FORM 10-K
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                              --------------------
(Mark One)
 [X]      ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934
                   For the fiscal year ended December 31, 1998

[ ]     TRANSITION REPORT PURSUANT TO SECTION  13 OR 15(d) OF THE SECURITIES
                          EXCHANGE ACT OF 1934 For the
                  For the transition period from ______ to ____
                           Commission File No. 0-20632


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

         MISSOURI                                        43-1175538
  (State or other jurisdiction of           (I.R.S. Employer Identification No.)
   incorporation or organization)
                                       
                         135 North Meramec, Clayton, MO      63105
               (Address of principal executive offices)    (Zip Code)
       Registrant's telephone number, including area code: (314) 854-4600
                           --------------------------
           Securities registered pursuant to Section 12(b) of the Act:

                                                  Name of each exchange
     Title of each class                           on which registered 
     -------------------                           ------------------- 
            None                                                   N/A

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

          9.25% Cumulative Trust Preferred Securities (issued by First
    Preferred Capital Trust and guaranteed by its parent, First Banks, Inc.)
                                (Title or class)

         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. Yes X No

         Indicate by check mark if disclosure of delinquent  filers  pursuant to
Item 405 of Regulation S-K is not contained  herein,  and will not be contained,
to the best of  registrant's  knowledge,  in  definitive  proxy  or  information
statements  incorporated  by  reference  in Part  III of this  Form  10-K or any
amendments to this Form 10-K. [ X ]
         None of the voting stock of the Company is held by non-affiliates.  All
of the voting stock of the Company is owned by various trusts which were created
by and for the benefit of Mr. James F. Dierberg,  the Company's  Chairman of the
Board of Directors,  President and Chief Executive  Officer,  and members of his
immediate family.
         At March 18, 1999, there were 23,661 shares of the registrant's  common
stock outstanding.

         DOCUMENTS  INCORPORATED  BY REFERENCE  Portions of the Annual Report to
Shareholders  for the fiscal year ended  December 31, 1998 are  incorporated  by
reference into Parts I, II and IV of this report.






<PAGE>


                                     PART I


         The following portions of the 1998 Annual Report to Stockholders ("1998
Annual  Report") of First  Banks,  Inc.  ("First  Banks" or the  "Company")  are
incorporated by reference in this report:

                                                                Page(s) in 1998
                          Section                                    Report
                          -------                                    ------

         Management's Discussion and Analysis of
           Financial Condition and Results of Operations              3-29
         Selected Consolidated and Other Financial Data                  2
         Consolidated Financial Statements                           32-58
         Supplementary Financial Data                                   30
         Range of Prices of Preferred Securities                        49

     Except for the parts of the 1998 Annual Report  expressly  incorporated  by
reference,  such report is not deemed  filed with the  Securities  and  Exchange
Commission.

     Information  appearing  in  this  report,  in  documents   incorporated  by
reference  herein and in documents  subsequently  filed with the  Securities and
Exchange  Commission  which are not  statements of  historical  fact may include
forward  looking  statements.  These forward  looking  statements are subject to
certain  risks  and  uncertainties,  not  all  of  which  can  be  predicted  or
anticipated.  Factors that may cause actual  results to differ  materially  from
those  contemplated  by the forward  looking  statements  herein  include market
conditions as well as  conditions  specifically  affecting the banking  industry
generally and factors having a specific impact on First Banks, including but not
limited to fluctuations in interest rates and in the economy; the impact of laws
and  regulations  applicable  to First  Banks and changes  therein;  competitive
conditions  in the  markets  in  which  First  Banks  conducts  its  operations,
including  competition from banking and non-banking companies with substantially
greater resources than First Banks, some of which may offer and develop products
and  services  not  offered by First  Banks;  and the  ability of First Banks to
respond to changes in technology, including effects of the Year 2000 issue. With
regard to First Banks' efforts to grow through acquisitions,  factors that could
affect the accuracy or  completeness  of forward  looking  statements  contained
herein include the potential for higher than acceptable  operating costs arising
from the geographic  dispersion of the offices of First Banks,  as compared with
competitors  operating solely in contiguous  markets;  the competition of larger
acquirers with greater resources than First Banks, fluctuations in the prices at
which acquisition  targets may be available for sale and in the market for First
Banks'  securities;  and the potential for difficulty or unanticipated  costs in
realizing the benefits of particular  acquisition  transactions.  Readers should
therefore not place undue reliance on forward looking statements.

Item 1. Business

General. First Banks,  incorporated in Missouri in 1978, is headquartered in St.
Louis,  Missouri and is a registered bank holding company under the Bank Holding
Company Act of 1956, as amended ("BHC Act").

    At December 31, 1998,  First Banks had $4.55 billion in total assets,  $3.58
billion  in total  loans,  net of  unearned  discount,  $3.94  billion  in total
deposits and $263 million in total  stockholders'  equity.  First Banks operates
through  its  subsidiary  financial  institutions  and  bank  holding  companies
("Subsidiary Banks") as follows:

         First Bank, headquartered in St. Louis County, Missouri ("First Bank").
         First Banks America, Inc., headquartered in St. Louis County, Missouri
           ("FBA"), and its wholly owned subsidiaries:
              First Bank Texas  N.A.,  headquartered  in  Houston,  Texas,
              formerly   BankTEXAS  N.A.  ("FB  Texas").   First  Bank  of
              California,  headquartered  in  Roseville,  California  ("FB
              California").
         CCB Bancorp,  Inc.,  headquartered  in Newport Beach,  California
           ("CCB"),  and its wholly  owned  subsidiary - First Bank & Trust,
           headquartered in Newport Beach, California ("FB&T").
<PAGE>

     The Subsidiary  Banks are wholly owned by their  respective  parents except
FBA,  which was 76.8%  owned by First Banks at December  31,  1998.  In February
1998, First Commercial Bancorp, Inc. (FCB), a majority owned subsidiary of First
Banks,  was acquired by FBA, and its subsidiary bank, First Commercial Bank, was
merged into FB California. The acquisition of FCB by FBA did not have a material
effect on the financial  condition or results of  operations of First Banks.  In
addition,  on February 17, 1999,  First Banks  completed its purchase of 314,848
shares of FBA common stock, pursuant to a tender offer to purchase up to 400,000
shares of FBA common stock.  The tender offer increased  First Banks'  ownership
interest in FBA to 82.3% of the outstanding voting stock of FBA.

    Through the Subsidiary Banks, First Banks offers a broad range of commercial
and  personal  banking  services  including  certificate  of  deposit  accounts,
individual retirement and other time deposit accounts, checking and other demand
deposit accounts,  interest checking accounts, savings accounts and money market
accounts.  Loans include  commercial,  financial and  agricultural,  real estate
construction and development,  commercial and residential real estate,  consumer
and  installment,   student  and  Small  Business  Administration  loans.  Other
financial services include mortgage banking,  credit cards,  discount brokerage,
credit-related insurance,  automatic teller machines,  telephone account access,
safe deposit boxes,  trust and private  banking  services,  and cash  management
services.

    First  Banks  centralizes   overall  corporate   policies,   procedures  and
administrative  and  operational  support  functions for the  Subsidiary  Banks.
Primary  responsibility  for  managing  the  Subsidiary  Banks  remains with the
officers and directors.

    The  following  table recaps  selected  data about the  Subsidiary  Banks at
December 31, 1998:
<TABLE>
<CAPTION>

                                                                                        Loans, net of
                                                           Number of      Total           unearned         Total
         Subsidiary Banks                                  locations      assets          discount        deposits
         ----------------                                  ---------      ------          --------        --------
                                                                         (dollars expressed in thousands)

<S>                                                           <C>     <C>                <C>              <C>      
     First Bank......................................         98      $ 3,024,600        2,490,556        2,659,030
     CCB:
         FB&T........................................         21          793,217          573,562          701,406
     FBA:
         FB California...............................         10          410,110          314,977          363,422
         FB Texas....................................          6          300,984          201,426          264,425
</TABLE>

    The Company, Mr. Dierberg and an affiliate of Mr. Dierberg own 18.55%, 0.20%
and 4.44%, respectively,  of the outstanding shares of common stock of Southside
Bancshares Corporation  ("Southside") located in St. Louis, Missouri. The shares
of Southside are currently held for investment purposes.

    The  voting  stock of First  Banks is owned by  various  trusts  which  were
created by and are administered by and for the benefit of Mr. James F. Dierberg,
First Banks' Chairman of the Board,  President and Chief Executive Officer,  and
members  of  his  immediate  family.  Accordingly,  Mr.  Dierberg  controls  the
management  and policies of First Banks and the election of its  directors.  The
Preferred  Securities  are publicly held and listed on the Nasdaq Stock Market's
National Market system.

    For a further  discussion  of the  business of First  Banks  during the past
year,  see  "Management's  Discussion and Analysis - General" in the 1998 Annual
Report.

Acquisitions.  Prior to 1994, First Banks'  acquisitions  had been  concentrated
within the market area of eastern  Missouri and central and  southern  Illinois.
The premiums required to successfully pursue  acquisitions  escalated sharply in
1993,  reducing the economic  viability of many potential  acquisitions  in that
area. Recognizing this, First Banks began to expand the geographic area in which
it approached acquisition candidates. While First Banks was successful in making
acquisitions  in  Chicago  and  northern  Illinois,   it  became  apparent  that
acquisition pricing, in Chicago and other areas being considered, was comparable
to that of First  Banks'  eastern  Missouri  and central and  southern  Illinois

<PAGE>

acquisition   area.  As  a  result,   while  First  Banks  continued  to  pursue
acquisitions within these areas, it turned much of its attention to institutions
which could be  acquired  at more  attractive  prices  which were  within  major
metropolitan areas outside of these market areas. This led to the acquisition of
FB Texas which had  offices in Dallas and  Houston,  Texas in 1994 and  numerous
acquisitions of financial institutions which had offices in Los Angeles,  Orange
County, Santa Barbara, San Francisco, San Jose and Sacramento, California during
the past four years ending December 31, 1998.

    For the three years ended  December 31,  1998,  First Banks  completed  four
acquisitions and three branch deposit  purchases.  These  transactions  provided
total assets of $444.3  million and 13 banking  locations.  For a description of
these  acquisitions,  see "Management's  Discussion and Analysis - Acquisitions"
and Note 2 to the Consolidated Financial Statements of the 1998 Annual Report.

Market  Area.  As of  December  31,  1998,  the  Subsidiary  Banks' 135  banking
facilities were located  throughout eastern Missouri,  Illinois,  California and
Texas. First Banks' primary market area is the St. Louis,  Missouri metropolitan
area.  First  Banks'  second and third  largest  market  areas are  central  and
southern  Illinois and southern and  northern  California,  respectively.  First
Banks also has  locations in the Houston,  Dallas,  Irving and  McKinney,  Texas
metropolitan  areas,  rural eastern Missouri and the greater  Chicago,  Illinois
metropolitan area.

    The  following  table lists the market areas in which the  Subsidiary  Banks
operate, total deposits and number of locations as of December 31, 1998:
<TABLE>
<CAPTION>

                                                                              Total        Deposits
                                                                             deposits     as percent     No. of
                            Geographic area                               (in millions)    of total    locations
                            ---------------                               -------------    --------    ---------

<S>                                                                        <C>                <C>          <C>
     St. Louis, Missouri metropolitan area (1)..........................   $   864.3          22.0%        27
     Rural eastern Missouri (1).........................................       371.5           9.4         16
     Central and southern Illinois (1)..................................     1,024.0          26.0         38
     Northern Illinois (1)..............................................       351.0           8.9         17
     Texas (2)..........................................................       264.4           6.7          6
     Southern and central California (3)................................       670.6          17.0         21
     Northern California (4)............................................       394.2          10.0         10
                                                                           ---------         -----      -----
         Total deposits.................................................   $ 3,940.0         100.0%       135
                                                                           =========         =====      =====
</TABLE>
 
 ------------------------
   (1) First Bank operates in the St. Louis  metropolitan area, in rural eastern
       Missouri,  in central and  southern  Illinois  and in northern  Illinois,
       including Chicago.
   (2) FB  Texas  operates   in  the  Houston,   Dallas,   Irving  and  McKinney
       metropolitan areas.
   (3) FB&T  operates in the greater Los Angeles  metropolitan  area,  including
       Orange  County,  California.  Three of the  branches  are also located in
       Santa Barbara County, California.
   (4) FB&T and FB  California  operate in  northern  California,  including the
       greater San Francisco, San Jose and Sacramento metropolitan areas.

Competition  and Branch  Banking.  The activities in which the Subsidiary  Banks
engage are highly  competitive.  Those  activities  and the  geographic  markets
served  involve  primarily  competition  with  other  banks,  some of which  are
affiliated  with large  bank  holding  companies.  Competition  among  financial
institutions is based upon interest rates offered on deposit accounts,  interest
rates  charged on loans and other  credit and  service  charges,  the quality of
services  rendered,  the  convenience of banking  facilities and, in the case of
loans to large commercial borrowers, relative lending limits.

    In addition to competing with other banks within their primary service area,
the Subsidiary Banks also compete with other financial  intermediaries,  such as
thrifts,  credit  unions,   industrial  loan  associations,   securities  firms,
insurance  companies,   small  loan  companies,   finance  companies,   mortgage
companies,  real estate investment trusts, certain governmental agencies, credit
organizations  and other  enterprises.  Additional  competition  for depositors'
funds comes from United States  Government  securities,  private issuers of debt
obligations and suppliers of other investment alternatives for depositors.  Many
of the  Company's  non-bank  competitors  are not subject to the same  extensive
federal  regulations  that govern bank holding  companies and  federally-insured
banks and  thrifts and state  regulations  governing  state-chartered  banks and
thrifts. As a result, such non-bank competitors may have certain advantages over
the Company in providing some services.
<PAGE>

    The  trend  in  Missouri,  Illinois,  California  and  Texas  has  been  for
multi-bank  holding  companies  to  acquire  independent  banks and  thrifts  in
communities  throughout  these states.  The Company believes it will continue to
face  competition in the acquisition of such banks and thrifts from bank holding
companies  based in those states and from bank holding  companies based in other
states under interstate  banking laws. Many of the financial  institutions  with
which the Company  competes  are larger than the Company and have  substantially
greater resources available for making acquisitions.

    Subject to  regulatory  approval,  commercial  banks  situated in  Missouri,
Illinois,  California and Texas are permitted to establish  branches  throughout
their  respective   states,   thereby  creating  the  potential  for  additional
competition in the service areas of the Subsidiary Banks.

Supervision and Regulation

General.  The Company and its Subsidiary  Banks are extensively  regulated under
federal  and state  law.  These laws and  regulations  are  intended  to protect
depositors, not shareholders.  To the extent the following information describes
statutory or regulatory provisions, it is qualified in its entirety by reference
to the particular statutory and regulatory provisions.  Any change in applicable
laws or regulations  may have a material effect on the business and prospects of
the  Company.  The  operations  of the Company  may be  affected by  legislative
changes and by the policies of various  regulatory  authorities.  The Company is
unable to predict  the nature or the extent of the effects on its  business  and
earnings that fiscal or monetary  policies,  economic controls or new federal or
state legislation may have in the future.

    The Company is a registered  bank holding company under the BHC Act, and, as
such, is subject to  regulation,  supervision  and  examination  by the Board of
Governors of the Federal Reserve System ("FRB"). The Company is required to file
annual  reports  with the FRB and to provide  additional  information  as it may
require.

    The  Company's  state-chartered  Subsidiary  Banks (First Bank,  FB&T and FB
California)  are subject to supervision  and regulation by the bank  supervisory
authorities  in their  respective  states and also by their  respective  primary
federal bank regulators.  The primary such regulator for First Bank, as a member
of the  Federal  Reserve  System,  is the FRB,  while the primary  federal  bank
regulator  for FB&T and FB  California,  which are not  members  of the  Federal
Reserve System, is the Federal Deposit Insurance Corporation ("FDIC"). FB Texas,
a national banking association,  is subject to the supervision and regulation of
the Office of the Comptroller of the Currency ("OCC"). Because the FDIC provides
deposit insurance to the Company's depository subsidiary financial institutions,
the Subsidiary Banks are also subject to supervision and regulation by the FDIC,
even where the FDIC is not their primary federal regulator.

    Financial  Institutions Reform,  Recovery,  and Enforcement Act of 1989. The
Financial  Institutions Reform Recovery,  and Enforcement Act of 1989 ("FIRREA")
reorganized  and  reformed  the  regulatory  structure  applicable  to financial
institutions generally. Among other things, FIRREA: (i) enhanced the supervisory
and enforcement powers for the federal bank regulatory  agencies;  (ii) required
insured financial  institutions to guarantee repayment of losses incurred by the
FDIC in  connection  with the failure of an  affiliated  financial  institution;
(iii) required financial institutions to provide their primary federal regulator
with notice, under certain circumstances,  of changes in senior management,  and
(iv)  broadened   authority  for  bank  holding  companies  to  acquire  savings
institutions.

    Under FIRREA,  federal bank  regulators  were granted  expanded  enforcement
authority over  "institution-affiliated  parties"  (i.e.,  officers,  directors,
controlling  stockholders,  as well as attorneys,  appraisers or accountants who
knowingly or recklessly participate in wrongful action likely to have an adverse
effect on an insured  institution).  Federal  banking  regulators  have  greater
flexibility  to bring  enforcement  actions  against  insured  institutions  and
institution-affiliated  parties,  including cease and desist orders, prohibition
orders,  civil money  penalties,  termination of insurance and the imposition of
operating  restrictions  and  capital  plan  requirements.   In  general,  these
enforcement  actions may be initiated for violations of laws and regulations and

<PAGE>

unsafe or unsound  practices.  Since the  enactment of FIRREA,  the federal bank
regulators have significantly increased the use of written agreements to correct
compliance  deficiencies  with respect to applicable laws and regulations and to
ensure safe and sound  practices.  Violations  of such  written  agreements  are
grounds for initiation of cease and desist proceedings.  FIRREA granted the FDIC
back-up enforcement  authority to recommend enforcement action to an appropriate
federal banking agency and to bring such enforcement  action against a financial
institution or an  institution-affiliated  party if such federal  banking agency
fails to follow the FDIC's recommendation.  In addition, FIRREA requires, except
under certain  circumstances,  public disclosure of final enforcement actions by
the federal banking agencies.
<PAGE>

    FIRREA also  established a cross guarantee  provision  pursuant to which the
FDIC may  recover  from a  depository  institution  losses  the FDIC  incurs  in
providing assistance to, or paying off the depositors of, any of such depository
institution's  affiliated  insured banks or thrifts.  The cross  guarantee  thus
enables  the FDIC to assess a holding  company's  healthy  Bank  Insurance  Fund
("BIF") members and Savings Association  Insurance Fund ("SAIF") members for the
losses of any of such  holding  company's  failed  BIF and SAIF  members.  Cross
guarantee  liabilities are generally  superior in priority to obligations of the
depository  institution  to its  stockholders  due  solely  to their  status  as
stockholders and obligations to other  affiliates.  Cross guarantee  liabilities
are  generally  subordinated,  except  with  respect to  affiliates,  to deposit
liabilities, secured obligations or any other general or senior liabilities, and
any obligations subordinated to depositors or other general creditors.

The Federal Deposit Insurance  Corporation  Improvement Act of 1991. The Federal
Deposit Insurance Corporation  Improvement Act of 1991 ("FDICIA") was adopted to
recapitalize  the BIF and impose certain  supervisory and regulatory  reforms on
insured depository institutions.  In general, FDICIA includes provisions,  among
others,  to: (i)  increase  the FDIC's line of credit with the U.S.  Treasury in
order to provide the FDIC with additional funds to cover the losses of federally
insured  banks;  (ii)  reform  the  deposit  insurance  system,   including  the
implementation  of risk-based  deposit  insurance  premiums;  (iii)  establish a
format  for  closer  monitoring  of  financial  institutions  to  enable  prompt
corrective action by banking  regulators when a financial  institution begins to
experience  financial  difficulty;   (iv)  establish  five  capital  levels  for
financial   institutions   ("well   capitalized,"    "adequately   capitalized,"
"undercapitalized,"    "significantly    undercapitalized"    and    "critically
undercapitalized")   that  impose  more  scrutiny  and   restrictions   on  less
capitalized institutions;  (v) require the banking regulators to set operational
and  managerial  standards  for all insured  depository  institutions  and their
holding  companies,  including  limits on  excessive  compensation  to executive
officers,  directors,   employees  and  principal  stockholders,  and  establish
standards  for loans  secured  by real  estate;  (vi) adopt  certain  accounting
reforms  and  require   annual   onsite   examinations   of  federally   insured
institutions,  including the ability to require  independent audits of banks and
thrifts;  (vii)  revise  risk-based  capital  standards  to ensure they (a) take
adequate account of interest-rate changes,  concentration of credit risk and the
risks of nontraditional  activities,  and (b) reflect the actual performance and
expected  risk  of  loss  of   multi-family   mortgages;   and  (viii)  restrict
state-chartered  banks from  engaging in  activities  not permitted for national
banks unless they are adequately capitalized and have FDIC approval. FDICIA also
authorized  the  FDIC  to  make  special   assessments  on  insured   depository
institutions,  in  amounts  determined  by the FDIC to be  necessary  to give it
adequate  assessment income to repay amounts borrowed from the U.S. Treasury and
other  sources or for any other purpose the FDIC deems,  necessary.  FDICIA also
grants authority to the FDIC to establish semiannual assessment rates on BIF and
SAIF  member  banks so as to  maintain  these  funds at the  designated  reserve
ratios.

    FDICIA,  as  noted  above,  authorizes  and,  under  certain  circumstances,
requires  the  federal   banking   agencies  to  take  certain  actions  against
institutions that fail to meet certain capital-based requirements. Under FDICIA,
the federal  banking  agencies are required to establish  five levels of insured
depository   institutions   based  on  leverage  limit  and  risk-based  capital
requirements  established for institutions subject to their jurisdiction,  plus,
in  their  discretion   individual  additional  capital  requirements  for  such
institutions.  Under the final  rules  that  have  been  adopted  by each of the
federal banking agencies, an institution is designated:  (i) well-capitalized if
the institution has a total risk-based capital ratio of 10% or greater, a Tier 1
risk-based  capital  ratio  of 6% or  greater,  and a  leverage  ratio  of 5% or
greater,  and the  institution  is not subject to an order,  written  agreement,
capital directive,  or prompt corrective action directive to meet and maintain a
specific capital level for any capital measure;  (ii) adequately  capitalized if
the institution has a total risk-based  capital ratio of 8% or greater, a Tier 1
risk-based  capital  ratio  of 4% or  greater,  and a  leverage  ratio  of 4% or
greater;  (iii)  undercapitalized  if the  institution  has a  total  risk-based
capital  ratio that is less than 8%, a Tier 1 risk-based  capital  ratio that is
less than 4%, or a  leverage  ratio  that is less  than 4%;  (iv)  significantly
undercapitalized if the institution has a total risk-based capital ratio that is

<PAGE>

less  than 6%, a Tier 1  risk-based  capital  ratio  that is less  than 3%, or a
leverage ratio that is less than 3%; and (v) critically  undercapitalized if the
institution  has a ratio of tangible  equity to total assets that is equal to or
less than 2%.

    Undercapitalized,     significantly    undercapitalized    and    critically
undercapitalized  institutions are required to submit capital  restoration plans
to the appropriate federal banking agency and are subject to certain operational
restrictions.  Moreover,  companies controlling an undercapitalized  institution
are required to  guarantee  the  subsidiary  institution's  compliance  with the
capital restoration plan subject to an aggregate  limitation of the lesser of 5%
of  the   institution's   assets  at  the  time  it   received   notice  it  was
undercapitalized  or the amount of the capital  deficiency  when the institution
first failed to meet the plan.

    Significantly    or    critically    undercapitalized    institutions    and
undercapitalized  institutions  that did not  submit or comply  with  acceptable
capital  restoration  plans are subject to restrictions  on the  compensation of
senior  executive  officers  and to  additional  regulatory  sanctions  that may
include a forced  offering  of  shares  or  merger,  restrictions  on  affiliate
transactions,  restrictions  on rates  paid on  deposits,  asset  growth and new
activities,  the  dismissal  of  directors  or  senior  executive  officers  and
mandatory  divestitures by the  institution or its parent  company.  The banking
agency must  require the  offering  of shares or merger and  restrict  affiliate
transactions  and the rates paid on deposits  unless it is determined they would
not further capital improvement.  FDICIA generally requires the appointment of a
conservator or receiver within 90 days after an institution  becomes  critically
undercapitalized.  The federal banking agencies have adopted uniform  procedures
for the issuance of directives by the appropriate federal banking agency.  Under
these procedures,  an institution will generally be provided advance notice when
the  appropriate  federal  banking agency  proposes to impose one or more of the
sanctions  set forth above.  These  procedures  provide an  opportunity  for the
institution  to respond to the proposed  agency  action or, where  circumstances
warrant immediate agency action, an opportunity for administrative review of the
agency's action.

    As described in Note 18 to the Consolidated Financial Statements of the 1998
Annual Report to  Shareholders,  incorporated  herein by reference,  each of the
Company's subsidiary bank depository institutions have, as of December 31, 1998,
capital in excess of the requirements for a "well-capitalized" institution.

    Pursuant to FDICIA,  the FRB and the other federal banking  agencies adopted
real  estate  lending  guidelines  pursuant  to which  each  insured  depository
institution  is  required to adopt and  maintain  written  real  estate  lending
policies in conformity with the prescribed  guidelines.  Under these guidelines,
each  institution  is expected to set  loan-to-value  ratios not  exceeding  the
supervisory  limits  set  forth  in the  guidelines.  A  loan-to-value  ratio is
generally defined as the total loan amount divided by the appraised value of the
property  at the  time  the  loan is  originated.  The  guidelines  require  the
institution's real estate policy to include proper loan documentation,  and that
it establish prudent underwriting standards.

    FDICIA also  contained the Truth in Savings Act,  which  requires  clear and
uniform  disclosure  of the rates of  interest  payable on deposit  accounts  by
depository  institutions and the fees assessable  against deposit  accounts,  so
that consumers can make a meaningful  comparison between the competing claims of
financial institutions with regard to deposit accounts and products.

Riegle-Neal  Interstate  Banking  and  Branching  Efficiency  Act  of  1994.  In
September  1994,  Congress  enacted  the  Riegle-Neal   Interstate  Banking  and
Branching  Efficiency  Act of 1994  ("Interstate  Act").  Beginning in September
1995,  bank holding  companies have the right to expand,  by acquiring  existing
banks, into all states,  even those which had theretofore  restricted entry. The
legislation also provides that, subject to future action by individual states, a
holding  company will have the right,  commencing  in 1997, to convert the banks
which its owns in different  states to branches of a single bank. The Interstate
Act also  establishes  limits on  acquisitions  by large banking  organizations,
providing  that no  acquisition  may be  undertaken  if it would  result  in the
organization  having deposits  exceeding  either 10% of all bank deposits in the
United States or 30% of the bank deposits in the state in which the  acquisition
would occur.

Economic  Growth and  Regulatory  Paperwork  Reduction Act of 1996. The Economic
Growth and Regulatory Paperwork Reduction Act of 1996 ("EGRPRA") was signed into
law on  September  30,  1996.  EGRPRA  streamlined  the  non-banking  activities
application   process  for   well-capitalized   and  well-managed  bank  holding
companies.  Under  EGRPRA,  qualified  bank  holding  companies  may  commence a
regulatory  approved  non-banking  activity  without  prior  notice  to the FRB;
written notice is required within 10 days after  commencing the activity.  Under

<PAGE>

EGRPRA,  the  prior  notice  period  is  reduced  to 12 days in the event of any
non-banking acquisition or share purchase,  assuming the size of the acquisition
does not  exceed  10% of  risk-weighted  assets of the  acquiring  bank  holding
company and the consideration does not exceed 15% of Tier 1 capital. The FRB has
recently announced comprehensive amendments to its regulations under the BHC Act
that implement the foregoing  provisions of EGRPRA and that also  streamline the
application  /  notice  process  for  acquisitions  of banks  and  bank  holding
companies and eliminate regulatory provisions the FRB considered unnecessary.

Pending  Legislation.  Because of concerns relating to  competitiveness  and the
safety and soundness of the banking  industry,  Congress is considering a number
of wide-ranging proposals for altering the structure, regulation and competitive
relationships of the nation's financial  institutions.  Among such bills are new
proposals  to merge  the BIF and the SAIF  insurance  funds,  to  eliminate  the
federal  thrift  charter,  to alter the statutory  separation of commercial  and
investment  banking  and to further  expand the  powers of banks,  bank  holding
companies and  competitors of banks.  It cannot be predicted  whether or in what
form any of these  proposals will be adopted or the extent to which the business
of First Banks may be affected thereby.


Bank and Bank Holding Company Regulation

BHC Act. Under the BHC Act, the activities of a bank holding company are limited
to businesses so closely related to banking, managing or controlling banks as to
be  a  proper  incident  thereto.   The  Company  is  also  subject  to  capital
requirements applied on a consolidated basis in a form substantially  similar to
those required of the Subsidiary Banks. The BHC Act also requires a bank holding
company to obtain  approval  from the FRB  before:  (i)  acquiring,  directly or
indirectly,  ownership  or control of any voting  shares of another bank or bank
holding company if, after such acquisition, it would own or control more than 5%
of such shares (unless it already owns or controls the majority of such shares),
(ii)  acquiring all or  substantially  all of the assets of another bank or bank
holding  company;  or (iii) merging or  consolidating  with another bank holding
company. The FRB will not approve any acquisition,  merger or consolidation that
would have a substantially  anti-competitive result, unless the anti-competitive
effects of the proposed  transaction are clearly  outweighed by a greater public
interest in meeting the convenience and needs of the community to be served. The
FRB also considers  capital adequacy and other financial and managerial  factors
in reviewing acquisitions or mergers.

    The BHC Act also  prohibits a bank holding  company,  with  certain  limited
exceptions:  (i) from  acquiring  or retaining  direct or indirect  ownership or
control of more than 5% of the voting  shares of any company which is not a bank
or bank  holding  company;  or (ii) from  engaging  directly  or  indirectly  in
activities  other than those of  banking,  managing  or  controlling  banks,  or
providing  services for its  subsidiaries.  The  principal  exceptions  to these
prohibitions  involve  certain  non-bank  activities  which by statute or by FRB
regulation or order,  have been identified as activities  closely related to the
business  of  banking  or of  managing  or  controlling  banks.  In making  this
determination, the FRB considers whether the performance of such activities by a
bank holding  company can be expected to produce  benefits to the public such as
greater convenience,  increased competition or gains in efficiency in resources,
which can be expected to outweigh the risks of possible  adverse effects such as
decreased  or unfair  competition,  conflicts  of  interest  or unsound  banking
practices.  FIRREA (described in more detail herein) made a significant addition
to this list of permitted  non-banking  activities for bank holding companies by
providing  that bank holding  companies  may acquire  thrift  institutions  upon
approval  by the FRB and the  applicable  regulatory  authority  for the  thrift
institutions.

Insurance  of Accounts.  The FDIC  provides  insurance,  through the BIF and the
SAIF, to deposit  accounts at the Subsidiary  Banks to a maximum of $100,000 for
each insured depositor. Certain of the Subsidiary Banks have deposits which were
added through the merger of acquired thrifts. Consequently, First Bank, FB&T and
FB  California  are  members  of both the BIF and the  SAIF  while FB Texas is a
member of the BIF only.

    Through December 31, 1992, all FDIC-insured institutions, whether members of
the BIF,  the SAIF or both paid the same  premium (23 cents per $100 of domestic
deposits) under a flat-rate  system mandated by law. FDICIA required the FDIC to
raise the  reserves of the BIF and the SAIF,  implement a risk  related  premium
system and adopt a long term  schedule for  recapitalizing  the SAIF.  Effective
January 1, 1993, the FDIC amended its regulations  regarding  insurance premiums
to provide  that a bank or thrift  would pay an  insurance  assessment  within a
range of 23 cents to 31 cents per $100 of domestic  deposits,  depending  on its
risk classification.
<PAGE>

    Effective  January 1, 1996,  the FDIC  implemented  an  amendment to the BIF
risk-based  assessment  schedule which effectively  eliminated deposit insurance
assessments for most commercial  banks and other  depository  institutions  with
deposits  insured by the BIF only,  while  maintaining  the assessment  rate for
SAIF-insured  institutions in even the lowest risk-based  premium category at 23
cents for each $100 of assessable deposits. Following enactment of EGRPRA, First
Banks paid a one-time special deposit  insurance  assessment with respect to its
SAIF-insured  deposits,  as part of the  recapitalization  of the SAIF,  and the
overall  assessment  rate for 1997 for  institutions  in the  lowest  risk-based
premium category was revised to equal 1.29 cents and 6.44 cents for each $100 of
assessable deposits of BIF and SAIF members,  respectively, in comparison to the
prior assessment rate for such  institutions,  applicable only to SAIF deposits,
of 23 cents for each $100 of  assessable  deposits.  At this time,  the  deposit
insurance  assessment  rate for  institutions in the lowest  risk-based  premium
category are used to service debt issued by the Financing Corporation, a federal
agency established to finance the recapitalization of the former Federal Savings
and Loan  Insurance  Corporation.  The lowest  risk-based  premium rate was 1.16
cents  and 5.82  cents  for each  $100 of  assessable  deposits  of BIF and SAIF
members, respectively.

Regulations Governing Capital Adequacy. The federal bank regulatory agencies use
capital adequacy  guidelines in their examination and regulation of bank holding
companies and banks.  If capital falls below the minimum  levels  established by
these  guidelines,  the bank holding  company or bank may be denied  approval to
acquire  or  establish  additional  banks  or  non-bank  businesses  or to  open
facilities.

    The FRB,  the FDIC and the OCC adopted  risk-based  capital  guidelines  for
banks and bank holding companies. The risk-based capital guidelines are designed
to make regulatory  capital  requirements  more sensitive to differences in risk
profile among banks and bank holding companies, to account for off-balance-sheet
exposure and to minimize  disincentives  for holding liquid  assets.  Assets and
off-balance-sheet  items  are  assigned  to broad  risk  categories,  each  with
appropriate  weights.  The  resulting  capital  ratios  represent  capital  as a
percentage of total risk-weighted  assets and  off-balance-sheet  items. The FRB
has noted  that  bank  holding  companies  contemplating  significant  expansion
programs  should not allow expansion to diminish their capital ratios and should
maintain ratios well in excess of the minimums. Under these guidelines, all bank
holding  companies  and  federally  regulated  banks  must  maintain  a  minimum
risk-based  total capital ratio equal to 8%, of which at least 4% must be Tier 1
capital.

    The FRB also has  implemented a leverage  ratio,  which is Tier 1 capital to
total  assets,  to be used as a supplement  to the  risk-based  guidelines.  The
principal  objective  of the  leverage  ratio  is to place a  constraint  on the
maximum  degree to which a bank holding  company may leverage its equity capital
base.  The FRB  requires  a minimum  leverage  ratio of 3%. For all but the most
highly-rated  bank holding  companies and for bank holding  companies seeking to
expand,  however, the FRB expects that additional capital sufficient to increase
the ratio by at least 100 to 200 basis points will be maintained.

    Management  of the Company  believes  the  risk-weighting  of assets and the
risk-based  capital  guidelines  do not have a  material  adverse  impact on the
Company's  operations  or  on  the  operations  of  its  Subsidiary  Banks.  The
requirement  of  deducting  certain  intangibles  in  computing  capital  ratios
contained in the guidelines,  however, could adversely affect the ability of the
Company  to make  acquisitions  in the  future  in  transactions  that  would be
accounted  for  using  the  purchase   method  of  accounting.   Although  these
requirements  would not reduce the ability of the  Company to make  acquisitions
using the  pooling  of  interests  method of  accounting,  the  Company  has not
historically made, and has no present plans to make, acquisitions on this basis.

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

Regulations  Governing Extensions of Credit. The Subsidiary Banks are subject to
certain  restrictions imposed by the Federal Reserve Act on extensions of credit
to the  bank  holding  company  or its  subsidiaries,  or  investments  in their
securities  and on the use of their  securities as  collateral  for loans to any
borrowers.  These  regulations and restrictions  limit the Company's  ability to
borrow funds from its Subsidiary  Banks for its cash needs,  including funds for
acquisitions  and for payment of  dividends,  interest and  operating  expenses.

<PAGE>
Transactions  among the  Subsidiary  Banks that do not  involve  the Company are
generally exempt from the foregoing regulations and restrictions. Further, under
the BHC Act and  certain  regulations  of the  FRB,  subsidiary  banks of a bank
holding  company are prohibited  from engaging in certain tying  arrangements in
connection with any extension of credit, lease or sale of property or furnishing
of services.  Bank holding companies and their nonbank  subsidiaries that engage
in electronic  benefit transfer services are also subject to certain  anti-tying
restrictions.
    
     The Subsidiary  Banks are also subject to certain  restrictions  imposed by
the  Federal  Reserve  Act  on  extensions  of  credit  to  executive  officers,
directors,  principal  stockholders  or any related  interest  of such  persons.
Extensions of credit (i) must be made on substantially the same terms, including
interest rates and collateral as, and following credit  underwriting  procedures
that are not less stringent  than,  those  prevailing at the time for comparable
transactions with persons not covered above and who are not employees;  and (ii)
must not  involve  more than the  normal  risk of  repayment  or  present  other
unfavorable  features.  The Subsidiary Banks are also subject to certain lending
limits and restrictions on overdrafts to such persons.

Reserve Requirements.  The FRB requires all depository  institutions to maintain
reserves  against their  transaction  accounts and  non-personal  time deposits.
Reserves of 3% must be maintained  against total  transaction  accounts of $49.3
million or less  (subject to  adjustment  by the FRB) and an initial  reserve of
$1,479,000  plus 10% (subject to adjustment by the FRB to a level between 8% and
14%) must be maintained  against that portion of total  transaction  accounts in
excess of such amount. The balances maintained to meet the reserve  requirements
imposed by the FRB may be used to satisfy liquidity requirements.

    Institutions  are  authorized  to  borrow  from  the  Federal  Reserve  Bank
"discount  window," but FRB  regulations  require  institutions to exhaust other
reasonable  alternative  sources  of  funds,  including  Federal  Home Loan Bank
advances, before borrowing from the Federal Reserve Bank.

Federal Home Loan Bank System.  The Subsidiary  Banks are members of the Federal
Home Loan Bank  System  ("FHLB  System").  The FHLB  System  consists  of twelve
regional  Federal Home Loan Banks (each, a "FHLB"),  each subject to supervision
and  regulation by the Federal  Housing  Finance Board,  an  independent  agency
created by FIRREA.  The FHLBs provide a central  credit  facility  primarily for
member  institutions.  First  Bank,  as a member of the FHLB of Des  Moines,  FB
Texas, as a member of the FHLB of Dallas, and FB&T and FB California, as members
of the FHLB of San Francisco, are required to acquire and hold shares of capital
stock in the FHLB in amounts  at least  equal to 1% of the  aggregate  principal
amount of its unpaid residential  mortgage loans and similar  obligations at the
beginning of each year,  or 1/20th of its advances  (borrowings)  from the FHLB,
whichever  is  greater.  The  Subsidiary  Banks  are in  compliance  with  these
regulations.

Dividends.  The  Company's  primary  sources  of  funds  are the  dividends  and
management  fees paid by its  Subsidiary  Banks.  The ability of the  Subsidiary
Banks to pay  dividends  and  management  fees is limited  by various  state and
federal  laws,  by the  regulations  promulgated  by  their  respective  primary
regulators and by the principles of prudent bank  management.  In addition,  the
amount of dividends  the  Subsidiary  Banks may pay to the Company is limited by
the provisions of the Company's  credit  agreement with a group of  unaffiliated
lenders,  which imposes  certain minimum  capital  requirements.  Under the most
restrictive  of these  requirements,  dividends  from the  Subsidiary  Banks are
limited to  approximately  $46.3  million as of December 31, 1998,  unless prior
permission of the regulatory  authorities  and, if necessary,  the lead bank for
the lenders is obtained.

Monetary Policy and Economic Control.  The commercial  banking business in which
the Company  engages is affected not only by general  economic  conditions,  but
also by the monetary policies of the FRB. Changes in the discount rate on member
bank borrowing,  availability of borrowing at the "discount window," open market
operations,  the  imposition of changes in reserve  requirements  against member
bank deposits and assets of foreign branches,  and the imposition of and changes
in reserve requirements against certain borrowings by banks and their affiliates
are some of the  instruments  of monetary  policy  available  to the FRB.  These
monetary  policies are used in varying  combinations to influence overall growth
and  distributions  of bank loans,  investments  and deposits,  and such use may
affect  interest  rates  charged  on loans  or paid on  deposits.  The  monetary
policies of the FRB have had a significant  effect on the  operating  results of
commercial banks and are expected to do so in the future.  The monetary policies
of the FRB are influenced by various factors, including inflation, unemployment,
short-term and long-term changes in the  international  trade balance and in the
fiscal policies of the U.S. Government.  Future monetary policies and the effect
of such  policies on the future  business and earnings of the Company  cannot be
predicted.
<PAGE>

Employees

    As of March 18, 1999, the Company  employed  approximately  1,739 employees.
None of the  employees  are subject to a collective  bargaining  agreement.  The
Company considers its relationships with its employees to be good.

Executive Officers of the Registrant

    Information regarding executive officers is contained in Item 10 of Part III
hereof  (pursuant to General  Instruction G) and is incorporated  herein by this
reference.

Item 2. Properties

    The Company owns the office  building  which houses the  principal  place of
business of the Company, which is located at 135 N. Meramec,  Clayton,  Missouri
63105.  The property is in good condition and consists of  approximately  41,763
square feet,  of which  approximately  6,500 is currently  leased to others.  Of
First  Banks'  other 135  branch  offices  and  facilities,  89 are  located  in
buildings owned by First Banks and 46 are located in leased facilities.

Item 3. Legal Proceedings

    First Banks is, from time to time, party to various legal actions arising in
the  normal  course of  business.  Management  believes  there is no  proceeding
threatened or pending against First Banks which, if determined adversely,  would
have a material  adverse  effect on the business or financial  position of First
Banks.

Item 4. Submission of Matters to a Vote of Security Holders

    None.

                                     PART II

Item 5. Market for Registrant's Common Equity and Related Stockholder Matters

    There is no established public trading market for First Banks' common stock.
All of First Banks' common stock is owned by various  trusts  created by and for
the  benefit of Mr.  James F.  Dierberg,  the  Company's  Chairman of the Board,
President and Chief Executive Officer, and members of his immediate family.

Item 6. Selected Financial Data

    The information required by this item is incorporated herein by reference to
"Selected  Consolidated  and Other  Financial  Data" included in the 1998 Annual
Report.

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

    The information required by this item is incorporated herein by reference to
"Management's Discussion and Analysis" included in the 1998 Annual Report.

Item 7a.  Quantitative and Qualitative Disclosures About Market Risk.

    The information required by this item is incorporated herein by reference to
"Management's Discussion and Analysis-Interest Rate Risk Management" included in
the 1998 Annual Report.
<PAGE>

Item 8. Financial Statements and Supplementary Data

    The following consolidated financial statements, included in the 1998 Annual
Report, and quarterly  consolidated  financial data, included in the 1998 Annual
Report.

         Consolidated Balance Sheets - December 31, 1998 and 1997
         Consolidated Statements of Income - Years Ended December 31, 1998, 1997
             and 1996
         Consolidated   Statements  of  Changes  in   Stockholders'   Equity and
             Comprehensive Income - Years Ended December 31, 1998, 1997 and 1996
         Consolidated Statements of Cash Flows - Years Ended  December 31, 1998,
             1997 and 1996
         Notes to Consolidated Financial Statements
         Independent Auditors' Report
         Quarterly Condensed Financial Data (Unaudited)

Item 9. Changes  in  and   Disagreements  with  Accountants  on  Accounting  and
        Financial Disclosure
   
          None

                                    PART III

Item 10.  Directors and Executive Officers of the Registrant

    The  directors  and  executive  officers of the  Company,  their  ages,  and
positions  with the Company and the  Subsidiary  Banks and the  Company's  other
subsidiaries as of March 18, 1999, are set forth below.
<TABLE>
<CAPTION>

         Name                                   Age      Position with the Company and its Subsidiaries
         ----                                   ---      ----------------------------------------------

<S>                                              <C>      <C>                                                                      
James F. Dierberg                                61       Chairman of  the  Board of Directors, Presiden   and  Chief Executive
                                                          Officer of the Company and  FBA. Trustee  of  First Preferred Capital
                                                          Trust and  First  America  Capital Trust since February 1997 and July
                                                          1998, respectively.

Allen H. Blake                                   56       Executive Vice President and Chief  Financial  Officer of First Banks
                                                          since 1996;  Chief  Operating  Officer of First  Banks since  October
                                                          1998;  Senior Vice  President and Chief  Financial  Officer from 1992
                                                          to  1996;   Secretary   and  Director  of  First  Banks  since  1988.
                                                          Executive  Vice President and Chief  Operating and Financial  Officer
                                                          of  FBA  since  October  1998;   Director,   Vice  President,   Chief
                                                          Financial  Officer  and  Secretary  of FBA since 1994;  Director  and
                                                          Executive  Vice  President of FCB from 1995 until its merger into FBA
                                                          in  February  1998;  Trustee  of First  Preferred  Capital  Trust and
                                                          First  America  Capital  Trust  since  February  1997 and July  1998,
                                                          respectively.

Donald Gunn, Jr. (1)                             63       Director of the Company.

George J. Markos (1)                             50       Director of the Company.
<PAGE>

Thomas A. Bangert                                55       Senior Vice  President  and Chief  Operations  Officer of the Company
                                                          and Executive  Vice  President and Director of First Bank.  President
                                                          of First Services, L.P.  Director of First Land Trustee Corporation.

Laurence J. Brost                                42       Senior  Vice   President  and   Controller   of  the  Company;   Vice
                                                          President,  Chief  Accounting  Officer of First Bank;  and Trustee of
                                                          First  Preferred  Capital Trust and Fist America  Capital Trust since
                                                          February 1997 and July 1998, respectively.

John A. Schreiber                                48       Executive  Vice  President and Chief Lending  Officer of the Company;
                                                          and  Chairman  of  the  Board  of  Directors,   President  and  Chief
                                                          Executive Officer of First Bank.

Mark T. Turkcan                                  43       Executive Vice President,  Consumer  Lending and Mortgage  Banking of
                                                          the  Company;  and  Executive  Vice  President  and Director of First
                                                          Bank.

Donald W. Williams                               51       Executive  Vice  President  and Chief Credit  Officer of the Company;
                                                          Senior Vice  President  and Director of First Bank;  Director of FBA,
                                                          FB Texas, CCB, FB&T and FB California.
</TABLE>

------------------
(1)    Member of the Audit Committee

    James F. Dierberg is the Chairman of the Board and Chief  Executive  Officer
of the  Company;  positions  he has held  since  1988.  He has also  served as a
Director of the Company  since 1979.  Mr.  Dierberg was President of the Company
from 1979 until February 1992; he was  re-appointed  President in April 1994 and
continues to serve in that capacity.  Mr. Dierberg was appointed Chairman of the
Board,  President  and Chief  Executive  Officer of FBA in September  1994.  Mr.
Dierberg has served in various  capacities with other bank holding companies and
banks  owned or  controlled  by him or  members  of his family  since  1957.  In
addition,  Mr. Dierberg serves as a trustee of First Preferred Capital Trust and
First America Capital Trust.

    Allen H. Blake has been an Executive  Vice  President  of the Company  since
April 18,  1996.  Mr.  Blake  joined  the  Company as Vice  President  and Chief
Financial  Officer in 1984,  and in 1988 he was  appointed  as  Secretary  and a
Director of the Company. In addition, Mr. Blake has been Chief Operating Officer
of the Company  since  October  1998.  Mr. Blake also serves as  Executive  Vice
President and Chief Operating and Financial  Officer,  Secretary and Director of
FBA and as a trustee of First Preferred  Capital Trust and First America Capital
Trust.

    Donald Gunn, Jr. was elected a Director of the Company in December 1992. Mr.
Gunn is a practicing attorney and has been a shareholder in the law firm of Gunn
& Gunn, P.C. during the past five years.

    George J. Markos was elected a Director of the Company in December 1992. Mr.
Markos is a management consultant providing services primarily to banks, savings
and loans and related businesses,  including the Company, and has performed such
services during the past five years.

    Thomas A. Bangert is Senior Vice President and Chief  Operations  Officer of
the Company,  Executive Vice President and Director of First Bank,  positions he
assumed on January 1, 1990. Mr. Bangert is also a Director of First Land Trustee
Corporation, a position he assumed during 1997.
<PAGE>

    Laurence J. Brost has been  Senior  Vice  President  and  Controller  of the
Company since October 21, 1997. Mr. Brost assumed the position of Vice President
and  Controller  of the Company in 1990.  Mr.  Brost also serves as a trustee of
First Preferred Capital Trust and First America Capital Trust.

    John A. Schreiber is Executive  Vice President and Chief Lending  Officer of
the Company and  President  and Chief  Executive  Officer of First Bank.  In May
1994, he became Chairman of the Board of First Bank.

    Mark T. Turkcan is Executive Vice President,  Consumer  Lending and Mortgage
Banking of the Company, positions he assumed in April 1996. Mr. Turkcan has been
employed  in various  executive  capacities  with the Company  since  1985.  Mr.
Turkcan  is also a  Director  of  First  Bank,  a  position  he has  held  since
April1994.

    Donald W. Williams is Executive  Vice  President and Chief Credit Officer of
the Company and a Senior Vice  President  and Director of First Bank, a position
he assumed in March  1993.  Mr.  Williams  also  serves as a Director of FBA, FB
Texas, CCB, FB&T and FB California.

Section 16(a) Beneficial Ownership Reporting Compliance

    To the Company's knowledge, no director, executive officer or shareholder of
the Company,  subject,  in their capacity as such, to the reporting  obligations
set forth in  Section  16 of the  Securities  Exchange  Act of 1934,  as amended
("Exchange  Act")  has  failed to file on a timely  basis  reports  required  by
Section  16(a) of the  Exchange  Act during the year ended  December 31, 1998 or
prior years.

Item 11. Executive Compensation

      The following  table sets forth the  compensation  for the named executive
officers for the last three years.
<TABLE>
<CAPTION>

                                 SUMMARY COMPENSATION TABLE
                                 --------------------------
                                                                                     All Other
         Name and Principal Positions                       Year          Salary        Bonus      Compensation(1)
         ----------------------------                       ----          ------        -----      ---------------

     James F. Dierberg
<S>                                                         <C>         <C>              <C>            <C>  
     Chairman of the Board of                               1998        $  536,000            0         5,000
     Directors, President and                               1997           492,000            0         4,750
     Chief Executive Officer                                1996           492,000            0         4,750

     Donald W. Williams                                     1998           182,600       40,000         5,000
     Executive Vice President                               1997           166,250       40,000         4,750
     and Chief Credit Officer                               1996           155,000       30,000         4,750

     John A. Schreiber                                      1998           181,900       40,000         5,000
     Executive Vice President                               1997           166,250       30,000         4,750
     and Chief Lending Officer                              1996           155,000       20,000         4,750

     Allen H. Blake                                         1998           157,300       40,000         5,000
     Executive Vice President and                           1997           147,500       30,000         4,750
     Chief Operating and Financial Officer                  1996           140,000       30,000         4,750

     Mark T. Turkcan                                        1998           140,800       15,000         4,725
     Executive Vice President                               1997           133,750       15,000         4,012
     Consumer Lending and Mortgage Banking                  1996           130,000       10,000         4,088
</TABLE>

-------------
    (1)  All  other  compensation  reported  represents  First  Banks'  matching
contributions to the 401(k) Plan for the year indicated.

Employment Agreements.  Messrs. Schreiber and Williams are parties to employment
agreements with the Company and First Bank. In most respects,  the two contracts
are identical.  The term of each contract is one year, and each is automatically

<PAGE>

renewable  for  additional  one-year  periods.  As  part of the  annual  renewal
process, the base salary payable under each employment agreement is reviewed and
may be adjusted at the discretion of the Board of Directors of the Company.  The
base salary paid to each of Messrs.  Schreiber  and  Williams  pursuant to their
respective  employment  agreements  is set  forth in the  salary  column  of the
Summary Compensation Table.

    Both employment  contracts provide for a bonus of up to twenty percent (20%)
of the employee's annual base salary, with the exact percentage to be determined
by the Chairman of the Board of the Company if the  employee  meets the criteria
set by the Company and First Bank at the beginning of each contract  year.  Each
annual bonus is payable  within  ninety (90) days after the close of the year to
which it relates.  In addition,  each employee is entitled to participate in the
401(k) Plan, the Company's  health  insurance plan and in such other  additional
benefit plans which the Company may adopt for its employees.

    Under the terms of the employment contracts,  if either Mr. Schreiber or Mr.
Williams is terminated for a reason other than retirement,  death,  "disability"
or for "cause," as those terms are defined in the employment agreements,  or are
terminated due to a change in control of the Company,  each such individual will
be entitled to receive two years base salary. Should either Mr. Schreiber or Mr.
Williams  voluntarily  terminate  employment with the Company and First Bank, he
would be  entitled  to receive the balance of his base salary for that year or a
minimum of six months salary, provided that neither would be permitted to accept
a  position  with any bank or  trust  company  for the  duration  of that  year.
Finally,  in the event of the death of either  Mr.  Schreiber  or Mr.  Williams,
their  respective  employment  agreements  provide that their  estates  would be
entitled to receive  compensation  that would have been  payable to the employee
during  the month of his death,  and his  monthly  salary  for the twelve  month
period following the date of his death.

Compensation  of  Directors.  Only those  directors who are not employees of the
Company or any of its  subsidiaries  receive  remuneration for their services as
directors.  Such non-employee  directors (currently only Messrs. Donald Gunn and
George  Markos)  receive a retainer  of $1,000 per quarter and a fee of $500 per
Board meeting  attended.  No directors are  compensated  for attendance at Audit
Committee  meetings,  which is the only  committee  of the  Board of  Directors.
Messrs. Gunn and Markos each received $6,000 in directors fees during 1998.

    In addition to Board meeting fees, during 1998, the Company paid Mr. Markos,
directly and indirectly,  consulting  fees in the amount of $2,000  exclusive of
reimbursement  for his  travel  expenses.  It is  anticipated  Mr.  Markos  will
continue to provide consulting services to the Company during the current fiscal
year.

    During 1998,  the Company paid $109,412 in legal fees to a law firm of which
Mr.  Donald  Gunn,  one of the  Company's  directors,  is a  shareholder.  It is
anticipated  Mr. Gunn's law firm will continue to provide legal  services to the
Company during the current fiscal year.

    Executive  officers of the Company who are also  directors of the Company do
not  receive  remuneration  other than  salaries  and bonuses for serving on the
Board of Directors.

Compensation  Committee Interlocks and Insider Participation.  Messrs.  Dierberg
and Blake,  who are executive  officers of the Company,  are also members of the
Board  of  Directors  and  executive  officers  of  FBA.  FBA  does  not  have a
compensation  committee,  but its Board of Directors  performs the  functions of
such a committee.  Except for the foregoing, no executive officer of First Banks
served  during  1998 as a member  of the  Compensation  Committee,  or any other
committee performing similar functions,  or as a director of another entity, any
of whose  executive  officers or  directors  served on the Board of Directors of
First Banks.

     During 1998, 1997 and 1996, Tidal Insurance Limited (Tidal),  a corporation
owned   indirectly  by  First  Banks'   Chairman  and  his  children,   received
approximately  $280,000,  $214,000  and  $326,000,  respectively,  in  insurance
premiums for  accident,  health and life  insurance  policies  purchased by loan
customers of First Banks.  The insurance  policies are issued by an unaffiliated
company and then ceded to Tidal.  First Banks  believes the premiums paid by the
loan  customers of First Banks are  comparable to those that such loan customers
would  have paid if the  premiums  were  subsequently  ceded to an  unaffiliated
third-party insurer.
<PAGE>

     For the years ended  December 31,  1998,  1997 and 1996,  First  Securities
America,  Inc. (FSA), a corporation  established and administered by and for the
benefit of First Banks' Chairman and members of his immediate  family,  received
approximately $265,000, $206,000 and $231,000,  respectively, in commissions and
insurance  premiums  for  policies  purchased by First Banks or customers of the
Subsidiary  Banks from  unaffiliated,  third-party  insurors to which First Banc
Insurors  placed such policies.  FSA received an additional  $136,000 in annuity
sales  commissions for the year ended December 31, 1996. The insurance  premiums
on which the  aforementioned  commissions were earned were competitively bid and
First  Banks deems the  commissions  FSA earned  from  unaffiliated  third-party
companies  to be  comparable  to  those  which  would  have  been  earned  by an
unaffiliated third-party agent.

     First Brokerage L.P. and First Brokerage  America,  L.L.C.,  entities which
are directly or  indirectly  owned by First  Banks'  Chairman and members of his
immediate family, received approximately $1.8 million and $707,000 for the years
ended  December  31,  1998  and  1997,  respectively,  in  commissions  paid  by
unaffiliated  third-party companies.  The commissions received were primarily in
connection  with the sales of  annuities  and  securities  and  other  insurance
products to individuals, including customers of the Subsidiary Banks.

     First  Services,  L.P.,  a limited  partnership  indirectly  owned by First
Banks'  Chairman  and his  children  through  its General  Partners  and Limited
Partners,  provides data processing  services and operational  support for First
Banks and its  subsidiaries.  Fees paid under the  agreement to First  Services,
L.P.  were $12.2  million,  $6.4  million  and $3.2  million for the years ended
December  31, 1998,  1997 and 1996,  respectively.  During 1998 and 1997,  First
Services,  L.P.  paid First Banks  $799,000 and $1.1 million,  respectively,  in
rental fees for the use of data  processing and other  equipment  owned by First
Banks. There were no rental fees paid to First Banks for the year ended December
31, 1996.



<PAGE>


Item 12.  Security Ownership of Certain Beneficial Owners and Management

    The following table sets forth the entire ownership of all classes of voting
capital stock of the Company issued and outstanding.

<TABLE>
<CAPTION>
                                                                                                   Percent of
                                                                         Number of                    Total
                  Title of Class                                          Shares         Percent     Voting
                 and Name of Owner                                         Owned        of Class      Power
                 -----------------                                         -----        --------      -----

Common Stock ($250 Par value)
-----------------------------

<S>                                                                    <C>              <C>              <C>    
       James F. Dierberg II Family Trust (1)......................     7,714.677(2)     32.605%          *
       Michael J. Dierberg Family Trust (1).......................     4,255.319(2)     17.985%          *
       Ellen C. Dierberg Trustees, Family Trust(1)................     7,714.676(2)     32.605%          *
       Michael J. Dierberg Irrevocable Trust (1) .................     3,459.358(2)     14.621%          *
       First Trust (Mary W. Dierberg and First Bank
         Trustees)...  ...........................................       516.830(1)      2.184%          *

Class A Convertible Adjustable Rate Preferred Stock
---------------------------------------------------
($20 par value)
---------------
       James F. Dierberg, Trustee of the James F. Dierberg
         Living Trust (1).........................................        641,082(4)(5)    100%        77.7%

Class B Non-Convertible Adjustable Rate Preferred Stock
-------------------------------------------------------
($1.50 par value)
-----------------
       James F. Dierberg, Trustee of the James F. Dierberg
       Living Trust (1).............................................      160,505(5)       100%        19.4%
</TABLE>

---------------
   *   Represents less than 1.0%
  (1)  Each of the above-named  trustees and beneficial owners are United States
       citizens,  and the business  address for each such  individual  is 135 N.
       Meramec,  Clayton,  Missouri 63105. Mr. James F. Dierberg,  the Company's
       Chairman of the Board,  President and Chief Executive  Officer,  and Mrs.
       Mary W. Dierberg, are husband and wife, and Messrs. James F. Dierberg II,
       Michael  James  Dierberg and Ms.  Ellen D.  Schepman,  formerly  Ellen C.
       Dierberg, are their adult children.
  (2)  Due to the relationship between Mr. James F. Dierberg, his wife and their
       children,  Mr. Dierberg  is deemed  to  share voting and investment power
       over the Company's common stock.
  (3)  Due to  the  relationship  between  Mr. James F.  Dierberg,  his wife and
       First Bank,  Mr.  Dierberg is deemed to share voting and investment power
       over these shares.
  (4)  Convertible into common stock, based on the appraised value of the common
       stock at the  date of  conversion.  Assuming  an  appraised  value of the
       common equal to the book value, the number of shares of common stock into
       which the Class A Preferred Stock is convertible at December 31, 1998, is
       1,389, which shares are not included in the above table.
  (5)  Sole voting and investment power.

Security Ownership of Management

    As set forth above,  other than trusts established by and for the benefit of
Mr. James F. Dierberg,  the Company's Chairman of the Board, President and Chief
Executive  Officer,  or for the benefit of members of Mr.  Dierberg's  immediate
family, no other director or executive officer of the Company  beneficially owns
any of the issued and outstanding shares of the Company's (i) Common Stock, (ii)
Class  A  Convertible   Adjustable  Rate  Preferred  Stock,  or  (iii)  Class  B
Non-Convertible  Adjustable  Rate  Preferred  Stock - the only classes of voting
stock of the Company  outstanding. 
<PAGE>

Item 13. Certain  Relationships  and Related Transactions

    Directors  and  executive   officers  of  the  Company,   and  some  of  the
corporations  and firms in which one of the directors is a majority owner,  have
been customers of the Subsidiary  Banks in the ordinary  course of business,  or
have been indebted to the Subsidiary  Banks for loans of $60,000 or more, and it
is anticipated that some of these persons,  corporations and firms will continue
to be customers of and indebted to the  Subsidiary  Banks on a similar  basis in
the future. All loans extended to such persons, corporations and firms since the
beginning  of the last full  fiscal  year were  made in the  ordinary  course of
business,  none  involved more than normal risk of  collectibility  or presented
other unfavorable  features,  and all were made on substantially the same terms,
including  interest rates and collateral,  as those  prevailing at the same time
for comparable bank  transactions  with  unaffiliated  persons.  At December 31,
1998, the Subsidiary Banks had no loans outstanding to such persons.

    Outside of normal  customer  relationships,  no directors or officers of the
Company,  no  shareholders  holding  over five percent  (5.0%) of the  Company's
voting  securities  and no  corporations  or firms with  which  such  persons or
entities are associated,  maintain or have maintained since the beginning of the
last full fiscal year, any significant  business or personal  relationship  with
the  Company  or its  subsidiaries,  other than such as arises by virtue of such
position or ownership interest in the Company or its subsidiaries, except as set
forth in Item 11,  "Executive  Compensation - Compensation  of Directors," or as
described in the following paragraphs.



<PAGE>


                                     PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K

           (a) The following documents are filed as part of this Report:

                1. The Financial  Statements and Supplemental Data filed as part
                   of this Report are listed under Item 8.

                2  Financial Statement Schedules: None

                3. Exhibits: See the Exhibit  Index  at pages  20  through 21 of
                   this Report.

           (b) Reports on Form 8-K during the quarter ended December 31, 1998:

                         None.

           (c) See the Exhibit Index attached hereto.



<PAGE>


                                   SIGNATURES

         Pursuant to the  requirements  of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

                                                  FIRST BANKS, INC.



                                              By: /s/ James F. Dierberg        
                                              -------------------------        
                                                      James F. Dierberg
                                                      Chairman of the Board
                                                       of Directors,
                                                       President and Chief
                                                       Executive Officer
                                                       (Principal Executive
                                                       Officer)



                                              By: /s/ Allen H. Blake           
                                              ----------------------          
                                                      Allen H. Blake
                                                      Executive Vice President,
                                                       Chief Operating and
                                                       Financial  Officer, 
                                                       Secretary  and  Director
                                                       (Principal  Financial
                                                       Officer)




                                               By: /s/ Laurence J. Brost       
                                               -------------------------      
                                                      Laurence J. Brost
                                                      Senior Vice President and
                                                       Controller  (Principal
                                                       Accounting Officer)

Date:    March 26, 1999

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

         Signature and Title                              Date
         -------------------                              ----

/s/ James F. Dierberg                                March 26, 1999
  ----------------------------------
James F. Dierberg
Chairman of the Board of Directors,
     President and Chief Executive Officer


/s/ Donald Gunn, Jr.                                 March 26, 1999
------------------------------------
Donald Gunn, Jr.
Director


/s/ George J. Markos                                 March 26, 1999
------------------------------------
George J. Markos
Director


<PAGE>




                                  EXHIBIT INDEX

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

Exhibit
Number                                    Description
------                                    -----------

3.1               Restated Articles of Incorporation of the Company,  as amended
                  (incorporated  herein  by  reference  to  Exhibit  3(i) to the
                  Company's  Annual  Report  on Form  10-K  for the  year  ended
                  December 31, 1993).

3.2               Bylaws of  the  Company  (incorporated  herein by reference to
                  Exhibit 3.2 to Amendment No. 2 to the  Company's  Registration
                  Statement  on Form S-1 (File No. 33-50576) dated September 15,
                  1992).

4.1               Reference  is made to Article  III of the  Company's  Restated
                  Articles of Incorporation (incorporated herein by reference to
                  Exhibit 3.1 of the  Company's  Annual  Report on Form 10-K for
                  the year ended December 31, 1997).

4.2               The Company  agrees to furnish to the  Securities and Exchange
                  Commission  upon request  pursuant to Item  601(b)(4)(iii)  of
                  Regulation S-K,  copies of instruments  defining the rights of
                  holders of long term debt of the Company and its subsidiaries.

4.3               Agreement As To Expenses and Liabilities  (incorporated herein
                  by reference  to Exhibit 4(a) to the Company's  Report on Form
                  10-Q for the quarter ended March 31, 1997).

4.4               Preferred Securities Guarantee Agreement  (incorporated herein
                  by reference to Exhibit 4(b) to the  Company's  Report on Form
                  10-Q for the quarter ended March 31, 1997).

4.5               Indenture  (incorporated  herein by reference  to Exhibit 4(c)
                  to  the Company's  Report  on  Form 10-Q for the quarter ended
                  March 31, 1997).

4.6               Amended and Restated Trust Agreement  (incorporated  herein by
                  reference to Exhibit 4(d) to the Company's Report on Form 10-Q
                  for the quarter ended March 31, 1997).

10.1              Shareholders' Agreement by and among James F. Dierberg, II and
                  Mary W.  Dierberg,  Trustees  under  Living  Trust of James F.
                  Dierberg II, dated July 24, 1989,  Michael James  Dierberg and
                  Mary W.  Dierberg,  Trustees under the Living Trust of Michael
                  James  Dierberg,  dated July 24, 1989;  Ellen C.  Dierberg and
                  Mary W.  Dierberg,  Trustees  under  Living  Trust of Ellen C.
                  Dierberg   dated  July  17,  1992,   and  First  Banks,   Inc.
                  (incorporated  herein  by  reference  to  Exhibit  10.3 to the
                  Company's   Registration   Statement  on  Form  S-1,  File  No
                  33-50576, dated August 6, 1992).

10.2              Comprehensive  Banking  System  License and Service  Agreement
                  dated as of July 24,  1991,  by and  between  the  Company and
                  FIserv CIR, Inc.  (incorporated herein by reference to Exhibit
                  10.4 to the Company's Registration Statement on Form S-1, File
                  No. 33-50576, dated August 6, 1992).

10.4*             Employment Agreement by and among the Company,  First Bank and
                  John A.  Schreiber,  dated  September  21, 1992  (incorporated
                  herein by reference  to Exhibit  10(iii)(A)  to the  Company's
                  Form 10-K for the year ended December 31, 1993).

10.5*             Employment Agreement by and among the Company,  First Bank and
                  Donald W. Williams dated March 22, 1993  (incorporated  herein
                  by reference to Exhibit  10(iii)(A) to the Company's Form 10-K
                  for the year ended December 31, 1993).
<PAGE>

10.6              $90,000,000  Secured Credit Agreement,  dated as of August 26,
                  1998  among  the  Company,   The   Mercantile   Bank  National
                  Association,  American  National  Bank and  Trust  Company  of
                  Chicago,   Harris  Trust  and  Savings   Bank,   Norwest  Bank
                  Minnesota,  National Association,  The Frost National Bank and
                  Mercantile Bank National  Association,  as Agent (incorporated
                  herein by reference to Exhibit (b)(1) to the Company's  report
                  filed on Schedule 14D-1, dated January 4, 1999).

10.7              Stock  Purchase  and  Operating  Agreement  by and between the
                  Company  and  BancTEXAS  Group,   Inc.,  dated  May  19,  1994
                  (incorporated   herein  by  reference  to  Exhibit  2  to  the
                  Company's  Quarterly Report on Form 10-Q for the quarter ended
                  June 30, 1994).

10.8*             Service  Agreement  by and between  First  Services,  L.P. and
                  First  Bank  dated  April  1,  1997  (incorporated  herein  by
                  reference to Exhibit 10.8 of the  Company's  Annual  Report on
                  Form 10-K for the year ended December 31, 1997).

10.9*             Service  Agreement  by and between  First  Services,  L.P. and
                  First Bank & Trust dated April 1, 1997 (incorporated herein by
                  reference to Exhibit 10.9 of the  Company's  Annual  Report on
                  Form 10-K for the year ended December 31, 1997).

10.10*            Service  Agreement  by and between  First  Services,  L.P. and
                  BankTEXAS  N.A.  dated April 1, 1997  (incorporated  herein by
                  reference to Exhibit 10.10 of the  Company's  Annual Report on
                  Form 10-K for the year ended December 31, 1997).

10.11*            Service  Agreement  by and between  First  Services,  L.P. And
                  Sunrise Bank of California  dated April 1, 1997  (incorporated
                  herein by reference to Exhibit 10.11 of the  Company's  Annual
                  Report on Form 10-K for the year ended December 31, 1997).

13.1     The Company's 1998 Annual Report to Shareholders (filed herewith).

21.1     Subsidiaries of the Company (filed herewith).

27.1     Financial Data Schedule (EDGAR only).

-------------------
*  Exhibits  designated  by an  asterisk  in the  Index to  Exhibits  relate  to
   management contracts and/or compensatory plans or arrangements.



<PAGE>


                                   EXHIBIT 13










                                FIRST BANKS, INC.

                               1998 ANNUAL REPORT









<PAGE>



                                FIRST BANKS, INC.

                                TABLE OF CONTENTS





                                                                          Page
                                                                          ----

LETTER TO SHAREHOLDERS..................................................    1

SELECTED CONSOLIDATED AND OTHER FINANCIAL DATA..........................    2

MANAGEMENT'S DISCUSSION AND ANALYSIS....................................    3

QUARTERLY CONDENSED FINANCIAL DATA - UNAUDITED..........................   30

INDEPENDENT AUDITORS' REPORT............................................   31

FINANCIAL STATEMENTS:

     CONSOLIDATED BALANCE SHEETS........................................   32

     CONSOLIDATED STATEMENTS OF INCOME..................................   34

     CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND
          COMPREHENSIVE  INCOME.........................................   35

     CONSOLIDATED STATEMENTS OF CASH FLOWS..............................   36

     NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.........................   37

DIRECTORS AND EXECUTIVE OFFICERS........................................   59

INVESTOR INFORMATION....................................................   61




<PAGE>

To our Valued Shareholders, Customers and Friends:


         First  Banks,  Inc.  is pleased to report our  earnings  and  strategic
achievements for 1998. For 1998, net income was $33.5 million, compared to $33.0
million for 1997.  Diluted earnings per common share increased to $1,337.09 from
$1,134.28  for the years ended  December  31, 1998 and 1997,  respectively.  The
increase  in diluted  earnings  per  common  share is  attributable  to both the
increase  in net income and the  redemption  of First  Banks'  Class C preferred
stock in December 1997.  The redemption of the Class C preferred  stock resulted
in a reduction of First Banks' dividend requirement of $4.3 million for the year
ended December 31, 1998.  The funds  required for the  redemption  were borrowed
resulting in an increase in interest expense of $3.4 million for 1998. While the
Class C preferred  stock  dividend is not deducted in the  determination  of net
income,  interest  expense  is,  the effect of which was to reduce net income by
$2.2 million for the year ended  December 31,  1998,  when  compared to the same
period in 1997.

         First Banks' primary strategic objective of generating  progressive and
profitable  growth was  further  advanced  during the past  year.  Total  assets
increased to $4.6 billion at December 31, 1998 or by $400 million over 1997. The
growth was driven by First Banks' continued  emphasis in developing our existing
franchise.  Indicative of this  development is the growth of the loan portfolio,
which  increased by $580 million during 1998.  Facilitating  the  development of
First  Banks'  presence  in our target  market  areas were the  acquisitions  of
Republic Bank and Pacific Bay Bank,  providing  total assets of $124 million and
$38 million,  respectively,  and three banking locations in southern  California
and one banking location in the San Francisco Bay area. In addition, First Banks
is pleased to report the completion of the  acquisition  of Redwood  Bancorp and
its wholly owned subsidiary,  Redwood Bank, on March 4, 1999.  Redwood Bank will
add a new  dimension to our San  Francisco  Bay area  presence  through its main
office in downtown San Francisco and its three  offices in the  surrounding  Bay
area of San Rafael,  Napa and San Mateo. We are excited about Redwood  Bancorp's
decision  to join our  organization,  and  welcome  its  management,  staff  and
customers.

         With respect to Year 2000 concerns, First Banks' Year 2000 Preparedness
Project is continuing according to plan. First Banks, as well as other financial
institutions,  are particularly  vulnerable to Year 2000 issues because of heavy
reliance in the  industry  on  electronic  data  processing  and funds  transfer
systems.  As a financial  institution,  First  Banks'  efforts are  subjected to
regulation and monitoring by bank and bank holding company regulatory  agencies.
These  agencies,  under  the  auspices  of the  Federal  Financial  Institutions
Examination  Council,  have  established  guidelines  and interim  deadlines for
achieving Year 2000 compliance.
First Banks' Year 2000 Plan has been structured to remain  consistent with these
guidelines.

         In  closing,  I would  like to  take  this  opportunity  to  extend  my
sincerest  appreciation  for the dedication of our employees,  and the continued
support of our customers and shareholders.



Sincerely,




James F. Dierberg
Chairman, President and Chief Executive Officer


<PAGE>


     The selected  consolidated  financial  data set forth below,  insofar as it
relates to the five years ended  December 31, 1998,  is derived form the audited
consolidated  financial statements of First Banks, Inc. (First Banks). Such data
is  qualified by reference to the  consolidated  financial  statements  of First
Banks included herein and should be read in conjunction  with such  consolidated
financial statements and related notes thereto and "Management's  Discussion and
Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>

                                                                          Year ended December 31, (1)             
                                                            ----------------------------------------------------- 
                                                             1998        1997        1996        1995        1994
                                                             ----        ----        ----        ----        ----
                                                           (dollars expressed in thousands, except per share data)
Income Statement Data:
<S>                                                     <C>            <C>         <C>         <C>          <C>    
    Interest income...................................  $  328,049     295,101     266,021     261,621      162,435
    Interest expense..................................     162,368     148,831     141,670     144,945       70,670
                                                        ----------     -------     -------     -------     --------
    Net interest income...............................     165,681     146,270     124,351     116,676       91,765
    Provision for possible loan losses................       9,000      11,300      11,494      10,361        1,858
                                                        ----------     -------     -------     -------     --------
    Net interest income after provision for
      possible loan losses............................     156,681     134,970     112,857     106,315       89,907
    Noninterest income................................      36,497      25,697      20,721      19,407       13,634
    Noninterest expense...............................     138,704     110,287     105,741      91,566       67,734
                                                        ----------     -------     -------     -------     --------
    Income before provision for income taxes an
      minority interest in (income) loss of
      subsidiaries....................................      54,474      50,380      27,837      34,156       35,807
    Provision for income taxes........................      19,693      16,083       6,960      11,038       12,012
                                                        ----------     -------     -------     -------     --------
    Income before minority interest in (income) loss
      of subsidiaries.................................      34,781      34,297      20,877      23,118       23,795
    Minority interest in (income) loss of subsidiaries      (1,271)     (1,270)       (659)      1,353          237
                                                        ----------     -------     -------     -------     --------
    Net income........................................  $   33,510      33,027      20,218      24,471       24,032
                                                        ==========     =======     =======     =======     ========
Dividends:
    Preferred stock...................................  $      786       5,067       5,728       5,736        5,735
    Common stock......................................          --          --          --          --          --
    Ratio of total dividends declared to net income...        2.35%      15.34%       28.33%     23.44%       23.86%
Per Share Data:
    Earnings per common share:
      Basic...........................................  $ 1,383.04    1,181.69       612.46      791.82      773.31
      Diluted.........................................    1,337.09    1,134.28       596.83      759.09      735.28
    Weighted average shares of common stock
      outstanding.....................................      23,661      23,661       23,661      23,661      23,661
Balance Sheet Data (at year-end):
    Investment securities.............................  $  534,796     795,530      552,801     508,323     587,878
    Loans, net of unearned discount...................   3,580,105   3,002,200    2,767,969   2,744,219   2,073,570
    Total assets......................................   4,554,810   4,165,014    3,689,154   3,622,962   2,879,570
    Total deposits....................................   3,939,985   3,684,595    3,238,567   3,183,691   2,333,144
    Notes payable.....................................      50,048      55,144       76,330      88,135      46,203
    Guaranteed preferred beneficial interests in
     First Banks, Inc. and First Banks America, Inc.
     subordinated debentures..........................     127,443      83,183           --          --          --
    Common stockholders' equity.......................     250,300     218,474      184,439     166,542     149,249
    Total stockholders' equity........................     263,363     231,537      251,389     234,605     217,312
Earnings Ratios:
    Return on average total assets....................        0.78%       0.87%        0.57%       0.70%       1.00%
    Return on average total stockholders' equity......       13.64       12.91         8.43       10.79       11.48
Asset Quality Ratios:
    Allowance for possible loan losses to loans.......        1.70        1.68         1.69        1.92        1.37
    Nonperforming loans to loans (2)..................        1.22        0.80         1.09        1.44        0.78
    Allowance for possible loan losses to
      nonperforming loans (2).........................      140.04      209.88       154.55      133.70      175.37
    Nonperforming assets to loans and other
      real estate (3)..................................        1.32        1.04         1.47        1.71        1.10
    Net loan charge-offs to average loans.............        0.05        0.27         0.72        0.41        0.09
Capital Ratios:
    Average total stockholders' equity to average
      total assets....................................        5.73        6.70         6.79        6.49        8.70
    Total risk-based capital ratio....................       10.28       10.26         9.23        9.34       12.68
    Leverage ratio....................................        7.77        6.80         5.99        5.32        7.54
</TABLE>
----------------

<PAGE>

(1)  The  comparability  of the  selected  data  presented  is  affected  by the
     acquisitions of eleven banks and five thrifts during the five-year  period.
     These  acquisitions were accounted for as purchases and,  accordingly,  the
     selected data includes the financial  position and results of operations of
     each  acquired  entity  only  for the  periods  subsequent  to its  date of
     acquisition.
(2)  Nonperforming  loans  consist of  nonaccrual  loans and certain  loans with
     restructured terms.
(3)  Nonperforming  assets consist of nonperforming loans and other real estate.
<PAGE>


     The discussion  set forth in the Letter to  Shareholders  and  Management's
Discussion  and  Analysis  of  Financial  Condition  and  Results of  Operations
contains  certain  forward  looking  statements  with  respect to the  financial
condition,  results of  operations  and business of First Banks.  These  forward
looking  statements are subject to certain risks and  uncertainties,  not all of
which can be predicted or anticipated.  Factors that may cause actual results to
differ  materially from those  contemplated  by the forward  looking  statements
herein include market  conditions as well as conditions  specifically  affecting
the banking  industry  generally and factors  having a specific  impact on First
Banks including,  but not limited to,  fluctuations in interest rates and in the
economy;  the  impact  of laws and  regulations  applicable  to First  Banks and
changes  therein;  competitive  conditions  in the  markets in which First Banks
conducts its  operations,  including  competition  from banking and  non-banking
companies with  substantially  greater resources than First Banks, some of which
may offer and develop  products and services not offered by First Banks; and the
ability of First Banks to respond to changes in technology, including effects of
the Year 2000  problem.  With  regard to First  Banks'  efforts to grow  through
acquisitions,  factors  that  could  affect  the  accuracy  or  completeness  of
forward-looking  statements  contained  herein  include the potential for higher
than acceptable  operating  costs arising from the geographic  dispersion of the
offices  of First  Banks,  as  compared  with  competitors  operating  solely in
contiguous  markets;  the competition of larger acquirers with greater resources
than First Banks, fluctuations in the prices at which acquisition targets may be
available  for sale and in the  market  for  First  Banks'  securities;  and the
potential  for  difficulty or  unanticipated  costs in realizing the benefits of
particular  acquisition  transactions.  Readers  of  the  Annual  Report  should
therefore not place undue reliance on forward-looking statements

Company Profile

     First Banks is a registered bank holding  company  incorporated in Missouri
and  headquartered  in St. Louis County,  Missouri.  At December 31, 1998, First
Banks had $4.55  billion in total assets,  $3.58 billion in total loans,  net of
unearned  discount,  $3.94  billion in total  deposits and $263 million in total
stockholders'  equity.  First Banks operates  through its  subsidiary  financial
institutions and bank holding companies (Subsidiary Banks) as follows:

     First Bank, headquartered in St. Louis County, Missouri (First Bank).
     First Banks America,  Inc.,  headquartered  in St. Louis County,  Missouri
        (FBA),  and its wholly owned subsidiaries:
            First Bank Texas N.A., headquartered in Houston, Texas (FB Texas).
            First Bank of California, headquartered in Roseville, California 
            (FB California).
     CCB Bancorp, Inc.,  headquartered in Newport Beach,  California (CCB), and
         its wholly owned subsidiary: First Bank & Trust,   headquartered in
            Newport Beach, California (FB&T).

     The Subsidiary Banks are wholly owned by their respective  parent companies
except for FBA,  which was 76.8% owned by First Banks at December 31,  1998.  In
addition,  on February 17, 1999,  First Banks  completed its purchase of 314,848
shares of FBA common stock, pursuant to a tender offer to purchase up to 400,000
shares of FBA common stock.  This tender offer increased First Banks'  ownership
interest in FBA to 82.3% of the outstanding voting stock of FBA.
      As discussed under  "--Acquisitions,"  in February 1998,  First Commercial
Bancorp, Inc. (FCB), a majority owned subsidiary of First Banks, was acquired by
FBA, and its subsidiary  bank,  First  Commercial Bank (First  Commercial),  was
merged into FB California.  The  acquisition of FCB and First  Commercial by FBA
and FB California,  respectively,  did not have a material impact on the results
of operations or financial condition of First Banks.
     Through  the  Subsidiary  Banks,  First  Banks  offers  a  broad  range  of
commercial  and  personal  banking  services  including  certificate  of deposit
accounts,  individual  retirement and other time deposit accounts,  checking and
other demand deposit accounts,  interest checking accounts, savings accounts and
money market accounts.  Loans include  commercial,  financial and  agricultural,
real estate  construction  and  development,  commercial  and  residential  real
estate,  consumer and  installment,  student and Small  Business  Administration
loans. Other financial services include mortgage banking, credit cards, discount
brokerage,   credit-related  insurance,  automatic  teller  machines,  telephone
account access, safe deposit boxes, trust and private banking services, and cash
management services.


<PAGE>



     First  Banks  centralizes  overall  corporate   policies,   procedures  and
administrative  and  operational  support  functions for the  Subsidiary  Banks.
Primary  responsibility  for  managing  the  Subsidiary  Banks  remains with the
officers and directors.
     The  following  table recaps  selected data about the  Subsidiary  Banks at
December 31, 1998:
<TABLE>
<CAPTION>

                                                                                        Loans, net of
                                                           Number of      Total           unearned          Total
                       Subsidiary Banks                    locations     assets           discount        deposits
                       ----------------                    ---------     ------           --------        --------
                                                                         (dollars expressed in thousands)

<S>                                                           <C>     <C>                <C>              <C>      
     First Bank......................................         98      $ 3,024,600        2,490,556        2,659,030
     CCB:
         FB&T........................................         21          793,217          573,562          701,406
     FBA:
         FB California...............................         10          410,110          314,977          363,422
         FB Texas....................................          6          300,984          201,426          264,425
</TABLE>

     The  voting  stock of First  Banks is owned by  various  trusts  which were
created by and are administered by and for the benefit of Mr. James F. Dierberg,
First Banks' Chairman of the Board,  President and Chief Executive Officer,  and
members  of  his  immediate  family.  Accordingly,  Mr.  Dierberg  controls  the
management and policies of First Banks and the election of its directors.
     As more fully described under "--Financial  Condition and Average Balances"
and Note 8 to the consolidated financial statements,  on February 3, 1997, First
Preferred  Capital Trust (First Capital),  a Delaware  statutory  business trust
subsidiary of First Banks, issued 3,450,000 shares of 9.25% Guaranteed Preferred
Beneficial  Interests  in First Banks'  Subordinated  Debenture  (First  Capital
Preferred  Securities) for $86.25 million.  In addition,  on July 21 1998, First
America  Capital  Trust (FACT),  a Delaware  business  trust  subsidiary of FBA,
issued 1,840,000 shares of 8.50% Guaranteed  Preferred  Beneficial  Interests in
FBA's Subordinated Debentures (FACT Preferred Securities) for $46.0 million. The
First  Capital  Preferred  Securities  and the  FACT  Preferred  Securities  are
publicly held and traded on the Nasdaq Stock Market's National Market System and
the New York Stock Exchange,  respectively.  These preferred  securities have no
voting  rights except in certain  limited  circumstances.  Distributions  on the
preferred  securities  are  payable  quarterly  in arrears on March 31, June 30,
September 30 and December 31 of each year.

General

     In the development of its banking franchise,  First Banks has traditionally
placed primary  emphasis upon acquiring other financial  institutions as a means
of  achieving  its growth  objectives.  Acquisitions  may serve to  enhance  its
presence in a given market,  to expand the extent of its market area or to enter
new or noncontiguous markets. However, because First Banks has historically used
cash in its acquisitions,  the  characteristics  of the acquisition arena at any
given point in time may place it at a competitive disadvantage relative to other
acquirers  able to offer  stock  transactions.  This is the result of the market
attractiveness  of  other  financial  institutions'  stock,  the  advantages  of
tax-free  exchanges to the selling  shareholders,  and the  financial  reporting
flexibility  inherent in structuring  stock  transactions.  Consequently,  First
Banks'  acquisition   activities  are  somewhat  sporadic,   in  which  multiple
transactions are consummated in a particular  period,  followed by substantially
less active acquisition periods.  Furthermore, the intangible assets recorded in
conjunction with such acquisitions  create an immediate  reduction in regulatory
capital.  This reduction,  as required by regulatory  policy,  provides  further
financial disincentives to paying large premiums in cash acquisitions.
     Recognizing  these facts,  First Banks has followed certain patterns in its
acquisitions. First, it tends to acquire several smaller institutions, sometimes
over an  extended  period of time,  rather  than a single  larger  one.  This is
attributable  to the  constraints  imposed by the amount of funds required for a
larger transaction, as well as the opportunity to minimize the aggregate premium
required through smaller individual transactions. Secondly, in some acquisitions
First Banks may acquire  institutions  having more  significant  problems  which
thereby reduce their attractiveness to other potential acquirers,  and therefore
reduce  the  amount of  acquisition  premiums  required.  Finally,  First  Banks
realizes that various  acquisition  markets may become so  competitive at times,
that cash  transactions are not  economically  viable,  thereby  requiring it to
pursue its acquisition  strategy in other  geographic  areas, or pursue internal
growth more  aggressively.  These  patterns  have been  evident in First  Banks'
growth during the five years ended December 31, 1998.


<PAGE>


     During  1994 and 1995,  First Banks  completed  twelve  acquisitions  which
provided  an  aggregate  of $1.96  billion  in total  assets  and 43  locations.
Relative to the entire organization,  these acquisitions represented an increase
in First Banks' total assets of 78% over the same  two-year  time period.  These
acquisitions  provided  First Banks with access  into  several new major  market
areas  and,  accordingly,  an  attractive  opportunity  for  future  growth  and
profitability. As acquisition pricing in these areas escalated dramatically, the
level of acquisition activity decreased in 1996, 1997 and 1998. For a summary of
acquisitions,  see "--Acquisitions." During the past three years, management has
continued to meld original  entities into its  operations,  systems and culture,
and achieve the efficiencies and opportunities envisioned when the entities were
acquired.  Many of the  acquired  institutions  exhibited  elements of financial
distress prior to their  acquisitions  which  contributed  to marginal  earnings
performance. Generally, these elements were the result of asset quality problems
and/or high overhead expenses.
     Following   acquisition,   the  most  immediate  tasks  required  were  the
improvement  of asset  quality  and the  elimination  of  unnecessary  expenses.
Although many improvements were instituted  shortly after  acquisition,  many of
the problems which existed were indigenous,  requiring a much longer time period
to resolve.  This involved not only many problem  assets,  which had no apparent
short-term  solution,   but  also  other  elements  of  expense.  This  included
addressing  such  areas  as:  (1)  maintenance,  repairs  and,  in  some  cases,
refurbishing  of bank premises  necessitated by the deferral of such projects by
the acquired  entities;  (2) long-term  leases which provided space in excess of
that necessary for banking  activities  and/or rates in excess of current market
rates;  (3) relocation of branch  offices which were not adequate,  conducive or
convenient for banking operations;  and (4) management of lawsuits which existed
with respect to acquired  entities to minimize the overall cost of  negotiation,
settlement or litigation.
     However,  the process which was required after acquisition was not only one
of reducing expenses and improving asset quality,  but the combining of separate
and distinct entities together to form cohesive  organization groups with common
objectives and focus. This involved a significant post-acquisition investment of
resources by First Banks to reorganize  staff,  recruit  personnel where needed,
and establish the  direction  and focus  necessary for the combined  entities to
take advantage of the opportunities available to them. While this contributed to
the increases in  noninterest  expense  during the five years ended December 31,
1998, it also resulted in the creation of new banking entities which were unlike
any of the  merged  entities  individually.  These  banks  were able to convey a
consistent  image and quality of service,  provide a complete array of financial
products to their customers and compete effectively in their marketplaces,  even
in the presence of other financial institutions with much greater resources.
     While  some  of  these  activities  did not  contribute  to  reductions  of
noninterest  expense,  they  contributed to the  commercial and retail  business
development  efforts of the banks,  and  ultimately to their overall  profile to
improve  future  profitability.  As  a  result  of  this,  the  contribution  to
consolidated  net  income for  California  (FB&T and FB  California),  Texas (FB
Texas) and Missouri and Illinois (First Bank) is summarized as follows:
<TABLE>
<CAPTION>

                                                  California                   Texas          Missouri and Illinois        
                                            ---------------------      ------------------    ------------------------------
                                             1998    1997   1996 (1)  1998    1997 1996 (1)  1998    1997  1996 (1)
                                             ----    ------------   --------------------   ---------------------   
                                                                    (dollars expressed in thousands)
Year ended December 31:
<S>                                       <C>        <C>     <C>     <C>     <C>      <C>  <C>     <C>      <C>   
     Equity in income of subsidiaries.... $ 7,168    7,488   5,259   2,303   1,675    806  33,271  31,686   24,542
     Average investment in subsidiaries..  91,243   76,330  54,114  23,389  25,178 23,202 232,518 220,134  212,850
       Return on average investment......    7.86%    9.81%   9.72%   9.85%   6.65%  3.47%  14.31%  14.39%   11.53%
</TABLE>

---------
(1) Excludes the effect of the one-time FDIC special assessment,  net of related
tax benefits.

     Anticipating  that  increasing  acquisition  pricing would  eventually make
growth solely by acquisition economically unfeasible, and recognizing that rapid
consolidation  within the banking industry would create new business development
opportunities,  beginning  in 1993 First  Banks  began a  continuing  program of
substantial  enhancement  of its  capabilities  to achieve  and manage  internal
growth. This program required  significant  increases in the resources dedicated
to commercial and retail business  development,  financial  service product line
and delivery systems,  branch  development and training,  and administrative and
operational support. These efforts were manifested during this period in various
changes within the organization.


<PAGE>


     The enhanced business development  resources of First Banks assisted in the
realignment of certain acquired loan  portfolios,  which were skewed toward loan
types which  reflected the abilities and  experiences  of the  management of the
acquired  entities.  This was  particularly  evident in  acquisitions of savings
banks,  which  had  portfolios  heavily  concentrated  in single  family  and/or
multi-family  residential  real  estate  lending,  and in FB Texas,  which had a
portfolio consisting primarily of indirect automobile loans. In order to achieve
a more diversified portfolio,  to address asset quality issues in the portfolios
and to achieve a higher  interest  yield on the loan  portfolio,  a  substantial
portion of the loans which were acquired  during this time were reduced  through
payments,  refinancing with other financial institutions,  charge-offs,  and, in
two instances,  sales of loans. As a result, the portfolio of one-to-four family
residential  real estate  loans,  after  reaching a maximum of $1.20  billion at
December 31,  1995,  was reduced to $1.06  billion at December  31,  1996,  $915
million at December 31, 1997 and $739  million at December 31, 1998.  Similarly,
the portfolio of consumer and installment loans, net of unearned  discount,  the
majority of which is indirect  automobile loans,  decreased from $414 million at
December 31, 1995,  to $333  million,  $279 million and $274 million at December
31, 1996, 1997 and 1998, respectively.
     As these  components of the loan  portfolio  decreased,  they were replaced
with more  diversified,  better  quality  and higher  yielding  loans which were
internally   generated  by  the   business   development   function.   With  the
acquisitions, the business development function was expanded into the new market
areas  in  which  First  Banks  was then  operating.  Consequently,  in spite of
relatively  large  reductions  in  acquired   portfolios,   the  aggregate  loan
portfolio,  net of unearned  discount,  increased from $2.74 billion at December
31, 1995 to $2.77 billion, $3.00 billion and $3.58 billion at December 31, 1996,
1997 and 1998, respectively.
     While this  restructuring of the loan portfolio was occurring,  First Banks
was also changing the composition of its deposits.  Several of the  institutions
which First Banks has  acquired  since 1990 were savings  banks.  Traditionally,
savings  banks have  placed  greater  reliance  on time  deposits as a source of
funding than their commercial banking  counterparts.  Although time deposits are
generally a stable source of funds, they are typically the highest cost deposits
available,  the depositors tend to be relatively  sensitive to interest rates in
the market, and frequently the customers have no other banking relationship with
the  financial  institution.  These  characteristics  suggest that many of these
customers move their deposits between financial institutions fairly readily, and
have limited loyalty to any particular institution.  Consequently,  First Banks'
deposit  development  programs have been directed toward  increased  transaction
accounts,  such as demand and savings accounts,  rather than time deposits,  and
have emphasized  attracting more than one account relationship with customers by
cross  selling  them  through  packaging  various  account  types  and  offering
incentives to deposit  customers on other deposit or  non-deposit  services.  In
addition,  commercial  borrowers  are  encouraged  to maintain  their  operating
deposit  accounts with First Banks. As a result,  the net growth in deposits has
been focused in transaction, rather than time accounts. At December 31, 1995 and
1996,  total time deposits were $1.80  billion and $1.81  billion,  or 56.4% and
55.9% of total deposits, respectively. Although total deposits have continued to
increase,  total time  deposits  have remained  constant at $1.80  billion,  but
decreasing to 45.8% of total deposits at December 31, 1998.
     As further discussed under "--Net Interest Income, Comparison of Results of
Operations  for 1998 and 1997,  and Comparison of Results of Operations for 1997
and 1996," the simultaneous growth by acquisition of financial  institutions and
the building of the  infrastructure  necessary to achieve  significant  internal
growth has had an adverse effect on the operating results of First Banks.

Acquisitions

     In  enhancing  its banking  franchise,  First Banks  places  emphasis  upon
acquiring other financial  institutions as a means of accelerating its growth to
significantly  expand its presence in a given market,  to increase the extent of
its  market  area or to  enter  new or  noncontiguous  market  areas.  After  an
acquisition is consummated,  First Banks expects to enhance the franchise of the
acquired entity by supplementing the marketing and business  development efforts
to broaden the customer bases, strengthening particular segments of the business
or filling voids in the overall market coverage.  First Banks has utilized cash,
borrowings  and  the  issuance  of  additional  securities  to meet  its  growth
objectives under the acquisition program.
     As summarized below, First Banks' acquisitions during the three years ended
December 31, 1998 have primarily served to increase its presence in markets that
were originally entered into during 1994 and 1995.


<PAGE>


     During the three years ended December 31, 1998,  First Banks completed four
acquisitions  and three deposit  purchases.  These  transactions,  as more fully
described in Note 2 to the accompanying  consolidated financial statements,  are
summarized as follows:
<TABLE>
<CAPTION>

                                                               Loans, net of                             Number of
                                                     Total        unearned    Investment                  banking
            Entity                    Date          assets        discount    securities    Deposits     locations
            ------                    ----          ------        --------    ----------    --------     ---------
                                                             (dollars expressed in thousands)

             1998
             ----

Republic Bank
<S>                            <C>                  <C>            <C>           <C>        <C>               <C>
Torrance, California (1)...... September 15, 1998   $ 124,100      97,900        7,500      117,200           3

Bank of America
Solvang, California branch
office (2).................... March 19, 1998          15,500          --           --       15,500           1

Pacific Bay Bank
San Pablo, California (3)..... February 2, 1998        38,300      29,700          232       35,200           1
                                                    ---------    --------     --------      -------         ---
                                                    $ 177,900     127,600        7,732      167,900           5
                                                    =========    ========     ========      =======         ===
             1997
             ----

Surety Bank
Vallejo, California (3)....... December 1, 1997     $  72,800      54,400       11,800       67,500           2

Highland Federal Savings Bank,
F.S.B., Woodland Hills,
California branch office (4).. September 30, 1997      42,400         100           --       42,400           1

Highland Federal Savings Bank,
F.S.B., Long Beach,
California branch offices (4). March 31, 1997          40,400         100           --       40,400           2
                                                    ---------    --------     --------      -------         ---
                                                    $ 155,600      54,600       11,800      150,300           5
                                                    =========    ========     ========      =======         ===

             1996
             ----

Sunrise Bancorp, Inc.
Roseville, California (3)..... November 1, 1996     $ 110,800      61,100       18,100       91,100           3
                                                    =========    ========     ========      =======         ===
</TABLE>

------------------
(1)  Republic Bank was merged into FB&T.
(2)  The Solvang branch office of Bank of America was acquired by FB&T through a
     purchase of certain  assets and  assumption of deposit  liabilities  of the
     branch  office.  Total  assets  consist  primarily  of cash  received  upon
     assumption of deposit liabilities.
(3)  Pacific Bay Bank, Sunrise Bank, Sunrise Bancorp, Inc.'s banking subsidiary,
     and Surety Bank were merged into FB California.  Sunrise Bancorp,  Inc. was
     merged into FBA.
(4)  The  Woodland  Hills  branch  office and the Long Beach  branch  offices of
     Highland  Federal  Savings  Bank,  F.S.B.  were  acquired by FB&T through a
     purchase of certain  assets and  assumption of deposit  liabilities  of the
     branch  offices.  Total  assets  consist  primarily of cash  received  upon
     assumption of deposit liabilities.

     Except for the acquisition of Surety Bank, these  acquisitions  were funded
by First  Banks  from  available  cash  reserves,  proceeds  from the  sales and
maturities of available-for-sale  investment securities,  borrowings under First
Banks' credit  agreement with a group of unaffiliated  banks (Credit  Agreement)
and the  proceeds  of the  preferred  securities.  The 49% cash  portion  of the
acquisition of Surety Bank was funded from available cash. The remaining 51% was
acquired through an exchange of shares of common stock of FBA.
See Note 2 to the consolidated financial statements.
     On February 2, 1998,  FCB was  acquired by FBA in an exchange of FBA common
stock for FCB common stock. In connection with this transaction,  FCB was merged
into a wholly owned  subsidiary of FBA, and First  Commercial was merged into FB
California.


<PAGE>


     On March 4, 1999, FBA completed the  acquisition of Redwood Bancorp and its
wholly owned  subsidiary,  Redwood Bank, for cash  consideration of $26 million.
Redwood  Bancorp had $184 million in total assets,  $134 million in total loans,
net of unearned discount,  $32 million in investment securities and $163 million
in total deposits at the acquisition date.  Redwood Bank is headquartered in San
Francisco,  California and operates three banking locations in the San Francisco
Bay area. Redwood Bank will operate as a wholly owned subsidiary of FBA.

Financial Condition and Average Balances

     First Banks'  average  total  assets were $4.29  billion for the year ended
December 31,  1998,  compared to $3.82  billion and $3.53  billion for the years
ended  December  31, 1997 and 1996,  respectively.  Total assets at December 31,
1998 were $4.55 billion, an increase of $380 million, or 9.1%, over total assets
of $4.17 billion at December 31, 1997.
     The increase in assets for 1998 was funded by an increase in total deposits
of $260 million to $3.94  billion at December 31,  1998,  from $3.68  billion at
December 31, 1997,  and the decrease in  investment  securities  of $261 million
during  1998.  The  increase  in  deposits  for  1998  is  attributable  to  the
acquisitions  of Republic  Bank,  Pacific Bay Bank,  the purchase of the deposit
accounts  of the  Solvang,  California  banking  location of Bank of America and
internal  deposit  growth of $92.1  million.  A summary  of the  composition  of
deposits is presented under "--Deposits."
     Loans, net of unearned discount, increased by $580 million to $3.58 billion
at December 31, 1998 from $3.00 billion at December 31, 1997.  The  acquisitions
of Republic  Bank and  Pacific Bay Bank  provided  $127.6  million of loans.  In
addition  to these  loans,  $633.6  million of net loan  growth was  provided by
corporate  banking  business  development,  consisting  of an increase of $267.7
million of commercial,  financial and agricultural loans, $299.4 million of real
estate  construction and land development  loans and $66.5 million of commercial
real  estate  loans.   These  increases  were  partially  offset  by  continuing
reductions in  residential  real estate loans of $152.8  million and in consumer
and installment  loans, net of unearned  discount,  which consists  primarily of
indirect automobile loans, of $30.5 million. These changes are the result of the
focus which First Banks has placed on its business  development  efforts and the
portfolio  repositioning  which began in 1995. This repositioning  provided that
substantially  all of the  conforming  residential  mortgage loan  production of
First Banks be sold in the secondary  mortgage market,  and that the origination
of indirect  automobile loans be substantially  reduced.  Tables summarizing the
composition  of the loan  portfolio are presented  under  "--Lending  and Credit
Management."
     For the year ended  December  31,  1997,  total  average  assets were $3.82
billion  compared to $3.53 billion for the year ended  December 31, 1996.  Total
assets at December 31, 1997 were $4.17 billion, an increase of $480 million from
total assets of $3.69 billion at December 31, 1996.
     The increase in total assets was primarily attributable to $72.8 million of
assets provided in the acquisition of Surety Bank, growth in total loans of $180
million,  excluding  those  acquired in the  acquisition of Surety Bank of $54.4
million, and an increase in investment  securities of $230.9 million,  excluding
those  attributable  to Surety Bank.  The increase in total assets was partially
offset by a decrease  in Federal  Funds sold of $50.6  million to $23.5  million
from $74.1 million at December 31, 1997 and 1996, respectively.
     On July 21, 1998, FACT, a newly-formed  Delaware  business trust subsidiary
of FBA, issued 1.84 million shares of FACT Preferred Securities at $25 per share
in an  underwritten  public  offering.  Proceeds  from FACT's  offering,  net of
underwriting  fees and offering  expenses,  were $44.0  million and were used to
reduce  borrowings,  to support possible  repurchases of FBA's common stock from
time to time and for general  corporate  purposes.  The remaining  proceeds were
temporarily  invested by FBA in interest-bearing  deposits and were used to fund
the  acquisition of Redwood  Bancorp.  In addition,  on February 4, 1997,  First
Capital,  a  newly-formed  Delaware  business  trust  subsidiary of First Banks,
issued 3.45 million  shares of First  Capital  Preferred  Securities  at $25 per
share in an  underwritten  public  offering.  The proceeds from First  Capital's
offering, net of underwriting fees and offering expenses, were $83.1 million and
were  used to  reduce  borrowings,  for  purchases  of  shares  of Class C 9.00%
Increasing  Rate,  Redeemable,  Cumulative  Preferred  Stock  (Class C Preferred
Stock) and for various short-term investments.
     On December 1, 1997, First Banks redeemed all of its remaining  outstanding
Class C Preferred  Stock for $47.1  million.  The effect of the redemption was a
reduction  of  First  Banks'  total   stockholders'   equity,  and  consequently
regulatory capital, by the amount of the redemption.  However,  the structure of
the preferred securities  described above satisfies the regulatory  requirements
for  inclusion in First Banks'  capital base in a manner  similar to the Class C
Preferred Stock.


<PAGE>


     First  Banks'  common  stockholders'  equity has  continued  to increase to
$250.3  million at December 31, 1998,  from $218.5 million and $184.4 million at
December 31, 1997 and 1996, respectively.  The increase is attributable to First
Banks'  profitability  and the  current  practice of  retaining  most of its net
income to further support future growth.
     The  following  table  sets  forth,  on  a  tax-equivalent  basis,  certain
information  relating to First Banks' average  balance  sheet,  and reflects the
average  yield  earned  on   interest-earning   assets,   the  average  cost  of
interest-bearing  liabilities  and the  resulting  net  interest  income for the
periods indicated.
<TABLE>
<CAPTION>
                                                                         For the years ended December 31,                       
                                                --------------------------------------------------------------------------------
                                                           1998                       1997                          1996        
                                                ------------------------     ----------------------      -----------------------
                                                         Interest                    Interest                     Interest
                                                Average   income/ Yield/     Average  income/ Yield/     Average   income/ Yield/
                                                balance   expense  rate      balance  expense  rate      balance   expense  rate
                                                -------   -------  ----      -------  -------  ----      -------   -------  ----
                                                                       (dollars expressed in thousands)
           ASSETS
           ------

Interest-earning assets:
    Loans: (1) (2)
<S>                                          <C>         <C>        <C>   <C>         <C>       <C>    <C>        <C>       <C>  
       Taxable............................   $3,243,183  283,850    8.75% $2,837,190  252,089   8.89%  $2,714,387 236,527   8.71%
       Tax-exempt (3).....................        7,536      794   10.54       8,967    1,042  11.62      11,910    1,311  11.01
    Investment securities:
       Taxable (4)........................      657,385   39,898    6.07     598,660   35,248   5.89     469,832   22,650   4.82
       Tax-exempt (3) (4).................       18,318    1,515    8.27      19,056    1,552   8.15      22,648    1,889   8.34
    Federal funds sold....................       46,509    2,630    5.65     125,825    5,322   4.23      63,802    3,352   5.25
    Other.................................        2,853      170    5.96      12,138      757   6.24      25,634    1,410   5.50
                                             ----------   ------          ----------  -------          ---------   ------
         Total interest-earning assets....    3,975,784  328,857    8.27   3,601,836  296,010   8.22   3,308,213   267,139  8.08
                                                         -------                      -------                      -------
Nonearning assets.........................      309,811                      215,890                     224,175
                                             ----------                   ----------                   ---------
         Total assets.....................   $4,285,595                   $3,817,726                   $3,532,388
                                             ==========                   ==========                   ==========

               LIABILITIES AND
            STOCKHOLDERS' EQUITY
            --------------------

Interest-bearing liabilities:
    Interest bearing deposits:
       Interest-bearing demand
          deposits (4)....................   $  357,463    5,135    1.44% $  332,712    5,648   1.70%  $ 304,247    4,845   1.59%
       Savings deposits (4)...............    1,076,524   42,591    3.96     761,052   27,383   3.60     683,009   21,769   3.19
       Time deposits of $100 or more (4)..      212,691   12,463    5.86     183,223   11,008   6.01     164,453    9,665   5.88
       Other time deposits (4)............    1,669,638   95,739    5.73   1,681,014  100,954   6.01   1,592,657   95,813   6.02
                                             ----------   ------          ----------  -------          ---------   ------
         Total interest-bearing deposits..    3,316,316  155,928    4.70   2,958,001  144,993   4.90   2,744,366  132,092   4.81
    Federal funds purchased, repurchase
           agreements and Federal Home
           Loan Bank advances (4).........       61,178    2,965    4.85      75,016    2,463   3.28      64,021    3,964   6.19
    Notes payable and other...............       50,718    3,475    6.85      17,883    1,375   7.69      76,892    5,614   7.30
                                             ----------   ------          ----------  -------          ---------   ------
         Total interest-bearing
           liabilities....................    3,428,212  162,368    4.74   3,050,900  148,831   4.88   2,885,279  141,670   4.91
                                                         -------                      --------                    -------
Noninterest-bearing liabilities:
    Demand deposits.......................      463,939                      394,580                     368,786
    Other liabilities.....................      147,849                      116,359                      38,413
                                             ----------                   ----------                   ---------
         Total liabilities................    4,040,000                    3,561,839                   3,292,478
Stockholders' equity......................      245,595                      255,887                     239,910
                                             ----------                   ----------                   ---------
         Total liabilities and
           stockholders' equity...........   $4,285,595                   $3,817,726                   $3,532,388
                                             ==========                   ==========                   ==========
Net interest income.......................                166,489                     147,179                      125,469
                                                          =======                     =======                      =======
Interest rate spread......................                          3.53                        3.34                        3.17
Net interest margin.......................                          4.19%                       4.09%                       3.79%
                                                                    ====                        ====                        ====
</TABLE>
-------------------
<PAGE>

(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  approximately  $808,000, $909,000
    and $1.1 million  for  the  years  ended  December 31, 1998, 1997  and 1996,
    respectively.
(4) Includes the effects of interest rate exchange agreements.


<PAGE>
     The following table indicates,  on a  tax-equivalent  basis, the changes in
interest  income  and  interest  expense  which are  attributable  to changes in
average  volume and changes in average rates,  in comparison  with the preceding
year. The change in interest due to the combined  rate/volume  variance has been
allocated to rate and volume  changes in proportion to the dollar amounts of the
change in each.
<TABLE>
<CAPTION>
                                                         Increase (decrease) attributable to change in:           
                                                  December 31, 1998 compared         December 31, 1997 compared
                                                     to December 31, 1997               to December 31, 1996      
                                                ----------------------------       -------------------------------
                                                                          Net                                Net
                                               Volume        Rate       Change     Volume       Rate       Change
                                               ------        ----       ------     ------       ----       ------
                                                               (dollars expressed in thousands)

Interest earned on:
    Loans: (1) (2)
<S>                                          <C>           <C>         <C>        <C>          <C>        <C>   
       Taxable...........................    $ 35,689      (3,928)     31,761     10,682       4,880      15,562
       Tax-exempt (3)....................        (157)        (91)       (248)      (347)         78        (269)
    Investment securities:
       Taxable (4).......................       3,545       1,105       4,650      6,962       5,636      12,598
       Tax-exempt (3) (4)................         (60)         23         (37)      (295)        (42)       (337)
    Federal funds sold...................      (5,759)      3,067      (2,692)     2,462        (492)      1,970
    Other................................        (554)        (33)       (587)      (877)        224        (653)
                                             --------      ------      ------      -----      ------      ------
           Total interest income.........      32,704         143      32,847      18,587     10,284      28,871
                                             --------      ------      ------      ------     ------      ------
Interest paid on:
    Interest-bearing demand deposits (4).         486        (999)       (513)       462         341         803
    Savings deposits (4).................      12,252       2,956      15,208      2,642       2,972       5,614
    Time deposits of $100 or more (4)....       1,722        (267)      1,455      1,125         218       1,343
    Other time deposits (4)..............        (661)     (4,554)     (5,215)     5,300        (159)      5,141
    Federal funds purchased, repur-
       chase agreements and Federal
       Home Loan Bank advances (4).......        (315)        817         502        864      (2,365)     (1,501)
    Notes payable and other..............       2,233        (133)      2,100      (4,556)       317      (4,239)
                                             --------      -------     ------      ------     ------      ------
           Total interest expense........      15,717      (2,180)     13,537      5,837       1,324       7,161
                                             --------      -------     ------      -----      ------      ------
           Net interest income...........    $ 16,987       2,323      19,310      12,750      8,960      21,710
                                             ========      ======      ======      ======     ======      ======
</TABLE>
---------------
(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%.
(4) Includes the effect of interest rate exchange agreements.

Net Interest Income

     First Banks' primary source of earnings is its net interest  income,  which
is the  difference  between the  interest  earned on its earning  assets and the
interest  paid  on  its  interest-bearing   liabilities.   Net  interest  income
(expressed on a  tax-equivalent  basis) increased to $166.5 million for the year
ended  December 31, 1998,  from $147.2  million and $125.5 million for the years
ended  December  31, 1997 and 1996,  respectively.  Although  both net  interest
income and net interest  margin,  which is net interest  income  (expressed on a
tax-equivalent basis) expressed as a percentage of interest-earning assets, have
increased during these periods,  the net interest margin has continued to remain
below average for  commercial  banks.  For the year ended December 31, 1998, the
net interest  margin was 4.19%,  compared to 4.09% and 3.79% for the years ended
December 31, 1997 and 1996, respectively.
     During periods of rapid growth through cash acquisitions,  the net interest
margin  frequently  decreases  because  the  reduction  of  interest  income  on
internally generated funds used in acquisitions and the interest expense on debt
incurred in the transactions offsets a portion of the net interest income of the
entities  acquired.  As a result,  during  this period  interest-earning  assets
increased more rapidly than net interest  income,  contributing to the lower net
interest margin.  In addition,  since 1990, First Banks has acquired ten thrifts
in various transactions.  The regulatory  requirements and the historic customer
bases of  thrifts  tend to  result in  balance  sheets  which are  predominately
comprised  of   residential   mortgage   loans,   frequently   supplemented   by
mortgage-backed  securities,  for interest  earning assets,  and certificates of
deposit as a primary source of funds.  Because of the  competitive,  homogeneous
nature of residential  mortgage loans and certificates of deposit,  the interest
rate  spreads  between them tend to be more narrow than other types of loans and
funding sources.



<PAGE>


     First Banks'  average  yield on  residential  real estate loans and average
cost of certificates of deposit, compared to those of other segments of its loan
portfolio and interest-bearing deposits, respectively, were as follows:

<TABLE>
<CAPTION>
                                                                                            Interest
                                                                   Average    Percent of     income/   Yield/
                                                                  balances       total       expense    rate
                                                                  --------       -----       -------    ----
                                                                       (dollars expressed in thousands)

     Year ended December 31, 1998:
<S>                                                             <C>             <C>       <C>           <C>  
         Residential mortgage loans...........................  $   928,805     28.57%    $  74,792     8.05%
         Other loans..........................................    2,321,914     71.43       209,852     9.04
                                                                -----------   -------     ---------
             Total loans......................................  $ 3,250,719    100.00%    $ 284,644     8.76
                                                                ===========    ======     =========     ====

         Certificates of deposit..............................  $ 1,882,329     56.76%    $ 108,202     5.75%
         Other interest-bearing deposits......................    1,433,987     43.24        47,726     3.33
                                                                -----------   -------     ---------
           Total interest-bearing deposits....................  $ 3,316,316    100.00%    $ 155,928     4.70
                                                                ===========    ======     =========     ====

     Year ended December 31, 1997:
         Residential mortgage loans...........................  $ 1,025,442     36.03%    $  83,248     8.12%
         Other loans..........................................    1,820,715     63.97       169,883     9.33
                                                                -----------   -------     ---------
             Total loans......................................  $ 2,846,157    100.00%    $ 253,131     8.89
                                                                ===========    ======     =========     ====

         Certificates of deposit..............................  $ 1,864,237     63.02%    $ 111,962     6.01%
         Other interest-bearing deposits......................    1,093,764     36.98        33,031     3.02
                                                                -----------   -------     ---------
           Total interest-bearing deposits....................  $ 2,958,001    100.00%    $ 144,993     4.90
                                                                ===========    ======     =========     ====

     Year ended December 31, 1996:
         Residential mortgage loans...........................  $ 1,154,231     42.34%    $  93,282     8.08%
         Other loans..........................................    1,572,066     57.66       144,556     9.20
                                                                -----------   -------     ---------
             Total loans......................................  $ 2,726,297    100.00%    $ 237,838     8.72
                                                                ===========    ======     =========     ====

         Certificates of deposit..............................  $ 1,757,110     64.03%    $ 105,478     6.00%
         Other interest-bearing deposits......................      987,256     35.97        26,614     2.70
                                                                -----------   -------     ---------
           Total interest-bearing deposits....................  $ 2,744,366   100.00%     $ 132,092     4.81
                                                                ===========   ======      =========     ====
</TABLE>

     In  addition  to the  narrow  interest  rate  spread  between  the yield on
residential  mortgage  loans  and the rates  paid on  certificates  of  deposit,
residential  mortgage  loans  introduce  various  prepayment   alternatives  for
borrowers  which,  when combined  with  inexpensive  refinancing  opportunities,
accelerate  principal repayments in periods of declining interest rates, thereby
exacerbating their inherent interest rate risk.
     In order to enhance its net interest income through increased yields on its
loan portfolio and to reduce the interest rate risk associated with  residential
mortgage  loans,  First  Banks  initiated  a plan  to  reduce  its  reliance  on
residential  mortgage loans within its  portfolio.  This change in the portfolio
composition required the concurrent internal generation of other types of loans,
particularly commercial and financial, real estate construction and development,
and commercial real estate loans, a process which had previously been initiated.
Consequently,  this  process  focused  on  continuing  to  build  this  business
development  function,  as well as the control and servicing  staff necessary to
support it. As the growth of other loans  developed,  First Banks  expanded  its
sale of conforming residential mortgage loans in the secondary market to include
essentially all new loan production.
     At the same time,  in order to limit its  interest  rate risk,  First Banks
expanded  its risk  management  capabilities  to  improve  its risk  measurement
techniques  and  reporting,  and increase its risk  control  alternatives.  This
included  initiating  a program of using  derivative  financial  instruments  to
reduce interest rate exposure. First Banks uses a combination of swaps, caps and
floors to reduce its exposure, primarily arising from residential mortgage loans

<PAGE>

and  mortgage-backed  securities.   Although  these  financial  instruments  are
effective in reducing  interest rate risk, the expense  associated with them has
had a significant effect on net interest income.
<TABLE>
<CAPTION>

                                                Cost of interest rate   
                                          ---------------------------------
                                                                  Swap, cap       Reduction       Effect on
                                             Futures and          and floor         of net       net interest
                                          options on futures      agreements    interest income   margin (1)               
                                          ------------------      ----------    ---------------   ----------               
                                                      (dollars expressed in thousands)          (expressed  in
                                                                                                 basis points)
          Year ended December 31:

<S>            <C>                              <C>                  <C>             <C>           <C>   
               1998..........................   $    --              3,999           3,999         (0.10)
               1997..........................        --              6,574           6,574         (0.18)
               1996..........................     3,875              7,623          11,498         (0.35)
</TABLE>
---------------
(1) Effect on net  interest  margin is  expressed as a reduction of net interest
    income divided by average earning assets.

Interest Rate Risk Management

     In financial  institutions,  the maintenance of a satisfactory level of net
interest  income is a primary  factor in  achieving  acceptable  income  levels.
However,  the maturity and repricing  characteristics  of the institution's loan
and investment portfolios,  relative to those within its deposit structure,  may
differ significantly.  This is influenced by the characteristics of the loan and
deposit markets within which First Banks operates, as well as its objectives for
business development within those markets at any point in time. In addition, the
ability of borrowers to repay loans and  depositors  to withdraw  funds prior to
stated maturity dates introduces divergent option  characteristics which operate
primarily as interest rates change.  These factors cause various elements of the
institution's balance sheet to react in different manners and at different times
relative to changes in interest rates, thereby leading to increases or decreases
in net  interest  income over time.  Depending  upon the nature and  velocity of
interest  rate  movements  and their  effect on the specific  components  of the
institution's  balance  sheet,  the  effects  on  net  interest  income  can  be
substantial.  Consequently,  a fundamental  requirement  in managing a financial
institution is establishing effective control of the exposure of the institution
to changes in interest rates.
     First Banks  manages its interest  rate risk by: (1)  maintaining  an Asset
Liability  Committee  (ALCO)  responsible  to First Banks' Board of Directors to
review the overall  interest rate risk  management  activity and approve actions
taken to reduce risk; (2) maintaining an effective simulation model to determine
First  Banks'  exposure  to changes in  interest  rates;  (3)  coordinating  the
lending, investing and deposit-generating functions to control the assumption of
interest  rate  risk;  and (4)  employing  various  off-balance-sheet  financial
instruments to offset inherent interest rate risk when it becomes excessive. The
objective of these  procedures  is to limit the adverse  impact which changes in
interest rates may have on 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 the
Chairman and Chief  Executive  Officer,  the senior  executives of  investments,
credit,  retail  banking,  commercial  banking and  finance,  and certain  other
officers.  The ALCO is supported by the Asset Liability  Management  Group which
monitors  interest  rate  risk,  prepares  analyses  for  review by the ALCO and
implements  actions  which  are  either  specifically  directed  by the  ALCO or
established by policy guidelines.
     The objective and primary  focus of interest  sensitivity  management is to
optimize earnings results,  while managing,  within internal policy constraints,
interest  rate  risk.  First  Banks'  policy  on rate  sensitivity  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,  First Banks  calculates
its net income over two  one-year  horizons on a pro forma  basis.  The analysis
assumes  various  scenarios  for  increases  and  decreases  in  interest  rates
including both  instantaneous and gradual,  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,  First Banks  includes  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.
Consistent  with the table  presented  below,  which  indicates  First  Banks is
"asset-sensitive,"  First Banks'  simulation model indicates a loss of projected

<PAGE>

net income should  interest rates decline.  While a decline in interest rates of
less  than  10% has a  diminutive  effect  on the  earnings  of First  Banks,  a
significant  decline in interest  rates,  resembling  the actual  decline  which
occurred over a two-year  period  commencing in March 1991,  indicates a loss of
net income  equivalent to  approximately  3% of net interest income for the year
ended December 31, 1998.
     As   discussed   previously,   First   Banks  has   expanded   its  use  of
off-balance-sheet  derivative financial  instruments to assist in the management
of the interest rate  sensitivity  inherent in its balance  sheet,  particularly
that   arising   from  its   portfolio  of   residential   mortgage   loans  and
mortgage-backed   securities   relative   to  its   deposit   structure.   These
off-balance-sheet   derivative  financial  instruments  effectively  modify  the
repricing,  maturity and option  characteristics  of its assets and liabilities.
See  Notes  1 and  11  to  the  consolidated  financial  statements.  Derivative
financial instruments held by First Banks for purposes of managing interest rate
risk are as follows:
<TABLE>
<CAPTION>

                                                                                December 31,                
                                                                 -----------------------------------------  
                                                                        1998                   1997         
                                                                 Notional     Credit    Notional     Credit
                                                                   amount    exposure     amount    exposure
                                                                   ------    --------     ------    --------
                                                                      (dollars expressed in thousands)

<S>                                                            <C>              <C>      <C>           <C>         
        Interest rate swap agreements......................... $ 280,000         --           --         --
        Interest rate floor agreements........................    70,000        204       70,000         26
        Interest rate cap agreements..........................    10,000         55       10,000        222
        Forward commitments to sell mortgage-backed securities    95,000        137       60,000         --
</TABLE>

     The notional amounts of derivative  financial  instruments do not represent
amounts  exchanged  by the parties  and,  therefore,  are not a measure of First
Banks' credit exposure through its use of derivative financial instruments.  The
amounts  exchanged are  determined by reference to the notional  amounts and the
other terms of the derivatives.
     Interest  rate  swap  agreements  are  utilized  to  adjust  the  repricing
characteristics  of certain  interest-bearing  assets and  liabilities  with the
objective of stabilizing cash flow, and accordingly,  net interest income,  over
time.  The net  interest  expense for swap  agreements  was $3.9  million,  $6.4
million and $7.4 million,  including $3.7 million, $5.4 million and $4.2 million
of amortized  deferred swap losses,  for the years ended December 31, 1998, 1997
and 1996,  respectively.  The maturity dates,  notional amounts,  interest rates
paid and received,  and fair values of interest rate swap agreements outstanding
as of December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>

                                                                                                    Fair value
                                                           Notional   Interest rate Interest rate      gain
                Maturity date and swap type                 amount        paid        received        (loss)
                ---------------------------                 ------        ----        --------        ------
                                                                   (dollars expressed in thousands)
       December 31, 1998:
           Pay variable / receive fixed:
<S>          <C>                                          <C>             <C>          <C>         <C>     
             June 11, 2002.............................   $ 15,000        5.24%        6.00%       $    363
             September 16, 2002........................     20,000        5.22         5.36              87
             September 16, 2002........................    175,000        5.22         5.36             761
             September 18, 2002........................     30,000        5.23         5.33              92
             September 18, 2002........................     40,000        5.23         5.33             123
                                                          --------                                 --------
                                                          $280,000        5.23         5.48        $  1,426
                                                          ========        ====         ====        ========
</TABLE>
<PAGE>

     First Banks has experienced a shortening of the expected  repricing term of
its loan  portfolio.  This shortening  resulted from the significant  decline in
interest  rates  beginning in 1995,  which  caused an increase in the  principal
prepayments of residential  mortgage  loans,  and a change in the composition of
the  loan  portfolio.  These  increased  prepayments,  as well as  First  Banks'
projections of future prepayments,  and the overall reduction in the residential
loan portfolio  disproportionately  shortened the expected repricing term of the
loan   portfolio   in   comparison   to  the   effective   maturity  of  certain
interest-bearing  liabilities created with the interest rate swap agreements. As
a result,  during July 1995,  November 1996 and July 1997, First Banks shortened
the maturity of its interest-bearing liabilities through the termination of $225
million,  $75 million and $35 million of interest rate swap agreements resulting
in losses of $13.5 million, $5.3 million and $1.4 million,  respectively.  These
losses have been deferred and are being  amortized  over the remaining  lives of
the agreements,  unless the underlying  liabilities are repaid.  The unamortized
balance of these  losses was $5.7  million and $9.4 million at December 31, 1998
and 1997, respectively, and were included in other assets.
     During  1998,  as  the  effective  repricing  term  of the  loan  portfolio
continued to shorten,  and thus became increasingly  mismatched with its funding
source, First Banks entered into $280.0 million notional amount of interest rate
swap agreements (Swap Agreements).  The Swap Agreements effectively extended the
repricing term of a selected group of loans to more closely  correspond with its
funding  source.  The primary  objective of the Swap  Agreements is to stabilize
cash flows,  and  accordingly,  net interest  income,  over time. In contrast to
previous swap agreements, the Swap Agreements provide for First Banks to receive
a fixed rate of interest and pay an  adjustable  rate of interest  equivalent to
the 90-day London Interbank Offering Rate (LIBOR).
     First Banks also uses interest  rate cap and floor  agreements to limit the
interest expense associated with certain of its interest-bearing liabilities and
the interest expense of certain interest rate swap agreements,  respectively. At
December  31, 1998 and 1997,  the  unamortized  costs of these  agreements  were
$159,000 and $290,000, respectively, and were included in other assets.
     As discussed under "--Mortgage Banking  Activities,"  derivative  financial
instruments issued by First Banks consist of commitments to originate fixed-rate
loans.   Commitments  to  originate   fixed-rate  loans  consist   primarily  of
residential  real  estate  loans.  These  loan  commitments,  net  of  estimated
underwriting  fallout, and loans held for sale are hedged with forward contracts
to sell mortgage-backed securities.

<PAGE>

     In addition to the simulation  model  employed by First Banks,  an interest
rate  sensitivity  position summary is prepared and reviewed in conjunction with
the results of the simulation  model. The following table presents the projected
maturities  and periods to repricing of First Banks'  rate-sensitive  assets and
liabilities as of December 31, 1998, adjusted to include prepayment assumptions:
<TABLE>
<CAPTION>

                                                                Over three  Over six
                                                     Three        through    through     Over one
                                                    months          six      twelve       through    Over five
                                                    or less       months     months     five years     years       Total
                                                    -------       ------     ------     ----------     -----       -----
                                                                  (dollars expressed in thousands)

Interest-earning assets:
<S>       <C>                                    <C>             <C>         <C>          <C>           <C>      <C>      
    Loans (1)..................................  $ 2,222,531     336,994     444,558      567,527       8,495    3,580,105
    Investment securities......................      122,759      46,190     111,233      231,647      22,967      534,796
    Federal funds sold.........................       36,700          --          --           --          --       36,700
    Interest-bearing deposits with other
      financial institutions...................        3,483         250          --           --          --        3,733
                                                 -----------    --------   ---------    ---------    --------   ----------
        Total interest-earning assets..........    2,385,473     383,434     555,791      799,174      31,462    4,155,334
    Effect of interest rate swap agreements....     (280,000)         --          --      280,000          --           --
                                                 -----------    --------   ---------    ---------    --------   ----------
        Total interest-earning assets after
           the effect of interest rate swap
           agreements..........................   $2,105,473     383,434     555,791    1,079,174      31,462    4,155,334      
                                                  ==========     =======   =========    =========  ==========    =========
Interest-bearing liabilities:
    Interest-bearing demand accounts...........  $   139,651      86,810      56,615       41,518      52,841      377,435
    Savings accounts...........................      113,649      93,594      80,223      113,649     267,410      668,525
    Money market demand accounts...............      530,042          --          --           --          --      530,042
    Time deposits..............................      428,592     442,366     569,118      361,775         749    1,802,600
    Other borrowed funds.......................      170,835          --          --          544          --      171,379
                                                 -----------    --------   ---------     --------    --------   ----------
        Total interest-bearing liabilities.....  $ 1,382,769     622,770     705,956      517,486     321,000    3,549,981
                                                 ===========    ========   =========     ========    ========   ==========
Interest sensitivity gap:
    Periodic...................................  $   722,704    (239,336)   (150,165)     561,688    (289,538)     605,353
                                                                                                                ==========
    Cumulative.................................      722,704     483,368     333,203      894,891     605,353
                                                 ===========    ========   =========     ========    ========
Ratio of interest-sensitive assets to 
  interest-sensitive liabilities:
      Periodic.................................         1.52        0.62        0.79         2.09        0.10         1.17
                                                                                                                     =====
      Cumulative...............................         1.52        1.24        1.12         1.28        1.17
                                                      ======       =====      ======         ====        ====
</TABLE>

------------------
(1)  Loans are presented net of unearned discount.

         Management  makes  certain  assumptions  in preparing  the table above.
These include the assumptions  that: (1) loans will repay at historic  repayment
speeds; (2) interest-bearing  demand and savings accounts are interest sensitive
at a rate of 37% and 17%, respectively, of the remaining balance for each period
presented;  and (3)  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 table.

<PAGE>

     At  December  31,  1998 and 1997,  First  Banks was  asset  sensitive  on a
cumulative basis through the twelve-month time horizon by $333 million, or 7.32%
of total assets,  and by $178 million,  or 4.28% of total assets,  respectively.
The increase in the  asset-sensitive  position for 1998 primarily relates to the
change in the  composition  of the loan  portfolio and the issuance of the First
Capital  Preferred  Securities and FACT  Preferred  Securities in 1997 and 1998,
respectively, which provided a long-term source of fixed-rate funding.
     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 First Banks' assets and  liabilities and
changes in interest rates. For this reason,  First Banks places greater emphasis
on a simulation model for monitoring its interest rate exposure.

Mortgage Banking Activities

     The mortgage banking  activities of First Banks consist of the origination,
purchase and servicing of residential  mortgage  loans.  Generally,  First Banks
sells  its  production  of  residential  mortgage  loans in the  secondary  loan
markets.  Servicing  rights are retained with respect to  conforming  fixed-rate
loans. Other loans are sold on a servicing released basis.
     For the three years ended  December  31, 1998,  1997 and 1996,  First Banks
originated and purchased  loans for resale  totaling $629 million,  $174 million
and $136 million and sold loans  totaling  $521  million,  $148 million and $113
million,  respectively.  The  origination  and purchase of residential  mortgage
loans and the related  sale of the loans  provides  First Banks with  additional
sources of income  including the gain realized  upon sale,  the interest  income
earned while the loan is held awaiting sale and the ongoing loan  servicing fees
from the loans sold with servicing rights retained.  Mortgage loans serviced for
investors aggregated $923 million, $784 million and $847 million at December 31,
1998, 1997 and 1996, respectively.
     The gain on mortgage loans originated for resale,  including loans sold and
held for sale,  was $5.6  million,  $716,000  and  $40,000  for the years  ended
December 31, 1998, 1997 and 1996, respectively.  These gains, net of losses, are
realized at the time of sale determined on a lower of cost or market basis.  The
cost basis  reflects:  (1)  adjustments of the carrying values of loans held for
sale to the lower of cost,  adjusted  to include  the cost of hedging  the loans
held for sale, or current market values;  and (2)  adjustments  for any gains or
losses on loan commitments for which the interest rate has been established, net
of anticipated  underwriting  "fallout,"  adjusted for the cost of hedging these
loan  commitments.  The  increases for 1998 and 1997 are  attributable  to First
Banks' expansion of its mortgage banking  activities into the California  market
and the related  additional  volume of  nonconforming  loans  prominent  in that
market.
     The  interest  income on loans held for sale was $6.8  million for the year
ended  December 31, 1998 and $3.2 million for the years ended  December 31, 1997
and 1996.  The amount of  interest  income  realized on loans held for sale is a
function of the average balance of loans held for sale, the period for which the
loans are held and the  prevailing  interest  rates when the loans are made. The
average  balance of loans held for sale was $102.7  million,  $35.4  million and
$36.3  million  for  the  years  ended   December  31,  1998,   1997  and  1996,
respectively.  On an annualized  basis, the yield on the portfolio of loans held
for sale was 6.62%,  7.07% and 6.99% for the years ended December 31, 1998, 1997
and 1996,  respectively.  This  compares  with First  Banks'  cost of funds as a
percentage of average  interest-bearing  liabilities,  of 4.74%, 4.88% and 4.91%
for the years ended December 31, 1998, 1997 and 1996, respectively.

<PAGE>

     Mortgage loan servicing fees are reported net of  amortization  of mortgage
servicing rights, interest shortfall and mortgage-backed  security guarantee fee
expense.  Loan  servicing  fees,  net, were $1.0 million,  $1.6 million and $1.8
million for the years ended December 31, 1998, 1997 and 1996, respectively.  The
decrease  in  loan  servicing  fees  is  primarily   attributable  to  increased
prepayments  resulting in the  increase in  amortization  of mortgage  servicing
rights and  interest  shortfall  of  $402,000  and  $250,000,  respectively.  In
addition, the mortgage backed security expense increased by $175,000 to $867,000
from  $692,000  for the years ended  December  31, 1998 and 1997,  respectively,
reflecting the increased level of serviced loans sold into the secondary  market
in the form of  securities.  Interest  shortfall is the  difference  between the
interest  collected from a loan servicing  customer upon  prepayment of the loan
and full  month's  interest  which is required  to be  remitted to the  security
owner. Offsetting the decrease was the increase in loan servicing fees resulting
from the increase in the portfolio of loans serviced for others.
     As described under "--Interest Rate Risk Management," First Banks' interest
rate risk management  policy provides  certain hedging  parameters to reduce the
interest  rate  exposure  arising  from  changes in loan prices from the time of
commitment  until the sale of the  security or loan.  To reduce  this  exposure,
First  Banks  uses  forward  commitments  to  sell  fixed-rate   mortgage-backed
securities  at a specified  date in the future.  At December 31, 1998,  1997 and
1996,  First  Banks  had  $103.1  million,  $67.4  million  and  $36.7  million,
respectively,  of loans held for sale and related commitments,  net of committed
loan sales and estimated  underwriting  fallout,  of which $95.0 million,  $60.0
million and $35.0  million,  respectively,  were hedged  through the use of such
forward commitments.

Comparison of Results of Operations for 1998 and 1997

    Net  Income.  Net  income  for the year ended  December  31,  1998 was $33.5
million,  compared to $33.0  million for 1997.  Earnings  per common  share were
$1,337.09 per share and $1,134.28 per share,  on a diluted basis,  for the years
ended December 31, 1998 and 1997, respectively. The increase in diluted earnings
per share  primarily  reflects the effect of the  redemption of the First Banks'
Class C Preferred  Stock in 1997,  and the  resulting  reduction of First Banks'
dividend requirement for the year ended December 31, 1998. Dividends paid on the
Class C Preferred  Stock totaled $4.3 million for 1997.  The funds  required for
the redemption  were borrowed,  resulting in an increase in interest  expense of
$3.4 million for 1998. Since the Class C Preferred Stock dividend requirement is
not deducted in the  determination  of net income,  whereas interest expense is,
the effect of this was to reduce  1998 net income by $2.2  million,  compared to
1997.  The overall  improvement  in operating  results for 1998,  as compared to
1997, is attributable to the improvement in the composition of interest  earning
assets and  liabilities and noninterest  income.  As previously  discussed under
"--Financial  Condition and Average  Balances" and "--Net Interest  Income," net
interest income improved to $166.5 million, or 4.19% of interest earning assets,
from $147.2 million,  or 4.09% of interest  earning  assets,  for 1998 and 1997,
respectively.  This improvement,  coupled with improved  noninterest  income was
substantially offset by increased noninterest expense.  During 1998, noninterest
expense  increased to $138.7  million,  or 3.24% of average total  assets,  from
$110.3  million,  or 2.89% of average  total  assets,  for 1997.  As  previously
discussed under  "--General" and as more fully described  below, the increase in
noninterest expense of $28.4 million, or 0.66% of total average assets, reflects
the  additional  costs of acquired  entities  and the  continued  investment  in
improving First Banks' technology and franchise to achieve planned growth.

    Provision for Possible  Loan Losses.  The provision for possible loan losses
was $9.0 million for the year ended December 31, 1998, compared to $11.3 million
for 1997. Net loan charge-offs were $1.7 million for the year ended December 31,
1998,  compared to $7.6 million for 1997. The provision for possible loan losses
for  1998  is  primarily  attributable  to the  continued  growth  and  changing
composition  of the  portfolio.  As the  portfolio  has changed  from one with a
significant  preponderance  in  residential  real  estate  loans,  to one having
substantial  portions of  commercial,  financial and  agricultural  loans,  real
estate  construction and development loans and commercial real estate loans, the
credit risk profile of the  portfolio  increases.  Typically,  residential  real
estate  lending  has  resulted  in  relatively  minor  credit  losses.  However,
commercial  lending carries with it greater credit risk which,  although managed
through  appropriate  loan  policies  and  procedures,  underwriting  and credit
administration, must be recognized through adequate allowances for possible loan
losses.  Associated with the increased level of commercial lending activities is
the increase in  nonperforming  and other  problem  loans of $12.8 million as of
December  31, 1998,  compared to December  31,  1997.  The increase is primarily
attributable to two loans totaling $6.0 million and the acquisitions of Republic
Bank and Pacific Bay Bank.  The  following is a summary of loan loss  experience

<PAGE>

and  nonperforming  assets by geographic  area for the years ended  December 31,
1998 and 1997:
<TABLE>
<CAPTION>

                                                                                   Missouri and
                                             California           Texas              Illinois                 Total   
                                           -------------      --------------      ----------------       ---------------
                                           1998     1997      1998     1997       1998       1997        1998       1997
                                           ----     ----      ----     ----       ----       ----        ----       ----
                                                                     (dollars expressed in thousands)

<S>                                   <C>          <C>      <C>      <C>      <C>        <C>         <C>        <C>      
    Total loans...................... $  888,540   640,366  201,426  176,341  2,490,139  2,185,493   3,580,105  3,002,200
    Total assets.....................  1,203,319 1,042,979  311,732  271,686  3,039,759  2,850,349   4,554,810  4,165,014
    Provision for possible loan
      losses.........................      1,415     2,500      335    1,500      7,250      7,300       9,000     11,300
    Net loan charge-offs.............        344     1,510      245    1,091      1,150      5,001       1,739      7,602
    Net loan charge-offs as a
      percentage of average loans....       0.05%     0.30%    0.13%    0.63%      0.05%      0.23%       0.05%      0.27%
    Nonperforming loans.............. $   24,954     5,548       90      211     18,494     18,307      43,538     24,066
    Nonperforming assets.............     25,889     7,717       90      296     21,268     23,377      47,247     31,390
</TABLE>

    Noninterest  Income  and  Expense.  A  summary  of  noninterest  income  and
noninterest expense for the years ended December 31, 1998
and 1997 appears below:
<TABLE>
<CAPTION>
                                                                              December 31,      Increase (decrease)
                                                                              ------------      -------------------
                                                                            1998       1997     Amount        %  
                                                                            ----       ----     ------        -  
                                                                               (dollars expressed in thousands)

Noninterest income:
<S>                                                                     <C>           <C>         <C>       <C>   
    Service charges on deposit accounts and customer service fees....   $ 14,876      12,491      2,385     19.09%
    Credit card fees.................................................      2,999       2,914         85      2.92
    Loan servicing fees, net.........................................      1,017       1,628       (611)   (37.53)
    Gain on mortgage loans sold and held for sale....................      5,563         716      4,847    676.96
    Trust and brokerage fees.........................................      1,506         893        613     68.65
    Net gain on sales of securities..................................      2,073       2,456       (383)   (15.59)
    Other............................................................      8,463       4,599      3,864     84.02
                                                                        --------    --------    -------
            Total noninterest income.................................   $ 36,497      25,697     10,800     42.03
                                                                        ========    ========    =======    ======
Noninterest expense:
    Salaries and employee benefits...................................   $ 55,907      43,011     12,896     29.98%
    Occupancy, net of rental income..................................     11,037      10,617        420      3.96
    Furniture and equipment..........................................      8,122       7,618        504      6.62
    Federal Deposit Insurance Corporation premiums...................      1,370         804        566     70.40
    Postage, printing and supplies...................................      5,230       4,187      1,043     24.91
    Data processing fees.............................................     13,917       8,450      5,467     64.70
    Legal, examination and professional fees.........................      5,326       4,587        739     16.11
    Credit card......................................................      3,396       3,343         53      1.59
    Communications...................................................      2,874       2,611        263     10.07
    Advertising and business development.............................      4,668       4,054        614     15.15
    Losses and expenses on other real estate, net of gains...........         81        (331)       412   (124.47)
    Guaranteed preferred debentures expense..........................      9,842       7,322      2,520     34.42
    Other............................................................     16,934      14,014      2,920     20.84
                                                                        --------    --------    -------
             Total noninterest expense...............................   $138,704     110,287     28,417     25.77
                                                                        ========    ========    =======    ======
</TABLE>
<PAGE>

     Noninterest Income. Noninterest income was $36.5 million for the year ended
December 31, 1998, compared to $25.7 million for 1997. The increase is primarily
attributable  to core  operating  units of First Banks which  realized  improved
service charges on deposit accounts and customer service fees, gains on mortgage
loans sold and held for sale and trust and brokerage fees.
     Service charges on deposit  accounts and customer service fees increased to
$14.9 million from $12.5 million for the year ended  December 31, 1998 and 1997,
respectively.  The increase in service  charges  corresponds  to the increase in
deposit balances  provided by internal growth,  the acquisitions of Surety Bank,
Pacific Bay Bank and Republic  Bank and the  additional  services  available and
utilized by First Banks' commercial customers.
     As more fully described under "--Mortgage Banking Activities," First Banks'
mortgage  banking  revenues  consist  primarily of loan servicing fees, net, and
gain on  mortgage  loans  sold and held for  sale.  Loan  servicing  fees,  net,
decreased  to $1.0 from $1.6 for the years  ended  December  31,  1998 and 1997,
respectively.  The decrease in loan servicing fees is primarily  attributable to
aggregate  increases  of  $827,000  consisting  of  additional  amortization  of
mortgage servicing rights and increased  interest shortfall and  mortgage-backed
security  expense.  Offsetting  the decrease was the increase in loan  servicing
fees resulting from the increase in the portfolio of loans serviced for others.
     The gain on mortgage loans sold and held for sale increased to $5.6 million
from $716,000 for 1998 and 1997, respectively.  This increase is attributable to
an  increased  volume  of loans  sold and held  for sale  including  fixed  rate
residential  mortgage loans,  which are sold on a servicing  retained basis, and
adjustable-rate and non-conforming residential mortgage loans, which are sold on
a servicing released basis.
     The gain on sales of  securities  was $2.1 and $2.5  million  for the years
ended  December 31, 1998 and 1997,  respectively.  For 1998,  the gains resulted
from sales of  available-for-sale  securities to facilitate  the funding of loan
growth. As more fully described under "--Comparison of Results of Operations for
1997  and  1996,"  the  gain  on  sale  of  securities  for  1997  is  primarily
attributable to the sales of certain residual securities which had been acquired
by First Banks through an acquisition completed in 1995.


<PAGE>


     Other income was $8.5 million and $4.6 million for the years ended December
31, 1998 and 1997, respectively.  The primary component of the increase consists
of $3.1 million income on a bank-owned  life  insurance  (BOLI) policy for 1998.
The BOLI  balance  was $75.7  million and is  included  in other  assets.  Other
noninterest  income also includes rental fees paid by First  Services,  L.P. for
the use of data  processing and other equipment owned by First Banks of $799,000
and  $1.1  million  for  1998  and  1997,  respectively.  See  Note  16  to  the
consolidated  financial  statements..  In addition,  noninterest income includes
$1.6  million from the  repayment of an acquired  loan in excess of First Banks'
historical cost basis.

     Noninterest  Expense.  Noninterest  expense increased to $138.7 million for
the year  ended  December  31,  1998 from  $110.3  million  for  1997.  The most
significant  changes in  noninterest  expense  were  increases  in salaries  and
employee  benefits,  data  processing fees and guaranteed  preferred  debentures
expense.  
     Salaries and employee  benefits have  increased to $55.9 million from $43.0
million  for the years  ended  December  31,  1998 and 1997,  respectively.  The
increase is attributable to the newly acquired banks and First Banks'  continued
commitment to expanding its  commercial,  mortgage  banking and retail  business
development capabilities. 
     Data  processing  fees for the year  ended  December  31,  1998 were  $13.9
million,  compared to $8.5  million  for 1997.  Effective  April 1, 1997,  First
Services,  L.P., a limited partnership indirectly owned by First Banks' Chairman
and his immediate  family,  began providing data processing and related services
for First Banks.  FirstServ,  Inc.  (First Serv),  a wholly owned  subsidiary of
First Banks,  previously provided these services. As a result,  expenses related
to data  processing  and related  services were recorded in various  noninterest
expense  categories  for the periods prior to April 1, 1997.  Subsequent to that
date, these expenses are reflected as data processing expenses. The increase for
1998 is primarily  attributable  to the  additional  services  provided by First
Services,  L.P. to meet the increasing  technology  requirements  of the banking
industry  and  the  additional   costs   associated  with  the  data  processing
conversions of newly acquired entities and system upgrades.  The Year 2000 costs
billed from First Services, L.P. were $600,000 for 1998.
     Contributing  further  to  the  increase  in  noninterest  expense  is  the
guaranteed  preferred  debenture expense.  For the years ended December 31, 1998
and 1997, the cost was $9.8 million and $7.3 million, respectively. The increase
for 1998 is attributable to FBA's issuance of FACT Preferred  Securities in July
1998 (as described in Note 8 to the consolidated financial statements) and First
Banks' issuance of similar securities in February 1997.
     Advertising  and business  development  also increased to $4.7 million from
$4.1 million for the years ended December 31, 1998 and 1997,  respectively.  The
increase is attributable to programs  instituted in prior years and First Banks'
continued  commitment  to expand its  presence in each of its  marketplaces.  In
addition,  other noninterest expense for 1998 includes a $1.1 million charitable
contribution to the Affordable  Housing Assistance Program and a $500,000 charge
in settlement of two lawsuits.
<PAGE>

Comparison of Results of Operations for 1997 and 1996

     Net  Income.  Net  income for the year ended  December  31,  1997 was $33.0
million,  compared  to $20.2  million  for  1996.  Excluding  the  effect of the
one-time Savings  Association  Insurance Fund (SAIF)  assessment of $8.2 million
($5.3  million  after the related  income tax  effect),  net income for the year
ended  December  31, 1996 would have been $25.5  million.  The return on average
assets for 1997 was 0.87%,  compared  with 0.57% for 1996 (0.72%  excluding  the
effect of the SAIF  assessment).  The improvement in operating  results for 1997
reflects  several  influences  which had various effects on income for the year,
including:  (1) the continuation of the amalgamation of the entities acquired in
recent years into First Banks'  systems;  (2) the overall  improvement  in asset
quality,  particularly within the acquired entities in Texas and California; and
(3) the expansion of First Banks' internal business  development  capacity.  See
"--General," Acquisitions" and "Financial Condition and Average Balances."
     In February 1997, First Banks,  through First Capital,  sold $86.25 million
of First Capital Preferred Securities, as described under "--Financial Condition
and Average Balances." Initially,  the proceeds of this offering were applied to
the reduction of First Banks'  borrowings under its Credit Agreement and to open
market  purchases and retirements of its Class C Preferred Stock. On December 1,
1997, First Banks redeemed all of the remaining Class C Preferred Stock. Because
the Preferred Securities represent debt under Internal Revenue Regulations,  but
are considered capital for purposes of bank regulatory requirements, payments to
security  holders  are  reflected  in the  accompanying  consolidated  financial
statements as a component of  noninterest  expense.  Consequently,  for the year
ended December 31, 1997, the expense associated with the First Capital Preferred
Securities  contributed to a reduction in interest expense, due to the repayment
of borrowed funds, and to an increase in noninterest  expense.  Furthermore,  to
the extent the Class C  Preferred  Stock was  redeemed  prior to the  payment of
dividends,  it reduced the aggregate dividends for the year, which are reflected
in the  consolidated  statements  of income as a  reduction  from net  income in
arriving at net income available to common stockholders.
     Provision for Possible Loan Losses.  The provision for possible loan losses
was $11.3  million  for the year ended  December  31,  1997,  compared  to $11.5
million  for 1996.  Net loan  charge-offs  were $7.6  million for the year ended
December 31, 1997,  compared to $19.7 million for 1996.  Although  asset quality
improved  during 1997,  particularly  with  respect to its Texas and  California
banks,  First  Banks has  continued  to  provide  for  possible  loan  losses in
recognition  of the overall growth in the loan portfolio as well as its changing
composition.   The  following  is  a  summary  of  loan  loss   experience   and
nonperforming  assets by geographic  area for the years ended  December 31, 1997
and 1996:
<TABLE>
<CAPTION>

                                             California           Texas                Other                  Total   
                                          ---------------     --------------      ---------------       ----------------
                                           1997    1996       1997     1996       1997       1996       1997        1996
                                           ----    ----       ----     ----       ----       ----       ----        ----

                                                                     (dollars expressed in thousands)

<S>                                   <C>        <C>        <C>      <C>      <C>        <C>         <C>        <C>      
    Total loans...................... $  640,366 467,233    176,341  180,068  2,185,493  2,120,668   3,002,200  2,767,969
    Total assets.....................  1,042,979 732,532    271,686  270,309  2,850,349  2,686,313   4,165,014  3,689,154
    Provision for possible
       loan losses...................      2,500   5,879      1,500    1,000      7,300      4,615      11,300     11,494
    Net loan charge-offs.............      1,510  11,765      1,091    2,677      5,001      5,274       7,602     19,716
    Net loan charge-offs as a 
       percentage of average loans...       0.30%   2.42%      0.63%    1.53%      0.23%      0.25%       0.27%      0.72%
    Nonperforming loans.............. $    5,548  14,726        211      164     18,307     15,379      24,066     30,269
    Nonperforming assets.............      7,717  18,402        296      835     23,377     21,639      31,390     40,876
</TABLE>
<PAGE>

    Noninterest  Income  and  Expense.  A  summary  of  noninterest  income  and
noninterest  expense for the years  ended  December  31,  1997 and 1996  appears
below:
<TABLE>
<CAPTION>
                                                                              December 31,       Increase (decrease)
                                                                              ------------       -------------------
                                                                            1997       1996      Amount        %  
                                                                            ----       ----      ------        -  
                                                                               (dollars expressed in thousands)

Noninterest income:
<S>                                                                     <C>           <C>           <C>      <C>   
    Service charges on deposit accounts and customer service fees....   $ 12,491      12,521        (30)     (.24)%
    Credit card fees.................................................      2,914       2,475        439     17.74
    Loan servicing fees, net.........................................      1,628       1,837       (209)   (11.38)
    Gain on mortgage loans sold and held for sale....................        716          40        676  1,690.00
    Trust and brokerage fees.........................................        893         782        111     14.19
    Net gain (loss) on sales of securities...........................      2,456        (311)     2,767    889.71
    Other............................................................      4,599       3,377      1,222     36.19
                                                                        --------    --------     ------
           Total noninterest income..................................   $ 25,697      20,721      4,976     24.01
                                                                        ========    ========     ======    ======
Noninterest expense:
    Salaries and employee benefits...................................   $ 43,011      39,995      3,016      7.54%
    Occupancy, net of rental income..................................     10,617       9,758        859      8.80
    Furniture and equipment..........................................      7,618       7,218        400      5.54
    Federal Deposit Insurance Corporation premiums...................        804      11,715    (10,911)   (93.14)
    Postage, printing and supplies...................................      4,187       4,687       (500)   (10.67)
    Data processing fees.............................................      8,450       4,477      3,973     88.74
    Legal, examination and professional fees.........................      4,587       4,901       (314)    (6.41)
    Credit card......................................................      3,343       2,913        430     14.76
    Communications...................................................      2,611       2,635        (24)     (.91)
    Advertising and business development.............................      4,054       2,224      1,830     82.28
    (Gain) loss on other real estate, net of expenses................       (331)      1,927     (2,258)  (117.18)
    Guaranteed preferred debenture expense...........................      7,322          --      7,322       --
    Other............................................................     14,014      13,291        723      5.44
                                                                        --------    --------     ------
           Total noninterest expense.................................   $110,287     105,741      4,546      4.30
                                                                        ========    ========     ======    ======
</TABLE>

     Noninterest Income. Noninterest income was $25.7 million for the year ended
December 31, 1997, compared to $20.7 million for 1996. The increase is primarily
attributable to net gains on sales of securities, an increase in the net gain on
mortgage  loans sold and held for sale,  and various  increases in other income.
Overall,  there were no significant  changes in other  components of noninterest
income for the year.
     Although the  acquisitions of Sunrise Bank in November 1996, three branches
of Highland Federal Savings Bank,  F.S.B. in March and September 1997 and Surety
Bank in December 1997 added new customer accounts on which service charges could
be assessed,  overall  customer service charges declined from $12.52 million for
the year ended December 31, 1996 to $12.49 million in 1997.  This reflects three
factors.  First,  following an acquisition  and  subsequent  conversion to First
Banks' account  structure and data processing  system, a period of moratorium on
assessing of service charges is provided to allow customers to become acclimated
to the changes which have occurred and become familiar with First Banks.  During
this  period,  which may be as long as six months from the date of  acquisition,
service charges do not increase,  and may actually decrease.  Secondly,  part of
the retail  business  development  efforts during 1997 involved the marketing of
"packaged accounts." These accounts offer the customer several different banking
services  in an effort to achieve a stronger  relationship  with that  customer,
attract  the   customer   to   noninterest   bearing  and  lower  cost   account
relationships, and promote higher balance accounts. However, these accounts also
provide the banking  services for a fixed fee,  which  reduces as the  aggregate
customer  balances  increase,  in lieu of various  other  charges  for  specific
services.  In general,  these relationships result in a net reduction of service
charge  income but an  increase  in deposit  balances.  The extent to which this
occurs  is  dependent  upon  the  amount  of  migration  of  existing   customer
relationships  relative to the new customer relationships which are established.

<PAGE>

Finally,  commercial  accounts are frequently assessed service charges on demand
accounts  based on an analysis  which takes into account an earnings  credit for
the balances  which the  customers  maintain in their  accounts  relative to the
service charges which would otherwise be assessed for the services provided.  As
interest  rates  have   generally   declined   during  1997,   the   alternative
opportunities  for  customers  to invest  their funds at yields in excess of the
earnings credits have also declined.  Consequently,  these commercial  customers
have tended to maintain  higher average  balances in their accounts during 1997,
offsetting a larger amount of service  charges which would  otherwise  have been
assessed.
     In 1997,  First Banks realized a gain on the sale of three  mortgage-backed
residual  securities which it had acquired,  through the acquisition of a thrift
in 1995.  Because of the unique  structure  of these  residuals,  at the date of
acquisition,  it appeared unlikely that First Banks would receive payment of all
of the remaining principal and interest.  Consequently,  the aggregate principal
of these securities had been written down to $250,000, which was the approximate
market  value at that  time,  and  recorded  as  securities  available-for-sale.
However,  as  residential  mortgage  rates  declined  in 1997,  the value of the
underlying pool of mortgages increased, increasing the value of these securities
significantly.  Recognizing this, First Banks sold these securities, realizing a
gain of $2.24 million.
     Net gains on mortgage  loans sold and held for sale  increased  to $716,000
for the year ended  December 31, 1997 from $40,000 for 1996. As discussed  under
"--Mortgage Banking  Activities," the increase is attributable to an increase in
the sales of  adjustable-rate  residential loan production,  which are sold on a
servicing released basis, and First Banks' overall pricing practices.
     Other  noninterest  income  increased  to $4.6  million  for the year ended
December  31,  1997 from  $3.4  million  for 1996.  The  increase  is  primarily
attributable  to rental fees paid by First  Services,  L.P.  for the use of data
processing  and  other  equipment  owned  by  First  Banks.  See  Note 16 to the
consolidated financial statements.
     Noninterest  Expense.  Noninterest  expense increased to $110.3 million for
the year  ended  December  31,  1997 from  $105.7  million  for  1996.  The most
significant changes in noninterest expense were the reduction of Federal Deposit
Insurance  Corporation  (FDIC)  premiums  from $11.7  million for the year ended
December  31, 1996 to $804,000  for 1997,  and the expense  associated  with the
First Capital Preferred  Securities.  In 1996, the FDIC levied a special deposit
insurance  assessment  to be used to  recapitalize  the  SAIF of the FDIC and to
bring it into parity with the Bank  Insurance  Fund  (BIF).  As a result,  First
Banks  paid  a  one-time  charge  to the  FDIC  of  $8.2  million.  However,  in
recognition  of this  recapitalization,  SAIF premium  rates were lower in 1997,
resulting in a further reduction of the 1997 expense. Furthermore, the improving
condition  of the  acquired  banks  allowed  them to benefit  from  better  rate
classifications and consequently lower FDIC premiums.
     In connection with the issuance of the First Capital  Preferred  Securities
in February  1997,  First Banks  incurred  $7.32 million of expense for the year
ended December 31, 1997. As discussed  above,  the proceeds from this issue were
applied to the  repayment of borrowed  funds and the purchase and  redemption of
Class C Preferred  Stock,  resulting in a reduction of both interest expense and
dividends during the year.
     Data processing  expenses for the year ended December 31, 1997 increased to
$8.45  million  from  $4.48  million  for  1996.  Prior to April 1,  1997,  data
processing,  item processing and operational  support  services were provided to
all of the  Subsidiary  Banks through  First Serv, a wholly owned  subsidiary of
First Banks.  FirstServ in turn  contracted  with First  Services,  L.P. under a
facilities management agreement for these services.  However, FirstServ provided
the  equipment,   premises,   supplies,   postage,  telephone  lines  and  other
non-personnel expenses associated with these services.  First Services,  L.P. is
owned indirectly by First Banks' voting  shareholders.  Effective April 1, 1997,
FirstServ  discontinued  operations,  transferring  all  of  the  functions  and
expenses  which it had  previously  provided  to the  Subsidiary  Banks to First
Services,  L.P. As a result,  items which had  previously  been reflected in the
consolidated  financial  statements  in  various  expense  categories  were paid
directly by First  Services,  L.P., and then charged to the Subsidiary  Banks as

<PAGE>

data processing expenses. This change in organizational structure had the effect
of reducing  various expenses for 1997 by the amounts assumed by First Services,
L.P., and increasing data processing expenses,  when compared with like expenses
in 1996. The  noninterest  expenses of FirstServ for the year ended December 31,
1996 and the three  months ended March 31, 1997 which were then assumed by First
Services, L.P. were as follows:

                                           Three months ended     Year ended
                                            March 31, 1997    December 31, 1996
                                            --------------    -----------------
                                              (dollars expressed in thousands)

    Occupancy, net of rental income...........    $    41                162
    Furniture and equipment...................        375                889
    Postage, printing and supplies............        169                459
    Communications............................        147                569
    Other expenses............................        151                593
                                                  -------             ------
        Total                                     $   883              2,672

     In  connection  with its  increasing  emphasis  on  internal  growth  as an
alternative to acquisitions,  First Banks' advertising and business  development
expense  increased  to $4.05  million for the year ended  December 31, 1997 from
$2.22 million for 1996. This reflected both advertising for specific  promotions
intended to increase deposits,  and general image advertising intended to convey
First  Banks'   stability  of  ownership  to  its  midwest  markets  where  bank
consolidations have caused significant customer confusion and displacement.
     The sale of other real estate for the year ended December 31, 1997 resulted
in a gain, net of expenses of $331,000,  compared to a loss of $1.93 million for
1996.  The loss for 1996  includes a  provision  for loss of  $747,000  due to a
contingent  liability  with  respect  to a parcel  of other  real  estate  in an
acquired bank. The contingent  liability became more probable due to the default
on an  agreement  by a developer  through  whom the Company  was  attempting  to
dispose of the property.  The gain for 1997 results partially from the reduction
in the amount of other real  estate from $10.6  million at December  31, 1996 to
$7.3 million at December 31, 1997.  In addition,  it is indicative of the effort
of First  Banks to  realistically  value  its other  real  estate at the time of
foreclosure or at the time banks are acquired.
     In addition,  noninterest expense for 1997 reflects the expenses associated
with Sunrise Bank,  which was acquired in November 1996, three branch offices of
Highland Federal Savings Bank, F.S.B. which were acquired in March and September
1997, and Surety Bank, which was acquired in December 1997.

Loans and Allowance for Possible Loan Losses

     Interest  earned on the loan portfolio  represents the principal  source of
income for First Banks and its Subsidiary Banks. Interest and fees on loans were
86.7%, 85.7% and 89.2% of total interest income for the years ended December 31,
1998, 1997 and 1996, respectively.  Loans, net of unearned discount, were 78.6%,
72.1%  and  75.0%  of  total  assets  at  December  31,  1998,  1997  and  1996,
respectively.  Consequently,  First Banks views the quality, yield and growth of
the loan portfolio to be primary objectives in its growth and profitability.
     As summarized in the  composition of the loan portfolio  table,  during the
five years ended  December 31,  1998,  total  loans,  net of unearned  discount,
increased  163.2% from $1.36  billion at December  31, 1993 to $3.58  billion at
December 31, 1998. As discussed  under  "--General," in 1993 First Banks began a
process of  substantially  enhancing  its  capabilities  to  achieve  and manage
internal  growth.  A key  element  of  this  process  was the  expansion  of the
corporate  business  development  staff which is  responsible  for the  internal
development of both loan and deposit  relationships  with commercial  customers.
These customers  require loans  categorized by type of collateral as commercial,
financial and agricultural  loans, real estate construction and land development
loans and commercial real estate loans.
     While this process was occurring, in order to achieve more diversification,
a higher level of interest  yield and a reduction  in interest  rate risk within
its loan portfolio,  First Banks has been  repositioning  its portfolio.  As the
corporate  business  development  effort  continued to  originate a  substantial
volume of new loans,  substantially all of the conforming  residential  mortgage
loan production of First Banks has been sold in the secondary  mortgage  market,
and the origination of indirect automobile loans has been substantially reduced.
Consequently,  these  sectors  of the  portfolio  declined  substantially.  As a
result, part of the growth in corporate lending has been offset by reductions in
residential real estate and indirect automobile lending.

<PAGE>

    In addition,  First Banks' acquisitions added substantial portfolios of new
loans.  However,  many  of  these  portfolios,   particularly  the  acquisitions
completed in 1995, contained  significant loan problems. As these banks resolved
their asset quality issues,  those portfolios  tended to decline because many of
the resources which would otherwise be directed toward generating new loans were
concentrated on improving or eliminating existing relationships.
     A summary of the  effects of these  factors on the loan  portfolio  for the
four years ended December 31, 1998 follows:
<TABLE>
<CAPTION>

                                                          Increase (decrease) in loans for the year ended December 31,
                                                          ------------------------------------------------------------
                                                                   1998        1997         1996        1995
                                                                   ----        ----         ----        ----
                                                                              (dollars expressed in thousands)

        Internal loan volumes:
<S>                                                            <C>            <C>         <C>         <C>    
             Commercial lending.............................   $ 633,660      378,882     209,251     119,017
             Residential real estate lending................    (152,849)    (144,707)   (164,400)   (127,648)
             Consumer lending, net of unearned discount.....     (30,506)     (54,305)    (82,231)    (42,453)

        Loans provided by acquisitions......................     127,600       54,361      61,130     721,733
                                                               ---------   ----------   ---------   ---------
             Total increase in loans........................   $ 577,905      234,231      23,750     670,649
                                                               =========   ==========   =========   =========

        Increase (decrease) in potential problem loans (1)..   $  12,800       (9,800)    (25,500)     52,700
                                                               =========   ==========   =========   =========
</TABLE>
---------------------
(1)  Potential  problem  loans  include  nonperforming  loans  and  other  loans
     identified by management as having potential credit problems.

     First Banks' lending strategy stresses quality,  growth and diversification
by geography and industry.  A common credit  underwriting  structure is in place
throughout  First Banks.  The commercial  lenders focus  principally on small to
middle-market companies.  Retail lenders focus principally on residential loans,
including home equity loans,  automobile  financing and other consumer financing
needs arising out of First Banks' branch banking network.
     Commercial,  financial and  agricultural  loans include loans that are made
primarily  based on the  borrowers'  general  credit  strength  and  ability  to
generate  repayment  cash flows from income  sources  even though such loans and
bonds  may  also  be  secured  by real  estate  or  other  assets.  Real  estate
construction   and  development   loans,   primarily   relating  to  residential
properties,   represent   interim   financing   secured  by  real  estate  under
construction.  Real estate mortgage loans consist  primarily of loans secured by
single-family   owner-occupied   properties  and  various  types  of  commercial
properties  on which the income  from the  property  is the  intended  source of
repayment.  Consumer and installment  loans are loans to individuals and consist
primarily of loans  secured by  automobiles.  Loans held for sale are  primarily
fixed and  adjustable  rate  residential  loans  pending  sale in the  secondary
mortgage market in the form of a mortgage-backed security, or to various private
third-party investors.


<PAGE>


     The following  table shows the  composition  of the loan portfolio by major
category and the percent of each category to the total portfolio as of the dates
presented:
<TABLE>
<CAPTION>

                                                                                December 31,                                   
                                                   1998              1997             1996            1995             1994    
                                             --------------    -------------     -------------    ------------     ------------
                                               Amount   %       Amount    %      Amount     %     Amount    %      Amount     %
                                               ------   -       ------    -      ------     -     ------    -      ------     -
                                                                         (dollars expressed in thousands)

<S>                                       <C>         <C>     <C>       <C>   <C>         <C>   <C>        <C>     <C>        <C>  
Commercial, financial and agricultural..  $  920,007  26.7%   $621,618  21.1% $ 457,186   16.7% $ 364,018  13.5%   $208,649   10.2%
Real estate construction and
    development.........................     720,910  20.9     413,107  14.02    89,378   10.5    209,802   7.8     122,912    6.0
Real estate mortgage:
   One-to-four-family residential loans.     739,442  21.5     915,205  31.1  1,059,770   38.7  1,199,491  44.4     967,129   47.1
   Other real estate loans..............     789,735  22.9     713,910  24.3    600,810   21.9    512,264  19.0     332,075   16.1
Consumer and installment, net of
    unearned discount...................     274,392   8.0     279,279   9.5    333,340   12.2    413,609  15.3     422,461   20.6
                                          ---------- -----   --------- -----    -------   ----  ---------  ----   ---------   ----
         Total loans, excluding
            loans held for sale.........   3,444,486 100.0%  2,943,119 100.0%  2,740,484 100.0% 2,699,184 100.0%  2,053,226  100.0%
                                                     =====             =====             =====            =====              =====
Loans held for sale.....................     135,619            59,081            27,485           45,035            20,344
                                          ----------         ---------          --------        ---------         ---------
         Total loans....................  $3,580,105        $3,002,200        $2,767,969       $2,744,219        $2,073,570
                                          ==========        ==========        ==========       ==========        ==========
</TABLE>



     Loans at December 31, 1998 mature as follows:
<TABLE>
<CAPTION>
                                                                         Over one year
                                                                         through five
                                                                             years          Over five years                        
                                                                       -----------------    ---------------                       
                                                          One year     Fixed    Floating    Fixed  Floating
                                                          or less      rate       rate      rate     rate      Total
                                                          -------      ----       ----      ----     ----      -----
                                                                  (dollars expressed in thousands)

<S>                                                     <C>          <C>         <C>        <C>       <C>     <C>    
Commercial, financial and agricultural................  $  755,580   133,905     23,568     6,954      --     920,007
Real estate construction and development..............     685,158    17,801     15,979     1,972      --     720,910
Real estate mortgage..................................     616,204   612,223    145,003   155,213     534   1,529,177
Consumer and installment, net of unearned discount....      56,788   205,581        209    11,814      --     274,392
Loans held for sale...................................     135,619        --         --        --      --     135,619
                                                        ----------   -------    -------  --------  ------  ----------
         Total loans..................................  $2,249,349   969,510    184,759   175,953     534   3,580,105
                                                        ==========   =======  =========  ========  ======  ==========
</TABLE>



<PAGE>


       Following is a summary of loan loss  experience  for the five years ended
December 31, 1998:
<TABLE>
<CAPTION>

                                                                               December 31,                       
                                                           -------------------------------------------------------
                                                           1998        1997        1996         1995         1994
                                                           ----        ----        ----         ----         ----
                                                                       (dollars expressed in thousands)

<S>                                                    <C>            <C>         <C>          <C>           <C>   
Allowance for possible loan losses, beginning
   of period......................................... $   50,509      46,781      52,665       28,410        23,053
Acquired allowances for possible loan losses.........      3,200          30       2,338       24,655         5,026
                                                      ----------  ----------    --------    ---------     ---------
                                                          53,709      46,811      55,003       53,065        28,079
                                                      ----------  ----------    --------    ---------     ---------
Loans charged-off:
    Commercial, financial and agricultural...........     (3,908)     (2,308)     (8,918)      (2,337)         (813)
    Real estate construction and development.........       (185)     (2,242)     (1,241)        (275)         (119)
    Real estate mortgage.............................     (2,389)     (6,250)    (10,308)      (5,948)       (1,282)
    Consumer and installment.........................     (3,701)     (6,032)     (8,549)      (7,060)       (4,482)
                                                      ----------  ----------    ---------   ---------     ---------
            Total....................................    (10,183)    (16,832)    (29,016)     (15,620)       (6,696)
                                                      ----------  ----------    ---------   ---------     ---------
Recoveries of loans previously charged-off:
    Commercial, financial and agricultural...........      3,417       2,146       2,642        1,714           831
    Real estate construction and development.........        342         269         495          666           401
    Real estate mortgage.............................      2,029       3,666       3,255          290           840
    Consumer and installment.........................      2,656       3,149       2,908        2,189         3,097
                                                      ----------  ----------    --------    ---------     ---------
            Total....................................      8,444       9,230       9,300        4,859         5,169
                                                      ----------  ----------    --------    ---------     ---------
            Net loans charged-off....................     (1,739)     (7,602)    (19,716)     (10,761)       (1,527)
                                                      ----------  ----------    --------    ---------     ---------
Provision for possible loan losses...................      9,000      11,300      11,494       10,361         1,858
                                                      ----------  ----------    --------    ---------     ---------
Allowance for possible loan losses, end of period.... $   60,970      50,509      46,781       52,665        28,410
                                                      ==========  ==========    ========    =========     =========

Loans outstanding:
    Average.......................................... $3,250,719   2,846,157   2,726,297    2,598,936     1,616,634
    End of period....................................  3,580,105   3,002,200   2,767,969    2,744,219     2,073,570
    End of period, excluding loans held for sale.....  3,444,486   2,943,119   2,740,484    2,699,184     2,053,226
                                                      ==========  ==========   =========    =========     =========

    Ratio of allowance for possible loan losses to
      loans outstanding:
         Average.....................................       1.88%       1.77%       1.72%        2.03%         1.76%
         End of period...............................       1.70        1.68        1.69         1.92          1.37
         End of period, excluding loans held
      for sale.......................................       1.77        1.72        1.71         1.95          1.38
    Ratio of net charge-offs to average loans
      outstanding....................................        .05        0.27        0.72         0.41          0.09          
                                                       =========    ========    =========    =========    =========
    
Allocation of allowance for possible loan losses
   at end of period:
    Commercial, financial and agricultural........... $   19,239      14,879      13,579       12,501         4,160
    Real estate construction and development.........     15,073       7,148       4,584        4,665         2,440
    Real estate mortgage.............................     18,774      18,317      14,081       19,849         8,051
    Consumer and installment.........................      5,180       5,089      10,296       10,016         6,225
    Unallocated......................................      2,704       5,076       4,241        5,634         7,534
                                                      ----------   ---------    --------    ---------     ---------
            Total.................................... $   60,970      50,509      46,781       52,665        28,410
                                                      ==========   =========    ========    =========     =========

Percent of categories to loans, net of
   unearned discount:
    Commercial, financial and agricultural...........      25.70%      20.71%      16.52%       13.27%       10.06%
    Real estate construction and development.........      20.14       13.76       10.45         7.65         5.93
    Real estate mortgage.............................      42.71       54.26       60.00        62.49        62.66
    Consumer and installment.........................       7.66        9.30       12.04        14.95        20.37
    Loans held for sale..............................       3.79        1.97        0.99         1.64         0.98
                                                      ----------   ---------    --------    ---------     --------
            Total....................................     100.00%     100.00%     100.00%      100.00%      100.00%
                                                      ==========   =========    ========    =========     ========
</TABLE>


<PAGE>


       Following is a summary of nonperforming assets by category:
<TABLE>
<CAPTION>

                                                                                  December 31,                     
                                                             ----------------------------------------------------- 
                                                             1998        1997         1996        1995        1994
                                                             ----        ----         ----        ----        ----
                                                                        (dollars expressed in thousands)

Commercial, financial and agricultural:
<S>                                                     <C>              <C>           <C>         <C>        <C>  
    Nonaccrual.......................................   $   15,385       4,017         4,113       9,930      2,540
    Restructured terms...............................           --          --           130          --         60
Real estate construction and development:
    Nonaccrual.......................................        3,858       4,097           817       2,002      1,448
Real estate mortgage:
    Nonaccrual.......................................       18,858      10,402        24,486      27,159     11,637
    Restructured terms...............................        5,221       5,456           278          --        222
Consumer and installment:
    Nonaccrual.......................................          216          94           440         300        293
    Restructured terms...............................           --          --             5          --         --
                                                        ----------    --------     ---------   ---------  ---------
          Total nonperforming loans..................       43,538      24,066        30,269      39,391     16,200
Other real estate....................................        3,709       7,324        10,607       7,753      6,740
                                                        ----------    --------     ---------   ---------  ---------
          Total nonperforming  assets................   $   47,247      31,390        40,876      47,144     22,940
                                                        ==========    ========     =========   =========  =========

Loans, net of unearned discount......................   $3,580,105    3,002,200    2,767,969   2,744,219  2,073,570
                                                        ==========    =========    =========   =========  =========
Loans past due 90 days or more and still accruing....   $    4,674       2,725         3,779       8,474      1,885
                                                        ==========    ========     =========   =========  =========

Allowance for possible loan losses to loans..........         1.70%       1.68%        1.69%        1.92%      1.37%
Nonperforming loans to loans.........................         1.22        0.80         1.09         1.44       0.78
Allowance for possible loan losses to
    nonperforming loans..............................       140.04      209.88       154.55       133.70     175.37
Nonperforming assets to loans and
    other real estate................................         1.32        1.04         1.47         1.71       1.10
                                                       ===========   =========    =========    =========   ========
</TABLE>

     As of  December  31,  1998 and  1997,  $21.3  million  and  $27.9  million,
respectively,  of loans not  included  in the table  above  were  identified  by
management as having  potential  credit  problems  (Problem  Loans) which raised
doubt as to the  ability  of the  borrowers  to  comply  with the  present  loan
repayment  terms.  These loans  totaled  $31.5  million and $47.9  million as of
December 31, 1996 and 1995, respectively.
     As previously  discussed,  certain acquired loan  portfolios,  particularly
those acquired during 1994 and 1995, exhibited varying degrees of distress prior
to their purchase by First Banks.  While these problems had been  identified and
considered in the  acquisition  pricing,  the  acquisition led to an increase in
nonperforming  assets and Problem  Loans to $95.0  million at December  31, 1995
from $41.3  million at December 31, 1994. As First Banks worked to correct these
asset  quality  problems,  such assets were reduced to $59.3 million at December
31, 1997. At December 31, 1998, nonperforming assets and Problem Loans increased
to $68.5 million from $59.3 million at December 31, 1997.  The increase for 1998
is primarily  attributable to two commercial loans totaling $6.0 million, net of
charge-off,  the  acquisitions  of  Republic  Bank and  Pacific Bay Bank and the
overall growth of the loan portfolio,  principally within commercial,  financial
and agricultural,  real estate construction and development, and commercial real
estate loans. While nonperforming assets and Problem Loans have increased during
1998,  First Banks does not believe it to be  indicative of distress or negative
trends within any of the major loan concentration areas.
     First Banks' credit  management policy 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 loan  reviews,  external
audits and regulatory bank examinations.  Basically,  the system requires rating
all loans at the time they are originated,  except for homogeneous categories of
loans, such as residential real estate mortgage loans, indirect automobile loans
and credit card loans.  These  homogeneous  loans are assigned an initial rating
based on First Banks'  experience  with each type of loan.  Adjustments to these
ratings are based on payment experience subsequent to their origination.
     Adversely rated credits,  including loans requiring close  monitoring which
would not normally be considered criticized credits by regulators,  are included
on a monthly  loan watch list.  Loans may be added to the watch list for reasons
which are temporary and  correctable,  such as the absence of current  financial

<PAGE>

statements of the borrower,  or a deficiency in loan documentation.  Other loans
are added whenever any adverse  circumstance  is detected which might affect the
borrower's ability to meet the terms of the loan. This could be initiated by the
delinquency  of a scheduled  loan payment,  a  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. Loans on the watch list
require detailed loan status reports  prepared by the responsible  officer every
four months,  which are then  discussed in formal  meetings with loan review and
credit  administration  staff  members.  Downgrades  of loan risk ratings may be
initiated by the responsible loan officer at any time. However, upgrades of risk
ratings  may  only be made  with  the  concurrence  of loan  review  and  credit
administration  staff  members  generally  at the time of the formal  watch list
review meetings.
     Each month,  credit  administration  provides First Banks'  management with
detailed  lists of loans on the watch  list and  summaries  of the  entire  loan
portfolio  of each  Subsidiary  Bank by risk  rating.  These  are  coupled  with
analyses of changes in the risk profiles of the portfolios,  changes in past due
and  nonperforming  loans and  changes in watch list and  classified  loans over
time. In this manner,  the overall  increases or decreases in the levels of risk
in the  portfolios  are monitored  continually.  Factors are applied to the loan
portfolios  for each  category of loan risk to  determine  acceptable  levels of
allowance for possible loan losses. These factors are derived primarily from the
actual loss  experience  of the  Subsidiary  Banks and from  published  national
surveys of norms in the industry.  The  calculated  allowances  required for the
portfolios are then compared to the actual  allowance  balances to determine the
provisions  necessary to maintain  the  allowances  at  appropriate  levels.  In
addition,  management  exercises  judgment in its  analysis of  determining  the
overall  level of the  allowance  for  possible  loan losses.  In its  analysis,
management  considers  the  change  in  the  portfolio,   including  growth  and
composition,  and the  economic  conditions  of the regions in which First Banks
operates. Based on this quantitative and qualitative analysis, the allowance for
possible  loan  losses  is  adjusted.  Such  adjustments  are  reflected  in the
consolidated statements of income.
     First Banks does not engage in foreign lending.  Additionally,  First Banks
does not have any concentrations of loans exceeding 10% of total loans which are
not otherwise  disclosed in the loan portfolio  composition  table.  First Banks
does not have a material amount of interest-bearing assets which would have been
included  in  nonaccrual,  past due or  restructured  loans if such  assets were
loans.

Deposits

     Deposits are the primary  source of funds for the Subsidiary  Banks.  First
Banks' deposits consist  principally of core deposits from its Subsidiary Banks'
local market areas.  The following  table sets forth the  distribution  of First
Banks' average deposit  accounts at the dates indicated and the weighted average
interest rates on each category of deposit:
<TABLE>
<CAPTION>
                                                                     December 31,                                   
                                     -------------------------------------------------------------------------------
                                               1998                      1997                          1996         
                                     ----------------------   -------------------------     ------------------------
                                              Percent                   Percent                       Percent
                                                of                        of                            of
                                    Amount   deposits Rate     Amount   deposits   Rate      Amount   deposits   Rate
                                    ------   -------- ----     ------   --------   ----      ------   --------   ----
                                                                (dollars expressed in thousands)

<S>                                <C>          <C>    <C>   <C>           <C>     <C>    <C>            <C>     <C>    
Demand deposits.................   $  463,939    12.27%  --  $  394,580    11.77%    --   $  368,786     11.85%    --
Interest-bearing demand
   deposit......................      357,463     9.45  1.44    332,712     9.92   1.70      304,247      9.77   1.59
Savings deposits................    1,076,524    28.48  3.96    761,052    22.70   3.60      683,009     21.94   3.19
Time deposits of $100 or more...      212,691     5.63  5.86    183,223     5.47   6.01      164,453      5.28   5.88
Other time deposits.............    1,669,638    44.17  5.73  1,681,014    50.14   6.01    1,592,657     51.16   6.02
                                   ---------    ------  ==== ----------   ------   ====   ----------     ------  ====
         Total deposits.........   $3,780,255   100.00%      $3,352,581   100.00%         $3,113,152     100.00%
                                   ==========   ======       ==========  =======          ==========     ======
</TABLE>
<PAGE>

Capital and Dividends

     Historically,   First  Banks  has   accumulated   capital  to  support  its
acquisitions by retaining most of its earnings.  Relatively  small dividends are
paid on the Class A convertible, adjustable rate preferred stock and the Class B
adjustable rate preferred stock,  totaling $786,000 for the years ended December
31, 1998,  1997 and 1996.  The  dividends  paid on the Class C Preferred  Stock,
which was redeemed on December 1, 1997, were $4.28 million and $4.94 million for
the years ended December 31, 1997 and 1996, respectively.  First Banks has never
paid, and has no present intention to pay, dividends on its common stock.
     As discussed  under  "--Company  Profile" and  "--Financial  Condition  and
Average  Balances,"  in 1997 and 1998,  First Banks and FBA formed First Capital
and FACT for the purpose of issuing  $86.25  million of First Capital  Preferred
Securities  and  $46.0 of FACT  Preferred  Securities,  respectively.  Preferred
securities of these type are considered Tier 1 capital for regulatory  purposes.
See Note 18 to the consolidated financial statements.

Liquidity

     The  liquidity  of First Banks and its  Subsidiary  Banks is the ability to
maintain a cash flow which is  adequate  to fund  operations,  service  its debt
obligations and meet other  commitments on a timely basis. The Subsidiary Banks'
primary sources for liquidity are customer deposits,  loan payments,  maturities
and sales of investment  securities and earnings.  In addition,  First Banks and
its  Subsidiary  Banks may avail  themselves of more  volatile  sources of funds
through the issuance of certificates of deposit in  denominations of $100,000 or
more,  federal funds borrowed,  securities sold under  agreements to repurchase,
borrowings  from the  Federal  Home Loan  Banks  (FHLB)  and  other  borrowings,
including  First  Banks' $90  million  Credit  Agreement.  The  aggregate  funds
acquired from those sources were $391.4  million and $328.7  million at December
31, 1998 and 1997, respectively.
     At December 31, 1998, First Banks' more volatile sources of funds mature as
follows:

                                                           (dollars expressed 
                                                              in thousands)

      Three months or less...................................   $  186,526
      Over three months through six months...................       59,312
      Over six months through twelve months..................      117,332
      Over twelve months.....................................       28,205
                                                                ----------
               Total.........................................   $  391,375
                                                                ==========

     Management believes the earnings of its Subsidiary Banks will be sufficient
to provide funds for growth and to permit the distribution of dividends to First
Banks  sufficient to meet First Banks'  operating and debt service  requirements
both on a short-term  and long-term  basis and to pay the dividends on the First
Capital Preferred Securities and FACT Preferred Securities.

Year 2000 Compatibility

     First Banks and the Subsidiary  Banks are subject to risks  associated with
the "Year 2000" problem, a term which refers to uncertainties  about the ability
of various data  processing  hardware and  software  systems to interpret  dates
correctly surrounding the beginning of the Year 2000. Financial institutions are
particularly  vulnerable  to Year 2000 issues  because of heavy  reliance in the
industry on electronic data processing and funds transfer systems.
     As  described in Note 16 to the  consolidated  financial  statements,  data
processing  services are provided to First Banks by First  Services,  L.P. under
the terms of data processing agreements. To address the Year 2000 problem, First
Banks,  working jointly with First  Services,  L.P., has established a dedicated
team to coordinate the overall Year 2000  Preparedness  Program  (Program) under
the  guidelines  of the  Comprehensive  Year 2000 Plan (Plan) as approved by the
Board of Directors.  The Plan summarizes each major phase of the Program and the
estimated  costs to remediate and test systems in preparation for the Year 2000.
The Plan  addresses both  Information  Technology  (IT)  projects,  such as data
processing and data network applications,  and non-IT projects, such as building
facilities and security systems.  The major phases of the Program are awareness,
assessment, remediation, validation and implementation.
   
<PAGE>

 The awareness  phase  included a company-wide  campaign to communicate  the
Year  2000  problem  and  the  potential   ramifications  to  the  organization.
Concurrent  with  this  phase,  the Year  2000  Program  Team  (Team)  began the
assessment phase of the Program.  The assessment phase included the inventorying
of systems  that may be impacted by the Year 2000  problem.  The business use of
each   inventoried   item  was  analyzed  and   prioritized   from  critical  to
non-critical, based upon the perceived adverse effect on the financial condition
of First Banks in the event of a loss or interruption in the use of each system.
The awareness and assessment phases of the Program were completed as scheduled.
     First Banks' critical  systems are purchased from  industry-known  vendors.
Such systems are  generally  used in their  standard  configuration,  with minor
modification.  Focusing  on these  critical  systems,  First  Banks  is  closely
reviewing and  monitoring  the Year 2000 progress as reported by each vendor and
testing, in most cases, on a system separate from the on-line production system.
The review  and  testing of  critical  data  processing  service  providers  has
commenced and should be completed by March 31, 1999.
    For the  critical  systems  that have been  modified,  the vendors  provided
remediation  for such  systems  that were not  otherwise  reported as "Year 2000
ready." As the remediation phase was completed within the stated deadline, First
Banks did not invoke any remediation contingency efforts.
    Concurrent  with the  completion  of the  remediation  phase of the Program,
First Banks  commenced the final analysis of the  validation  phase for critical
systems,  including  remediated  systems  provided by third party vendors.  This
portion of the Program was substantially  complete as of December 31, 1998, with
approximately 95% of critical systems tested.
    First Banks has  accelerated  the  replacement of its existing teller system
(ISC), since certain functions of ISC were not Year 2000 compliant. Planning for
the  replacement of the ISC has been underway for several years with the primary
objectives  of  adding  functionality  to meet  expanding  product  and  service
offerings and improving  efficiency in serving customers.  As the newly selected
teller  system  (CFI) also  provided a solution for the Year 2000  problem,  the
overall  implementation  schedule was  accelerated.  Recognizing  the heightened
risks of  deploying  CFI within the narrowed  timeline  created by the Year 2000
issue,  emphasis  was  first  given  to the Year  2000  solution  for ISC,  with
simultaneous  deployment of CFI  throughout  1999 and early 2000. The testing of
the  Year  2000  solution  for ISC has been  completed  and is  available  to be
implemented throughout First Banks' branch network by June 30, 1999.

<PAGE>

   The testing of CFI was completed by December 31, 1998. The CFI was installed
in selected  First Banks test  locations  during the fourth quarter of 1998. The
estimated cost of the teller replacement is $8.0 million and will be depreciated
to expense over a 60-month  period upon  installation  at each branch  location.
First Banks is also upgrading its local area network-based systems, networks and
core  processor,  and has purchased  certain item processing  equipment,  as the
previous equipment, which is fully depreciated, was not Year 2000 compliant. The
estimated  cost of these  upgrades  and the item  processing  equipment  is $3.9
million and $1.4 million,  respectively,  and is expected to be  depreciated  to
expense over 60 months commencing in the first quarter of 1999.
    The final phase of the Program is the implementation of remediated and other
systems into the operating  environment  of First Banks.  The final phase of the
Program is scheduled to be completed by June 30, 1999.
    First Banks has also  assessed the Year 2000 risks  relating to its lines of
business  separate  from  its  dependence  on data  processing.  The  assessment
includes a review of larger  commercial loan and deposit  customers to ascertain
their  overall  preparedness  regarding  Year 2000 risks.  The process  requires
lending and other  banking  officers to meet with certain of their  customers to
review and assess  their  overall  preparedness  for Year 2000 risks.  While the
process of evaluating the potential  adverse effects of Year 2000 risks on these
customers revealed no probable adverse effect to First Banks, it is not possible
to quantify the overall  potential adverse effects to First Banks resulting from
the  failure of these  customers,  or other  customers  not  meeting  the review
criteria,  to adequately  prepare for the Year 2000. The failure of a commercial
bank  customer  to  adequately  prepare  for Year 2000 could have a  significant
adverse  effect  on  such  customer's  operations  and  profitability,  in  turn
inhibiting  its  ability  to  repay  loans in  accordance  with  their  terms or
requiring the use of its deposited  funds.  First Banks  continues to review and
structure  certain funding sources to facilitate the Subsidiary Banks' liquidity
requirements under varying cash flow assumptions.
    The  Plan  also  provides  for the  identification  and  communication  with
significant non-data processing third party vendors regarding their preparedness
for Year 2000 risks.  While the results of this  process  have not  revealed any
quantifiable  loss to First Banks, the absence of certain basic services such as
telecommunications,  electric  power and  service  provided  by other  financial
institutions  and  governmental  agencies  would  have a  serious  impact on the
operations of First Banks. The review of significant  non-data  processing third
party vendors regarding their  preparedness for Year 2000 risks will continue in
1999.
    The total  cost of the  Program is  currently  estimated  at $16.2  million,
comprised  of  capital   improvements  of  $13.3  million  and  direct  expenses
reimbursable to First Services L.P. of $2.9 million.  The capital  improvements,
as previously discussed,  will be charged to expense in the form of depreciation
expense or lease  expense,  generally  over a period of 60 months.  First  Banks
incurred direct expenses  related to the Program of  approximately  $600,000 for
1998. In addition, First Banks is estimating direct expenses of $1.8 million for
the duration of the Program.  The total cost could vary  significantly from that
currently estimated for unforeseen circumstances which could develop in carrying
out the Program.
   
<PAGE>

    Concurrent with the development and execution of the Plan is the evolution
of First Banks' Year 2000 Contingency Plan  (Contingency  Plan). The Contingency
Plan is intended to be a living document  changing and developing to reflect the
results,  progress  and current  status of the  Program.  The  Contingency  Plan
includes the remediation and business resumption  procedures for common systems,
coordinated by the Team, and departmental  specific systems,  coordinated by the
appropriate  departmental  manager and the assigned Team member. The Contingency
Plan  addresses a variety of issues  including  critical  systems,  credit risk,
liquidity,  loan  and  deposit  customers,  facilities,  supplies  and  computer
hot-site location.
    While  First  Banks is  making a  substantial  effort  to  become  Year 2000
compliant, there is no assurance the Year 2000 problem would not have a material
adverse effect on its financial condition or results of operations.

Effects of New Accounting Standards

    First Banks  adopted the  provisions  of Statement  of Financial  Accounting
Standards  (SFAS)  No.  130  --  Reporting   Comprehensive   Income  (SFAS  130)
retroactively  on January 1, 1998. SFAS 130 established  standards for reporting
and displaying income and its components (revenues,  gains and losses) in a full
set of general purpose  financial  statements.  SFAS 130 mandates that all items
that are required to be recognized under  accounting  standards as components of
comprehensive income be reported in a financial statement that is displayed with
the  same  prominence  as  other  financial  statements.  Comparative  financial
statements  provided  for  earlier  periods  have been  restated  to reflect the
application of SFAS 130. The  implementation of SFAS 130 did not have a material
impact on First Banks' consolidated financial statements.
    First Banks  adopted the  provisions  of SFAS No. 131 --  Disclosures  about
Segments of an  Enterprise  and Related  Information  (SFAS 131) on December 31,
1998.  SFAS 131 established  standards for the way public  business  enterprises
report information about operating  segments in annual financial  statements and
requires  those  enterprises  to report  selected  information  about  operating
segments in interim financial reports issued to shareholders  beginning in 1999.
Additionally,  SFAS 131  established  standards  for related  disclosures  about
products and services,  geographic  areas, and major customers  superseding SFAS
No. 14 --  Financial  Reporting  for  Segments  of a  Business  Enterprise.  The
implementation  of SFAS 131 resulted in no effect on First  Banks'  consolidated
financial statements other than additional  disclosure  requirements included in
the notes to the consolidated financial statements.
     In June 1998,  the FASB issued SFAS No. 133 --  Accounting  for  Derivative
Instruments and Hedging  Activities (SFAS 133). SFAS 133 establishes  accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, and for hedging activities. It requires
that an entity  recognize all derivatives as either assets or liabilities in the
statement of financial  position and measure those instruments at fair value. If
certain  conditions  are met, a derivative may be  specifically  designated as a
hedge in one of three categories described in the pronouncement.  The accounting
for  changes  in the fair  value of a  derivative  (that is,  gains and  losses)
depends on the intended use of the  derivative  and the  resulting  designation.
Under SFAS 133, an entity that elects to apply hedge  accounting  is required to
establish at the inception of the hedge the method it will use for assessing the
effectiveness  of the  hedging  derivative  and  the  measurement  approach  for
determining  the  ineffective  aspect  of  the  hedge.  Those  methods  must  be
consistent with the entity's  approach to managing risk. SFAS 133 applies to all
entities and is  effective  for all fiscal  quarters of fiscal  years  beginning
after June 15, 1999.  Initial  application  should be as of the  beginning of an
entity's fiscal quarter; on that date, hedging  relationships must be designated
and documented  pursuant to the provisions of SFAS 133.  Earlier  application of
all of the provisions is encouraged but is permitted only as of the beginning of
any  fiscal   quarter  that  begins  after  the  issuance   date  of  SFAS  133.
Additionally,  SFAS  133  should  not  be  applied  retroactively  to  financial
statements of prior  periods.  First Banks is currently  evaluating  SFAS 133 to
determine its potential impact on the consolidated financial statements.

Effects of Inflation

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


<PAGE>


                 Quarterly Condensed Financial Data (Unaudited)
<TABLE>
<CAPTION>

                                                                                   1998 Quarter Ended          
                                                                     -------------------------------------------
                                                                                              Septem-     Decem-
                                                                     March 31     June 30     ber 30      ber 31
                                                                     --------     -------     ------      ------
                                                                           (dollars expressed in thousands)

<S>                                                                  <C>           <C>        <C>         <C>   
Interest income.................................................     $ 78,930      80,940     83,777      84,402
Interest expense................................................       40,601      41,121     40,323      40,323
                                                                     --------     -------    -------    --------
                Net interest income.............................       38,329      39,819     43,454      44,079
Provision for possible loan losses..............................        2,100       1,850      2,275       2,775
                                                                     --------     -------    -------    --------
                Net interest income after provision
                  for possible loan losses......................       36,229      37,969     41,179      41,304
Noninterest income..............................................        7,794       8,357      9,000      11,346
Noninterest expense.............................................       32,059      35,037     36,106      35,502
                                                                     --------     -------    -------    --------
                Income before provision for income taxes
                  and minority interest in income
                  of subsidiaries...............................       11,964      11,289     14,073      17,148
Provision for income taxes......................................        4,256       4,134      5,079       6,224
                                                                     --------     -------    -------    --------
                Income before minority interest in
                  income of subsidiaries........................        7,708       7,155      8,994      10,924
Minority interest in income of subsidiaries.....................          342         279        407         243
                                                                     --------     -------    -------    --------
                Net income......................................     $  7,366       6,876      8,587      10,681
                                                                     ========     =======    =======    ========
Earnings per share:
    Basic.......................................................     $ 302.99      285.02     354.65      440.38
    Diluted.....................................................       293.85      274.34     343.73      428.42
                                                                     ========     =======    =======    ========


                                                                                   1997 Quarter Ended          
                                                                      ------------------------------------------
                                                                                              Septem-     Decem-
                                                                      March 31     June 30    ber 30      ber 31
                                                                      --------     -------    ------      ------
                                                                           (dollars expressed in thousands)

Interest income.................................................     $ 69,300      72,779     74,740      78,282
Interest expense................................................       34,756      35,338     39,071      39,666
                                                                     --------     -------    -------    --------
                Net interest income.............................       34,544      37,441     35,669      38,616
Provision for possible loan losses..............................        2,850       3,175      3,100       2,175
                                                                     --------     -------    -------    --------
                Net interest income after provision
                  for possible loan losses......................       31,694      34,266     32,569      36,441
Noninterest income..............................................        5,209       5,706      8,829       5,953
Noninterest expense.............................................       25,152      27,682     27,862      29,591
                                                                     --------     -------    -------    --------
                Income before provision for income taxes
                  and minority interest in income
                  of subsidiary.................................       11,751      12,290     13,536      12,803
Provision for income taxes......................................        3,714       4,051      4,632       3,686
                                                                     --------     -------    -------    --------
                Income before minority interest in
                  income of subsidiaries........................        8,037       8,239      8,904       9,117
Minority interest in income of subsidiary.......................          201         376        363         330
                                                                     --------     -------    -------    --------
                Net income......................................     $  7,836       7,863      8,541       8,787
                                                                     ========     =======    =======    ========
Earnings per share:
    Basic.......................................................     $ 277.11      281.23     307.87      315.49
    Diluted.....................................................       266.69      268.02     295.45      306.11
                                                                     ========     =======    =======    ========
</TABLE>


<PAGE>


KPMG LLP











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

We have audited the  accompanying  consolidated  balance  sheets of First Banks,
Inc. and  subsidiaries  (the Company) as of December 31, 1998 and 1997,  and the
related consolidated  statements of income,  changes in stockholders' equity and
comprehensive  income,  and cash  flows for each of the years in the  three-year
period ended December 31, 1998. These consolidated  financial statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.

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

In our opinion, the consolidated financial statements referred to above, present
fairly, in all material  respects,  the financial  position of First Banks, Inc.
and  subsidiaries  as of December  31,  1998 and 1997,  and the results of their
operations and their cash flows for each of the years in the  three-year  period
ended  December 31, 1998,  in  conformity  with  generally  accepted  accounting
principles.



                                                        /s/KPMG LLP
                                                        -----------


St. Louis, Missouri
March 17, 1999



<PAGE>


                           Consolidated Balance Sheets
             (dollars expressed in thousands, except per share data)
<TABLE>
<CAPTION>


                                                                                               December 31,     
                                                                                            --------------------     
                                                                                            1998            1997
                                                                                            ----            ----

                                             ASSETS
                                             ------

Cash and cash equivalents:
<S>                                                                                   <C>                  <C>    
    Cash and due from banks........................................................   $    174,329         142,125
    Interest-bearing deposits with other financial institutions
      with maturities of three months or less......................................          3,733           2,840
    Federal funds sold.............................................................         36,700          23,515
                                                                                      ------------       ---------
               Total cash and cash equivalents.....................................        214,762         168,480
                                                                                      ------------       ---------

Investment securities:
    Trading, at fair value.........................................................          3,425           3,110
    Available for sale, at fair value..............................................        509,695         773,271
    Held to maturity, at amortized cost (fair value of $22,568 and
      $19,835 at December 31, 1998 and 1997, respectively).........................         21,676          19,149
                                                                                      ------------       ---------
               Total investment securities.........................................        534,796         795,530
                                                                                      ------------       ---------

Loans:
    Commercial, financial and agricultural.........................................        920,007         621,618
    Real estate construction and development.......................................        720,910         413,107
    Real estate mortgage...........................................................      1,529,177       1,629,115
    Consumer and installment.......................................................        282,549         287,752
    Loans held for sale............................................................        135,619          59,081
                                                                                      ------------       ---------
               Total loans.........................................................      3,588,262       3,010,673
    Unearned discount..............................................................         (8,157)         (8,473)
    Allowance for possible loan losses.............................................        (60,970)        (50,509)
                                                                                      ------------       ---------
               Net loans...........................................................      3,519,135       2,951,691
                                                                                      ------------       ---------

Bank premises and equipment, net of accumulated
    depreciation and amortization..................................................         63,848          51,505
Intangibles associated with the purchase of subsidiaries...........................         36,534          25,835
Mortgage servicing rights, net of amortization.....................................          9,825           9,046
Accrued interest receivable........................................................         28,465          28,358
Other real estate..................................................................          3,709           7,324
Deferred income taxes..............................................................         46,848          43,355
Other assets.......................................................................         96,888          83,890
                                                                                      ------------       ---------
               Total assets........................................................   $  4,554,810       4,165,014
                                                                                      ============       =========
</TABLE>


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


<PAGE>





                     Consolidated Balance Sheets (Continued)
             (dollars expressed in thousands, except per share data)
<TABLE>
<CAPTION>


                                                                                                 December 31,   
                                                                                            -------------------  
                                                                                            1998            1997
                                                                                            ----            ----


                                           LIABILITIES
                                           -----------
Deposits:
    Demand:
<S>                                                                                    <C>                 <C>    
      Non-interest-bearing........................................................     $   561,383         485,222
      Interest-bearing............................................................         377,435         348,080
    Savings.......................................................................       1,198,567         947,029
    Time:
      Time deposits of $100 or more...............................................         219,996         219,417
      Other time deposits.........................................................       1,582,604       1,684,847
                                                                                       -----------      ----------
          Total deposits..........................................................       3,939,985       3,684,595
Other borrowings..................................................................         121,331          54,153
Notes payable.....................................................................          50,048          55,144
Accrued interest payable..........................................................           5,817           9,976
Deferred income taxes.............................................................          10,920           9,029
Accrued and other liabilities.....................................................          20,652          20,990
Minority interest in subsidiaries.................................................          15,251          16,407
                                                                                       -----------      ----------
          Total liabilities.......................................................       4,164,004       3,850,294
                                                                                       -----------      ----------

Guaranteed preferred beneficial interests in:
    First Banks, Inc. subordinated debenture......................................          83,288           83,183
    First Banks America, Inc. subordinated debenture..............................          44,155               --
                                                                                       -----------      -----------
          Total guaranteed preferred beneficial interests in
              subordinated debentures.............................................         127,443           83,183
                                                                                       -----------      -----------

                                      STOCKHOLDERS' EQUITY
                                      --------------------

Preferred stock:
    $1.00 par value, 5,000,000 shares authorized, no shares issued
      and outstanding at December 31, 1998 and 1997...............................              --              --
    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
Common stock, $250.00 par value; 25,000 shares authorized; 23,661
    shares issued and outstanding.................................................           5,915           5,915
Capital surplus...................................................................             780           3,978
Retained earnings.................................................................         231,867         199,143
Accumulated other comprehensive income............................................          11,738           9,438
                                                                                       -----------      ----------
          Total stockholders' equity..............................................         263,363         231,537
                                                                                       -----------      ----------
          Total liabilities and stockholders' equity..............................     $ 4,554,810       4,165,014
                                                                                       ===========      ==========
</TABLE>


<PAGE>
                        Consolidated Statements of Income
             (dollars expressed in thousands, except per share data)
<TABLE>
<CAPTION>
                                                                                      Years ended December 31,  
                                                                                   -----------------------------  
                                                                                   1998         1997        1996
                                                                                   ----         ----        ----
Interest income:
<S>                                                                             <C>           <C>          <C>    
    Interest and fees on loans...............................................  $ 284,366      252,766      237,379
    Investment securities:
       Taxable...............................................................     39,898       35,248       22,639
       Nontaxable............................................................        985        1,008        1,240
    Federal funds sold and other.............................................      2,800        6,079        4,763
                                                                               ---------     --------      -------
         Total interest income...............................................    328,049      295,101      266,021
                                                                               ---------     --------      -------
Interest expense:
    Deposits:
       Interest-bearing demand...............................................      5,135        5,648        4,845
       Savings...............................................................     42,591       27,383       22,687
       Time deposits of $100 or more.........................................     12,024       10,386        8,977
       Other time deposits...................................................     92,305       95,244       88,228
    Interest rate exchange agreements, net...................................      3,999        6,574        7,623
    Notes payable and other borrowings.......................................      6,314        3,596        9,310
                                                                               ---------     --------      -------
         Total interest expense..............................................    162,368      148,831      141,670
                                                                               ---------     --------      -------
         Net interest income.................................................    165,681      146,270      124,351
Provision for possible loan losses...........................................      9,000       11,300       11,494
                                                                               ---------     --------      -------
         Net interest income after provision for possible loan losses........    156,681      134,970      112,857
                                                                               ---------     --------      -------
Noninterest income:
    Service charges on deposit accounts and customer service fees............     14,876       12,491       12,521
    Credit card fees.........................................................      2,999        2,914        2,475
    Loan servicing fees, net.................................................      1,017        1,628        1,837
    Gain on mortgage loans sold and held for sale............................      5,563          716           40
    Net gain (loss) on sales of available for sale securities................      1,466        2,335         (311)
    Net gain on sales of trading securities..................................        607          121           --
    Other....................................................................      9,969        5,492        4,159
                                                                               ---------     --------      -------
         Total noninterest income............................................     36,497       25,697       20,721
                                                                               ---------     --------      -------
Noninterest expense:
    Salaries and employee benefits...........................................     55,907       43,011       39,995
    Occupancy, net of rental income..........................................     11,037       10,617        9,758
    Furniture and equipment..................................................      8,122        7,618        7,218
    Federal Deposit Insurance Corporation premiums...........................      1,370          804       11,715
    Postage, printing and supplies...........................................      5,230        4,187        4,687
    Data processing fees.....................................................     13,917        8,450        4,477
    Legal, examination and professional fees.................................      5,326        4,587        4,901
    Credit card..............................................................      3,396        3,343        2,913
    Communications...........................................................      2,874        2,611        2,635
    Advertising and business development.....................................      4,668        4,054        2,224
    Losses and expenses on other real estate, net of gains...................         81        (331)        1,927
    Guaranteed preferred debentures..........................................      9,842        7,322           --
    Other....................................................................     16,934       14,014       13,291
                                                                               ---------     --------      -------
         Total noninterest expense...........................................    138,704      110,287      105,741
                                                                               ---------     --------      -------
         Income before provision for income taxes and minority interest
          in  income of subsidiary...........................................     54,474       50,380       27,837
Provision for income taxes...................................................     19,693       16,083        6,960
                                                                               ---------     --------      -------
         Income before minority interest in income of subsidiary.............     34,781       34,297       20,877
Minority interest in income of subsidiary....................................      1,271        1,270          659
                                                                               ---------     --------      -------
         Net income..........................................................     33,510       33,027       20,218
Preferred stock dividends....................................................        786        5,067        5,728
                                                                               ---------     --------      -------
         Net income available to common stockholders.........................  $  32,724       27,960       14,490
                                                                               =========     ========      =======
Earnings per common share:
    Basic....................................................................  $1,383.04     1,181.69       612.46
    Diluted..................................................................   1,337.09     1,134.28       596.83
                                                                               =========     ========      =======

Weighted average shares of common stock outstanding..........................     23,661       23,661       23,661
                                                                               =========     ========      =======
</TABLE>
The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.


<PAGE>
           Consolidated Statements of Changes in Stockholders' Equity
                            and Comprehensive Income
            (dollars expressed in thousands, except per share data)

                       Three years ended December 31, 1998

<TABLE>
<CAPTION>
                                                   Class C                                                           Accu-
                                                  preferred     Adjustable rate                                     mulated
                                                   stock,       preferred stock                                      other   Total
                                                                ---------------
                                                 increasing   Class A                              Compre-          compre-  stock-
                                                    rate,     conver-            Common   Capital  hensive Retained hensive holders'
                                                 redeemable    tible    Class B   tock    surplus  income  earnings  income  equity
                                                 ----------    -----    -------  -----    -------   ------ -------- ------  -------

<S>                                               <C>         <C>         <C>    <C>        <C>     <C>     <C>       <C>   <C>    
Consolidated balances, January 1, 1996........... $ 55,000    12,822      241    5,915      4,307           156,692   (372) 234,605
Year ended December 31, 1996:
    Comprehensive income:
      Net income.................................       --       --        --       --         --   20,218   20,218     --   20,218
      Other comprehensive income, net of tax (1)
       Unrealized gains on securities, net of
         reclassification adjustment (2).........       --       --        --       --         --    4,425       --   4,425   4,425
                                                                                                    ------ 
      Comprehensive income.......................       --       --        --       --         --   24,643
                                                                                                    ====== 
    Class C preferred stock dividends,
      $2.25 per share............................       --       --        --       --         --            (4,942)     --  (4,942)
    Class A preferred stock dividends,
      $1.20 per share............................       --       --        --       --         --              (769)     --    (769)
    Class B preferred stock dividends,
      $.11 per share.............................       --       --        --       --         --               (17)     --     (17)
    Purchase and retirement of Class C
       preferred stock...........................   (1,113)      --        --       --        (26)               --      --  (1,139)
    Effect of capital stock transactions of
       majority-owned subsidiaries...............       --       --        --       --       (992)               --      --    (992)
                                                   -------    -----      ----      ----     -----            -------  ----- --------
Consolidated balances, December 31, 1996.........   53,887   12,822       241     5,915     3,289            171,182  4,053 251,389

Year ended December 31, 1997:
    Comprehensive income:
      Net income.................................       --       --        --        --        --     33,027  33,027     --  33,027
      Other comprehensive income, net of tax (1)
       Unrealized gains on securities, net of
         reclassification adjustment (2).........       --       --        --        --        --      5,385      --  5,385   5,385
                                                                                                     -------
      Comprehensive income.......................       --       --        --        --        --     38,412
                                                                                                     =======
    Class C preferred stock dividends, 
      $2.25 per share............................       --        --       --        --        --             (4,280)    --  (4,280)
    Class A preferred stock dividends,
      $1.20 per share............................       --        --       --        --        --               (769)    --    (769)
    Class B preferred stock dividends,
      $.11 per share.............................       --        --       --        --        --                (17)    --     (17)
    Purchase and retirement of Class C
       preferred stock...........................   (6,774)      --        --        --      (161)                --     --  (6,935)
    Redemption of Class C preferred stock........  (47,113)      --        --        --        --                 --     -- (47,113)
    Effect of capital stock transactions of
       majority-owned subsidiaries...............       --       --        --        --       850                 --     --     850
                                                   -------    -----      ----      ----     -----            -------  ----- -------
Consolidated balances, December 31, 1997.........       --   12,822       241     5,915     3,978            199,143  9,438 231,537

Year ended December 31, 1998:
    Comprehensive income:
      Net income.................................       --       --        --        --        --     33,510  33,510     --  33,510
      Other comprehensive income, net of tax (1)
       Unrealized gains on securities, net of
         reclassification adjustment (2).........       --       --        --        --        --      2,300      --  2,300   2,300
                                                                                                     -------
      Comprehensive income.......................       --       --        --        --        --     35,810
                                                                                                     =======
    Class A preferred stock dividends,
      $1.20 per share............................       --       --        --        --        --               (769)    --    (769)
    Class B preferred stock dividends,
      $.11 per share.............................       --       --        --        --        --                (17)    --     (17)
    Effect of capital stock transactions of
       majority-owned subsidiaries...............       --       --        --        --    (3,198)                --     --  (3,198)
                                                  --------    -----      ----     -----    ------            -------  ----- -------
Consolidated balances, December 31, 1998......... $     --    12,822      241     5,915       780            231,867 11,738 263,363
                                                  ========    ======     ====     =====    ======            ======= ====== =======
</TABLE>
---------------

<PAGE>

(1) Components of other comprehensive income are shown net of tax.
(2)  Disclosure of reclassification adjustment:

<TABLE>
<CAPTION>
                                                                                            Three years ended December 31, 1998
                                                                                            -----------------------------------

                                                                                                1998        1997       1996
                                                                                                ----        ----       ----
<S>                                                                                           <C>          <C>        <C>  
Unrealized gains arising during the period................................................... $3,253       6,903      4,223
Less: reclassification adjustment for gains (losses) included in net income..................    953       1,518       (202)
                                                                                              ------       -----      -----
Unrealized gain on securities................................................................ $2,300       5,385      4,425
                                                                                              ======       =====      =====
</TABLE>

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


<PAGE>

                      Consolidated Statements of Cash Flows
                        (dollars expressed in thousands)
<TABLE>
<CAPTION>


                                                                                        Years ended December 31,  
                                                                                      ---------------------------  
                                                                                      1998       1997        1996
                                                                                      ----       ----        ----

Cash flows from operating activities:
<S>                                                                               <C>          <C>          <C>   
    Net income..................................................................  $ 33,510     33,027       20,218
    Adjustments to reconcile net income to net cash (used in
     provided by operating activities:
       Depreciation and amortization of bank premises and equipment.............     5,293      5,687        5,784
       Amortization, net of accretion...........................................    10,494      9,512       12,481
       Originations and purchases of loans held for sale........................  (628,544)  (174,330)    (135,792)
       Proceeds from the sale of loans held for sale............................   520,994    148,350      113,074
       Provision for possible loan losses.......................................     9,000     11,300       11,494
       Provision for income taxes...............................................    19,693     16,083        6,960
       Payments of income taxes.................................................   (16,091)   (17,976)      (7,655)
       Decrease (increase) in accrued interest receivable.......................       256     (5,107)        (623)
       Net decrease in trading securities.......................................      (315)    (3,110)          --
       Interest accrued on liabilities..........................................   162,368    148,831      141,670
       Payments of interest on liabilities......................................  (167,090)  (149,380)    (142,210)
       Other operating activities, net..........................................    (5,582)    (7,284)      (6,637)
       Minority interest in income of subsidiaries..............................     1,271      1,270          659
                                                                                  --------    -------     --------
         Net cash (used in) provided by operating activities....................   (54,743)    16,873       19,423
                                                                                  --------    -------     --------
Cash flows from investing activities:
    Cash paid for acquired entities, net of cash and cash equivalents received..    29,339     84,556       10,715
    Proceeds from sales of investment securities available for sale.............   136,042     20,930       91,147
    Maturities of investment securities available for sale......................   395,961    447,547      440,314
    Maturities of investment securities held to maturity........................     2,314      1,804       14,643
    Purchases of investment securities available for sale.......................  (167,082)  (686,474)    (527,091)
    Purchases of investment securities held to maturity.........................    (4,910)      (844)        (916)
    Net (increase) decrease in loans............................................  (443,741)  (174,804)      20,350
    Recoveries of loans previously charged-off..................................     8,444      9,230        9,300
    Purchases of bank premises and equipment....................................   (14,851)    (6,413)      (3,299)
    Other investing activities..................................................   (13,919)   (54,681)      10,657
                                                                                  --------    -------     --------
         Net cash (used in) provided by investing activities....................   (72,403)  (359,149)      65,820
                                                                                  --------   --------     --------
Cash flows from financing activities:
    Increase (decrease) in demand and savings deposits..........................   258,757    304,193      (20,466)
    Decrease in time deposits...................................................  (171,207)    (8,348)     (15,804)
    Decrease in federal funds purchased.........................................        --         --       (3,000)
    Increase (decrease) in Federal Home Loan Bank advances......................    48,485    (37,218)     (10,606)
    Increase in securities sold under agreements to repurchase..................    18,692     21,390       13,525
    Decrease in notes payable...................................................   (24,637)   (21,186)     (13,284)
    Purchase and retirement of Class C preferred stock..........................        --    (54,048)      (1,139)
    Proceeds from issuance of guaranteed preferred subordinated debentures......    44,124     83,086           --
    Payment of preferred stock dividends........................................      (786)    (5,067)      (5,728)
                                                                                  --------    -------     --------
         Net cash provided by (used in) financing activities....................   173,428    282,802      (56,502)
                                                                                  --------    -------     --------
         Net increase (decrease) in cash and cash equivalents...................    46,282    (59,474)      28,741
Cash and cash equivalents, beginning of year....................................   168,480    227,954      199,213
                                                                                  --------    -------     --------
Cash and cash equivalents, end of year..........................................  $214,762    168,480      227,954
                                                                                  ========    =======     ========
Noncash investing and financing activities:
    Loans transferred to other real estate......................................  $  3,067      4,295       10,451
    Loans exchanged for and transferred to available-for-sale
      investment securities.....................................................    65,361         --           --
    Loans held for sale exchanged for and transferred to
      available-for-sale investment securities..................................    23,898         --           --
    Loans transferred to held for sale..........................................        --         --       39,996
                                                                                  ========    =======     ========

</TABLE>

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


<PAGE>
(1)  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

    The accompanying  consolidated financial statements of First Banks, Inc. and
subsidiaries  (First  Banks) have been  prepared in  accordance  with  generally
accepted  accounting   principles  and  conform  to  practices  prevalent  among
financial  institutions.  The  following  is a summary  of the more  significant
accounting policies followed by First Banks:

     Basis of Presentation. The consolidated financial statements of First Banks
have been prepared in accordance with generally accepted  accounting  principles
and conform to predominant practices within the banking industry.  Management of
First  Banks 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
generally accepted accounting principles. Actual results could differ from those
estimates.  Certain 1997 and 1996 amounts have been reclassified to conform with
the classifications and format used for 1998.

    Principles of Consolidation.  The consolidated  financial statements include
the accounts of First Banks, Inc. and all of its  subsidiaries,  net of minority
interest,  as more fully described below. All significant  intercompany accounts
and  transactions  have been eliminated in  consolidation.  First Banks operates
through  its  subsidiary  bank  holding  companies  and  financial  institutions
(Subsidiary Banks) as follows:

    First Bank, headquartered in St. Louis County, Missouri (First Bank).
    First Banks America, Inc.,  headquartered  in St. Louis County,  Missouri
       FBA),  and its wholly owned subsidiaries:
         First Bank Texas N.A., headquartered in Houston, Texas (FB Texas).
         First Bank of California, headquartered in Roseville, California (FB
         California).
    CCB  Bancorp,  Inc.,  headquartered  in Newport Beach,  California
         (CCB), and its wholly owned  subsidiary:
         First Bank & Trust, headquartered in Newport Beach, California (FB&T).

     The Subsidiary Banks are wholly owned by their respective  parent companies
except  FBA,  which was 76.8%  owned by First Banks at  December  31,  1998.  In
addition,  on February 17, 1999,  First Banks  completed its purchase of 314,848
shares of FBA common stock, pursuant to a tender offer to purchase up to 400,000
shares of FBA common stock.  This tender offer increased First Banks'  ownership
interest in FBA to 82.3% of the outstanding voting stock of FBA.
     On February 2, 1998,  First  Commercial  Bancorp,  Inc.,  a  majority-owned
subsidiary of First Banks' was acquired by FBA, and its subsidiary  bank,  First
Commercial  Bank,  was  merged  into FB  California.  The  combination  of these
entities did not have a material  impact on the results of  operations  of First
Banks.

     Cash and Cash  Equivalents.  Cash, due from banks,  federal funds sold, and
interest-bearing  deposits with original  maturities of three months or less are
considered  to be cash and cash  equivalents  for  purposes of the  consolidated
statements of cash flows.  The Subsidiary Banks are required to maintain certain
daily reserve balances on hand in accordance with regulatory  requirements.  The
reserve balances maintained in accordance with such requirements at December 31,
1998 and 1997 were $49.4 million and $31.3 million, respectively.

     Investment  Securities.  The  classification  of  investment  securities as
trading,  available  for sale or held to maturity is  determined  at the date of
purchase.  Investment  securities  designated  as  trading,  which  include  any
security  held for near term  sale,  are  valued  at fair  value.  Realized  and
unrealized gains and losses are included in noninterest income.
     Investment  securities  designated as available for sale, which include any
security  which First Banks has no immediate  plan to sell but which may be sold
in the future under different circumstances,  are stated at fair value. Realized
gains and losses are included in  noninterest  income upon  commitment  to sell,
based on the amortized cost of the individual  security sold.  Unrealized  gains
and  losses are  recorded,  net of related  income  tax  effects,  in a separate
component of stockholders'  equity. All previous fair value adjustments included
in the separate component of stockholders' equity are reversed upon sale.
     Investment  securities  designated  as held to maturity,  which include any
security  for which First Banks has the  positive  intent and ability to hold to
maturity,  are stated at cost, net of  amortization of premiums and accretion of
discounts computed on the level yield method taking into consideration the level
of current and anticipated prepayments.


<PAGE>
    Loans Held for  Portfolio.  Loans held for  portfolio  are carried at cost,
adjusted  for  amortization  of premiums and  accretion  of discounts  using the
interest  method.  Interest and fees on loans are recognized as income using the
interest method.  Loans held for portfolio are stated at cost as First Banks has
the ability and it is management's intention to hold them to maturity.
      The  accrual of  interest on loans is  discontinued  when it appears  that
interest or principal may not be paid in a timely manner in the normal course of
business.  Generally,  payments  received on  nonaccrual  loans are  recorded as
principal reductions. Interest income is recognized after all principal has been
repaid or an  improvement  in the condition of the loan has occurred which would
warrant resumption of interest accruals.
     A loan is considered  impaired when it is probable that First Banks will be
unable to collect all amounts due, both principal and interest, according to the
contractual terms of the loan agreement. When measuring impairment, the expected
future cash flows of an impaired  loan are  discounted  at the loan's  effective
interest  rate.  Alternatively,  impairment  is  measured  by  reference  to  an
observable  market price, if one exists, or the fair value of the collateral for
a  collateral-dependent  loan.  Regardless of the historical  measurement method
used, First Banks measures  impairment based on the fair value of the collateral
when foreclosure is probable. Additionally, impairment of a restructured loan is
measured  by  discounting  the total  expected  future  cash flows at the loan's
effective rate of interest as stated in the original loan agreement. First Banks
utilizes its existing  nonaccrual  methods for  recognizing  interest  income on
impaired loans.

     Loans Held for Sale.  Mortgage loans held for sale are carried at the lower
of cost or market value which is determined on an individual  loan basis.  Gains
or  losses  on the sale of loans  held for  sale are  determined  on a  specific
identification method.

     Loan Servicing  Income.  Loan servicing  income  represents fees earned for
servicing real estate  mortgage loans owned by investors,  net of federal agency
guarantee fees,  interest  shortfall,  and  amortization of the cost of mortgage
servicing rights. The fees are generally calculated on the outstanding principal
balance of the loans serviced and are recorded as income when earned.

     Allowance for Possible Loan Losses.  The allowance for possible loan losses
is maintained at a level  considered  adequate to provide for potential  losses.
The provision  for possible  loan losses is based on a periodic  analysis of the
loans held for portfolio and held for sale,  considering,  among other  factors,
current  economic  conditions,  loan  portfolio  composition,   past  loan  loss
experience,  independent appraisals,  loan collateral and payment experience. In
addition to the allowance for estimated  losses on identified  problem loans, an
overall unallocated  allowance is established to provide for unidentified credit
losses which are inherent in the  portfolio.  As adjustments  become  necessary,
they are  reflected  in the results of  operations  in the periods in which they
become known.

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

     Intangibles  Associated  With the  Purchase  of  Subsidiaries.  Intangibles
associated  with the purchase of  subsidiaries  include  excess of cost over net
assets  acquired.  The  excess of cost over net  assets  acquired  of  purchased
subsidiaries  is amortized  using the  straight-line  method over the  estimated
periods to be benefited, which range from approximately 10 to 15 years.

     Mortgage  Servicing  Rights.  Mortgage  servicing  rights are  amortized in
proportion to the related  estimated net  servicing  income on a  disaggregated,
discounted basis over the estimated lives of the related  mortgages  considering
the level of current  and  anticipated  repayments,  which range from five to 12
years.

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



<PAGE>


     Income  Taxes.  First  Banks,  Inc. and its  eligible  subsidiaries  file a
consolidated  federal income tax return and unitary or consolidated state income
tax returns in California,  Illinois and Missouri.  In addition,  First Banks is
subject to a financial institutions tax which is based on income.  Additionally,
included  in the  unitary  Illinois  and  California  income tax  returns is the
investment  in FBA as First  Banks'  ownership  is greater than 50%. FBA and its
subsidiaries  file a  consolidated  federal  income tax return which is separate
from that of First Banks.

    Earnings  Per Common  Share.  Basic EPS is computed  by dividing  the income
available to common  stockholders (the numerator) by the weighted average number
of common shares outstanding (the denominator)  during the year. The computation
of dilutive EPS is similar  except the  denominator  is increased to include the
number of  additional  common  shares  that would have been  outstanding  if the
dilutive  potential  shares had been  issued.  In  addition,  in  computing  the
dilutive  effect of  convertible  securities,  the  numerator is adjusted to add
back: (a) any convertible  preferred  dividends and (b) the after-tax  amount of
interest recognized in the period associated with any convertible debt.

     Financial Instruments.  A financial instrument is defined as cash, evidence
of an ownership  interest in an entity, or a contract that conveys or imposes on
an entity the contractual  right or obligation to either receive or deliver cash
or another financial instrument.

     Financial  Instruments  With  Off-Balance-Sheet  Risk. First Banks utilizes
financial  instruments  to  reduce  the  interest  rate  risk  arising  from its
financial assets and liabilities. These instruments involve, in varying degrees,
elements  of  interest  rate  risk  and  credit  risk in  excess  of the  amount
recognized in the consolidated balance sheets. Risk that interest rates may move
unfavorably  from the  perspective  of First Banks is defined as  interest  rate
risk. The risk that a counterparty  to an agreement  entered into by First Banks
may default is defined as credit risk.
      First Banks is party to  commitments  to extend credit and  commercial and
standby letters of credit in the normal course of business to meet the financing
needs of its customers.  These commitments involve, in varying degrees, elements
of interest rate risk and credit risk in excess of the amount  recognized in the
consolidated balance sheets.

     Interest Rate Swap, Floor and Cap Agreements. Interest rate swap, floor and
cap  agreements  are  accounted  for on an accrual  basis with the net  interest
differential  being  recognized  as an  adjustment  to  interest  expense of the
related  liability.  Premiums and fees paid upon the  purchase of interest  rate
swap,  floor and cap agreements are amortized to interest  expense over the life
of the agreement using the interest method. In the event of early termination of
these derivative  financial  instruments,  the net proceeds received or paid are
deferred and amortized  over the shorter of the  remaining  contract life of the
derivative  financial  instrument or the maturity of the related liability.  If,
however, the amount of the underlying hedged liability is repaid, then the gains
or losses on the  agreements  are  recognized  immediately  in the  consolidated
statements of income. The unamortized premiums, fees paid and deferred losses on
early terminations are included in other assets in the accompanying consolidated
balance sheets.

     Interest Rate Futures Contracts. Gains and losses on interest rate futures,
which qualify as hedges, are deferred. Amortization of the net deferred gains or
losses is applied to the interest  income of the  securities  available-for-sale
portfolio using the straight-line  method. The net deferred gains and losses are
applied to the carrying value of the securities  available-for-sale portfolio as
part of the mark-to-market  valuation.  In the event the hedged assets are sold,
the related gain or loss of the interest rate futures  contracts is  immediately
recognized in the consolidated statements of income.

     Forward Contracts to Sell Mortgage-Backed  Securities.  Gains and losses on
forward contracts,  which qualify as hedges,  are deferred.  The net unamortized
balance of such  deferred  gains and losses is applied to the carrying  value of
the loans held for sale as part of the lower of cost or market valuation.



<PAGE>


(2)  ACQUISITIONS

     On  November 1, 1996,  First Banks  completed  its  acquisition  of Sunrise
Bancorp, a California  corporation  (Sunrise),  and its wholly owned subsidiary,
Sunrise Bank, a state  chartered bank, in exchange for $17.5 million in cash. At
the time of the transaction,  Sunrise had $110.8 million in total assets;  $45.5
million in cash and cash equivalents and investment securities; $61.1 million in
total loans, net of unearned discount;  and $91.1 million in total deposits. The
acquisition was funded from available cash and borrowings of $14.0 million.  The
excess  of the cost  over the fair  value of the net  assets  acquired  was $3.2
million and is being amortized to expense over 15 years.
     On December 1, 1997,  First Banks  completed its acquisition of Surety Bank
in exchange for 264,622 shares of FBA common stock and cash of $3.8 million. The
cash portion of this transaction was funded in January 1998 with available cash.
At the time of the transaction,  Surety had $72.8 million in total assets; $14.9
million in cash and cash equivalents and investment securities; $54.4 million in
total loans, net of unearned discount;  and $67.5 million in total deposits. The
excess  of the cost  over the fair  value of the net  assets  acquired  was $3.3
million and is being amortized over 15 years.
     During  1997,  First Banks  completed  its  assumption  of the deposits and
purchase of  selected  assets of three  banking  locations  of Highland  Federal
Savings  Bank,  F.S.B.  The  transaction  resulted in the  acquisition  of $82.8
million in  deposits.  The banking  locations  operate as branches of FB&T.  The
excess  of the cost  over the fair  value of the net  assets  acquired  was $1.4
million and is being amortized 10 years.
     On February 2, 1998, FBA completed its acquisition of Pacific Bay Bank, San
Pablo,  California  (Pacific Bay). Under the terms of the Pacific Bay Agreement,
Pacific Bay  shareholders  received $14.00 per share in cash for their stock, an
aggregate of $4.2 million. At the time of the transaction,  Pacific Bay Bank had
$38.3 million in total assets, $7.4 million in cash and cash equivalents,  $29.7
million in total loans,  net of unearned  discount,  and $35.2  million in total
deposits.  The excess of the cost over the fair value of the net assets acquired
was $1.5 million and is being  amortized  over 15 years.  This  transaction  was
funded from an advance under First Banks' $90 million  credit  agreement  with a
group of unaffiliated financial institutions (Credit Agreement).
     On March 19, 1998, First Banks completed its assumption of the deposits and
purchase of selected assets of the Solvang,  California banking location of Bank
of America.  The transaction  resulted in the acquisition of approximately $15.5
million in deposits and one office that operates as a branch of FB&T. The excess
of the cost over the fair value of the net assets  acquired was $1.8 million and
is being amortized over 15 years.
     On September 15, 1998,  First Banks  completed its  acquisition of Republic
Bank for cash  consideration of $19.3 million.  Republic Bank had $124.1 million
in total assets,  $97.9 million in loans, net of unearned  discount,  and $117.2
million  in  deposits  at the date of  acquisition.  Republic  Bank,  previously
headquartered  in Torrance,  California,  was merged into and operates as branch
offices of FB&T. The  transaction was funded from available cash of $3.3 million
and  borrowings of $16.0 million under the Credit  Agreement.  The excess of the
cost over the fair value of the net assets  acquired  was $10.2  million  and is
being amortized over 15 years.
     The  aforementioned  acquisitions  were  accounted  for using the  purchase
method of accounting and,  accordingly,  the consolidated  financial  statements
include  the  financial  position  and  results  of  operations  for the  period
subsequent to the  acquisition  date,  and the assets  acquired and  liabilities
assumed were recorded at fair value at the acquisition date.
     In addition,  on March 4, 1999,  FBA completed its  acquisition  of Redwood
Bancorp and its wholly owned subsidiary, Redwood Bank, for cash consideration of
$26.0 million.  Redwood Bank is headquartered  in San Francisco,  California and
operates four banking locations in the San Francisco Bay area.  Redwood Bank had
$184 million in total assets,  $134 million in loans, net of unearned  discount,
$32  million  in  investment  securities  and $163  million in  deposits  at the
acquisition date. Redwood Bank is operating as a subsidiary of FBA.


<PAGE>


(1)  INVESTMENTS IN DEBT AND EQUITY SECURITIES

     Securities  Available for Sale. The amortized cost,  contractual  maturity,
unrealized  gains and losses and fair value of investment  securities  available
for sale at December 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>

                                                        Maturity                      Total
                                        ----------------------------------------      -----
                                                                           After      amor-          Gross                Weighted
                                         1 Year        1-5       5-10       10        tized        unrealized      Fair    average
                                         or less      years      years     years      cost       Gains   Losses    value    yield
                                         -------      -----      -----     -----      ----       -----   ------    -----    -----
                                                                      (dollars expressed in thousands)

 December 31, 1998:
    Carrying value:
<S>                                     <C>            <C>       <C>        <C>       <C>       <C>       <C>    <C>        <C>  
       U.S. Treasury..................  $  54,288      84,990         --        --    139,278   2,312       --   141,590    5.98%
       U.S. government agencies
         and corporations:
          Mortgage-backed.............     11,642      27,334    32,352    113,912    185,240   1,082     (171)  186,151    6.35
          Other.......................     16,893      78,047    35,524      6,980    137,444   1,060      (15)  138,489    6.07
       Equity investments in other
         financial institutions.......      8,805          --        --         --      8,805  14,061       --    22,866    4.75
       Federal Home Loan Bank and
         Federal Reserve Bank stock...     20,599          --        --         --     20,599      --       --    20,599    6.36
                                        ---------    --------   -------    -------    -------   -----    -----    ------
                Total.................  $ 112,227     190,371    67,876    120,892    491,366   18,515    (186)   509,695   6.14
                                        =========    ========   =======    =======    =======   ======   =====    ======= ======
    Market value:
       Debt securities................  $  83,324     193,231    68,135    121,540
       Equity securities..............     43,465          --        --         --
                                        ---------    --------   -------    -------
                Total.................  $ 126,789     193,231    68,135    121,540
                                        =========    ========   =======    =======

    Weighted average yield............      5.92%        5.96%     6.36%      6.51%
                                            ====         ====      ====       ====

 December 31, 1997:
    Carrying value:
       U.S. Treasury..................  $  62,537     216,594         --        --    279,131   1,580      (39)  280,672    5.94%
       U.S. government agencies
         and corporations:
          Mortgage-backed.............        674      51,692    23,856    108,275    184,497     427     (493)  184,431    6.38
          Other.......................     60,719     183,652    18,056         --    262,427     381     (183)  262,625    6.11
       Other..........................        256          --        --          9        265       1       (6)      260    6.31
       Equity investments in other
         financial institutions.......      8,255          --        --         --      8,255  13,025       --    21,280    4.93
       Federal Home Loan Bank and
         Federal Reserve Bank stock...     24,003          --        --         --     24,003      --       --    24,003    6.76
                                        ---------    --------   -------    -------    -------   -----    -----    ------
                Total.................  $ 156,444     451,938    41,912    108,284    758,578   15,414    (721)   773,271   6.12
                                        =========    ========   =======    =======    =======   ======   =====    ======= ======
    Market value:
       Debt securities................  $ 124,195     453,470    41,920    108,403
       Equity securities..............     45,283          --        --         --
                                        ---------    --------   -------    -------
                Total.................  $ 169,478     453,470    41,920    108,403
                                        =========    ========   =======    =======

    Weighted average yield............       5.82%       6.07%     6.32%      6.70%
                                             ====        ====      ====       ====
</TABLE>




<PAGE>

                                                                 
     Securities  Held to Maturity.  The amortized  cost,  contractual  maturity,
unrealized  gains and  losses and fair value of  investment  securities  held to
maturity at December 31, 1998 and 1997 were as follows:
<TABLE>
<CAPTION>

                                                      Maturity               Total
                                        ---------------------------------    -----
                                                                    After     amor-        Gross            Weighted
                                        1 Year     1-5      5-10      10       tized    unrealized    Fair   average
                                        or less  years     years    years     cost    Gains  Losses   value   yield
                                        -------  -----     -----    -----     ----    -----  ------   -----   -----
                                                             (dollars expressed in thousands)

 December 31, 1998:
    Carrying value:
       U.S. Government Agencies
         and Corporations:
<S>                                   <C>        <C>       <C>       <C>      <C>     <C>     <C>     <C>      <C>  
          Mortgage-backed...........  $   --        --        --     2,507    2,507     --    (13)    2,494     6.41%
       State and political
           subdivisions.............     776     7,323     8,700     2,085   18,884    897     --    19,781     5.38
       Other........................      75       210        --        --      285      8     --       293     6.68
                                      ------     -----     -----     -----  -------    ---   ----   -------
             Total..................  $  851     7,533     8,700     4,592   21,676    905    (13)   22,568     5.51
                                      ======     =====     =====     =====  =======   ====   ====   =======     ====
    Market value:
             Debt securities........  $  862     7,777     8,986     4,943
                                      ======     =====     =====     =====

 Weighted average yield.............    5.21%     5.43%     4.96%     6.69%
                                        ====      ====      ====      ====

 December 31, 1997:
    Carrying value:
       State and political
           subdivisions.............  $1,093     5,324    10,422     2,310  19,149     690     (4)   19,835    5.65%  
                                      ======     =====    ======     =====  ======    ====    ====  =======    ====
       Market value:
             Debt securities........  $1,111     5,431    10,677     2,616
                                      ======     =====    ======     =====

 Weighted average yield............     7.09%     5.38%      5.33%    7.03%
                                        ====      ====       ====     ====
</TABLE>

     The  expected   maturities  of  investment   securities   may  differ  from
contractual  maturities  since  borrowers  have the right to call or prepay  the
obligations with or without prepayment penalties.
     Proceeds from sales of  securities  designated as trading were $311 million
and $215 million for the years ended  December 31, 1998 and 1997,  respectively.
Gross gains of $879,000  and  $233,000 and gross losses of $234,000 and $122,000
were  realized on these sales for the years  ended  December  31, 1998 and 1997,
respectively. There was no trading activity during 1996.
     Proceeds  from sales of  securities  designated  as available for sale were
$136.0 million and $20.9 million for the years ended December 31, 1998 and 1997,
respectively.  Gross gains of $1.5  million and $2.3  million  were  realized on
these sales. No losses were realized in 1998 and 1997.
     Proceeds from the sales of debt securities classified as available for sale
during 1996 were $91.1  million.  Gross gains of  $556,000  and gross  losses of
$166,000  were  realized on these sales.  The gross gains,  net of gross losses,
were offset by the recognition of $701,000 of hedging losses.
     Various  subsidiaries  of First Banks  maintain  investments in the Federal
Home Loan Bank (FHLB) or the Federal Reserve Bank (FRB).  The investment in FHLB
stock is  maintained  at a  minimum  amount  equal to the  greater  of 1% of the
aggregate  outstanding balance of the applicable Subsidiary Bank's loans secured
by residential  real estate,  or 5% of advances from the FHLB to each Subsidiary
Bank.  First  Bank,  FB&T and FB Texas  are  members  of the  FHLB  system.  The
investment in the FRB stock is  maintained at a minimum of 6% of the  applicable
Subsidiary Bank's capital stock and capital surplus. First Bank and FB Texas are
members of the FRB system.
     Investment securities with a carrying value of approximately $263.0 million
and $209.1 million were pledged in connection  with deposits of public and trust
funds and for other  purposes as required by law at December  31, 1998 and 1997,
respectively.


<PAGE>



(4)  LOANS

     Changes in the  allowance  for  possible  loan  losses for the years  ended
December 31 were as follows:
<TABLE>
<CAPTION>

                                                                              1998      1997       1996
                                                                              ----      ----       ----
                                                                          (dollars expressed in thousands)

<S>                                                                        <C>          <C>        <C>   
               Balance, January 1.....................................     $ 50,509     46,781     52,665
               Acquired allowances for possible loan losses...........        3,200         30      2,338
                                                                           --------   --------   --------
                                                                             53,709     46,811     55,003
                                                                           --------   --------   --------
               Loans charged-off......................................      (10,183)   (16,832)   (29,016)
               Recoveries of loans previously charged-off.............        8,444      9,230      9,300
                                                                           --------   --------   --------
               Net loans charged-off..................................       (1,739)    (7,602)   (19,716)
                                                                           --------   --------   --------
               Provision charged to operations........................        9,000     11,300     11,494
                                                                           --------   --------   --------
               Balance, December 31...................................     $ 60,970     50,509     46,781
                                                                           ========   ========   ========
</TABLE>

     At  December  31, 1998 and 1997,  First  Banks had $38.3  million and $18.6
million,  respectively,  of loans on nonaccrual  status.  Interest on nonaccrual
loans, which would have been recorded under the original terms of the loans, was
$4.5  million,  $4.7 million and $4.2  million for the years ended  December 31,
1998, 1997 and 1996, respectively.  Of these amounts, $1.9 million, $2.0 million
and $2.7 million was actually recorded as interest income on such loans in 1998,
1997 and 1996,  respectively.  At December  31,  1998 and 1997,  First Banks had
impaired loans in the amount of $43.5 million and $29.5  million,  respectively,
consisting of $38.3  million and $24.1  million of loans on  nonaccrual  status,
respectively.  At December 31, 1998, impaired loans also include $5.2 million of
restructured  loans.  Impaired  loans had an  allocation  of the  allowance  for
possible  loan losses of $8.3  million and $5.7 million at December 31, 1998 and
1997, respectively. In addition, certain impaired loans had specific reserves of
$1.7 million at December 31, 1997.  There were no specific  reserves at December
31, 1998 relating to impaired loans. The average recorded investment in impaired
loans was $35.7  million,  $28.3 million and $36.2 for the years ended  December
31, 1998, 1997 and 1996, respectively.  The amount of interest income recognized
using a cash  basis  method of  accounting  during  the time  these  loans  were
impaired was $2.3 million and $2.4 million in 1998 and 1997, respectively.
     First Banks' primary market areas are the states of Missouri,  Illinois and
California.  At  December  31,  1998 and  1997,  89% and 88% of the  total  loan
portfolio and 91% and 93% of the  commercial,  financial and  agricultural  loan
portfolio were to borrowers within these regions, respectively.
     Real estate lending constituted the only other significant concentration of
credit risk. Real estate loans comprised  approximately  67% and 70% of the loan
portfolio at December 31, 1998 and 1997, respectively, of which 38% and 48% were
consumer-related  in the form of  residential  real  estate  mortgages  and home
equity lines of credit.
     First  Banks is, in general,  a secured  lender.  At December  31, 1998 and
1997,  96%  of the  loan  portfolio  was  secured.  Collateral  is  required  in
accordance   with  the  normal   credit   evaluation   process  based  upon  the
creditworthiness  of the  customer  and the  credit  risk  associated  with  the
particular transaction.

(5)  MORTGAGE BANKING ACTIVITIES

     At  December  31,  1998 and 1997,  First  Banks  serviced  loans for others
amounting  to $923 million and $784  million,  respectively.  Borrowers'  escrow
balances held by First Banks on such loans were $1.2 million and $2.2 million at
December 31, 1998 and 1997, respectively.

<PAGE>
     Changes in the mortgage  servicing  rights for the years ended  December 31
were as follows:

                                                               1998        1997
                                                               ----        ----
                                                             (dollars expressed
                                                                in thousands)

     Balance, January 1................................     $  9,046     10,230
     Originated mortgage servicing rights..............        2,195        718
     Purchases of mortgage servicing rights............          893          5
     Amortization......................................       (2,309)    (1,907)
                                                              ------     ------
     Balance, December 31..............................        9,825      9,046
                                                              =======   =======
(6)  BANK PREMISES AND EQUIPMENT

     Bank premises and equipment were comprised of the following at December 31:
<TABLE>
<CAPTION>

                                                                                           1998        1997
                                                                                           ----        ----
                                                                                  (dollars expressed in thousands)

<S>                                                                                    <C>            <C>   
         Land.................................................................         $  15,703      14,213
         Buildings and improvements...........................................            49,082      39,922
         Furniture, fixtures and equipment....................................            42,161      37,597
         Leasehold improvements...............................................             8,657       6,851
         Construction in progress.............................................             3,466       3,536
                                                                                       ---------    --------
                                                                                         119,069     102,119
         Less accumulated depreciation and amortization.......................            55,221      50,614
                                                                                       ---------    --------
             Bank premises and equipment, net.................................         $  63,848      51,505
                                                                                       =========    ========
</TABLE>
     First  Banks  leases  land,  office  properties  and some  equipment  under
operating  leases.  Certain of the leases contain renewal options and escalation
clauses.  Total rent expense was $5.3 million, $5.0 million and $4.2 million for
the years ended December 31, 1998, 1997 and 1996,  respectively.  Future minimum
lease  payments  under  noncancellable  operating  leases extend through 2019 as
follows:
<TABLE>
<CAPTION>
                                                                           (dollars expressed in thousands)
         Year ending December 31:
<S>                  <C>                                                              <C>      
                     1999..........................................................   $   4,652
                     2000..........................................................       4,209
                     2001..........................................................       3,461
                     2002..........................................................       2,414
                     2003..........................................................       2,230
                     Thereafter....................................................       7,630
                                                                                      ---------
                         Total minimum lease payments..............................   $  24,596
                                                                                      =========
</TABLE>

     First  Banks  leases to  unrelated  parties a portion of its owned  banking
facilities.  Total rental income was $2.5 million, $2.3 million and $1.7 million
for the years ended December 31, 1998, 1997 and 1996, respectively.

(7)  NOTES PAYABLE

     First Banks has a $90.0 million revolving line of credit (Credit Agreement)
with a group of unaffiliated banks. The Credit Agreement, dated August 26, 1998,
replaced a similar  revolving and term credit agreement dated November 24, 1997.
Interest under the Credit Agreement is payable at the lead bank's corporate base
rate or, at the option of First Banks,  is payable at the Eurodollar Rate plus a
margin  based upon the  outstanding  loans and First Banks'  profitability.  The
interest rate for  borrowings  under the Credit  Agreement was 6.26% at December
31, 1998, or the applicable  Eurodollar Rate plus a margin of 1.00%. Interest is
generally paid monthly. Amounts may be borrowed under the Credit Agreement until
August 23, 1999,  at which date the  principal  and accrued  interest is due and
payable.
     Loans  under the Credit  Agreement  are  secured by all of the stock of the
Subsidiary  Banks,  which is owned by First Banks.  Under the Credit  Agreement,
there were $50 million in outstanding borrowings at December 31, 1998. There was
$55.0 million in outstanding  borrowings  under the previous credit agreement at
December 31, 1997.

<PAGE>

     The Credit Agreement requires maintenance of certain minimum capital ratios
for each financial institution subsidiary. In addition, it prohibits the payment
of dividends on First Banks' common stock. At December 31, 1998 and 1997,  First
Banks and the  Subsidiary  Banks were in compliance  with all  restrictions  and
requirements of the respective credit agreements.
     The balance of the other note  payable was $48,000 and $144,000 at December
31,  1998 and 1997,  respectively.  Interest  under the note  payable is payable
under similar terms as the Credit Agreement.
    The  average  balance  and maximum  month-end  balance of the notes  payable
outstanding for the years ended December 31 were as follows:
<TABLE>
<CAPTION>
                                                                                        1998          1997
                                                                                        ----          ----
                                                                                 (dollars expressed in thousands)

<S>                                                                                  <C>            <C>   
         Average balance...........................................................  $ 50,718       17,883
         Maximum month-end balance.................................................    55,096       75,213
                                                                                     ========       ======

</TABLE>
    The average rates paid on notes payable  outstanding  during the years ended
December 31, 1998, 1997 and 1996 were 6.85%, 7.69% and 7.30%, respectively.

(8)  GUARANTEED PREFERRED BENEFICIAL INTERESTS IN FIRST BANKS, INC. AND FIRST
     BANKS AMERICA, INC. SUBORDINATED DEBENTURES

    On February 4, 1997,  First  Preferred  Capital  Trust  (First  Capital),  a
newly-formed  Delaware  business  trust  subsidiary of First Banks,  issued 3.45
million shares of 9.25%  cumulative  trust preferred  securities  (First Capital
Preferred  Securities) at $25 per share in an underwritten public offering,  and
issued  106,702  shares of common  securities  to First  Banks at $25 per share.
First Banks owns all of First Capital's common securities. The gross proceeds of
the  offering  were used by First  Capital to  purchase  $88.9  million of 9.25%
Subordinated  Debenture (First Banks  Subordinated  Debenture) from First Banks,
maturing on March 31,  2027.  The  maturity  date may be shortened to a date not
earlier  than March 31,  2002 or extended to a date no later than March 31, 2046
if certain conditions are met. The First Banks  Subordinated  Debentures are the
sole  asset of First  Capital.  In  connection  with the  issuance  of the First
Capital  Preferred   Securities,   First  Banks  made  certain   guarantees  and
commitments.  First  Banks'  proceeds  from  the  issuance  of the  First  Banks
Subordinated  Debentures to First Capital, net of underwriting fees and offering
expenses,  were  $83.1  million.  Distributions  payable  on the  First  Capital
Preferred  Securities  were $8.0  million  and $7.3  million for the years ended
December  31,  1998 and 1997,  respectively,  and are  included  in  noninterest
expense in the consolidated financial statements.
    On July 21,  1998,  First  America  Capital  Trust  (FACT),  a  newly-formed
Delaware  business trust  subsidiary of FBA, issued 1.84 million shares of 8.50%
cumulative  trust preferred  securities  (FACT Preferred  Securities) at $25 per
share in an  underwritten  public  offering,  and issued 56,908 shares of common
securities to FBA at $25 per share.  FBA owns all of FACT's  common  securities.
The gross  proceeds of the offering were used by FACT to purchase  $47.4 million
of  8.50%  Subordinated  Debentures  (FBA  Subordinated  Debentures)  from  FBA,
maturing on June 30,  2028.  The  maturity  date may be  shortened to a date not
earlier than June 30, 2003 or extended to a date not later than June 30, 2037 if
certain  conditions are met. The FBA Subordinated  Debentures are the sole asset
of FACT.  FBA made  certain  guarantees  and  commitments  relating  to the FACT
Preferred  Securities.  FBA's proceeds from the issuance of the FBA Subordinated
Debentures to First Capital,  net of  underwriting  fees and offering  expenses,
were $44.1 million.  Distributions payable on the FACT Preferred Securities were
$1.8  million  for  the  year  ended  December  31,  1998  and are  included  in
noninterest expense in the consolidated financial statements.
<PAGE>

(9)  INCOME TAXES

    Income tax expense attributable to income from continuing operations for the
years ended December 31 is as follows:
<TABLE>
<CAPTION>
                                                                                 Years ended December 31,
                                                                                 ------------------------
                                                                                1998       1997      1996
                                                                                ----       ----      ----
                                                                             (dollars expressed in thousands)

         Current income taxes:
<S>                                                                          <C>          <C>        <C>  
             Federal.....................................................    $ 16,801     15,062     6,106
             State.......................................................       1,292        169     1,068
                                                                             --------    -------   -------
                                                                               18,093     15,231     7,174
                                                                             --------    -------   -------
         Deferred income taxes:
             Federal.....................................................       1,895      2,608     1,837
             State.......................................................         273         24     3,192
                                                                             --------    -------   -------
                                                                                2,168      2,632     5,029
                                                                             --------    -------   -------
         Reduction in valuation allowance................................        (568)    (1,780)   (5,243)
                                                                             --------    -------   -------
                     Total...............................................    $ 19,693     16,083     6,960
                                                                             ========    =======   =======

</TABLE>
    The federal income tax rates and amounts are  reconciled  with the effective
income tax rates and amounts as follows:
<TABLE>
<CAPTION>
                                                                             Years ended December 31,
                                                            --------------------------------------------------------
                                                                   1998                1997                1996     
                                                            -----------------     --------------     ---------------
                                                                        % of                % of                % of
                                                                       pretax              pretax              pretax
                                                            Amount     income     Amount   income     Amount   income
                                                            ------     ------     ------   ------     ------   ------
                                                                         (dollars expressed in thousands)

         Income before provision for income taxes and
<S>                                                        <C>                   <C>              <C>       
            minority interest in income of  subsidiary..   $54,474               $50,380          $   27,837
                                                           =======               =======          ==========

         Taxes on income calculated at statutory rates..   $19,066      35.0%    $17,633    35.0%   $  9,743     35.0%
         Effects of differences in tax reporting:
            Tax-exempt interest income..................      (529)     (1.0)       (576)   (1.1)       (730)    (2.6)
            Tax preference adjustment of
               interest income..........................        68       0.1          69     0.1          82      0.3
            Amortization of excess cost.................       864       1.6         754     1.5         729      2.6
            State income taxes..........................     1,018       1.9         126     0.3         715      2.6
            Change in deferred valuation allowance......      (568)     (1.0)     (1,780)   (3.5)     (5,243)   (18.8)
            Other, net..................................      (226)     (0.4)       (143)   (0.4)      1,664      5.9       
                                                           -------     -----     -------    ----     -------    -----
                    Provision for income taxes..........   $19,693      36.2%    $16,083    31.9%   $  6,960     25.0%
                                                           =======     =====     =======    ====    ========   ======
</TABLE>
<PAGE>

     The tax  effects of  temporary  differences  that give rise to  significant
portions of the  deferred tax assets and  deferred  tax  liabilities,  including
amounts  attributable to entities  acquired in purchase  transactions are listed
below.
<TABLE>
<CAPTION>

                                                                                           December 31,
                                                                                        -----------------
                                                                                        1998         1997
                                                                                        ----         ----
                                                                                 (dollars expressed in thousands)

         Deferred tax assets:
<S>                                                                                   <C>           <C>   
            Allowance for possible loan losses....................................    $ 22,596      19,665
            Other real estate.....................................................       1,228         971
            Alternative minimum tax credits.......................................       2,612       2,067
            Book losses on investment securities currently not allowable
               for tax purposes...................................................       2,266       1,958
            Net operating loss carryforwards......................................      31,311      33,080
            Other.................................................................       4,014       3,361
                                                                                      --------    --------
                    Gross deferred tax assets.....................................      64,027      61,102
            Less valuation allowance..............................................     (17,179)    (17,747)
                                                                                      --------    --------
                    Deferred tax assets, net of valuation allowance...............      46,848      43,355
                                                                                      --------    --------
         Deferred tax liabilities:
            Depreciation on bank premises and equipment...........................       2,707       1,860
            FHLB stock dividends..................................................       1,114       1,269
            State taxes...........................................................         518         307
            Net fair value adjustment for securities available for sale...........       6,414       5,142
            Other.................................................................         167         451
                                                                                      --------    --------
                    Deferred tax liabilities......................................      10,920       9,029
                                                                                      --------    --------
                    Net deferred tax assets.......................................    $ 35,928      34,326
                                                                                      ========    ========
</TABLE>

     At December 31, 1998 and 1997, the  accumulation  of prior years'  earnings
representing  tax bad debt deductions of First Bank and FB&T were  approximately
$30.8  million and $600,000,  respectively.  If these tax bad debt reserves were
charged  for  losses  other than bad debt  losses,  First Bank and FB&T would be
required to  recognize  taxable  income in the amount of the  charge.  It is not
contemplated  that  such  tax-restricted  retained  earnings  will  be used in a
manner, which would create federal income tax liabilities.


<PAGE>
     At December 31, 1998 and 1997,  for federal  income taxes  purposes,  First
Banks had net operating loss (NOL)  carryforwards of approximately $59.0 million
and $57.3 million, respectively, exclusive of the NOL carryforwards available to
FBA as further  described below. The NOL carryforwards for First Banks expire as
follows:

                                                (dollars expressed in thousands)

        Year ending December 31:
            2002......................................   $     689
            2003......................................       7,470
            2004......................................       1,703
            2005......................................      13,171
            2006 - 2017...............................      35,960
                                                         ---------
                                                         $  58,993
                                                         =========

     At December 31, 1998 and 1997, for federal income tax purposes, FBA had NOL
carryforwards  of approximately  $30.5 million and $34.3 million,  respectively.
With the  completion  of the  acquisitions  of FBA and FCB and their  subsequent
merger, the NOL carryforwards generated prior to the transactions are subject to
an annual  limitation in subsequent tax years. The following  schedule  reflects
the NOL carryforwards  that will be available to offset future taxable income of
FBA and do not affect the taxable income of First Banks.  The NOL  carryforwards
at December 31, 1998 expire as follows:

                                                (dollars expressed in thousands)

    Year ending December 31:
        1999.............................................  $  4,883
        2000.............................................       103
        2001.............................................     1,667
        2002.............................................     2,316
        2003 - 2018......................................    21,498
                                                           --------
                                                           $ 30,467
                                                           ========

     The  realization  of First  Banks' net  deferred tax assets is based on the
availability of carrybacks to prior taxable  periods,  the expectation of future
taxable income and the  utilization of tax planning  strategies.  Based on these
factors,  management  believes  it is more likely than not that First Banks will
realize the recognized  net deferred tax asset of $35.9 million.  The net change
in the valuation  allowance,  related to deferred tax assets,  was a decrease of
$568,000 for the year ended December 31, 1998. The decrease was comprised of the
following components:  (1) a reduction of $600,000 related to the recognition of
deferred tax assets for certain loans and other real estate and  utilization  of
NOL carryforwards;  and (2) the establishment of $32,000 of additional valuation
reserves resulting from NOLs at First Commercial  Bancorp,  Inc., which occurred
prior to the merger with FBA.

     Changes to the deferred tax assets valuation allowance are as follows:
<TABLE>
<CAPTION>
                                                                                   Years ended December 31, 
                                                                                   ------------------------ 
                                                                                       1998       1997
                                                                                       ----       ----
                                                                               (dollars expressed in thousands)

<S>                                                                                  <C>          <C>   
       Balance, beginning of year................................................    $ 17,747     19,527
       Current year deferred provision, change in deferred
           tax valuation allowance...............................................        (568)    (1,780)
                                                                                     --------   --------
       Balance, end of year......................................................    $ 17,179     17,747
                                                                                     ========    =======
</TABLE>

     The  valuation  allowance  for deferred tax assets at December 31, 1998 and
1997  includes  $2.0  million  which  when  recognized,   will  be  credited  to
intangibles  associated  with  the  purchase  of  subsidiaries.   The  valuation
allowance  for deferred tax assets at December 31, 1998 and 1997  includes  $6.0
million  which when  recognized,  will be credited to capital  surplus under the
terms of the  quasi-reorganizations  implemented  for FBA and FCB as of December
31, 1994 and 1996, respectively.


<PAGE>


(10)  EARNINGS PER SHARE

     The  following   represents  a   reconciliation   of  the   numerators  and
denominators  of  the  basic  and  diluted  EPS  computations  for  the  periods
indicated:
<TABLE>
<CAPTION>

                                                                      Income         Shares         Per share
                                                                    (numerator)   (denominator)      amount
                                                                    -----------   -------------      ------
                                                                (dollars in thousands, except for per share data)

Year ended December 31, 1998:
<S>                                                                  <C>               <C>        <C>      
     Basic EPS-income available to common stockholders.........      $ 32,724          23,661     $1,383.04
                                                                                                  =========
     Effect of dilutive securities:
       Class A convertible preferred stock.....................           769           1,389
                                                                     --------        --------
     Diluted EPS-income available to common stockholders.......      $ 33,493          25,050     $1,337.09
                                                                     ========        ========     =========

Year ended December 31, 1997:
     Basic EPS-income available to common stockholders.........      $ 27,960          23,661     $1,181.69
                                                                                                  =========
     Effect of dilutive securities:
         Class A convertible preferred stock...................           769           1,645
         Subsidiary bank stock options.........................           (25)             --
                                                                     --------        --------
     Diluted EPS-income available to common stockholders.......      $ 28,704          25,306     $1,134.28
                                                                     ========        ========     =========

Year ended December 31, 1996:
     Basic EPS-income available to common stockholders.........      $ 14,490          23,661     $  612.46
                                                                                                  =========
     Effect of dilutive securities:
       Class A convertible preferred stock.....................           769           1,822
       Subsidiary bank stock options and warrants..............           (50)             --
                                                                     --------        --------
     Diluted EPS-income available to common stockholders.......      $ 15,209          25,483     $  596.83
                                                                     ========        ========     =========
</TABLE>


<PAGE>

(11) INTEREST RATE RISK  MANAGEMENT AND DERIVATIVE  FINANCIAL  INSTRUMENTS  WITH
     OFF-BALANCE- SHEET RISK.

     First  Banks  periodically  uses  off-balance-sheet   derivative  financial
instruments  to assist in the  management  of interest rate  sensitivity.  These
off-balance-sheet  derivative  financial  instruments are utilized to modify the
repricing,  maturity and option  characteristics of on-balance-sheet  assets and
liabilities.  The use of  such  derivative  financial  instruments  is  strictly
limited to reducing the interest rate risk exposure of First Banks.
     Derivative  financial  instruments  held by First Banks are  summarized  as
follows:
<TABLE>
<CAPTION>

                                                                            December 31,                  
                                                         --------------------------------------------------
                                                                   1998                       1997        
                                                         ----------------------      ----------------------
                                                         Notional       Credit       Notional        Credit
                                                          amount       exposure       amount        exposure
                                                          ------       --------       ------        --------
                                                                   (dollars expressed in thousands)

<S>                                                    <C>                <C>          <C>           <C>          
         Interest rate swap agreements................ $  280,000          --              --          --
         Interest rate floor agreements...............     70,000         204          70,000          26
         Interest rate cap agreements.................     10,000          55          10,000         222
         Forward commitments to sell
              mortgage-backed securities..............     95,000         137          60,000          --
</TABLE>

     The notional amounts of derivative  financial  instruments do not represent
amounts  exchanged  by the parties  and,  therefore,  are not a measure of First
Banks' credit exposure through its use of derivative financial instruments.  The
amounts  exchanged are  determined by reference to the notional  amounts and the
other terms of the derivatives.
     Previously,  First Banks sold interest rate futures contracts and purchased
options on interest  rate futures  contracts to hedge the interest  rate risk of
its  available-for-sale  securities  portfolio.  There were no  unamortized  net
deferred  losses on interest  rate futures  contracts  remaining at December 31,
1998, 1997 or 1996. The  unamortized  balance of net deferred losses on interest
rate futures  contracts  was $4.6  million at December  31, 1995,  of which $3.9
million was  amortized  against  interest  income and  $701,000  was realized in
connection  with sales of investment  securities  during the year ended December
31, 1996.
     Interest  rate  swap  agreements  are  utilized  to  adjust  the  repricing
characteristics  of certain  interest-bearing  assets and  liabilities  with the
objective of stabilizing cash flow, and accordingly,  net interest income,  over
time.  The net  interest  expense for swap  agreements  was $3.9  million,  $6.4
million and $7.4 million,  including $3.7 million, $5.4 million and $4.2 million
of amortized  deferred swap losses,  for the years ended December 31, 1998, 1997
and 1996,  respectively.  The maturity dates,  notional amounts,  interest rates
paid and received,  and fair values of interest rate swap agreements outstanding
as of December 31, 1998 are summarized  below.  There were no interest rate swap
agreements outstanding at December 31, 1997.
<TABLE>
<CAPTION>

                                                           Notional   Interest rate Interest rate   Fair value
                Maturity date and swap type                 amount        paid        received         gain
                ---------------------------                 ------        ----        --------         ----
                                                                   (dollars expressed in thousands)
       December 31, 1998:
         Pay variable / receive fixed:
<S>          <C>                                        <C>               <C>           <C>        <C>     
             June 11, 2002............................. $   15,000        5.24%         6.00%      $    363
             September 16, 2002........................     20,000        5.22          5.36             87
             September 16, 2002........................    175,000        5.22          5.36            761
             September 18, 2002........................     30,000        5.23          5.33             92
             September 18, 2002........................     40,000        5.23          5.33            123
                                                        ----------                                 --------
                                                        $  280,000        5.23          5.48       $  1,426
                                                        ==========        ====          ====       ========
</TABLE>
<PAGE>

     First Banks has experienced a shortening of the expected  repricing term of
its loan  portfolio.  This shortening  resulted from the significant  decline in
interest  rates  during  1995,   which  caused  an  increase  in  the  principal
prepayments of residential  mortgage loans, and the change in the composition of
the  loan  portfolio.  These  increased  prepayments,  as well as  First  Banks'
projections of future prepayments,  and the overall reduction in the residential
loan portfolio  disproportionately  shortened the expected repricing term of the
loan   portfolio   in   comparison   to  the   effective   maturity  of  certain
interest-bearing  liabilities created with the interest rate swap agreements. As
a result,  during July 1995,  November 1996 and July 1997, First Banks shortened
the maturity of its interest-bearing liabilities through the termination of $225
million,  $75 million and $35 million of interest rate swap agreements resulting
in losses of $13.5 million, $5.3 million and $1.4 million,  respectively.  These
losses have been deferred and are being  amortized  over the remaining  lives of
the agreements,  unless the underlying  liabilities are repaid.  The unamortized
balance of these  losses was $5.7  million and $9.4 million at December 31, 1998
and 1997, respectively, and is included in other assets.
     During  1998,  as  the  effective  repricing  term  of the  loan  portfolio
continued  to  shorten,  and became  increasingly  mismatched  with its  funding
source, First Banks entered into $280.0 million notional amount of interest rate
swap agreements (Swap Agreements).  The Swap Agreements effectively extended the
repricing term of a selected group of loans to more closely  correspond with its
funding  source.  The primary  objective of the Swap Agreements was to stabilize
cash flows,  and  accordingly,  net interest  income,  over time. In contrast to
previous swap agreements, the Swap Agreements provide for First Banks to receive
a fixed rate of interest and pay an  adjustable  rate  equivalent  to the 90-day
London Interbank Offering Rate (LIBOR). The terms of the Swap Agreements provide
for First Banks to pay quarterly and receive  semi-annually.  The net amount due
to First Banks under the Swap Agreements was $3.5 million at December 31, 1998.
     First Banks also has interest  rate cap and floor  agreements  to limit the
interest expense associated with certain of its interest-bearing liabilities and
the net interest expense of certain interest rate swap agreements, respectively.
At December 31, 1998 and 1997, the unamortized  costs for these  agreements were
$159,000 and $290,000, respectively, and were included in other assets.
      Derivative  financial   instruments  issued  by  First  Banks  consist  of
commitments to originate  fixed-rate loans.  Commitments to originate fixed-rate
loans  consist   primarily  of  residential   real  estate  loans.   These  loan
commitments, net of estimated underwriting fallout, and loans held for sale were
$103.1  million and $67.4  million at December 31, 1998 and 1997,  respectively.
These net loan  commitments  and loans  held for sale are  hedged  with  forward
contracts to sell  mortgage-backed  securities of $95 million and $60 million at
December  31,  1998 and  1997,  respectively.  Gains  and  losses  from  forward
contracts are deferred and included in the cost basis of loans held for sale. At
December  31,  1998 and 1997,  the net  unamortized  losses  were  $237,000  and
$783,000,  respectively,  which were applied to the carrying  value of the loans
held for sale as part of the lower of cost or market valuation.
<PAGE>

(12) CREDIT COMMITMENTS

     First Banks is party to  commitments  to extend credit and  commercial  and
standby letters of credit in the normal course of business to meet the financing
needs of its customers.  These commitments involve, in varying degrees, elements
of interest rate risk and credit risk in excess of the amount  recognized in the
consolidated balance sheets.
     The interest rate risk  associated  with these credit  commitments  relates
primarily to the commitments to originate residential  fixed-rate loans. As more
fully  discussed  in  Note  11  to  the  accompanying   consolidated   financial
statements,  the interest rate risk of the  commitments to originate  fixed-rate
loans has been hedged with forward contracts to sell mortgage-backed securities.
     The credit risk amounts are equal to the contractual amounts,  assuming the
amounts are fully  advanced and the collateral or other security is of no value.
First  Banks  uses  the  same  credit  policies  in  granting   commitments  and
conditional obligations as it does for on-balance-sheet items.
     Commitments to extend credit at December 31 are as follows:
<TABLE>
<CAPTION>

                                                                                          December 31,   
                                                                                       ----------------- 
                                                                                       1998         1997
                                                                                       ----         ----
                                                                               (dollars expressed in thousands)

<S>                                                                                 <C>            <C>    
         Commitments to extend credit.............................................  $1,189,950     898,723
         Commercial and standby letters of credit.................................      62,096      33,672
                                                                                    ----------    --------
                                                                                    $1,252,046     932,395
                                                                                    ==========     =======
</TABLE>

     Commitments  to extend credit are  agreements to lend to a customer as long
as  there  is no  violation  of  any  condition  established  in  the  contract.
Commitments  generally have fixed expiration dates or other termination  clauses
and may require  payment of a fee. Since certain of the commitments are expected
to expire  without  being  drawn  upon,  the  total  commitment  amounts  do not
necessarily represent future cash requirements.
     First Banks  evaluates each customer's  creditworthiness  on a case-by-case
basis. The amount of collateral obtained if deemed necessary by First Banks upon
extension  of  credit  is  based  on  management's   credit  evaluation  of  the
counterparty.   Collateral  held  varies,   but  is  generally   residential  or
income-producing commercial property.
     Commercial and standby letters of credit are conditional commitments issued
to guarantee the  performance of a customer to a third party.  Those  guarantees
are  primarily  issued to support  public and  private  borrowing  arrangements,
including commercial paper, bond financing and similar transactions.  The credit
risk  involved  in  issuing  letters of credit is  essentially  the same as that
involved in extending loan facilities to customers.  First Banks generally holds
real property as collateral supporting those commitments for which collateral is
deemed necessary.

(13)  FAIR VALUE OF FINANCIAL INSTRUMENTS

     Fair  values of  financial  instruments  are  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 the mortgage
banking  operation,  deferred tax assets,  premises and  equipment and goodwill.
Further,  the tax  ramifications  related to the  realization  of the unrealized
gains and losses can have a significant  effect on the fair value  estimates and
have not been considered in any of the estimates.


<PAGE>



     The estimated fair value of First Banks' financial  instruments at December
31 were as follows:
<TABLE>
<CAPTION>

                                                                      1998                        1997         
                                                             ---------------------      -----------------------
                                                            Carrying     Estimated      Carrying       Estimated
                                                              value     fair value        value       fair value
                                                              -----     ----------        -----       ----------

  Financial assets:
<S>                                                       <C>            <C>             <C>            <C>    
       Cash and cash equivalents......................    $ 214,762      214,762         168,480        168,480
       Investment securities:
          Trading.....................................        3,425        3,425           3,110          3,110
          Available for sale..........................      509,695      509,695         773,271        773,271
          Held to maturity............................       21,676       22,568          19,149         19,835
       Net loans......................................    3,519,135    3,532,393       2,951,691      2,964,115
       Accrued interest receivable....................       28,465       28,465          28,358         28,358
                                                          =========    =========       =========       ========

  Financial liabilities:
       Deposits:
          Demand:
             Non-interest-bearing.....................    $ 561,383      561,383         485,222        485,222
             Interest-bearing.........................      377,435      377,435         348,080        348,080
             Savings and money market.................    1,198,567    1,198,567         947,029        947,029
          Time deposits...............................    1,802,600    1,813,305       1,904,264      1,912,461
       Preferred Securities...........................      127,443      137,722          83,183         93,150
       Borrowings.....................................      171,379      171,379         109,297        109,297
       Accrued interest payable.......................        5,817        5,817           9,976          9,976
                                                          =========    =========       =========       ========

  Off-balance-sheet:
       Interest rate swap, cap and floor agreements...    $   5,815          259           9,689            248
       Forward contracts to sell mortgage-backed
          securities..................................          137          137            (341)          (341)
       Credit commitments.............................           --           --              --             --
                                                          =========    =========       =========       ========
</TABLE>

     The following  methods and  assumptions  were used in  estimating  the fair
value of financial instruments:

Financial Assets:
-----------------
     Cash and cash  equivalents and accrued  interest  receivable:  The carrying
values reported in the consolidated balance sheets approximate fair value.
     Investment  securities:  Fair value for trading  securities  and securities
available for sale are the amounts reported in the consolidated  balance sheets,
and  securities  held to  maturity  are  based on  quoted  market  prices  where
available. If quoted market prices are not available, fair values are based upon
quoted market prices of comparable instruments.
     Net loans:  The fair values for most loans held for portfolio are estimated
utilizing  discounted cash flow calculations that apply interest rates currently
being offered for similar  loans to borrowers  with similar risk  profiles.  The
fair values of loans held for sale,  which are the  amounts in the  consolidated
balance  sheets,  are based on quoted market prices where  available.  If quoted
market prices are not available, fair values are based upon quoted market prices
of comparable instruments.  The carrying value for loans is net of the allowance
for possible loan losses and unearned discount.

Financial Liabilities:
----------------------
     Deposits: The fair value disclosed for deposits generally payable on demand
(i.e.,  non-interest-bearing  and  interest-bearing  demand,  savings  and money
market  accounts) is  considered  equal to the  respective  carrying  amounts as
reported in the consolidated balance sheets. The fair value disclosed for 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. Fair values for certificates of deposit are estimated using a discounted
cash flow  calculation  that applies  interest rates  currently being offered on
similar  certificates  to a schedule of  aggregated  monthly  maturities of time
deposits.
     Preferred Securities:  Fair value is based on quoted market prices.
     Borrowings and accrued  interest  payable:  The carrying values reported in
the consolidated balance sheets approximate fair value.


<PAGE>



Off-Balance-Sheet:
------------------
     Interest rate swap, cap and floor  agreements:  The fair values of interest
rate swap, cap and floor  agreements are estimated by comparing the  contractual
rates  First  Banks is paying  to market  rates  quoted on new  agreements  with
similar creditworthiness.
     Forward contracts to sell mortgage-backed  securities:  The fair values for
forward  contracts  to sell  mortgage-backed  securities  are based upon  quoted
market  prices.  The fair value of these  contracts  has been  reflected  in the
consolidated  balance  sheets in the  carrying  value of the loans held for sale
portfolio as part of the lower of cost or market valuation.
     Credit  commitments:  The majority of the  commitments to extend credit and
commercial  and standby  letters of credit contain  variable  interest rates and
credit deterioration clauses and, therefore,  the carrying value of these credit
commitments approximates fair value.

(14) EMPLOYEE BENEFITS

     First  Banks'  profit-sharing  plan  is  a  self-administered  savings  and
incentive  plan  covering   substantially   all   employees.   Under  the  plan,
employer-matching contributions are determined annually by First Banks' Board of
Directors.   Employee   contributions  are  limited  to  15%  of  an  employee's
compensation, not to exceed $10,000 for 1998. Total employer contributions under
the plan were  $648,000,  $506,000 and $576,000 for the years ended December 31,
1998, 1997 and 1996, respectively.

(15) PREFERRED STOCK

      First  Banks had two classes of  preferred  stock  outstanding  during the
years ended December 31, 1998 and three classes of preferred  stock  outstanding
during the year December 31, 1997.
     On September  15, 1992,  First Banks  issued and sold  2,200,000  shares of
Class C 9% cumulative  increasing  rate,  redeemable,  preferred  stock (Class C
Preferred Stock). On December 1, 1997, First Banks redeemed all of its remaining
outstanding  Class C  Preferred  Stock  for  $47.1  million.  The  effect of the
redemption  was a reduction  of First  Banks' total  stockholders'  equity,  and
consequently  regulatory capital, by the amount of the redemption.  However, the
structure  of  the  preferred  securities,   as  described  in  Note  8  to  the
consolidated financial statements,  satisfies the regulatory  requirements to be
included  in First  Banks'  capital  base in a  manner  similar  to the  Class C
Preferred  Stock.  Dividends  on the Class C  preferred  stock  were 9%  through
November 30, 1997.
     The  holders of the Class A and Class B  preferred  stock have full  voting
rights.  Dividends  on the Class A and Class B  preferred  stock are  adjustable
quarterly  based  on the  highest  of the  Treasury  Bill  Rate or the Ten  Year
Constant  Maturity  Rate  for the  two-week  period  immediately  preceding  the
beginning of the quarter.  This rate shall not be less than 6% nor more than 12%
on  Class A  preferred  stock,  or less  than 7% nor  more  than  15% on Class B
preferred stock.
     Class A preferred  stock is  convertible  into shares of common  stock at a
rate based on the ratio of the par value of the  preferred  stock to the current
market value of the common stock at the date of conversion,  to be determined by
independent  appraisal  at the time of  conversion.  Shares of Class A preferred
stock may be redeemed  by First Banks at any time at 105% of par value.  Class B
preferred  stock may not be redeemed or  converted.  Redemption  of any issue of
preferred stock requires the prior approval of the Federal Reserve Board.
     The annual dividend rates were as follows:
<TABLE>
<CAPTION>

                                                                          1998      1997     1996
                                                                          ----      ----     ----

<S>                                                                       <C>        <C>      <C>
                      Class A preferred stock...........................  6.0        6.0      6.0
                      Class B preferred stock...........................  7.0        7.0      7.0
                      Class C preferred stock...........................   --        9.0      9.0
</TABLE>


<PAGE>



(16) TRANSACTIONS WITH RELATED PARTIES

      Outside of normal  customer  relationships,  no  directors  or officers of
First Banks, no stockholders  holding over 5% of First Banks' voting  securities
and no  corporations or firms with which such persons or entities are associated
currently  maintain or have  maintained,  since the  beginning  of the last full
fiscal year, any significant business or personal  relationship with First Banks
or its  subsidiaries,  other than such as arises by virtue of such  position  or
ownership  interest in First Banks or its  subsidiaries,  except as described in
the following paragraphs.
     During 1998, 1997 and 1996, Tidal Insurance Limited (Tidal),  a corporation
owned   indirectly  by  First  Banks'   Chairman  and  his  children,   received
approximately  $280,000,  $214,000  and  $326,000,  respectively,  in  insurance
premiums for  accident,  health and life  insurance  policies  purchased by loan
customers of First Banks.  The insurance  policies are issued by an unaffiliated
company and then ceded to Tidal.  First Banks  believes the premiums paid by the
loan  customers of First Banks are  comparable to those that such loan customers
would  have paid if the  premiums  were  subsequently  ceded to an  unaffiliated
third-party insurer.
     For the years ended  December 31,  1998,  1997 and 1996,  First  Securities
America, Inc. (FSA), a trust established and administered by and for the benefit
of  First  Banks'  Chairman  and  members  of  his  immediate  family,  received
approximately $265,000, $206,000 and $231,000,  respectively, in commissions and
insurance  premiums  for  policies  purchased by First Banks or customers of the
Subsidiary  Banks from  unaffiliated,  third-party  insurors to which First Banc
Insurors  placed such policies.  FSA received an additional  $136,000 in annuity
sales  commissions for the year ended December 31, 1996. The insurance  premiums
on which the  aforementioned  commissions were earned were competitively bid and
First  Banks deems the  commissions  FSA earned  from  unaffiliated  third-party
companies  to be  comparable  to  those  which  would  have  been  earned  by an
unaffiliated third-party agent.
     First Brokerage L.P. and First Brokerage  America,  L.L.C.,  entities which
are directly or  indirectly  owned by First  Banks'  Chairman and members of his
immediate family, received approximately $1.8 million and $707,000 for the years
ended  December  31,  1998  and  1997,  respectively,  in  commissions  paid  by
unaffiliated  third-party companies.  The commissions received were primarily in
connection  with the sales of  annuities  and  securities  and  other  insurance
products to individuals, including customers of the Subsidiary Banks.
     First  Services,  L.P.,  a limited  partnership  indirectly  owned by First
Banks'  Chairman  and his  children  through  its General  Partners  and Limited
Partners,  provides data processing  services and operational  support for First
Banks and its subsidiaries. Fees paid under the agreement to First Services L.P.
were $12.2  million,  $6.4 million and $3.2 million for the years ended December
31, 1998,  1997 and 1996,  respectively.  During 1998 and 1997,  First Services,
L.P. paid First Banks  $799,000 and $1.1 million,  respectively,  in rental fees
for the use of data processing and other  equipment owned by First Banks.  There
were no rental fees paid to First Banks for the year ended December 31, 1996.

(17) CAPITAL STOCK OF FIRST BANKS AMERICA, INC.

      First Banks owned 100% of the Class B common stock and 1,895,733 shares of
common stock of FBA at December 31, 1998 representing 76.84 % of the outstanding
voting stock of FBA. First Banks owned 65.9% of all outstanding  voting stock at
December 31, 1997.  In addition,  in February  1999,  First Banks  completed its
purchase of 314,848  shares of FBA common  stock,  pursuant to a tender offer to
purchase up to 400,000 shares of FBA common stock.  This tender offer  increased
First Banks' ownership  interest in FBA to 82.3% of the outstanding voting stock
of FBA. FBA common stock is publicly traded on the New York Stock Exchange.
     On  February  2,  1998,  FBA and FCB were  merged.  Under  the terms of the
Agreement  and Plan of Merger  (Agreement),  FCB was merged into FBA,  and First
Commercial  Bank was merged into FB California.  The FCB  shareholders  received
 .8888  shares of FBA common  stock for each share of FCB common  stock that they
held. In total, FCB shareholders  received  approximately  751,728 shares of FBA
common  stock,  of  which  462,176  shares  were  issued  to  First  Banks.  The
transaction  also  provided  for First  Banks to receive  804,000  shares of FBA
common  stock in exchange for $10.0  million  advanced to FBA under a promissory
note payable. In addition,  FCB's convertible  debentures of $6.5 million, which
were owned by First Banks,  were  exchanged  for a comparable  debenture in FBA.
Such  debentures were  subsequently  converted into 629,557 shares of FBA common
stock,  effective  December  4,  1998.  The merger of FBA and FCB did not have a
significant impact on the financial  condition or results of operations of First
Banks.


<PAGE>



(18) REGULATORY CAPITAL

     The Subsidiary Banks are subject to various regulatory capital requirements
administered by the federal and state banking agencies.  Failure to meet minimum
capital  requirements  can initiate  certain  mandatory and possibly  additional
discretionary  actions by regulators  that, if  undertaken,  could have a direct
material effect on the Subsidiary  Banks'  financial  statements.  Under capital
adequacy  guidelines and the regulatory  framework for Prompt Corrective Action,
the  Subsidiary  Banks  must  meet  specific  capital  guidelines  that  involve
quantitative measures of the Subsidiary Banks' assets, liabilities,  and certain
off-balance-sheet items as calculated under regulatory accounting practices. The
Subsidiary  Banks'  capital  amounts  and  classification  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 Subsidiary Banks to maintain certain minimum ratios.  The Subsidiary
Banks are  required to maintain a minimum  risk-based  capital to  risk-weighted
assets  ratio of 8.0%,  with at least 4.0% being "Tier 1" capital (as defined in
the regulations). In addition, a minimum leverage ratio (Tier 1 capital to total
assets)  of 3.0%  plus an  additional  cushion  of 100 to 200  basis  points  is
expected.  In order to be considered well  capitalized  under Prompt  Corrective
Action provisions, a bank is required to maintain a risk weighted asset ratio of
at least  10%,  a Tier 1 to risk  weighted  assets  ratio of at least 6%,  and a
leverage  ratio of at least 5%. As of December  31,  1997,  the date of the most
recent notification from First Banks' primary regulator,  each of the Subsidiary
Banks were  categorized as well capitalized  under the regulatory  framework for
prompt corrective action.  Management believes, as of December 31, 1998, each of
the Subsidiary Banks were well capitalized.
    At December 31, 1998 and 1997,  First Banks' and the  subsidiary  depository
institutions' capital ratios were as follows:
<TABLE>
<CAPTION>

                                                               Risk-based capita ratios
                                                          ------------------------------------
                                                               Total               Tier   1        Leverage ratio
                                                          1998       1997       1998      1997      1998     1997
                                                          ----       ----       ----      ----      ----     ----

<S>                                                      <C>        <C>         <C>      <C>        <C>      <C>  
     First Banks....................................     10.28%     10.26%      9.03%    8.78%      7.77%    6.80%
     First Bank.....................................     10.01      10.78       8.75     9.52       7.46     7.19
     FB&T...........................................     10.39      12.71       9.13    11.45       7.60     7.70
     FB Texas.......................................     11.37      12.26      10.11    11.00       9.15     8.90
     FB California..................................     10.63      13.03       9.37    11.77       8.34    13.80
</TABLE>

(19) DISTRIBUTION OF EARNINGS OF SUBSIDIARIES

     The   Subsidiary   Banks  are  restricted  by  various  state  and  federal
regulations,  as well as by the terms of the Credit Agreement  described in Note
7, in the amount of dividends  which are  available  for payment to First Banks,
Inc.  Under the most  restrictive of these  requirements,  the future payment of
dividends from subsidiary  financial  institutions  is limited to  approximately
$46.3  million,  unless prior  permission of the  regulatory  authorities or the
lending banks is obtained.

(20)  BUSINESS SEGMENT RESULTS

     First Banks has defined its business  segments to be First Bank,  FB&T,  FB
California,  FB Texas and First Bank Mortgage  (FBM).  The  reportable  business
segments are  consistent  with the  management  structure of First Banks and the
internal reporting system that monitors performance.

<PAGE>

     Through the respective branch networks, First Bank, FB&T, FB California and
FB Texas provide similar products and services in four defined geographic areas.
The  products  and  services  offered  include a broad range of  commercial  and
personal  banking  services,   including  certificates  of  deposit,  individual
retirement  and other time deposit  accounts,  checking and other demand deposit
accounts,   interest  checking  accounts,  savings  accounts  and  money  market
accounts.  Loans include  commercial and financial,  commercial and  residential
real estate,  real estate construction and development and consumer loans. Other
financial services include automatic teller machines,  telephone account access,
cash management  services,  credit related insurance and safe deposit boxes. The
revenues  generated  by each  business  segment  consist  primarily  of interest
income, generated from the loan and investment security portfolios,  and service
charges  and  fees,  generated  from the  deposit  products  and  services.  The
geographic areas are defined to be Missouri and Illinois,  southern  California,
the San  Francisco -  Sacramento  corridor of northern  California  and Houston,
Dallas,  Irving and  McKinney  Texas.  The  products and services are offered to
customers primarily within their respective geographic areas, with the exception
of loan participations executed between these operating segments of First Banks.
     FBM conducts the mortgage  banking  activities of First Banks. The mortgage
banking  activities  consist  primarily  of  the  origination  and  purchase  of
conforming and nonconforming  residential real estate loans, which are generally

<PAGE>

sold into the  secondary  market.  The  related  mortgage  servicing  rights are
generally maintained for conforming loans while the nonconforming loans are sold
on a servicing released basis. FBM's revenues include the interest income earned
while loans are held pending  sale,  net gains on the sale of loans and mortgage
loan servicing fees earned from its loan servicing  portfolio.  The products and
services are offered to customers  primarily within First Banks' four geographic
areas.  FBM  also  services  certain  residential  real  estate  loans  for  the
Subsidiary Banks for which it receives loan servicing fees.
<TABLE>
<CAPTION>



                                                     First Bank                   FB California                FB Texas       
                                            ---------------------------      ----------------------     ----------------------
                                             1998       1997       1996      1998     1997     1996     1998     1997    1996
                                             ----       ----       ----      ----     ----     ----     ----     ----    ----
                                                                             (dollars expressed in thousands)

Balance sheet information:

<S>                                     <C>           <C>       <C>         <C>       <C>     <C>      <C>      <C>     <C>   
Investment securities.................  $  252,165    401,450   334,922     53,449    83,165  73,292   59,914   65,016  51,847
Loans, net of unearned discount.......   2,354,937  2,115,641 2,083,223    314,977   255,114 156,303  201,426  176,341 180,068
Total assets..........................   2,869,648  2,761,173 2,671,979    410,110   370,917 257,834  300,984  267,152 266,571
Deposits..............................   2,623,157  2,533,837 2,394,279    363,422   325,562 223,435  264,425  231,175 233,710
Stockholders' equity..................     236,010    224,662   211,013     42,825    40,176  29,696   30,249   29,761  26,773
                                        ==========  =========  ========    =======   ======= =======   ====== ======== =======

Income statement information:

Interest income:
   Loans, external customers..........  $  180,731    181,585   177,255     22,540    16,233   9,538   12,411   14,456  15,421
   Loans, other operating segments
     and affiliates of First Banks....       8,981      3,894     1,931      5,390     1,183      --    4,777    1,521     178
   Investment securities..............      21,187     19,466    14,961      4,131     4,293   3,030    3,852    3,576   3,049
   Other..............................       1,470      2,569     4,090        483       707     621      674      546   1,355
                                        ----------  ---------  --------    -------   ------- -------   ------ -------- -------
       Total interest income..........     212,369    207,514   198,237     32,544    22,416  13,189   21,714   20,099  20,003
                                        ----------  ---------  --------    -------   ------- -------   ------ -------- -------

Interest expense:
   Deposits...........................     105,348    102,388    97,838     13,254     8,640   5,154    8,742    8,093   8,822
   Other..............................       6,427      8,399    12,743        101        89      14      158      286     464
   Intercompany funds charge (benefit)      (4,847)    (1,696)     (808)        --        --      --       --       --      --
                                        ----------   --------  --------    -------   ------- ------- -------- -------- -------
       Total interest expense.........     106,928    109,091   109,773     13,355     8,729   5,168    8,900    8,379   9,286
                                        ----------   --------  --------    -------   ------- ------- -------- -------- -------

   Net interest income................     105,441     98,423    88,464     19,189    13,687   8,021   12,814   11,720  10,717
Provision for possible loan losses....       7,250      7,300     4,615        565       500   1,405      335    1,500   1,000
                                        ----------   --------  --------    -------   ------- ------- -------- -------- -------
       Net interest income after provision
         for possible loan losses.....      98,191     91,123    83,849     18,624    13,187   6,616   12,479   10,220   9,717
                                        ----------   --------  --------    -------   ------- ------- -------- -------- -------
Noninterest income....................      21,883     16,637    12,273      2,732     1,847   1,813    1,790    1,901   1,888
Noninterest expense...................      72,312     62,410    66,706     15,548    10,356   8,634    8,749    6,960   8,501
                                        ----------  ---------  --------    -------   ------- ------- -------- -------- -------
       Net income before income taxes.      47,762     45,350    29,416      5,808     4,678    (205)   5,520    5,161   3,104

Provision (benefit) for income taxes..      16,267     14,860    10,884      2,736     2,027    (208)   1,888    1,815   1,168     
                                        ----------  ---------  --------    -------   ------- -------  ------- -------- -------
       Income (loss) before minority
         interest in income 
          of subsidiary..............       31,495     30,490    18,532      3,072     2,651       3    3,632    3,346   1,936
Minority interest income
     of subsidiary....................          --         --        --         --        --      --       --       --      --
                                        ----------   --------  --------    -------   ------- -------   ------  -------  ------
       Net income.....................  $   31,495     30,490    18,532      3,072     2,651       3    3,632    3,346   1,936
                                        ==========   ========  ========    =======   ======= =======   ======  =======  ======
</TABLE>

-----------------
(1)  Includes  intercompany loan servicing fees of $1.0 million,  $1.5  million
     and $1.6  million  for  years  ended December  31  1998,  1997  and  1996,
     respectively.
(2)  Includes $9.8 million and $7.3 million of guaranteed  preferred  debenture
     expense for the year ended December 31, 1998 and 1997, respectively.  (See
     Note 8 to the consolidated financial statements).


<PAGE>



     The business  segment  results shown below are consistent with First Banks'
internal reporting system which is consistent,  in all material  respects,  with
generally accepted accounting  principles and practices prominent in the banking
and mortgage banking industries. Such principles and practices are summarized in
Note 1 to the  consolidated  financial  statements.  First  Banks has no foreign
operations.
<TABLE>
<CAPTION>



                                                                   Corporate, other and
         First Bank & Trust           First Bank Mortgage       intercompany reclassifications        Consolidated Totals  
         ------------------           -------------------       ------------------------------    --------------------------
     1998       1997      1996      1998     1997    1996        1998       1997      1996        1998       1997       1996
     ----       ----      ----      ----     ----    ----        ----       ----      ----        ----       ----       ----
                                             (dollars expressed in thousands)



<S>          <C>        <C>       <C>     <C>      <C>         <C>        <C>        <C>         <C>        <C>        <C>    
   134,203   224,618    80,676   12,199       --       --      22,866     21,281     12,064      534,796    795,530     552,801
   573,562   385,251   310,929  135,619   69,853   37,251        (416)        --        195    3,580,105  3,002,200   2,767,969
   793,217   672,410   472,801  154,952   82,404   50,191      25,899     10,958    (30,222)   3,939,985  3,684,595   3,238,567
   701,406   598,560   400,388   35,873   26,131    2,748     (48,298)   (30,670)   (15,993)   4,554,810  4,165,014   3,689,154
    75,165    54,438    48,776    7,663    3,760    3,175    (128,549)  (121,260)   (68,044)     263,363    231,537     251,389
   =======   =======   =======  =======   ======   ======    ========   ========   ========    =========  =========    ========




   35,279     30,075    30,840    6,805    3,196    3,149      26,600      7,221      1,176      27,157      8,223        2,109

    8,009      1,624        --       --       --       --     (27,157)    (8,222)    (2,109)    257,209    244,543      235,270
   10,391      8,360     2,702      569       --       --         753        561        137      40,883     36,256       23,879
      781      2,586     1,038       --       --       --        (608)      (329)    (2,341)      2,800      6,079        4,763
   ------     ------    ------   ------   ------   ------    --------   --------   --------    --------   --------     --------
   54,460     42,645    34,580    7,374    3,196    3,149        (412)      (769)    (3,137)    328,049    295,101      266,021
   ------     ------    ------   ------   ------   ------    --------   ---------  --------    --------   --------     --------


   25,287     19,896    13,044       15       12       --        (591)      (368)      (121)    152,055    138,661      124,737
      834        508       618       --       --       --       2,793        888      3,094      10,313     10,170       16,933
       --         --        --    4,847    1,696      808          --         --         --          --         --           --
   ------     ------    ------    -----   ------   ------    --------   --------   --------    --------   --------     --------
   26,121     20,404    13,662    4,862    1,708      808       2,202        520      2,973     162,368    148,831      141,670
   ------     ------    ------   ------   ------   ------    --------   --------   --------    --------   --------     --------

   28,339     22,241    20,918    2,512    1,488    2,341      (2,614)    (1,289)    (6,110)    165,681    146,270      124,351
      850      2,000     4,474       --       --       --          --         --         --       9,000     11,300       11,494
   ------     ------    ------   ------   ------   ------    --------   --------   --------    --------   --------     --------

   27,489     20,241    16,444    2,512    1,488    2,341      (2,614)    (1,289)    (6,110)    156,681    134,970      112,857
   ------     ------    ------   ------   ------   ------    --------   --------   --------    --------   --------     --------
    3,800      3,269     2,723    7,699(1) 4,512(1) 4,197(1)   (1,407)    (2,469)    (2,173)     36,497     25,697       20,721
   22,808     15,720    16,765    7,436    4,160    4,506      11,851 (2) 10,681 (2)    629     138,704    110,287      105,741  
   ------     ------    ------   ------   ------   ------    --------    --------  --------    --------     --------   -------- 
    8,481      7,790     2,402    2,775    1,840    2,032     (15,872)   (14,439)    (8,912)     54,474     50,380       27,837

    3,539      1,111    (1,521)     971      644      683      (5,708)    (4,374)    (4,046)     19,693     16,083        6,960
   ------     ------    ------    -----   ------   ------    --------   --------   --------    --------   --------     --------

   
    4,942      6,679     3,923    1,804    1,196    1,349     (10,164)   (10,065)    (4,866)     34,781     34,297       20,877

       --         --        --       --       --       --       1,271      1,270        659       1,271      1,270          659
   ------     ------    ------   ------   ------   ------    --------   --------   --------    --------   --------     --------
    4,942      6,679     3,923    1,804    1,196    1,349     (11,435)   (11,335)    (5,525)     33,510     33,027       20,218
   ======     ======    ======   ======   ======   ======    ========   ========   ========    ========   ========     ========

</TABLE>




<PAGE>



(21) PARENT COMPANY ONLY FINANCIAL INFORMATION

      Following are condensed balance sheets of First Banks, Inc. as of December
31, 1998 and 1997,  and  condensed  statements  of income and cash flows for the
years ended December 31, 1998, 1997 and 1996:
<TABLE>
<CAPTION>

                                                       CONDENSED BALANCE SHEETS

                                                                                               December 31,  
                                                                                             --------------- 
                                                                                             1998        1997
                                                                                             ----        ----
                                                                                     (dollars expressed in thousands)
                                       Assets
                                       ------

<S>                                                                                      <C>              <C>  
Cash deposited in subsidiary banks....................................................   $    4,775       8,327
Investment in subsidiaries, at equity.................................................      373,236     317,092
Investment securities.................................................................       19,317      27,781
Other assets..........................................................................       13,987      32,408
                                                                                         ----------  ----------
           Total assets...............................................................   $  411,315     385,608
                                                                                         ==========    ========

                        Liabilities and Stockholders' Equity
                        ------------------------------------

Notes payable.........................................................................   $   50,048      55,144
Subordinated debentures payable to First Capital......................................       88,918      88,918
Accrued expenses and other liabilities................................................        8,986      10,009
                                                                                         ----------    --------
           Total liabilities..........................................................      147,952     154,071
Stockholders' equity..................................................................      263,363     231,537
                                                                                         ----------    --------
           Total liabilities and stockholders' equity.................................   $  411,315     385,608
                                                                                         ==========    ========
</TABLE>


                         CONDENSED STATEMENTS OF INCOME

<TABLE>
<CAPTION>
                                                                                    Years ended December 31,  
                                                                                    ------------------------  
                                                                                  1998        1997        1996
                                                                                  ----        ----        ----
                                                                                (dollars expressed in thousands)

Income:
<S>                                                                           <C>            <C>         <C>   
    Dividends from subsidiaries...........................................    $  23,000      17,221      20,714
    Management fees from subsidiaries.....................................       10,154       9,010       7,393
    Other income..........................................................        2,796       3,094       1,684
                                                                              ---------      ------     -------
       Total income.......................................................       35,950      29,325      29,791
                                                                              ---------      ------     -------
Expenses:
    Interest expense......................................................        3,411       8,815       5,461
    Salaries and employee benefits........................................        7,307       7,072       5,538
    Legal and professional fees...........................................        1,988       1,765       1,978
    Other expenses........................................................       12,639       5,221       3,415
                                                                              ---------      ------     -------
       Total expenses.....................................................       25,345      22,873      16,392
                                                                              ---------      ------     -------
       Income before income tax benefit and equity in undistributed
         earnings of subsidiaries.........................................       10,605       6,452      13,399
Income tax benefit........................................................       (3,999)     (2,831)     (1,880)
                                                                              ---------      ------     -------
       Income before equity in undistributed earnings of subsidiaries.....       14,604       9,283      15,279
Equity in undistributed earnings of subsidiaries, net of dividends paid...       18,906      23,744       4,939
                                                                              ---------      ------     -------
       Net income.........................................................    $  33,510      33,027      20,218
                                                                              =========      ======     =======

</TABLE>


<PAGE>



                       CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>

                                                                                   Years ended December 31,    
                                                                              -------------------------------- 
                                                                              1998          1997           1996
                                                                              ----          ----           ----
                                                                               (dollars expressed in thousands)

Cash flows from operating activities:
<S>                                                                       <C>              <C>            <C>   
    Net income.........................................................   $  33,510        33,027         20,218
    Adjustments to reconcile net income to net cash provided by
       operating activities:
         Net income of subsidiaries....................................     (42,107)      (41,015)       (25,610)
         Dividends from subsidiaries...................................      23,000        17,221         20,714
         Other, net....................................................       4,963        (2,773)          (998)
                                                                          ---------      --------        -------
           Net cash provided by operating activities...................      19,366         6,460         14,324
                                                                          ---------      --------        -------
Cash flows from investing activities:
    Decrease (increase) in investment securities.......................       3,000        (3,000)            --
    Investment in common securities of First Capital...................          --        (2,668)            --
    Acquisitions of subsidiaries.......................................     (31,586)           --             --
    Capital contributions to subsidiaries..............................          --          (190)          (200)
    Return of subsidiary capital.......................................          --         2,000          7,786
    Decrease (increase) in advances to subsidiaries....................      14,900          (121)          (950)
    Other, net.........................................................      (3,350)       (6,659)           268
                                                                          ---------      --------        -------
           Net cash provided by (used in) investing activities.........     (17,036)      (10,638)         6,904
                                                                          ---------      --------        -------
Cash flows from financing activities:
    Decrease in notes payable..........................................      (5,096)      (21,186)       (11,805)
    Increase in long term debt.........................................          --        88,918             --
    Payment of preferred stock dividends...............................        (786)       (5,066)        (5,728)
    Purchase and retirement of Class C preferred stock.................          --       (54,048)        (1,139)
                                                                          ---------      --------         ------
           Net cash provided by (used in) financing activities.........      (5,882)        8,618        (18,672)
                                                                          ----------     --------        -------
           Net increase (decrease) in cash and cash equivalents........      (3,552)        4,440          2,556
Cash and cash equivalents, beginning of year...........................       8,327         3,887          1,331
                                                                          ---------      --------        -------
Cash and cash equivalents, end of year.................................   $   4,775         8,327          3,887
                                                                          =========      ========        =======
</TABLE>

(22) CONTINGENT LIABILITIES

         In the ordinary course of business, there are various legal proceedings
pending against First Banks. Management,  after consultation with legal counsel,
is of the opinion the  ultimate  resolution  of these  proceedings  will have no
material effect on the consolidated  financial position or results of operations
of First Banks.

(23) SUBSEQUENT EVENT

      On March 4, 1999, FBA completed its acquisition of Redwood Bancorp and its
wholly owned subsidiary,  Redwood Bank, for cash consideration of $26.0 million.
Redwood Bank is  headquartered  in San  Francisco,  California and operates four
banking  locations in the San Francisco Bay area.  Redwood Bank had $184 million
in total assets, $134 million in loans, net of unearned discount, $32 million of
investment  securities  and $163  million in deposits at the  acquisition  date.
Redwood Bank is operating as a subsidiary of FBA.




<PAGE>







                        DIRECTORS AND EXECUTIVE OFFICERS


<TABLE>
<CAPTION>



                                                           First Banks, Inc.


<S>     <C>                             <C>
         James F. Dierberg              Chairman of the Board, President and Chief Executive Officer
         Allen H. Blake                 Director, Executive Vice President and Chief Operating and Financial Officer

         George J. Markos               Director; President, Profit Management Systems, Richardson, Texas
         Donald J. Gunn                 Director; Attorney-At-Law, Gunn and Gunn, Creve Coeur, Missouri
         John A. Schreiber              Executive Vice President and Chief Lending Officer
         Mark T. Turkcan                Executive Vice President, Consumer Lending and Mortgage Banking
         Donald W. Williams             Executive Vice President and Chief Credit Officer
         Thomas A. Bangert              Senior Vice President and Chief Operations Officer
         Laurence J. Brost              Senior Vice President and Controller

                                                         First Banks America, Inc.

         James F. Dierberg              Chairman of the Board, President and Chief Executive Officer
         Allen H. Blake                 Director,  Executive Vice President,  Chief Operating  Officer, Chief Financial  Officer and
                                        Secretary

         Charles A. Crocco, Jr.         Counsel to the law firm of Jackson & Nash, LLP, New York, New York.

         Albert M. Lavezzo              Director;  Partner  in the law firm of Favaro,  Lavezzo,  Gill,  Caretti & Neppell, Vallejo,
                                        California.

         Edward T. Story, Jr.           Director; President and Chief Executive Officer of SOCO International, Inc., Comfort, Texas.

         Ellen D. Schepman              Director

         Donald W. Williams             Director

         David F. Weaver                Executive Vice President

</TABLE>


<PAGE>

<TABLE>
<CAPTION>



                                                                First Bank

<S>     <C>                             <C>
         John A. Schreiber              Chairman of the Board, President and Chief Executive Officer
         Allen H. Blake                 Director, Secretary, Treasurer and Chief Financial Officer
         Thomas A. Bangert              Director and Senior Vice President
         Douglas R. Distler             Director, Senior Vice President and Regional President
         Donald W. Williams             Director and Executive Vice President
         Mark T. Turkcan                Director and Executive Vice President

                                                             First Bank & Trust

         Fred D. Jensen                 Chairman of the Board, President and Chief Executive Officer
         Karkutla "Bala" Balkrishna     Director, Senior Vice President-Commercial Banking
         Tom LaCroix                    Director, Senior Vice President-Commercial Banking
         Timothy M. Marme               Director, Central Coast Regional President
         Alan G. Rye                    Director, Senior Vice President-Commercial Real Estate
         Arleen R. Scavone              Director, Senior Vice President and Charter Retail Manager
         Donald W. Williams             Director
         Kathryn L. Perrine             Director, Senior Vice President and Chief Financial Officer
         Norman O. Broyer               Director, Senior Vice President and Chief Credit Officer

                                                          First Bank of California

         Terrance M. McCarthy           Chairman of the Board, President and Chief Executive Officer
         James E. Culleton              Director, Retired Chief Operating Officer and Secretary of the Company
         Albert M. Lavezzo              Director; Partner in the law firm of Favaro, Lavezzo, Gill,
                                        Caretti & Neppell, Vallejo, California

         Fred K. Sibley                 Director, Retired Bank President, Vallejo, California

         Gary M. Sanders                Director and Regional President

         Donald W. Williams             Director


                                                           First Bank Texas N.A.
                                                     (Formerly known as BankTEXAS N.A.)

         David F. Weaver                Chairman of the Board, President and Chief Executive Officer
         Donald W. Williams             Director
         Monica J. Rinehart             Director, Controller and Secretary
         Joseph Milcoun, Jr.            Director and Vice President, Retail Banking
         Arved E. White                 Director, Senior Vice President and Chief Lending Officer

</TABLE>


<PAGE>


                              INVESTOR INFORMATION

                             Stock Quotation Symbol
                         NASDAQ National Market System:

                          First Preferred Capital Trust

                                      FBNKO


                                           Market price (1)       Dividend
     1998                                High            Low      declared
     ----                                ----            ---      --------

     First Quarter                  $   27 7/8         26 3/4    $  .578125
     Second Quarter                     27 1/4         26           .578125
     Third Quarter                      27 3/4         25 1/4       .578125
     Fourth Quarter                     26 3/4         25 1/2       .578125
                                       =======         ======    ----------
                                                                 $ 2.312500
                                                                 ==========



                                           Market price (1)       Dividend
     1997                                High           Low       declared
     ----                                ----           ---       --------

     First Quarter                    $ 26 1/8         25        $  .385425
     Second Quarter                     26 3/4         25 1/8       .578125
     Third Quarter                      27             25 5/8       .578125
     Fourth Quarter                     28 3/4         25 7/8       .578125
                                      ========         ======    ----------
                                                                 $ 2.119800
                                                                 ==========
-------------------
(1) Per NASDAQ National Market System.

     Dividends are scheduled to be paid the last day of March,  June,  September
and December.




     A copy of the First Banks,  Inc.  Annual  Report on Form 10-K as filed with
the  Securities  and Exchange  Commission  may be obtained  without  charge upon
written request. Please direct your request to the following address.

     Allen H. Blake                          Transfer Agent
     Executive Vice President and            ChaseMellon Shareholder
       Chief  Operating and                     Services L.L.C.
       Financial Officer                        85 Challenger Road
     First Banks, Inc.                       Overpeck Centre
     11901 Olive Boulevard                   Ridgefield Park, New Jersey 07660
     Creve Coeur, Missouri  63141            (888) 213-0965
     (314) 995-8700                          www.chasemellon.com


<PAGE>


                                  EXHIBIT 21.1



                                First Banks, Inc.

                            Significant Subsidiaries


The following is a list of all  subsidiaries of the Company and the jurisdiction
of incorporation or organization.

                                                  Jurisdiction of Incorporation
    Name of Subsidiary                                   of Organization
    ------------------                                   ---------------

    First Bank                                              Missouri
    CCB Bancorp, Inc. (1)                                  California
    First Banks America, Inc. (2)                           Delaware
------------
(1) CCB Bancorp,  Inc. is the parent company of First Bank & Trust, a California
    state chartered bank.
(2) First Banks  America,  Inc.,  a majority  owned  subsidiary  of First Banks,
    is the parent  company of  First Bank Texas  N.A.,  a national  association,
    and First Bank of California, a state chartered bank.