivalent basis) to average interest-earning assets.

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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 high level of short-term investments and investment securities as a percentage of our interest-earning assets has negatively impacted our net interest income and is expected to continue to impact the level of our net interest income in the future. We continue our efforts to re-define our overall strategy and business plans with respect to our loan portfolio in light of ongoing changes in market conditions in our markets, focusing on loan growth initiatives.

Net interest income, expressed on a tax-equivalent basis, decreased to $37.6 million and $73.9 million for the three and six months ended June 30, 2014, respectively, compared to $37.8 million and $75.7 million for the comparable periods in 2013. Our net interest margin increased24 and 21 basis points to 2.85% and 2.81% for the three and six months ended June 30, 2014, respectively, from 2.61% and 2.60% for the comparable periods in 2013.

We attribute the increase in our net interest margin for the three and six months ended June 30, 2014, as compared to the comparable periods in 2013, to an increase in the average yield on investment securities, a decrease in the cost of interest-bearing deposits and a reduction in our average short-term investments, partially offset by a decrease in the average yield on loans. We attribute the decrease in our net interest income for the three and six months ended June 30, 2014, as compared to the comparable periods in 2013, to a lower average balance of interest-earning assets, primarily resulting from the sale of our ABS line of business in November, 2013. While improved from the three and six months ended June 30, 2013, our net interest margin is expected to continue to remain at lower-than-historical levels until loan balances become a higher percentage of our interest-earning assets.

Interest income on our loan portfolio, expressed on a tax-equivalent basis, increased $293,000 for the three months ended June 30, 2014, as compared to the comparable period in 2013, and decreased $802,000 for the six months ended June 30, 2014, as compared to the comparable period in 2013. Average loans increased $131.5 million and $81.8 million to $2.94 billion and $2.91 billion for the three and six months ended June 30, 2014, respectively, as compared to $2.80 billion and $2.82 billion for the comparable periods in 2013, while the yield on our loan portfolio decreased 15 and 18 basis points to 4.13% and 4.11% for the three and six months ended June 30, 2014, respectively, from 4.28% and 4.29% for the comparable periods in 2013. The increase in average loans primarily reflects continued growth in our production loan volumes, particularly in our commercial, financial and agricultural and commercial real estate portfolios, partially offset by loan payoffs and principal payments and the exit of certain of our problem credit relationships. The yield on our loan portfolio continues to be adversely impacted by the lower levels of prime and LIBOR interest rates, as a significant portion of our loan portfolio is priced to these indices.

Interest income on our investment securities, expressed on a tax-equivalent basis, decreased $1.4 million and $2.1 million for the three and six months ended June 30, 2014, respectively, as compared to the comparable periods in 2013. Average investment securities decreased $521.2 million and $483.3 million for the three and six months ended June 30, 2014, respectively, as compared to the comparable periods in 2013. The yield earned on our investment securities portfolio increased 24 and 26 basis points to 2.27% and 2.29% for the three and six months ended June 30, 2014, respectively, as compared to 2.03% for the three and six months ended June 30, 2013. During 2013, we reinvested proceeds from sales and maturities of certain investment securities into cash and cash equivalents to build liquidity in anticipation of the sale of our ABS line of business, which was completed in November 2013. During the first quarter of 2014, we sold certain investment securities to fund loan growth and to pay all of the cumulative deferred interest on our junior subordinated debentures relating to the Company's trust preferred securities in March 2014. We continue to maintain a high level of investment securities in an effort to support future loan growth opportunities.

Interest income on our short-term investments decreased $81,000 and $223,000 for the three and six months ended June 30, 2014, respectively, as compared to the comparable periods in 2013. Average short-term investments decreased $136.0 million and $173.3 million for the three and six months ended June 30, 2014, respectively, as compared to the comparable periods in 2013. During 2013, we utilized funds available from sales and maturities of investment securities to increase our liquidity position for the sales of our ABS line of business during the fourth quarter of 2013 and our Northern Florida Region during the second quarter of 2013. The yield on our short-term investments was 0.26% for the three and six months ended June 30, 2014, compared to 0.25% and 0.26% for the comparable periods in 2013, 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%.

Interest expense on our interest-bearing deposits decreased $223,000 and $659,000 for the three and six months ended June 30, 2014, respectively, as compared to the comparable periods in 2013. Average total deposits increased $6.7 million to $4.81 billion for the three months ended June 30, 2014, from $4.81 billion for the comparable period in 2013, whereas, average total deposits decreased $13.8 million to $4.81 billion for the six months ended June 30, 2014, from $4.82 billion for the comparable period in 2013. Average interest-bearing deposits decreased $66.0 million and $94.4 million, respectively, and average noninterest-bearing deposits increased $72.7 million and $80.6 million, respectively, for the three and six months ended June 30, 2014, as compared to the comparable periods in 2013. The decrease in average interest-bearing deposits for the three and six months ended June 30, 2014, as compared to the comparable periods in 2013, primarily reflects anticipated reductions of higher rate certificates of deposit, partially offset by organic growth in demand deposits through deposit development programs, including marketing campaigns and enhanced product and service offerings. The mix in our deposit portfolio volumes for the six months ended June 30, 2014, as

38

compared to the comparable period in 2013, 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 $127.6 million and $2.6 million, respectively, for the six months ended June 30, 2014, as compared to the comparable period in 2013, were partially offset by increases in our average interest-bearing and noninterest-bearing demand deposits of $35.8 million and $80.6 million, respectively, for the six months ended June 30, 2014, as compared to the comparable period in 2013. The aggregate weighted average rate paid on our interest-bearing deposit portfolio decreased two and three basis points to 0.23% for the three and six months ended June 30, 2014, from 0.25% and 0.26% for the three and six months ended June 30, 2013, respectively, primarily reflecting the re-pricing of certificate of deposit accounts to current market interest rates upon maturity. The weighted average rate paid on our time deposit portfolio declined eight and 11 basis points to 0.47% for the three and six months ended June 30, 2014, from 0.55% and 0.58% for the three and six months ended June 30, 2013, respectively.

Interest expense on our junior subordinated debentures decreased $706,000 and $571,000 for the three and six months ended June 30, 2014, respectively, as compared to the comparable periods in 2013. The aggregate weighted average rate paid on our junior subordinated debentures decreased to 3.43% and 3.89% for the three and six months ended June 30, 2014, respectively, from 4.23% and 4.22% for the comparable periods in 2013. The aggregate weighted average rates reflect additional interest expense accrued on the regularly scheduled deferred interest payments on our junior subordinated debentures until March 2014, when we paid all of the cumulative deferred interest, as further discussed in Note 7 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 45 basis points for the six months ended June 30, 2014, as compared to 76 and 74 basis points for the three and six months ended June 30, 2013, respectively.

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, for the three and six months ended June 30, 2014, as compared to the three and six months ended June 30, 2013. The change in interest due to the combined rate/volume variance has been allocated to rate and volume changes in proportion to the dollar amounts of the change in each.

	Increase (Decrease) Attributable to Change in:
	Three Months Ended June 30, 2014 Compared to 2013							Six Months Ended June 30, 2014 Compared to 2013
	Volume			Rate		Net Change		Volume		Rate		Net Change
	(dollars expressed in thousands)
Interest earned on:
Loans (1) (2) (3)	$	1,368		(1,075	)	293		1,731		(2,533	)	(802	)
Investment securities (3)	(2,866		)	1,439		(1,427	)	(5,221	)	3,167		(2,054	)
FRB and FHLB stock	40			13		53		73		35		108
Short-term investments	(89		)	8		(81	)	(223	)	—		(223	)
Total interest income	(1,547		)	385		(1,162	)	(3,640	)	669		(2,971	)
Interest paid on:
Interest-bearing demand deposits	13			—		13		19		—		19
Savings and money market deposits	3			134		137		(2	)	248		246
Time deposits	(157		)	(216	)	(373	)	(340	)	(584	)	(924	)
Other borrowings	(4		)	21		17		(3	)	21		18
Subordinated debentures	1			(707	)	(706	)	2		(573	)	(571	)
Total interest expense	(144		)	(768	)	(912	)	(324	)	(888	)	(1,212	)
Net interest income	$	(1,403	)	1,153		(250	)	(3,316	)	1,557		(1,759	)

____________________

(1) For purposes of these computations, nonaccrual loans are included in the average loan amounts.

(2) Interest income on loans includes loan fees.

(3) Information is presented on a tax-equivalent basis assuming a tax rate of 35%.

Provision for Loan Losses. We did not record a provision for loan losses for the three and six months ended June 30, 2014 and 2013, which was attributable to the continued improvement in our overall asset quality levels, as further discussed under “—Loans and Allowance for Loan Losses.”

Our nonaccrual loans were $48.0 million at June 30, 2014, compared to $53.8 million at March 31, 2014, $53.0 million at December 31, 2013 and $89.0 million at June 30, 2013, reflecting a 46.1% decrease in nonaccrual loans year-over-year. The decrease in the overall level of nonaccrual loans at June 30, 2014, as compared to June 30, 2013, was primarily driven by the resolution of certain nonaccrual loans, and reflects our continued progress with respect to the implementation of our asset quality improvement initiatives, designed to reduce the overall balance of nonaccrual and other potential problem loans and assets.

Our net loan charge-offs decreased to $1.8 million and $3.0 million for the three and six months ended June 30, 2014, respectively, from $2.5 million and $6.0 million for the comparable periods in 2013. Our annualized net loan charge-offs were 0.25% and 0.21% of average loans for the three and six months ended June 30, 2014, respectively, compared to 0.36% and 0.43% for the comparable periods in 2013. Loan charge-offs were $6.2 million and $9.7 million for the three and six months ended June 30, 2014, respectively, compared to $6.9 million and $13.8 million for the comparable periods in 2013, and loan recoveries were $4.4 million and $6.7

39

million for the three and six months ended June 30, 2014, respectively, compared to $4.3 million and $7.8 million for the comparable periods in 2013.

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

Noninterest Income. Noninterest income decreased $4.7 million and $5.4 million to $14.2 million and $28.9 million for the three and six months ended June 30, 2014, respectively, from $18.9 million and $34.3 million for the comparable periods in 2013. The decrease in our noninterest income for the first six months of 2014, as compared to the comparable period in 2013, was primarily attributable to reduced gains on loans sold and held for sale, reduced net gains on sale of other real estate, decreases in the fair value of servicing rights and a decline in other income, partially offset by increased net gains on investment securities. The following table summarizes noninterest income for the three and six months ended June 30, 2014 and 2013:

	Three Months Ended								Six Months Ended
	June 30,				Increase (Decrease)				June 30,					Increase (Decrease)
	2014			2013	Amount		%		2014			2013		Amount		%
	(dollars expressed in thousands)
Noninterest income:
Service charges on deposit accounts and customer service fees	$	8,667		8,607	60		0.7	%	$	17,000		16,921		79		0.5	%
Gain on loans sold and held for sale	1,554			1,572	(18	)	(1.1	)	2,419			3,125		(706	)	(22.6	)
Net (loss) gain on investment securities	(1		)	345	(346	)	(100.3	)	1,279			(71	)	1,350		1,901.4
Net gain on sale of other real estate	692			3,658	(2,966	)	(81.1	)	1,134			4,024		(2,890	)	(71.8	)
(Decrease) increase in fair value of servicing rights	(901		)	470	(1,371	)	(291.7	)	(1,133		)	624		(1,757	)	(281.6	)
Loan servicing fees	1,664			1,776	(112	)	(6.3	)	3,375			3,493		(118	)	(3.4	)
Other	2,539			2,515	24		1.0		4,815			6,222		(1,407	)	(22.6	)
Total noninterest income	$	14,214		18,943	(4,729	)	(25.0	)	$	28,889		34,338		(5,449	)	(15.9	)

The decrease in gains on residential mortgage loans sold and held for sale was primarily attributable to a decline in loan production volumes in our mortgage banking division during the periods as new interest rate lock commitments decreased to $83.9 million and $131.8 million for the three and six months ended June 30, 2014, respectively, from $102.3 million and $200.5 million for the comparable periods in 2013. The decline in loan production volume during the periods was associated with a decrease in refinancing activity in our mortgage banking division during the periods.

Net gains on investment securities for the six months ended June 30, 2014 reflect the sale of certain investment securities during the first quarter of 2014 to fund loan growth and other corporate transactions. Net (losses) gains on investment securities for the three and six months ended June 30, 2013 reflect the sale of certain investment securities in anticipation of corporate transactions and other-than-temporary impairment of $407,000 during the first quarter of 2013 on a single municipal investment security classified as held-to-maturity.

The decrease in net gains on sales of other real estate reflects sales of other real estate properties with an aggregate carrying value of $9.0 million at a net gain of $1.1 million during the six months ended June 30, 2014, as compared to sales of other real estate properties with an aggregate carrying value of $16.5 million at a net gain of $4.0 million during the six months ended June 30, 2013, including a gain of $2.7 million on the sale of a single property in the second quarter of 2013.

The decrease in the fair value of mortgage and SBA servicing rights primarily reflects changes in mortgage interest rates and the related changes in estimated prepayment speeds during the periods, as well as changes in cash flow assumptions underlying SBA loans serviced for others.

The decrease in other income for the six months ended June 30, 2014, as compared to the comparable period in 2013, was primarily attributable to income of $1.2 million recognized on the call of an SBA loan securitization in the first quarter of 2013.

Noninterest Expense. Noninterest expense decreased $555,000 and $1.9 million to $43.6 million and $86.3 million for the three and six months ended June 30, 2014, respectively, from $44.1 million and $88.2 million for the comparable periods in 2013. The decrease in our noninterest expense for the first six months of 2014 was primarily attributable to a lower level of expenses associated with our nonperforming assets and potential problem loans, in addition to decreased FDIC insurance expense, partially offset by an increase in salaries and employee benefits expenses and information technology fees. The following table summarizes noninterest expense for the three and six months ended June 30, 2014 and 2013:

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	Three Months Ended							Six Months Ended
	June 30,			Increase (Decrease)				June 30,			Increase (Decrease)
	2014		2013	Amount		%		2014		2013	Amount		%
	(dollars expressed in thousands)
Noninterest expense:
Salaries and employee benefits	$	20,383	19,645	738		3.8	%	$	40,265	39,196	1,069		2.7	%
Occupancy, net of rental income, and furniture and equipment	8,122		8,473	(351	)	(4.1	)	16,266		16,890	(624	)	(3.7	)
Postage, printing and supplies	554		711	(157	)	(22.1	)	1,193		1,339	(146	)	(10.9	)
Information technology fees	5,874		5,270	604		11.5		11,484		10,555	929		8.8
Legal, examination and professional fees	1,447		1,497	(50	)	(3.3	)	2,738		3,160	(422	)	(13.4	)
Advertising and business development	650		584	66		11.3		1,272		1,016	256		25.2
FDIC insurance	1,241		1,838	(597	)	(32.5	)	2,505		3,720	(1,215	)	(32.7	)
Write-downs and expenses on other real estate	639		1,259	(620	)	(49.2	)	1,338		2,770	(1,432	)	(51.7	)
Other	4,678		4,866	(188	)	(3.9	)	9,275		9,544	(269	)	(2.8	)
Total noninterest expense	$	43,588	44,143	(555	)	(1.3	)	$	86,336	88,190	(1,854	)	(2.1	)

The increase in salaries and employee benefits expense reflects normal compensation increases, increases in staffing levels in certain key revenue-generating functions and an increase in incentive compensation, partially offset by a decrease in benefits expenses, including medical claims and prescription expenses. We had 1,158 and 1,147 full-time equivalent employees at June 30, 2014 and December 31, 2013, respectively, compared to 1,146 at June 30, 2013, excluding discontinued operations.

The decrease in occupancy, net of rental income, and furniture and equipment expense reflects a decrease in rent expense associated with branch facilities that were closed during the first and second quarters of 2013.

The increase in information technology fees was associated with a planned investment in the expansion of certain of our information technology and security programs resulting in an increase in the fees paid to First Services, L.P, a limited partnership indirectly owned by our Chairman and members of his immediate family, as more fully described in Note 14 to our consolidated financial statements.

The decrease in legal, examination and professional fees reflects a decline in legal expenses associated with loan collection activities, divestiture activities and litigation matters for the three and six months ended June 30, 2014, in comparison to the level of such expenses for the three and six months ended June 30, 2013.

The decrease in FDIC insurance expense is primarily reflective of a reduction in our assessment rate, effective October 2013.

The decrease in write-downs and expenses on other real estate reflects a reduction in the overall number and balance of our other real estate, which decreased to $59.2 million at June 30, 2014, from $61.5 million, $66.7 million and $78.2 million at March 31, 2014, December 31, 2013 and June 30, 2013, respectively. Other real estate expenses, exclusive of write-downs, such as taxes, insurance, and repairs and maintenance, decreased $169,000 and $820,000 to $539,000 and $1.1 million for the three and six months ended June 30, 2014, respectively, from $708,000 and $2.0 million for the comparable periods in 2013. Write-downs related to the re-valuation of certain other real estate properties decreased $451,000 and $612,000 to $100,000 and $197,000 for the three and six months ended June 30, 2014, respectively, from $551,000 and $809,000 for the comparable periods in 2013.

Provision for Income Taxes. We recorded a provision for income taxes of $2.9 million and $5.8 million for the three and six months ended June 30, 2014, respectively, as compared to a benefit for income taxes of $345,000 for the three months ended June 30, 2013 and a provision for income taxes of $20,000 for the six months ended June 30, 2013. During the fourth quarter of 2013, we reversed substantially all of the valuation allowance against our net deferred tax assets, previously established in 2008. As such, interim periods beginning January 1, 2014 reflect the initial periods in which a provision for income taxes is recorded in the statements of income without a related deferred tax asset valuation allowance.

FINANCIALCONDITION

Total assets decreased$36.6 million to $5.88 billion at June 30, 2014, from $5.92 billion at December 31, 2013. The decrease in our total assets was primarily attributable to a decrease in our investment securities portfolio, partially offset by an increase in cash and cash equivalents and our loan portfolio, as further described below.

Cash and cash equivalents, which are comprised of cash and short-term investments, increased$96.9 million to $287.4 million at June 30, 2014, from $190.4 million at December 31, 2013. The majority of funds in our short-term investments are maintained in our correspondent bank account with the FRB, as further discussed under “—Liquidity Management.” The increase in our cash and cash equivalents was primarily attributable to the following:

• A net decrease in our investment securities portfolio of $229.4 million, excluding amortization and the fair value adjustment on available-for-sale investment securities;

• A net increase in our daily securities sold under agreements to repurchase of $14.4 million, consisting of changes in our daily repurchase agreements utilized by customers as an alternative deposit product;

• Sales of other real estate resulting in the receipt of cash proceeds from these sales of $10.1 million;

41

• Recoveries of loans previously charged off of $6.7 million; and

• Cash generated by operating earnings; partially offset by

• An increase in loans of $107.6 million, exclusive of loan charge-offs and transfers of loans to other real estate;

• A decrease in deposits of $7.9 million;

• The payment of $66.4 million of cumulative deferred interest payments on our junior subordinated debentures in March 2014, which was distributed to the trust preferred securities holders on the respective interest payment dates in March and April, 2014; and

• A payment of $15.5 million in January 2014 associated with the final settlement amount paid to Union Bank in conjunction with the sale of our ABS line of business in November, 2013.

Investment securities decreased$228.2 million to $2.12 billion at June 30, 2014, from $2.35 billion at December 31, 2013. The decrease primarily reflects proceeds from sales of available-for-sale investment securities of $166.3 million and proceeds from maturities and/or calls of investment securities of $129.2 million. We sold certain investment securities during the first quarter of 2014 to fund loan growth and other corporate transactions, including the payment of all of the cumulative deferred interest on our junior subordinated debentures relating to the Company's trust preferred securities in March 2014. The decrease in investment securities is partially offset by purchases of investment securities of $64.9 million and an increase in the fair value adjustment on our available-for-sale investment securities of $13.9 million resulting from a decrease in market interest rates during the period.

Loans, net of net deferred loan fees, or total loans, increased$95.0 million to $2.95 billion at June 30, 2014, from $2.86 billion at December 31, 2013. The increase primarily reflects new loan production as a result of successful efforts to expand existing loan relationships and develop new loan relationships, specifically in our commercial, financial and agricultural and our real estate mortgage portfolios, which increased $39.0 million and $52.5 million, respectively.

Deposits decreased$7.9 million to $4.81 billion at June 30, 2014, from $4.81 billion at December 31, 2013. The decrease reflects reductions of certificates of deposit and savings and money market deposits of $64.5 million and $348,000, respectively, partially offset by growth in demand deposits of $57.0 million attributable to seasonal fluctuations.

Daily securities sold under agreements to repurchase (in connection with cash management activities of our commercial deposit customers) increased$14.4 million to $57.6 million at June 30, 2014, from $43.1 million at December 31, 2013, reflecting changes in customer balances associated with this product segment.

Accrued expenses and other liabilities decreased$82.1 million to $109.0 million at June 30, 2014, from $191.1 million at December 31, 2013. The decrease was primarily attributable to a decrease of $62.5 million in accrued interest payable on our junior subordinated debentures associated with the payment of all of the cumulative deferred interest on our junior subordinated debentures relating to the Company's trust preferred securities in March 2014, as further described in Note 7 to our consolidated financial statements. The decrease was also attributable to the final settlement amount of $15.5 million paid to Union Bank in January 2014 in conjunction with the sale of our ABS line of business in November 2013.

Loans and Allowance for Loan Losses

Loan Portfolio Composition. Total loans represented 50.2% of our assets as of June 30, 2014, compared to 48.3% of our assets at December 31, 2013. Total loans increased$95.0 million to $2.95 billion at June 30, 2014 from $2.86 billion at December 31, 2013. The following table summarizes the composition of our loan portfolio by category at June 30, 2014 and December 31, 2013:

	June 30, 2014			December 31, 2013
	(dollars expressed in thousands)
Commercial, financial and agricultural	$	639,741		600,704
Real estate construction and development	123,509			121,662
Real estate mortgage:
One-to-four-family residential	936,580			921,488
Multi-family residential	116,815			121,304
Commercial real estate	1,090,146			1,048,234
Consumer and installment	18,501			18,681
Loans held for sale	27,576			25,548
Net deferred loan fees	(749		)	(526	)
Total loans	$	2,952,119		2,857,095

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The following table summarizes the composition of our loan portfolio by geographic region and/or business segment at June 30, 2014 and December 31, 2013:

	June 30, 2014		December 31, 2013
	(dollars expressed in thousands)
Southern California	$	1,000,994	968,241
Missouri	624,969		565,043
Mortgage Banking Division	518,426		513,225
Northern California	381,862		361,895
Northern and Southern Illinois	229,628		224,664
Chicago	82,967		91,048
Florida	52,995		58,525
Texas	14,064		23,705
Other	46,214		50,749
Total loans	$	2,952,119	2,857,095

The net increase in our loan portfolio during the first six months of2014 primarily reflects the following:

• An increase of $39.0 million, or 6.5%, in our commercial, financial and agricultural portfolio, primarily attributable to an increase in new loan production within this portfolio segment;

• An increase of $15.1 million, or 1.6%, in our one-to-four-family residential real estate loan portfolio, primarily attributable to new loan production within our home equity portfolio. The following table summarizes the composition of our one-to-four-family residential real estate loan portfolio as of June 30, 2014 and December 31, 2013:

	June 30, 2014		December 31, 2013
	(dollars expressed in thousands)
One-to-four-family residential real estate:
Residential mortgage	$	572,547	572,164
Home equity	364,033		349,324
Total	$	936,580	921,488

• A decrease of $4.5 million, or 3.7%, in our multi-family residential real estate loan portfolio, attributable to principal payments and payoffs on existing loans exceeding new loan production and loan charge-offs of $3.1 million during the second quarter of 2014; and

• An increase of $41.9 million, or 4.0%, in our commercial real estate portfolio, primarily attributable to new loan production within this portfolio segment. The following table summarizes the composition of our commercial real estate portfolio by loan type as of June 30, 2014 and December 31, 2013:

	June 30, 2014		December 31, 2013
	(dollars expressed in thousands)
Commercial real estate:
Owner occupied	$	593,689	568,035
Non-owner occupied	474,421		461,573
Farmland	22,036		18,626
Total	$	1,090,146	1,048,234

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Nonperforming Assets. Nonperforming assets consist of nonaccrual loans and other real estate. The following table presents the categories of nonperforming assets and certain ratios as of June 30, 2014 and December 31, 2013:

	June 30, 2014			December 31, 2013
	(dollars expressed in thousands)
Nonperforming Assets:
Nonaccrual loans:
Commercial, financial and agricultural	$	12,339		10,523
Real estate construction and development	4,242			4,914
One-to-four-family residential real estate:
Residential mortgage	17,173			20,063
Home equity	7,011			7,361
Multi-family residential	1,164			1,793
Commercial real estate	6,036			8,283
Consumer and installment	13			19
Total nonaccrual loans	47,978			52,956
Other real estate	59,235			66,702
Total nonperforming assets	$	107,213		119,658
Total loans	$	2,952,119		2,857,095
Performing troubled debt restructurings	$	106,884		110,627
Loans past due 90 days or more and still accruing	$	1,102		424
Ratio of:
Allowance for loan losses to loans	2.64		%	2.84	%
Nonaccrual loans to loans	1.63			1.85
Allowance for loan losses to nonaccrual loans	162.61			153.02
Nonperforming assets to loans and other real estate	3.56			4.09

Our nonperforming assets decreased$12.4 million, or 10.4%, to $107.2 million at June 30, 2014, from $119.7 million at December 31, 2013, reflecting a decrease in both nonaccrual loans and other real estate.

The decrease in our nonaccrual loans of $5.0 million, or 9.4%, during the first six months of2014, primarily in our residential mortgage and commercial real estate loan portfolios, reflects the resolution of certain nonaccrual loans as a result of payoffs and the sale of nonaccrual loans, in addition to gross loan charge-offs and transfers to other real estate. As of June 30, 2014 and December 31, 2013, loans identified by management as performing troubled debt restructurings, or TDRs, aggregating $9.4 million and $10.6 million, respectively, were on nonaccrual status and were classified as nonperforming loans. The decrease in other real estate of $7.5 million, or 11.2%, during the first six months of2014 was primarily driven by sales of other real estate properties, including a single property with a carrying value of $3.0 million.

Performing Troubled Debt Restructurings. The following table presents the categories of performing TDRs as of June 30, 2014 and December 31, 2013:

	June 30, 2014		December 31, 2013
	(dollars expressed in thousands)
Real estate mortgage:
One-to-four-family residential	$	77,465	78,153
Multi-family residential	24,970		27,955
Commercial real estate	4,449		4,519
Total performing troubled debt restructurings	$	106,884	110,627

The decrease in performing TDRs of $3.7 million, or 3.4%, during the first six months of2014 reflects a decrease in all of our performing TDR loan categories. Our multi-family residential performing TDRs at June 30, 2014 consist of a single $25.0 million loan relationship in our Chicago region that was restructured during the fourth quarter of 2012. We are closely monitoring this loan relationship, and while facts and circumstances are subject to change in the future, the borrower continued to service this obligation in accordance with the existing terms and conditions of the restructured credit agreement as of June 30, 2014.

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Potential Problem Loans. As of June 30, 2014 and December 31, 2013, loans aggregating $105.0 million and $109.5 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 commercial loans having an internally assigned grade of substandard and consumer loans which are greater than 30 days past due. The following table presents the categories of our potential problem loans as of June 30, 2014 and December 31, 2013:

	June 30, 2014		December 31, 2013
	(dollars expressed in thousands)
Commercial, financial and agricultural	$	12,223	14,727
Real estate construction and development	73,146		73,390
Real estate mortgage:
One-to-four-family residential	8,927		8,707
Multi-family residential	611		555
Commercial real estate	9,883		11,999
Consumer and installment	160		126
Total potential problem loans	$	104,950	109,504

Potential problem loans decreased$4.6 million, or 4.2%, during the first six months of2014. Potential problem loans at June 30, 2014 include a $60.5 million real estate construction and development credit relationship in our Southern California region, which was subsequently reduced to $19.2 million as a result of a refinancing of a substantial portion of the credit relationship through an independent third party financial institution.

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 weakened economic environment, our credit administration department and our internal credit review department are reviewing all loans with credit exposure over certain thresholds in loan portfolio segments in which we, or other financial institutions, have experienced significant loan charge-offs, such as real estate construction and development and one-to-four-family residential real estate loans, and on loan portfolio segments that appear to be most likely to generate additional loan charge-offs in the future, such as commercial real estate. We include adversely rated credits, including potential problem loans, on our monthly loan watch list. Loans on our watch list require regular detailed loan status reports prepared by the responsible officer which are discussed in formal meetings with internal credit review and credit administration staff members that are generally conducted on a quarterly basis. The primary purpose of these meetings is to closely monitor these loan relationships and further develop, modify and oversee appropriate action plans with respect to the ultimate and timely resolution of the individual loan relationships.

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

Potential problem loans are regularly evaluated for impaired loan status by lenders, the credit administration department and the internal credit review department. When management makes the determination that a loan should be considered impaired, an initial specific reserve is allocated to the impaired loan, if necessary, until the loan is charged down to the appraised value of the underlying collateral, typically within 30 to 90 days of becoming impaired. 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 if management determines new appraisals are prudent based on many different factors, such as a rapid change in market conditions in a particular region.

Allowance for Loan Losses. Our allowance for loan losses decreased to $78.0 million at June 30, 2014, from $81.0 million at December 31, 2013. The decrease in our allowance for loan losses during the first six months of2014 was attributable to net loan charge-offs of $3.0 million.

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Our allowance for loan losses as a percentage of total loans was 2.64% and 2.84% at June 30, 2014 and December 31, 2013, respectively. The decrease in the allowance for loan losses as a percentage of total loans during the first six months of2014 was primarily attributable to the decrease in our nonaccrual and potential problem loans, which generally require a higher allowance for loan losses relative to the amount of the loans than the remainder of the loan portfolio, in addition to a decrease in our historical net loan charge-off experience as a result of declining charge-off levels during the first six months of2014 and the year ended December 31, 2013, as compared to previous periods.

Our allowance for loan losses as a percentage of nonaccrual loans was 162.61% and 153.02% at June 30, 2014 and December 31, 2013, respectively. The increase in the allowance for loan losses as a percentage of nonaccrual loans during the first six months of2014 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.

The following table summarizes the changes in the allowance for loan losses for the three and six months ended June 30, 2014 and 2013:

	Three Months Ended					Six Months Ended
	June 30,					June 30,
	2014			2013		2014		2013
	(dollars expressed in thousands)
Allowance for loan losses, beginning of period	$	79,831		88,170		81,033		91,602
Loans charged-off:
Commercial, financial and agricultural	(994		)	(1,010	)	(2,616	)	(1,686	)
Real estate construction and development	(35		)	(166	)	(65	)	(448	)
Real estate mortgage:
One-to-four-family residential:
Residential mortgage	(2,065		)	(3,091	)	(3,156	)	(6,739	)
Home equity	(136		)	(1,247	)	(471	)	(1,988	)
Multi-family residential	(2,952		)	(159	)	(3,084	)	(162	)
Commercial real estate	(21		)	(1,156	)	(209	)	(2,633	)
Consumer and installment	(37		)	(42	)	(86	)	(98	)
Total	(6,240		)	(6,871	)	(9,687	)	(13,754	)
Recoveries of loans previously charged-off:
Commercial, financial and agricultural	1,263			1,023		2,015		2,090
Real estate construction and development	756			1,321		1,356		1,716
Real estate mortgage:
One-to-four-family residential:
Residential mortgage	1,355			1,124		1,937		2,258
Home equity	123			164		332		261
Multi-family residential loans	2			141		9		141
Commercial real estate loans	915			522		972		1,240
Consumer and installment	13			39		51		79
Total	4,427			4,334		6,672		7,785
Net loans charged-off	(1,813		)	(2,537	)	(3,015	)	(5,969	)
Provision for loan losses	—			—		—		—
Allowance for loan losses, end of period	$	78,018		85,633		78,018		85,633

Our net loan charge-offs decreased to $1.8 million and $3.0 million for the three and six months ended June 30, 2014, respectively, from $2.5 million and $6.0 million for the comparable periods in 2013. Our annualized net loan charge-offs as a percentage of average loans were 0.25% and 0.21% for the three and six months ended June 30, 2014, respectively, compared to 0.36% and 0.43% for the comparable periods in 2013. Net loan charge-offs associated with our multi-family residential real estate loan portfolio were $3.0 million and $3.1 million for the three and six months ended June 30, 2014, respectively, as compared to $18,000 and $21,000 for the comparable periods in 2013.

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

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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 income.

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:

• Changes in the aggregate loan balances by loan category;

• 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;

• Changes in historical loss data as a result of recent charge-off experience by loan type; and

• 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 ratio of the allocated allowance for loan losses to loans by category as of June 30, 2014 and December 31, 2013:

	June 30, 2014		December 31, 2013
Commercial, financial and agricultural	2.15	%	2.23	%
Real estate construction and development	5.34		6.09
Real estate mortgage:
One-to-four-family residential	3.11		3.54
Multi-family residential	6.31		4.33
Commercial real estate	1.91		2.10
Consumer and installment	1.96		1.68
Total	2.64		2.84

The changes in the percentage of the allocated allowance for loan losses to loans in these portfolio segments are reflective of changes in the overall level of special mention loans, potential problem loans, performing TDRs and nonaccrual loans within each of these portfolio segments, in addition to other qualitative and quantitative factors, including loan growth in certain portfolio segments.

INTERESTRATERISKMANAGEMENT

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, typically 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:

• 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;

• Employing a financial simulation model to determine our exposure to changes in interest rates;

• Coordinating the lending, investing and deposit-generating functions to control the assumption of interest rate risk; and

• Utilizing various financial instruments, including derivatives, to offset inherent interest rate risk should it become excessive.

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

The ALCO has overall responsibility for the effective management of interest rate risk and the approval of policy guidelines. The ALCO includes our President and Chief Executive Officer, Chief Financial Officer, Controller, Chief Investment Officer, Chief Credit Officer, Chief Banking Officer, Director of Risk Management and Audit, and certain other senior officers. The Asset Liability

47

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 re-price with changes in interest rates more rapidly than our liabilities, and our simulation model indicates a loss of projected net interest income should interest rates decline. While a decline in interest rates of less than 50 basis points was projected to have a relatively minimal impact on our net interest income, an instantaneous parallel decline in the interest yield curve of 50 basis points indicates a pre-tax projected loss of approximately 5.1% of net interest income, based on assets and liabilities at June 30, 2014. At June 30, 2014, 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, 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 June 30, 2014, adjusted to account for anticipated prepayments:

	Three Months or Less			Over Three through Six Months		Over Six through Twelve Months		Over One through Five Years	Over Five Years	Total
	(dollars expressed in thousands)
Interest-earning assets:
Loans (1)	$	1,422,271		153,240		265,031		918,631	192,946	2,952,119
Investment securities	90,188			92,532		158,009		1,235,478	547,571	2,123,778
FRB and FHLB stock	30,388			—		—		—	—	30,388
Short-term investments	168,575			—		—		—	—	168,575
Total interest-earning assets	$	1,711,422		245,772		423,040		2,154,109	740,517	5,274,860
Interest-bearing liabilities:
Interest-bearing demand deposits	$	251,719		156,475		102,049		74,836	95,245	680,324
Money market deposits	1,553,953			—		—		—	—	1,553,953
Savings deposits	49,369			40,657		34,849		49,370	116,164	290,409
Time deposits	247,978			217,347		277,530		238,725	22	981,602
Securities sold under agreements to repurchase	57,572			—		—		—	—	57,572
Subordinated debentures	282,481			—		—		—	71,767	354,248
Total interest-bearing liabilities	$	2,443,072		414,479		414,428		362,931	283,198	3,918,108
Interest-sensitivity gap:
Periodic	$	(731,650	)	(168,707	)	8,612		1,791,178	457,319	1,356,752
Cumulative	(731,650		)	(900,357	)	(891,745	)	899,433	1,356,752
Ratio of interest-sensitive assets to interest-sensitive liabilities:
Periodic	0.70			0.59		1.02		5.94	2.61	1.35
Cumulative	0.70			0.68		0.73		1.25	1.35

____________________

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

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

• Loans will repay at projected repayment rates;

• Mortgage-backed securities, included in investment securities, will repay at projected repayment rates;

• Interest-bearing demand accounts and savings deposits will behave in a projected manner with regard to their interest rate sensitivity; and

• 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.

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We were in an overall asset-sensitive position of $1.36 billion, or 23.1% of our total assets at June 30, 2014. We were in an overall liability-sensitive position on a cumulative basis through the twelve-month time horizon of $891.7 million, or 15.2% of our total assets at June 30, 2014.

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.

In the past, we have utilized derivative instruments to assist in our management of interest rate sensitivity by modifying the repricing, maturity and option characteristics of certain assets and liabilities. We may also sell interest rate swap agreement contracts to certain customers who wish to modify their interest rate sensitivity. There were no interest rate swap agreement contracts outstanding at June 30, 2014 and December 31, 2013. Our derivative instruments are more fully described in Note 6 to our consolidated financial statements.

LIQUIDITYMANAGEMENT

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 ongoing 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 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.

Our cash and cash equivalents were $287.4 million and $190.4 million at June 30, 2014 and December 31, 2013, respectively. The majority of these funds were maintained in our correspondent bank account with the FRB. The increase in our cash and cash equivalents of $96.9 million is further discussed under “— Financial Condition.”

Our unpledged investment securities decreased$232.3 million to $1.79 billion at June 30, 2014, from $2.02 billion at December 31, 2013, and are mostly comprised of highly liquid and readily marketable available-for-sale investment securities. The combined level of cash and cash equivalents and unpledged investment securities provided us with total available liquidity of $2.07 billion and $2.21 billion at June 30, 2014 and December 31, 2013, respectively. Our available liquidity of $2.07 billion represents 35.2% of total assets at June 30, 2014, in comparison to $2.21 billion, or 37.3% of total assets, at December 31, 2013. Our loan-to-deposit ratio increased to 61.4% at June 30, 2014 from 59.4% at December 31, 2013.

During the first six months of2014, we reduced our aggregate funds acquired from other sources of funds by $9.2 million to $423.0 million at June 30, 2014, from $432.2 million at December 31, 2013. 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 $23.6 million, partially offset by an increase in our daily repurchase agreements of $14.4 million. The following table presents the maturity structure of these other sources of funds at June 30, 2014:

	Certificates of Deposit of $100,000 or More		Other Borrowings	Total
	(dollars expressed in thousands)
Three months or less	$	95,657	57,572	153,229
Over three months through six months	76,087		—	76,087
Over six months through twelve months	101,602		—	101,602
Over twelve months	92,073		—	92,073
Total	$	365,419	57,572	422,991

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In addition to these sources of funds, First Bank has established a borrowing relationship with the FRB. First Bank's borrowing capacity through its relationship with the FRB was approximately $317.6 million and $283.9 million at June 30, 2014 and December 31, 2013, respectively. This borrowing relationship, which is secured primarily by commercial loans, provides an additional liquidity facility that may be utilized for contingency liquidity purposes. First Bank did not have any FRB borrowings outstanding at June 30, 2014 or December 31, 2013.

First Bank also has a borrowing relationship with the FHLB. First Bank's borrowing capacity through its relationship with the FHLB was approximately $373.6 million and $379.1 million at June 30, 2014 and December 31, 2013, respectively. 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. First Bank did not have any FHLB advances outstanding at June 30, 2014 or December 31, 2013.

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. First Bank had $4.9 million of time deposits through the CDARS program and $5.2 million of brokered money market accounts at June 30, 2014. Exclusive of the CDARS program and brokered money market accounts, First Bank does not generally utilize broker dealers to acquire deposits.

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 on trust preferred securities and other debt instruments issued by the Company, dividends paid on common and preferred stock (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 $10.0 million at June 30, 2014, as compared to $1.9 million at December 31, 2013.

We cannot pay any dividends on our common or preferred stock without the prior approval of the FRB, as previously discussed under “Overview and Recent Developments —Regulatory Agreements.”

In August 2009, we announced the deferral of our regularly scheduled interest payments on our outstanding junior subordinated debentures relating to our $345.0 million of trust preferred securities beginning with the regularly scheduled quarterly interest payments that would otherwise have been made in September and October, 2009. The terms of the junior subordinated debentures and the related trust indentures allow us to defer such payments of interest for up to 20 consecutive quarterly periods without triggering a payment default or penalty. The Company had deferred such payments for 18 quarterly periods as of December 31, 2013. These deferred payments aggregated $62.7 million at December 31, 2013.

On January 31, 2014, the Company received regulatory approval from the FRB under the former Written Agreement, subject to certain conditions, which granted First Bank the authority to pay a dividend to the Company, and the authority to the Company to utilize such funds, for the sole purpose of paying the accumulated deferred interest payments on the Company's outstanding junior subordinated debentures issued in connection with the Company's trust preferred securities. In February 2014, First Bank paid a dividend of $70.0 million to the Company and the Company notified the trustees of the trust preferred securities of its intention to pay all cumulative interest that had been deferred on the junior subordinated debentures relating to our trust preferred securities, on the regularly scheduled quarterly payment dates in March and April, 2014. The aggregate amount owed on all of the junior subordinated debentures relating to our trust preferred securities at the respective March and April, 2014 payment dates was $66.4 million. On March 14, 2014, the Company paid interest on the junior subordinated debentures of $66.4 million to the respective trustees, which was subsequently distributed to the trust preferred securities holders on the respective interest payment dates in March and April, 2014, as further described under “Overview and Recent Developments —Dividend from First Bank and Payment of Interest on Junior Subordinated Debentures” and in Note 7 to our consolidated financial statements. Subsequent to this payment, the Company has the ability to enter into future deferral periods of up to 20 consecutive quarterly periods without triggering a payment default or penalty. However, since that time, the Company has continued to pay interest on its junior subordinated debentures to the respective trustees on the regularly scheduled quarterly payment dates. Such interest payments have been funded through additional dividends from First Bank.

Without the payment of dividends from First Bank, the Company currently lacks the source of income and the liquidity to make future interest payments on the subordinated debentures associated with its trust preferred securities. Given restrictions placed upon First Bank, including regulatory restrictions, it may not be able to provide the Company with dividends in an amount sufficient to pay the interest on the trust preferred securities. In such case, the Company would have to pursue alternative funding sources, but there can be no assurance that the Company will be able to identify and obtain alternative funding due to the uncertainty of our ability to access future liquidity through debt markets. The Company's ability to access debt markets on terms satisfactory to us will depend on our financial performance and conditions in the capital markets, economic conditions and a number of other factors, many of which are outside of our control.

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During the period of deferral of interest on our regularly scheduled interest payments on our outstanding junior subordinated debentures relating to our $345.0 million of trust preferred securities, we were not allowed to, among other things and with limited exceptions, pay cash dividends on or repurchase our common stock or preferred stock or make any payment on outstanding debt obligations that rank equally with or junior to our junior subordinated debentures. Accordingly, we also suspended the payment of cash dividends on our outstanding common stock and preferred stock beginning with the regularly scheduled quarterly dividend payments on our preferred stock that would otherwise have been made in August and September, 2009, as further described in Note 8 to our consolidated financial statements. We have deferred and accrued $68.4 million of regularly scheduled dividend payments on our Class C Preferred Stock and Class D Preferred Stock, and have accrued an additional $9.4 million of cumulative dividends on such deferred dividend payments at June 30, 2014. As such, the aggregate amount of these deferred and accrued dividend payments was $77.8 million at June 30, 2014.

The Company's financial position will be adversely affected if it experiences increased liquidity needs and any of the following events occur:

• First Bank is unable or prohibited by its regulators to pay future dividends 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 certain restrictions, as further described above and under “Overview and Recent Developments —Regulatory Agreements;”

• 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;

• 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 June 30, 2014, with the exception of $57.6 million of daily repurchase agreements utilized by customers as an alternative deposit product, and has substantial borrowing capacity through its relationships with the FHLB and the FRB, as previously discussed; or

• The Company has difficulty raising cash through the future issuance of debt or equity instruments or by accessing additional sources of credit, as further described above.

The Company's financial flexibility will 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 would be materially adversely affected. A lack of liquidity and/or cost-effective funding alternatives could lead to the Company's inability to meet its financial commitments and related contractual obligations associated with its junior subordinated debentures, which would have a material adverse effect on 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 June 30, 2014 were as follows:

	Less Than 1 Year		1-3 Years	3-5 Years	Over 5 Years	Total (1)
	(dollars expressed in thousands)
Operating leases	$	8,190	12,749	6,128	10,440	37,507
Certificates of deposit (2)	742,063		197,087	42,430	22	981,602
Securities sold under agreements to repurchase	57,572		—	—	—	57,572
Subordinated debentures (3)	—		—	—	354,248	354,248
Class C Preferred Stock and Class D Preferred Stock (3) (4)	—		—	—	312,743	312,743
Other contractual obligations	359		4	—	—	363
Total	$	808,184	209,840	48,558	677,453	1,744,035

____________________

(1) Amounts exclude ASC Topic 740 unrecognized tax liabilities of $868,000 and related accrued interest expense of $169,000 for which the timing of payment of such liabilities cannot be reasonably estimated as of June 30, 2014.

(2) Amounts exclude the related accrued interest expense on certificates of deposit of $331,000 as of June 30, 2014.

(3) Amounts exclude the accrued interest expense on junior subordinated debentures of $346,000 as of June 30, 2014, accrued dividends declared on preferred stock of $77.8 million and undeclared dividends of $18.6 million as of June 30, 2014.

(4) Represents liquidation preference amounts payable upon redemption of the Class C Preferred Stock and the Class D Preferred Stock of $295.4 million and $17.3 million, respectively.

EFFECTS OFNEWACCOUNTINGSTANDARDS

In July 2013, the FASB issued ASU 2013-11 - Income Taxes (Topic 740) - Presentation of an Unrecognized Tax Benefit When a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists. As a result of applying this ASU, an unrecognized tax benefit is presented as a reduction of a deferred tax asset for a net operating loss or other tax credit carry-forward when settlement in this manner is available under the tax law. The assessment of whether settlement is available under the tax law is based on facts and circumstances as of the balance sheet reporting date and does not consider future events (i.e.,

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upcoming expiration of related net operating loss carry-forwards). This classification does not affect an entity’s analysis of the realization of its deferred tax assets. This ASU is effective for interim and annual periods beginning after December 15, 2013. We adopted the requirements of this ASU on January 1, 2014, which did not have a material impact on our consolidated financial statements or results of operations or the disclosures presented in our consolidated financial statements.

In January 2014, the FASB issued ASU 2014-01 - Investments - Equity Method and Joint Ventures (Topic 323) - Accounting for Investments in Qualified Affordable Housing Projects. This ASU provides guidance on accounting for investments by a reporting entity in flow-through limited liability entities that manage or invest in affordable housing projects that qualify for low-income housing tax credit. The amendments in this ASU permit reporting entities to make an accounting policy election to account for their investments in qualified affordable housing projects using the proportional amortization method if certain conditions are met. Under the proportional amortization method, an entity amortizes the initial cost of the investment in proportion to the tax credits and other tax benefits received and recognizes the net investment performance in the income statement as a component of income tax expense (benefit). The amendments require new recurring disclosures about all investments in qualified affordable housing projects irrespective of the method used to account for the investments. This ASU is effective for interim and annual periods beginning after December 15, 2014. Early adoption is permitted. We are currently evaluating the requirements of this ASU to determine the impact on our consolidated financial statements and results of operations and the disclosures to be presented in our consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09 - Revenue from Contracts with Customers (Topic 606). The core principle of this ASU is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The ASU identifies a five-step model and related application guidance which will replace most existing revenue recognition guidance. This ASU is effective for interim and annual periods beginning after December 15, 2016. An entity may choose to adopt the ASU either retrospectively or through a cumulative effect adjustment as of the beginning of the first period for which it applies the new guidance. Early adoption is not permitted. We are currently evaluating the requirements of this ASU to determine the method of adoption and the impact on our consolidated financial statements and results of operations and the disclosures to be presented in our consolidated financial statements.

ITEM3–QUANTITATIVE ANDQUALITATIVEDISCLOSURES ABOUTMARKETRISK

The quantitative and qualitative disclosures about market risk are included under “Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations — Interest Rate Risk Management,” appearing on pages 47 through 49 of this report.

ITEM4–CONTROLS ANDPROCEDURES

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

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PART II – OTHER INFORMATION

ITEM1–LEGALPROCEEDINGS

The information required by this item is set forth in Part I, Item 1 – Financial Statements, under Note 15, 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 is reasonably likely to have a material adverse effect on our business, financial condition or results of operations.

The Company entered into an MOU with the FRB, dated May 19, 2014, as further described under “Item 2. —Management’s Discussion and Analysis of Financial Condition and Results of Operations —Regulatory Agreements” and in Note 9 to our consolidated financial statements. On May 19, 2014, the FRB terminated the Written Agreement, dated March 24, 2010, by and among the Company, SFC, First Bank and the FRB.

ITEM1A–RISKFACTORS

Readers of our Quarterly Report on Form 10-Q should consider certain risk factors in conjunction with the other information included in this Quarterly Report on Form 10-Q. Refer to “Item 1A — Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2013 and the additional risk factors, as described below, for a discussion of these risks.

The Company's common equity calculated under U.S. generally accepted accounting principles is likely to diverge from the Company's common equity Tier 1 Capital as calculated for regulatory purposes. As further described under “Item 2. —Management’s Discussion and Analysis of Financial Condition and Results of Operations —Overview and Recent Developments – Basel III Regulatory Capital Reforms,” the Federal Reserve, in July, 2013, promulgated regulations that will impose a new common equity Tier 1 capital requirement that will apply to the Company beginning on January 1, 2015. Absent a substantial increase in qualifying common equity, the Company is not likely to meet the common equity Tier 1 capital requirement as it will be calculated in 2015, or to meet the common equity Tier 1 capital requirement as it will be calculated in 2016 when the capital conservation buffer goes into effect. The inability to remain adequately capitalized under the new Basel III capital requirements could materially adversely impact our financial condition, results of operations, ability to grow, and could prohibit the payment of dividends on our capital stock and interest on our junior subordinated debentures (and the related trust preferred securities).

The Company’s ability to increase its common equity Tier 1 capital is constrained by the Company’s private ownership structure. As previously described above, absent a substantial increase in qualifying common equity, the Company is not likely to meet the common equity Tier 1 capital requirement as it will be calculated in 2015, or to meet the common equity Tier 1 capital requirement as it will be calculated in 2016 when the capital conservation buffer goes into effect. All of the Company’s common stock is held by trusts created by and for the benefit of Mr. James F. Dierberg and members of his immediate family. The Company cannot issue a meaningful number of additional shares of common stock without an amendment of the Company’s Articles of Incorporation which would require the approval of the holders of common stock. Such holders have indicated their intention to maintain the Company as a privately held institution. Furthermore, applicable law would require continued control of an amount of the Company's capital stock that, in the aggregate, represents 50% of the Company's value by the current holders of the Company’s common stock, Class A Preferred Stock and Class B Preferred Stock in order to avoid limitations on the use of the Company's deferred tax assets. For these reasons, the Company’s ability to substantially increase its common equity Tier 1 capital in order to meet the new Basel III requirements by the time the new rules first become applicable to the Company in 2015 or by the time the capital conservation buffer goes into effect in 2016 is more limited than it otherwise might be for a publicly traded company with widely dispersed ownership.

The Company’s ability to pay dividends on its capital stock may be limited under the terms of the Company’s debt. As of June 30, 2014, the Company had $345.0 million of junior subordinated debentures issued in connection with its outstanding trust preferred securities, as further described in Note 7 to the consolidated financial statements. Payments of principal and interest on the junior subordinated debentures (and the related payments on the trust preferred securities) are conditionally guaranteed by the Company. The rights of the holders of the Company’s junior subordinated debentures are senior in ranking to the rights of the holders of the Company’s common stock and preferred stock. As a result, the Company may only pay dividends on its common stock or preferred stock if the payments on its junior subordinated debentures (and the related trust preferred securities) are current and, in the event of its bankruptcy, dissolution or liquidation, the holders of the Company’s junior subordinated debentures must be satisfied before any distributions can be made to its stockholders.

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Holders of the Company’s Common Stock, Class A Preferred Stock and Class B Preferred Stock may have interests that are different from the holders of the Company’s Class C Preferred Stock and Class D Preferred Stock. The holders of the Company’s Class C Preferred Stock and Class D Preferred Stock have limited voting rights. All of the Company’s Common Stock and Class A Preferred Stock and Class B Preferred Stock are held by trusts established by and administered by and for the benefit of Mr. James F. Dierberg and members of his immediate family. The holders of the Company’s Common Stock and Class A Preferred Stock and Class B Preferred Stock may have different interests from the holders of the Company’s Class C Preferred Stock and Class D Preferred Stock and could vote, or not vote, to approve transactions that may be considered desirable by the holders of the Company’s Class C Preferred Stock and Class D Preferred Stock.

ITEM6–EXHIBITS

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

Exhibit Number	Description
31.1	Rule 13a-14(a) / 15d-14(a) Certifications of Chief Executive Officer – filed herewith.
31.2	Rule 13a-14(a) / 15d-14(a) Certifications of Chief Financial Officer – filed herewith.
32.1	Section 1350 Certifications of Chief Executive Officer – furnished herewith.
32.2	Section 1350 Certifications of Chief Financial Officer – furnished herewith.
101	Financial information from the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2014, formatted in XBRL interactive data files pursuant to Rule 405 of Regulation S-T: (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Income; (iii) Consolidated Statements of Comprehensive Income (Loss); (iv) Consolidated Statements of Changes in Stockholders’ Equity; (v) Consolidated Statements of Cash Flows; and (vi) Notes to Consolidated Financial Statements – furnished herewith.

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SIGNATURES

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

Date: August 13, 2014

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

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