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

                                    FORM 10-Q

(Mark One)

[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

                For the quarterly period ended September 30, 2008

[ ]   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
                              EXCHANGE ACT OF 1934

               For the transition period from _______ to ________

                         Commission File Number: 0-20632

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

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

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

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

                           --------------------------

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

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

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

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

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

                                                        Shares Outstanding
                         Class                          at October 31, 2008
                         -----                          -------------------

            Common Stock, $250.00 par value                   23,661

<PAGE>

                                FIRST BANKS, INC.

                                TABLE OF CONTENTS

                                                                            Page
                                                                            ----

PART I.      FINANCIAL INFORMATION

   ITEM 1.   FINANCIAL STATEMENTS:

             CONSOLIDATED BALANCE SHEETS....................................   1

             CONSOLIDATED STATEMENTS OF OPERATIONS..........................   2

             CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                 AND COMPREHENSIVE INCOME...................................   3

             CONSOLIDATED STATEMENTS OF CASH FLOWS..........................   4

             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.....................   6

   ITEM 2.   MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                 AND RESULTS OF OPERATIONS..................................  22

   ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.....  46

   ITEM 4.   CONTROLS AND PROCEDURES........................................  47

PART II.     OTHER INFORMATION

   ITEM 1.   LEGAL PROCEEDINGS..............................................  48

   ITEM 1A.  RISK FACTORS...................................................  48

   ITEM 6.   EXHIBITS.......................................................  49

SIGNATURES..................................................................  50

<PAGE>

                         PART I - FINANCIAL INFORMATION
                          ITEM 1 - FINANCIAL STATEMENTS

                                FIRST BANKS, INC.

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

<TABLE>
<CAPTION>
                                                                                                   September 30,       December 31,
                                                                                                       2008                2007
                                                                                                       ----                ----
                                                                                                    (unaudited)         (Restated)
<S>                                                                                                <C>                   <C>
                                         ASSETS
                                         ------

Cash and cash equivalents:
     Cash and due from banks ...............................................................       $    465,036             217,597
     Short-term investments ................................................................              8,030              14,078
                                                                                                   ------------        ------------
          Total cash and cash equivalents ..................................................            473,066             231,675
                                                                                                   ------------        ------------

Investment securities:
     Available for sale ....................................................................            661,695           1,000,392
     Held to maturity (fair value of $19,236 and $19,078, respectively) ....................             19,004              18,879
                                                                                                   ------------        ------------
          Total investment securities ......................................................            680,699           1,019,271
                                                                                                   ------------        ------------

Loans:
     Commercial, financial and agricultural ................................................          2,594,643           2,382,067
     Real estate construction and development ..............................................          1,810,619           2,141,234
     Real estate mortgage ..................................................................          4,342,211           4,211,285
     Consumer and installment ..............................................................             94,637              97,117
     Loans held for sale ...................................................................             41,519              66,079
                                                                                                   ------------        ------------
          Total loans ......................................................................          8,883,629           8,897,782
     Unearned discount .....................................................................             (8,458)            (11,598)
     Allowance for loan losses .............................................................           (211,026)           (168,391)
                                                                                                   ------------        ------------
          Net loans ........................................................................          8,664,145           8,717,793
                                                                                                   ------------        ------------

Bank premises and equipment, net ...........................................................            240,316             240,456
Goodwill and other intangible assets .......................................................            309,591             315,651
Bank-owned life insurance ..................................................................            118,288             116,619
Deferred income taxes ......................................................................            152,640             139,277
Other assets ...............................................................................            193,759             121,728
                                                                                                   ------------        ------------
          Total assets .....................................................................       $ 10,832,504          10,902,470
                                                                                                   ============        ============

                                       LIABILITIES
                                       -----------

Deposits:
     Noninterest-bearing demand ............................................................       $  1,243,280           1,259,123
     Interest-bearing demand ...............................................................            933,125             980,850
     Savings and money market ..............................................................          2,928,650           2,716,726
     Time deposits of $100 or more .........................................................          1,281,291           1,546,857
     Other time deposits ...................................................................          2,503,042           2,645,637
                                                                                                   ------------        ------------
          Total deposits ...................................................................          8,889,388           9,149,193
Other borrowings ...........................................................................            587,914             409,616
Notes payable ..............................................................................                 --              39,000
Subordinated debentures ....................................................................            353,809             353,752
Deferred income taxes ......................................................................             36,643              48,209
Accrued expenses and other liabilities .....................................................             59,284              55,079
Minority interest in subsidiaries ..........................................................            120,565               5,544
                                                                                                   ------------        ------------
          Total liabilities ................................................................         10,047,603          10,060,393
                                                                                                   ------------        ------------

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

Preferred stock:
     $1.00 par value, 5,000,000 shares authorized, no shares issued and outstanding ........                 --                  --
     Class A convertible, adjustable rate, $20.00 par value, 750,000
       shares authorized, 641,082 shares issued and outstanding ............................             12,822              12,822
     Class B adjustable rate, $1.50 par value, 200,000 shares authorized,
       160,505 shares issued and outstanding ...............................................                241                 241
Common stock, $250.00 par value, 25,000 shares authorized,
     23,661 shares issued and outstanding ..................................................              5,915               5,915
Additional paid-in capital .................................................................              9,685               9,685
Retained earnings ..........................................................................            754,380             818,343
Accumulated other comprehensive income (loss) ..............................................              1,858              (4,929)
                                                                                                   ------------        ------------
          Total stockholders' equity .......................................................            784,901             842,077
                                                                                                   ------------        ------------
          Total liabilities and stockholders' equity .......................................       $ 10,832,504          10,902,470
                                                                                                   ============        ============
</TABLE>

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


                                       1
<PAGE>

                                FIRST BANKS, INC.

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

<TABLE>
<CAPTION>
                                                                                 Three Months Ended           Nine Months Ended
                                                                                    September 30,                September 30,
                                                                            --------------------------    -------------------------
                                                                                2008           2007           2008          2007
                                                                                ----           ----           ----          ----
                                                                                            (Restated)                   (Restated)
<S>                                                                         <C>                 <C>         <C>            <C>
Interest income:
    Interest and fees on loans ..........................................   $   134,565        159,561        425,429       469,646
    Investment securities ...............................................         8,883         16,493         29,760        49,867
    Short-term investments ..............................................           849          1,478          1,165         5,671
                                                                            -----------    -----------    -----------   -----------
          Total interest income .........................................       144,297        177,532        456,354       525,184
                                                                            -----------    -----------    -----------   -----------
Interest expense:
    Deposits:
       Interest-bearing demand ..........................................         1,207          2,242          4,560         7,171
       Savings and money market .........................................        14,633         21,012         46,577        59,809
       Time deposits of $100 or more ....................................        11,808         18,299         41,593        53,533
       Other time deposits ..............................................        21,628         27,881         72,143        83,851
    Other borrowings ....................................................         3,891          4,140         11,678        13,427
    Notes payable .......................................................            45            544          1,310         2,088
    Subordinated debentures .............................................         4,980          5,920         16,078        18,265
                                                                            -----------    -----------    -----------   -----------
          Total interest expense ........................................        58,192         80,038        193,939       238,144
                                                                            -----------    -----------    -----------   -----------
          Net interest income ...........................................        86,105         97,494        262,415       287,040
Provision for loan losses ...............................................        99,000         13,503        229,000        20,420
                                                                            -----------    -----------    -----------   -----------
          Net interest (loss) income after provision for loan losses ....       (12,895)        83,991         33,415       266,620
                                                                            -----------    -----------    -----------   -----------
Noninterest income:
    Service charges on deposit accounts and customer service fees .......        14,551         12,053         39,724        34,322
    Gain (loss) on loans sold and held for sale .........................           908         (2,627)         3,556          (555)
    Net loss on investment securities ...................................        (1,092)           (74)        (5,715)       (1,314)
    Bank-owned life insurance investment income .........................           554          1,081          2,251         2,793
    Investment management income ........................................           737          1,447          2,779         4,499
    Insurance fee and commission income .................................         1,835          1,750          5,739         5,313
    Net (loss) gain on derivative instruments ...........................           (57)           603          1,729           261
    Gain on extinguishment of term repurchase agreement .................            --             --          5,000            --
    Other ...............................................................         1,255          5,618         15,630        16,740
                                                                            -----------    -----------    -----------   -----------
          Total noninterest income ......................................        18,691         19,851         70,693        62,059
                                                                            -----------    -----------    -----------   -----------
Noninterest expense:
    Salaries and employee benefits ......................................        35,217         43,093        112,886       132,053
    Occupancy, net of rental income .....................................         9,934          8,566         28,848        24,297
    Furniture and equipment .............................................         5,320          4,944         16,222        14,171
    Postage, printing and supplies ......................................         1,479          1,609          4,813         5,040
    Information technology fees .........................................         8,777          8,995         27,168        27,515
    Legal, examination and professional fees ............................         4,409          2,535         11,711         6,949
    Amortization of intangible assets ...................................         2,785          3,142          8,346         9,295
    Advertising and business development ................................         1,784          1,577          5,231         5,147
    FDIC insurance ......................................................         1,515            233          4,528           749
    Charitable contributions ............................................            68          1,664            472         5,042
    Other ...............................................................        12,422          8,416         31,551        25,215
                                                                            -----------    -----------    -----------   -----------
          Total noninterest expense .....................................        83,710         84,774        251,776       255,473
                                                                            -----------    -----------    -----------   -----------
          (Loss) income before (benefit) provision for income taxes
              and minority interest in (loss) income of subsidiaries ....       (77,914)        19,068       (147,668)       73,206
(Benefit) provision for income taxes ....................................       (52,799)         6,470        (77,941)       25,753
                                                                            -----------    -----------    -----------   -----------
          (Loss) income before minority interest in (loss) income
              of subsidiaries ...........................................       (25,115)        12,598        (69,727)       47,453
Minority interest in (loss) income of subsidiaries ......................          (154)            74             24           175
                                                                            -----------    -----------    -----------   -----------
          Net (loss) income .............................................       (24,961)        12,524        (69,751)       47,278
Preferred stock dividends ...............................................           196            196            524           524
                                                                            -----------    -----------    -----------   -----------
          Net (loss) income available to common stockholders ............   $   (25,157)        12,328        (70,275)       46,754
                                                                            ===========    ===========    ===========   ===========
Basic (loss) earnings per common share ..................................   $ (1,063.24)        521.02      (2,970.11)     1,976.00
                                                                            ===========    ===========    ===========   ===========
Diluted (loss) earnings per common share ................................   $ (1,063.24)        520.77      (2,970.11)     1,964.95
                                                                            ===========    ===========    ===========   ===========
Weighted average shares of common stock outstanding .....................        23,661         23,661         23,661        23,661
                                                                            ===========    ===========    ===========   ===========
</TABLE>

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


                                       2
<PAGE>

                                FIRST BANKS, INC.

         CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY AND
                       COMPREHENSIVE INCOME - (UNAUDITED)
         Nine Months Ended September 30, 2008 and 2007 and Three Months
                            Ended December 31, 2007
             (dollars expressed in thousands, except per share data)

<TABLE>
<CAPTION>

                                                                                                               Accu-
                                                         Adjustable Rate                                      mulated
                                                         Preferred Stock                                       Other
                                                        -----------------                                     Compre-       Total
                                                         Class A                     Additional               hensive       Stock-
                                                         Conver-            Common    Paid-In     Retained    Income       holders'
                                                          tible   Class B   Stock     Capital     Earnings    (Loss)        Equity
                                                         -------  -------   ------   ----------   --------   ----------   ----------
                                                                                                 (Restated)  (Restated)   (Restated)
<S>                                                    <C>           <C>     <C>       <C>         <C>         <C>          <C>
Balances, December 31, 2006 ........................   $  12,822     241     5,915      9,685      767,199     (13,092)     782,770
                                                                                                                           --------
Nine months ended September 30, 2007:
   Comprehensive income:
     Net income ....................................          --      --        --         --       47,278          --       47,278
     Other comprehensive income, net of tax:
       Unrealized losses on investment securities ..          --      --        --         --           --      (4,448)      (4,448)
       Reclassification adjustment for investment
         securities gains included in net income ...          --      --        --         --           --         (94)         (94)
       Derivative instruments:
         Current period transactions ...............          --      --        --         --           --       5,053        5,053
                                                                                                                           --------
   Total comprehensive income ......................                                                                         47,789
   Cumulative effect of change in accounting
      principle ....................................          --      --        --         --        2,470          --        2,470
   Class A preferred stock dividends, $0.80 per
      share ........................................          --      --        --         --         (513)         --         (513)
   Class B preferred stock dividends, $0.07 per
      share ........................................          --      --        --         --          (11)         --          (11)
                                                       ---------  ------    ------     ------     --------    --------     --------
Balances, September 30, 2007 .......................      12,822     241     5,915      9,685      816,423     (12,581)     832,505
                                                                                                                           --------
Three months ended December 31, 2007:
   Comprehensive income:
     Net income ....................................          --      --        --         --        2,182          --        2,182
     Other comprehensive income, net of tax:
       Unrealized gains on investment securities ...          --      --        --         --           --       4,243        4,243
       Reclassification adjustment for investment
         securities losses included in net income ..          --      --        --         --           --         216          216
       Derivative instruments:
         Current period transactions ...............          --      --        --         --           --       4,095        4,095
                                                                                                                           --------
   Total comprehensive income ......................                                                                         10,736
   Impact of adoption of SFAS No. 158 ..............          --      --        --         --           --        (902)        (902)
   Class A preferred stock dividends, $0.40 per
      share ........................................          --      --        --         --         (256)         --         (256)
   Class B preferred stock dividends, $0.04 per
      share ........................................          --      --        --         --           (6)         --           (6)
                                                       ---------  ------    ------     ------     --------    --------     --------
Balances, December 31, 2007 ........................      12,822     241     5,915      9,685      818,343      (4,929)     842,077
                                                                                                                           --------
Nine months ended September 30, 2008:
   Comprehensive loss:
     Net loss ......................................          --      --        --         --      (69,751)         --      (69,751)
     Other comprehensive income, net of tax:
       Unrealized losses on investment securities ..          --      --        --         --           --        (153)        (153)
       Reclassification adjustment for investment
         securities losses included in net loss ....          --      --        --         --           --       3,715        3,715
       Derivative instruments:
         Current period transactions ...............          --      --        --         --           --       3,225        3,225
                                                                                                                           --------
   Total comprehensive loss ........................                                                                        (62,964)
   Cumulative effect of change in accounting
      principle ....................................          --      --        --         --        6,312          --        6,312
   Class A preferred stock dividends, $0.80 per
      share ........................................          --      --        --         --         (513)         --         (513)
   Class B preferred stock dividends, $0.07 per
      share ........................................          --      --        --         --          (11)         --          (11)
                                                       ---------  ------    ------     ------     --------    --------     --------
Balances, September 30, 2008 .......................   $  12,822     241     5,915      9,685      754,380       1,858      784,901
                                                       =========  ======    ======     ======     ========    ========     ========
</TABLE>

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


                                       3
<PAGE>

                                FIRST BANKS, INC.

               CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED)
                        (dollars expressed in thousands)

<TABLE>
<CAPTION>
                                                                                                             Nine Months Ended
                                                                                                                September 30,
                                                                                                         --------------------------
                                                                                                            2008             2007
                                                                                                            ----             ----
                                                                                                                          (Restated)
<S>                                                                                                      <C>               <C>
Cash flows from operating activities:
     Net (loss) income .............................................................................     $  (69,751)         47,278
     Adjustments to reconcile net (loss) income to net cash provided by operating activities:
       Depreciation and amortization of bank premises and equipment ................................         18,611          15,203
       Amortization of intangible assets ...........................................................          8,346           9,295
       Originations of loans held for sale .........................................................       (168,726)       (433,016)
       Proceeds from sales of loans held for sale ..................................................        226,187         472,325
       Payments received on loans held for sale ....................................................         13,560          14,507
       Provision for loan losses ...................................................................        229,000          20,420
       (Benefit) provision for current income taxes ................................................        (66,611)         26,041
       Benefit for deferred income taxes ...........................................................        (11,330)           (288)
       Decrease in accrued interest receivable .....................................................         16,034           6,667
       Decrease in accrued interest payable ........................................................         (4,867)         (9,581)
       Proceeds from sales of trading securities ...................................................             --          81,038
       Maturities of trading securities ............................................................             --          16,651
       Purchases of trading securities .............................................................             --         (17,939)
       (Gain) loss on loans sold and held for sale .................................................         (3,556)            555
       Net loss on investment securities ...........................................................          5,715           1,314
       Net gain on derivative instruments ..........................................................         (1,729)           (261)
       Decrease in carrying value of servicing rights ..............................................          6,508           4,062
       Gain on extinguishment of term repurchase agreement .........................................         (5,000)             --
       Other operating activities, net .............................................................         20,138          (4,632)
       Minority interest in income of subsidiaries .................................................             24             175
                                                                                                         ----------      ----------
          Net cash provided by operating activities ................................................        212,553         249,814
                                                                                                         ----------      ----------
Cash flows from investing activities:
     Cash paid for acquired entities, net of cash and cash equivalents received ....................             --         (14,720)
     Cash paid for sale of branches, net of cash and cash equivalents sold .........................             --         (48,926)
     Cash paid for earn-out consideration to Adrian N. Baker & Company .............................         (2,920)         (1,513)
     Proceeds from sales of investment securities available for sale ...............................        351,751             487
     Maturities of investment securities available for sale ........................................        293,131         858,873
     Maturities of investment securities held to maturity ..........................................          1,411           4,510
     Purchases of investment securities available for sale .........................................       (341,031)       (643,548)
     Purchases of investment securities held to maturity ...........................................         (1,557)           (133)
     Proceeds from sale of commercial loans held for sale ..........................................          3,421          33,471
     Net increase in loans .........................................................................       (276,128)       (429,845)
     Recoveries of loans previously charged-off ....................................................          5,998           6,360
     Purchases of bank premises and equipment ......................................................        (19,377)        (50,058)
     Net proceeds from sale of other real estate owned .............................................         11,170           8,911
     Cash received for minority interest in FB Holdings, LLC .......................................        115,000              --
     Other investing activities, net ...............................................................          1,987          (1,752)
                                                                                                         ----------      ----------
          Net cash provided by (used in) investing activities ......................................        142,856        (277,883)
                                                                                                         ----------      ----------
Cash flows from financing activities:
     Increase in demand, savings and money market deposits .........................................        148,356         139,206
     Decrease in time deposits .....................................................................       (405,155)        (67,228)
     Increase (decrease) in Federal Home Loan Bank advances ........................................        299,870         (33,325)
     Decrease in federal funds purchased ...........................................................        (76,500)             --
     Decrease in securities sold under agreements to repurchase ....................................        (41,065)        (58,722)
     Advances drawn on notes payable ...............................................................         55,000              --
     Repayments of notes payable ...................................................................        (94,000)        (55,000)
     Proceeds from issuance of subordinated debentures .............................................             --          77,322
     Repayments of subordinated debentures .........................................................             --         (82,681)
     Payment of preferred stock dividends ..........................................................           (524)           (524)
                                                                                                         ----------      ----------
          Net cash used in financing activities ....................................................       (114,018)        (80,952)
                                                                                                         ----------      ----------
          Net increase (decrease) in cash and cash equivalents .....................................        241,391        (109,021)
Cash and cash equivalents, beginning of period .....................................................        231,675         369,557
                                                                                                         ----------      ----------
Cash and cash equivalents, end of period ...........................................................     $  473,066         260,536
                                                                                                         ==========      ==========
</TABLE>


                                       4
<PAGE>

                                FIRST BANKS, INC.

         CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED) (CONTINUED)
                        (dollars expressed in thousands)

<TABLE>
<CAPTION>
                                                                                                             Nine Months Ended
                                                                                                               September 30,
                                                                                                        ---------------------------
                                                                                                           2008             2007
                                                                                                           ----             ----
                                                                                                                         (Restated)
<S>                                                                                                     <C>                <C>
Supplemental disclosures of cash flow information:
     Cash paid (received) during the period for:
        Interest on liabilities ..................................................................      $  199,799          248,452
        Income taxes .............................................................................         (14,427)          (1,636)
                                                                                                        ==========       ==========
     Noncash investing and financing activities:
        Cumulative effect of change in accounting principle ......................................      $    6,312            2,470
        Loans held for sale transferred to loan portfolio ........................................              --           86,559
        Loans transferred to other real estate ...................................................          49,778           10,169
                                                                                                        ==========       ==========
     Business combinations:
        Fair value of tangible assets acquired (noncash) .........................................      $       --          189,280
        Goodwill and other intangible assets recorded with net assets acquired ...................           2,920           28,613
        Liabilities assumed ......................................................................              --         (201,660)
                                                                                                        ==========       ==========
</TABLE>

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


                                       5
<PAGE>

                                FIRST BANKS, INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1)   BASIS OF PRESENTATION

The  consolidated  financial  statements of First Banks,  Inc. and  subsidiaries
(First  Banks or the Company) are  unaudited  and should be read in  conjunction
with the consolidated  financial  statements contained in Amendment No. 1 to the
2007 Annual Report on Form 10-K. The consolidated financial statements have been
prepared in accordance with U.S.  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
U.S. generally accepted accounting principles.  Actual results could differ from
those estimates.  In the opinion of management,  all adjustments,  consisting of
normal recurring  accruals  considered  necessary for a fair presentation of the
results of  operations  for the  interim  periods  presented  herein,  have been
included.  Operating  results for the three and nine months ended  September 30,
2008 are not necessarily  indicative of the results that may be expected for the
year ending December 31, 2008.

The consolidated financial statements include the accounts of the parent company
and its  subsidiaries,  giving  effect to the minority  interest,  as more fully
described  below, and in Note 5 to the consolidated  financial  statements.  All
significant intercompany accounts and transactions have been eliminated. Certain
reclassifications  of 2007  amounts  have  been  made  to  conform  to the  2008
presentation.

First Banks operates  through its wholly owned  subsidiary bank holding company,
The San Francisco Company (SFC),  headquartered in St. Louis,  Missouri, and its
wholly owned subsidiary, Coast Financial Holdings, Inc. (CFHI), headquartered in
Bradenton, Florida.

Prior to First Banks'  acquisition  of CFHI on November  30,  2007,  First Bank,
headquartered in St. Louis,  Missouri,  was a wholly owned banking subsidiary of
SFC. On November 30, 2007, First Banks completed its acquisition of CFHI and its
wholly owned banking subsidiary,  Coast Bank of Florida (Coast Bank). The issued
and  outstanding  shares of common stock of Coast Bank were  exchanged for newly
issued and outstanding shares of non-voting Series B common stock of First Bank,
and Coast Bank was  merged  with and into First  Bank.  As a result,  SFC is the
owner of 100% of the voting Series A outstanding shares of common stock of First
Bank and CFHI is the owner of 100% of the non-voting Series B outstanding shares
of common stock of First Bank. Thus, First Bank is 96.82% owned by SFC and 3.18%
owned by CFHI.

First Bank operates through its branch banking offices and  subsidiaries:  First
Bank Business Capital,  Inc.;  Missouri Valley Partners,  Inc. (MVP);  Adrian N.
Baker & Company (ANB);  Universal Premium Acceptance  Corporation and its wholly
owned subsidiary, UPAC of California, Inc. (collectively,  UPAC); Small Business
Loan  Source  LLC (SBLS  LLC) and FB  Holdings,  LLC (FB  Holdings).  All of the
subsidiaries  are wholly owned as of September 30, 2008,  except SBLS LLC, which
was 76.0% owned by First Bank and 24.0%  owned by First  Capital  America,  Inc.
(FCA), and FB Holdings, which was 53.66% owned by First Bank and 46.34% owned by
FCA, as further  described in Note 5 to the consolidated  financial  statements.
SBLS LLC and FB Holdings are included in the consolidated  financial  statements
with the minority ownership interests reported in the liabilities section of the
consolidated  balance  sheets as  "minority  interest in  subsidiaries"  and the
minority  ownership  interest  of  earnings  or loss,  net of tax,  reported  as
"minority  interest  in  (loss)  income  of  subsidiaries"  in the  consolidated
statements of operations.

Restatement of Previously Issued Consolidated Interim Financial Statements.

As discussed in Amendment No. 1 to the 2007 Annual Report on Form 10-K, as filed
with the United  States  Securities  and Exchange  Commission  (SEC) on July 30,
2008, the Audit Committee of the Board of Directors (the Audit Committee),  with
the  assistance  of legal  counsel  and other  third  parties,  commissioned  an
investigation  into the  circumstances and possible  irregularities  that led to
certain fraudulent transactions in the Company's mortgage banking division being
improperly  recorded in the Company's  consolidated  financial  statements  (the
Transactions) due to the  circumvention of established  internal  controls.  The
investigation was completed on July 29, 2008.

On May 16, 2008,  management and the Audit Committee determined that the Company
needed to restate its previously issued consolidated  financial statements as of
December 31, 2007 and 2006, and for the years ended December 31, 2007,  2006 and
2005 and each of the quarters in 2007 and 2006, and that these previously issued
consolidated financial statements should no longer be relied upon.  Accordingly,
the Company has restated its previously issued consolidated financial statements
in Amendment No. 1 to its Annual Report on Form 10-K for the year ended December
31, 2007. The Company has not amended any of its other  previously  filed Annual
Reports  on Form 10-K or any  Quarterly  Reports  on Form  10-Q for the  periods
affected by this restatement.


                                       6
<PAGE>

The following table presents the effects of the adjustments made to First Banks'
previously reported consolidated statements of operations for the three and nine
months ended September 30, 2007:

<TABLE>
<CAPTION>
                                                                Three Months Ended                      Nine Months Ended
                                                                September 30, 2007                     September 30, 2007
                                                       -----------------------------------    -------------------------------------
                                                           As                                     As
                                                       Previously                    As       Previously                      As
                                                        Reported   Adjustment     Restated     Reported      Adjustment    Restated
                                                        --------   ----------     --------     --------      ----------    --------
                                                                  (dollars in thousands, except share and per share data)
<S>                                                     <C>           <C>          <C>          <C>           <C>          <C>
Interest and fees on loans ........................     $160,134        (573)      159,561       471,713       (2,067)      469,646
Total interest income .............................      178,105        (573)      177,532       527,251       (2,067)      525,184
Interest expense on other borrowings ..............        4,361        (221)        4,140        13,653         (226)       13,427
Interest expense on subordinated debentures .......        5,920          --         5,920        17,668          597        18,265
Total interest expense ............................       80,259        (221)       80,038       237,773          371       238,144
Net interest income ...............................       97,846        (352)       97,494       289,478       (2,438)      287,040
Provision for loan losses .........................       17,000      (3,497)       13,503        26,000       (5,580)       20,420
Net interest income after provision for loan losses       80,846       3,145        83,991       263,478        3,142       266,620
Gain (loss) on loans sold and held for sale .......        3,535      (6,162)       (2,627)       12,019      (12,574)         (555)
Other noninterest income ..........................        6,445        (827)        5,618        17,567         (827)       16,740
Total noninterest income ..........................       26,840      (6,989)       19,851        75,460      (13,401)       62,059
Occupancy expense, net of rental income ...........        8,321         245         8,566        23,489          808        24,297
Total noninterest expense .........................       84,529         245        84,774       254,665          808       255,473
Income before provision for income taxes and
     minority interest in income of subsidiary. ...       23,157      (4,089)       19,068        84,273      (11,067)       73,206
Provision for income taxes ........................        8,087      (1,617)        6,470        30,129       (4,376)       25,753
Income before minority interest in
     income of subsidiary .........................       15,070      (2,472)       12,598        54,144       (6,691)       47,453
Net income ........................................       14,996      (2,472)       12,524        53,969       (6,691)       47,278
Net income available to common stockholders .......       14,800      (2,472)       12,328        53,445       (6,691)       46,754
Basic earnings per common share ...................       625.48     (104.46)       521.02      2,258.77      (282.77)     1,976.00
Diluted earnings per common share .................       623.84     (103.07)       520.77      2,243.90      (278.95)     1,964.95
</TABLE>

Significant  Accounting  Policies.  On  January 1, 2008,  First  Banks  opted to
measure  servicing  rights at fair value as  permitted by Statement of Financial
Accounting  Standards  (SFAS) No. 156 -  Accounting  for  Servicing of Financial
Assets.  The election of this option resulted in the recognition of a cumulative
effect of change in accounting principle of $6.3 million,  which was recorded as
an increase to beginning  retained  earnings,  as further described in Note 3 to
the  consolidated  financial  statements.  As such,  effective  January 1, 2008,
changes in the fair value of mortgage and SBA servicing rights are recognized in
earnings in the period in which the change occurs.

On  January  1,  2008,  First  Banks  implemented  SFAS  No.  157 -  Fair  Value
Measurements for financial and nonfinancial assets and liabilities recognized or
disclosed at fair value in the  financial  statements  on a recurring  basis and
financial  assets  recognized  on a  nonrecurring  basis,  which  did not have a
material  impact on First Banks'  financial  condition or results of  operations
other than certain additional disclosure requirements. SFAS No. 157 defines fair
value,  establishes  a  framework  for  measuring  fair value in U.S.  generally
accepted  accounting  principles,  and  expands  disclosures  about  fair  value
measurements.  SFAS No. 157 applies under other accounting  pronouncements  that
require or permit  fair value  measurements,  and does not  require any new fair
value  measurements.  SFAS No. 157 is effective for fiscal years beginning after
November 15, 2007, and interim periods within those fiscal years,  for financial
assets and liabilities and nonfinancial assets and nonfinancial liabilities that
are  recognized  or disclosed  at fair value in the  financial  statements  on a
recurring  basis  (at  least  annually).  Implementation  is  deferred  for  all
nonfinancial  assets  and  nonfinancial   liabilities  that  are  recognized  or
disclosed at fair value in the financial  statements on a nonrecurring  basis to
fiscal years  beginning  after November 15, 2008. For additional  information on
the fair value of financial  assets,  see Note 12 to the consolidated  financial
statements.


                                       7
<PAGE>

(2)   GOODWILL AND OTHER INTANGIBLE ASSETS

Goodwill and other intangible assets, net of amortization, were comprised of the
following at September 30, 2008 and December 31, 2007:

<TABLE>
<CAPTION>
                                                                       September 30, 2008               December 31, 2007
                                                                   -------------------------        -------------------------
                                                                     Gross                           Gross
                                                                   Carrying      Accumulated        Carrying      Accumulated
                                                                    Amount       Amortization        Amount       Amortization
                                                                    ------       ------------        ------       ------------
                                                                                 (dollars expressed in thousands)
<S>                                                                <C>               <C>               <C>            <C>
      Amortized intangible assets:
          Core deposit intangibles .........................       $  53,916         (30,906)          53,916         (23,873)
          Customer list intangibles ........................          23,320          (3,528)          23,320          (2,408)
          Other intangibles ................................           2,385          (1,630)           2,386          (1,437)
                                                                   ---------       ---------        ---------       ---------
              Total ........................................       $  79,621         (36,064)          79,622         (27,718)
                                                                   =========       =========        =========       =========

      Unamortized intangible assets:
          Goodwill .........................................       $ 266,034                          263,747
                                                                   =========                        =========
</TABLE>

Amortization  of  intangible  assets was $2.8  million and $8.3  million for the
three and nine months ended September 30, 2008,  respectively,  and $3.1 million
and $9.3 million for the comparable periods in 2007.  Amortization of intangible
assets,  including  amortization  of core  deposit  intangibles,  customer  list
intangibles and other intangibles has been estimated in the following table, and
does not take into  consideration  any potential  future  acquisitions or branch
office purchases.

<TABLE>
<CAPTION>
                                                                          (dollars expressed in thousands)
<S>                                                                                   <C>
         Year ending December 31:
             2008 remaining.........................................................  $  2,785
             2009...................................................................     9,280
             2010...................................................................     8,852
             2011...................................................................     6,674
             2012...................................................................     2,459
             2013...................................................................     1,524
             Thereafter.............................................................    11,983
                                                                                      --------
                 Total..............................................................  $ 43,557
                                                                                      ========
</TABLE>

Changes in the carrying amount of goodwill for the three and nine months ended
September 30, 2008 and 2007 were as follows:

<TABLE>
<CAPTION>
                                                                   Three Months Ended                 Nine Months Ended
                                                                       September 30,                    September 30,
                                                                 --------------------------        --------------------------
                                                                    2008             2007            2008               2007
                                                                    ----             ----            ----               ----
                                                                              (dollars expressed in thousands)
<S>                                                              <C>                <C>              <C>              <C>
      Balance, beginning of period .......................       $ 266,079          254,093          263,747          230,036
      Goodwill acquired during the period (1) ............              --             (121)           2,920           24,538
      Acquisition-related and other adjustments (2) ......             (45)            (273)            (633)            (875)
                                                                 ---------        ---------        ---------        ---------
      Balance, end of period .............................       $ 266,034          253,699          266,034          253,699
                                                                 =========        =========        =========        =========
</TABLE>

      ----------
      (1)   Goodwill  acquired  during  2008  pertains  to  additional  earn-out
            consideration  associated with the acquisition of ANB in March 2006.
            Goodwill  acquired  during 2007 pertains to the acquisition of Royal
            Oaks  Bancshares,  Inc. in  February  2007 and  additional  earn-out
            consideration associated with the acquisition of ANB.
      (2)   Acquisition-related    adjustments   include   additional   purchase
            accounting  adjustments for prior years'  acquisitions  necessary to
            appropriately  adjust  preliminary  goodwill recorded at the time of
            the acquisition, which was based upon current estimates available at
            that time,  to reflect the  receipt of  additional  valuation  data.
            Acquisition-related  adjustments  recorded in 2008 primarily pertain
            to the  acquisition  of CFHI in November  2007.  Acquisition-related
            adjustments recorded in 2007 pertain to the acquisition of San Diego
            Community Bank in August 2006 and other adjustments recorded in 2007
            pertain to the sale of certain branch offices in July 2007.


                                       8
<PAGE>

(3)   SERVICING RIGHTS

On January 1, 2008, First Banks opted to measure  servicing rights at fair value
as  permitted  by SFAS No. 156.  The  election  of this  option  resulted in the
recognition  of a cumulative  effect of change in  accounting  principle of $6.3
million,  net of tax,  which was recorded as an increase to  beginning  retained
earnings,  as  further  described  in  Note  1  to  the  consolidated  financial
statements.

Mortgage Banking Activities.  At September 30, 2008 and December 31, 2007, First
Banks  serviced  mortgage loans for others  totaling  $1.10 billion.  Changes in
mortgage servicing rights for the three and nine months ended September 30, 2008
and 2007 were as follows:

<TABLE>
<CAPTION>
                                                                              Three Months Ended             Nine Months Ended
                                                                                 September 30,                  September 30,
                                                                           ------------------------      --------------------------
                                                                              2008          2007           2008             2007
                                                                              ----          ----           ----             ----
                                                                                      (dollars expressed in thousands)
<S>                                                                        <C>                <C>             <C>             <C>
      Balance, beginning of period ...................................     $   15,967         5,004           5,290           5,867
      Re-measurement to fair value upon election to measure
        servicing rights at fair value under SFAS No. 156 ............             --            --           9,538              --
      Originated mortgage servicing rights ...........................            158           286           1,831             941
      Change in fair value resulting from changes in valuation
        inputs or assumptions used in valuation model (1) ............         (4,134)           --          (3,583)             --
      Other changes in fair value (2) ................................           (343)           --          (1,428)             --
      Amortization ...................................................             --          (637)             --          (2,155)
                                                                           ----------    ----------      ----------      ----------
      Balance, end of period .........................................     $   11,648         4,653          11,648           4,653
                                                                           ==========    ==========      ==========      ==========
</TABLE>

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

Other Servicing  Activities.  At September 30, 2008 and December 31, 2007, First
Banks  serviced  United  States Small  Business  Administration  (SBA) loans for
others totaling $216.4 million and $149.9 million, respectively.  Changes in SBA
servicing rights for the three and nine months ended September 30, 2008 and 2007
were as follows:

<TABLE>
<CAPTION>
                                                                              Three Months Ended             Nine Months Ended
                                                                                 September 30,                  September 30,
                                                                           ------------------------      --------------------------
                                                                              2008          2007           2008             2007
                                                                              ----          ----           ----             ----
                                                                                      (dollars expressed in thousands)
<S>                                                                        <C>                <C>             <C>             <C>
      Balance, beginning of period ...................................     $    9,756         7,620           7,468           8,064
      Re-measurement to fair value upon election to measure
        servicing rights at fair value under SFAS No. 156 ............             --            --             905              --
      Originated SBA servicing rights ................................            559           709           2,612           1,699
      Change in fair value resulting from changes in valuation
        inputs or assumptions used in valuation model (1) ............           (552)           --            (537)             --
      Other changes in fair value (2) ................................           (275)           --            (960)             --
      Amortization ...................................................             --          (417)             --          (1,233)
      Impairment .....................................................             --           (56)             --            (674)
                                                                           ----------    ----------      ----------      ----------
      Balance, end of period .........................................     $    9,488         7,856           9,488           7,856
                                                                           ==========    ==========      ==========      ==========
</TABLE>

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


                                       9
<PAGE>

(4)   EARNINGS (LOSS) PER COMMON SHARE

The following is a reconciliation of basic and diluted earnings (loss) per share
(EPS) for the three and nine months ended September 30, 2008 and 2007:

<TABLE>
<CAPTION>
                                                                                     Income                          Per Share
                                                                                     (Loss)           Shares          Amount
                                                                                     ------           ------          ------
                                                                             (dollars in thousands, except share and per share data)
<S>                                                                                <C>                   <C>        <C>
      Three months ended September 30, 2008:
          Basic EPS - loss to common stockholders ............................     $   (25,157)          23,661     $ (1,063.24)
          Effect of dilutive securities:
            Class A convertible preferred stock ..............................              --               --              --
                                                                                   -----------      -----------     -----------
          Diluted EPS - loss to common stockholders ..........................     $   (25,157)          23,661     $ (1,063.24)
                                                                                   ===========      ===========     ===========

                                                                                   (Restated)        (Restated)      (Restated)
                                                                                   ----------        ----------      ----------
      Three months ended September 30, 2007:
          Basic EPS - income available to common stockholders ................     $    12,328           23,661     $    521.02
          Effect of dilutive securities:
            Class A convertible preferred stock ..............................             192              380           (0.25)
                                                                                   -----------      -----------     -----------
          Diluted EPS - income available to common stockholders ..............     $    12,520           24,041     $    520.77
                                                                                   ===========      ===========     ===========

      Nine months ended September 30, 2008:
          Basic EPS - loss to common stockholders ............................     $   (70,275)          23,661     $ (2,970.11)
          Effect of dilutive securities:
            Class A convertible preferred stock ..............................              --               --              --
                                                                                   -----------      -----------     -----------
          Diluted EPS - loss to common stockholders ..........................     $   (70,275)          23,661     $ (2,970.11)
                                                                                   ===========      ===========     ===========

                                                                                   (Restated)        (Restated)      (Restated)
                                                                                   ----------        ----------      ----------
      Nine months ended September 30, 2007:
          Basic EPS - income available to common stockholders ................     $    46,754           23,661     $  1,976.00
          Effect of dilutive securities:
            Class A convertible preferred stock ..............................             513              394          (11.05)
                                                                                   -----------      -----------     -----------
          Diluted EPS - income available to common stockholders ..............     $    47,267           24,055     $  1,964.95
                                                                                   ===========      ===========     ===========
</TABLE>

(5)   TRANSACTIONS WITH RELATED PARTIES

First Services, L.P. (First Services), a limited partnership indirectly owned by
First Banks' Chairman and members of his immediate family,  provides information
technology,  item processing and various related  services to First Banks,  Inc.
and its  subsidiaries.  Fees paid under agreements with First Services were $8.4
million  and $25.6  million for the three and nine months  ended  September  30,
2008,  respectively,  and $8.4  million  and $25.9  million  for the  comparable
periods  in  2007.  First  Services  leases  information  technology  and  other
equipment  from First Bank.  First  Services paid First Bank rental fees for the
use of that  equipment of $920,000  and $2.9  million  during the three and nine
months ended September 30, 2008, respectively, and $903,000 and $2.9 million for
the comparable  periods in 2007. In addition,  First Services paid approximately
$464,000  and $1.4  million for the three and nine months  ended  September  30,
2008, respectively,  and $464,000 and $1.3 million for the comparable periods in
2007, in rental payments for occupancy of certain First Bank premises from which
business is conducted.

First Brokerage America,  L.L.C. (First Brokerage),  a limited liability company
indirectly  owned by First Banks' Chairman and members of his immediate  family,
received approximately $1.2 million and $4.9 for the three and nine months ended
September  30,  2008,  respectively,  and $1.2  million and $3.6 million for the
comparable   periods  in  2007,  in  gross   commissions  paid  by  unaffiliated
third-party  companies.  The  commissions  received were primarily in connection
with the  sales  of  annuities,  securities  and  other  insurance  products  to
customers of First Bank. First Brokerage paid approximately $55,000 and $175,000
for the three and nine  months  ended  September  30,  2008,  respectively,  and
$51,000 and $137,000 for the comparable periods in 2007, to First Bank in rental
payments  for  occupancy of certain  First Bank  premises  from which  brokerage
business is conducted.

In January 2007, First Banks  contributed  48,796 shares of common stock held in
its available-for-sale investment securities portfolio with a fair value of $1.7
million  to  the  Dierberg  Operating  Foundation,   Inc.  (the  Foundation),  a
charitable  foundation  established by First Banks'  Chairman and members of his
immediate  family.  In conjunction with this  transaction,  First Banks recorded
charitable contribution expense of $1.7 million, which was partially offset by a
gain on the contribution of these  available-for-sale  investment  securities of
$147,000,  representing the difference between the cost basis and the fair value
of the common stock on the date of the  contribution.  In addition,  First Banks
recognized  a tax  benefit of $1.0  million  associated  with this  transaction.
During the second and third quarter of 2007, First Bank contributed $1.3 million
and $1.5 million,  respectively, in cash to the Foundation,


                                       10
<PAGE>

thereby  bringing the total value of charitable  contributions to the Foundation
to $1.5 million and $4.5  million for the three and nine months ended  September
30, 2007,  respectively.  There were no  charitable  contributions  made to this
organization during the three and nine months ended September 30, 2008.

First Bank leases certain of its in-store  branch  offices and automated  teller
machine  (ATM)  sites  from  Dierbergs  Markets,  Inc.,  a grocery  store  chain
headquartered  in St. Louis,  Missouri that is owned and operated by the brother
of First Banks' Chairman and members of his immediate family. Total rent expense
incurred by First Bank under the lease  obligation  contracts  was  $109,000 and
$313,000 for the three and nine months ended  September 30, 2008,  respectively,
and $99,000 and $296,000 for the comparable periods in 2007.

In June 2005,  FCA, a corporation  owned by First Banks' Chairman and members of
his  immediate  family,  became a 49.0% owner of SBLS LLC in  exchange  for $7.4
million pursuant to a written option agreement with First Bank. In January 2007,
First  Bank  contributed  $4.0  million  to SBLS  LLC in the  form of a  capital
contribution,  which increased  First Bank's  ownership of SBLS LLC to 63.9% and
decreased  FCA's  ownership to 36.1%.  In June 2007,  First Bank  contributed an
additional  $7.8  million  to SBLS  LLC in the form of a  capital  contribution,
thereby  increasing  First Bank's  ownership of SBLS LLC to 76.0% and decreasing
FCA's ownership to 24.0%.

In June 2005,  SBLS LLC executed a Multi-Party  Agreement by and among SBLS LLC,
First Bank,  Colson Services  Corp.,  fiscal transfer agent for the SBA, and the
SBA, in addition to a Loan and  Security  Agreement  by and among First Bank and
the SBA  (collectively,  the Agreement) that provided a warehouse line of credit
for loan funding purposes. During the first and third quarters of 2007, SBLS LLC
modified the structure of the Agreement with First Bank. In September  2007, the
existing loan under the Agreement  was  refinanced by a Promissory  Note entered
into between  SBLS LLC and First Bank that  provided a $75.0  million  unsecured
revolving line of credit that was subsequently  renewed at maturity on September
30, 2008 with a new  maturity  date of September  30, 2009.  Interest is payable
monthly, in arrears, on the outstanding loan balances at a current rate equal to
the 30-day  London  Interbank  Offered Rate (LIBOR)  plus 40 basis  points.  The
balance of advances  outstanding under the Promissory Note was $62.9 million and
$52.3  million at  September  30,  2008 and  December  31,  2007,  respectively.
Interest  expense  recorded by SBLS LLC under the Promissory  Note and Agreement
was $464,000 and $1.5 million for the three and nine months ended  September 30,
2008, respectively,  and $835,000 and $2.7 million for the comparable periods in
2007.  The balance of the  advances  under the  Promissory  Note and the related
interest  expense  recognized  by SBLS LLC are  eliminated  for  purposes of the
consolidated financial statements.

On May 14, 2008,  First Banks formed FB Holdings,  a limited  liability  company
organized  in the state of Missouri  (FB  Holdings).  FB Holdings  operates as a
majority-owned  subsidiary of First Bank and was formed for the primary  purpose
of holding  and  managing  certain  nonperforming  loans and assets to allow the
liquidation of such assets at a time that is more  economically  advantageous to
First  Bank.   During  the  second  quarter  of  2008,  First  Bank  contributed
nonperforming  loans and assets with a fair value of approximately $88.6 million
and FCA  contributed  cash of $85.0  million  to FB  Holdings.  During the third
quarter of 2008, First Bank  contributed cash of $9.0 million and  nonperforming
loans and  assets  with a fair  value of  approximately  $35.6  million  and FCA
contributed cash of $30.0 million to FB Holdings.  As a result, First Bank owned
53.66% and FCA owned the  remaining  46.34% of FB Holdings as of  September  30,
2008. The  contribution of cash by FCA is reflected as minority  interest in the
consolidated financial statements and, consequently, increased the Company's and
First Bank's total risk-based capital ratios.

FB Holdings  entered into a Services  Agreement  with First Banks and First Bank
effective  May 30, 2008.  The  Services  Agreement  relates to various  services
provided to FB Holdings by First Banks and First Bank,  including loan servicing
and special assets  services as well as various other  financial,  legal,  human
resources  and  property  management  services.  Fees paid  under  the  Services
Agreement by FB Holdings to First Banks and First Bank were $72,000 and $168,000
for the three and nine months ended September 30, 2008, respectively.

On May 15, 2008,  First Banks  entered into a Revolving  Credit Note and a Stock
Pledge  Agreement with Investors of America  Limited  Partnership  (Investors of
America,  LP) (the New Credit  Agreement),  and on August 11, 2008,  First Banks
entered  into a First  Amended  Revolving  Credit Note (the New  Amended  Credit
Agreement) with Investors of America,  LP, as further described in Note 9 to the
consolidated financial statements.  Investors of America, LP is a Nevada limited
partnership  that was created by and for the benefit of Mr.  James F.  Dierberg,
First Banks' Chairman of the Board, and members of his immediate  family.  There
were no advances outstanding under the New Amended Credit Agreement at September
30, 2008. Interest expense,  including  commitment fees, recorded by First Banks
under the New Amended  Credit  Agreement  was $44,000 and $283,000 for the three
and nine months ended September 30, 2008, respectively.

First Bank has had in the past, and may have in the future, loan transactions in
the ordinary  course of business  with its  directors  and/or their  affiliates.
These loan  transactions have been on the same terms,  including  interest rates
and collateral, as those prevailing at the time for comparable transactions with
unaffiliated  persons  and  did  not  involve


                                       11
<PAGE>

more  than the  normal  risk of  collectability  or  present  other  unfavorable
features.  Loans to directors,  their affiliates and executive officers of First
Banks, Inc. were approximately  $41.2 million and $57.7 million at September 30,
2008 and December 31, 2007,  respectively.  First Bank does not extend credit to
its officers or to officers of First Banks,  Inc.,  except  extensions of credit
secured by  mortgages  on personal  residences,  loans to purchase  automobiles,
personal credit card accounts and deposit account  overdraft  protection under a
plan whereby a credit limit has been established in accordance with First Bank's
standard credit criteria.

(6)   REGULATORY CAPITAL

First  Banks  and  First  Bank  are  subject  to  various   regulatory   capital
requirements administered by the federal and state banking agencies.  Failure to
meet minimum capital  requirements can initiate  certain  mandatory and possibly
additional discretionary actions by regulators that, if undertaken, could have a
direct  material  effect on First Banks'  financial  statements.  Under  capital
adequacy  guidelines and the regulatory  framework for prompt corrective action,
First Banks and First Bank must meet specific  capital  guidelines  that involve
quantitative measures of assets, liabilities and certain off-balance sheet items
as  calculated  under  regulatory  accounting  practices.  Capital  amounts  and
classifications  are also subject to  qualitative  judgments  by the  regulators
about components,  risk weightings and other factors. In addition, First Bank is
currently required to maintain its Tier 1 capital ratio at no less than 7.00% in
accordance  with the provisions of an agreement  recently  entered into with its
primary  federal  and  state  banking  agencies,   as  further  described  under
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations -- Regulatory Matters."

Quantitative  measures  established  by  regulation to ensure  capital  adequacy
require  First  Banks and First Bank to maintain  minimum  amounts and ratios of
total  and Tier 1 capital  (as  defined  in the  regulations)  to  risk-weighted
assets,  and of Tier 1 capital to average  assets.  Management  believes,  as of
September  30,  2008,  First Banks and First Bank were well  capitalized.  As of
September  30, 2008,  the most recent  notification  from First  Banks'  primary
regulator  categorized  First Banks and First Bank as well capitalized under the
regulatory  framework for prompt  corrective  action.  To be categorized as well
capitalized,  First Banks and First Bank must maintain minimum total risk-based,
Tier 1  risk-based  and Tier 1  leverage  ratios as set  forth in the  following
table.

At  September  30, 2008 and  December  31,  2007,  First Banks' and First Bank's
required and actual capital ratios were as follows:

<TABLE>
<CAPTION>
                                                                        Actual
                                                    --------------------------------------------        For         To be Well
                                                    September 30, 2008         December 31, 2007      Capital    Capitalized Under
                                                    ------------------         -----------------     Adequacy    Prompt Corrective
                                                     Amount      Ratio         Amount      Ratio     Purposes    Action Provisions
                                                     ------      -----         ------      -----     --------    -----------------
                                                                            (Restated)   (Restated)
                                                          (dollars expressed in thousands)
<S>                                               <C>            <C>        <C>              <C>         <C>            <C>
Total capital (to risk-weighted assets):
    First Banks .............................     $1,015,353     10.31%     $1,008,253       9.84%       8.0%           10.0%
    First Bank ..............................      1,005,665     10.20       1,023,990      10.01        8.0            10.0

Tier 1 capital (to risk-weighted assets):
    First Banks .............................        686,618      6.97         811,432       7.92        4.0             6.0
    First Bank ..............................        881,392      8.94         895,571       8.75        4.0             6.0

Tier 1 capital (to average assets):
    First Banks .............................        686,618      6.55         811,432       7.99        3.0             5.0
    First Bank ..............................        881,392      8.42         895,571       8.85        3.0             5.0
</TABLE>

In March 2005,  the Board of Governors of the Federal  Reserve  System  (Federal
Reserve) adopted a final rule,  Risk-Based  Capital  Standards:  Trust Preferred
Securities and the Definition of Capital, which allows for the continued limited
inclusion of trust preferred securities in Tier 1 capital. The Federal Reserve's
final rule limits restricted core capital elements to 25% of the sum of all core
capital elements,  including  restricted core capital elements,  net of goodwill
less any associated  deferred tax liability.  Amounts of restricted core capital
elements in excess of these limits may  generally be included in Tier 2 capital.
Specifically,  amounts of qualifying  trust preferred  securities and cumulative
perpetual  preferred  stock in excess of the 25% limit may be included in Tier 2
capital,  but will be limited,  together with subordinated debt and limited-life
preferred stock, to 50% of Tier 1 capital. In addition,  the final rule provides
that in the last five years before the maturity of the  underlying  subordinated
note, the outstanding amount of the associated trust preferred  securities is to
be  excluded  from Tier 1 capital  and  included  in Tier 2 capital,  subject to
one-fifth  amortization  per  year.  The final  rule  provides  for a  five-year
transition   period,   ending  March  31,  2009,  for  the  application  of  the
quantitative  limits.  Until March 31, 2009, the aggregate  amount of qualifying
cumulative  perpetual preferred stock and qualifying trust preferred  securities
that may be  included  in Tier


                                       12
<PAGE>

1 capital is limited to 25% of the sum of the following  core capital  elements:
qualifying common stockholders' equity,  qualifying noncumulative and cumulative
perpetual  preferred stock,  qualifying minority interest in the equity accounts
of consolidated  subsidiaries and qualifying trust preferred  securities.  First
Banks  has  determined  that the  Federal  Reserve's  final  rules  that will be
effective in March 2009, if  implemented  as of September  30, 2008,  would have
reduced First Banks' Tier 1 capital (to risk-weighted assets) and Tier 1 capital
(to  average  assets)  to 6.07% and 5.70%,  respectively,  and would not have an
impact on total capital (to risk-weighted assets).

(7)   BUSINESS SEGMENT RESULTS

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

The business segment results are consistent with First Banks' internal reporting
system and, in all material respects,  with U.S.  generally accepted  accounting
principles  and  practices  predominant  in the banking  industry.  The business
segment results are summarized as follows:

<TABLE>
<CAPTION>
                                                                               Corporate, Other
                                                                               and Intercompany
                                                   First Bank                  Reclassifications           Consolidated Totals
                                            ---------------------------  ----------------------------  ---------------------------
                                            September 30,  December 31,  September 30,   December 31,  September 30,  December 31,
                                                2008           2007          2008           2007           2008           2007
                                                ----           ----          ----           ----           ----           ----
                                                            (Restated)                   (Restated)                    (Restated)
                                                                       (dollars expressed in thousands)
<S>                                          <C>            <C>             <C>            <C>          <C>            <C>
Balance sheet information:
Investment securities ....................   $   663,291       997,486        17,408         21,785        680,699      1,019,271
Loans, net of unearned discount ..........     8,875,171     8,886,184            --             --      8,875,171      8,886,184
Goodwill and other intangible assets .....       309,591       315,651            --             --        309,591        315,651
Total assets .............................    10,796,545    10,872,602        35,959         29,868     10,832,504     10,902,470
Deposits .................................     8,912,390     9,164,868       (23,002)       (15,675)     8,889,388      9,149,193
Other borrowings .........................       587,914       409,616            --             --        587,914        409,616
Notes payable ............................            --            --            --         39,000             --         39,000
Subordinated debentures ..................            --            --       353,809        353,752        353,809        353,752
Stockholders' equity .....................     1,106,230     1,203,008      (321,329)      (360,931)       784,901        842,077
                                             ===========   ===========   ===========    ===========    ===========    ===========
</TABLE>


                                       13
<PAGE>

<TABLE>
<CAPTION>
                                                                                    Corporate, Other
                                                                                    and Intercompany
                                                            First Bank              Reclassifications          Consolidated Totals
                                                      -----------------------    -----------------------     -----------------------
                                                       Three Months Ended          Three Months Ended           Three Months Ended
                                                           September 30,              September 30,               September 30,
                                                      -----------------------    -----------------------     -----------------------
                                                        2008           2007        2008          2007           2008         2007
                                                        ----           ----        ----          ----           ----         ----
                                                                    (Restated)                (Restated)                  (Restated)
                                                                           (dollars expressed in thousands)
<S>                                                   <C>              <C>          <C>           <C>          <C>            <C>
Income statement information:
Interest income ..................................    $ 144,073       177,196          224           336       144,297       177,532
Interest expense .................................       53,178        73,619        5,014         6,419        58,192        80,038
                                                      ---------     ---------    ---------     ---------     ---------     ---------
   Net interest income ...........................       90,895       103,577       (4,790)       (6,083)       86,105        97,494
Provision for loan losses ........................       99,000        13,503           --            --        99,000        13,503
                                                      ---------     ---------    ---------     ---------     ---------     ---------
   Net interest (loss) income after
      provision for loan losses. .................       (8,105)       90,074       (4,790)       (6,083)      (12,895)       83,991
                                                      ---------     ---------    ---------     ---------     ---------     ---------
Noninterest income ...............................       18,881        20,002         (190)         (151)       18,691        19,851
Amortization of intangible assets ................        2,785         3,142           --            --         2,785         3,142
Other noninterest expense ........................       81,203        80,489         (278)        1,143        80,925        81,632
                                                      ---------     ---------    ---------     ---------     ---------     ---------
   (Loss) income before (benefit)
      provision for income taxes and
      minority interest in (loss)
      income of subsidiaries .....................      (73,212)       26,445       (4,702)       (7,377)      (77,914)       19,068
(Benefit) provision for income taxes .............      (51,152)        9,086       (1,647)       (2,616)      (52,799)        6,470
                                                      ---------     ---------    ---------     ---------     ---------     ---------
   (Loss) income before minority
      interest in (loss) income
      of subsidiaries ............................      (22,060)       17,359       (3,055)       (4,761)      (25,115)       12,598
Minority interest in (loss) income
      of subsidiaries ............................         (154)           74           --            --          (154)           74
                                                      ---------     ---------    ---------     ---------     ---------     ---------
   Net (loss) income .............................    $ (21,906)       17,285       (3,055)       (4,761)      (24,961)       12,524
                                                      =========     =========    =========     =========     =========     =========

<CAPTION>
                                                                                    Corporate, Other
                                                                                    and Intercompany
                                                            First Bank              Reclassifications          Consolidated Totals
                                                      -----------------------    -----------------------     -----------------------
                                                         Nine Months Ended          Nine Months Ended           Nine Months Ended
                                                          September 30,               September 30,               September 30,
                                                      -----------------------    -----------------------     -----------------------
                                                        2008          2007          2008          2007          2008         2007
                                                        ----          ----          ----          ----          ----         ----
                                                                   (Restated)                  (Restated)                 (Restated)
                                                                           (dollars expressed in thousands)
<S>                                                   <C>              <C>         <C>           <C>           <C>            <C>
Income statement information:
Interest income ..................................    $ 455,652       524,348          702           836       456,354       525,184
Interest expense .................................      176,591       217,938       17,348        20,206       193,939       238,144
                                                      ---------     ---------    ---------     ---------     ---------     ---------
   Net interest income ...........................      279,061       306,410      (16,646)      (19,370)      262,415       287,040
Provision for loan losses ........................      229,000        20,420           --            --       229,000        20,420
                                                      ---------     ---------    ---------     ---------     ---------     ---------
   Net interest income after provision
      for loan losses ............................       50,061       285,990      (16,646)      (19,370)       33,415       266,620
                                                      ---------     ---------    ---------     ---------     ---------     ---------
Noninterest income ...............................       77,613        62,386       (6,920)         (327)       70,693        62,059
Amortization of intangible assets ................        8,346         9,295           --            --         8,346         9,295
Other noninterest expense ........................      239,534       242,116        3,896         4,062       243,430       246,178
                                                      ---------     ---------    ---------     ---------     ---------     ---------
   (Loss) income before (benefit)
      provision for income taxes and
      minority interest in income
      of subsidiaries ............................     (120,206)       96,965      (27,462)      (23,759)     (147,668)       73,206
(Benefit) provision for income taxes .............      (68,304)       34,491       (9,637)       (8,738)      (77,941)       25,753
                                                      ---------     ---------    ---------     ---------     ---------     ---------
   (Loss) income before minority
      interest in income of
      subsidiaries ...............................      (51,902)       62,474      (17,825)      (15,021)      (69,727)       47,453
Minority interest in income of
      subsidiaries ...............................           24           175           --            --            24           175
                                                      ---------     ---------    ---------     ---------     ---------     ---------
   Net (loss) income .............................    $ (51,926)       62,299      (17,825)      (15,021)      (69,751)       47,278
                                                      =========     =========    =========     =========     =========     =========
</TABLE>


                                       14
<PAGE>

(8)   OTHER BORROWINGS

Other  borrowings  were  comprised of the  following  at September  30, 2008 and
December 31, 2007:

<TABLE>
<CAPTION>
                                                                 September 30,         December 31,
                                                                      2008                  2007
                                                                      ----                  ----
                                                                                         (Restated)
                                                                   (dollars expressed in thousands)
<S>                                                                 <C>                    <C>
      Securities sold under agreements to repurchase:
           Daily ...............................................    $167,187               198,766
           Monthly .............................................          --                33,493
           Term ................................................     120,000               100,000
      Federal funds purchased ..................................          --                76,500
      Federal Home Loan Bank (FHLB) advances (1) ...............     300,727                   857
                                                                    --------              --------
               Total ...........................................    $587,914               409,616
                                                                    ========              ========
</TABLE>

      ----------
      (1)   In January  2008,  First Bank entered  into two $100.0  million FHLB
            advances that mature in January 2009 and July 2009 at fixed interest
            rates of 3.16% and  2.53%,  respectively.  In May 2008,  First  Bank
            entered into a $100.0  million  FHLB  advance that was  scheduled to
            mature in November 2008 at a fixed  interest  rate of 2.23%,  and in
            July 2008,  First Bank  entered  into a $100.0  million FHLB advance
            that matures in February 2009 at a fixed interest rate of 2.92%.  In
            September  2008,  First Bank prepaid the $100.0 million FHLB advance
            that was scheduled to mature in November 2008.

The maturity dates,  par amounts,  interest rates and interest rate floor strike
prices on First Bank's term  repurchase  agreements as of September 30, 2008 and
December 31, 2007 were as follows:

<TABLE>
<CAPTION>
                                                                                Interest    Interest Rate Floor
                  Maturity Date                            Par Amount             Rate         Strike Price
                  -------------                            ----------             ----         ------------
                                                       (dollars expressed
                                                          in thousands)
<S>                                                         <C>           <C>                      <C>
      September 30, 2008:
          April 12, 2012 (1)..............................  $ 120,000             3.36%             --
                                                            =========

      December 31, 2007:
          October 12, 2010 (1)............................  $ 100,000      LIBOR - 0.5100%(2)      4.50%(2)
                                                            =========
</TABLE>

      ----------
      (1)   On March 31, 2008,  First Bank  restructured its $100.0 million term
            repurchase  agreement.   The  primary  modifications  were  to:  (a)
            increase  the  borrowing  amount to $120.0  million;  (b) extend the
            maturity  date from October 12, 2010 to April 12, 2012;  (c) convert
            the  interest  rate from a  variable  rate to a fixed rate of 3.36%,
            with interest to be paid quarterly  beginning on April 12, 2008; and
            (d) terminate the embedded interest rate floor agreements  contained
            within the term repurchase agreement.  These modifications  resulted
            in a pre-tax gain of $5.0 million, which was recorded as noninterest
            income in the consolidated statements of operations.
      (2)   The interest rate paid on the term repurchase agreement was based on
            the three-month  LIBOR plus the spread amount shown minus a floating
            rate,  subject  to a 0% floor,  equal to two times the  differential
            between the  three-month  LIBOR and the strike price  shown,  if the
            three-month  LIBOR fell below the strike price  associated  with the
            interest rate floor agreement.

(9)   NOTES PAYABLE

On May 15,  2008,  First  Banks  entered  into  the New  Credit  Agreement  with
Investors of America,  LP, and on August 11, 2008,  First Banks entered into the
New Amended Credit Agreement  (collectively,  the Credit Agreement),  as further
described in Note 5 to the consolidated financial statements, which modified the
existing  New Credit  Agreement  to provide  that First Banks  receive the prior
written consent of Investors of America, LP for any advance that would cause the
aggregate  outstanding  principal  amount to exceed  $10.0  million.  The Credit
Agreement  provides for a $30.0 million  secured  revolving line of credit to be
utilized  for  general  working   capital  needs  and  capital   investments  in
subsidiaries.  Advances  outstanding under the Credit Agreement bear interest at
the three-month LIBOR plus 300 basis points.  Interest is payable on outstanding
advances on the first day of each month (in arrears) and the aggregate principal
balance of all outstanding  advances and any accrued interest thereon is due and
payable in full on June 30, 2009, the maturity date of the Credit Agreement. The
maturity  date of the  Credit  Agreement  may be  accelerated  at the  option of
Investors of America,  LP if an event of default under the Credit  Agreement has
occurred and has not been cured to the satisfaction of Investors of America, LP.
The default  provisions  of the Credit  Agreement  are normal and  customary for
agreements  of this type.  In the event the maturity  date is  accelerated,  the
aggregate principal balance of all outstanding advances and any accrued interest
thereon would become  immediately due and payable in full. The Credit  Agreement
is secured by First  Banks'  ownership  interest in all of the capital  stock of
both SFC and CFHI.

First Banks  received an advance of the entire  $30.0  million  under the Credit
Agreement  on May 15, 2008 and utilized the proceeds of the advance to terminate
and repay in full all of the obligations  under its then existing secured credit
agreement  with a group of  unaffiliated  financial  institutions,  as discussed
below. In July 2008,  First Banks repaid in full its  outstanding  balance under
the Credit  Agreement in the aggregate  amount of $30.0  million,


                                       15
<PAGE>

including  the accrued  interest  thereon,  and as such,  there were no balances
outstanding on First Banks' Credit Agreement at September 30, 2008.

On May 19, 2008, First Banks entered into a Termination  Agreement regarding its
then existing  secured credit  agreement with a group of unaffiliated  financial
institutions  (the Former Credit  Agreement).  In accordance  with the terms and
conditions of the Termination  Agreement,  First Banks repaid in full all of its
then existing  obligations  associated  with the Former Credit  Agreement in the
aggregate  amount of $58.1  million,  including  the accrued  interest  and fees
thereon. First Banks repaid in full its obligations with existing cash reserves,
dividends from First Bank, and advances under the Credit Agreement.  First Banks
did not incur any significant or unusual early  termination  penalties under the
terms and conditions of the Termination  Agreement or recognize any gain or loss
upon  termination.  Balances  outstanding  under the Former Credit  Agreement at
December 31, 2007 were $39.0 million and were comprised of $19.0 million in term
loans and $20.0 million in revolving credit advances.

(10)  SUBORDINATED DEBENTURES

First Banks has formed or assumed  various  affiliated  Delaware or  Connecticut
statutory and business trusts  (collectively,  the Trusts) that were created for
the sole purpose of issuing  trust  preferred  securities.  The trust  preferred
securities  were  issued in  private  placements,  with the  exception  of First
Preferred  Capital  Trust  IV,  which  was  issued  in a  publicly  underwritten
offering. First Banks owns all of the common securities of the Trusts. The gross
proceeds of the offerings  were used by the Trusts to purchase  variable rate or
fixed rate subordinated debentures from First Banks. The subordinated debentures
are the sole asset of the Trusts.  In connection  with the issuance of the trust
preferred securities,  First Banks made certain guarantees and commitments that,
in the aggregate,  constitute a full and unconditional  guarantee by First Banks
of the  obligations of the Trusts under the trust  preferred  securities.  First
Banks'  distributions  accrued on the subordinated  debentures were $4.8 million
and $15.8  million  for the three and nine  months  ended  September  30,  2008,
respectively,  and $5.9 million and $17.6 million for the comparable  periods in
2007,  and are included in interest  expense in the  consolidated  statements of
operations.  The structure of the trust preferred securities currently satisfies
the regulatory  requirements for inclusion,  subject to certain limitations,  in
First Banks' capital base.

A summary of the  subordinated  debentures  issued to the Trusts in  conjunction
with the trust preferred securities offerings at September 30, 2008 and December
31, 2007 were as follows:

<TABLE>
<CAPTION>

                                                                                                                     Subordinated
                                                                                                                      Debentures
                                                                                                                 -------------------
                                                                                                      Trust      September  December
                                                  Maturity             Call             Interest    Preferred       30,        31,
         Name of Trust     Issuance Date            Date              Date (1)          Rate (2)    Securities     2008       2007
         -------------     -------------            ----             ---------          --------    ----------     ----       ----
<S>                        <C>              <C>                  <C>                   <C>            <C>         <C>        <C>
Variable Rate
-------------
First Bank Statutory
   Trust II                September 2004   September 20, 2034   September 20, 2009    + 205.0 bp     $20,000     $20,619    $20,619
Royal Oaks Capital
   Trust I                  October 2004      January 7, 2035      January 7, 2010     + 240.0 bp       4,000       4,124      4,124
First Bank Statutory
   Trust III               November 2004     December 15, 2034    December 15, 2009    + 218.0 bp      40,000      41,238     41,238
First Bank Statutory
   Trust IV                 March 2006        March 15, 2036       March 15, 2011      + 142.0 bp      40,000      41,238     41,238
First Bank Statutory
   Trust V                  April 2006        June 15, 2036        June 15, 2011       + 145.0 bp      20,000      20,619     20,619
First Bank Statutory
   Trust VI (3a)            June 2006         July 7, 2036         July 7, 2011        + 165.0 bp      25,000      25,774     25,774
First Bank Statutory
   Trust VII (3b)         December 2006      December 15, 2036    December 15, 2011    + 185.0 bp      50,000      51,547     51,547
First Bank Statutory
   Trust VIII (3c)        February 2007       March 30, 2037       March 30, 2012      + 161.0 bp      25,000      25,774     25,774
First Bank Statutory
   Trust X                 August 2007      September 15, 2037   September 15, 2012    + 230.0 bp      15,000      15,464     15,464
First Bank Statutory
   Trust IX (3d)          September 2007     December 15, 2037    December 15, 2012    + 225.0 bp      25,000      25,774     25,774
First Bank Statutory
   Trust XI               September 2007     December 15, 2037    December 15, 2012    + 285.0 bp      10,000      10,310     10,310

Fixed Rate
----------
First Bank Statutory
   Trust                   March 2003         March 20, 2033       March 20, 2008         8.10%        25,000      25,774     25,774
First Preferred
   Capital Trust IV        April 2003         June 30, 2033        June 30, 2008          8.15%        46,000      47,423     47,423

</TABLE>

-----------------
(1)   The  subordinated  debentures are callable at the option of First Banks on
      the call date  shown at 100% of the  principal  amount  plus  accrued  and
      unpaid interest.
(2)   The interest  rates paid on the trust  preferred  securities  are based on
      either  a  variable  rate or a  fixed  rate.  The  variable  rate  for the
      outstanding subordinated debentures is based on the three-month LIBOR plus
      the basis point spread shown.
(3)   In March 2008,  First Banks  executed four interest rate swap  agreements,
      which have been designated as cash flow hedges, to effectively convert the
      interest payments on these  subordinated  debentures from variable rate to
      fixed rate to the respective call dates as follows:
      (a)   $25.0 million  notional  amount with a maturity date of July 7, 2011
            that  converts the interest  rate from a variable rate of LIBOR plus
            165 basis points to a fixed rate of 4.40%;
      (b)   $50.0 million  notional  amount with a maturity date of December 15,
            2011 that  converts the interest  rate from a variable rate of LIBOR
            plus 185 basis points to a fixed rate of 4.905%;
      (c)   $25.0 million notional amount with a maturity date of March 30, 2012
            that  converts the interest  rate from a variable rate of LIBOR plus
            161 basis points to a fixed rate of 4.71%; and
      (d)   $25.0 million  notional  amount with a maturity date of December 15,
            2012 that  converts the interest  rate from a variable rate of LIBOR
            plus 225 basis points to a fixed rate of 5.565%.


                                       16
<PAGE>

(11)  INCOME TAXES

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 assets of $116.0  million at September
30, 2008.

At December 31, 2007,  First Banks had a deferred tax asset valuation  allowance
of $23.3 million.  Upon  completion of the 2004  acquisition of CIB Bank and the
2007  acquisition  of CFHI,  the net  deferred  tax assets  associated  with the
respective  acquisitions  were evaluated to determine  whether it is more likely
than not that the net deferred tax assets will be recognized in the future.  The
ability to utilize the net deferred tax assets  recorded in connection  with the
acquisitions is subject to a number of limitations.  Among these  limitations is
the restriction  that any  built-in-loss  (the fair value of the entity was less
than the tax basis) that existed at the date of acquisition,  if realized within
the first five years subsequent to the date of acquisition, will be deferred and
must be carried forward and subjected to rules similar to the rules for carrying
forward net  operating  losses.  Based on these  factors,  First  Banks  carried
deferred tax asset valuation allowances on CIB Bank and CFHI of $3.1 million and
$20.2  million,  respectively,  at December  31,  2007.  The  deferred tax asset
valuation  allowance  related to CFHI was increased by $842,000 during the first
quarter of 2008 after further review of the acquired deferred tax assets with no
impact to the  benefit  for  income  taxes.  The  deferred  tax asset  valuation
allowance  related  to CIB Bank was  decreased  by  $270,000  during  the second
quarter of 2008 and resulted in an increase to the benefit for income taxes.

On September 30, 2008, the Internal Revenue Service (IRS) issued Notice 2008-83.
The IRS and  the  U.S.  Department  of the  Treasury  are  studying  the  proper
treatment  of certain  items of  deduction  or loss  allowed  after an ownership
change to a  corporation  that is a bank both  immediately  before and after the
acquisition  date. In accordance  with Notice  2008-83,  any deduction  properly
allowed  after an ownership  change to a bank with respect to losses on loans or
bad debts  (including  any deduction for a reasonable  addition to a reserve for
bad debts) shall not be treated as a built-in loss. As a result of Note 2008-83,
certain loan charge-offs and additions to First Bank's allowance for loan losses
are no longer considered built-in losses.  Consequently,  on September 30, 2008,
First Banks  concluded  that $1.8 million and $21.0  million of the deferred tax
asset valuation allowances related to CIB Bank and CFHI,  respectively,  were no
longer required and recorded a reversal of the deferred tax asset  allowances in
the amount of $22.8  million as an increase to the benefit for income  taxes for
the three months ended  September  30, 2008.  The  remaining  deferred tax asset
valuation allowance at September 30, 2008 is $1.0 million,  all of which relates
to CIB Bank.

On January 1, 2007, First Banks implemented Financial Accounting Standards Board
Interpretation  No.  48 --  Accounting  for  Uncertainty  in  Income  Taxes,  an
Interpretation  of SFAS No. 109 --  Accounting  for Income  Taxes (FIN 48).  The
implementation  of FIN 48 resulted in the recognition of a cumulative  effect of
change  in  accounting  principle  of $2.5  million,  which was  recorded  as an
increase to beginning retained earnings.

At  September  30, 2008 and  December  31,  2007,  First  Banks'  liability  for
uncertain tax positions, excluding interest and penalties, was $13.1 million and
$12.2 million,  respectively. The total amount of unrecognized tax benefits that
would  affect  the  effective  tax rate were $1.8  million  and $1.7  million at
September 30, 2008 and December 31, 2007,  respectively.  During the nine months
ended  September  30, 2008,  First Banks  recorded  additional  liabilities  for
unrecognized  tax benefits of $1.9 million that, if  recognized,  would decrease
the  provision  for income  taxes by  $202,000,  net of the federal tax benefit.
During the nine  months  ended  September  30,  2008,  First  Banks  reduced its
liability  for  unrecognized  tax  benefits  by $1.0  million as a result of the
receipt of a no change letter in the first  quarter of 2008  following the close
of an  examination  of the 2004 federal income tax return and the closing of the
2004 federal statute of limitations.

In accordance with FIN 48, it is First Banks' policy to separately  disclose any
interest or penalties  arising from the  application  of federal or state income
taxes.  Interest  related to  unrecognized  tax benefits is included in interest
expense and  penalties  related to  unrecognized  tax  benefits  are included in
noninterest  expense.  At September  30, 2008 and  December  31, 2007,  interest
accrued for  unrecognized  tax  positions  was $1.9  million  and $1.4  million,
respectively.  The Company increased its interest expense by $5,000 and $435,000
during the three and nine months ended September 30, 2008, respectively, whereas
the amount of interest expense decreased by $2,000 and increased by $468,000 for
the three and nine months ended September 30, 2007, respectively.  There were no
penalties  for  unrecognized  tax  positions  accrued at September  30, 2008 and
December  31,  2007,  nor did First Banks  recognize  any expense for  penalties
during the three and nine months ended September 30, 2008 and 2007.

First Banks continually  evaluates the unrecognized tax benefits associated with
its  uncertain  tax  positions.   It  is  reasonably  possible  that  the  total
unrecognized   tax  benefits  as  of  September  30,  2008  could   decrease  by
approximately  $616,000  during the  remainder  of the year,  as a result of the
lapse of statutes of limitations and potential  settlements with the federal and
state taxing authorities,  of which the impact to the provision for income


                                       17
<PAGE>

taxes is estimated to be approximately  $486,000. It is also reasonably possible
that this decrease could be  substantially  offset by new matters arising during
the same period.

First  Banks  files  consolidated  and  separate  income tax returns in the U.S.
federal  jurisdiction  and in various state  jurisdictions.  Management of First
Banks  believes the accrual for tax  liabilities  is adequate for all open audit
years based on its  assessment of many factors,  including  past  experience and
interpretations of tax law applied to the facts of each matter.  This assessment
relies on estimates and  assumptions.  First Banks'  federal  income tax returns
through 2004 have been examined by the Internal  Revenue  Service.  First Banks'
current estimate of the resolution of various state examinations is reflected in
accrued income taxes;  however,  final settlement of the examinations or changes
in First Banks' estimate may result in future income tax expense or benefit.

(12)  FAIR VALUE DISCLOSURES

On January 1, 2008,  First  Banks  implemented  SFAS No. 157 for  financial  and
nonfinancial  assets and  liabilities  that are  recognized or disclosed at fair
value in the  consolidated  financial  statements on a recurring basis (at least
annually).   Implementation  was  deferred  for  all  nonfinancial   assets  and
nonfinancial  liabilities  that are recognized or disclosed at fair value in the
consolidated  financial  statements  on a  nonrecurring  basis to  fiscal  years
beginning after November 15, 2008.  First Banks applied the deferral to goodwill
and other intangible assets and other real estate owned.

In accordance with SFAS No. 157, financial assets and financial liabilities that
are measured at fair value  subsequent to initial  recognition  are grouped into
three  levels of inputs or  assumptions  that market  participants  would use in
pricing  the  asset  or  liability,  including  assumptions  about  risk and the
reliability of assumptions  used to determine fair value. The three input levels
are as follows:

      Level 1 Inputs -    Valuation is based on quoted prices in active  markets
                          for identical instruments in active markets.

      Level 2  Inputs  -  Valuation  is  based  on  quoted  prices  for  similar
                          instruments  in  active  markets;  quoted  prices  for
                          identical or similar  instruments  in markets that are
                          not active; and model-derived  valuations whose inputs
                          are observable or whose  significant value drivers are
                          observable.

      Level 3 Inputs -    Valuation is  generated  from  model-based  techniques
                          that  use at  least  one  significant  assumption  not
                          observable   in   the   market.   These   unobservable
                          assumptions  reflect  estimates  of  assumptions  that
                          market  participants would use in pricing the asset or
                          liability.  Valuation techniques include use of option
                          pricing  models,   discounted  cash  flow  models  and
                          similar techniques.

The following describes valuation methodologies used to measure different assets
and liabilities at fair value.

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

Loans held for sale. Mortgage loans held for sale are carried at fair value on a
recurring basis effective July 1, 2008. The determination of fair value is based
on quoted  market  prices of comparable  instruments  obtained from  independent
pricing vendors based on recent trading activity and other relevant information.
Other  loans  held for sale are  carried  at the lower of cost or market  value,
which is determined on an individual loan basis.  The fair value is based on the
prices   secondary   markets  are   offering   for   portfolios   with   similar
characteristics.  The Company classifies  mortgage loans held for sale subjected
to recurring fair value adjustments as recurring Level 2. The Company classifies
other loans held for sale subjected to  nonrecurring  fair value  adjustments as
nonrecurring Level 2.

Loans.  The Company  does not record  loans at fair value on a recurring  basis.
However,  from time to time, a loan is considered  impaired and an allowance for
loan losses is  established.  A loan is considered  impaired when it is probable
that payment of principal and interest  will not be made in accordance  with the
contractual terms of the loan agreement.  Once a loan is identified as impaired,
management  measures  impairment in accordance with SFAS No. 114 - Accounting by
Creditors for  Impairment of a Loan.  When  measuring  impairment,  the expected
future cash flows of an impaired  loan are  discounted  at the loan's  effective
interest  rate.  Additionally,   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


                                       18
<PAGE>

discounting the total expected future cash flows at the loan's effective rate of
interest as stated in the original loan agreement.  In accordance with Statement
of Position 03-3,  Accounting for Certain Loans or Debt Securities Acquired in a
Transfer,  acquired  impaired loans are  classified as nonaccrual  loans and are
initially measured at fair value with no allocated allowance for loan losses. An
allowance  for loan  losses is recorded  to the extent  there is further  credit
deterioration  subsequent to acquisition  date. In accordance with SFAS No. 157,
impaired  loans where an  allowance  is  established  based on the fair value of
collateral  require  classification  in the fair value hierarchy.  When the fair
value of the  collateral  is based on an  observable  market  price or a current
appraised value, the Company  classifies the impaired loan as nonrecurring Level
2. When an appraised  value is not available or management  determines  the fair
value of the collateral is further  impaired below the appraised value and there
is no  observable  market  price,  the Company  classifies  the impaired loan as
nonrecurring Level 3.

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

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

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

Assets  and  liabilities  measured  at fair  value  on a  recurring  basis as of
September 30, 2008 are reflected in the following table:

<TABLE>
<CAPTION>
                                                                                      Fair Value Measurements
                                                                       -------------------------------------------------------
                                                                                         September 30, 2008
                                                                       -------------------------------------------------------

                                                                        Level 1        Level 2        Level 3      Fair Value
                                                                        -------        -------        -------      ----------
                                                                                  (dollars expressed in thousands)
<S>                                                                    <C>               <C>             <C>           <C>
      Assets:
          Available-for-sale investment securities ...............     $    8,233        653,462             --        661,695
          Mortgage loans held for sale ...........................             --         20,996             --         20,996
          Derivative instruments .................................             --         17,052             --         17,052
          Servicing rights .......................................             --             --         21,136         21,136
                                                                       ----------     ----------     ----------     ----------
             Total ...............................................     $    8,233        691,510         21,136        720,879
                                                                       ==========     ==========     ==========     ==========
      Liabilities:
          Nonqualified deferred compensation plan. ...............     $    8,565             --             --          8,565
                                                                       ==========     ==========     ==========     ==========
</TABLE>


                                       19
<PAGE>

The  following  table  presents  the  changes  in Level 3 assets  measured  on a
recurring basis for the three and nine months ended September 30, 2008:

<TABLE>
<CAPTION>
                                                                                  Servicing Rights
                                                                       ---------------------------------------
                                                                          Three Months         Nine Months
                                                                              Ended               Ended
                                                                       September 30, 2008   September 30, 2008
                                                                       ------------------   ------------------
                                                                          (dollars expressed in thousands)
<S>                                                                         <C>                     <C>
      Balance, beginning of period ..................................       $   25,723              12,758
           Impact of election to measure servicing
               rights at fair value under SFAS No. 156 ..............               --              10,443
           Total gains or losses (realized/unrealized):
               Included in earnings (1) .............................           (5,304)             (6,508)
               Included in other comprehensive income ...............               --                  --
           Purchases, issuances and settlements .....................              717               4,443
           Transfers in and/or out of level 3 .......................               --                  --
                                                                            ----------          ----------
      Balance, end of period ........................................       $   21,136              21,136
                                                                            ==========          ==========
</TABLE>

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

From time to time,  First  Banks  measures  certain  assets  at fair  value on a
nonrecurring  basis. These include assets that are measured at the lower of cost
or market value that were  recognized at fair value below cost at the end of the
period.  Assets  measured at fair value on a nonrecurring  basis as of September
30, 2008 are reflected in the following table:

<TABLE>
<CAPTION>
                                                                               Fair Value Measurements
                                                             -----------------------------------------------------------------
                                                                                   September 30, 2008
                                                             -----------------------------------------------------------------
                                                               Level 1           Level 2          Level 3          Fair Value
                                                               -------           -------          -------          ----------
                                                                             (dollars expressed in thousands)
<S>                                                          <C>                   <C>               <C>               <C>
      Assets:
          Loans held for sale ........................       $        --            20,523                --            20,523
          Impaired loans .............................                --           113,278           215,897           329,175
                                                             -----------       -----------       -----------       -----------
             Total ...................................       $        --           133,801           215,897           349,698
                                                             ===========       ===========       ===========       ===========
</TABLE>

(13)  CONTINGENT LIABILITIES

In October 2000, First Banks entered into two continuing guaranty contracts. For
value received,  and for the purpose of inducing a pension fund and its trustees
and a welfare fund and its trustees  (the Funds) to conduct  business  with MVP,
First  Bank's  institutional  investment  management  subsidiary,   First  Banks
irrevocably  and  unconditionally  guaranteed  payment of and promised to pay to
each of the Funds any amounts up to the sum of $5.0 million to the extent MVP is
liable  to the  Funds  for a  breach  of the  Investment  Management  Agreements
(including the Investment  Policy Statement and Investment  Guidelines),  by and
between MVP and the Funds and/or any violation of the Employee Retirement Income
Security Act by MVP  resulting in liability  to the Funds.  The  guaranties  are
continuing  guaranties  of all  obligations  that  may  arise  for  transactions
occurring prior to termination of the Investment  Management  Agreements and are
coexistent with the term of the Investment Management Agreements. The Investment
Management  Agreements  have no specified term but may be terminated at any time
upon written notice by the Trustees or, at First Banks' option, upon thirty days
written  notice to the Trustees.  In the event of  termination of the Investment
Management Agreements, such termination shall have no effect on the liability of
First Banks with respect to obligations  incurred before such  termination.  The
obligations  of First Banks are joint and several with those of MVP. First Banks
does not have any recourse provisions that would enable it to recover from third
parties  any  amounts  paid under the  contracts  nor does First  Banks hold any
assets as  collateral  that,  upon  occurrence  of a required  payment under the
contract, could be liquidated to recover all or a portion of the amount(s) paid.
At September  30, 2008 and  December  31,  2007,  First Banks had not recorded a
liability for the obligations  associated  with these guaranty  contracts as the
likelihood  that  First  Banks  will be  required  to make  payments  under  the
contracts is remote.

CFHI  Securities  Litigation.  Prior to  acquisition  by First  Banks,  CFHI and
certain of its present and former  officers  were named as  defendants  in three
purported class action  complaints filed in the United States District Court for
the Middle District of Florida, Tampa Division (the "Court") alleging violations
of the federal  securities  laws, the first of which was filed with the Court on
March 20, 2007 (the "Securities  Actions").  On June 22, 2007, the Court entered
an order pursuant to which the Court (i)  consolidated  the Securities  Actions,
with the matter  proceeding  under the docket for Grand Lodge of Pennsylvania v.
                                                  ------------------------------
Brian P. Peters, et al., Case No. 8:07-cv-429-T-26-EAJ and (ii)
-----------------------

                                       20
<PAGE>

appointed  Troy Ratcliff and Daniel  Altenburg (the "Lead  Plaintiffs")  as lead
plaintiffs  pursuant  to the  provisions  of the Private  Securities  Litigation
Reform Act of 1995.

Subsequent to the disposition of certain preliminary motions filed by plaintiffs
and  defendants,  on  April  2,  2008,  the Lead  Plaintiffs  and an  additional
plaintiff,  St. Denis J. Villere & Co., LLC, filed a second consolidated amended
class action complaint (the "Amended Complaint"). The Amended complaint names as
defendants (i) certain former officers and members of CHFI's board of directors,
(ii) the underwriters of CFHI's October 5, 2005 public offering of common stock,
and (iii) CFHI's external auditors.

The Amended Complaint was brought on behalf of a putative class of purchasers of
CFHI's common stock  between  January 21, 2005 and January 22, 2007. In general,
the Amended  Complaint  alleges  that  CFHI's SEC filings and public  statements
contained    misstatements    and   omissions    regarding    its    residential
construction-to-permanent lending operations and, more specifically, regarding a
home  builder  and  its  affiliates  and  also  alleges  that  CFHI's  financial
statements violated U.S. generally accepted accounting  principles.  The Amended
Complaint  asserts claims under Sections 11 and 15 of the Securities Act of 1933
and Sections  10(b) and 20(a) of the  Securities  Exchange Act of 1934, and Rule
10b-5 promulgated thereunder.

On  or  about   September  26,  2008,   CFHI  and  the  plaintiffs   reached  an
agreement-in-principle for the settlement of the Securities Actions. Pursuant to
the  agreement-in-principle,  CFHI  and  its  insurer  will  pay  an  amount  in
settlement of the claims, and CFHI, the former officer and director  defendants,
and the  underwriter  defendants  will be released and dismissed  with prejudice
from the action.  Under the proposed  terms,  the  Company's  allocation  of the
settlement  amount  is  $750,000,  and was  recorded  as  other  expense  in the
consolidated  statement of operations  for the three months ended  September 30,
2008.  CFHI  and the  plaintiffs  are in the  process  of  preparing  definitive
documentation  formalizing  the settlement  and defining its terms.  Among other
terms and  conditions,  the  settlement  is subject to approval by the Court and
will not be consummated if the Court fails to grant approval.  The timing of any
final  settlement  cannot be  determined  at this time as it remains  subject to
final negotiations and approval by the Court.

Other.  In the  ordinary  course of business,  First Banks and its  subsidiaries
become  involved  in  legal   proceedings  other  than  those  discussed  above.
Management, in consultation with legal counsel, believes the ultimate resolution
of these  proceedings  will not have a material  adverse effect on the financial
condition or results of operations of First Banks and/or its subsidiaries.




                                       21
<PAGE>

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

     Forward-Looking Statements and Factors that Could Affect Future Results

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

      >>    The threat of future  terrorist  activities,  existing and potential
            wars and/or military actions related thereto, and domestic responses
            to terrorism or threats of terrorism;

      >>    Congress recently enacted the Emergency  Economic  Stabilization Act
            of  2008,  and  the  U.S.   Treasury  and  banking   regulators  are
            implementing  a number of programs to address  capital and liquidity
            issues in the  banking  system,  all of which  may have  significant
            effects on us and the financial services industry,  the exact nature
            and extent of which cannot be determined at this time;

      >>    The current  stresses in the financial and  residential  real estate
            markets,  including  possible  continued  deterioration  in property
            values;

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

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

      >>    Volatility  and disruption in national and  international  financial
            markets;

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

      >>    Changes in consumer spending, borrowings and savings habits;

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

      >>    The impact of changes in accounting  policies and practices,  as may
            be adopted by the regulatory agencies, as well as the Public Company
            Accounting  Oversight  Board,  the  Financial  Accounting  Standards
            Board, and other accounting standard setters;

      >>    Competitive  conditions  in the  markets  in  which we  conduct  our
            operations,  including  competition  from  banking  and  non-banking
            companies  with  substantially  greater  resources  than us, some of
            which may offer and develop products and services not offered by us;

      >>    Our ability to control the composition of our loan portfolio without
            adversely affecting interest income;

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

      >>    The geographic dispersion of our offices;

      >>    The impact our hedging activities may have on our operating results;

      >>    The highly regulated environment in which we operate;

      >>    Regulatory actions that impact the Company and First Bank, including
            the regulatory  agreements  entered into between the Company,  First
            Bank,  the  Federal  Reserve  Bank of St.  Louis  and  the  Missouri
            Division of Finance; and

      >>    Our ability to respond to changes in technology.

With  regard to our efforts to grow  through  acquisitions,  factors  that could
affect the accuracy or  completeness  of  forward-looking  statements  contained
herein include:

      >>    The competition of larger acquirers with greater resources;

                                       22
<PAGE>

      >>    Fluctuations  in the  prices  at which  acquisition  targets  may be
            available for sale;

      >>    The impact of making acquisitions without using our common stock;

      >>    Possible  asset  quality   issues,   pending   litigation,   unknown
            liabilities  and/or  integration  issues with the businesses that we
            have acquired; and

      >>    The impact of the regulatory  agreements between the Company,  First
            Bank,  the  Federal  Reserve  Bank of St.  Louis  and  the  Missouri
            Division of Finance.

For discussion of these and other risk factors,  refer to Amendment No. 1 to our
2007 Annual Report on Form 10-K, as filed with the United States  Securities and
Exchange  Commission  on July  30,  2008.  We do not have a duty to and will not
update these  forward-looking  statements.  Readers of this Quarterly  Report on
Form 10-Q should therefore  consider these risks and uncertainties in evaluating
forward-looking  statements  and  should  not  place  undue  reliance  on  these
statements.


                           Recent Market Developments

The global and U.S.  economies are experiencing  significantly  reduced business
activity  as a result of,  among other  factors,  disruptions  in the  financial
system during the past year.  Dramatic declines in the housing market during the
past  year,   with  falling  home  prices  and   increasing   foreclosures   and
unemployment,  have  resulted  in  significant  write-downs  of asset  values by
financial  institutions,   including  government-sponsored  entities  and  major
commercial and investment banks. These write-downs, initially of mortgage-backed
securities  but  spreading  to  credit   default  swaps  and  other   derivative
securities,  have caused many financial institutions to seek additional capital,
to merge with larger and stronger institutions and, in some cases, to fail.

Reflecting  concern about the stability of the financial  markets  generally and
the strength of  counterparties,  many lenders and institutional  investors have
reduced,  and in some cases,  ceased to provide funding to borrowers,  including
other financial  institutions.  The  availability  of credit,  confidence in the
financial  sector,  and level of volatility  in the financial  markets have been
significantly  adversely  affected as a result. In recent weeks,  volatility and
disruption in the capital and credit markets has reached  unprecedented  levels.
In some cases, the markets have produced  downward  pressure on stock prices and
credit capacity for certain issuers without regard to those issuers'  underlying
financial strength.

In response to the financial  crises  affecting the banking system and financial
markets  and going  concern  threats  to  investment  banks and other  financial
institutions,  on October 3, 2008, the Emergency  Economic  Stabilization Act of
2008,  or the  EESA,  was  signed  into  law.  Pursuant  to the  EESA,  the U.S.
Department  of the  Treasury,  or the  Treasury,  has  authority to, among other
things, purchase up to $700 billion of mortgages, mortgage-backed securities and
certain other financial instruments from financial  institutions for the purpose
of stabilizing and providing liquidity to the U.S. financial markets.

On October 14, 2008, Secretary Henry Paulson, after consulting with the Board of
Governors of the Federal Reserve System, or the Federal Reserve, and the Federal
Deposit  Insurance  Corporation,  or the FDIC,  announced that the Treasury will
purchase  equity  stakes in a wide  variety  of banks and  thrifts.  Under  this
program, known as the Troubled Asset Relief Program Capital Purchase Program, or
the TARP Capital Purchase Program, from the $700 billion authorized by the EESA,
the  Treasury  will make $250  billion of capital  available  to U.S.  financial
institutions in the form of preferred stock. In conjunction with the purchase of
preferred  stock,  the Treasury will receive  warrants to purchase  common stock
with an aggregate  market price equal to 15% of the preferred stock  investment.
Participating  financial  institutions  will be required to adopt the Treasury's
standards for executive  compensation  and corporate  governance  for the period
during which the Treasury  holds equity  issued under the TARP Capital  Purchase
Program. Secretary Paulson also announced that nine large financial institutions
have  already  agreed  to  participate  in the TARP  Capital  Purchase  Program.
Subsequent  to  this  initial   announcement,   several   additional   financial
institutions  have elected to participate in the TARP Capital  Purchase  Program
and have been approved to do so by the Treasury.

Also on October 14, 2008,  after receiving a  recommendation  from the boards of
the FDIC and the Federal Reserve,  and consulting with the President,  Secretary
Paulson  invoked the systemic risk exception to the FDIC Act,  enabling the FDIC
to temporarily  provide a 100% guarantee of the senior debt of all  FDIC-insured
institutions  and their holding  companies,  as well as deposits in non-interest
bearing  transaction  deposit  accounts  under a Temporary  Liquidity  Guarantee
Program.  Coverage under the Temporary  Liquidity Guarantee Program is available
for 30 days without charge and thereafter at a cost of 75 basis points per annum
for senior unsecured debt and 10 basis points per annum for non-interest bearing
transaction deposits. We are continuing to evaluate the requirements of both the


                                       23
<PAGE>

TARP Capital Purchase Program and the Temporary  Liquidity Guarantee Program. We
have elected to participate in the Temporary  Liquidity  Guarantee Program,  but
have  not  yet  made a  definitive  decision  as to  whether  we  will  seek  to
participate in the TARP Capital  Purchase  Program as we are further  evaluating
its  requirements  as applicable to companies  such as ours with private  equity
ownership  and  publicly-traded  subordinated  debentures,  and we are expecting
additional  guidance and  clarification  from the Treasury with respect to these
matters.

It is not clear at this time what  impact the EESA,  the TARP  Capital  Purchase
Program, the Temporary Liquidity Guarantee Program,  other liquidity and funding
initiatives of the Federal  Reserve and other agencies that have been previously
announced,  and any additional programs that may be initiated in the future will
have on the  financial  markets  and the  other  difficulties  described  above,
including  the extreme  levels of  volatility  and limited  credit  availability
currently being experienced, or on the U.S. banking and financial industries and
the broader U.S. and global  economies.  Further  adverse  effects could have an
adverse effect on our business, financial condition and results of operations.


                               Regulatory Matters

In connection with the most recent regular examinations of the Company and First
Bank by the Federal Reserve Bank of St. Louis, or FRB, and the Missouri Division
of Finance, or MDOF, the Company and First Bank entered into informal agreements
with each agency.  On September 18, 2008,  First Bank and its Board of Directors
entered into an informal  agreement  with the FRB and the MDOF. In addition,  on
October  2,  2008,  the  Company  and its  Board  of  Directors  entered  into a
Memorandum  of   Understanding   with  the  FRB.  Each  of  the   agreements  is
characterized  by regulatory  authorities as an informal  action that is neither
published  nor  made  publicly  available  by  the  agencies  and is  used  when
circumstances  warrant a milder form of action than a formal supervisory action,
such as a cease and desist order.

Under the terms of the  Memorandum  of  Understanding  with the FRB, the Company
agreed, among other things, to provide certain information to the FRB including,
but not limited to, financial performance updates, notice of plans to materially
change its fundamental  business and notice to issue trust preferred  securities
or raise  additional  equity  capital.  In addition,  the Company  agreed not to
declare any dividends on its common or preferred stock or make any distributions
of interest or other sums on its trust  preferred  securities  without the prior
approval of the FRB. The Company has received the approval of the FRB to declare
the regular dividends on its preferred stock to be paid in January,  2009 and to
make its regular interest  payments on its outstanding  subordinated  debentures
for further payment to the individual holders of the respective underlying trust
preferred securities in December, 2008 and January, 2009.

First Bank,  under its agreement with the MDOF and the FRB, has agreed to, among
other  things,  prepare and submit plans and reports to the  agencies  regarding
certain matters  including,  but not limited to, the performance of First Bank's
loan  portfolio.  In  addition,  First  Bank  agreed  not to  declare or pay any
dividends or make certain other  payments  without the prior consent of the MDOF
and the FRB and to maintain its Tier 1 capital  ratio at no less than 7.00%.  As
further  described  in  Note  6  to  our  accompanying   consolidated  financial
statements,  at September 30, 2008, First Bank's Tier 1 capital ratio was 8.94%,
or  approximately  $191.6  million  over  the  minimum  level  required  by  the
agreement.

The Company and First Bank are  committed to ensuring that the  requirements  of
the agreements are met in a timely manner.


                                     General

We are a registered  bank holding  company  incorporated in Missouri in 1978 and
headquartered  in St.  Louis,  Missouri.  We operate  through  our wholly  owned
subsidiary  bank  holding   company,   The  San  Francisco   Company,   or  SFC,
headquartered  in St.  Louis,  Missouri;  our wholly  owned  subsidiary  holding
company,  Coast Financial Holdings,  Inc., or CFHI,  headquartered in Bradenton,
Florida;   and  SFC's   majority-owned   subsidiary   bank,   First  Bank,  also
headquartered  in St. Louis,  Missouri.  First Bank operates  through its branch
banking offices and its subsidiaries, as listed below:

      >>    First Bank Business Capital, Inc.;

      >>    Missouri Valley Partners, Inc., or MVP;

      >>    Adrian N. Baker & Company, or Adrian Baker;

      >>    Universal  Premium  Acceptance  Corporation  and  its  wholly  owned
            subsidiary, UPAC of California, Inc., collectively UPAC;

      >>    Small Business Loan Source LLC, or SBLS LLC; and


                                       24
<PAGE>

      >>    FB Holdings, LLC, or FB Holdings.

First Bank's subsidiaries are wholly owned except SBLS LLC, which is 76.0% owned
by First Bank and 24.0% owned by First  Capital  America,  Inc.,  or FCA, and FB
Holdings,  which was 53.66%  owned by First  Bank and 46.34%  owned by FCA as of
September 30, 2008.

At September 30, 2008, we had assets of $10.83 billion,  loans,  net of unearned
discount,  of $8.88 billion,  deposits of $8.89 billion and stockholders' equity
of $784.9  million,  and we  currently  operate  218 branch  banking  offices in
California, Florida, Illinois, Missouri and Texas.

Through  First Bank,  we offer a broad range of  financial  services,  including
commercial and personal deposit products,  commercial and consumer lending,  and
many other  financial  products and services.  Commercial  and personal  deposit
products include demand,  savings,  money market and time deposit  accounts.  In
addition,  we market  combined  basic  services  for  various  customer  groups,
including  packaged  accounts for more affluent  customers,  and sweep accounts,
lock-box  deposits  and  cash  management  products  for  commercial  customers.
Commercial lending includes  commercial,  financial and agricultural loans, real
estate  construction and development loans,  commercial real estate loans, small
business  lending,  asset-based  loans,  trade  financing and insurance  premium
financing.  Consumer lending includes  residential real estate,  home equity and
installment  lending.  Other financial services include mortgage banking,  debit
cards,  brokerage  services,   employee  benefit  and  commercial  and  personal
insurance services, internet banking, remote deposit, automated teller machines,
telephone  banking,   safe  deposit  boxes,  and  trust,   private  banking  and
institutional  money management  services.  The revenues generated by First Bank
and its subsidiaries  consist  primarily of interest income,  generated from the
loan and investment security portfolios, service charges and fees generated from
deposit  products  and  services,  and fees  and  commissions  generated  by our
mortgage banking,  insurance, and trust, private banking and institutional money
management  business  units.  Our  extensive  line of products  and services are
offered to  customers  primarily  within our  geographic  areas,  which  include
eastern Missouri,  Illinois,  including the Chicago  metropolitan area, southern
and northern  California,  Houston and Dallas,  Texas,  and  Florida's  Manatee,
Pinellas,  Hillsborough  and Pasco  counties.  Certain loan products,  including
small  business  loans and  insurance  premium  financing  loans,  are available
nationwide through SBLS LLC and UPAC, respectively.

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


   Restatement of Previously Issued Consolidated Interim Financial Statements

As  discussed  in Amendment  No. 1 to our 2007 Annual  Report on Form 10-K,  the
Audit  Committee  of our Board of  Directors  (the  Audit  Committee),  with the
assistance  of  legal  counsel  and  other  third   parties,   commissioned   an
investigation  into the  circumstances and possible  irregularities  that led to
certain   fraudulent   transactions  in  our  mortgage  banking  division  being
improperly  recorded  in  our  consolidated  financial  statements  due  to  the
circumvention of established internal controls.  The investigation was completed
on July 29, 2008.

On May 16, 2008, management and the Audit Committee determined that we needed to
restate our previously issued consolidated  financial  statements as of December
31, 2007 and 2006, and for the years ended December 31, 2007,  2006 and 2005 and
restate  certain  financial  information as of December 31, 2005, 2004 and 2003,
and for the years ended  December  31, 2004 and 2003 and each of the quarters in
2007  and  2006,  and  that  these  previously  issued  consolidated   financial
statements  should no longer be relied upon.  Accordingly,  we have restated our
previously issued  consolidated  financial  statements in Amendment No. 1 to our
Annual  Report on Form 10-K for the year ended  December 31,  2007.  We have not
amended our previously filed Annual Reports on Form 10-K or Quarterly Reports on
Form  10-Q  for  the  periods  affected  by  this  restatement.   The  financial
information  presented herein as of December 31, 2007 and for the three and nine
months ended  September 30, 2007 has been restated as set forth in Amendment No.
1 to our 2007 Annual Report on Form 10-K.


                               Financial Condition

Total  assets were $10.83  billion at  September  30,  2008,  compared to $10.90
billion at December  31, 2007.  The  decrease in our total assets was  primarily
attributable  to a decrease  in our  available-for-sale  investment  securities,
partially  offset by an increase in cash and  short-term  investments  and other
assets.


                                       25
<PAGE>

Cash  and cash  equivalents  increased  $241.4  million  to  $473.1  million  at
September  30,  2008,  compared to $231.7  million at  December  31,  2007.  The
increase  in cash and cash  equivalents  was  primarily  due to the  decrease in
investment securities as further discussed below.

Investment  securities  decreased  $338.6 million to $680.7 million at September
30, 2008, from $1.02 billion at December 31, 2007.  Funds provided by maturities
and sales of  investment  securities  were  primarily  invested in cash and cash
equivalents and, to a lesser extent,  utilized to fund internal loan growth. The
decrease  reflects  maturities  and/or calls of investment  securities of $294.5
million and sales of investment securities of $351.8 million partially offset by
purchases of investment  securities of $342.6  million for the nine months ended
September 30, 2008.

Loans,  net of unearned  discount,  decreased  $11.0 million to $8.88 billion at
September 30, 2008, from $8.89 billion at December 31, 2007, reflecting net loan
charge-offs,  and the sales of approximately $10.8 million of our small business
loans in March 2008 and approximately $24.0 million of our residential  mortgage
loans in April 2008,  partially offset by organic growth. The loan growth during
the quarter was primarily  associated  with our commercial  and industrial  loan
portfolio,  commensurate  with our  strategy  of reducing  our  exposure to real
estate loans in light of current market  conditions,  as further discussed under
"--Loans and Allowance for Loan Losses."

Other assets  increased  $72.0 million to $193.8  million at September 30, 2008,
from $121.7 million at December 31, 2007. The increase  primarily resulted from:
(a) an increase of $33.1  million in other real estate owned from $11.2  million
at  December  31,  2007 to  $44.3  million  at  September  30,  2008  reflecting
substantially higher foreclosure activity; (b) an increase in the carrying value
of servicing  rights of $8.3 million from $12.8  million at December 31, 2007 to
$21.1  million at  September  30,  2008,  as further  described in Note 3 to our
consolidated  financial  statements;  (c) an  increase in current  income  taxes
receivable  of $28.8  million  from $14.9  million at December 31, 2007 to $43.7
million  at  September  30,  2008;  and (d) an  increase  in the  fair  value of
derivative  instruments  of $3.4 million from $13.7 million at December 31, 2007
to $17.1  million at  September  30,  2008;  partially  offset by a decrease  in
accrued interest  receivable of $16.0 million from $55.2 million at December 31,
2007 to $39.2 million at September 30, 2008.

Deposits  decreased  $259.8 million to $8.89 billion at September 30, 2008, from
$9.15  billion at December  31, 2007.  During the first nine months of 2008,  we
achieved  organic growth in savings and money market  deposits of $211.9 million
through our deposit development programs,  including marketing campaigns coupled
with enhanced  product and service  offerings.  However,  continued  anticipated
run-off  of higher  rate  certificates  of  deposit  resulted  in a  significant
decrease in our time deposits of $408.2 million, comprised of declines of $331.7
million  and  $170.9  million  during  the first and  second  quarters  of 2008,
respectively,  partially offset by an increase in time deposits of $94.4 million
during the third  quarter  of 2008.  The  Florida  region  accounted  for $234.7
million of the decline in our  certificates  of deposit which was anticipated as
part of our planned post-acquisition strategy to improve the net interest margin
in this  region.  The  increase in time  deposits  in the third  quarter of 2008
primarily resulted from marketing  campaigns and an increase in time deposits in
the Certificate of Deposit Account Registry Service,  or CDARS, to $55.7 million
at September 30, 2008.  Prior to the third  quarter of 2008, we placed  deposits
into CDARS and received fee income in return.  Beginning in the third quarter of
2008,  we  elected  to  receive  deposits  placed  into the CDARS  program  on a
reciprocal basis, thereby increasing our time deposits and further enhancing our
overall liquidity position.

Other  borrowings,  which are comprised of securities  sold under  agreements to
repurchase,  Federal  Home Loan  Bank,  or FHLB,  advances,  and  federal  funds
purchased,  increased  $178.3  million to $587.9  million at September 30, 2008,
compared to $409.6  million at December  31, 2007.  In light of unstable  market
conditions,  loan  funding  needs and current  deposit  trends,  we  implemented
several  strategies  during 2008 to improve our  liquidity  position,  including
increasing our outstanding FHLB borrowings by approximately  $300.0 million,  as
further  discussed  under  "--Liquidity."  In  addition,   our  term  repurchase
agreements  increased $20.0 million as a result of the  restructuring  of a term
repurchase  agreement,  as  further  described  in  Note 8 to  our  consolidated
financial statements.  The increase in other borrowings was partially offset by:
a decrease in our monthly  repurchase  agreement of $33.5 million resulting from
the  payoff  of this  borrowing  in May 2008;  a  decrease  in daily  repurchase
agreements of $31.6 million;  and a decrease in federal funds purchased of $76.5
million.

Our notes payable were zero and $39.0 million at September 30, 2008 and December
31,  2007,  respectively.  During the second  quarter of 2008,  we  received  an
advance of $30.0  million under a new secured  revolving  line of credit with an
affiliated  entity and utilized  the  proceeds of the advance to  terminate  and
repay in full all of the obligations  under our existing secured credit facility
with a group of unaffiliated  financial  institutions,  as further  described in
Note 9 to our  consolidated  financial  statements.  During the third quarter of
2008,  we repaid in full the  outstanding  balance on the new secured  revolving
line of credit.


                                       26
<PAGE>

Accrued expenses and other  liabilities  increased $4.2 million to $59.3 million
at September  30, 2008,  from $55.1  million at December 31, 2007.  The increase
resulted  from  increases in accrued  federal  income taxes  payable,  partially
offset by a decrease in other miscellaneous accrued expenses and liabilities and
accrued interest payable.

Minority interest in subsidiaries  increased $115.0 million to $120.6 million at
September  30, 2008,  from $5.5  million at December  31, 2007.  The increase is
primarily due to FCA's  contribution  of cash of $115.0 million into FB Holdings
during the second and third quarters of 2008, as further  described in Note 5 to
our  consolidated  financial  statements.  As of September 30, 2008,  First Bank
owned 53.66% of FB Holdings and FCA owned the remaining 46.34%.

Stockholders' equity was $784.9 million and $842.1 million at September 30, 2008
and  December  31, 2007,  respectively,  reflecting a decrease of $57.2  million
during the first nine months of 2008. The decrease was primarily attributable to
a net  loss of $69.8  million  and  dividends  paid on our  Class A and  Class B
preferred stock of $524,000,  partially offset by (a) a $6.8 million increase in
accumulated other  comprehensive  income,  comprised of $3.6 million  associated
with changes in unrealized gains and losses on our available-for-sale investment
securities  portfolio and $3.2 million associated with changes in the fair value
of our  derivative  financial  instruments;  and (b) a $6.3  million  cumulative
effect  adjustment of a change in accounting  principle  recorded in conjunction
with our  election to measure  servicing  rights at fair value as  permitted  by
Statement of Financial Accounting Standards,  or SFAS, No. 156 -- Accounting for
Servicing of Financial  Assets, as further discussed in Note 1 and Note 3 to our
consolidated financial statements.


                              Results of Operations

Net Income.  We recorded a net loss of $25.0  million and $69.8  million for the
three and nine months ended  September 30, 2008,  respectively,  compared to net
income of $12.5  million and $47.3 million for the  comparable  periods in 2007.
The  change  in our  earnings  for these  periods  was  primarily  driven by the
following:

      >>    An increase in the  provision  for loan losses to $99.0  million and
            $229.0  million for the three and nine months  ended  September  30,
            2008, respectively,  compared to $13.5 million and $20.4 million for
            the comparable periods in 2007;

      >>    A decline in net interest  income and net interest  margin.  Our net
            interest  margin  declined to 3.47% and 3.56% for the three and nine
            months ended September 30, 2008, respectively, compared to 4.10% and
            4.08%  for the  comparable  periods  in 2007,  and our net  interest
            income  declined to $86.1  million and $262.4  million for the three
            and nine months ended September 30, 2008, respectively,  compared to
            $97.5 million and $287.0 million for the comparable periods in 2007;

      >>    A benefit for income  taxes of $52.8  million and $77.9  million for
            the three and nine months ended  September  30, 2008,  respectively,
            compared to a provision  for income  taxes of $6.5 million and $25.8
            million for the comparable periods in 2007;

      >>    Noninterest  income of $18.7 million and $70.7 million for the three
            and nine months ended September 30, 2008, respectively,  compared to
            $19.9 million and $62.1 million for the comparable  periods in 2007;
            and

      >>    A  decrease  in  noninterest  expense  to $83.7  million  and $251.8
            million  for the three and nine months  ended  September  30,  2008,
            respectively,  compared to $84.8 million and $255.5  million for the
            comparable periods in 2007.

The  increase  in our  provision  for loan  losses for the three and nine months
ended September 30, 2008 was primarily driven by increased net loan charge-offs,
an increase in  nonperforming  loans,  and higher levels of problem loans in our
one-to-four family residential real estate and construction and land development
loan  portfolios,  as further  discussed  under  "--Loans and Allowance for Loan
Losses."

The decline in our net interest income and our net interest margin was primarily
attributable  to an increase in nonaccrual  loans of $183.0  million during 2008
and the 325 basis point decrease, in aggregate,  in the prime lending rate, from
the third  quarter of 2007 through  September  30, 2008.  We are currently in an
asset-sensitive position, and as such, interest rate cuts by the Federal Reserve
have an immediate  short-term negative effect on our net interest income and net
interest  margin until we can fully  re-price  our  deposits to reflect  current
market interest rates. See further discussion under "--Net Interest Income."

The  increase  in our  noninterest  income  for the  first  nine  months of 2008
primarily  resulted  from  a  pre-tax  gain  of  $5.0  million  recorded  on the
extinguishment  of a term  repurchase  agreement;  a net gain of $1.7 million on
derivative instruments compared to $261,000 in the prior period; income from the
sale of tax credits of $1.8 million  compared to zero in the prior period; a net
gain on loans sold and held for sale of $3.6  million  compared to a net loss of
$555,000 in the prior period; and an increase in service charges on deposits and
customer service fees of $5.4


                                       27
<PAGE>

million.  This  increase  was  partially  offset by an increase in net losses on
investment securities, primarily attributable to other-than-temporary impairment
of $6.4  million  recognized  in the second  quarter of 2008 on a single  equity
investment  in the  common  stock of a bank  holding  company  and $1.0  million
recognized in the third  quarter of 2008 on a preferred  stock  investment.  See
further discussion under "--Noninterest Income."

The decrease in  noninterest  expense  primarily  resulted  from  reductions  in
salaries and employee benefits expense attributable to decreased staffing levels
in our mortgage  banking  division  and the  completion  of certain  other staff
reductions  in 2007 and the first nine  months of 2008 as well as a decrease  in
charitable   contributions  expense.  This  decrease  was  partially  offset  by
increases in occupancy and furniture and equipment expenses;  legal, examination
and professional fees; FDIC insurance; expenses and market valuation adjustments
associated with maintaining and selling other real estate properties;  and other
expenses. See further discussion under "--Noninterest Expense."

The change in the (benefit)  provision for income taxes primarily  resulted from
decreased  earnings and a partial  reversal of our deferred tax asset  valuation
allowance  of $22.8  million,  which  resulted in an increase in the benefit for
income  taxes of $21.6  million  during the third  quarter  of 2008,  as further
discussed under "--Provision for Income Taxes."

Net Interest Income. Net interest income,  expressed on a tax-equivalent  basis,
decreased  to $86.4  million  and $263.4  million  for the three and nine months
ended  September  30, 2008,  respectively,  compared to $97.9 million and $288.3
million for the comparable  periods in 2007. Our net interest margin declined to
3.47%  and  3.56%  for the  three and nine  months  ended  September  30,  2008,
respectively,  compared to 4.10% and 4.08% for the  comparable  periods in 2007.
Net  interest  income  is  the  difference   between   interest  earned  on  our
interest-earning  assets, such as loans and investment securities,  and interest
paid on our interest-bearing  liabilities,  such as deposits and borrowings. Net
interest  income  is  affected  by the  level  and  composition  of  assets  and
liabilities,  as well as the  general  level of  interest  rates and  changes in
interest rates. Interest income expressed on a tax-equivalent basis includes the
additional  amount  of  interest  income  that  would  have  been  earned if our
investment in certain tax-exempt interest-earning assets had been made in assets
subject to federal,  state and local  income taxes  yielding the same  after-tax
income.  Net interest  margin is  determined  by dividing  net  interest  income
computed  on a  tax-equivalent  basis by average  interest-earning  assets.  The
interest rate spread is the difference between the average  tax-equivalent yield
earned on interest-earning  assets and the average rate paid on interest-bearing
liabilities.

The decline in our net  interest  margin and net  interest  income is  primarily
attributable  to the decrease in the prime  lending rate that began in September
2007 and  continued  through  April 2008.  Throughout  this period,  the Federal
Reserve  decreased the targeted  federal funds rate,  resulting in reductions in
the prime lending rate totaling 325 basis points in aggregate.  In addition, the
Federal Reserve further reduced the targeted federal funds rate by an additional
100 basis points  during  October  2008.  Our balance  sheet is currently  asset
sensitive, and as such, our net interest margin is negatively impacted with each
interest rate cut as our loan portfolio re-prices on an immediate basis; whereas
we are unable to  immediately  re-price our deposit  portfolio to current market
interest rates,  thereby  resulting in a compression of our net interest margin.
The average  rates paid on our  interest-bearing  deposits  decreased 113 and 82
basis  points to 2.57% and 2.88% for the three and nine months  ended  September
30, 2008,  respectively,  compared to 3.70% for the same periods in 2007,  while
the average yield earned on our  interest-earning  assets  decreased 165 and 129
basis  points to 5.80% and 6.17% for the three and nine months  ended  September
30,  2008,  respectively,  compared  to 7.45% and 7.46% for the same  periods in
2007,   resulting  in  a  reduction  of  our  net   interest   margin.   Average
interest-earning  assets  increased to $9.91  billion and $9.90  billion for the
three and nine months ended September 30, 2008, respectively, from $9.47 billion
and $9.44 billion for the comparable  periods in 2007,  reflecting  increases of
$440.9  million and $460.7  million,  respectively.  The  increase is  primarily
attributable to internal loan growth and interest-earning assets provided by our
acquisitions  completed in 2007,  partially offset by net loan charge-offs and a
reduction  in our  investment  securities  portfolio.  Average  interest-bearing
liabilities  increased to $8.63 billion and $8.64 billion for the three and nine
months ended  September  30, 2008,  respectively,  from $8.19  billion and $8.14
billion for the comparable periods in 2007.

Interest  income on our loan  portfolio,  expressed on a  tax-equivalent  basis,
decreased  to $134.7  million  and $425.9  million for the three and nine months
ended  September 30, 2008,  respectively,  compared to $159.8 million and $470.3
million  for the  comparable  periods in 2007.  Average  loans,  net of unearned
discount,  increased $889.8 million and $1.03 billion to $8.97 billion and $8.99
billion for the three and nine months ended  September  30, 2008,  respectively,
from $8.08 billion and $7.96  billion for the  comparable  periods in 2007.  The
increase  in  average  loans   primarily   reflects   internal  growth  and  our
acquisitions  completed in 2007,  partially offset by net loan charge-offs.  The
yield on our loan  portfolio  decreased  187 and 157  basis  points to 5.98% and
6.33% for the three and nine months  ended  September  30,  2008,  respectively,
compared  to 7.85% and  7.90% for the  comparable  periods  in 2007,  reflecting
decreases in the prime lending rate  throughout  the latter part of 2007 and the
first three quarters of 2008 and a significant increase in the average amount of
nonaccrual loans during the respective periods;  partially offset by an increase
in interest income associated with our interest rate swap agreements.  The prime
lending rate decreased


                                       28
<PAGE>

100 basis  points  during  2007,  from 8.25% at  December  31,  2006 to 7.25% at
December 31, 2007, and decreased an additional 225 basis points during the first
nine months of 2008 to 5.00% at  September  30,  2008.  Our  interest  rate swap
agreements  contributed to an increase in interest  income on our loan portfolio
of $2.9 million and $7.6  million for the three and nine months ended  September
30, 2008, respectively, in contrast to a decrease in interest income on our loan
portfolio of $652,000 and $3.5 million for the comparable periods in 2007.

Interest  income on our  investment  securities,  expressed on a  tax-equivalent
basis,  was $9.1  million and $30.3  million for the three and nine months ended
September  30, 2008,  respectively,  compared to $16.7 million and $50.5 million
for the comparable periods in 2007.  Average  investment  securities were $758.7
million and $830.5  million for the three and nine months  ended  September  30,
2008,  respectively,  compared  to  $1.28  billion  and  $1.34  billion  for the
comparable periods in 2007. The reduction in our average  investment  securities
reflects the utilization of funds provided by maturities and sales of investment
securities to primarily fund organic growth within our loan portfolio. The yield
earned on our  investment  portfolio  was 4.75% and 4.87% for the three and nine
months ended September 30, 2008,  respectively,  compared to 5.16% and 5.06% for
the comparable periods in 2007,  primarily  reflecting the reduced interest rate
environment.

Interest income on our short-term  investments was $849,000 and $1.2 million for
the three and nine months ended  September 30, 2008,  respectively,  compared to
$1.5  million  and $5.7  million  for the  comparable  periods in 2007.  Average
short-term  investments  were $186.8 million and $79.3 million for the three and
nine months ended September 30, 2008,  respectively,  compared to $109.8 million
and  $144.7  million  for  the  comparable  periods  in  2007,   reflecting  the
utilization of available short-term investments to fund organic loan growth. The
yield earned on our short-term investments was 1.81% and 1.96% for the three and
nine months ended September 30, 2008, respectively,  compared to 5.34% and 5.24%
for the comparable periods in 2007, reflecting current market conditions and the
reduced interest rate environment.

Interest expense on our interest-bearing deposits decreased to $49.3 million and
$164.9  million  for the  three  and  nine  months  ended  September  30,  2008,
respectively,  compared to $69.4 million and $204.4  million for the  comparable
periods in 2007.  Average  interest-bearing  deposits increased to $7.62 billion
and $7.66  billion  for the three and nine  months  ended  September  30,  2008,
respectively,  compared to $7.45  billion and $7.39  billion for the  comparable
periods in 2007.  The  increase in average  interest-bearing  deposits  reflects
organic growth through enhanced product marketing  campaigns during the periods,
and growth provided by our acquisitions  completed during 2007, partially offset
by anticipated  run-off of higher rate  certificates  of deposit.  The aggregate
weighted average rate paid on our deposit  portfolio was 2.57% and 2.88% for the
three and nine months ended September 30, 2008, respectively,  compared to 3.70%
for the  comparable  periods in 2007.  The  decrease in the  aggregate  weighted
average rate paid for these  periods is primarily  reflective  of the  declining
interest rate environment.  Specifically,  the weighted average rate paid on our
time deposit portfolio declined to 3.56% and 3.95% for the three and nine months
ended September 30, 2008, respectively,  from 4.80% and 4.78% for the comparable
periods in 2007,  and the  average  rate paid on our  savings  and money  market
deposit  portfolio  declined  to 1.98% and  2.19% for the three and nine  months
ended September 30, 2008, respectively,  from 3.10% and 3.09% for the comparable
periods in 2007.

Interest  expense on our other borrowings was $3.9 million and $11.7 million for
the three and nine months ended  September 30, 2008,  respectively,  compared to
$4.1  million and $13.4  million  for the same  periods in 2007.  Average  other
borrowings  were $644.5 million and $596.0 million for the three and nine months
ended  September 30, 2008,  respectively,  compared to $401.7 million and $401.5
million for the same periods in 2007. The aggregate  weighted  average rate paid
on our other  borrowings was 2.40% and 2.62% for the three and nine months ended
September 30, 2008, respectively, compared to 4.09% and 4.47% for the comparable
periods in 2007.  The  decrease in the  weighted  average rate paid on our other
borrowings  reflects  the  reduction  in  short-term  interest  rates during the
periods,  as previously  discussed.  The increase in average other borrowings is
primarily due to an increase in FHLB advances of $299.9 million during the first
nine months of 2008, and an increase in our term  repurchase  agreement of $20.0
million,  as  further  discussed  under  "--Liquidity"  and  in  Note  8 to  our
consolidated  financial  statements,  partially  offset by the  termination of a
$100.0 million term repurchase agreement in August 2007.

Interest expense on our notes payable was $45,000 and $1.3 million for the three
and nine months ended September 30, 2008, respectively, compared to $544,000 and
$2.1 million for the comparable periods in 2007. Our notes payable averaged $3.1
million  and $28.3  million for the three and nine months  ended  September  30,
2008,  respectively,  compared  to  $29.1  million  and  $41.1  million  for the
comparable  periods in 2007.  The  aggregate  weighted  average rate paid on our
notes payable was 5.79% and 6.19% for the three and nine months ended  September
30, 2008,  respectively,  compared to 7.42% and 6.79% for the comparable periods
in 2007,  reflecting  the  reduction  in  short-term  interest  rates during the
periods,  partially offset by an increase in fees paid on our notes payable. The
weighted  average rate paid on our notes  payable  includes  unused  commitment,
arrangement and renewal fees. Exclusive of these fees, the weighted average rate
paid on our notes  payable  was  3.47%  and 4.52% for the three and nine  months
ended September 30, 2008, respectively, compared to 6.51% and 6.54% for the same


                                       29
<PAGE>

periods in 2007. The decrease in our average notes payable during the periods is
primarily  attributable to contractual payments and additional  prepayments made
on our term loan and advances on our term and revolving credit loans, as further
described in Note 5 and Note 9 to our consolidated financial statements.

Interest  expense on our  subordinated  debentures  was $5.0  million  and $16.1
million for the three and nine months ended  September  30, 2008,  respectively,
compared to $5.9 million and $18.3 million for the  comparable  periods in 2007.
Average  subordinated  debentures  were  $353.8  million  for the three and nine
months ended  September 30, 2008,  compared to $310.8 million and $309.8 million
for the comparable  periods in 2007. The aggregate weighted average rate paid on
our  subordinated  debentures  was 5.60% and 6.07% for the three and nine months
ended  September  30,  2008,  respectively,  compared to 7.56% and 7.88% for the
comparable  periods in 2007,  reflecting  the reduction in  short-term  interest
rates  during  the  periods as $282.5  million,  or 79.4%,  of our  subordinated
debentures  are  variable  rate.  The  change in volume and  average  rates paid
reflects the issuance of $77.3 million of variable rate subordinated  debentures
during 2007 through four newly formed statutory trusts,  partially offset by the
repayment of $25.8  million of variable  rate  subordinated  debentures in April
2007, as further described in Note 10 to our consolidated  financial statements.
In addition,  in March 2008, we entered into four interest rate swap  agreements
designated  as cash flow  hedges to  effectively  convert the  interest  rate on
$125.0 million of our variable rate  subordinated  debentures to a blended fixed
rate of interest of approximately  4.90%, as further discussed under "--Interest
Rate Risk Management" and in Note 10 to our consolidated financial statements.


                                       30
<PAGE>

The following table sets forth, on a tax-equivalent  basis,  certain information
relating to our average balance sheets, and reflects the average yield earned on
our   interest-earning   assets,  the  average  cost  of  our   interest-bearing
liabilities  and the resulting net interest income for the three and nine months
ended September 30, 2008 and 2007.

<TABLE>
<CAPTION>
                                                                         Three Months Ended September 30,
                                                      --------------------------------------------------------------------
                                                                    2008                         2007 (Restated)
                                                      -------------------------------     --------------------------------
                                                                   Interest                            Interest
                                                        Average    Income/    Yield/        Average     Income/    Yield/
                                                        Balance    Expense     Rate         Balance     Expense     Rate
                                                        -------    -------     ----         -------     -------     ----
                                                                        (dollars expressed in thousands)
<S>                                                   <C>           <C>         <C>       <C>            <C>         <C>
                  ASSETS
                  ------

Interest-earning assets:
   Loans (1)(2)(3)(4)..........................       $ 8,966,057   134,712     5.98%     $ 8,076,224    159,779     7.85%
   Investment securities (4)...................           758,735     9,061     4.75        1,284,707     16,702     5.16
   Short-term investments......................           186,793       849     1.81          109,800      1,478     5.34
                                                      -----------   -------               -----------    -------
            Total interest-earning
               assets..........................         9,911,585   144,622     5.80        9,470,731    177,959     7.45
                                                                    -------                              -------
Nonearning assets..............................           925,142                             875,622
                                                      -----------                         -----------
            Total assets.......................       $10,836,727                         $10,346,353
                                                      ===========                         ===========

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

Interest-bearing liabilities:
   Interest-bearing deposits:
      Interest-bearing demand..................       $   949,402     1,207     0.51%     $   944,542      2,242     0.94%
      Savings and money market.................         2,940,949    14,633     1.98        2,687,208     21,012     3.10
      Time deposits of $100
         or more...............................         1,288,916    11,808     3.64        1,462,548     18,299     4.96
      Other time deposits......................         2,445,457    21,628     3.52        2,355,710     27,881     4.70
                                                      -----------   -------               -----------    -------
            Total interest-bearing
               deposits........................         7,624,724    49,276     2.57        7,450,008     69,434     3.70
   Other borrowings............................           644,546     3,891     2.40          401,691      4,140     4.09
   Notes payable (5)...........................             3,092        45     5.79           29,070        544     7.42
   Subordinated debentures.....................           353,799     4,980     5.60          310,804      5,920     7.56
                                                      -----------   -------               -----------    -------
            Total interest-bearing
               liabilities.....................         8,626,161    58,192     2.68        8,191,573     80,038     3.88
                                                                    -------                              -------
Noninterest-bearing liabilities:
   Demand deposits.............................         1,245,366                           1,225,157
   Other liabilities...........................           170,448                             114,555
                                                      -----------                         -----------
            Total liabilities..................        10,041,975                           9,531,285
Stockholders' equity...........................           794,752                             815,068
                                                      -----------                         -----------
            Total liabilities and
               stockholders' equity............       $10,836,727                         $10,346,353
                                                      ===========                         ===========

Net interest income............................                      86,430                               97,921
                                                                     ======                               ======
Interest rate spread...........................                                 3.12                                 3.57
Net interest margin (6)........................                                 3.47%                                4.10%
                                                                                ====                                 ====

<PAGE>
<CAPTION>
                                                                     Nine Months Ended September 30,
                                                 ------------------------------------------------------------------------
                                                                 2008                               2007 (Restated)
                                                 ---------------------------------     ----------------------------------
                                                               Interest                               Interest
                                                  Average       Income/     Yield/       Average       Income/     Yield/
                                                  Balance       Expense      Rate        Balance       Expense      Rate
                                                  -------       -------      ----        -------       -------      ----
                                                                      (dollars expressed in thousands)
<S>                                              <C>             <C>         <C>       <C>              <C>         <C>
                  ASSETS
                  ------

Interest-earning assets:
   Loans (1)(2)(3)(4)..........................  $ 8,987,551     425,894     6.33%     $ 7,955,916      470,252     7.90%
   Investment securities (4)...................      830,520      30,298     4.87        1,336,036       50,526     5.06
   Short-term investments......................       79,319       1,165     1.96          144,709        5,671     5.24
                                                 -----------     -------               -----------      -------
            Total interest-earning
               assets..........................    9,897,390     457,357     6.17        9,436,661      526,449     7.46
                                                                 -------                                -------
Nonearning assets..............................      920,970                               860,875
                                                 -----------                           -----------
            Total assets.......................  $10,818,360                           $10,297,536
                                                 ===========                           ===========

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

Interest-bearing liabilities:
   Interest-bearing deposits:
      Interest-bearing demand..................  $   973,655       4,560     0.63%     $   962,396        7,171     1.00%
      Savings and money market.................    2,841,380      46,577     2.19        2,587,286       59,809     3.09
      Time deposits of $100
         or more...............................    1,373,205      41,593     4.05        1,455,660       53,533     4.92
      Other time deposits......................    2,471,362      72,143     3.90        2,383,236       83,851     4.70
                                                 -----------     -------               -----------      -------
            Total interest-bearing
               deposits........................    7,659,602     164,873     2.88        7,388,578      204,364     3.70
   Other borrowings............................      595,972      11,678     2.62          401,471       13,427     4.47
   Notes payable (5)...........................       28,271       1,310     6.19           41,089        2,088     6.79
   Subordinated debentures.....................      353,780      16,078     6.07          309,752       18,265     7.88
                                                 -----------     -------               -----------      -------
            Total interest-bearing
               liabilities.....................    8,637,625     193,939     3.00        8,140,890      238,144     3.91
                                                                 -------                                -------
Noninterest-bearing liabilities:
   Demand deposits.............................    1,222,156                             1,233,565
   Other liabilities...........................      131,942                               120,534
                                                 -----------                           -----------
            Total liabilities..................    9,991,723                             9,494,989
Stockholders' equity...........................      826,637                               802,547
                                                 -----------                           -----------
            Total liabilities and
               stockholders' equity............  $10,818,360                           $10,297,536
                                                 ===========                           ===========

Net interest income............................                  263,418                                288,305
                                                                 =======                                =======
Interest rate spread...........................                              3.17                                   3.55
Net interest margin (6)........................                              3.56%                                  4.08%
                                                                             ====                                   ====
</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)   Interest income includes the effects of interest rate swap agreements.
(4)   Information is presented on a tax-equivalent  basis assuming a tax rate of
      35%. The tax-equivalent  adjustments were approximately  $325,000 and $1.0
      million  for the three and nine  months  ended  September  30,  2008,  and
      $427,000   and  $1.3   million  for  the   comparable   periods  in  2007,
      respectively.
(5)   Interest expense on our notes payable includes commitment, arrangement and
      renewal fees.  Exclusive of these fees, the interest rates paid were 3.47%
      and 4.52% for the three and nine months  ended  September  30,  2008,  and
      6.51% and 6.54% for the comparable periods in 2007, respectively.
(6)   Net interest  margin is the ratio of net interest  income  (expressed on a
      tax-equivalent basis) to average interest-earning assets.


                                       31
<PAGE>

The following table indicates, on a tax-equivalent basis, the change in interest
income and interest expense that is attributable to the change in average volume
and change in average rates,  for the three and nine months ended  September 30,
2008 as compared to the three and nine months  ended  September  30,  2007.  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:
                                                     ------------------------------------------------------------------------------
                                                               Three Months Ended                      Nine Months Ended
                                                               September 30, 2008                      September 30, 2008
                                                           Compared to 2007 (Restated)             Compared to 2007 (Restated)
                                                     ------------------------------------      ------------------------------------
                                                                                    Net                                       Net
                                                      Volume         Rate         Change        Volume         Rate         Change
                                                      ------         ----         ------        ------         ----         ------
                                                                               (dollars expressed in thousands)
<S>                                                  <C>            <C>           <C>           <C>          <C>            <C>
Interest earned on:
    Loans: (1)(2)(3)
       Taxable .................................     $ 16,202       (41,067)      (24,865)       56,583      (100,538)      (43,955)
       Tax-exempt (4) ..........................          (59)         (143)         (202)          (66)         (337)         (403)
    Investment securities:
       Taxable .................................       (6,213)       (1,340)       (7,553)      (17,926)       (1,956)      (19,882)
       Tax-exempt (4) ..........................         (125)           37           (88)         (420)           74          (346)
    Short-term investments .....................          682        (1,311)         (629)       (1,889)       (2,617)       (4,506)
                                                     --------      --------      --------      --------      --------      --------
           Total interest income ...............       10,487       (43,824)      (33,337)       36,282      (105,374)      (69,092)
                                                     --------      --------      --------      --------      --------      --------
Interest paid on:
    Interest-bearing demand deposits ...........           11        (1,046)       (1,035)           84        (2,695)       (2,611)
    Savings and money market deposits ..........        1,822        (8,201)       (6,379)        5,479       (18,711)      (13,232)
    Time deposits ..............................         (999)      (11,745)      (12,744)          204       (23,852)      (23,648)
    Other borrowings ...........................        1,885        (2,134)         (249)        5,070        (6,819)       (1,749)
    Notes payable (5) ..........................         (401)          (98)         (499)         (606)         (172)         (778)
    Subordinated debentures ....................          741        (1,681)         (940)        2,382        (4,569)       (2,187)
                                                     --------      --------      --------      --------      --------      --------
           Total interest expense ..............        3,059       (24,905)      (21,846)       12,613       (56,818)      (44,205)
                                                     --------      --------      --------      --------      --------      --------
           Net interest income .................     $  7,428       (18,919)      (11,491)       23,669       (48,556)      (24,887)
                                                     ========      ========      ========      ========      ========      ========
</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)   Interest income includes the effect of interest rate swap agreements.
(4)   Information is presented on a tax-equivalent  basis assuming a tax rate of
      35%.
(5)   Interest expense on our notes payable includes commitment, arrangement and
      renewal fees.

Provision  for Loan  Losses.  We recorded a  provision  for loan losses of $99.0
million for the three months ended September 30, 2008, compared to $84.1 million
for the three months ended June 30, 2008 and $13.5  million for the three months
ended  September 30, 2007.  Our provision for loan losses was $229.0 million for
the first nine  months of 2008,  compared to $20.4  million  for the  comparable
period in 2007.  The increase in our provision for loan losses for the three and
nine months ended September 30, 2008 was primarily  driven by increased net loan
charge-offs,  an increase in  nonperforming  loans, and higher levels of problem
loans in our one-to-four  family  residential  real estate and  construction and
land  development  loan  portfolios,  as further  discussed  under  "--Loans and
Allowance for Loan Losses." We expect the provision for loan losses to remain at
elevated  levels  in the near  term as a result  of  continued  distress  in our
one-to-four family residential real estate and construction and land development
loan  portfolios  coupled  with highly  unstable  market  conditions  in certain
sectors of these portfolios.

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

Noninterest  Income.  Noninterest income was $18.7 million and $70.7 million for
the three and nine months ended  September 30, 2008,  respectively,  compared to
$19.9 million and $62.1 million for the comparable periods in 2007.  Noninterest
income consists  primarily of service  charges on deposit  accounts and customer
service fees, mortgage-banking revenues, investment management income, insurance
fee and  commission  income,  net gains  (losses) on investment  securities  and
derivative instruments, and other income.

Service charges on deposit accounts and customer service fees increased to $14.6
million  and $39.7  million for the three and nine months  ended  September  30,
2008,  respectively,  from $12.1  million and $34.3  million for the  comparable
periods in 2007.  The increase in service  charges and customer  service fees is
primarily  attributable to: (a) higher deposit volumes  associated with internal
growth and our  acquisitions  of banks  completed in 2007, as further  described
under  "--Financial  Condition,"  as well as changes in the  overall  mix of our
deposit  portfolio  from time  deposits to  increased  savings and money  market
deposits;  (b)  increased  cardholder  interchange  income  primarily  due to an
increase in debit card usage by our customer base; (c) increased fee income from
customer


                                       32
<PAGE>

service charges for non-sufficient funds and returned checks from our commercial
deposit base resulting from our recently implemented overdraft privilege program
and efforts to control fee waivers; and (d) pricing increases on certain service
charges  and  customer   service  fees  instituted  to  reflect  current  market
conditions.

Gain on loans sold and held for sale  increased to $908,000 and $3.6 million for
the three and nine months ended September 30, 2008, respectively,  in comparison
to losses of $2.6 million and $555,000 for the  comparable  periods in 2007. The
increase  in  2008  is  primarily  attributable  to  a  decrease  in  repurchase
obligations on mortgage loans sold with recourse.  For the three and nine months
ended September 30, 2007, we established  recourse  reserves of $3.9 million and
$7.2 million, respectively, which had the effect of decreasing our gain on sale.
Gain on loans sold and held for sale for 2008 also  reflects  a pre-tax  gain of
$504,000  recognized in March 2008 on the sale of approximately $10.8 million of
our small business loans. These increases were partially offset by a significant
decrease in the volume of mortgage loans originated and subsequently sold in the
secondary market, a pre-tax loss of $804,000 on the sale of approximately  $24.0
million of residential  real estate  mortgage loans in April 2008, and a pre-tax
gain of  $851,000  recorded  in April  2007 on the sale of  approximately  $13.4
million of certain repurchased and other residential mortgage loans.

We recorded net losses on investment securities of $1.1 million and $5.7 million
for the three  and nine  months  ended  September  30,  2008,  respectively,  in
comparison to net losses of $74,000 and $1.3 million for the comparable  periods
in 2007.  In the second  quarter  of 2008,  we  recognized  other-than-temporary
impairment  of $6.4  million on an equity  investment  in the common  stock of a
single  company in the financial  services  industry.  The  other-than-temporary
impairment  was  primarily  caused by economic  events  impacting  the financial
services  industry as a whole,  and represented the difference  between our cost
basis and the fair  value of the equity  security  as of June 30,  2008.  In the
third  quarter of 2008, we  recognized  other-than-temporary  impairment of $1.0
million on a preferred stock investment. The $1.0 million impairment recognition
was the  full  amount  of the  investment  and was  necessitated  by  bankruptcy
proceedings    of   the   underlying    financial    services    company.    The
other-than-temporary  impairment  of $7.4 million,  in aggregate,  was partially
offset by a pre-tax gain of  approximately  $867,000  recognized  on the sale of
$81.5 million of available-for-sale investment securities in March 2008.

Bank owned life  insurance  investment  income was $554,000 and $2.3 million for
the three and nine months ended September 30, 2008, respectively,  in comparison
to $1.1  million  and $2.8  million  for the  comparable  periods  in 2007,  and
reflects the  performance  of the  underlying  investments  associated  with the
insurance  contracts,  which is  directly  correlated  to the  portfolio  mix of
investments,  the  crediting  rate  associated  with the  embedded  stable value
protection program, and overall market conditions.

Investment   management  income  generated  by  MVP,  our  institutional   money
management  subsidiary,  was  $737,000  and $2.8  million for the three and nine
months ended September 30, 2008, respectively, in comparison to $1.4 million and
$4.5  million  for the same  periods  in 2007,  reflecting  decreased  portfolio
management  fee  income  associated  with a decline in assets  under  management
primarily  attributable  to the loss of a single  large  customer  in the fourth
quarter of 2007 and current market conditions.

Insurance fee and  commission  income  generated by Adrian Baker,  our insurance
brokerage  agency,  was $1.8  million  and $5.7  million  for the three and nine
months ended September 30, 2008, respectively, in comparison to $1.8 million and
$5.3  million  for the same  periods  in 2007,  primarily  reflecting  increased
customer volumes.

We recorded  net losses of $57,000 and net gains of $1.7  million on  derivative
instruments   for  the  three  and  nine  months  ended   September   30,  2008,
respectively,  in  comparison to net gains of $603,000 and $261,000 for the same
periods in 2007.  The net gain for the nine months ended  September  30, 2008 is
primarily  attributable  to the net  increase in the fair value of our  interest
rate floor agreements as a result of the decline in forward rates resulting from
the Federal  Reserve  interest  rate cuts through  April 2008.  In May 2008,  we
terminated  our $300.0  million  interest  rate floor  agreements  to modify our
overall  hedge  position in accordance  with our interest  rate risk  management
program,  as further  described under  "--Interest Rate Risk Management." We did
not  incur  any  gains or losses  in  conjunction  with the  termination  of our
interest rate floor agreements.

We recorded a gain of $5.0 million on the  extinguishment of our term repurchase
agreement  in the first  quarter of 2008.  In March 2008,  we  restructured  our
$100.0 million term repurchase agreement,  as further discussed in Note 8 to our
consolidated  financial  statements.  The  primary  modifications  were to:  (a)
increase the borrowing  amount to $120.0  million;  (b) extend the maturity date
from  October 12, 2010 to April 12, 2012;  (c) convert the interest  rate from a
variable rate to a fixed rate of 3.36%; and (d) terminate the embedded  interest
rate floor  agreements  contained  within the term repurchase  agreement.  These
modifications resulted in the recognition of the pre-tax gain of $5.0 million.

Other  income was $1.3  million and $15.6  million for the three and nine months
ended September 30, 2008, respectively,  in comparison to $5.6 million and $16.7
million for the  comparable  periods in 2007.  The decrease in 2008 is primarily
attributable to the following:


                                       33
<PAGE>

      >>    A net  decrease  in  mortgage  and  other  servicing  rights of $5.3
            million  and  $6.5  million  for the  three  and nine  months  ended
            September 30, 2008,  compared to net decreases in mortgage and other
            servicing rights of $1.1 million and $4.1 million for the comparable
            periods  in 2007.  As  further  discussed  under  "--Effects  of New
            Accounting  Standards,"  on January 1, 2008, we opted to measure our
            servicing  rights at fair value. As such, the  fluctuations in 2008,
            as  compared  to 2007,  reflect  changes  in the  fair  value of our
            servicing  rights  in  comparison  to  amortization  and  impairment
            recognized in 2007;

      >>    Recoveries  of  certain  loan  principal   balances  that  had  been
            previously charged off by the financial  institutions prior to their
            acquisition  by First  Banks of  $186,000  and $1.7  million for the
            three and nine months ended September 30, 2008,  compared to $89,000
            and $1.2 million for the same periods in 2007;

      >>    A gain of $1.8 million for the nine months ended  September 30, 2008
            recognized  on the sale of various  state tax credits in April 2008;
            and

      >>    A gain recognized in March 2008 on the Visa, Inc., or Visa,  initial
            public offering of $743,000,  representing the cash payment received
            in exchange  for a portion of our  membership  interest in Visa as a
            result of Visa's initial public offering.

Noninterest  Expense.  Noninterest  expense was $83.7 million and $251.8 million
for the three  and nine  months  ended  September  30,  2008,  respectively,  in
comparison to $84.8  million and $255.5  million for the  comparable  periods in
2007. Our  efficiency  ratio was 79.88% and 75.58% for the three and nine months
ended  September 30, 2008,  respectively,  compared to 72.24% and 73.18% for the
comparable  periods in 2007. The decrease in  noninterest  expense was primarily
attributable  to certain  profit  improvement  initiatives  that we  implemented
throughout 2007 and the first nine months of 2008.

Salaries and employee  benefits expense was $35.2 million and $112.9 million for
the three and nine months ended September 30, 2008, respectively,  in comparison
to $43.1  million and $132.1  million  for the  comparable  periods in 2007.  We
attribute  the overall  decrease in salaries  and employee  benefits  expense to
reduced  staffing levels within our mortgage banking division and the completion
of certain other staff reductions in 2007 and the first nine months of 2008. Our
total full-time  equivalent employees (FTEs) decreased to approximately 2,302 at
September  30,  2008,  from 2,453 at  September  30, 2007 and 2,720 at March 31,
2007,  representing  decreases  of  approximately  6.2%  and  15.4%  from  those
respective  dates.  We  reduced  our FTEs  despite  adding  an  aggregate  of 26
additional branch offices through acquisitions in 2007 and an aggregate of 11 de
novo  branches  opened in 2007 and 2008.  The  decrease in salaries and employee
benefits expense is also reflective of reduced  incentive  compensation  expense
resulting from the  significant  decline in our earnings  between the comparable
periods.

Occupancy,  net of rental income,  and furniture and equipment expense was $15.3
million  and $45.1  million for the three and nine months  ended  September  30,
2008,  respectively,  in  comparison  to $13.5 million and $38.5 million for the
comparable  periods in 2007.  The  increase in 2008  reflects  higher  levels of
expense resulting from our de novo activities and acquisitions in 2007 and 2008,
as discussed  above,  as well as increased  technology  equipment  expenditures,
continued expansion and renovation of certain branch offices, increased expenses
associated  with the purchase and/or lease of properties that are expected to be
utilized for future branch office locations, and depreciation expense associated
with acquisitions and capital expenditures.

Information  technology  and item  processing  fees were $8.8  million and $27.2
million for the three and nine months ended September 30, 2008, respectively, in
comparison  to $9.0 million and $27.5  million for the same periods in 2007.  As
more fully described in Note 5 to our consolidated  financial statements,  First
Services,  L.P.,  a limited  partnership  indirectly  owned by our  Chairman and
members of his immediate  family,  provides  information  technology and various
operational support services to our subsidiaries and us. Information  technology
fees also include fees paid to outside  servicers  associated  with our mortgage
lending and trust divisions,  our small business lending and institutional money
management subsidiaries, and Adrian Baker and UPAC.

Legal, examination and professional fees were $4.4 million and $11.7 million for
the three and nine months ended September 30, 2008, respectively,  in comparison
to $2.5  million  and $6.9  million  for the  same  periods  in 2007,  primarily
reflecting   an  increase  in   professional   fees   resulting   from  internal
investigations,  including the investigation commissioned by the Audit Committee
regarding certain matters  associated with the mortgage banking division and the
resulting  restatement  of our  consolidated  financial  statements,  as further
discussed in Note 1 to our  consolidated  financial  statements.  The  increased
professional  fees were also  attributable  to higher legal expenses  related to
collection  and  foreclosure  efforts on problem  loans and  ongoing  litigation
matters,  including those assumed through the acquisition of CFHI, as more fully
described in Note 13 to our consolidated financial statements, and Coast Bank of
Florida.  We anticipate  legal,  examination and professional  fees to remain at
higher than historical levels until economic conditions stabilize as a result of
higher legal and  professional  fees  associated with  foreclosures,  collection
efforts and other real estate properties.


                                       34
<PAGE>

Amortization  of  intangible  assets was $2.8  million and $8.3  million for the
three and nine months ended September 30, 2008,  respectively,  in comparison to
$3.1 million and $9.3 million for the same periods in 2007, primarily reflecting
a decrease in amortization expense on core deposit  intangibles.  As of the date
of this  report,  we are in the  process  of  completing  an  assessment  of the
carrying value of goodwill and other intangible assets.  This assessment will be
completed during the fourth quarter of 2008.

Advertising and business  development  expense was $1.8 million and $5.2 million
for the three  and nine  months  ended  September  30,  2008,  respectively,  in
comparison  to $1.6  million  and $5.1  million  for the same  periods  in 2007,
primarily  reflecting a marketing  campaign in the second and third  quarters of
2008 associated with expanded deposit product and service offerings.

FDIC insurance  expense was $1.5 million and $4.5 million for the three and nine
months ended  September  30, 2008,  respectively,  in comparison to $233,000 and
$749,000 for the  comparable  periods in 2007.  We had built up several  million
dollars of credits through  previous  acquisitions  that were utilized to offset
FDIC  insurance  premiums  over  the  past  several  quarters  and have now been
depleted.  We further  anticipate that premium rates will likely increase in the
future based on recent developments  within the banking industry,  including the
failure  of  certain  financial  institutions,  as more  fully  described  under
"--Recent Market Conditions."

Charitable contributions expense was $68,000 and $472,000 for the three and nine
months ended September 30, 2008, respectively, in comparison to $1.7 million and
$5.0 million for the same periods in 2007,  reflecting a decrease in  charitable
contributions  made to the  Dierberg  Operating  Foundation,  Inc., a charitable
foundation  established by our Chairman and members of his immediate  family, as
further described in Note 5 to our consolidated financial statements.

Other  expense was $12.4 million and $31.6 million for the three and nine months
ended September 30, 2008, respectively,  in comparison to $8.4 million and $25.2
million for the comparable periods in 2007. Other expense  encompasses  numerous
general and administrative expenses including communications, insurance, freight
and courier  services,  correspondent  bank  charges,  miscellaneous  losses and
recoveries,  expenses on other real estate owned, memberships and subscriptions,
transfer  agent  fees,  sales  taxes and travel,  meals and  entertainment.  The
increase in other expense is primarily attributable to the following:

      >>    Other real estate  write-downs and expenses of $1.9 million and $3.8
            million  for the three and nine months  ended  September  30,  2008,
            respectively, compared to $235,000 and $586,000 for the same periods
            in 2007.  We expect the level of  write-downs  and expenses on other
            real  estate  to  remain  at  elevated  levels in the near term as a
            result  of the  increase  in our  other  real  estate  owned,  which
            increased to $44.3 million at September 30, 2008, from $11.2 million
            at December 31, 2007;

      >>    A litigation settlement of $750,000 during the third quarter of 2008
            pertaining to a matter  initially  brought against CFHI prior to our
            acquisition,  as further  described  in Note 13 to our  consolidated
            financial statements;

      >>    Overdraft  losses,  net of  recoveries,  of $1.3  million  and  $1.7
            million  for the three and nine months  ended  September  30,  2008,
            respectively,  compared  to $436,000  and $1.0  million for the same
            periods in 2007,  primarily resulting from our recently  implemented
            overdraft privilege program; and

      >>    An  increase  in  expenses  associated  with  continued  growth  and
            expansion  of  our  banking  franchise,  primarily  associated  with
            expansionary activities in 2006 and 2007.

Provision for Income Taxes. The provision (benefit) for income taxes reflects an
income tax  benefit of $52.8  million  and $77.9  million for the three and nine
months  ended  September  30,  2008,  respectively,  compared  to an income  tax
provision of $6.5 million and $25.8 million for the comparable  periods in 2007.
Our  effective  tax rate was 67.8% and 52.8% for the three and nine months ended
September 30, 2008, respectively, compared to 33.9% and 35.2% for the comparable
periods in 2007. The decrease in income taxes is primarily  attributable  to our
reduced  level of  earnings  and a partial  reversal of our  deferred  tax asset
valuation  allowance  of $22.8  million,  which  resulted  in an increase in the
benefit  for income  taxes of $21.6  million  during the third  quarter of 2008.
Excluding  the partial  reversal of our deferred tax asset  valuation  allowance
associated  with the tax law change  that was enacted on  September  30, 2008 as
further  described  in Note 11 to our  consolidated  financial  statements,  our
effective  tax rate was 40.1% and  38.2%  for the  three and nine  months  ended
September 30, 2008, respectively.


                                       35
<PAGE>

                          Interest Rate Risk Management

We utilize  derivative  financial  instruments  to assist in our  management  of
interest  rate  sensitivity  by modifying  the  re-pricing,  maturity and option
characteristics  of certain assets and  liabilities.  The  derivative  financial
instruments  we  held as of  September  30,  2008  and  December  31,  2007  are
summarized as follows:

<TABLE>
<CAPTION>
                                                                     September 30, 2008           December 31, 2007
                                                                   ----------------------      -----------------------
                                                                   Notional      Credit        Notional       Credit
                                                                    Amount      Exposure        Amount       Exposure
                                                                    ------      --------        ------       --------
                                                                              (dollars expressed in thousands)
<S>                                                                <C>               <C>        <C>              <C>
      Cash flow hedges - loans ...........................         $400,000          442        400,000          5,271
      Cash flow hedges - subordinated debentures .........          125,000           --             --             --
      Interest rate floor agreements .....................               --           --        300,000          1,699
      Interest rate cap agreements .......................          400,000           --        400,000             50
      Interest rate lock commitments .....................            8,300           92          3,000             23
      Forward commitments to sell
        mortgage-backed securities .......................           23,000           82         55,000             40
                                                                   ========      =======       ========       ========
</TABLE>

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

For the three and nine months ended September 30, 2008, we realized net interest
income  of $2.9  million  and  $7.6  million,  respectively,  on our  derivative
financial instruments, whereas for the three and nine months ended September 30,
2007,   we  realized  net  interest   expense  of  $652,000  and  $3.5  million,
respectively,  on our  derivative  financial  instruments.  The  increase in net
interest  income is  attributable  to the decline in the prime  lending rate. We
recorded  net losses of  $57,000  and net gains of $1.7  million  on  derivative
instruments   for  the  three  and  nine  months  ended   September   30,  2008,
respectively,  in comparison to net gains of $603,000 and $261,000 for the three
and nine months  ended  September  30, 2007,  respectively.  These net gains and
losses are included in  noninterest  income in our  consolidated  statements  of
operations.  The net losses and net gains on our derivative  instruments reflect
changes  in the fair value of our  interest  rate  floor and  interest  rate cap
agreements,  as further  discussed  below.  On May 9, 2008,  we  terminated  our
interest  rate  floor  agreements  to  modify  our  overall  hedge  position  in
accordance with our interest rate risk management program.

Our asset-sensitive position,  coupled with the effect of reductions in interest
rates from  September 2007 through late April 2008, as further  discussed  under
"-- Results of Operations," has negatively  impacted our net interest income and
will  continue  to impact the level of our net  interest  income  over time,  as
reflected  in our net  interest  margin  for the  three  and nine  months  ended
September 30, 2008 as compared to the  comparable  periods in 2007,  and further
discussed under "-- Net Interest Income."

Cash Flow  Hedges - Loans.  We entered  into the  following  interest  rate swap
agreements,  which have been  designated  as cash flow  hedges,  to  effectively
lengthen the  repricing  characteristics  of certain of our loans to  correspond
more closely with their funding  source with the objective of  stabilizing  cash
flow, and accordingly, net interest income over time:

      >>    In July 2003, we entered into an interest rate swap agreement with a
            $200.0 million  notional amount.  The underlying  hedged assets were
            certain  variable rate loans within our commercial  loan  portfolio.
            The  swap  agreement  provided  for us to  receive  a fixed  rate of
            interest and pay an  adjustable  rate of interest  equivalent to the
            weighted  average prime  lending rate minus 2.85%.  The terms of the
            swap agreement  provided for us to pay interest on a quarterly basis
            and receive interest on a semi-annual  basis. The interest rate swap
            agreement matured on July 31, 2007.

      >>    In September 2006, we entered into a $200.0 million  notional amount
            three-year  interest  rate  swap  agreement  and  a  $200.0  million
            notional  amount  four-year   interest  rate  swap  agreement.   The
            underlying  hedged assets are certain variable rate loans within our
            commercial  loan portfolio.  The swap  agreements  provide for us to
            receive  a fixed  rate of  interest  and pay an  adjustable  rate of
            interest equivalent to the weighted average prime lending rate minus
            2.86%.  The  terms  of the  swap  agreements  provide  for us to pay
            interest on a quarterly basis and receive  interest on a semi-annual
            basis.

The amount  receivable by us under these swap  agreements  was $752,000 and $6.0
million at  September  30, 2008 and December  31,  2007,  respectively,  and the
amount  payable by us under these swap  agreements  was $309,000 and $683,000 at
September 30, 2008 and December 31, 2007, respectively.


                                       36
<PAGE>

The maturity dates, notional amounts,  interest rates paid and received and fair
value of our interest  rate swap  agreements  designated  as cash flow hedges on
certain loans as of September 30, 2008 and December 31, 2007 were as follows:

<TABLE>
<CAPTION>
                                                        Notional    Interest Rate  Interest Rate     Fair
                          Maturity Date                  Amount         Paid         Received        Value
                          -------------                  ------         ----         --------        -----
                                                                 (dollars expressed in thousands)

<S>                                                    <C>               <C>            <C>        <C>
         September 30, 2008:
             September 18, 2009......................  $ 200,000         2.14%          5.20%      $  4,730
             September 20, 2010......................    200,000         2.14           5.20          9,509
                                                       ---------                                   --------
                                                       $ 400,000         2.14           5.20       $ 14,239
                                                       =========        =====          =====       ========

         December 31, 2007:
             September 18, 2009......................  $ 200,000         4.39%          5.20%      $  4,585
             September 20, 2010......................    200,000         4.39           5.20          7,331
                                                       ---------                                   --------
                                                       $ 400,000         4.39           5.20       $ 11,916
                                                       =========        =====          =====       ========
</TABLE>

Cash Flow  Hedges -  Subordinated  Debentures.  We  entered  into the  following
interest rate swap  agreements,  which have been designated as cash flow hedges,
with the objective of  stabilizing  our long-term cost of capital and cash flow,
and  accordingly,  net interest  income on our  subordinated  debentures  to the
respective call dates of certain subordinated debentures:

      >>    In March 2008, we entered into the following four interest rate swap
            agreements totaling $125.0 million notional amount, in aggregate, to
            effectively  convert  the  interest  rate on $125.0  million  of our
            subordinated debentures from a variable rate to a blended fixed rate
            of interest  of  approximately  4.90%:  (a) $25.0  million  notional
            amount  with a  maturity  date of July 7,  2011;  (b) $50.0  million
            notional amount with a maturity date of December 15, 2011; (c) $25.0
            million  notional amount with a maturity date of March 30, 2012; and
            (d) $25.0 million  notional  amount with a maturity date of December
            15,  2012.  These  swap  agreements  provide  for us to  receive  an
            adjustable  rate of interest  equivalent to the  three-month  London
            Interbank  Offered  Rate,  or LIBOR,  plus 1.65%,  1.85%,  1.61% and
            2.25%, respectively,  and pay a fixed rate of interest. The terms of
            the swap agreements  provide for us to pay and receive interest on a
            quarterly basis.

The  amount  receivable  by us under  these  swap  agreements  was  $429,000  at
September 30, 2008, and the amount payable by us under these swap agreements was
$437,000 at September 30, 2008.

The maturity dates, notional amounts,  interest rates paid and received and fair
value of our interest  rate swap  agreements  designated  as cash flow hedges on
certain subordinated debentures as of September 30, 2008 were as follows:

<TABLE>
<CAPTION>
                                                        Notional    Interest Rate  Interest Rate      Fair
                        Maturity Date                    Amount         Paid         Received        Value
                        -------------                    ------         ----         --------        -----
                                                                  (dollars expressed in thousands)

<S>                                                    <C>               <C>            <C>        <C>
         July 7, 2011................................  $  25,000         4.40%          4.44%      $    586
         December 15, 2011...........................     50,000         4.91           4.67            951
         March 30, 2012..............................     25,000         4.71           5.37            570
         December 15, 2012...........................     25,000         5.57           5.07            531
                                                       ---------                                   --------
                                                       $ 125,000         4.90           4.84       $  2,638
                                                       =========        =====          =====       ========
</TABLE>

Interest  Rate Floor  Agreements.  In September  2005,  we entered into a $100.0
million notional amount three-year  interest rate floor agreement in conjunction
with our  interest  rate  risk  management  program.  The  interest  rate  floor
agreement provided for us to receive a quarterly fixed rate of interest of 5.00%
should the  three-month  LIBOR equal or fall below the strike price of 2.00%. In
August  2006,  we  entered  into a $200.0  million  notional  amount  three-year
interest rate floor agreement in conjunction  with the  restructuring  of one of
our $100.0 million term repurchase  agreements,  as further  described below, to
further stabilize net interest income in the event of a declining rate scenario.
The  interest  rate  floor  agreement  provided  for us to  receive a  quarterly
adjustable rate of interest  equivalent to the  differential  between the strike
price of 4.00% and the three-month  LIBOR should the three-month  LIBOR equal or
fall below the strike price.  On May 9, 2008,  we  terminated  our interest rate
floor  agreements  to modify our overall hedge  position in accordance  with our
interest rate risk management  program.  We did not incur any gains or losses in
conjunction with the termination of our interest rate floor agreements. The fair
value of the interest rate floor agreements,  which was included in other assets
in our consolidated balance sheets, was $1.7 million at December 31, 2007.


                                       37
<PAGE>

Interest Rate Floor Agreements Embedded in Term Repurchase Agreements. We have a
term  repurchase   agreement  under  a  master  repurchase   agreement  with  an
unaffiliated  third party,  as further  described in Note 8 to our  consolidated
financial  statements.  The  underlying  securities  associated  with  the  term
repurchase agreement are agency  collateralized  mortgage obligation  securities
and are held by other financial institutions under safekeeping  agreements.  The
term repurchase agreement was entered into with the objective of stabilizing net
interest  income over time,  further  protecting our net interest margin against
changes in interest  rates and  providing  funding for  security  purchases.  At
December 31,  2007,  the term  repurchase  agreement  had a borrowing  amount of
$100.0  million,  a maturity  date of October 12, 2010,  and interest rate floor
agreements  included within the term  repurchase  agreement,  which  represented
embedded  derivative  instruments  that, in accordance with existing  accounting
literature governing derivative  instruments,  were not required to be separated
from the term repurchase  agreement and accounted for separately as a derivative
financial  instrument.  On March 31, 2008, we  restructured  our existing $100.0
million  term  repurchase  agreement.  The  primary  modifications  were to: (a)
increase the borrowing amount from $100.0 million to $120.0 million;  (b) extend
the  maturity  date from  October  12, 2010 to April 12,  2012;  (c) convert the
interest rate from a variable  rate tied to LIBOR to a fixed rate of 3.36%;  and
(d) terminate the embedded  interest rate floor agreements  contained within the
term repurchase  agreement.  These  modifications  resulted in a pre-tax gain of
$5.0  million,  which is reflected  in  noninterest  income in our  consolidated
statements of operations.  The term  repurchase  agreement is reflected in other
borrowings in our  consolidated  balance sheets and the related interest expense
is  reflected  as  interest  expense  on other  borrowings  in our  consolidated
statements of operations.

Interest  Rate Cap  Agreements.  In  September  2006,  we entered  into a $200.0
million  notional  amount  three-year  interest  rate cap agreement and a $200.0
million  notional  amount  four-year  interest rate cap agreement in conjunction
with the interest  rate swap  agreements  designated as cash flow hedges that we
entered  into in  September  2006,  as  previously  described,  to limit the net
interest expense  associated with our interest rate swap agreements in the event
of a rising  rate  scenario.  The  $200.0  million  notional  amount  three-year
interest  rate cap agreement  provides for us to receive a quarterly  adjustable
rate of interest  equivalent to the differential  between the three-month  LIBOR
and the strike  price of 7.00%  should the  three-month  LIBOR exceed the strike
price. The $200.0 million notional amount four-year  interest rate cap agreement
provides for us to receive a quarterly adjustable rate of interest equivalent to
the  differential  between the  three-month  LIBOR and the strike price of 7.50%
should the  three-month  LIBOR  exceed the strike  price.  The fair value of the
interest  rate  cap  agreements,  which  is  included  in  other  assets  in our
consolidated  balance  sheets,  was zero and $50,000 at  September  30, 2008 and
December 31, 2007, respectively.

Pledged Collateral. At September 30, 2008 and December 31, 2007, we had accepted
cash of  $15.9  million  and  $21.4  million,  respectively,  as  collateral  in
connection  with our interest rate swap  agreements  on loans.  At September 30,
2008, we had pledged cash of $1.0 million as  collateral in connection  with our
interest rate swap agreements on our subordinated debentures.

Interest Rate Lock  Commitments / Forward  Commitments  to Sell  Mortgage-Backed
Securities.  Derivative  financial  instruments issued by us consist of interest
rate lock commitments to originate  fixed-rate loans to be sold.  Commitments to
originate  fixed-rate loans consist  primarily of residential real estate loans.
These net loan  commitments  and loans  held for sale are  hedged  with  forward
contracts to sell mortgage-backed securities, which expire in December 2008. The
fair value of the  interest  rate lock  commitments,  which is included in other
assets in our consolidated  balance sheets, was $92,000 and $23,000 at September
30, 2008 and  December  31,  2007,  respectively.  The fair value of the forward
contracts to sell mortgage-backed securities,  which is included in other assets
in our  consolidated  balance  sheets,  was $82,000 and $40,000 at September 30,
2008 and December 31, 2007, respectively.


                                       38
<PAGE>

                       Loans and Allowance for Loan Losses

Interest earned on our loan portfolio  represents the principal source of income
for First  Bank.  Interest  and fees on loans  were 93.3% and 93.2% of our total
interest  income  for the  three  and nine  months  ended  September  30,  2008,
respectively,  in  comparison to 89.9% and 89.4% for the  comparable  periods in
2007. Loans, net of unearned discount,  decreased to $8.88 billion,  or 81.9% of
our assets,  at September 30, 2008,  compared to $8.89 billion,  or 81.5% of our
assets,  at December 31, 2007. The following table summarizes the composition of
our loan portfolio at September 30, 2008 and December 31, 2007:

<TABLE>
<CAPTION>
                                                                            September 30,   December 31,
                                                                                2008            2007
                                                                                ----            ----
                                                                                             (Restated)
                                                                         (dollars expressed in thousands)

<S>                                                                         <C>              <C>
         Commercial, financial and agricultural............................ $ 2,594,643      2,382,067
         Real estate construction and development..........................   1,810,619      2,141,234
         Real estate mortgage:
             One-to-four family residential................................   1,589,237      1,602,575
             Multi-family residential......................................     216,077        177,246
             Commercial real estate........................................   2,536,897      2,431,464
         Consumer and installment, net of unearned discount................      86,179         85,519
         Loans held for sale...............................................      41,519         66,079
                                                                            -----------     ----------
             Loans, net of unearned discount............................... $ 8,875,171      8,886,184
                                                                            ===========     ==========
</TABLE>

The overall decrease in loans, net of unearned  discount,  during the first nine
months of 2008 is primarily attributable to the following:

      >>    A decrease  of $330.6  million in our real estate  construction  and
            development portfolio primarily  attributable to internal efforts to
            decrease our exposure to real estate  construction  and  development
            loans, and increased charge-offs recorded on certain existing loans,
            as further discussed below;

      >>    A decrease of $13.3 million in our  one-to-four  family  residential
            portfolio primarily  attributable to a decrease in our loans secured
            by first liens of $71.9  million from $1.25  billion at December 31,
            2007 to $1.18 billion at September 30, 2008, primarily driven by net
            loan  charge-offs of $38.1 million,  partially offset by an increase
            in our home equity portfolio of $58.6 million from $348.9 million at
            December 31, 2007 to $407.5  million at September 30, 2008 primarily
            attributable to internal loan production growth; and

      >>    A decrease  of $24.6  million  in our loans held for sale  primarily
            attributable to lower  production  volume in our mortgage  division;
            partially offset by

      >>    An  increase  of $212.6  million in our  commercial,  financial  and
            agricultural  portfolio  primarily  attributable  to  internal  loan
            production  growth,  partially  offset by the sale of the guaranteed
            portion of  approximately  $10.8 million of our small business loans
            in March 2008, which resulted in a pre-tax gain of $504,000; and

      >>    Increases of $105.4 million and $38.8 million,  respectively, in our
            commercial  real  estate  and  multi-family  residential  portfolios
            primarily attributable to internal loan production growth.

The overall  change in the mix of our loan  portfolio is  commensurate  with our
strategy of reducing our exposure to real estate,  particularly construction and
land  development,  in the  current  economic  environment  in which many of our
market sectors have experienced  significant  declines in real estate values. We
are primarily redeploying the proceeds from the net decrease in construction and
land development loans into commercial, financial and agricultural loans.

An Executive  Loan Committee  (ELC) was formed in July 2008 and weekly  meetings
began on August 4, 2008. The ELC has been formed to provide  expanded  executive
focus on the appropriate  direction and pricing of the loan  portfolio.  All new
loans over $5.0  million  and all  construction  loans over  $500,000  currently
require  advance  approval by the ELC. In addition,  all loans and renewals over
$2.0 million are subsequently reviewed by the ELC. The ELC consists of the First
Banks President and Chief Executive Officer,  the First Bank President and Chief
Executive  Officer,  the Chief Credit  Officer,  and the Midwest  Senior  Credit
Officer.  The ELC meets  weekly and also  serves as the  primary  internal  body
responsible  for review of portfolio  trends,  concentrations,  and loan segment
risks.


                                       39
<PAGE>

Nonperforming assets include nonaccrual loans, restructured loans and other real
estate. The following table presents the categories of nonperforming  assets and
certain ratios as of September 30, 2008 and December 31, 2007:

<TABLE>
<CAPTION>
                                                                             September 30,    December 31,
                                                                                 2008             2007
                                                                                 ----             ----
                                                                                               (Restated)
                                                                          (dollars expressed in thousands)
<S>                                                                           <C>                <C>
            Commercial, financial and agricultural:
                 Nonaccrual .............................................     $    8,748           5,916
            Real estate construction and development:
                 Nonaccrual .............................................        280,821         151,812
            Real estate mortgage:
                 One-to-four family residential:
                     Nonaccrual .........................................         77,254          32,931
                     Restructured .......................................         24,894               7
                 Multi-family residential:
                     Nonaccrual .........................................            152              --
                 Commercial real estate:
                     Nonaccrual .........................................         17,934          11,294
            Consumer and installment:
                 Nonaccrual .............................................            278             263
                                                                              ----------      ----------
                       Total nonperforming loans ........................        410,081         202,223
            Other real estate ...........................................         44,332          11,225
                                                                              ----------      ----------
                       Total nonperforming assets .......................     $  454,413         213,448
                                                                              ==========      ==========

            Loans, net of unearned discount .............................     $8,875,171       8,886,184
                                                                              ==========      ==========

            Loans past due 90 days or more and still accruing ...........     $   26,953          26,753
                                                                              ==========      ==========

            Ratio of:
              Allowance for loan losses to loans ........................           2.38%           1.89%
              Nonperforming loans to loans ..............................           4.62            2.28
              Allowance for loan losses to nonperforming loans .. .......          51.46           83.27
              Nonperforming assets to loans and other real estate .......           5.09            2.40
                                                                              ==========      ==========
</TABLE>

Nonperforming  loans,  consisting of loans on nonaccrual status and restructured
loans, were $410.1 million at September 30, 2008,  compared to $366.9 million at
June 30, 2008,  $236.8  million at March 31, 2008 and $202.2 million at December
31, 2007.  Nonperforming loans were 4.62% of loans, net of unearned discount, at
September 30, 2008, compared to 4.06%, 2.63% and 2.28% of loans, net of unearned
discount, at June 30, 2008, March 31, 2008 and December 31, 2007,  respectively.
Other real estate owned was $44.3  million,  $20.0  million,  $13.2  million and
$11.2 million at September 30, 2008, June 30, 2008,  March 31, 2008 and December
31, 2007, respectively.  Nonperforming assets, consisting of nonperforming loans
and other real estate owned, were $454.4 million at September 30, 2008, compared
to $387.0 million,  $250.0 million,  and $213.4 million at June 30, 2008,  March
31, 2008 and December 31, 2007, respectively. Loans past due 90 days or more and
still  accruing  interest were $27.0 million at September 30, 2008,  compared to
$14.5 million,  $23.6 million and $26.8 million at June 30, 2008, March 31, 2008
and December 31, 2007, respectively.

Nonperforming  loans at September 30, 2008 increased $207.9 million,  or 102.8%,
from  nonperforming  loans at December 31, 2007. The following table  summarizes
the composition of our nonperforming loans as of September 30, 2008 and December
31, 2007:

<TABLE>
<CAPTION>
                                                                             September 30,     December 31,
                                                                                  2008            2007
                                                                                  ----            ----
                                                                          (dollars expressed in thousands)
<S>                                                                           <C>               <C>
      Northern California real estate ...................................     $  112,636          99,234
      Mortgage banking division .........................................         52,565          20,347
      Florida ...........................................................         76,521          45,098
      Southern California real estate ...................................         45,709              --
      Chicago real estate ...............................................         35,821              --
      Metro St. Louis, Missouri real estate .............................         29,536           5,000
      Texas real estate .................................................         20,350           6,533
      Other .............................................................         36,943          26,011
                                                                              ----------      ----------
           Total nonperforming loans ....................................     $  410,081         202,223
                                                                              ==========      ==========
</TABLE>


                                       40
<PAGE>

We attribute the increase in our nonperforming loans to the following:

      >>    An increase in one-to-four  family  residential  nonaccrual loans of
            $44.3  million,  primarily due to increases in our mortgage  banking
            division  and  Florida  region.   One-to-four   family   residential
            nonaccrual loans in our mortgage  banking  division  increased $14.5
            million, from $20.3 million at December 31, 2007 to $34.8 million at
            September 30, 2008.  One-to-four family residential nonaccrual loans
            in our Florida region increased $20.8 million,  from $7.4 million at
            December  31,  2007 to $28.1  million  at  September  30,  2008.  We
            continue  to  experience  deterioration  in our  one-to-four  family
            residential portfolio as a result of weak economic conditions in the
            nationwide  housing markets and significant  declines in real estate
            values in all of our markets  generally and in  particular,  Florida
            and California;

      >>    An increase in  one-to-four  family  restructured  loans  during the
            first nine months of 2008 of $24.9  million.  At September 30, 2008,
            restructured  loans in our  mortgage  banking  division  and Florida
            region were $17.8 million and $7.1 million, respectively. Throughout
            the  first  nine  months  of  2008,   certain   one-to-four   family
            residential  mortgage  loans  in our  Florida  region  and  mortgage
            banking  division,   primarily  located  in  California,  have  been
            restructured, whereby the contractual interest rate was reduced over
            a certain  time  period  due to  concentrated  efforts  to work with
            borrowers.  At the time of the  restructuring,  the individual loans
            were  in  full  compliance  with  the  terms  of the  original  loan
            contracts; and

      >>    An increase in real estate  construction and development  nonaccrual
            loans of $129.0 million.  Real estate  construction  and development
            nonaccrual loans in Northern California increased $13.4 million from
            $99.2  million at December  31, 2007 to $112.6  million at September
            30, 2008. Real estate construction and development  nonaccrual loans
            also  increased  throughout our other  regions,  including  Southern
            California, Chicago and Metro St. Louis, which experienced increases
            of $45.7 million,  $35.8 million,  and $24.5 million,  respectively,
            during the nine months  ended  September  30,  2008.  We continue to
            experience   deterioration  in  our  real  estate  construction  and
            development  portfolio as a result of weak economic  conditions  and
            significant   declines  in  real  estate  values,   particularly  in
            California.

We expect the  declining  and unstable  market  conditions  associated  with our
one-to-four  family  residential  mortgage  loan  portfolio  and our real estate
construction and development portfolio,  particularly in California and Florida,
to  continue,  which will likely  continue  to impact the  overall  level of our
nonperforming  loans,  loan  charge-offs  and provision  for loan losses.  As of
September  30, 2008 and December 31, 2007,  $206.7  million and $157.1  million,
respectively, of loans not included in the nonperforming assets table above were
identified by management as having potential credit problems,  or problem loans.
The increase in the level of problem loans during 2008  primarily  reflects weak
economic  conditions in the nationwide housing markets and significant  declines
in real  estate  values in all of our  markets  generally  and,  in  particular,
Florida and California.

The  outstanding  balance  and  carrying  amount of impaired  loans  acquired in
acquisitions  was $44.0  million  and  $22.2  million  at  September  30,  2008,
respectively,  and $84.9  million  and  $46.0  million  at  December  31,  2007,
respectively.  We recorded  impaired loans acquired in  acquisitions  during the
year  ended  December  31,  2007 of $45.7  million  at the time of  acquisition.
Changes in the carrying  amount of impaired loans acquired in  acquisitions  for
the three and nine months ended September 30, 2008 were as follows:

<TABLE>
<CAPTION>
                                                                     Three Months          Nine Months
                                                                         Ended                 Ended
                                                                  September 30, 2008    September 30, 2008
                                                                  ------------------    ------------------
                                                                      (dollars expressed in thousands)
<S>                                                                    <C>                    <C>
         Balance, beginning of period.............................     $  30,383              46,003
         Transfers to other real estate............................       (2,543)             (7,749)
         Loans charged-off.........................................       (1,892)             (6,952)
         Payments and settlements..................................       (3,760)             (9,114)
                                                                        --------             -------
         Balance, end of period....................................     $ 22,188              22,188
                                                                        ========             =======
</TABLE>

There was no allowance  for loan losses  related to these loans at September 30,
2008 and December 31, 2007. As the loans were  classified  as nonaccrual  loans,
there was no  accretable  yield related to these loans at September 30, 2008 and
December 31, 2007.


                                       41
<PAGE>

Changes in the  allowance  for loan losses for the three and nine  months  ended
September 30, 2008 and 2007 were as follows:

<TABLE>
<CAPTION>
                                                                     Three Months Ended                Nine Months Ended
                                                                        September 30,                     September 30,
                                                                 --------------------------        --------------------------
                                                                    2008             2007             2008            2007
                                                                    ----             ----             ----            ----
                                                                                  (Restated)                        (Restated)
                                                                                (dollars expressed in thousands)
<S>                                                              <C>                <C>              <C>              <C>
      Balance, beginning of period .......................       $ 200,957          142,922          168,391          145,729
      Acquired allowance for loan losses .................              --               --               --            2,925
                                                                 ---------        ---------        ---------        ---------
                                                                   200,957          142,922          168,391          148,654
                                                                 ---------        ---------        ---------        ---------
      Loans charged-off ..................................         (91,458)         (19,074)        (192,363)         (35,269)
      Recoveries of loans previously charged-off .........           2,527            2,814            5,998            6,360
                                                                 ---------        ---------        ---------        ---------
        Net loan charge-offs .............................         (88,931)         (16,260)        (186,365)         (28,909)
                                                                 ---------        ---------        ---------        ---------
      Provision for loan losses ..........................          99,000           13,503          229,000           20,420
                                                                 ---------        ---------        ---------        ---------
      Balance, end of period .............................       $ 211,026          140,165          211,026          140,165
                                                                 =========        =========        =========        =========
</TABLE>

We recorded net loan  charge-offs  of $88.9  million and $186.4  million for the
three and nine months ended September 30, 2008, respectively,  compared to $16.3
million and $28.9 million for the comparable periods in 2007. Our annualized net
loan  charge-offs  as a percentage of average loans was 2.77% for the first nine
months of 2008, compared to 0.49% for the comparable period in 2007.

The following  table  summarizes  the  composition  of our net loan  charge-offs
(recoveries) for the three and nine months ended September 30, 2008 and 2007:

<TABLE>
<CAPTION>
                                                                    Three Months Ended                  Nine Months Ended
                                                                        September 30,                      September 30,
                                                                 --------------------------        --------------------------
                                                                    2008             2007             2008            2007
                                                                    ----             ----             ----            ----
                                                                                  (Restated)                        (Restated)
                                                                                (dollars expressed in thousands)
<S>                                                              <C>                 <C>             <C>               <C>
      Northern California real estate ....................       $  37,515               --           94,791            2,500
      Mortgage banking division ..........................          12,883            6,440           31,649           13,069
      Florida ............................................          10,641               --           18,943               --
      Southern California real estate ....................           8,992               --           10,026               --
      Chicago real estate ................................           9,203             (191)           9,201             (358)
      Metro St. Louis, Missouri real estate ..............           4,050               (2)           5,044              (15)
      Texas real estate ..................................             370                1            3,592               77
      Other ..............................................           5,277           10,012           13,119           13,636
                                                                 ---------        ---------        ---------        ---------
        Net loan charge-offs .............................       $  88,931           16,260          186,365           28,909
                                                                 =========        =========        =========        =========
</TABLE>

Net loan charge-offs  recorded for the three and nine months ended September 30,
2008  included  $37.5  million  and  $94.8  million,  respectively,  of net loan
charge-offs associated with our Northern California real estate construction and
development  portfolio,  compared to zero and $2.5  million  for the  comparable
periods in 2007.  We continue to experience  distress and  declining  conditions
within  our  Northern  California  real  estate  market,  resulting  in  further
increased  developer  inventories,  slower lot and home sales, and substantially
declining market values.  Net loan  charge-offs  recorded for the three and nine
months ended  September 30, 2008 also include  $12.9 million and $31.6  million,
respectively,  of net loan  charge-offs  associated  with our  mortgage  banking
division,  compared to $6.4 million and $13.1 million for the comparable periods
in  2007,  and  $10.6  million  and  $18.9  million,  respectively  of net  loan
charge-offs  associated  with our Florida  region  acquired in November 2007. We
continue to  experience  deterioration  in our  one-to-four  family  residential
portfolios as a result of weak economic  conditions  in the  nationwide  housing
markets and  significant  declines  in real estate  values in all of our markets
generally and, in particular, Florida and California.

Our allowance for loan losses was $211.0  million at September 30, 2008,  $201.0
million at June 30, 2008,  $185.2  million at March 31, 2008, and $168.4 million
at December 31, 2007.  Our  allowance  for loan losses as a percentage of loans,
net of unearned  discount,  was 2.38% at September  30, 2008,  2.22% at June 30,
2008,  2.05% at March 31, 2008,  and 1.89% at December 31, 2007. The increase in
this ratio is primarily due to the increase in  nonperforming  and other problem
loans  throughout the three and nine months ended September 30, 2008,  which has
led to a provision for loan losses in excess of net loan  charge-offs to reserve
for probable losses in the loan portfolio.

Our allowance for loan losses as a percentage of nonperforming loans was 51.46%,
54.77%, 78.20%, and 83.27% at September 30, 2008, June 30, 2008, March 31, 2008,
and December 31, 2007, respectively. The decrease in this ratio is primarily due
to $91.1 million of nonperforming loans in FB Holdings at September 30, 2008, as
further  described in Note 5 to our  consolidated  financial  statements.  These
loans were contributed by First Bank to FB


                                       42
<PAGE>

Holdings  at  estimated  fair  value,  and as such,  currently  have no  related
allowance for loan losses allocation at September 30, 2008. Net loan charge-offs
associated with the loans  contributed to FB Holdings were  approximately  $20.8
million  and $82.7  million for the three and nine months  ended  September  30,
2008,  respectively,  of which $10.5  million and $67.8  million,  respectively,
relate to our Northern California real estate portfolio.  We continue to closely
monitor our loan  portfolio  and address  the  ongoing  challenges  posed by the
economic  environment,  including  highly  competitive  markets  within  certain
sectors of our loan portfolio and significantly declining real estate values.

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

                                    Liquidity

Our  liquidity  is the  ability to maintain a cash flow that is adequate to fund
operations,  service debt obligations and meet obligations and other commitments
on a timely basis. We receive funds for liquidity from customer  deposits,  loan
payments,  maturities  of  loans  and  investments,  sales  of  investments  and
earnings.  In  addition,  we may avail  ourselves  of other  sources of funds by
issuing  certificates of deposit in denominations of $100,000 or more, borrowing
federal funds,  selling  securities under agreements to repurchase and utilizing
borrowings from the FHLB and other borrowings. The aggregate funds acquired from
these  sources were $1.87  billion and $2.00  billion at September  30, 2008 and
December 31, 2007, respectively.

The following  table  presents the maturity  structure of these other sources of
funds,  which consists of  certificates of deposit of $100,000 or more and other
borrowings, including our notes payable, at September 30, 2008:

<TABLE>
<CAPTION>
                                                      Certificates of Deposit     Other
                                                        of $100,000 or More    Borrowings          Total
                                                        -------------------    ----------          -----
                                                                   (dollars expressed in thousands)
<S>                                                         <C>                  <C>             <C>
         Three months or less.............................  $   410,771          167,187           577,958
         Over three months through six months.............      243,774          200,000           443,774
         Over six months through twelve months............      425,164          100,000           525,164
         Over twelve months...............................      201,582          120,727           322,309
                                                            -----------         --------        ----------
              Total.......................................  $ 1,281,291          587,914         1,869,205
                                                            ===========         ========        ==========
</TABLE>

In addition to these  sources of funds,  First Bank has  established a borrowing
relationship  with  the  Federal  Reserve  Bank  of St.  Louis.  This  borrowing
relationship,  which is secured by  commercial  loans,  provides  an  additional
liquidity facility that may be utilized for contingency  purposes.  At September
30, 2008 and December  31,  2007,  First  Bank's  borrowing  capacity  under the
agreement was approximately $1.57 billion and $523.3 million, respectively.

In addition,  First Bank's borrowing  capacity through its relationship with the
FHLB was  approximately  $764.3 million and $672.3 million at September 30, 2008
and December 31, 2007, respectively.  We had FHLB advances outstanding of $300.7
million at September 30, 2008, compared to $857,000 at December 31, 2007. During
the first nine months of 2008,  First Bank has entered into four $100.0  million
FHLB advances  which mature in November  2008,  January 2009,  February 2009 and
July 2009. In September  2008,  we prepaid the $100.0  million FHLB advance that
was  scheduled to mature in November  2008 and incurred a prepayment  penalty of
$3,000, which was recorded as interest expense on other borrowings.


                                       43
<PAGE>

First Banks, Inc. also has a borrowing  relationship with its affiliated entity,
Investors of America,  LP, which provides for a $30.0 million secured  revolving
line of credit to be utilized  for  general  working  capital  needs and capital
investments in  subsidiaries,  as further  described in Note 5 and Note 9 to our
accompanying  consolidated financial statements.  First Banks, Inc. did not have
any balances outstanding on this borrowing arrangement at September 30, 2008. In
addition,  the Company is currently  required to obtain prior  approval from the
FRB prior to incurring  additional debt obligations,  including  advancing funds
under this  borrowing  arrangement,  in  accordance  with the  provisions of the
informal agreements further described under "--Regulatory Matters."

Our loan-to-deposit ratio increased to 99.8% at September 30, 2008 from 97.1% at
December  31,  2007.  As a  result  of this  increase,  we  implemented  certain
strategies  during  the first  nine  months  of 2008 to  improve  our  liquidity
position,   including  the  additional  FHLB  borrowings,  as  discussed  above,
increasing the availability of our borrowing  relationship with both the Federal
Reserve  Bank  of  St.  Louis  and  the  FHLB  through   additional   collateral
availability  and receiving  deposits  placed into CDARS on a reciprocal  basis,
thereby  increasing  our time  deposits.  We are  continuing to closely  monitor
liquidity  and  take  appropriate   actions  deemed  necessary  to  maintain  an
appropriate level of liquidity in light of unstable market conditions, increased
loan funding needs, operating and debt service requirements, and current deposit
trends.

In addition to our owned  banking  facilities,  we have entered  into  long-term
leasing  arrangements to support our ongoing  activities.  The required payments
under such  commitments  and other  obligations  at  September  30, 2008 were as
follows:

<TABLE>
<CAPTION>
                                                    Less than           1-3            3-5             Over
                                                      1 Year           Years          Years          5 Years      Total (1)
                                                      ------           -----          -----          -------      ---------
                                                                         (dollars expressed in thousands)
<S>                                                 <C>                <C>             <C>             <C>        <C>
      Operating leases .......................      $   16,806          27,150          18,639          47,800      110,395
      Certificates of deposit (2) ............       3,081,948         657,942          42,779           1,664    3,784,333
      Other borrowings (2) ...................         467,187             727         120,000              --      587,914
      Subordinated debentures (2) ............              --              --              --         353,809      353,809
      Other contractual obligations ..........           2,014 (3)         381             367              25        2,787
                                                    ----------      ----------      ----------      ----------   ----------
           Total .............................      $3,567,955         686,200         181,785         403,298    4,839,238
                                                    ==========      ==========      ==========      ==========   ==========
</TABLE>

      ----------
      (1)   Amounts exclude FIN 48 unrecognized tax liabilities of $13.1 million
            and related accrued  interest  expense of $1.9 million for which the
            timing of payment of such liabilities cannot be reasonably estimated
            as of September 30, 2008.
      (2)   Amounts  exclude  the  related  interest  expense  accrued  on these
            obligations  as of September 30, 2008.   As further  described under
            "--Regulatory Matters,"  we currently may not make any distributions
            of interest or other sums on our subordinated debentures and related
            underlying trust  preferred securities without the prior approval of
            the FRB.
      (3)   Includes  an  accrued  expense  related to our  remaining  estimated
            indemnification  obligation,  as a member  bank,  to  share  certain
            litigation costs of Visa.

Management  believes the  available  liquidity  will be sufficient to permit the
distribution  of  dividends  to us  sufficient  to meet our  operating  and debt
service  requirements,  both on a short-term  and  long-term  basis,  and to pay
interest  on the  subordinated  debentures  that  we  issued  to our  affiliated
statutory and business financing trusts.

                       Effects of New Accounting Standards

In March 2006,  the FASB  issued  SFAS No. 156 -  Accounting  for  Servicing  of
Financial  Assets.  SFAS No. 156, an amendment of FASB SFAS No. 140 - Accounting
for  Transfers  and  Servicing  of  Financial  Assets  and   Extinguishments  of
Liabilities,  addresses the recognition and measurement of separately recognized
servicing  assets and  liabilities  and  allows  mark-to-market  accounting  for
servicing  rights  resulting  in  reporting  that is similar to fair value hedge
accounting, but without the effort and system costs needed to identify effective
hedging  instruments  and  document  hedging  relationships.  SFAS  No.  156  is
effective for fiscal years beginning after September 15, 2006. Early adoption is
permitted as of the  beginning of an entity's  fiscal year unless the entity has
already  issued  interim  financial  statements  during  that  fiscal  year.  We
implemented  SFAS No.  156 on  January  1,  2007,  which did not have a material
impact on our financial condition or results of operations.  On January 1, 2008,
we opted to measure  servicing rights at fair value. The election of this option
resulted in the  recognition  of a cumulative  effect of a change in  accounting
principle  of $6.3  million,  which was  recorded as an  increase  to  beginning
retained earnings, as further described in Note 1 and Note 3 to our consolidated
financial statements.

In September 2006, the FASB issued SFAS No. 157 - Fair Value Measurements.  SFAS
No. 157 defines fair value,  establishes a framework for measuring fair value in
U.S. generally accepted  accounting  principles,  and expands  disclosures about
fair  value   measurements.   SFAS  No.  157  applies  under  other   accounting
pronouncements  that  require or permit  fair value  measurements,  and does not
require any new fair value  measurements.  SFAS No. 157 is effective  for fiscal
years beginning after November 15, 2007, and interim periods within those fiscal
years,  for  financial  assets  and  liabilities  and  nonfinancial  assets  and
nonfinancial  liabilities  that are recognized or disclosed at


                                       44
<PAGE>

fair value in the financial statements on a recurring basis (at least annually).
Implementation  is  deferred  for  all  nonfinancial   assets  and  nonfinancial
liabilities  that are  recognized  or disclosed  at fair value in the  financial
statements on a nonrecurring  basis to fiscal years beginning after November 15,
2008. Early adoption is permitted as of the beginning of an entity's fiscal year
unless the entity has already issued interim  financial  statements  during that
fiscal  year.  We  implemented  SFAS No.  157  related to  financial  assets and
liabilities  and  nonfinancial  assets  and  nonfinancial  liabilities  that are
recognized or disclosed at fair value in our consolidated  financial  statements
on a recurring basis (at least annually) on January 1, 2008,  which did not have
a material impact on our financial condition or results of operations other than
certain additional disclosure  requirements.  The application of SFAS No. 157 in
situations where the market for a financial asset is not active was clarified by
the issuance of FASB Staff  Position,  or FSP, No. SFAS 157-3 - Determining  the
Fair Value of a Financial  Asset When the Market for That Asset is Not Active in
October 2008.  FSP No. SFAS 157-3 became  effective as of September 30, 2008 and
did not  significantly  impact the methods by which we determine the fair values
of our financial assets.

In  September  2006,  the FASB issued SFAS No. 158 - Employers'  Accounting  for
Defined Benefit Pension and Other  Postretirement  Plans.  SFAS No. 158 requires
companies to recognize the overfunded or underfunded status of a defined benefit
postretirement  plan as a net asset or  liability  in the  balance  sheet and to
recognize changes in the funded status of the plan through  comprehensive income
in the year in which the  changes  occur.  The funded  status is measured as the
difference  between the fair value of the plan assets and the benefit obligation
as of the date of the company's fiscal year end. Effective December 31, 2007, we
adopted the recognition and disclosure  provisions of SFAS No. 158, resulting in
a cumulative  effect of change in  accounting  principle of $902,000,  which was
recorded as a decrease to accumulated  other  comprehensive  loss as of December
31, 2007. We have not yet adopted the  measurement  date  provisions of SFAS No.
158, which become effective for us as of December 31, 2008;  however,  we do not
anticipate the adoption of the  measurement  date  provisions of SFAS No. 158 to
have a material effect on our consolidated financial statements.

In  February  2007,  the FASB  issued  SFAS No. 159 - The Fair Value  Option for
Financial Assets and Financial  Liabilities,  including an amendment of SFAS No.
115. SFAS No. 159 provides entities with an option to report selected  financial
assets and  liabilities at fair value in an effort to reduce both  complexity in
accounting for financial  instruments  and the volatility in earnings  caused by
measuring related assets and liabilities differently.  SFAS No. 159 is effective
for fiscal years beginning after November 15, 2007. Retrospective application is
not allowed.  Early  adoption is  permitted  as of the  beginning of an entity's
fiscal year that begins on or before November 15, 2007, provided the entity also
elects  to adopt all of the  provisions  of SFAS No.  157 at the early  adoption
date.  We  implemented  SFAS No. 159 on  January  1, 2008,  which did not have a
material impact on our financial condition or results of operations.

In November 2007, the SEC issued SEC Staff Accounting Bulletin,  or SAB, No. 109
- Written Loan Commitments Recorded at Fair Value Through Earnings.  SAB No. 109
requires fair value measurements of derivative loan commitments or other written
loan  commitments  recorded  through earnings to include the expected net future
cash  flows  related  to the  associated  servicing  of the  loan.  SAB No.  109
supersedes  SAB  No.  105  -  Application  of  Accounting   Principles  to  Loan
Commitments,  which applied only to derivative loan commitments accounted for at
fair value through  earnings,  and broadens its  application to all written loan
commitments that are accounted for at fair value through  earnings.  SAB No. 109
also states that internally  developed  intangible assets should not be recorded
as part of the fair  value  of a  derivative  loan  commitment.  SAB No.  109 is
effective  on a  prospective  basis to  derivative  loan  commitments  issued or
modified in fiscal  quarters  beginning  after December 15, 2007. We implemented
SAB No.  109 on January  1,  2008,  which did not have a material  impact on our
financial condition or results of operations.

In December 2007, the FASB issued SFAS No. 141(R) - Business Combinations.  SFAS
No. 141(R) will  significantly  change how entities apply the acquisition method
to business  combinations.  The most significant  changes affecting how entities
will account for business  combinations  under SFAS No. 141(R) include:  (a) the
acquisition  date will be the date the acquirer  obtains  control;  (b) all (and
only)  identifiable  assets acquired,  liabilities  assumed,  and noncontrolling
interests in the acquiree will be stated at fair value on the acquisition  date;
(c) assets or  liabilities  arising from  noncontractual  contingencies  will be
measured at their acquisition date fair value only if it is more likely than not
that they meet the definition of an asset or liability on the acquisition  date;
(d) adjustments  subsequently  made to the provisional  amounts  recorded on the
acquisition date will be made  retroactively  during a measurement period not to
exceed one year; (e)  acquisition-related  restructuring  costs that do not meet
the  criteria in SFAS No. 146 -  Accounting  for Costs  Associated  with Exit or
Disposal Activities, will be expensed as incurred; (f) transaction costs will be
expensed as incurred;  (g) reversals of deferred income tax valuation allowances
and income tax  contingencies  will be recognized in earnings  subsequent to the
measurement  period;  and (h) the  allowance for loan losses of an acquiree will
not be permitted to be recognized by the acquirer. Additionally, SFAS No. 141(R)
will  require new and modified  disclosures  surrounding  subsequent  changes to
acquisition-related  contingencies,  contingent  consideration,   noncontrolling
interests, acquisition-related transaction costs, fair values and cash flows not
expected  to  be  collected  for  acquired  loans,  and  an  enhanced   goodwill
rollforward.  SFAS  No.  141(R)  is


                                       45
<PAGE>

effective for all business  combinations  completed on or after January 1, 2009.
Early  adoption  is not  permitted.  For  business  combinations  in  which  the
acquisition  date was before the  effective  date,  the  provisions  of SFAS No.
141(R) will apply to the subsequent accounting for deferred income tax valuation
allowances  and income tax  contingencies  and will require any changes in those
amounts to be recorded in earnings.  We are currently evaluating the impact that
SFAS No. 141(R) will have on our financial condition,  results of operations and
the disclosures that will be presented in our consolidated financial statements.

In December  2007,  the FASB issued SFAS No. 160 -  Noncontrolling  Interests in
Consolidated  Financial  Statements,  an  Amendment  of ARB  51.  SFAS  No.  160
establishes new accounting and reporting standards for noncontrolling  interests
in a subsidiary and for the  deconsolidation of a subsidiary.  SFAS No. 160 will
require  entities  to  classify  noncontrolling  interests  as  a  component  of
stockholders'  equity and will require subsequent changes in ownership interests
in a subsidiary to be accounted for as an equity transaction. Additionally, SFAS
No.  160 will  require  entities  to  recognize  a gain or loss upon the loss of
control of a subsidiary and to remeasure any ownership interest retained at fair
value on that date. SFAS No. 160 also requires expanded disclosures that clearly
identify and  distinguish  between the interests of the parent and the interests
of the noncontrolling  owners.  SFAS No. 160 is effective on a prospective basis
for fiscal years, and interim periods within those fiscal years, beginning on or
after   December  15,  2008,   except  for  the   presentation   and  disclosure
requirements,  which are required to be applied retrospectively.  Early adoption
is not permitted.  We are currently  evaluating the requirements of SFAS No. 160
to determine their impact on our financial condition,  results of operations and
the disclosures that will be presented in our consolidated financial statements.

In March  2008,  the FASB  issued SFAS No. 161 -  Disclosures  about  Derivative
Instruments  and Hedging  Activities,  an Amendment of SFAS No. 133 - Accounting
for  Derivative  Instruments  and  Hedging  Activities.  SFAS No.  161  requires
entities to provide  greater  transparency  about (a) how and why an entity uses
derivative instruments,  (b) how derivative instruments and related hedged items
are  accounted for under No. SFAS 133 and its related  interpretations,  and (c)
how derivative instruments and related hedged items affect an entity's financial
position,  results of operations and cash flows. To meet those objectives,  SFAS
No.  161  requires  (1)  qualitative  disclosures  about  objectives  for  using
derivatives by primary underlying risk exposure and by purpose or strategy (fair
value hedge, cash flow hedge, and non-hedges),  (2) information about the volume
of derivative  activity in a flexible  format that the preparer  believes is the
most  relevant and  practicable,  (3) tabular  disclosures  about  balance sheet
location  and  gross  fair  value  amounts  of  derivative  instruments,  income
statement and other  comprehensive  income  location of gain and loss amounts on
derivative   instruments  by  type  of  contract,   and  (4)  disclosures  about
credit-risk related contingent features in derivative  agreements.  SFAS No. 161
is  effective  for  financial  statements  issued for fiscal  years and  interim
periods  beginning  after  November 15, 2008.  We are currently  evaluating  the
requirements of SFAS No. 161 to determine  their impact on the disclosures  that
will be presented in our consolidated financial statements.

In May 2008, the FASB issued SFAS No. 162 - The Hierarchy of Generally  Accepted
Accounting  Principles.  SFAS No.  162  identifies  the  sources  of  accounting
principles  and the framework  for  selecting  the  principles to be used in the
preparation  of  financial  statements  of  nongovernmental  entities  that  are
presented in conformance with U.S. generally accepted accounting principles. The
hierarchical  guidance  provided  by  SFAS  No.  162 is not  expected  to have a
significant impact on our consolidated financial statements.


       ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

At December 31, 2007, our risk management program's simulation model indicated a
loss of projected net interest  income should  interest  rates  decline.  We are
"asset-sensitive,"  indicating  that our assets  would  generally  reprice  with
changes in interest rates more rapidly than our liabilities,  and our simulation
model  indicates a loss of projected net interest  income should  interest rates
decline.  While a decline in  interest  rates of less than 100 basis  points was
projected to have a relatively  minimal  impact on our net interest  income,  an
instantaneous  parallel  decline in the interest yield curve of 100 basis points
indicated a pre-tax projected loss of approximately 3.9% of net interest income,
based on assets and  liabilities at December 31, 2007. At September 30, 2008, we
remain in an  "asset-sensitive"  position and thus,  remain  subject to a higher
level of risk in a  declining  interest  rate  environment.  Although  we do not
anticipate  that  instantaneous  shifts in the yield curve as  projected  in our
simulation  model are likely,  these are indications of the effects that changes
in interest rates would have over time.

Our asset-sensitive position, coupled with the effect of recent cuts in interest
rates in late 2007 and in the first four months of 2008, has negatively impacted
our net  interest  income  and will  continue  to  impact  the  level of our net
interest income over time, as reflected in our net interest margin for the three
and nine months ended  September 30, 2008 as compared to the comparable  periods
in 2007, and further  discussed under  "Management's  Discussion and Analysis of
Financial  Condition  and  Results of  Operations  --  Results  of  Operations."
Furthermore,  the Federal


                                       46
<PAGE>

Reserve reduced  interest rates by an additional 100 basis points during October
2008, which will further impact the level of our future net interest income.


                        ITEM 4 - CONTROLS AND PROCEDURES

Except for the changes noted below,  there was no change in our internal control
over  financial  reporting  (as such  term is  defined  in Rules  13a-15(f)  and
15d-15(f)  under the Exchange Act) during the quarter  ended  September 30, 2008
that has materially affected,  or is reasonably likely to materially affect, our
internal control over financial reporting.

As  reported  in  Amendment  No.  1 to our  2007  Annual  Report  on Form  10-K,
management  identified  material  weaknesses in internal  control over financial
reporting at our mortgage banking  division.  Specifically,  we did not maintain
sufficient  anti-fraud  controls for the mortgage banking division which allowed
the former President of our mortgage  banking  division to intentionally  effect
certain  transactions  and  journal  entries  to  omit  a  repurchase  agreement
obligation,  including  the related  interest  expense  thereon,  and  overstate
mortgage banking revenues.

The  following  material  weaknesses  were  identified  related to our  internal
control over financial reporting:

      >>    We did not maintain appropriate oversight and supervision of certain
            operational  and  accounting   personnel  in  the  mortgage  banking
            division;

      >>    We did not  maintain a  sufficient  complement  of  personnel in our
            mortgage  banking  division with an appropriate  level of accounting
            knowledge, experience and training necessary to properly account for
            certain complex  transactions  associated with the operations of the
            mortgage banking division; and

      >>    We did not maintain effective controls over the recording of journal
            entries   necessary   to  properly   account  for  certain   complex
            transactions  associated with the operations of the mortgage banking
            division. Specifically,  effective controls were not designed and in
            place to provide  reasonable  assurance  that  journal  entries were
            prepared with sufficient  supporting  documentation and reviewed and
            approved to provide  reasonable  assurance of the  completeness  and
            accuracy of the journal entries recorded.

As a  result  of  these  material  weaknesses,  management  concluded  that  the
Company's  disclosure  controls and procedures were not effective as of December
31, 2007.

As of the date of this report,  we have completed  remediation  efforts and have
implemented   additional   measures  to  address  the  aforementioned   material
weaknesses, including the following:

      >>    Hired a new President of the Company's mortgage banking division and
            established a direct  reporting line to the Executive Vice President
            and Director of Retail Banking;

      >>    Changed  the  oversight  and  supervision  of  the  operational  and
            accounting  personnel in the mortgage  banking  division through the
            establishment of a direct reporting line to the Company's  President
            and Chief Executive Officer and Chief Financial Officer;

      >>    Centralized  and  realigned  certain  areas  of  responsibility  and
            functions previously handled within the mortgage banking division;

      >>    Instituted  increased  segregation  of duties  controls  within  the
            Company's mortgage banking division; and

      >>    Examined the methods in which  internal  controls were  circumvented
            and developed measures to strengthen such controls; and

      >>    Implemented   additional  monitoring  controls,   including  certain
            analytical  procedures  and  additional  oversight  of the  mortgage
            banking division.

In  addition,  the  individual  directly  responsible  for the  omission  of the
repurchase agreement obligation, including the related interest expense thereon,
and an overstatement  of mortgage banking revenues was terminated  subsequent to
December 31, 2007 and prior to the identification of the material weaknesses.

We will continue to evaluate the  effectiveness  of our remediation  process and
the actions taken to date as summarized  above. In addition,  certain  completed
remediation  efforts  are  subject to testing for  operating  effectiveness  and
further evaluation by our Internal Audit and Risk Management Departments, and by
our Independent Registered Public Accounting Firm.


                                       47
<PAGE>

Our President and Chief Executive  Officer and our Chief Financial  Officer have
evaluated the  effectiveness  of our  "disclosure  controls and  procedures" (as
defined in Rules  13a-15(e) and 15d-15(e)  under the Securities  Exchange Act of
1934, or the Exchange  Act), as of the end of the period covered by this report.
Based on such  evaluation,  our  President and Chief  Executive  Officer and our
Chief Financial  Officer have concluded that, as of the end of such period,  the
Company's  disclosure  controls and  procedures  are not effective in recording,
processing,  summarizing and reporting, on a timely basis,  information required
to be disclosed by the Company in the reports that it files or submits under the
Exchange Act as a result of the material  weaknesses  outlined above.  Under the
direction of our President and Chief  Executive  Officer and our Chief Financial
Officer,  we are further  evaluating our disclosure  controls and procedures and
internal control over financial reporting,  including  modifications to controls
currently planned and being implemented,  with the intent to fully remediate the
material weaknesses in our internal control over financial reporting.


                           PART II - OTHER INFORMATION

                           ITEM 1 - LEGAL PROCEEDINGS

CFHI  Securities  Litigation.  Prior to  acquisition  by First  Banks,  CFHI and
certain of its present and former  officers  were named as  defendants  in three
purported class action  complaints filed in the United States District Court for
the Middle District of Florida, Tampa Division (the "Court") alleging violations
of the federal  securities  laws, the first of which was filed with the Court on
March 20, 2007 (the "Securities  Actions").  On June 22, 2007, the Court entered
an order pursuant to which the Court (i)  consolidated  the Securities  Actions,
with the matter  proceeding  under the docket for Grand Lodge of Pennsylvania v.
                                                  ------------------------------
Brian P. Peters, et al., Case No.  8:07-cv-429-T-26-EAJ  and (ii) appointed Troy
-----------------------
Ratcliff  and  Daniel  Altenburg  (the  "Lead  Plaintiffs")  as lead  plaintiffs
pursuant to the provisions of the Private  Securities  Litigation  Reform Act of
1995.

Subsequent to the disposition of certain preliminary motions filed by plaintiffs
and  defendants,  on  April  2,  2008,  the Lead  Plaintiffs  and an  additional
plaintiff,  St. Denis J. Villere & Co., LLC, filed a second consolidated amended
class action complaint (the "Amended Complaint"). The Amended complaint names as
defendants (i) certain former officers and members of CHFI's board of directors,
(ii) the underwriters of CFHI's October 5, 2005 public offering of common stock,
and (iii) CFHI's external auditors.

The Amended Complaint was brought on behalf of a putative class of purchasers of
CFHI's common stock  between  January 21, 2005 and January 22, 2007. In general,
the Amended  Complaint  alleges  that  CFHI's SEC filings and public  statements
contained    misstatements    and   omissions    regarding    its    residential
construction-to-permanent lending operations and, more specifically, regarding a
home  builder  and  its  affiliates  and  also  alleges  that  CFHI's  financial
statements violated U.S. generally accepted accounting  principles.  The Amended
Complaint  asserts claims under Sections 11 and 15 of the Securities Act of 1933
and Sections  10(b) and 20(a) of the  Securities  Exchange Act of 1934, and Rule
10b-5 promulgated thereunder.

On  or  about   September  26,  2008,   CFHI  and  the  plaintiffs   reached  an
agreement-in-principle for the settlement of the Securities Actions. Pursuant to
the  agreement-in-principle,  CFHI  and  its  insurer  will  pay  an  amount  in
settlement of the claims, and CFHI, the former officer and director  defendants,
and the  underwriter  defendants  will be released and dismissed  with prejudice
from the action.  Under the proposed  terms,  the  Company's  allocation  of the
settlement  amount  is  $750,000,  and was  recorded  as  other  expense  in the
consolidated  statement of operations  for the three months ended  September 30,
2008.  CFHI  and the  plaintiffs  are in the  process  of  preparing  definitive
documentation  formalizing  the settlement  and defining its terms.  Among other
terms and  conditions,  the  settlement  is subject to approval by the Court and
will not be consummated if the Court fails to grant approval.  The timing of any
final  settlement  cannot be  determined  at this time as it remains  subject to
final negotiations and approval by the Court.

As further  described  in  Management's  Discussion  and  Analysis of  Financial
Condition  and Results of  Operations,  the Company and First Bank have  entered
into  informal  agreements  with the Federal  Reserve  Bank of St. Louis and the
Missouri Division of Finance.


                             ITEM 1A - RISK FACTORS

In addition  to the risk  factors  described  in  Amendment  No. 1 to our Annual
Report on Form 10-K for the year ended December 31, 2007 and Quarterly Report on
Form  10-Q  for the  period  ended  March  31,  2008,  we have  identified  four
additional risk factors,  described below, that readers of this Quarterly Report
on Form 10-Q should consider in conjunction with the other information  included
in this Quarterly  Report on Form 10-Q,  including  Management's  Discussion and
Analysis of Financial  Condition and Results of Operations and our  consolidated
financial statements and the related notes thereto.


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<PAGE>

There  Can  Be  No  Assurance  That  The  Recently  Enacted  Emergency  Economic
Stabilization  Act of 2008 Will Help  Stabilize The U.S.  Financial  System.  On
October 3, 2008,  President  Bush signed  into law the EESA.  The  Treasury  and
banking  regulators are implementing a number of programs under this legislation
to address capital and liquidity  issues in the banking system.  There can be no
assurance,  however,  as to the  actual  impact  that the EESA  will have on the
financial markets, including the extreme levels of volatility and limited credit
availability  currently  being  experienced.  The  failure  of the  EESA to help
stabilize  the  financial  markets and a  continuation  or  worsening of current
financial market  conditions could materially and adversely affect our business,
financial condition, results of operations and our access to credit and capital.

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

Current Levels of Market  Volatility Are  Unprecedented.  The capital and credit
markets  have  been  experiencing  volatility  and  disruption  for more than 12
months. In recent weeks, the volatility and disruption has reached unprecedented
levels.  If current  levels of market  disruption  and  volatility  continue  or
worsen, there can be no assurance that we will not experience an adverse effect,
which may be  material,  on our ability to access  capital and on our  business,
financial condition and results of operations.

Current  Market  Developments  May Adversely  Affect Our Industry,  Business And
Results Of Operations.  Dramatic declines in the housing market during the prior
year,  with falling home prices and increasing  foreclosures  and  unemployment,
have  resulted  in   significant   write-downs  of  asset  values  by  financial
institutions,  including  government-sponsored entities and major commercial and
investment banks. These write-downs, initially of mortgage-backed securities but
spreading to credit default swaps and other  derivative  securities  have caused
many financial institutions to seek additional capital, to merge with larger and
stronger  institutions and, in some cases, to fail. Reflecting concern about the
stability of the financial markets generally and the strength of counterparties,
many lenders and institutional investors have reduced, and in some cases, ceased
to provide  funding to borrowers  including other  financial  institutions.  The
resulting lack of available credit,  lack of confidence in the financial sector,
increased  volatility in the  financial  markets and reduced  business  activity
could  materially  and adversely  affect our business,  financial  condition and
results of operations.

The  Company  and First Bank have  entered  into  informal  agreements  with the
Federal  Reserve  Bank of St.  Louis and the  Missouri  Division of Finance.  As
further described in Management's Discussion and Analysis of Financial Condition
and Results of Operations, the Company and First Bank have entered into informal
agreements with the Federal Reserve Bank of St. Louis and the Missouri  Division
of Finance (the  "Regulatory  Agreements").  Although the Company cannot predict
what the  impact  of not  complying  with the  Regulatory  Agreements  would be,
failure  to  comply  could  have a  material  adverse  effect  on the  Company's
financial condition,  results of operations and cash flows.  Furthermore,  under
the Regulatory Agreements, the Company and First Bank must receive approval from
the relevant agency prior to paying any dividends on its capital stock or making
any interest  payments on the  Company's  outstanding  subordinated  debentures.
Although the Company has received approval to make its next regular dividend and
interest payments,  our ability to make subsequent payments depends on the prior
approval of the appropriate regulatory agency.

                                ITEM 6 - EXHIBITS

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

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

                31.1        Rule 13a-14(a) / 15d-14(a)  Certifications  of Chief
                            Executive Officer - filed herewith.

                31.2        Rule 13a-14(a) / 15d-14(a)  Certifications  of Chief
                            Financial Officer - filed herewith.

                32.1        Section  1350   Certifications  of  Chief  Executive
                            Officer - filed herewith.

                32.2        Section  1350   Certifications  of  Chief  Financial
                            Officer - filed herewith.


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<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.

Date: November 13, 2008

                       FIRST BANKS, INC.

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

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


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